<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-24769
CLARK/BARDES HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 52-2103926
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
2121 SAN JACINTO, SUITE 2200
DALLAS, TEXAS 75201-7906
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (214) 871-8717
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock, all
of which comprise a single class with a $0.01 par value, as of August 13, 1999,
the latest practicable date, was 9,628,749.
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TABLE OF CONTENTS
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PAGE
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PART I-FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed consolidated balance sheets at June 30, 1999 3
and December 31, 1998
Condensed consolidated statements of income for the three 4
months and six months ended June 30, 1999 and
1998
Condensed consolidated statements of cash flows for the 5
three months and six months ended June 30, 1999
and 1998
Notes to condensed consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market 27
Risk
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 28
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 34
EXHIBITS 35
Index to Exhibits
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLARK/BARDES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 10,302 $ 12,102
Account and notes receivable-net 9,644 8,076
Other current assets 351 59
-------- --------
20,297 20,237
EQUIPMENT AND LEASEHOLD IMPROVEMENTS-NET 3,105 1,178
INTANGIBLE ASSETS-NET 81,948 45,209
DEFERRED TAX ASSET 422 607
OTHER ASSETS 1,278 262
-------- --------
TOTAL ASSETS $107,050 $ 67,493
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,953 $ 2,925
Commissions and fees payable 3,827 2,634
Income taxes 1,856 528
Accrued liabilities 4,811 2,651
Current portion of long term debt 6,212 4,344
-------- --------
19,659 13,082
LONG TERM DEBT 32,012 24,713
STOCKHOLDERS' EQUITY
Preferred stock
Authorized-1,000,000 shares; $.01 par value
none issued
Common stock 96 82
Authorized-20,000,000 shares; $.01 par value Issued and
outstanding-8,202,535 at December 31, 1998 and 9,628,749
at June 30, 1999
Paid in capital 48,988 26,274
Retained earnings 6,295 3,342
-------- --------
TOTAL STOCKHOLDERS' EQUITY 55,379 29,698
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $107,050 $ 67,493
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
CLARK/BARDES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------- ----------------------
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TOTAL REVENUE $ 29,714 $ 15,230 $ 53,776 $ 28,984
Commission and fee expense 13,033 9,071 27,216 18,203
-------- -------- -------- --------
Net Revenue 16,681 6,159 26,560 10,781
-------- -------- -------- --------
OPERATING EXPENSES
General and administrative 12,202 5,029 18,457 8,400
Amortization 1,152 221 1,772 442
Put warrants (non-recurring) -- 5,300 -- 5,300
-------- -------- -------- --------
13,354 10,550 20,229 14,142
-------- -------- -------- --------
OPERATING INCOME (LOSS) 3,327 (4,391) 6,331 (3,361)
INTEREST
Income 95 93 158 168
Expense (1,013) (882) (1,577) (1,804)
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES 2,409 (5,180) 4,912 (4,997)
Income taxes 970 14 2,005 14
-------- -------- -------- --------
NET INCOME (LOSS) $ 1,439 $ (5,194) $ 2,907 $ (5,011)
======== ======== ======== ========
PER SHARE
Basic earnings (loss) $ .16 $ (1.61) $ .34 $ (1.56)
======== ======== ======== ========
Diluted earnings (loss) $ .16 $ (1.61) $ .33 $ (1.56)
======== ======== ======== ========
Dividends $ -- $ .08 $ -- $ .13
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
CLARK/BARDES HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FROM OPERATING ACTIVITIES-NET $ 5,141 $ 2,989 $ 7,994 $ 5,743
INVESTING ACTIVITIEs
Purchase of businesses (30,990) (1,500) (38,494) (1,500)
Purchases of equipment-net (2,116) (46) (2,177) (66)
Other (621) 264 (953) 89
-------- -------- -------- --------
(33,727) (1,282) (41,624) (1,477)
-------- -------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings 27,724 -- 52,724 --
Repayments of borrowings (15,237) -- (43,535) (1,450)
Proceeds from issuance of common stock 22,641 301 22,641 301
Dividends -- (265) -- (434)
Other -- (161) -- (161)
-------- -------- -------- --------
35,128 (125) 31,830 (1,744)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 6,542 1,582 (1,800) 2,522
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 3,760 4,723 12,102 3,783
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 10,302 $ 6,305 $ 10,302 $ 6,305
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
CLARK/BARDES HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Clark/Bardes
Holdings, Inc. (CBH) and its wholly-owned subsidiary, Clark/Bardes, Inc. (CBI).
CBI 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. CBI 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, CBI provides
long-term administrative services for executive benefits and insurance and
provides compensation consulting services.
Initial Public Offering - On August 19, 1998, CBH completed an initial public
offering of 4,000,000 shares of Common Stock at a price of $9 per share. The net
proceeds to CBH after deducting underwriting discounts and commissions and
offering expenses were $31.7 million and were applied as follows: (a) $1.0
million in partial payment of the 8.5% Medium Term Notes, (b) $4.9 million to
extinguish warrants under the 11% Second Priority Senior Secured Notes, (c)
$13.5 million to consummate the acquisition of Schoenke and Associates, and (d)
$4.0 million to acquire Wiedemann & Johnson Company. CBI applied the remaining
proceeds to pay approximately $7.5 million to the Wamberg Organization for the
purchase of renewal revenue on January 4, 1999 (Note 2), and $800,000 for
general corporate purposes, including working capital.
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, including
normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant Company and Subsidiary annual
report on Form 10-K for the year ended December 31, 1998.
Reorganization - In connection with an initial public offering, Clark/Bardes
Holdings, Inc. (CBH) and Clark/Bardes, Inc., (CBI) both Delaware corporations,
were formed in June 1998. CBH was formed to be the holding company of CBI and is
not engaged in any business. CBI was formed to be the operating company of CBH.
On July 10, 1998, CBI's Board of Directors approved a reorganization agreement
between Clark/Bardes, Inc., a Texas Corporation (the Predecessor Company) and
CBI (the Successor Company) which provided for a two step merger resulting in
the Predecessor Company merging with and into CBI resulting in each stockholder
of the Predecessor Company receiving one-half of one share of common stock for
each share of Predecessor Company common stock held by such stockholder, and
contemplated a series of transactions, including: (i) a restructuring of
Clark/Bardes' 10.5% Senior Secured Notes due August 2002 and 11.0% Second
Priority Senior Secured Notes due August 2004, (ii) the conversion of
Clark/Bardes' $4.8 million aggregate principal amount of 8.5% Convertible
Subordinated
6
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Notes due September 2007 into 813,560 shares of common stock, at $5.90 per
share, (iii) the extinguishment by Clark/Bardes of warrants representing the
right to purchase 1,525,424 shares of Common Stock, (iv) a purchase of renewal
revenue due to Mr. Wamberg and The Wamberg Organization under the Principal
Office Agreement between Clark/Bardes and Mr. Wamberg, (v) the incorporation of
a Texas entity formed for the purpose of marketing certain insurance products
within the state of Texas and (vi) the termination by its terms of the Second
Amended and Restated Stockholders' Agreement among the Predecessor Company and
each of the existing stockholders.
The Merger was consummated prior to the initial public offering, and was treated
for accounting purposes as a reorganization of entities under common control
utilizing historical cost which is similar to a pooling of interests.
Termination of S Corporation Status and Stockholder Distribution - Upon the
consummation of the Reorganization described above, CBI ceased to be taxed as an
S corporation and became subject to federal and state income taxation as a C
corporation. As an S corporation, CBI's income, whether or not distributed, was
taxed directly to the stockholders for federal and certain state income tax
purposes. At August 1, 1998, the effective date of change in tax status, CBI
recorded deferred taxes on its balance sheet for the difference between the tax
bases and book bases of its assets and liabilities.
In connection with the termination of the S corporation status, on July 10, 1998
the Board of Directors of the Predecessor Company declared a dividend to the
stockholders of record on July 31, 1998 in an amount equal to $3.3 million, or
$1.00 per share, which was paid on July 31, 1998.
2. ACQUISITION OF MCG/HEALTHCARE
On April 5, 1999, CBI purchased the assets and business and assumed certain
liabilities of Phynque, Inc., d/b/a Management Compensation Group/HealthCare, a
Minnesota corporation, for a purchase price of $35.9 million consisting of:
(i) a cash payment of $13.8 million;
(ii) a promissory note for $8.7 million;
(iii) 326,363 shares of common stock, having an aggregate value of $5.3
million based on the closing price of the common stock on April 5,
1999;
(iv) the direct payment of $3.6 million for certain outstanding loans;
(v) the assumption of $4.2 million of liabilities and $310,000 of
closing costs.
The purchase price was determined by an arm's length negotiation among the
parties. The assets acquired include cash, receivables and operating assets in
addition to all intangible assets, intellectual property, files pertaining to
customers, computer software and systems and related licenses. The liabilities
assumed include commissions payable, accrued employee benefits and operating
expenses. The $17.4 million cash portion of the purchase price was funded by a
borrowing under CBI's existing credit facility. The promissory note is payable
in thirty-two equal quarterly installments of principal and interest at 10% per
annum of $430,000 commencing on April 5, 2000. The promissory note is secured by
a personal guarantee of W. T. Wamberg, Chairman of Clark/Bardes.
MCG/HealthCare is a 180 employee executive benefit consulting organization
servicing the healthcare industry. MCG/HealthCare is headquartered in
Minneapolis, Minnesota. Prior to the acquisition described above, there was no
material relationship between CBI and MCG/HealthCare.
The unaudited pro forma information below presents the results of CBI and
MCG/HealthCare as if the acquisition had occurred on January 1, 1998:
7
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Pro forma:
Revenues $ 29,714 $ 21,874 $ 59,534 $ 42,299
Net income (loss) $ 1,439 $ (5,386) $ 1,288 $ (5,170)
Diluted earnings (loss) per share $ .16 $ (1.58) $ .14 $ (1.46)
</TABLE>
3. PRIVATE PLACEMENT
On June 7, 1999, CBH sold 1,000,000 shares of common stock to Conning Insurance
Capital Partnership V, L. P. for $17 million in a private placement transaction.
The proceeds from this sale will be used for debt reduction and acquisitions.
4. ACQUISITION OF NATIONAL INSTITUTE FOR COMMUNITY BANKING
On May 18, 1999, CBH National Institute for Community Banking (NICB) by merging
it with and into CBH. Each share of NICB common stock was converted into CBH
common stock on a ratio of 39.697 of CBH for each share of NICB for a total of
484,303 shares of CBH common stock. By agreement, the effective date of the NICB
acquisition was January 1, 1999.
Of the total, 99,851 shares were issued at the closing and 384,452 shares are
issuable upon attaining stipulated revenue and income goals over the four year
period 1999 to 2002. No other consideration was given. The value of the shares
received by the selling shareholders was $1.6 million based on CBH's closing
price of $16 on May 18, 1999. Any shares issued will be accounted for as
additional consideration based on their value at the time of issuance.
5. PURCHASE OF RENEWAL REVENUE FROM THE CHAIRMAN
On January 4, 1999, CBI purchased the right to receive approximately 27.5% of
the commission and fee revenue, prior to deduction of servicing costs, related
to renewal revenue due under the Principal Office Agreement with the Chairman of
CBH, W. T. Wamberg and The Wamberg Organization, for a cash payment of $7.5
million. This transaction allows CBI to receive approximately $14.2 million over
a ten year period. Under the agreement, CBI will receive all of the revenue due
under the Principal Office Agreement retaining an amount equal to the total sum
purchased. CBI recorded the purchase of this revenue stream as an asset in the
amount of the consideration given which will be amortized using the units of
revenue method over the term of the agreement.
6. NEW CREDIT FACILITY
In January 1999, CBI negotiated a $65 million senior credit facility and issued
$25 million of floating rate debt fixed for the first year at 7.08%, (the
one-year London InterBank Offered Rate plus 2%) under that facility. Principal
and interest are payable quarterly beginning March 31, 1999. The $25 million
proceeds were used to retire existing long term debt. The credit facility
contains certain restrictive covenants requiring mandatory prepayments under
certain conditions, financial reporting and compliance certificates, maintenance
of financial ratios, restrictions on guarantees and additional indebtedness,
limitations on mergers and acquisitions, prohibition of cash dividends,
limitation on investments, loans, and advances, and changes in control.
Coincident with the credit facility and floating rate agreement, CBI has entered
into two interest rate swap agreements with a bank affiliated with the lending
group to fix the interest rates. The first agreement will
8
<PAGE> 9
go into effect on July 6, 1999 and fixes the interest rate at 5.76% (plus 2%)
on $15 million of the debt. The second agreement goes into effect on January 18,
2000 and fixes the rate at 5.29% (plus 2%) on $15 million of the debt.
CBI incurred $400,000 of costs in connection with the refinancing. These costs
have been capitalized and are reflected in Other Assets in the balance sheet at
March 31, 1999 and are being amortized over the life of the debt.
7. ACQUISITION OF SCHOENKE
On September 1, 1998 CBI acquired substantially all of the assets, and business
of Schoenke & Associates Corporation and Schoenke & Associates Securities
Corporation based in Germantown, Maryland. The Schoenke Companies specialize in
designing and administering benefit programs for companies. CBI accounted for
the acquisition as a purchase and has included the operating results of the
Schoenke Companies in the financial statements commencing from the acquisition
date.
The purchase price was $17.0 million plus related expenses of approximately
$98,000. The purchase price was comprised of $15.0 million in cash and a
promissory note in the principal amount of $2.0 million. CBI allocated
approximately $768,000 of the purchase price to tangible assets acquired and the
remaining $16.3 million was allocated to the net present value of estimated
future profits embedded in the existing in force book of business.
The unaudited pro forma information below presents the results of CBI and
Schoenke combined as if the acquisition had occurred January 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Pro forma:
Revenues $ 29,714 $ 16,644 $ 53,776 $ 32,222
Net income (loss) $ 1,439 $ (5,706) $ 2,907 $ (5,198)
Diluted earnings (loss) per share $ .16 $ (1.77) $ .33 $ (1.61)
</TABLE>
9
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8. SEGMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1999
------------------------------------------------------------------
CLARK/ BANK CLARK/ HEALTHCARE
BARDES, COMPENSATION BARDES OF COMPENSATION
INC. STRATEGIES WASHINGTON, DC STRATEGIES TOTALS
-------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external clients $14,778 $ 7,795 $ 1,239 $ 5,902 $ 29,714
Segment profit 2,459 1,066 178 629 4,326
Segment assets 28,593 29,227 15,785 33,023 106,628
</TABLE>
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
CLARK/ BANK CLARK/ HEALTHCARE
BARDES, COMPENSATION BARDES OF COMPENSATION
INC. STRATEGIES WASHINGTON, DC STRATEGIES TOTALS
-------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external clients $ 8,655 $ 6,575 - - $ 15,230
Segment profit 172 737 - - 909
Segment assets 9,091 26,468 - - 35,559
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1999
------------------------------------------------------------------
CLARK/ BANK CLARK/ HEALTHCARE
BARDES, COMPENSATION BARDES OF COMPENSATION
INC. STRATEGIES WASHINGTON, DC STRATEGIES TOTALS
-------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external clients $31,877 $13,264 $ 2,733 $ 5,902 $ 53,776
Segment profit 5,554 1,016 761 629 7,960
Segment assets 22,120 30,795 15,785 37,928 106,628
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998
------------------------------------------------------------------
CLARK/ BANK CLARK/ HEALTHCARE
BARDES, COMPENSATION BARDES OF COMPENSATION
INC. STRATEGIES WASHINGTON, DC STRATEGIES TOTALS
-------- ------------ -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external clients $17,188 $11,796 -- -- $ 28,984
Segment profit 617 1,324 -- -- 1,941
Segment assets 9,091 26,468 -- -- 35,559
</TABLE>
A reconciliation of total external revenues for reportable segments to total
consolidated revenues and total segment profits (loss) to consolidated income
before taxes is as follows:
10
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues
Total external revenues for reportable segments $ 29,714 $ 15,230
-------- --------
Total consolidated revenues $ 29,714 $ 15,230
======== ========
Profit and (Loss)
Total profit for reportable segments $ 4,326 $ 909
Unallocated amounts:
Corporate overhead (999) --
Put warrants (non-recurring) -- (5,300)
Interest-net (918) (789)
-------- --------
Income before taxes $ 2,409 $ (5,180)
======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues
Total external revenues for reportable segments $ 53,776 $ 28,984
-------- --------
Total consolidated revenues $ 53,776 $ 28,984
======== ========
Profit and (Loss)
Total profit for reportable segments $ 7,960 $ 1,941
Unallocated amounts:
Corporate overhead (1,629) --
Put warrants (non-recurring) --
(5,300)
Interest-net (1,419) (1,636)
-------- --------
Income (loss) before taxes $ 4,912 $ (4,997)
======== ========
</TABLE>
A reconciliation of total assets for reportable segments with total consolidated
assets at June 30, 1999 and December 31, 1998 is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
-------- ------------
<S> <C> <C>
Total assets $106,628 $ 66,886
Deferred tax asset 422 607
-------- --------
Total consolidated assets $107,050 $ 67,493
======== ========
</TABLE>
11
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9. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share. (Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss) $ 1,439 $ (5,194)
Effect of dilutive securities:
Interest on convertible debt (net of tax) -- *
----------- -----------
Numerator for diluted earnings per share $ 1,439 $ (5,194)
=========== ===========
Denominator:
Denominator for basic earnings per share
weighted-average shares 8,827,666 3,222,275
Effect of dilutive securities:
Stock options 222,941
Convertible debt -- *
----------- -----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 9,050,607 3,222,275
=========== ===========
Basic earnings (loss) per share $ .16 $ (1.61)
=========== ===========
Diluted earnings (loss) per share $ .16 $ (1.61)
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net income (loss) $ 2,907 $ (5,011)
Effect of dilutive securities:
Interest on convertible debt (net of tax) -- *
----------- -----------
Numerator for diluted earnings per share $2,907 $ (5,011)
Denominator:
Denominator for basic earnings per share
weighted-average shares 8,516,827 3,222,143
Effect of dilutive securities:
Stock options 222,563 --
Convertible debt -- *
----------- -----------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 8,739,390 3,222,143
=========== ===========
Basic earnings (loss) per share $ .34 $ (1.56)
=========== ===========
Diluted earnings (loss) per share $ .33 $ (1.56)
=========== ===========
</TABLE>
*The effect of options and convertible debt at June 30, 1998 have not been
included as such effects would be antidilutive.
12
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10. SIGNIFICANT RISKS AND UNCERTAINTIES
Federal tax laws create certain advantages for the purchase of life insurance
products by individuals and corporations; therefore the life insurance products
underlying the benefit programs marketed by the Company are vulnerable to
adverse changes in tax legislation. 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 limitation
rule that applied to all business-owned life insurance except for policies
placed on employees, officers, directors and 20 percent owners.
In 1998, the Administration proposed eliminating the "employee, officer, and
director" exception to the interest limitation rule as a part of its budget
proposal. Congress adjourned its 1998 legislative session without taking action
on the Administration's proposal. In February 1999, the Administration budget
once again contained a proposal to expand the disallowance rule to policies
covering employees, officers and directors. If such a proposal were to be
enacted, it would significantly reduce the attractiveness of business-owned life
insurance to companies that traditionally have high debt/equity ratios such as
banks. While CBI believes there is insufficient support in Congress at this time
to enact such a change, CBI is unable to predict the outcome of any such
legislative proposal by the current or any future Congress. CBI believes, at the
very least, any such proposal would fully grandfather existing business.
11. SUBSEQUENT EVENT
POSSIBLE ACQUISITIONS
CBH, through its wholly owned subsidiary, CBI, is in active stages of
negotiations for three potential acquisitions. The aggregate purchase prices
could be approximately $42.4 million, subject to change. If consummated, payment
of the purchase price would be approximately $17.9 million cash at closing and
CBH common stock valued at $4.0 million.
In addition, the proposed terms contemplate payment of $20.5 million to the
sellers of the target companies upon the attainment of stipulated levels of
revenue.
These non-binding discussions and the consummation of the acquisition(s) are
subject to CBH's ongoing review of the target companies, execution of
definitive purchase agreements, and the satisfaction of certain conditions,
including the approvals of CBH's board of directors, the board of directors of
the target companies and the consent of CBH lenders, among others. Accordingly,
CBH can give no assurance that the acquisitions will be completed and, if so, on
the terms described above.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Tables shown in Dollars in Millions, Except Per Share Amounts)
OVERVIEW
We reported net income of $1.4 million, or $.16 per diluted share, for the
second quarter of 1999 and net income of $2.9 million, or $.33 per diluted
share, for the six month period ended June 30, 1999. In 1998, we reported a net
loss of $5.2 million or $1.61 per diluted share, for the second quarter and a
loss of $5.0 or $1.56 per diluted share, for the six month period ended June 30,
1998.
Our results for the second quarter as well as the six month period ended June
30, 1998 were adversely impacted by a non-recurring operating charge of $5.3
million to reflect a fair value adjustment for put warrants previously issued to
certain note holders. These warrants were redeemed in the third quarter of 1998
for $4.8 million. Had this $5.3 million non-tax deductible charge not occurred,
net income for the second quarter of 1998 would have been $106,000 or $.03 per
diluted share and for the six month period ended June 30, 1998, net income would
have been $289,000 or $.09 per common share.
ACQUISITIONS
National Institute for Community Banking
On May 18, 1999, we acquired National Institute for Community Banking (NICB),
which by agreement, was effective January 1, 1999. The acquisition was
consummated by merging NICB into us with the NICB shareholders receiving 99,851
shares of our common stock at the closing. As part of the agreement, the former
NICB shareholders will receive an additional 384,452 shares of our common stock
as consideration upon achieving certain stipulated revenue and income goals
during the years 1999 through 2002. Acquisition expenses were approximately
$77,000. NICB was acquired as an addition to our BCS division.
Management Compensation Group/HealthCare
On April 5, 1999, we purchased the assets and business and assumed certain
liabilities of Phynque, Inc., d/b/a Management Compensation Group/HealthCare for
a purchase price of $35.9 million consisting of the following:
(1) a cash payment of $13.8 million;
(2) a promissory note for $8.7 million;
(3) 326,363 shares of common stock, having an aggregate value of $5.3
million based on the closing price of the common stock on April 5,
1999;
(4) the direct payment of $3.6 million for certain outstanding loans; and
(5) the assumption of $4.2 million of liabilities and payment of
approximately $310,000 of closing costs.
The assets acquired included cash, receivables and operating assets in addition
to all intangible assets, and intellectual property. The liabilities assumed
included commissions payable, accrued employee benefits and operating expenses.
The $17.4 million cash portion of the purchase price was funded by a borrowing
under our existing credit facility. The promissory note is payable in thirty-two
equal quarterly installments of principal and interest at 10% per annum of
$430,000 starting April 5, 2000. The promissory note is secured by a personal
guarantee from W. T. Wamberg, Chairman of Clark/Bardes, Inc. MCG/Healthcare is a
180 employee executive benefit consulting organization servicing the healthcare
industry and is headquartered in Minneapolis, Minnesota.
The acquisition of MCG/Healthcare marked our entrance into the healthcare and
not-for-profit executive benefit and compensation plan business.
14
<PAGE> 15
For the periods prior to the acquisition, MCG had revenue and net income as
follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SIX MONTHS ENDED SEPTEMBER 30,
MARCH 31, ---------------------
1999 1998 1997
---------------- -------- --------
(Unaudited) (Audited)
(in thousands)
<S> <C> <C> <C>
Revenue $ 10,986 $ 26,000 $ 21,939
Net income (loss) $ (1,696) $ 1,816 $ 379
</TABLE>
MCG was an S corporation and, accordingly, did not pay federal income taxes.
The unaudited pro forma information below presents our results of operations and
that of MCG combined as if the acquisition had occurred on January 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Pro forma:
Revenues $ 29,714 $ 21,874 $ 59,534 $ 42,299
Net income (loss) $ 1,439 $ (5,386) $ 1,288 $ (5,170)
Diluted earnings (loss) per share $ .16 (1.58) $ .14 (1.46)
</TABLE>
Wiedemann & Johnson
Effective November 1, 1998, we acquired substantially all the assets and the
business of Wiedemann & Johnson, based in Dallas, Texas. The total purchase
price was $6.0 million, consisting of $4.0 million in cash and 142,857 shares of
our common stock at $14 per share. Acquisition related expenses were
approximately $54,000. We allocated approximately $40,000 of the purchase price
to tangible assets and the remainder to the net present value of Wiedemann's
expected future revenue. Wiedemann is engaged in the business of the design,
implementation and administration of non-qualified executive benefits programs
financed through life insurance. Our primary objective in acquiring the assets
and business of Wiedemann was to expand our client and revenue base and retain
the experienced Wiedemann support and administrative personnel.
Schoenke & Associates
On September 1, 1998, we purchased substantially all of the assets and business
of Schoenke & Associates Corporation and Schoenke & Associates Securities
Corporation in Germantown, Maryland. The Schoenke companies specialize in
designing and administering benefit programs for companies. The purchase price
was $17.0 million plus expenses of $98,000 and was comprised of $15.0 million in
cash and a promissory note in the principal amount of $2.0 million. CBI
allocated approximately $768,000 of the purchase price to tangible assets
acquired and the remaining $16.2 million was allocated to the net present value
of estimated future profits embedded in the existing inforce book of business.
15
<PAGE> 16
For the periods prior to being acquired by us, Schoenke's revenues and net
income were:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, ---------------------
1998 1997 1996
---------------- -------- --------
(Unaudited) (Audited)
(in thousands)
<S> <C> <C> <C>
Revenue $ 3,237 $ 6,465 $ 5,835
Net income $ 98 $ 492 $ 194
</TABLE>
Schoenke was an S corporation and, accordingly, did not pay federal income
taxes.
The unaudited pro forma information below presents the results of CBI and
Schoenke combined as if the acquisition had occurred January 1, 1998.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Pro forma:
Revenues $ 29,714 $ 16,645 $ 53,776 $ 32,222
Net income (loss) $ 1,439 $ (5,706) $ 2,907 $ (5,198)
Diluted earnings (loss) per share $ .16 (1.77) $ .33 (1.61)
</TABLE>
The Schoenke and Wiedemann acquisitions were valuable additions to the
Clark/Bardes divisions core business.
Bank Compensation Strategies
Effective September 1, 1997, we acquired substantially all the assets and the
business of Bank Compensation Strategies, Inc., a Minnesota based company, for a
total purchase price equal to $24.0 million, plus acquisition related expenses
of $383,000. This was our first major acquisition and marked our entry into the
community bank benefit and compensation market.
Renewal Revenue Assets
On January 4, 1999, we purchased the right to receive approximately 27.5% of the
commission and fee revenue, prior to deduction of servicing costs, related to
renewal revenue of the inforce policies on June 30, 1998, due under the
Principal Office Agreement with the Chairman of CBH, W. T. Wamberg and The
Wamberg Organization, for a cash payment of $7.5 million. This transaction
allows us to receive approximately $14.2 million over a ten year period. We
recorded this purchase as an asset which will be amortized using the units of
revenue method over the term of the agreement.
PRIVATE PLACEMENT WITH CONNING
On June 7, 1999, we completed a private placement of 1,000,000 shares of our
common stock at $17 per share to Conning Insurance Capital Limited Partnership
V, L. P. (Conning). Conning is a limited partnership managed by a subsidiary of
Conning Corporation. As part of the private placement, we granted Conning
registration rights which they may use to have their shares of our common stock
registered along with any shares we may be registering with the SEC. In
addition, we granted Conning the right to make two demands for registration
after December 31, 2000.
We also agreed to appoint one representative of Conning to our board of
directors. Conning designated Steven F. Piaker, Senior Vice President of
Conning, to be that representative. We further agreed that, when Mr. Piaker's
term expires, we would use our best efforts to elect a Conning representative to
our board of directors. Proceeds of the $17 million sale of our common stock are
being used to reduce outstanding debt and for acquisitions.
POSSIBLE ACQUISITION
We have entered into negotiations to acquire the business and substantially all
the assets of three unrelated, privately owned companies. The aggregate proposed
purchase prices would be approximately $42.4 million, subject to change. If
consummated, payment of the purchase prices would be
16
<PAGE> 17
approximately $17.9 million cash at closing and the issuance of common stock
having an agreed upon value of approximately $4.0 million.
In addition, the proposed terms call for the payment of $20.5 million in cash
upon the attainment of stipulated levels of revenue over a five year period.
These non-binding discussions and the consummation of the acquisition(s) are
subject to our ongoing review of the target companies, execution of a definitive
purchase agreements, and the satisfaction of certain conditions, including the
approvals of our board of directors, the boards of directors of the target
companies and the consent of our leaders, among others. Accordingly,
Clark/Bardes can give no assurance that the acquisitions will be completed and,
if so, on the terms described above.
GENERAL AMERICAN LIFE INSURANCE COMPANY
One of the insurance carriers we use is General American which represented
approximately 8.3% of renewal revenues for the six month period ending June 30,
1999. Following a downgrade of General American Life Insurance Co.'s financial
strength by Moody's Investors Service Inc. and downgrade of General American's
debt to non-investment grade in August 1999, investors began exercising their
rights to withdraw a total of $6.8 billion under short-term funding agreements,
commonly referred to as guaranteed investment contracts, issued by General
American. The contracts require only seven days' notice and General American,
faced with the unexpected volume of withdrawal requests, was unable to convert
the assets within the time frame required. As a result, General American has
been placed under administrative supervision by the Department of Insurance of
the state of Missouri. While the contracts held by our clients are not the
specific investment contracts that created General American's liquidity
problems, our clients are nonetheless affected because insurance policies
underwritten by General American will be restricted from making policy
surrenders or exchanges until General American liquidity problem is resolved.
We do not expect to sell programs going forward which are financed by insurance
policies underwritten by General American. If General American is forced into
receivership or some form of reorganization, it is possible our clients who
hold General American policies may not realize the full values of their
policies and we may be forced to accept less favorable renewal commission terms
with another insurance carrier in order for the insurance carrier to agree to
assume the policies. In addition, these events could cause a slowdown in new
sales of programs which are financed by policies underwritten by other
insurance companies or our persistency rate could be adversely affected by more
clients choosing to surrender their policies. We are not able to predict the
effect that General American's illiquidity and state supervision will have on
the persistency of policies underwritten by other insurance carriers. General
American's illiquidity and resulting administrative supervision by the Missouri
Department of Insurance could adversely affect our renewal fees and commissions
and our persistency levels in general. No assurance can be given that similar
financial difficulties will not be experienced by other insurance companies.
REVENUE
Our operating units derive their revenue primarily from:
o commissions paid by the insurance companies that underwrite the policies
underlying the various insurance programs;
o fees paid by clients in connection with program design and administrative
services;
o executive compensation program and benefit consulting fees.
Our revenue is usually long term and recurring, and is typically paid annually
and extends over a period of ten years or more after a 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 our program. We
recognize 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.
We include first year commission revenue, renewal commission revenue and other
revenue in total revenue.
17
<PAGE> 18
o First Year Commission Revenue. First year revenue is recognized 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.
o Renewal Commission Revenue. Renewal revenue is recognized on the date that
the renewal premium is due to the insurance company. Renewal revenue in
future periods, which is not recognized on our balance sheet, is estimated
to be approximately $239 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, we have experienced a persistency rate of approximately
95% of the inforce insurance underlying our programs. We can give no
assurances that our persistency rate will remain at this level.
o Other Revenue. Other revenue consists of several miscellaneous sources of
revenue associated with our operations including consulting and
administrative fees.
QUARTERLY RESULTS
The following table sets forth unaudited statements of income for the most
recent eight calendar quarters. Such information is not necessarily indicative
of results for any full year or for any subsequent period.
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue $ 11,009 $ 27,162 $ 13,754 $ 15,230 $ 17,641 $ 28,141 $ 24,057 $ 29,714
Commission expense 7,138 18,027 9,132 9,071 11,052 16,856 14,183 13,033
-------- -------- -------- -------- -------- -------- -------- --------
Net revenue 3,871 9,135 4,622 6,159 6,589 11,285 9,874 16,681
General and administrative 2,887 4,004 3,371 5,029 4,613 6,594 6,255 12,202
Amortization -- 295 221 221 356 434 620 1,152
Put warrants -- -- -- (5,300) 500 -- -- --
Income (loss) before taxes $ 888 $ 3,942 $ 185 $ (5,180) $ 1,576 $ 3,841 $ 2,503 $ 2,409
Net Income $ 888 $ 3,942 $ 185 $ (5,194) $ 2,382 $ 2,218 $ 1,468 $ 1,439
Earnings (loss) per
share: (1)
Basic $ 0.20 $ 1.27 $ 0.06 $ (1.61) $ 0.44 $ 0.27 $ .18 $ .16
Diluted $ 0.20 $ 1.03 $ 0.06 $ (1.61) $ 0.39 $ 0.27 $ .17 $ .16
</TABLE>
(1) Earnings (loss) per share to June 30, 1998 reflects income before taxes
less our liability for state taxes only. No provision for federal income
taxes has been made in those periods because we elected to be treated as an
S corporation for federal income tax purposes.
Our operating results can fluctuate considerably, especially when compared on a
consecutive quarterly basis. Because our programs are usually implemented late
in the year, we see large increases in both first year and renewal revenue in
the fourth quarter. Operating results are also affected by a number of other
factors, including:
o introduction of new or enhanced programs and services by us or our
competitors;
o client acceptance or rejection of new programs and services;
o program development expenses;
o timing of major sales;
o demand for administrative services;
o competitive, legislative and regulatory conditions in our industry; and
o general economic conditions.
Many of these factors are beyond our control. For example, the sales cycles of
our Clark/Bardes Division last between twelve and eighteen months, with first
year revenue coming from a few large cases and subject to a number of factors
beyond our control. Our revenue is thus difficult to forecast, and we believe
that comparing our consecutive quarterly results of operations is not
necessarily meaningful, nor does it indicate what results
18
<PAGE> 19
we will achieve for any subsequent period. In our business, past operating
results are not a reliable indicator of future performance.
RESULTS OF OPERATIONS
The following table sets forth the relationship between revenues and expenses on
a percentage basis:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Total Revenue 100.0% 100.0% 100.0% 100.0% 100.0%
Commission expense 63.3 65.6 61.6 62.8 50.6
----- ----- ----- ----- -----
Net revenue 36.7 34.4 38.4 37.2 49.4
----- ----- ----- ----- -----
General and administrative 25.9 23.3 26.3 28.9 34.3
Amortization -- 0.6 1.6 1.5 3.3
Non recurring operating expense -- -- 6.4 18.3 --
----- ----- ----- ----- -----
Income (loss) from operations 10.9 10.5 4.1 (11.5) 11.8
Interest income 0.4 0.4 0.8 .6 .2
Interest expense 0.0 (2.2) (4.2) (6.2) (2.9)
----- ----- ----- ----- -----
Income (loss) before taxes 11.2 8.7 0.7 (17.1) 9.1
Income taxes 0.5 0.1 1.3 .1 3.7
----- ----- ----- ----- -----
Net income (loss) 10.7% 8.6% (0.7)% (17.2)% 5.4%
===== ===== ===== ===== =====
</TABLE>
REVENUE
Revenues increased in all categories for both the second quarter and six months
ended June 30, 1999, over the comparable periods for 1998. Revenue for the
quarter increased $14.5 million, or 95%, of which $5.9 million came from our
recent acquisition of MCG/HealthCare, now called HealthCare Compensation
Strategies (HCS). Without HCS, second quarter revenues would have increased $8.7
million, or 57%, over the same period of 1998. Similarly, revenue for the six
months ended June 30, 1999, increased $24.8 million, 86% or over last year.
Without HCS, revenues would have increased by $18.9 million or 65.0% over the
six month period ended June 30, 1998.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
----------------- -----------------
FOR THE PERIOD ENDED JUNE 30, 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
First year revenue:
Clark/Bardes $ 7.9 $ 2.9 $ 16.3 $ 4.5
Bank Compensation Strategies 5.7 5.3 9.5 9.3
HealthCare Compensation Strategies 3.7 -- 3.7 --
------- ------- ------- -------
17.3 8.2 29.5 13.8
Renewal revenue
Clark/Bardes 7.6 5.7 17.4 12.7
Bank Compensation Strategies 2.1 1.3 3.8 2.4
HealthCare Compensation Strategies 2.2 -- 2.1 --
------- ------- ------- -------
11.9 7.0 23.3 15.1
Other .5 -- 1.0 .1
------- ------- ------- -------
Total $ 29.7 $ 15.2 $ 53.8 $ 29.0
======= ======= ======= =======
</TABLE>
First Year Revenue
The most significant source of increased revenue for both the second quarter and
six month periods ended June 30, 1999 has been in the sales of bank-owned life
insurance. During the last six months, the Clark/Bardes division closed a number
of large bank-owned life insurance cases. As the leader in the large case
bank-owned life insurance business, this aspect of our business is now beginning
to realize the benefits of our business development efforts.
19
<PAGE> 20
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 - 1998 INCREASE
- --------------------------------------------------------------------------------
<S> <C> <C>
Second Quarter $ 9.1 111.0%
Six Months $ 15.7 113.8%
- --------------------------------------------------------------------------------
</TABLE>
Renewal Revenue
As in the case of first year revenue, the Clark/Bardes Division's bank-owned
life insurance revenue accounted for a significant percentage of our renewal
revenue:
o 64.0% for the second quarter
o 75.0% for the six month period - June 30, 1999
of our renewal revenue.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1999 - 1998 INCREASE
- --------------------------------------------------------------------------------
<S> <C> <C>
Second Quarter $ 4.8 68.6%
Six Months $ 8.2 54.3%
- --------------------------------------------------------------------------------
</TABLE>
As we continue to grow and sell more diverse products, bank-owned life insurance
will become less significant as can be seen from the following table of inforce
renewal revenue:
PROJECTED GROSS INFORCE REVENUE
JUNE 30, 1999
<TABLE>
<CAPTION>
Bank Healthcare
Clark Compensation Compensation
Year Bardes Strategies Strategies Total
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
2000 $ 40,342 $ 8,537 $ 7,864 $ 56,743
2001 37,806 4,573 7,828 50,207
2002 36,037 3,348 7,689 47,074
2003 33,388 3,418 7,572 44,377
2004 29,538 3,457 7,292 40,287
2005 29,054 3,497 6,885 39,436
2006 29,008 3,539 6,550 39,097
2007 27,044 3,584 6,214 36,842
2008 24,957 3,629 5,499 34,085
2009 22,208 3,676 4,663 30,547
-------- -------- -------- --------
Total $309,382 $ 41,259 $ 68,054 $418,695
======== ======== ======== ========
</TABLE>
These projected gross revenues are based on the beliefs and assumptions of
management and are not necessarily indicative of the revenues that may actually
be achieved in the future.
20
<PAGE> 21
COMMISSION EXPENSE AND NET REVENUE
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
FOR THE PERIOD ENDED JUNE 30, 1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Commission and fee expense $ 13.1 $ 9.1 $ 27.2 $ 18.2
Net revenue $ 16.7 $ 6.2 $ 26.6 $ 10.8
Revenue retained ratio 56.1% 40.7% 49.4% 37.2%
</TABLE>
While increases in commission expense and net revenue closely correlated with
increases in gross revenue, one of our most important operating factors is
revenue retained. This is the amount of revenue we keep to pay expenses and
finance our ongoing operations.
Our revenue retained ratio increased 37.8% in the second quarter and 24.6%
during the six months ended June 30, 1999. Three factors have contributed to
this improvement:
o the acquisition of MCG HealthCare;
o a higher volume of first year revenue coming from internal sales efforts;
o larger first year carrier commissions.
<TABLE>
<CAPTION>
Net Revenue
- --------------------------------------------------------------------------------
1999 - 1998 INCREASE
- --------------------------------------------------------------------------------
<S> <C> <C>
Second Quarter $ 10.5 170.8%
Six Months $ 15.8 146.3%
- --------------------------------------------------------------------------------
</TABLE>
GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
------------ ----------
FOR THE PERIOD ENDED JUNE 30, 1999 1998 1999 1998
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Clark/Bardes $ 4.0 $ 3.8 $ 7.7 $ 6.1
Bank Compensation Strategies 3.1 1.2 5.1 2.3
Healthcare Compensation Strategies 4.1 -- 4.1 --
Corporate overhead 1.0 -- 1.6 --
--------- ------- ------- -------
$ 12.2 $ 5.0 $ 18.5 $ 8.4
========= ======= ======= =======
As a percentage of retained revenue:
Clark/Bardes 56.8% 96.1% 51.6% 91.1%
Bank Compensation Strategies 70.6% 56.0% 77.9% 56.2%
Healthcare Compensation Strategies 78.6% -- 78.6% --
Total 73.1% 81.6% 69.5% 77.9%
</TABLE>
There are a number of factors that caused period to period increases in our
operating expenses. The most significant were:
o business expansion-our business grew and became more complex as we
continued to serve a larger and more diverse client base. Fundamentally,
this means more people were needed to support this expanding volume of
cases;
o acquisitions-with the increase in revenue there was an increase in
overhead.
The most important factor to consider, however, is that the rate of expense
increase remains lower than the increase in the rate of revenue retained in the
business. By way of comparison for the periods:
21
<PAGE> 22
<TABLE>
<CAPTION>
INCREASE
--------
$ %
------- -----
<S> <C> <C>
Period ended June 30, 1999
Quarter
Net revenue $ 10.5 169.4%
Operating expenses 7.2 144.0
Six months
Net revenue $ 15.8 146.3%
Operating expenses 10.1 120.2
</TABLE>
<TABLE>
<CAPTION>
General and Administrative Expenses
- --------------------------------------------------------------------------------
1999 - 1998 INCREASE
- --------------------------------------------------------------------------------
<S> <C> <C>
Second Quarter $ 7.2 144.0%
Six Months $ 10.1 120.2%
- --------------------------------------------------------------------------------
</TABLE>
OTHER EXPENSES
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
FOR THE PERIOD ENDED JUNE 30, 1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Amortization of intangibles $ 1.1 $ .2 $ 1.8 $ .4
Nonrecurring operating expense $ -- $ 5.3 $ - $ 5.3
Interest expense - net $ .9 $ .8 $ 1.4 $ 1.6
Federal income taxes $ 1.0 $ -- $ 2.0 $ --
</TABLE>
Amortization: Amortization expense increased $931.000 million for the three
month period and $1.3 million for the six month period ended June 30, 1999,
reflecting a full quarter and six months of amortization for the Schoenke and
Wiedemann acquisitions in 1998 as well as the MCG and NICB acquisitions in the
second quarter of 1999.
Nonrecurring operating expense: In accordance with accounting rules, we
recognized, as an expense, the increased market value of certain put warrants
related to our debt. These warrants were redeemed in a later period for $4.8
million and the cost is not deductible for federal income tax purposes.
Interest Expense - net - Net interest costs increased $93,000 or 16.3% in the
second quarter but were $217,000 or 13.3% lower for the six months ended June
30, 1999. Two factors contributed to this:
o lower average monthly borrowings for the first six months of 1999.
o lower interest costs resulting from the new Bank One Texas credit
facility starting January 1, 1999.
With increased borrowings as a result of our acquisition program, these costs
may be expected to increase in subsequent quarters.
Federal income taxes: Prior to July 1, 1998, we were an S corporation for
federal income tax purposes. In this manner, all income was deemed to be earned
directly by the shareholders and, as a consequence, was taxed directly to them.
In connection with our initial public offering, we became a C corporation for
federal income tax purposes. Our tax rate reflects both federal and state income
taxes and adjustments caused by the timing difference of revenue and expense
recognition.
22
<PAGE> 23
FINANCIAL CONDITION AND LIQUIDITY
We continue to generate strong cash flow from earnings. We use the net cash from
our operations and external financing to fund capital expenditures and small
acquisitions. While our current ratio was approximately one-to-one at June 30,
1999 compared to 1.6 to one at December 31, 1998, we believe that our strong
cash flow will be sufficient to fund capital requirements and all obligations as
they become due. We expect that large future acquisitions will be financed
primarily through externally available funds. However, we can offer no assurance
that such funds will be available and, if so, on terms acceptable to us.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999 1998 CHANGE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from (used in):
Operating activities $ 8.0 $ 5.7 $ 2.3
Investing activities (41.6) ( 1.5) (40.1)
Financing activities 31.8 (1.7) 33.5
</TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES
Our cash from operations improved during the first six months of 1999 compared
with the same period of 1998. The increased cash from operations consisted
primarily of two factors:
o Cash flow from earnings (net income plus non-cash charges) was $5.0 million
in 1999 compared with $5.6 million in 1998. However, it should be noted
that no income taxes were paid in 1998.
o Working capital contributed $3.0 million, primarily the result of timing of
paying liabilities.
CASH USED IN INVESTING ACTIVITIES
Acquisitions accounted for $38.5 million of the $41.6 million used in investing
activities. The balance was comprised of $2.2 million for purchase of equipment
and $1.0 million for various non-current assets such as deferred debt expenses
($400,000) and artwork acquired with MCG ($617,000).
Cash spending for acquisitions included:
o MCG/HealthCare $ 29.5
o Assets from The Wamberg Organization $ 7.5
We expect acquisitions to continue for the remainder of the year and be financed
primarily from the available credit lines and possibly additional equity.
However, we can offer no assurances such will be the case.
CASH FLOWS FROM FINANCING ACTIVITIES
In January 1999 we entered into a $65.0 million credit agreement consisting of a
$35 million revolving credit facility and two term loans of $25 million and $5
million. In January 1999 we used $25 million of the term loans to retire
existing debt. The loan is at a fixed rate of 7.08% for the first year and at a
floating rate based on the London Interbank Offered Rate plus 2% thereafter. The
loan matures on December 31, 2004 with interest and principal payable quarterly
starting March 31, 1999. The credit agreement contains restrictive covenants
which, among other things, require mandatory prepayments under certain
conditions, financial reporting and compliance certificates, maintenance of
financial ratios, restrictions on guarantees and additional indebtedness,
limitations on mergers and acquisitions, prohibition of cash dividends,
limitation on investments, loans, and advances, and certain change in control
provisions. Since restructuring our debt, we have drawn down on the new line for
$44 million of which $25 million was used to repay the old debt and $19.0
million for acquisitions. Since then, $18.5 of the acquisition debt has been
repaid.
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<PAGE> 24
In June, we sold 1,000,000 shares of common stock to Conning Insurance Capital
Limited Partnership V, L. P. for $17 million in a private placement.
Approximately $12 million was used to pay down the Bank One Texas acquisition
debt.
We believe that our net cash flow from operations will continue to provide
sufficient funds to service our debt obligations. We estimate renewal revenue in
future periods, which is not reflected on our balance sheet, to represent
approximately $239 million over the next five years. However, renewal revenue
can be adversely affected by policy surrenders or exchanges, material contract
changes, asset growth and case mortality rates.
As our business grows, our working capital and capital expenditures requirements
will also continue to increase. We believe that net cash flows from operations
will be sufficient to finance our debt payments, working capital and capital
expenditures for the next twelve months. There can be no assurance, however,
that the net cash flows from operations will be sufficient to meet our
anticipated requirements or that we will not require additional debt or equity
financing within this time frame. We may continue to issue stock to finance
future acquisitions
MARKET RISK
We are exposed to various types of market risk in the normal course of our
business, including the impact of interest rate changes and changes in corporate
tax rates. Specifically, a portion of our Bank One Texas credit line bears
interest at the floating London Interbank Offered Rate (LIBOR). We employ risk
management strategies, including the use of derivatives such as interest rate
swap agreements, to manage those exposures. We do not hold derivatives for
trading purposes.
It is our policy to enter into interest rate swap transactions only to the
extent necessary to achieve our desired objectives of limiting our exposures to
the various market risks discussed above. We do not hedge our market risk
exposure in a manner that would completely eliminate the impact of changes in
interest rates on our net income. We do not expect that our results of
operations or liquidity will be materially affected by these risk management
strategies.
Coincident with entering into credit facility and term loan agreements, we have
entered into two interest rate swap agreements with a bank affiliated with the
lending group to fix the interest rates. The first agreement went into effect on
July 6, 1999 and fixes the interest rate at 5.76% (plus 2%) on $15 million of
the debt. The second agreement goes into effect on January 18, 2000 and fixes
the rate at 5.29% (plus 2%) on $15 million of the debt.
INFLATION
Inflation has not had a material effect on our results of operations. Certain of
our expenses, such as compensation, benefits and capital equipment costs, are
subject to normal inflationary pressures. However, the majority of our 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 rates.
OTHER MATTERS
YEAR "2000" UPDATE
The year 2000 issue is the result of computer programs written using two digits
rather than four digits to define "date" fields. Information systems have time
sensitive operations that, as a result of this date field limitation could
disrupt activities in the normal business cycle.
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<PAGE> 25
State of Readiness
Based on previous and ongoing internal reviews, we believe we have identified
all potential hardware and software that may not function properly with respect
to dates in the year 2000 and thereafter. We are continuing our assessment of
year 2000 issues and taking steps to prevent these issues from adversely
affecting our future operating results. This process includes, but is not
limited to, the following:
o We reviewed all our software and systems to determine what was not year
2000 compatible and we are upgrading any that were not compliant.
o We contacted all of our major suppliers and vendors to determine if they
had a plan in place to become Y2K compliant, and what problems we might
expect if they would not be.
o We contacted all our suppliers and providers in areas such as employee
benefit plan carriers, office supplies and equipment providers, building
facilities managers or providers of elevators and utilities for their plans
to become Y2K compliant and to report on their progress.
o We have reviewed all internal office machines to ensure they will be
compatible, such as fax machines, copiers, the security system, the phone
system, etc.
o We have contacted all our carriers and providers of client-related policies
and services to determine their plans to become Y2K compliant, and to
report on their progress, so we could be assured our clients would receive
seamless service.
This assessment and readiness process has been completed and we will continue to
focus on specific issues.
In our assessment of year 2000 issues, we are specifically focusing on our
software applications and associated software products, hardware, facilities,
communications equipment and security systems. Our proprietary financial
modeling and administrative systems that support our insurance-financed employee
benefit programs were designed to be year 2000 ready. During 1998, we upgraded
our network software to be year 2000 compliant.
In addition;
o We have completed upgrades to most of our hardware, with the last of our
hardware upgrades scheduled to be complete by the end of September 1999.
o We have completed upgrades to most of our software with the balance
scheduled to be complete by the end of September 1999.
o We have completed upgrades to our telephone and security systems within the
last year to make them compliant. All office equipment is now 100%
compliant.
o Major suppliers, vendors and carriers have provided us written statements
assuring us that they are or will be year 2000 compliant by the end of
1999.
Third Party Issues
In addition to evaluating our own systems for year 2000 compliance, we have
communicated with and requested information from our important clients and
carriers to determine the extent to which interfaces with such entities are
vulnerable to year 2000 issues and the extent to which the internal systems of
such entities are vulnerable to year 2000 issues. Third parties that have
relationships with us, 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 us,
we presently believe that year 2000 issues will not require us to incur any
material costs and do not pose significant operational problems. However, we are
not able to determine the extent to which such third parties, such as insurance
companies and clients, may experience year 2000 issues. Any year 2000 problem of
either us or third parties that have relationships with us could have a material
adverse effect on our business, results of operations and financial condition.
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<PAGE> 26
Costs
Our costs, as of June 30, 1999, related to the Year 2000 compliance efforts
total approximately $300,000. Total costs associated with our year 2000
readiness process, consisting of both internal and external resources, are
expected to range between $350,000 and $400,000. We anticipate funding these
costs with cash generated from operations.
Continuing Plan
We believe our own systems and software, as well as all internal office
equipment, will be replaced or upgraded to be 100% Y2K compliant before year end
and we believe our vendors and suppliers are actively working to achieve the
same results. However, we cannot make the same assertion with respect to our
clients or carriers.
In the event a problem occurs that is out of our control, we have developed a
contingency plan along the following lines:
o MIS and Corporate Services (facilities) staff members will be working the
weekend of December 31 to January 2 to monitor systems and facilities
conditions immediately as of January 1, 2000.
o To protect our systems from data loss due to any power surges, we will shut
them down the evening of December 31, 1999. We will then power them back up
the morning of January 1, 2000.
o We will run one last back up on December 31, 1999 to ensure we have all
data from the close of the last business day backed up and saved off site
so we can recreate all systems and data if we lose our systems altogether.
o We keep hard copies of all documents sent to clients and carriers, and our
carriers have copies of most of the paperwork. Therefore, we can recreate
our activity through that paper trail.
o We can also use that paper trail to prove when documents, checks or other
information was sent to carriers, clients or banks so we can provide proof
of when a document or check should have been received and calculate and
charge back for any impact the delay of a deposit, etc., would have on a
client's account balance or premium value.
o We have numerous staff members who have remote access to our systems so we
could get at our systems and data remotely if we have any problem getting
into our office. In addition, we store all documents that have already been
imaged, as well as all back up tapes of our data at an offsite location
which we could also access in the event we could not gain access to our
office.
RECENT ACCOUNTING PRONOUNCEMENTS
- --------------------------------------------------------------------------------
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS No.
128 specifies the computation, presentation and disclosure requirements for
earnings per share for entities with publicly-held common stock. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997 and has been adopted by us and is presented in the
accompanying financial statements.
As of January 1, 1998, we adopted SFAS No. 130 "Reporting Comprehensive Income."
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this statement had no
impact on our net income or shareholders' equity. We have no other comprehensive
income as defined by SFAS No. 130 as of December 31, 1997 or December 31, 1998.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 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.
The adoption of this statement will have no impact on our
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<PAGE> 27
financial condition or results of operations. This statement has been adopted by
us and is presented in the accompanying financial statements.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Form 10-Q and the documents incorporated by reference in this Form may
contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. When used in this Form 10-Q, words such as
"anticipate," "believe," "estimate," "expect," "intend," "predict," "project,"
and similar expressions, as they relate to us or our management, identify
forward-looking statements. Such forward-looking statements are based on the
beliefs and assumptions of our management as well as information currently
available to us. These forward-looking statements are subject to certain risks,
uncertainties and assumptions, including but not limited to the following:
o risks associated with changes in tax legislation
o dependence on key producers and services of key personnel
o dependence on persistency of existing business
o credit risk related to renewal revenue
o acquisition risks
o risks related to significant intangible assets
o dependence on certain insurance companies
o dependence on information processing systems and risk of error or
omissions
o competitive factors and pricing pressures
o risks posed by the year 2000 date change
o changes in legal and regulatory requirements and general economic
conditions
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Such forward-looking statements
reflect our current views 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. All subsequent written and
oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In January 1999, CBI entered into a $65 million credit agreement consisting of a
$35 million revolving credit facility and two term loans of $25 million and $5
million. In January 1999, pursuant to the credit agreement, Clark/Bardes
obtained a term loan for $25 million at a fixed rate of 7.08% for the first year
and at a floating rate based upon the one-year London InterBank Offered Rate
plus 2% thereafter. The term loans are represented by secured promissory notes
maturing December 31, 2004. Principal and interest are payable quarterly
beginning March 31, 1999. The $25.0 million proceeds were used to retire
previously issued debt.
Coincident with the credit facility and floating rate agreements, CBI has
entered into two interest rate swap agreements with a bank affiliated with the
lending group to fix the interest rates. The first agreement will go into effect
on July 6, 1999 and fixes the interest rate at 5.76% (plus 2%) on $15 million of
the debt. The second agreement goes into effect on January 18, 2000 and fixes
the rate at 5.29% (plus 2%) on $15 million of the debt.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The 1999 Annual Meeting of Stockholders of the Company (the "Meeting")
was held on April 27, 1999.
(b) Melvin G. Todd and George D. Dalton were each elected to serve as a
director at the Meeting for a term of three years. The terms of office
as directors of W.T. Wamberg, Lawrence H. Hendrickson, Randolph A.
Pohlman, and L. William Seidman continued after the Meeting.
(c) Melvin G. Todd was elected to serve as a director until the Company's
2002 annual meeting of stockholders according to the following votes:
For: 6,361,742 Against or withheld: 569,000
Abstentions: 0 Broker non-votes: 0
George D. Dalton was elected to serve as a director until the Company's
2002 annual meeting of stockholders according to the following votes:
For: 6,361,742 Against or withheld: 569,000
Abstentions: 0 Broker non-votes: 0
The appointment by the Board of Directors of Ernst & Young LLP as the
independent auditors of the Company's financial statements for the year
ended December 31, 1999 was ratified according to the following votes:
For: 6,922,542 Against or withheld: 5,900
Abstentions: 2,300 Broker non-votes: 0
(d) None.
<PAGE> 29
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 - Reorganization Agreement, by and among Clark/Bardes, Inc., Clark/
Bardes, Inc. and the Predecessor Company (Incorporated herein by
reference to Exhibit 2.1 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
2.2 - Letter of Intent, dated May 29, 1998, from Clark/Bardes, Inc. and
the Schoenke Companies (Incorporated herein by reference to Exhibit
2.2 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
2.3 - Asset Purchase Agreement, dated September 5, 1997, among
Clark/Bardes, Inc., Bank Compensation Strategies, Inc., et al.
(Incorporated herein by reference to Exhibit 2.3 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
2.4 - Letter of Understanding, dated October 1, 1998, by and between
Clark/Bardes Holdings, Inc and the Wiedemann & Johnson Company
(Incorporated herein by reference to Exhibit 10 of Clark/Bardes'
Quarterly Report on Form 10-Q, File No. 000-24769, filed with the SEC
on November 16, 1998).
2.5 - Asset Purchase Agreement, dated September 18, 1998, with Schoenke &
Associates Corporation, Schoenke & Associates Securities Corporation
and Raymond F. Schoenke, Jr. (Incorporated herein by reference to
Exhibit 2.2 of Clark/Bardes' Current Report on Form 8-K, File No.
000-24769, filed with the SEC on October 2, 1998).
2.6 - Asset Purchase Agreement, dated November 16, 1998, by and among
Clark/Bardes, Inc., Clark/Bardes, Inc., Wiedemann & Johnson Company,
Bruce Hlavacek and Jennie Hlavacek (Incorporated herein by reference
to Exhibit 2.6 of Clark/Bardes' Annual Report on Form 10-K, File No.
000-24769, filed with the SEC on March 31, 1999).
2.7 - Asset Purchase Agreement, dated April l5, 1999, by and among
Clark/Bardes, Inc., Clark/Bardes Holdings, Inc., Phynque, Inc., and
certain shareholders of Phynque, Inc. (Incorporated herein by
reference to Exhibit 2.1 of Clark/Bardes' Current Report on Form 8-K,
File No. 000-24769, filed with the SEC on April 20, 1999).
*2.8 - Agreement and Plan of Reorganization, dated May 18, 1999, by and among
Clark/Bardes Holdings, Inc., NICB Agency, Inc., and David Shuster,
Lynn High, Kathy Smith, and Kelly Earls
3.1 - Certificate of Incorporation of Clark/Bardes, Inc. (Incorporated
herein by reference to Exhibit 3.1 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799, filed with the SEC on July
12, 1998).
3.2 - Bylaws of Clark/Bardes, Inc. (Incorporated herein by reference to
Exhibit 3.2 of Clark/Bardes' Registration Statement on Form S-1, File
No. 333-56799, filed with the SEC on July 12, 1998).
3.3 - Certificate of Amendment (Incorporated herein by reference to
Exhibit 3.3 of Clark/ Bardes' Registration Statement on Form S-1, File
No. 333-56799).
3.4 - Certificate of Designation (Incorporated herein by reference to
Exhibit 3.4 of Clark/ Bardes' Registration Statement on Form S-1, File
No. 333-56799).
*3.5 - Certificate of Merger of NICB Agency, Inc. and Clark/Bardes
Holdings, Inc.
4.1 - Specimen Certificate for shares of Common Stock, par value $.01 per
share, of Clark/ Bardes Holdings, Inc. (Incorporated herein by
reference to Exhibit 4.1 of Clark/Bardes' Amendment No. 1 to the
Registration Statement on Form S-1, File No. 333-56799, filed with the
SEC on July 27, 1998).
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<PAGE> 30
4.2 - Rights Agreement, dated as of July 10, 1998, by and between
Clark/Bardes, Inc. and The Bank of New York (Incorporated herein by
reference to Exhibit 4.4 of Clark/Bardes' Quarterly Report on Form
10-Q, File No. 000-24769, filed with the SEC on November 16, 1998).
10.1 - Clark/Bardes, Inc. 1998 Stock Option Plan (Incorporated herein by
reference to Exhibit 10.1 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.2 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes Agency of Ohio, Inc. (Incorporated herein by
reference to Exhibit 10.2 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.3 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes Securities, Inc. (Incorporated herein by
reference to Exhibit 10.3 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.4 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes, Inc. of Pennsylvania (Incorporated herein by
reference to Exhibit 10.4 of Clark/Bardes Registration Statement on
Form S-1, File No. 333-56799).
10.5 - Principal Office Agreement, dated July 29, 1993, by and between W.T.
Wamberg and Clark/Bardes, Inc. (Incorporated Herein by reference to
Exhibit 10.5 of Clark/Bardes' Registration Statement on Form S-1, File
No. 333-56799).
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 (Incorporated herein by
reference to Exhibit 10.6 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.7 - Note and Warrant Purchase Agreement, dated September 8, 1997, by and
between Clark/Bardes, Inc. and Great-West, Life Investors and
Nationwide (Incorporated herein by Reference to Exhibit 10.7 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.8 - Note Agreement, dated September 8, 1997, by and between
Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.8 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.9 - Form of Common Stock Purchase Warrant, dated September 8, 1997
(Incorporated herein by reference to Exhibit 10.9 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-6799).
10.10 - Form of 11.00% Secured Priority Senior Secured Note Due August 2004
(Incorporated herein by reference to Exhibit 10.10 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.11 - Form of 10.50% Senior Secured Note Due August 2004 (Incorporated
herein by reference to Exhibit 10.11 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.12 - Convertible Subordinated Note, dated September 1997 (Incorporated
herein by reference to Exhibit 10.12 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
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<PAGE> 31
10.13 - Medium Term Note, dated September 1997 (Incorporated herein by
reference to Exhibit 10.13 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.14 - Stock Purchase Agreement, dated August 22, 1997, by and among
Clark/Bardes, Inc., Malcolm N. Briggs, Steven J. Cochlan, G.F.
Pendleton, and Don R. Teasley (Incorporated herein by reference to
Exhibit 10.14 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.15 - Stock Purchase Agreement, dated August 1997, by and among
Clark/Bardes, Inc. and Henry J. Smith (Incorporated herein by
reference to Exhibit 10.15 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.16 - Lease Agreement, dated April 24, 1998, by and between Northland
Center Limited Partnership and Clark/Bardes, Inc. (Incorporated herein
by reference to Exhibit 10.16 of Clark/Bardes' Registration Statement
on Form S-1, File No. 333-56799).
10.17 - Lease Agreement, dated December 30, 1994, by and between C-W#5,
Ltd., and Clark/Bardes, Inc. (Incorporated herein by reference to
Exhibit 10.17 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.18 - Letter of Agreement to Purchase Warrants, dated June 11, 1998, to
Nationwide (Incorporated herein by reference to Exhibit 10.18 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.19 - Letter of Agreement to Purchase Warrants, dated June 11, 1998 to
Life Investors (Incorporated herein by Reference to Exhibit 10.19 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.20 - Letter of Agreement to Purchase Warrants, dated June 11, 1998, to
Great-West (Incorporated herein by reference to Exhibit 10.20 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.21 - Phantom Stock Agreement, dated September 5, 1997, by and between
Clark/Bardes, Inc. and Steven J. Cochlan (Incorporated herein by
reference to Exhibit 10.21 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.22 - Employment Agreement, dated November 21, 1996, by and between
Clark/Bardes, Inc. and Kurt J. Laning (Incorporated Herein by
reference to Exhibit 10.22 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.23 - Employment Agreement, dated March 28, 1995, by and between
Clark/Bardes, Inc. and Keith L. Staudt (Incorporated herein by
reference to Exhibit 10.23 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.24 - Employment Agreement, dated August 23, 1993, by and between
Clark/Bardes, Inc. and Larry Sluder (Incorporated herein by reference
to Exhibit 10.24 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.25 - Employment Agreement, dated March 7, 1993, by and between
Clark/Bardes, Inc. and Ronald A. Roth (Incorporated herein by
reference to Exhibit 10.25 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.26 - Employment Agreement, dated April 15, 1991, by and between
Clark/Bardes, Inc. and Sue A. Leslie (Incorporated herein by reference
to Exhibit 10.26 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.27 - Employment Agreement, dated June 9, 1993, by and between
Clark/Bardes, Inc. and William J. Gallegos (Incorporated herein by
reference to Exhibit 10.27 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
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<PAGE> 32
10.28 - Tax Indemnity Agreement by and between Clark/Bardes Holdings, Inc.,
Clark/Bardes, Inc. and certain former Shareholders of the Predecessor
Company (Incorporated herein by reference to Exhibit 10.28 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.29 - Form of Employee Stock Purchase Plan (Incorporated herein by
reference to Exhibit 10.29 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.30 - Form of Employment Agreement, effective as of September 1, 1998, by
and between Clark/Bardes, Inc. and Robert E. Miller (Incorporated
herein by reference to Exhibit 10.30 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.31 - Form of Employment Agreement, effective as of July 1, 1998, by and
between Clark/Bardes, Inc. and Thomas M. Pyra (Incorporated herein by
reference to Exhibit 10.31 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.32 - Form of Employment Agreement, effective as of July 1, 1998, by and
between Clark/Bardes Holdings, Inc. and Melvin G. Todd (Incorporated
herein by reference to Exhibit 10.32 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.33 - Form of Commission Transfer Agreement by and between W.T. Wamberg,
The Wamberg Organization, Inc. and Clark/Bardes, Inc. (Incorporated
herein by reference to Exhibit 10.33 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.34 - Letter of Agreement, dated July 24, 1998, to Great-West, Life
Investors and Nationwide (Incorporated herein by reference to Exhibit
10.34 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
10.35 - Employment Agreement, dated September 1, 1997, by and between
Clark/Bardes, Inc. and Richard C. Chapman (Incorporated herein by
reference to Exhibit 10.35 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.36 - Put Rights Agreement, dated as of September 9, 1997, by and among
Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.38 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.37 - Participation Rights Agreement, dated as of September 9, 1997, by
and among Clark/Bardes, Inc., Great-West, Life Investors and
Nationwide (Incorporated herein by reference to Exhibit 10.39 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
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10.38 - Registration Rights Agreement, dated as of September 9, 1997, by and
among Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.40 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.39 - Form of Letter Agreement between Phoenix Home Life and Clark/Bardes
Holdings (Incorporated herein by reference to Exhibit 10.41 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.40 - Letter Agreement, dated August 14, 1998, between Nationwide and
Clark/Bardes Holdings (Incorporated herein by Reference to Exhibit
10.42 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
10.41 - Letter Agreement, dated August 14, 1998, between Great-West and
Clark/Bardes Holdings (Incorporated herein by reference to
Exhibit 10.43 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.42 - Letter Agreement, dated as of August 17, 1998, between General
American and Clark/Bardes Holdings (Incorporated herein by reference
to Exhibit 10.44 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.43 - 1998 Non-Employee Director Stock Option Plan (Incorporated herein by
reference to Exhibit 4.7 of Clark/Bardes' Registration Statement on
Form S-8, File No. 333-68163, filed with the SEC on December 1, 1998).
10.44 - Credit Agreement, dated January 15, 1999, among Clark/Bardes, Inc.,
Bank One Texas, N.A., U.S. Bank National Association, certain
financial institutions, and Banc One Capital Markets, Inc.
(Incorporated herein by reference to Exhibit 10.46 of Clark/Bardes'
Annual Report on Form 10-K, File No. 000-24769, filed with the SEC on
March 31, 1999).
10.45 - Lease Agreement, dated December 30, 1996, by and between Bellemead
Development Corporation and Schoenke & Associates Corporation
(Incorporated herein by reference to Exhibit 10.47 of Clark/Bardes'
Annual Report on Form 10-K, File No. 000-24769, filed with the SEC on
March 31, 1999).
*10.46 - Lease of office space, dated February 20, 1990, by and between T.N.S.
Northstar Associates Limited Partnership and Phynque, Inc. as
amended.
*10.47 - Form of Employment Agreement, dated April 5, 1999, by and between
Clark/Bardes, Inc. and Donald Wegmiller.
- ------------------
*filed herewith
(b) Reports on Form 8-K
Form 8-K, File No. 000-24769, filed on April 20, 1999, as amended
by Amendment No. 1, filed on June 18, 1999.
33
<PAGE> 34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLARK/BARDES HOLDINGS, INC.
/s/ MELVIN G. TODD
Date 8/16/99 --------------------------------------------------
Melvin G. Todd
President and Chief Executive Officer
/s/ THOMAS M. PYRA
Date 8/16/99 --------------------------------------------------
Thomas M. Pyra
Vice President and Chief Financial Officer
(Principal Financial Officer)
34
<PAGE> 35
EXHIBIT INDEX
(a) Exhibits
2.1 - Reorganization Agreement, by and among Clark/Bardes, Inc., Clark/
Bardes, Inc. and the Predecessor Company (Incorporated herein by
reference to Exhibit 2.1 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
2.2 - Letter of Intent, dated May 29, 1998, from Clark/Bardes, Inc. and
the Schoenke Companies (Incorporated herein by reference to Exhibit
2.2 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
2.3 - Asset Purchase Agreement, dated September 5, 1997, among
Clark/Bardes, Inc., Bank Compensation Strategies, Inc., et al.
(Incorporated herein by reference to Exhibit 2.3 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
2.4 - Letter of Understanding, dated October 1, 1998, by and between
Clark/Bardes Holdings, Inc and the Wiedemann & Johnson Company
(Incorporated herein by reference to Exhibit 10 of Clark/Bardes'
Quarterly Report on Form 10-Q, File No. 000-24769, filed with the SEC
on November 16, 1998).
2.5 - Asset Purchase Agreement, dated September 18, 1998, with Schoenke &
Associates Corporation, Schoenke & Associates Securities Corporation
and Raymond F. Schoenke, Jr. (Incorporated herein by reference to
Exhibit 2.2 of Clark/Bardes' Current Report on Form 8-K, File No.
000-24769, filed with the SEC on October 2, 1998).
2.6 - Asset Purchase Agreement, dated November 16, 1998, by and among
Clark/Bardes, Inc., Clark/Bardes, Inc., Wiedemann & Johnson Company,
Bruce Hlavacek and Jennie Hlavacek (Incorporated herein by reference
to Exhibit 2.6 of Clark/Bardes' Annual Report on Form 10-K, File No.
000-24769, filed with the SEC on March 31, 1999).
2.7 - Asset Purchase Agreement, dated April l5, 1999, by and among
Clark/Bardes, Inc., Clark/Bardes Holdings, Inc., Phynque, Inc., and
certain shareholders of Phynque, Inc. (Incorporated herein by
reference to Exhibit 2.1 of Clark/Bardes' Current Report on Form 8-K,
File No. 000-24769, filed with the SEC on April 20, 1999).
*2.8 - Agreement and Plan of Reorganization, dated May 18, 1999, by and among
Clark/Bardes Holdings, Inc., NICB Agency, Inc., and David Shuster,
Lynn High, Kathy Smith, and Kelly Earls
3.1 - Certificate of Incorporation of Clark/Bardes, Inc. (Incorporated
herein by reference to Exhibit 3.1 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799, filed with the SEC on July
12, 1998).
3.2 - Bylaws of Clark/Bardes, Inc. (Incorporated herein by reference to
Exhibit 3.2 of Clark/Bardes' Registration Statement on Form S-1, File
No. 333-56799, filed with the SEC on July 12, 1998).
3.3 - Certificate of Amendment (Incorporated herein by reference to
Exhibit 3.3 of Clark/ Bardes' Registration Statement on Form S-1, File
No. 333-56799).
3.4 - Certificate of Designation (Incorporated herein by reference to
Exhibit 3.4 of Clark/ Bardes' Registration Statement on Form S-1, File
No. 333-56799).
*3.5 - Certificate of Merger of NICB Agency, Inc. and Clark/Bardes
Holdings, Inc.
4.1 - Specimen Certificate for shares of Common Stock, par value $.01 per
share, of Clark/ Bardes Holdings, Inc. (Incorporated herein by
reference to Exhibit 4.1 of Clark/Bardes' Amendment No. 1 to the
Registration Statement on Form S-1, File No. 333-56799, filed with the
SEC on July 27, 1998).
<PAGE> 36
4.2 - Rights Agreement, dated as of July 10, 1998, by and between
Clark/Bardes, Inc. and The Bank of New York (Incorporated herein by
reference to Exhibit 4.4 of Clark/Bardes' Quarterly Report on Form
10-Q, File No. 000-24769, filed with the SEC on November 16, 1998).
10.1 - Clark/Bardes, Inc. 1998 Stock Option Plan (Incorporated herein by
reference to Exhibit 10.1 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.2 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes Agency of Ohio, Inc. (Incorporated herein by
reference to Exhibit 10.2 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.3 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes Securities, Inc. (Incorporated herein by
reference to Exhibit 10.3 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.4 - Administration and Services Agreement, by and between Clark/Bardes,
Inc. and Clark/Bardes, Inc. of Pennsylvania (Incorporated herein by
reference to Exhibit 10.4 of Clark/Bardes Registration Statement on
Form S-1, File No. 333-56799).
10.5 - Principal Office Agreement, dated July 29, 1993, by and between W.T.
Wamberg and Clark/Bardes, Inc. (Incorporated Herein by reference to
Exhibit 10.5 of Clark/Bardes' Registration Statement on Form S-1, File
No. 333-56799).
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 (Incorporated herein by
reference to Exhibit 10.6 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.7 - Note and Warrant Purchase Agreement, dated September 8, 1997, by and
between Clark/Bardes, Inc. and Great-West, Life Investors and
Nationwide (Incorporated herein by Reference to Exhibit 10.7 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.8 - Note Agreement, dated September 8, 1997, by and between
Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.8 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.9 - Form of Common Stock Purchase Warrant, dated September 8, 1997
(Incorporated herein by reference to Exhibit 10.9 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-6799).
10.10 - Form of 11.00% Secured Priority Senior Secured Note Due August 2004
(Incorporated herein by reference to Exhibit 10.10 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.11 - Form of 10.50% Senior Secured Note Due August 2004 (Incorporated
herein by reference to Exhibit 10.11 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.12 - Convertible Subordinated Note, dated September 1997 (Incorporated
herein by reference to Exhibit 10.12 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
<PAGE> 37
10.13 - Medium Term Note, dated September 1997 (Incorporated herein by
reference to Exhibit 10.13 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.14 - Stock Purchase Agreement, dated August 22, 1997, by and among
Clark/Bardes, Inc., Malcolm N. Briggs, Steven J. Cochlan, G.F.
Pendleton, and Don R. Teasley (Incorporated herein by reference to
Exhibit 10.14 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.15 - Stock Purchase Agreement, dated August 1997, by and among
Clark/Bardes, Inc. and Henry J. Smith (Incorporated herein by
reference to Exhibit 10.15 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.16 - Lease Agreement, dated April 24, 1998, by and between Northland
Center Limited Partnership and Clark/Bardes, Inc. (Incorporated herein
by reference to Exhibit 10.16 of Clark/Bardes' Registration Statement
on Form S-1, File No. 333-56799).
10.17 - Lease Agreement, dated December 30, 1994, by and between C-W#5,
Ltd., and Clark/Bardes, Inc. (Incorporated herein by reference to
Exhibit 10.17 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.18 - Letter of Agreement to Purchase Warrants, dated June 11, 1998, to
Nationwide (Incorporated herein by reference to Exhibit 10.18 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.19 - Letter of Agreement to Purchase Warrants, dated June 11, 1998 to
Life Investors (Incorporated herein by Reference to Exhibit 10.19 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.20 - Letter of Agreement to Purchase Warrants, dated June 11, 1998, to
Great-West (Incorporated herein by reference to Exhibit 10.20 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.21 - Phantom Stock Agreement, dated September 5, 1997, by and between
Clark/Bardes, Inc. and Steven J. Cochlan (Incorporated herein by
reference to Exhibit 10.21 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.22 - Employment Agreement, dated November 21, 1996, by and between
Clark/Bardes, Inc. and Kurt J. Laning (Incorporated Herein by
reference to Exhibit 10.22 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.23 - Employment Agreement, dated March 28, 1995, by and between
Clark/Bardes, Inc. and Keith L. Staudt (Incorporated herein by
reference to Exhibit 10.23 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.24 - Employment Agreement, dated August 23, 1993, by and between
Clark/Bardes, Inc. and Larry Sluder (Incorporated herein by reference
to Exhibit 10.24 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.25 - Employment Agreement, dated March 7, 1993, by and between
Clark/Bardes, Inc. and Ronald A. Roth (Incorporated herein by
reference to Exhibit 10.25 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.26 - Employment Agreement, dated April 15, 1991, by and between
Clark/Bardes, Inc. and Sue A. Leslie (Incorporated herein by reference
to Exhibit 10.26 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.27 - Employment Agreement, dated June 9, 1993, by and between
Clark/Bardes, Inc. and William J. Gallegos (Incorporated herein by
reference to Exhibit 10.27 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
<PAGE> 38
10.28 - Tax Indemnity Agreement by and between Clark/Bardes Holdings, Inc.,
Clark/Bardes, Inc. and certain former Shareholders of the Predecessor
Company (Incorporated herein by reference to Exhibit 10.28 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.29 - Form of Employee Stock Purchase Plan (Incorporated herein by
reference to Exhibit 10.29 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.30 - Form of Employment Agreement, effective as of September 1, 1998, by
and between Clark/Bardes, Inc. and Robert E. Miller (Incorporated
herein by reference to Exhibit 10.30 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.31 - Form of Employment Agreement, effective as of July 1, 1998, by and
between Clark/Bardes, Inc. and Thomas M. Pyra (Incorporated herein by
reference to Exhibit 10.31 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.32 - Form of Employment Agreement, effective as of July 1, 1998, by and
between Clark/Bardes Holdings, Inc. and Melvin G. Todd (Incorporated
herein by reference to Exhibit 10.32 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.33 - Form of Commission Transfer Agreement by and between W.T. Wamberg,
The Wamberg Organization, Inc. and Clark/Bardes, Inc. (Incorporated
herein by reference to Exhibit 10.33 of Clark/Bardes' Registration
Statement on Form S-1, File No. 333-56799).
10.34 - Letter of Agreement, dated July 24, 1998, to Great-West, Life
Investors and Nationwide (Incorporated herein by reference to Exhibit
10.34 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
10.35 - Employment Agreement, dated September 1, 1997, by and between
Clark/Bardes, Inc. and Richard C. Chapman (Incorporated herein by
reference to Exhibit 10.35 of Clark/Bardes' Registration Statement on
Form S-1, File No. 333-56799).
10.36 - Put Rights Agreement, dated as of September 9, 1997, by and among
Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.38 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.37 - Participation Rights Agreement, dated as of September 9, 1997, by
and among Clark/Bardes, Inc., Great-West, Life Investors and
Nationwide (Incorporated herein by reference to Exhibit 10.39 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
<PAGE> 39
10.38 - Registration Rights Agreement, dated as of September 9, 1997, by and
among Clark/Bardes, Inc., Great-West, Life Investors and Nationwide
(Incorporated herein by reference to Exhibit 10.40 of Clark/Bardes'
Registration Statement on Form S-1, File No. 333-56799).
10.39 - Form of Letter Agreement between Phoenix Home Life and Clark/Bardes
Holdings (Incorporated herein by reference to Exhibit 10.41 of
Clark/Bardes' Registration Statement on Form S-1, File No. 333-56799).
10.40 - Letter Agreement, dated August 14, 1998, between Nationwide and
Clark/Bardes Holdings (Incorporated herein by Reference to Exhibit
10.42 of Clark/Bardes' Registration Statement on Form S-1, File No.
333-56799).
10.41 - Letter Agreement, dated August 14, 1998, between Great-West and
Clark/Bardes Holdings (Incorporated herein by reference to
Exhibit 10.43 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.42 - Letter Agreement, dated as of August 17, 1998, between General
American and Clark/Bardes Holdings (Incorporated herein by reference
to Exhibit 10.44 of Clark/Bardes' Registration Statement on Form S-1,
File No. 333-56799).
10.43 - 1998 Non-Employee Director Stock Option Plan (Incorporated herein by
reference to Exhibit 4.7 of Clark/Bardes' Registration Statement on
Form S-8, File No. 333-68163, filed with the SEC on December 1, 1998).
10.44 - Credit Agreement, dated January 15, 1999, among Clark/Bardes, Inc.,
Bank One Texas, N.A., U.S. Bank National Association, certain
financial institutions, and Banc One Capital Markets, Inc.
(Incorporated herein by reference to Exhibit 10.46 of Clark/Bardes'
Annual Report on Form 10-K, File No. 000-24769, filed with the SEC on
March 31, 1999).
10.45 - Lease Agreement, dated December 30, 1996, by and between Bellemead
Development Corporation and Schoenke & Associates Corporation
(Incorporated herein by reference to Exhibit 10.47 of Clark/Bardes'
Annual Report on Form 10-K, File No. 000-24769, filed with the SEC on
March 31, 1999).
*10.46 - Lease of Office Space, dated February 20, 1990, by and between T.N.S.
Northstar Associates Limited Partnership and Phynque, Inc. as
amended.
*10.47 - Form of Employment Agreement, dated April 5, 1999, by and between
Clark/Bardes, Inc. and Donald Wegmiller.
*27 - Financial Data Schedule (included in SEC filed copy only).
- ------------------
*filed herewith
<PAGE> 1
EXHIBIT 2.8
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CLARK/BARDES HOLDINGS, INC.
NICB AGENCY, INC.
AND
DAVID SHUSTER, LYNN HIGH,
KATHY SMITH AND KELLY EARLS
MAY 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C> <C> <C>
1. THE MERGER AND NON-COMPETE AGREEMENTS...................................2
1.1 The Merger.....................................................2
1.2 Effective Date.................................................2
1.3 Conversion of Shares...........................................2
1.4 Contingent Merger Consideration................................2
1.5 Covenants Not to Compete.......................................7
1.6 Closing........................................................8
1.7 Closing Documents of Shareholders..............................8
1.8 Closing Documents of Holdings.................................10
1.9 Restrictions on Stock Portion.................................10
1.10 Business Prior to and Following January 1, 1999...............11
1.11 Tax Consequences..............................................11
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.........................11
2.1 Organization of the Company...................................11
2.2 Capital Stock of the Company..................................12
2.3 Ability and Authorization to Carry Out Agreement; Consents....12
2.4 Consents and Approvals........................................13
2.5 Assets Used in or Necessary for Business......................13
2.6 Compliance with Laws; Ability to Conduct Business.............13
2.7 Financial Statements..........................................14
2.8 Federal, State and Local Taxes................................15
2.9 Title to Assets...............................................16
2.10 Real Property-Owned and Leased Premises.......................16
2.11 Personal Property-Owned.......................................17
2.12 Contracts and Other Matters...................................17
2.13 Litigation....................................................18
2.14 Absence of Changes or Events..................................18
2.15 Insurance.....................................................20
2.16 Non-Affiliation...............................................20
2.17 Proprietary Rights............................................20
2.18 Major Suppliers...............................................21
2.19 Major Customers...............................................21
2.20 Liabilities and Obligations of the Company....................21
2.21 Governmental Authorizations...................................21
2.22 Environmental Protection......................................22
2.23 Minute Books and Stock Record Books...........................22
2.24 Employee Benefit Plans........................................23
2.25 No Brokers....................................................24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
2.26 Product and Warranty Claims...................................24
2.27 Labor Matters.................................................25
2.28 Accounts Receivable...........................................25
2.29 Year 2000 Problem.............................................26
2.30 Customers.....................................................26
2.31 Accuracy of Representations...................................26
3. REPRESENTATIONS AND WARRANTIES OF HOLDINGS.............................26
3.1 Organization of Holdings......................................26
3.2 Authorization of and Ability to Perform Agreement.............26
3.3 Accuracy of Representations...................................26
3.4 Shares Fully Paid and Nonassessable...........................27
3.5 No Conflicts..................................................27
3.6 Litigation....................................................27
3.7 Reports of Holdings...........................................27
3.8 No Material Adverse Change....................................28
3.9 Commission Schedule...........................................28
4. CERTAIN OTHER MATTERS..................................................28
4.1 Tax Matters...................................................28
5. CONDITIONS PRECEDENT TO HOLDINGS' OBLIGATIONS..........................28
5.1 Form Satisfactory to Holdings' Counsel........................28
5.2 Representations and Warranties; Certificates of Compliance....29
5.3 Property Not Destroyed or Business Interrupted................29
5.4 Litigation....................................................29
5.5 Changes.......................................................29
5.6 Delivery of Documents.........................................29
5.7 Notes Receivable..............................................29
5.8 Endorsements..................................................29
5.9 Termination of GenMark, Inc. Agreement........................30
5.10 Payables to Shareholders......................................30
5.11 Consents......................................................30
5.12 D&L Flyers Agreement..........................................30
5.13 Waiver........................................................30
6. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS......................30
6.1 Form Satisfactory to Shareholders' Counsel....................30
6.2 Representations and Warranties; Compliance with Conditions....30
6.3 Litigation....................................................30
6.4 Changes.......................................................31
6.5 Delivery of Documents.........................................31
6.6 D&L Flyers Agreement..........................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
6.7 Waiver........................................................31
7. TERMINATION............................................................31
8. INDEMNIFICATION........................................................31
8.1 Indemnification by the Shareholders...........................31
8.2 Indemnification by Holdings...................................32
8.3 Notice........................................................32
8.4 Defense of Claims.............................................32
8.5 Payment of Losses.............................................33
9. EXPENSES...............................................................33
9.1 Expenses of Shareholders......................................33
9.2 Expenses of Holdings..........................................33
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND AGREEMENTS.................33
11. CERTAIN COVENANTS OF PARTIES...........................................34
11.1 Information and Access........................................34
11.2 No Solicitation...............................................34
12. NOTICES................................................................34
13. ENTIRE AGREEMENT.......................................................36
14. AMENDMENTS.............................................................36
15. SPECIFIC PERFORMANCE...................................................36
16. PUBLICITY..............................................................36
17. FURTHER ASSURANCES.....................................................36
18. REMEDIES CUMULATIVE; NO WAIVER; PERSONS LIABLE.........................36
19. COUNTERPARTS; CAPTIONS; PRONOUNS.......................................37
20. PARTIES IN INTEREST....................................................37
21. APPLICABLE LAW.........................................................37
</TABLE>
iii
<PAGE> 5
SCHEDULES
Schedule 2.1 Organization Schedule
Schedule 2.2 Capitalization Schedule
Schedule 2.3 Authorization to Carry Out Agreement Schedule
Schedule 2.4 Consents Schedule
Schedule 2.5 Asset Condition Schedule
Schedule 2.6 Compliance with Laws Schedule
Schedule 2.8 Taxes Schedule
Schedule 2.9 Permitted Encumbrances Schedule
Schedule 2.10 Leased Premises Schedule
Schedule 2.11 Personal Property Schedule
Schedule 2.12(A) Contracts Schedule
Schedule 2.12(B) Leases Schedule
Schedule 2.12(C) Insurance Schedule
Schedule 2.12(D) Bank Account Schedule
Schedule 2.12(E) Permits Schedule
Schedule 2.12(F) Required Consents to Purchase Schedule
Schedule 2.12(G) Exceptions to Contracts Schedule
Schedule 2.13 Litigation Schedule
Schedule 2.14 Absence of Certain Changes Schedule
Schedule 2.15 Insurance Schedule
Schedule 2.16 Affiliate Schedule
Schedule 2.17 Proprietary Rights Schedule
Schedule 2.20 Liabilities Schedule
Schedule 2.21 Government Authorization Schedule
Schedule 2.22 Environmental Schedule
Schedule 2.27 Labor Matters Schedule
Schedule 2.28 Accounts Receivable Schedule
Schedule 3.9 Commission Schedule
Schedule 5.8 Endorsement Schedule
EXHIBITS
Exhibit A - Form of Escrow Agreement
Exhibit B - Shareholders Allocation
Exhibit C - BCS Renewal and Income Policies
Exhibit D - Form of Shuster Employment Agreement
Exhibit E - Form of High Employment Agreement
Exhibit F - Form of Smith Employment Agreement
Exhibit G - Form of Earls Employment Agreement
Exhibit H - Form of Shareholders' Counsel Opinion
Exhibit I - Form of Holdings' Counsel Opinion
Exhibit J - Form of Investment Agreement
iv
<PAGE> 6
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered into
as of May 18, 1999 by and among CLARK/BARDES HOLDINGS, INC., a Delaware
corporation ("Holdings"), NICB AGENCY, INC., a Texas corporation (the
"Company"), DAVID SHUSTER ("Shuster"), LYNN HIGH ("High"), KATHY SMITH ("Smith")
and KELLY EARLS ("Earls") (Shuster, High, Smith and Earls shall individually be
referred to as a "Shareholder" and collectively, the "Shareholders").
W I T N E S S E T H:
WHEREAS, Shareholders own in the aggregate all of the issued and
outstanding capital stock of the Company;
WHEREAS, the respective Boards of Directors of Holdings and the Company
and the Shareholders have each approved this Agreement and the consummation of
the transactions contemplated hereby and have approved the execution and
delivery of this Agreement which provides for the merger of the Company with and
into Holdings upon the terms and conditions of this Agreement (the "Merger");
WHEREAS, Holdings shall be the surviving corporation of the Merger (the
"Surviving Corporation"), and the Merger shall become effective as set forth in
Section 1 of this Agreement, and as a result of the Merger, the Shareholders
shall be entitled to receive shares of the common stock, $0.01 par value of
Holdings (the "Shares") in accordance with the terms of this Agreement in
exchange for all of the issued and outstanding shares of common stock of the
Company;
WHEREAS, it is understood by each of the parties hereto that Holdings
seeks, as a result of the Merger, to acquire the Company and all of its assets
and liabilities, subject to the terms and conditions of this Agreement, and all
parties to this Agreement will exert their best efforts to obtain such
regulatory approvals and to effect such other actions as are necessary or
appropriate to consummate the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the United States Internal Revenue Code of 1986, as amended (the "Code").
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
<PAGE> 7
1. THE MERGER AND NON-COMPETE AGREEMENTS.
1.1 The Merger. Subject to the terms and conditions of this Agreement
and the Articles of Merger, the Company shall merge with and into Holdings,
which shall be the corporation surviving the Merger, and the separate corporate
existence of the Company shall cease, all in accordance with Section 252 of the
Delaware General Corporation Law and Article 5.01 et seq of the Texas Business
Corporation Act ("TBCA"). The Certificate of Incorporation of Holdings in effect
as of the Merger Effective Date (as defined below) shall be the Certificate of
Incorporation of the Surviving Corporation and the By-Laws of Holdings in effect
as of the Merger Effective Date shall be the By-Laws of the Surviving
Corporation.
1.2 Effective Date. The Merger shall become effective upon the filing
of appropriate articles of merger and other appropriate documents with the
Delaware Secretary of State as provided in Section 252 and other applicable
sections of the Delaware General Corporation Law and the Texas Secretary of
State in accordance with Article 5.04 and 5.05 of the TBCA. The date on which
the Merger shall become effective is referred to herein as the "Merger Effective
Date."
1.3 Conversion of Shares. At and as of the Merger Effective Date, by
virtue of this Agreement, the issued and outstanding shares of common stock,
$1.00 par value, of the Company ("Company Stock") shall, by operation of law and
without any action on the part of the holders thereof, be converted into the
right to receive 39.697 Shares of Holdings ("Merger Consideration"), payable as
follows:
(a) At the Merger Effective Date and without any further action on
the part of the Shareholders, the Shareholders shall have the right to receive
99,851 fully paid and nonassessable Shares (which shall be issued and delivered
to the Shareholders in accordance with their percentage ownership in the
Company), of which the Shareholders shall deposit an aggregate of 5,970 Shares
into an escrow pursuant to that certain Escrow Agreement attached hereto as
Exhibit A.
(b) Subject to and pursuant to the terms of Section 1.4 below,
Shareholders shall have the right to receive an additional 384,452 Shares, which
shall be issued and delivered to the Shareholders in accordance with their
percentage ownership in the Company as of the Merger Effective Date ("Contingent
Merger Consideration").
1.4 Contingent Merger Consideration.
(a) Receipt of the Contingent Merger Consideration is contingent on
the department of Bank Compensation Strategies Group ("BCS") that includes the
business of the Company (the "Business"), achieving (i) certain revenue
objectives (the "Revenue Objectives") set forth in Section 1.4(b) hereof in
respect of Gross Revenue (as hereinafter defined), as determined in accordance
with this Section 1.4, generally accepted accounting principals ("GAAP"), to the
extent applicable, and in accordance with existing BCS renewal and income
policies as described on Exhibit C hereto (the "BCS Policies"), for certain
periods set forth in Section 1.4(b) hereof (the
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<PAGE> 8
"Earn-Out Years"), and certain income objectives (the "Income Objectives") as
set forth in Section 1.4(b) hereof in respect of Company Income (as hereinafter
defined) generated by the Gross Revenue, as determined in accordance with GAAP,
to the extent applicable, and in accordance with the BCS Policies. Gross Revenue
will be deemed earned for purposes of meeting the Revenue Objectives when any
fee is generated by the Business and is received by Clark/Bardes, Inc. ("CBI")
or when funds are wired to an insurance company for the purchase of a life
insurance contract.
For purposes of this Section 1.4(a), "Gross Revenue" means Engagement
Revenues (as hereinafter defined) and revenues from (i) all first year
commissions earned from the sale of life insurance to financial institutions by
Holding's or CBI's representatives, or employees, for the purposes of
implementing a Community Bankers Scholarship Program; (ii) all revenues, except
revenues in the nature of renewals or service fees related to business similar
to current business, relating to any other service performed by any Shareholder
or any other employee of the Business for a financial institution or any of its
directors, officers, shareholders or employees or any of their related interests
("Institution Related Parties"); and (iii) 15% of agent level first year
commissions for any life insurance contract sold by a representative or employee
of BCS to any financial institution or Institution Related Parties in the State
of Texas.
"Engagement Revenues" means the engagement fee paid by a financial
institution to Holdings or CBI with respect to revenues generated by the
Shareholders or any employees of the Business related to: (i) first year
commissions from the sales of all life insurance contracts after December 31,
1998; (ii) fees paid for estate planning consulting and estate planning
services; and (iii) implementation fees, set up fees, service fees and any other
fees generated by the Business from a financial institution or any of its
Institution Related Parties for ongoing administration of plans implemented by
such financial institution or any of its Institution Related Parties as a result
of such engagement which are in excess of the minimum fee schedule established
by BCS.
"Company Income" means Gross Revenue less Expenses (as hereinafter
defined) for any Earn-Out Year. "Expenses" means (i) expenses of the Business
and of a nature historically recognized as an expense by the Company in the
conduct of its business operations; (ii) royalties paid to trade associations;
(iii) fees paid pursuant to a Representative Split (as hereinafter defined) and
(iv) BCS or CBI expenses attributable to the Business up to a maximum of
$200,000 for the first Earn-Out Year; provided that such amount may increase up
to five percent (5%) annually for each Earn-Out Year thereafter. A
"Representative Split" means that a representative of BCS ("BCS Representative")
will receive fifteen percent (15%) of agent level commissions where such BCS
Representative has listed a financial institution on the BCS Representative's
Prospect List or where the BCS Representative has sold life insurance to a
financial institution that remains a current BCS client; provided that, no
expense for any money paid to a representative of BCS when life insurance is
sold to a financial institution to establish scholarships by the financial
institution or any Institution Related Parties shall be attributable to the
Business.
The parties hereto agree that certain procedures will be mutually
agreed to between the Shareholder Representative (as hereinafter defined) and
BCS with respect to operating procedures
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as to Company Protected Clients. For purposes of these procedures, a "Company
Protected Client" shall mean any Institution Related Party who has signed up to
attend a seminar of the Business, has attended any such seminar, or has engaged
the Business following attendance at any such seminar or as a result of a
referral. The parties agree that such procedures shall be followed in
determining Gross Revenue and Company Income for purposes of this Section 1.4.
CBI shall require, for the benefit of Shareholders, that all
representatives of CBI who sell life insurance to a financial institution, where
all or a portion of the gain derived from such life insurance is utilized by the
financial institution to make or increase scholarship contributions, document
the fact of such scholarship contributions and make such documentation available
to Shareholders, and upon the request of any Shareholder, CBI shall contact any
financial institution who purchased a life insurance policy to confirm whether
the financial institution actually made a scholarship contribution.
For purposes of this Section 1.4, Holdings agrees to provide the
Business with an allowance for operating expenses of a minimum of $2,750,000 for
the first $5,000,000 in Gross Revenues per year and up to $2,750,000, at the
discretion of Holdings for every additional $5,000,000 in Gross Revenues per
year.
(b) The Revenue Objectives and Income Objectives for each Earn-Out
Year are as follows:
<TABLE>
<CAPTION>
12-month period
ended December 31 Revenue Objectives Income Objectives
----------------- ------------------- -----------------
<S> <C> <C>
1999 $5,000,000 $1,500,000
2000 6,000,000 1,800,000
2001 6,500,000 1,950,000
2002 7,500,000 2,250,000
</TABLE>
(c) In the event that both the Revenue Objectives and the Income
Objectives are met for the Earn-Out Years ending December 31, 1999, December 31,
2000, December 31, 2001 or December 31, 2002, the Shareholders will receive
one-fourth of the Contingent Merger Consideration for each such year which shall
be issued to the Shareholders. If during a particular Earn-Out Year, (i) the
Gross Revenue for the Business for such year is greater than the Revenue
Objective for such year and the Income Objectives are met for such year, the
excess Gross Revenue shall be credited to the following year's Gross Revenue for
purposes of the vesting calculation, (ii) the Company Income for the Business
for such year is greater than the Income Objective for such year and the Revenue
Objectives are met for such year, the excess Company Income shall be credited to
the following year's Company Income for purposes of the vesting calculation, and
(iii) the Gross Revenue and the Company Income for the Business for such year
meets or exceeds the Revenue Objectives and the Income Objectives for that year
and for one or more of the following Earn-Out Years, the Contingent Merger
Consideration for each Earn-Out Year in which such
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Objectives were met shall be deemed earned and vested; provided, however, only
25% of the Contingent Merger Consideration shall be paid in any given year. Once
the Contingent Merger Consideration is earned pursuant to the terms hereof, the
restricted period referred to in Section 3(l) of the Investment Agreement (as
hereinafter defined) shall begin to run.
(d) If any portion of the Contingent Merger Consideration are not
earned in any Earn-Out Year, the aggregate unearned Contingent Merger
Consideration will be paid in full at the end of the four year term if the
aggregate Gross Revenue for the four years equals or exceeds Twenty Five Million
Dollars ($25,000,000) and the aggregate Company Income for the four years equals
or exceeds Seven Million Five Hundred Thousand Dollars ($7,500,000). In the
event that the aggregate Gross Revenue for such four year period does not equal
or exceed Twenty Five Million Dollars ($25,000,000) but is equal to or greater
than Twenty Million Dollars ($20,000,000) and the aggregate Company Income for
the four years equals or exceeds Six Million Dollars ($6,000,000), the
Shareholders will be eligible to receive a percentage of the Contingent Merger
Consideration which had not previously been earned in accordance with the
following schedule:
<TABLE>
<CAPTION>
Gross Revenue Earned Percentage of the
Total for Four Year Period Contingent Merger Consideration
(000,000 deleted) Not Previously Vested
-------------------------- --------------------------------
<S> <C>
Equal to or greater than $20 but less than $20.5 30%
Equal to or greater than $20.5 but less than $21.0 35%
Equal to or greater than $21.0 but less than $21.5 40%
Equal to or greater than $21.5 but less than $22.0 45%
Equal to or greater than $22.0 but less than $22.5 50%
Equal to or greater than $22.5 but less than $23.0 55%
Equal to or greater than $23.0 but less than $23.5 60%
Equal to or greater than $23.5 but less than $24.0 65%
Equal to or greater than $24.0 but less than $24.5 70%
Equal to or greater than $24.5 75%
</TABLE>
(e) (i) For each Earn-Out Year, within 90 days of the end of such
year, Holdings shall prepare, and provide the Shareholders, a calculation of
the Gross Revenue and the Company Income, together with a statement of
Holdings that it was prepared in accordance with this Agreement (the "Annual
Determination").
(ii) If the Shareholders do not agree that any Annual
Determination correctly states the Gross Revenue or the Company Income for
the year under examination, the Shareholders shall promptly (but not later
than 30 days after the delivery of such Annual Determination) give written
notice to Holdings of any exceptions thereto (in reasonable detail
describing the nature of the disagreement asserted). If the Shareholders and
Holdings reconcile their differences, the Annual Determination shall be
adjusted accordingly and shall
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thereupon become final and conclusive upon all of the parties hereto. If the
Shareholders and Holdings are unable to reconcile their differences in
writing within 20 days after written notice of exceptions is delivered by
the Shareholders, the items in dispute shall be submitted to the Dallas
office of a mutually acceptable accounting firm selected from among the five
largest accounting firms in the United States in terms of gross revenues for
final determination (the "Independent Auditors"). If the Shareholders and
Holdings are unable to mutually agree on such accounting firm within 5 days
after expiration of the 20-day period, the Dallas office of a "big-five"
accounting firm, which accounting firm has not within the previous two years
performed services for Holdings or the Shareholders or any affiliate, shall
be selected by lot after elimination of one firm by the Shareholders and one
firm by Holdings. The determination of the accounting firm so selected shall
be set forth in writing and shall be conclusive and binding upon the
parties. The Annual Determination shall be deemed adjusted in accordance
with the determination of the Independent Auditors and shall become binding,
final and conclusive upon all of the parties hereto. The Independent
Auditors shall consider only the items in dispute and shall be instructed to
act within 30 days (or such longer period as the Shareholders and Holdings
may agree) to resolve all items in dispute. If the Shareholders do not give
notice of any exception within 30 days after the delivery of an Annual
Determination or if the Shareholders in their discretion give written
notification of their acceptance of an Annual Determination prior to the end
of such 30 day period, such Annual Determination shall thereupon become
binding, final and conclusive upon all the parties hereto. Holdings agrees
to issue to the Shareholders any shares which constitute Contingent Merger
Consideration and which are owed and scheduled to be issued pursuant hereto
within 30 days after final determination of the Annual Determination.
(iii) The Independent Auditors shall determine the party (i.e.,
Holdings or the Shareholders, as the case may be) whose asserted position as
to the amount of Gross Revenue and Company Income for the calendar year
under examination before the Independent Auditors is furthest from the
determination of Gross Revenue and Company Income by the Independent
Auditors, and the non-prevailing party shall pay the fees and expenses of
the Independent Auditors.
(iv) For purposes of this Section 1.4(e), any action to be
taken or made by the Shareholders shall be exclusively taken by the
Representative of the Shareholders (the "Shareholder Representative"). Each
Shareholder, by execution of this Agreement, irrevocably appoints Kathryn
Orr Smith as the Shareholder Representative, to take and to make any such
action or agreement on behalf of the Shareholders until such time as Kathryn
Orr Smith resigns as Shareholder Representative or by reason of her death or
disability is no longer able to serve as Shareholder Representative, at
which time a majority of the Shareholders shall appoint a successor
Shareholder Representative and notify Holdings in writing of such
appointment.
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(f) Upon the occurrence of a Change in Control, any portion of the
Contingent Merger Consideration not already paid shall be paid in full within
sixty (60) days of such Change in Control and the Lock-up Period (as defined in
the Investment Agreement) shall not be applicable to the Contingent Merger
Consideration. For purposes hereof, a "Change in Control" shall mean the
acquisition by a Person, or two or more Persons acting in concert, other than
any such Person or Persons in the Control Group, of the beneficial ownership
(within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934) of 25%
or more of the outstanding shares of voting stock of Holdings. For purposes
hereof, "Control Group" means the following individuals: Tom Wamberg, Mel Todd,
Tom Pyra, Larry Hendrickson and Rich Chapman. For purposes hereof, "Person"
means any natural person, corporation, firm, joint venture, partnership, limited
liability company, association, enterprise, trust, or other entity or
organization or any government or political subdivision or agency, department or
instrumentality thereof.
1.5 Covenants Not to Compete. Each Shareholder acknowledges and agrees
that, in view of the substantial financial commitments and payments undertaken
by Holdings pursuant to this Agreement, Holdings, CBI and the Company are
entitled to reasonable protection against the Shareholders engaging, directly or
indirectly, in competition with Holdings, CBI or the Company in a manner which
is or might be harmful to Holdings, CBI or the Company and thereby will or might
diminish the value of Holdings, CBI and the Company. Therefore, to induce
Holdings to enter into this Agreement, which Holdings is unwilling to do
without, among other things, a non-compete agreement and in consideration of the
covenants and agreements of and payments from Holdings under this Agreement,
Shuster, High, Smith and Earls each hereby agree for a period of five (5) years
from the Closing Date not to:
(a) accept employment with or render services for compensation
(including without limitation, consultation or research) to, or acquire any kind
of ownership in, any person or entity engaged in the design, development,
marketing, sale or support of any competitive product or service sold to a
financial institution or any Institution Related Party in the United States if
that relationship includes any responsibilities whatsoever with respect to
developing, promoting, marketing, soliciting or selling any product or service,
(including without limitation, any life insurance or other insurance product or
policy) to any financial institution or any Institution Related Party in any
state in which Holdings, CBI or its respective subsidiaries or affiliates
promotes, markets or sells any product or program to any financial institution
or any Institution Related Party; provided, however, that with respect to
publicly traded companies, each of Shuster, High, Smith and Earls may own up to
one percent (1%) of an entity engaged in any business described above;
(b) promote, market, solicit, or sell any product or service to any
financial institution or any Institution Related Party, including without any
limitation, any life insurance or other insurance product or policy, similar to
or competitive with any program or product sold by Holdings, CBI or its
respective subsidiaries or affiliates to financial institutions or any
Institution Related Party; and
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<PAGE> 13
(c) induce or attempt to induce (i) any purchaser of any program or
product of Holdings, CBI or its respective subsidiaries or affiliates to cancel,
allow to lapse, fail to renew or replace any program or product of Holdings, CBI
or its respective subsidiaries or affiliates, (ii) any other employee or any
representative of Holdings, CBI or its respective subsidiaries or affiliates to
terminate or alter his, her, or its relationship with Holdings, CBI or its
respective subsidiaries or affiliates, (iii) any insurance company to terminate
or alter its relationship with Holdings, CBI or its respective subsidiaries or
affiliates, (iv) any banking association or other trade organization to
terminate or alter its relationship with Holdings, CBI or its respective
subsidiaries or affiliates, or (v) any employee of Holdings, CBI or its
respective subsidiaries or affiliates to terminate his or her employment with
Holdings, CBI or its respective subsidiaries or affiliates.
1.6 Closing. The Closing of the transactions contemplated by this
Agreement shall be as of the Merger Effective Date on May 18, 1999, or on such
other date as may be mutually agreed upon by Holdings and Shareholders (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 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.
1.7 Closing Documents of Shareholders. At the Closing, the Shareholders
shall deliver or cause to be delivered to Holdings the following duly executed
documents and other items:
(a) Good and valid certificates representing all of the 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 Holdings, with
all applicable transfer taxes, if any, paid;
(b) All of the Company's contracts and commitments, files, books
(including corporate seals, if any, minute books and stock ledgers), customer
lists, records and other data relating to such Company's business and assets,
and simultaneously with such delivery Shareholders shall cause the Company to
take such other steps as may be requisite or desirable to put Holdings in actual
possession and operating control of the Company's business and assets;
(c) An Employment Agreement dated as of the Closing Date, in the
form attached hereto as Exhibit D executed by Shuster (the "Shuster Employment
Agreement");
(d) An Employment Agreement dated as of the Closing Date, in the
form attached hereto as Exhibit E executed by High (the "High Employment
Agreement");
(e) An Employment Agreement dated as of the Closing Date, in the
form attached hereto as Exhibit F executed by Smith (the "Smith Employment
Agreement");
(f) An Employment Agreement dated as of the Closing Date, in the
form attached hereto as Exhibit G executed by Earls (the "Earls Employment
Agreement");
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<PAGE> 14
(g) Evidence of payment of all amounts owed employees through the
Closing Date including payroll, vacation pay and other benefits owed employees;
(h) Evidence of termination of the Shareholder Agreement among the
shareholders of the Company;
(i) A change of signatory cards with respect to all bank accounts
of the Company adding an additional employee of CBI as a signatory on all such
accounts;
(j) Termination Agreement with High regarding any and all existing
marketing and selling agreements between BCS and High;
(k) The written opinion of counsel for the Company and
Shareholders, substantially in the form attached hereto as Exhibit H;
(l) A copy of the Articles of Incorporation (as in effect on the
Closing Date) of the Company certified by the applicable Secretary of State;
(m) A Certificate of the Secretary of the Company, certifying as to
the Articles of Incorporation and Bylaws of the Company, and all amendments
thereto, the resolutions of the Board of Directors and Shareholders of the
Company authorizing or ratifying the execution, delivery and performance of this
Agreement and all other agreements and documents to be executed by such Company
related to this Agreement (collectively, the "Related Agreements"), and the
names of the officer or officers of the Company authorized to sign this
Agreement and the Related Agreements;
(n) A Certificate of Good Standing of the Company issued by the
Secretary of State of its applicable state of incorporation and each other
jurisdiction where the conduct of the Company's business activities or the
ownership of its assets necessitates qualification;
(o) All necessary approvals or consents of third parties to the
purchase and sale of the Shares and consummation of the transactions provided
for herein;
(p) All Financial Statements (as hereinafter defined), including
but not limited to, the December Balance Sheet (as hereinafter defined);
(q) Appropriate releases or termination statements releasing all
liens or encumbrances against any assets of the Company;
(r) Articles of Merger filed with the Secretary of State of Texas
and with the Secretary of State of Delaware; and
(s) Such other documents and actions as shall reasonably be
required by Holdings or by its counsel.
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1.8 Closing Documents of Holdings. At the Closing, Holdings shall
deliver or cause to be delivered to Shareholders, or such other persons as
appropriate, the following duly executed documents and other items:
(a) Good and valid certificates representing the Shares to be
issued at the Closing, free and clear of any liens, security interest,
mortgages, preemptive rights, adverse claims or other restrictions other than
those set forth in the Investment Agreement;
(b) The written opinion of counsel for Holdings, substantially in
the form attached hereto as Exhibit I;
(c) The Employment Agreements with each of Shuster, High, Smith and
Earls executed by CBI;
(d) Certificate of Merger between Holdings and Company merging the
Company into Holdings;
(e) Release dated as of May 18, 1999 by BCS of those certain
Guarantees of Promissory Notes in the amount of $200,000 and $229,500 in favor
of BCS (the "Release");
(f) Articles of Merger filed with the Secretary of State of Texas
and with the Secretary of State of Delaware; and
(g) A Certificate of the Secretary of Holdings certifying as to the
Certificate of Incorporation and Bylaws of Holdings, and all amendments thereto,
the resolutions of the Board of Directors of Holdings authorizing or ratifying
the execution, delivery and performance of this Agreement and all other
agreements and documents to be executed by Holdings related to this Agreement,
and the names of the officer or officers of Holdings authorized to sign this
Agreement and the Related Agreements.
1.9 Restrictions on Stock Portion. All shares of Holdings Stock (as
hereinafter defined) shall be unregistered and shall be subject to the
restrictions, terms and conditions set forth in that certain Investment
Agreement, dated of even date herewith, by and among Holdings and Shareholders,
substantially in the form attached hereto as Exhibit J (the "Investment
Agreement"). "Holdings Stock" shall mean (i) the shares of Holdings issued,
granted, conveyed and delivered to Shareholders pursuant to the Merger as set
forth in Section 1.3 hereof, and (ii) any and all other additional shares of
capital stock of Holdings issued or delivered by Holdings with respect to the
shares of Holdings Stock described in clause (i) hereof, including without
limitation any shares of capital stock of Holdings issued or delivered with
respect to such shares as a result of any stock split, stock dividend, stock
distribution, recapitalization or similar transaction.
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1.10 Business Prior to and Following January 1, 1999. Holdings, the
Company and the Shareholders agree that any renewal commissions (excluding any
fees for services rendered) with respect to the sale of products sold by the
Company prior to January 1, 1999, but where such renewal commissions are
received after December 31, 1998, shall be the property of High, Shuster and
Smith, and Holdings shall have no rights to such renewal commissions; provided,
however that any such commissions payable to the Company after such date shall
be the property of Holdings. Holdings, the Company and the Shareholders agree
that any revenues, income, commissions or renewals with respect to products sold
by the Company on or after January 1, 1999 are the property of Holdings as if
Holdings owned 100% of the Company effective January 1, 1999.
1.11 Tax Consequences. (a) It is intended that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code,
that this Agreement shall constitute a "plan of reorganization" for the purposes
of Section 368 of the Code, and that the Merger Consideration represents
consideration for the Shareholders' Shares in the Company. The parties agree to
report the Merger and the Merger Consideration consistent with the preceding
sentence for tax and financial accounting purposes.
(b) Holdings covenants that it will continue at least one
significant historic business line of the Company, or use at least a significant
portion of the Company's historic business assets in a business, in each case
within the meaning of Treas. Reg. Section 1.368-1(d), except that Holdings may
transfer the Company's historic business assets (i) to a corporation that is a
member of Holdings "qualified group," within the meaning of Treas. Reg. Section
1.368-1(d)(4)(ii), or (ii) to a partnership if (A) one or more members of
Holding's "qualified group" have active and substantial management functions as
a partner with respect to the Company's historic business or (B) members of
Holding's "qualified group" in the aggregate own an interest in the partnership
representing a significant interest in the Company's historic business, in each
case within the meaning of Treas. Reg. Section 1.368-1(d)(4)(iii).
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Shareholders jointly and severally represent and warrant to and
covenant as of the date hereof with Holdings as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. The Company is not required to be qualified as a foreign corporation to
transact business in any jurisdiction other than Texas. The Company has all
right, power and authority to own or lease its properties and conduct its
business as such business is now being conducted. Except as set forth on
Schedule 2.1 hereto, the Company does not own any capital stock of any other
corporation or any other equity investment in any joint venture, partnership or
other entity.
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2.2 Capital Stock of the Company.
(a) The Company has duly authorized capital stock consisting of One
Hundred Thousand (100,000) shares of common stock, $1.00 par value, Twelve
Thousand Two Hundred (12,200) of which are issued and outstanding and constitute
the Shares. One hundred shares of the Company common stock are held as treasury
shares. All of the Shares are duly authorized, validly issued and outstanding,
fully paid and nonassessable, and were not issued in violation of, and are
otherwise free of any preemptive or other rights of third parties. The issuance
of the Shares was in full compliance with all applicable state and federal
securities laws and all other applicable laws, and no person has a claim against
the Company or the Shareholders under any such law. The Shares are held by the
Shareholders in accordance with Schedule 2.2 attached hereto.
(b) Each Shareholder has good title to, and is the beneficial and
record owner of, all of his or her Shares free and clear of any security
interest, lien, claim, charge, pledge, encumbrance, or rights of other persons
of every nature and description whatsoever. The Shares are not subject to any
restriction with respect to their transferability. Except as described above in
Section 2.2(a), there are no equity securities of the Company outstanding on the
date hereof and there is no existing subscription, warrant, right, option, call,
commitment, understanding, conversion privilege or other agreement obligating
the Company to issue, assign, pledge, sell or transfer any of its capital stock,
whether now or hereafter authorized. No Shares have been issued in violation of
any preemptive right of any shareholder.
2.3 Ability and Authorization to Carry Out Agreement; Consents. The
Shareholders and the Company, as the case may be, have the full capacity, right,
power and authority to enter into, execute and deliver this Agreement, and 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 the Shares to Holdings. The execution and delivery of
this Agreement and all Related Agreements by the Shareholders and the Company,
as the case may be, and the consummation by the Shareholders and the Company, as
the case may be, of the transactions contemplated hereby or thereby have been
duly and validly authorized by all necessary action on the part of the Board of
Directors and the shareholders of the Company and the Shareholders. This
Agreement and all Related Agreements each constitute a valid and binding
obligation of both the Shareholders and the Company, as the case may be,
enforceable in accordance with their respective terms and conditions. Except as
set forth on Schedule 2.3 hereto, neither the execution and delivery of this
Agreement or any Related Agreement, nor the consummation of the transactions
contemplated hereby or thereby, nor compliance by the Shareholders or the
Company with any of the provisions of this Agreement or any Related Agreement
will:
(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 default) under, or give rise to any right of termination,
cancellation, or acceleration under any provision of the Articles of
Incorporation or Bylaws of the Company, or 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 Company or the Shareholders is a
party or
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by which the Shareholders or the Company or any of their respective properties
or assets may be bound or subject;
(b) Violate any law, rule or regulation of any government or
governmental agency or body, or any judgment, order, writ, injunction, or decree
of any court, administrative agency, or governmental agency or body applicable
to the Shareholders or the Company or any properties, assets, or Shares or other
securities of the Company or the Shareholders; 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 any of the assets or properties of the Company, or
upon the Shares, or cause the maturity of any liability, obligation or debt of
the Company to be accelerated or increased.
2.4 Consents and Approvals. Except as set forth in Schedule 2.4 hereto,
the execution, delivery and performance of this Agreement and the Related
Agreements by the Shareholders and the Company, as the case may be, and the
consummation by the Shareholders and the Company, as the case may be, 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.
2.5 Assets Used in or Necessary for Business. All equipment and other
tangible assets ("Business Assets") reflected on the balance sheets included in
the Financial Statements referred to in Section 2.7 hereof or leased by the
Company (a) were at the respective dates of said balance sheets, and are
currently, used or useful in the business and operations of the Company, (b)are
all of the assets currently used, and are all of the assets currently needed, to
conduct said business and operations, and (c) are in good operating condition,
except as otherwise disclosed in Schedule 2.5 hereto. Except as set forth in
Schedule 2.5 hereto, no Shareholder nor any other party own any Business Assets
which are being used to carry on the business or operations of the Company.
2.6 Compliance with Laws; Ability to Conduct Business.
(a) Except as set forth in Schedule 2.6 hereto:
(i) Neither the Company nor any Shareholder is in default or
violation (nor is there any event which, with notice or lapse of time
or both, would constitute a material default or violation) in any
material respect (A) under any contract, agreement, lease, consent
order, or other commitment to which the Company or any Shareholder is a
party or the business of the Company is subject or bound or (B) under
any law, rule, regulation, writ, injunction, order or decree of any
court or any federal, state, local, or other governmental department,
commission, board, bureau, agency or instrumentality (including,
without limitation, applicable laws, rules and regulations relating to
environmental protection, antitrust, civil rights, health and
occupational health and safety);
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(ii) There are no actions, suits, claims, investigations, or
legal arbitration or administrative proceedings in progress, pending or
to the actual knowledge of the Shareholders threatened by or against
the Company or any Shareholder (or any of their respective assets or
properties) whether at law or in equity, whether civil or criminal in
nature, or whether before or by a federal, state, county, local, or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, nor has the Company or any
Shareholder been charged with or received any currently effective
notice of any violation of any rule, regulation, ordinance, law, order,
decree, or requirement relating to the Company, its properties, assets,
or the transactions contemplated by this Agreement; and
(iii) No action, suit or proceeding has been instituted or to
the actual knowledge of the Shareholders, threatened, to restrain or
prohibit or otherwise challenge the legality or validity of the
transactions contemplated by this Agreement.
(b) No Shareholder has any reason to believe that the services of
any of the present employees of the Company will not be available for the
continued conduct of the business of the Company after the Closing, on
substantially the same terms as now conducted or that the business relations
currently maintained with the Company's suppliers, customers and others will not
be similarly maintained by the Company after the Closing.
(c) Except as set forth on Schedule 2.6, Shareholders represent
that the Company has complied in all material respects with all laws and
regulations with respect to life insurance policy illustrations and disclosures
provided to customers by the Company and its agents. Shareholders represent that
the Company includes and has included all disclosures and disclaimers with
respect to illustrations in sales materials in a manner which is substantially
similar to the disclosures and disclaimers used by BCS in its sales materials.
2.7 Financial Statements.
(a) Shareholders have heretofore furnished Holdings with the
following:
(i) true and complete copies of the audited twelve-month
Balance Sheet and Statement of Income and Retained Earnings as of
December 31, 1998 of the Company, together with the notes thereto (said
December 31, 1998 Balance Sheet being hereinafter referred to sometimes
as the "December Balance Sheet"); and
(ii) Profit and Loss Statement for the twelve-month period
ending December 31, 1997 which, to actual knowledge of Shareholders, is
true and correct.
(b) The December Balance Sheet:
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(i) is correct and complete and presents fairly the financial
condition of the Company as of the date of said balance sheet;
(ii) has been prepared in accordance with generally accepted
accounting principles ("GAAP"), except as otherwise specifically
disclosed therein;
(iii) reflect all material liabilities and commitments of the
Company, direct or contingent, as of said dates which under GAAP are
required to be reflected in such December Balance Sheet or any related
notes; and
(iv) do not misstate or omit to state any material fact
(including liabilities, contingent or otherwise) necessary to be set
forth therein to make the Financial Statements not misleading.
2.8 Federal, State and Local Taxes. Except as set forth in Schedule 2.8
hereto:
(a) All material federal, state, county and local taxes, and all
other taxes of any kind or character for periods ending December 31, 1998,
including, without limitation, income (including gross and adjusted gross),
receipts, property (including real, personal and intangible), sales, use,
franchise, value added, excise, recording, financial institutions, employees'
income and social security withholding, and all other withholding, and social
security and unemployment taxes, which are due and payable by or on behalf of
the Company for periods ending December 31, 1998, and all interest and penalties
thereon (collectively, the "Taxes"), have been paid (and, to the extent
applicable, withheld) in full (or are reflected as a liability in the Financial
Statements).
(b) The Company has filed, or the Shareholders on behalf of the
Company have filed, all currently due federal, state, county, local and other
tax returns, statements, forms, reports and similar documents with respect to
Taxes required to be filed with the appropriate third parties and governmental
agencies in all jurisdictions in which such returns, statements, forms, reports
and similar documents are required to be filed (collectively, the "Returns") and
all such Returns are true, correct and complete in all material respects.
(c) There is not now in force any extension of time with respect to
the date on which any Return was or is due to be filed by or on behalf of or
with respect to the Company, or any waiver or agreement by the Shareholders (on
behalf of the Company) or the Company, for an extension of time for the
assessment of any Tax.
(d) The Company is not subject to any penalty by reason of a
violation of any order, rule or regulation of, or with respect to any Return or
any other Tax return or report required to be filed with, any taxing authority.
(e) All monies required to be withheld from employees of the
Company for income taxes, social security and unemployment insurance, taxes or
collected from customers or
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<PAGE> 21
others as sales, use or other taxes have been withheld or collected and paid,
when due, to the appropriate governmental authority.
(f) None of the Company's federal or state income tax returns has
ever been audited.
(g) The Company does not have any pending requests for a ruling
with any taxing authority.
(h) There are no liens for Taxes upon the assets of the Company
except liens for current Taxes not yet due.
2.9 Title to Assets. Except as set forth in Schedule 2.9, the Company
has and at the Closing Date will have good, valid and marketable title to all of
the properties, interests in properties and assets, tangible or intangible, that
are used in its business, and reflected in the December Balance Sheet,
including, but not limited to, all rights to renewals with respect to business
obtained by the Company after January 1, 1999, all rights to Community Bankers'
Scholarship Program and other types of charitable plans, if any, all rights
under agreements with insurance carriers, and all rights under all endorsement
agreements with various trade associations, in each case free and clear of all
mortgages, liens, pledges, charges, claims, security interests, encumbrances,
easements or other interest of any kind or character, except for:
(i) liens for current taxes and assessments not yet due and
payable; and
(ii) liens and encumbrances set forth in the December Balance
Sheet and as disclosed in Schedule 2.9 hereto (collectively with the
liens referred to in Section 2.9(i), the "Permitted Encumbrances").
2.10 Real Property-Owned and Leased Premises.
(a) Owned Premises. There are no parcels of real property owned by
the Company.
(b) Schedule 2.10 hereto contains a list and brief description of
all real property leased from any third party to the Company including the
address of such real property (collectively, the "Leased Premises"). With
respect to the Leased Premises:
(i) All leases related thereto are in full force and effect and
constitute legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject as to
enforcement to applicable bankruptcy, insolvency, reorganization and
other similar laws of general applicability relating to or affecting
creditors rights generally; and
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(ii) There are no defaults currently existing, no currently
effective notices of default have been received by the Company and no
events have occurred which with the lapse of time, notice, or otherwise
would constitute a default under any of the leases.
No consent of any lessor of the Leased Premises is required in
connection with the transactions contemplated by this Agreement.
2.11 Personal Property-Owned. Attached hereto as Schedule 2.11 is a
list of all tools, furniture, machinery, supplies, vehicles, equipment, and
other items of tangible personal property owned by the Company as of the date
hereof having a book value in excess of One Thousand Dollars ($1,000) (the
"Personal Property").
2.12 Contracts and Other Matters.
(a) Attached hereto are the following schedules, which are
accurate and complete as of the date hereof, setting forth and describing the
following (collectively, the "Contracts");
(A) Schedule 2.12(A) - All of the following contracts,
agreements or other instruments to which the Company is a party: (1)
contracts for employment of any officer, director or employee; (2)
distribution, dealer, sales, agency or advertising contracts; (3)
guarantees of the obligations of others; (4) contracts with any labor
organizations; (5) contracts or commitments for the future purchases of
materials, supplies, merchandise, equipment or services continuing or
renewable at the option of the other party for a period beyond the date
hereof and under which the undelivered balance of such purchases has a
price in excess of $1,000; (6) profit-sharing, bonus, stock option,
benefit, welfare, disability, pension, retirement, stock purchase,
hospitalization, regular or major medical, dental, psychiatric, life
insurance, incentive, deferred compensation and other executive or
employee compensation or benefit plans, programs, arrangements or
agreements of the Company or which concern any of the current or former
officers, directors or employees of the Company (collectively, the
"Employee Benefit Plans"); (7) contracts or commitments, whether
written or oral, with customers for the sale of products or services by
the Company under which the undelivered balance of such products or
services has a price in excess of $1,000; (8) license, royalty or other
agreements requiring the payment of any royalty or similar payment in
connection with any product or activity conducted or to be conducted;
(9) loan agreements, notes payable and other instruments evidencing
indebtedness of the Company; (10) agreements, contracts and commitments
containing any covenant limiting the right of the Company to engage in
any line of business or compete with any person; and (11) any other
agreement which materially affects the business, properties or assets
of the Company, or which was entered into other than in the ordinary
and usual course of business.
(B) Schedule 2.12(B) - All leases of real or personal property
wherein the Company is either lessor or lessee.
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(C) Schedule 2.12(C) - All policies of insurance in force with
respect to the Company.
(D) Schedule 2.12(D) - All bank and money market accounts of
the Company, together with the name of each person authorized to sign
checks or other orders relating to each such account or authorized to
borrow from each such bank.
(E) Schedule 2.12(E) - All licenses, franchises, rights and
governmental or other permits, authorizations, consents and approvals
necessary to operate the business of the Company as currently being
conducted, other than the Environmental Permits (as hereinafter
defined).
(F) Schedule 2.12(F) - All consents, approvals and
authorizations necessary from third parties for the purchase and sale
of the Shares and the consummation of the transactions contemplated by
this Agreement.
(b) Except as set forth on Schedule 2.12(G), all of the Contracts
are valid and binding obligations of the Company, enforceable in accordance with
their respective terms, are in full force and effect, and, will continue in full
force and effect without the consent of any other party so that, after the
Closing, the Company will be entitled to the full benefits thereof. Except as
set forth on Schedule 2.12(G), none of the Contracts contains any provisions
that are triggered by a change in control of the Company, or by any of the
transactions contemplated by this Agreement or any Related Agreement. Except as
set forth on Schedule 2.12(G), there is not any existing default, or event
which, after notice or lapse of time, or both, would constitute a default or
result in a right to accelerate or loss of rights. Copies of the Contracts in
written form have been delivered (or will be delivered prior to the Closing) to
Holdings.
2.13 Litigation. Except as disclosed in Schedule 2.13 hereto, there is
no action, suit or proceeding or governmental investigation, judgment, order,
writ, injunction or decree outstanding, pending or to the actual knowledge of
the Shareholders threatened against or relating to the Company or any
Shareholder or the assets, properties or business of the Company or any
Shareholder, before any court or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, nor does any Shareholder know or have reasonable grounds to
know of any basis for any such action or for any governmental investigation
relating to the Company or any Shareholder or the assets, properties or business
of the Company or any Shareholder. Without limiting the generality of the
foregoing, neither any Shareholder nor the Company has received any notice from
any city, village, state or federal governmental authority of any violation, or
claim thereof, of any laws relating to zoning, building, fire, health, safety,
pollution or waste disposal with respect to the properties or business of the
Company, except as disclosed in Schedule 2.13 hereto.
2.14 Absence of Changes or Events. Since the date of the December
Balance Sheet, there has been no adverse change in the assets, liabilities,
financial condition, business or results of
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operation of the Company and the Company has not, and pending Closing,
Shareholders shall not permit the Company, except as provided for on Schedule
2.14, without the prior written consent of Holdings or CBI:
(a) to incur any debt, obligation or liability (absolute, accrued,
contingent or otherwise) other than in the ordinary course of business;
(b) to discharge or satisfy any lien or encumbrance, or pay or
satisfy any obligation or liability (absolute, accrued, contingent or
otherwise), other than those incurred in the ordinary course of business since
the date of the December Balance Sheet, as such liabilities become due and
payable or as contemplated by this Agreement;
(c) to mortgage, pledge or subject to lien, charge or other
encumbrance any of its assets, tangible or intangible;
(d) to sell or transfer any of its assets, other than in the
ordinary course of business, or cancel any debts or claims, or waive any rights
of value;
(e) to increase the compensation payable to or to become payable to
any officer, or, except in the ordinary course of business, to any employee;
(f) to pay or otherwise grant any bonuses or special remuneration
to any officer or any employee;
(g) to make, or make any commitment for, a capital expenditure in
excess of One Thousand Dollars ($1,000) or capital expenditures in excess of Two
Thousand Dollars ($2,000) in the aggregate which contains all of the capital
expenditures and commitments for capital expenditures outstanding on the date of
the December Balance Sheet;
(h) to make any declaration or payment to its shareholders, of any
dividend or other distribution in respect of its stock or redeem or purchase or
otherwise acquire any of its stock or agree to take any such action;
(i) to experience any material adverse change in its financial
position, assets, liabilities or business;
(j) to make any material change in its mode of operation, including
its sales, service, credit or collection policies;
(k) to materially increase or reduce its planned expenditures for
advertising or promotion, or change its advertising or promotion policies;
(l) to enter into any transaction other than in the ordinary course
of business;
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(m) to issue any stock, bonds, convertible securities or other
securities, or become obligated on or in respect of any such securities or grant
any stock options, warrants or rights;
(n) to borrow or agree to borrow any funds except in the ordinary
course of business;
(o) to make any loans or advances to any person;
(p) to fail to record promptly, accurately and fully on its books
and records all transactions involving it;
(q) to alter, amend, terminate or discharge any written or oral
contract, lease, plan, commitment or agreement to which it is currently a party,
or permit or consent to any such alteration, amendment, termination or
discharge, or commit a breach or default in any of the provisions thereof; or
(r) to suffer any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the business, property
or assets of the Company.
2.15 Insurance. The Company has, through financially sound and
reputable insurers, continuously maintained fire, theft, extended coverage,
public liability, worker's compensation, health, life and such other insurance
coverages and in such amounts as are dictated by prudent business practices and
customary for companies engaged in similar businesses. Each of the insurance
policies the Company has in place is listed on Schedule 2.15 hereto, and each
such policy is in full force and effect, will continue after the Closing in full
force and effect for their stated term and all premiums due and occurring with
respect to such policies are currently paid. Except as disclosed in Schedule
2.15 hereto, no insurer has, prior to the date of this Agreement, cancelled or
refused to renew any insurance policy of the Company. The insurance coverage
provided by the policies listed in Schedule 2.15 hereto satisfies all
contractual and statutory requirements applicable to the Company.
2.16 Non-Affiliation. No Shareholder, nor any director or officer of
the Company, nor any person, firm or entity affiliated with or related to the
Company's officers, directors or any Shareholder, is a party to or has any
beneficial interest in any contract, agreement, undertaking, obligation or
arrangement to which the Company is a party or by or to which it or any of its
properties is bound or subject, or has any interest in or relationship with any
customer, competitor or supplier of the Company, except as set forth on Schedule
2.16 hereto.
2.17 Proprietary Rights. Schedule 2.17 hereto sets forth a list and
summary description of all patents, patent applications, trademarks, service
marks, trade names, trade secrets, corporate names, copyrights and other
intellectual property or proprietary rights (collectively, "Proprietary Rights")
owned by the Company or used by the Company in the conduct of its business, as
now conducted. Except as set forth on Schedule 2.17, the Company owns and
possesses all right, title
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and interest in and to, and has taken all necessary or desirable action to
protect, the Proprietary Rights necessary or desirable to conduct its business,
as now conducted. Such Proprietary Rights constitute all of the general
intangibles and proprietary rights which have been used prior to date hereof for
the business of the Company as currently conducted. Neither the Company nor any
Shareholder has received any notice of infringement, misappropriation,
invalidity or conflict from any third party with respect to such Proprietary
Rights. The Company has not infringed, misappropriated or otherwise conflicted
with any Proprietary Right of any third party and, to the actual knowledge of
the Company and Shareholders, the Company's Proprietary Rights have not been
infringed by any third party. None of the Proprietary Rights have been licensed
or assigned to any third party.
2.18 Major Suppliers. Shareholders know of no existing occurrence,
circumstance or condition or of any occurrence, circumstance or condition which
may arise that may have an adverse effect on sales by the Company subsequent to
Closing from any current significant supplier of the Company.
2.19 Major Customers. Shareholders have no actual knowledge of any
existing occurrence, circumstance or condition or of any occurrence,
circumstance or condition which may arise that may have an adverse effect on
future purchases from the Company by any customer of the Company which could
have a material adverse effect on the Company.
2.20 Liabilities and Obligations of the Company. Except as set forth in
Schedule 2.20 hereto, on the date of the Closing, (a) the Company will have no
debts, liabilities, contracts, commitments or other obligations, direct or
indirect, absolute or contingent, determined or undetermined, which are not
reflected, described or disclosed in (i) the Financial Statements or (ii) the
Schedules hereto (the "Disclosure Schedules"), except those arising in the
ordinary course of business after the date of the December Balance Sheet to the
date of Closing and which will not be of a material nature or amount, will not
be in violation of any representation, warranty or covenant contained in this
Agreement and will not have or reasonably be expected to have a material adverse
effect upon the business, operations, financial position, prospects, properties
or assets of the Company; and (b) the Company shall have no long-term
indebtedness, notes payable to banks or notes payable to others.
2.21 Governmental Authorizations. Except as set forth in Schedule 2.21
hereto, the Company and each Shareholder has all federal, state and local
licenses, franchises, permits and other governmental authorizations which are
legally required to enable them to conduct their business in all respects as
currently being conducted and, between the date hereof and the Closing Date,
Shareholders shall, and Shareholders shall cause the Company to, maintain in
full force and effect all such licenses, franchises, permits and other
governmental authorizations.
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2.22 Environmental Protection.
(a) Except as set forth in Schedule 2.22 hereto, the Company (i)
has been at all times and is in compliance with all federal, state and local
laws relating to pollution or protection of the environment, and laws relating
to emissions, discharges, releases or threatened releases of Hazardous
Substances into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Substances (the "Environmental
Laws") and (ii) has obtained and is in full compliance with all permits,
licenses and other authorizations which are required with respect to the
operation of its business under the Environmental Laws and those which are
required (A) to construct or install any equipment or facilities and (B) to
generate, store, handle, transport, discharge, emit or dispose of Hazardous
Substances generated by the Company ("Environmental Permits"). As used in this
Agreement, "Hazardous Substances" shall mean any hazardous substance as defined
by 42 U.S.C. 9604(14), any pollutant or contaminant defined by 42 U.S.C.
9601(33), any pesticides regulated under the Federal Insecticide, Fungicide and
Rodenticide Act, as amended, 7 U.S.C. 136 et seq. and any petroleum, natural gas
and synthetic gas products regulated by, and any other products that could give
rise to liability under, any Environmental Laws.
(b) Neither any Shareholder nor the Company has received any
notice that any Shareholder or the Company has any potential liability with
respect to the clean-up of any site at which Hazardous Substances have been
generated, treated, stored, discharged, emitted or disposed of by or on behalf
of the Company and there are no past or present (or, to the knowledge of
Shareholders or the Company, future) events, conditions or circumstances which
may interfere with or prevent compliance or continued compliance by the Company,
or by Holdings conducting after the Closing a business similar to that now
conducted by the Company in accordance, with the Environmental Laws and
Environmental Permits or with any order, decree, judgment, injunction, notice or
demand issued, entered, promulgated or approved thereunder, or which may give
rise to any common law or other legal liability, including without limitation,
liability under any Environmental Laws or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, notice of violation, study or
investigation, based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling, or the emission,
discharge, release or threatened release into the environment, of Hazardous
Substances by or on behalf of the Company as a result of any act or omission of
any Shareholder or the Company.
2.23 Minute Books and Stock Record Books. The minute books of the
Company contain substantially complete records of all meetings and other
corporate actions of its shareholders and Board of Directors. The stock record
books of the Company contain complete records of all material transactions
involving equity securities of the Company. There have been no transactions
involving the Company's business which properly should have been set forth in
the books of account, minute books, stock record books, and stock transfer
ledgers which have not been set forth therein.
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2.24 Employee Benefit Plans.
(a) Schedule 2.12(A) hereto lists all "Employee Benefit Plans"
maintained by the Company. The term "Employee Benefit Plans" means all present
plans, programs, agreements and arrangements (including all amendments and
corresponding trust with respect to a plan) providing any remuneration or
benefits, other than current cash compensation or bonuses, to any current or
former employee of, or to any other person who provides services to, the Company
whether or not such plans are subject to the Employee Retirement Income Security
Act of 1974, as amended, and the regulations and rulings thereunder ("ERISA"),
and whether or not such plans are qualified under the Internal Revenue Code of
1986, as amended, and the regulations and rulings thereunder (the "Code"), and
includes pension, retirement, profit sharing, stock bonus, non-qualified
deferred compensation, disability, medical, dental, workers' compensation,
health insurance, life insurance and incentive plans, vacation benefits and
fringe benefits, but such term does not include any Employee Benefit Plan that
is a multi-employer plan (within the meaning of Section 3(37) of ERISA).
(b) To the knowledge of any executive officer of the Company, the
Employee Benefit Plans are maintained and operated in all material respects in
accordance with the plan documents, and ERISA, the Code and all other applicable
laws. To the knowledge of any executive officer of the Company, all reports,
forms and other documents required to be filed with any government entity with
respect to the Employee Benefit Plans have been timely filed and are in all
material respects accurate.
(c) To the knowledge of any executive officer of the Company, each
Employee Benefit Plan intended to be a tax-qualified plan under Section 401(a)
of the Code is now and has always been in material respects qualified under
Section 401(a) of the Code, and each trust maintained in connection with such
plan intended to be tax exempt under Section 501(a) of the Code is now and has
always been in all material respects so qualified as a tax-exempt plan. The
Internal Revenue Service ("IRS") has issued (to the extent the IRS can issue
determination letters with respect to such plans) one or more determination
letters with respect to such Employee Benefit Plans stating that, from the
inception of the plan, such plan has been and is in a form qualified under
Section 401(a) of the Code and each trust maintained in connection with such
plan is in form exempt under Section 501(a) of the Code. To the knowledge of any
executive officer of the Company, the time for adoption of any amendments
required by changes in the Code since the dates of such determination letters or
by the IRS as a condition for continued qualification of such plans has not
expired or did not expire without such amendments having been made.
(d) To the knowledge of any executive officer of the Company, all
contributions required to be made to each Employee Benefit Plan under the terms
of such plan prior to Closing, any collective bargaining agreement or other
agreement, or any applicable provisions of the Code or ERISA have been timely
made prior to Closing. No contributions have been made to any Employee Benefit
Plan in any form other than cash. No government entity has challenged or
disallowed any income tax deductions taken for any such contributions. To the
knowledge of any executive officer of the Company, no events have occurred or
are expected to occur with respect to any such plan that would cause a material
change in the value of the plan assets or the amount or
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present value of accrued benefits and other liabilities of such plan. Except as
disclosed in Schedule 2.12(A)(6) hereto, no insurance contract, annuity
contract, or other agreement or arrangement providing for the funding of any
Employee Benefit Plan would impose a material penalty, discount, or other
reduction on account of the withdrawal of assets or the change in investment of
such assets.
(e) To the knowledge of any executive officer of the Company,
except for claims for benefits by participants or beneficiaries in the normal
course, there are no claims, pending or threatened, by any individual or any
government agency, which, if decided adversely would reasonably be expected to
have a material adverse effect on the financial condition of any Employee
Benefit Plan or of the Company. To the knowledge of any executive officer of the
Company, except with respect to income taxes on benefits paid or provided, no
material income, excise or other tax or penalty (federal or state) has been
waived or excused, has been paid or is owed by any person, is reasonably
expected to be imposed, with respect to the operations of, or any transaction
with respect to, the Employee Benefit Plans. To the knowledge of any executive
officer of the Company, there has been no transaction in connection with which
any of the Employee Benefit Plans or "parties in interest" (within the meaning
of Section 3(14) of ERISA) could be subjected to either a material civil penalty
assessed pursuant to Section 502(i) of ERISA, or in connection with which a tax
could be imposed upon any "disqualified person" under Section 4975 of the Code.
To the knowledge of any executive officer of the Company, if any assets of any
Employee Benefit Plan are or were invested in any obligation of or security or
other instrument issued by, or any real or personal property of, the Company,
the investment and any subsequent disposition of such investment were made in
accordance with the requirements of an applicable statutory, class, or
individual exemption to the prohibited transaction rules of Section 406 of
ERISA.
(f) The Company maintains no plans subject to Title IV of ERISA.
To the knowledge of any executive officer of the Company, neither the Company
nor Holdings will incur any material liability upon termination of all of the
Employee Benefit Plans immediately following the Closing.
(g) Prior to Closing, the Company shall deliver to Holdings, the
current plan documents, including all amendments thereto with respect to all
Employee Benefit Plans, including but not limited to, if any, the latest
available: trust agreements, insurance contracts, annuity contracts, summary
plan descriptions, filings and correspondence with any government entity, all
determination letters and private rulings from the IRS, advisory opinion letters
from the Department of Labor, if any are available, administration contracts,
audit reports, financial statements, and any outstanding agreements concerning
plan mergers or transfers of plan assets.
2.25 No Brokers. There is no investment banker's, agent's, broker's or
finder's fee payable, or that will be payable, directly or indirectly, in
connection with the transactions contemplated by this Agreement by virtue of or
resulting from any action or agreement by any Shareholder, the Company or any
officer, director or employee thereof.
2.26 Product and Warranty Claims. Neither the Company nor any
Shareholder has any knowledge of and has not received during the past five (5)
years any claim or notice with respect to
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any occurrences arising out of the use or operation of policies designed, sold
or serviced by or on behalf of the Company or services provided by the Company
(other than any policies designed by, or sold to the Company or to customers of
the Company by, BCS), which has resulted in any claim or notice that any such
policies or services do not conform to any agreement, representation or warranty
made by the Company (or implied by law) with respect to such policies or
services. The Shareholders shall assign, to the extent it is assignable, their
coverage on their respective errors and omissions insurance policies to CBI.
2.27 Labor Matters. As of March 31, 1999, the Company employed a total
of 16 employees. As of the Closing Date, except as set forth in Schedule 2.27
hereto:
(a) The Company has paid in full or accrued to all its employees
all wages, salaries, commissions, bonuses, fringe benefit payments and all other
direct and indirect compensation of any kind for all services performed by them
and each of them to the date hereof to the extent the same was due and owing or
was declared;
(b) There is no labor dispute, strike, work stoppage, interference
with production or slowdown in progress, or threatened against or involving the
Company which is likely to have an adverse effect on the financial condition of
the Company;
(c) There is no question of representation under the National
Labor Relations Act, as amended, or any state equivalent thereof, pending with
respect to the employees of the Company which is likely to have an adverse
effect on the financial condition of the Company;
(d) There is no grievance pending or threatened which is likely to
have an adverse effect on the Company or on the conduct of the business of the
Company;
(e) There exists no collective bargaining agreement to which the
Company is a party, and there is no collective bargaining agreement currently
being negotiated or subject to negotiation or renegotiation by the Company; and
(f) There is no dispute, claim, or proceeding against the Company
pending with or threatened by the Immigration and Naturalization Service.
2.28 Accounts Receivable. Except as set forth on Schedule 2.28 hereto,
the accounts receivable shown on the Financial Statements are owned by the
Company and arose from bona fide transactions in the ordinary course of
business, are valid and legally enforceable obligations of the persons purported
to be liable therefore and, to each Seller's knowledge, are free of any defense,
counterclaim, set-off or deduction which is in excess of any reserve for bad
debts and credit memos established in the Financial Statements. The Shareholders
will be responsible for reimbursing Holdings for any charge-backs with respect
to commissions paid for products sold prior to January 1, 1999.
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2.29 Year 2000 Problem. Based on previous and ongoing internal reviews,
Company and Shareholders believe that the computer equipment and software used
by the Company will function properly with respect to dates in the year 2000 and
thereafter. The Company has requested information from third parties addressing
any potential year 2000 issues with such third parties; however, the Company is
not able to determine the extent to which such third parties, such as insurance
companies and clients, may experience year 2000 issues.
2.30 Customers. The Company shall deliver to Holdings at Closing an
accurate list of all customers of the Company, including any customers with
respect to which any transactions are pending as of the date hereof.
2.31 Accuracy of Representations. No representation or warranty of
Shareholders contained in this Agreement and no statement contained in any
exhibit, certificate, list, schedule (including the Disclosure Schedule) or
other document referred to in this Agreement, whether heretofore or hereafter
furnished to Holdings, 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. Any
underlying documents included in such exhibits or other disclosure documents, or
otherwise furnished to Holdings by Shareholders, are true and correct copies,
and there are no amendments or modifications thereto except as set forth in such
exhibits or other disclosure documents in which such documents are incorporated
or as otherwise noted on such documents.
3. REPRESENTATIONS AND WARRANTIES OF HOLDINGS.
Holdings represents and warrants to Shareholders as follows:
3.1 Organization of Holdings. Holdings is a company duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority to execute and deliver this Agreement
and to carry out its obligations hereunder. Holdings has all right, power and
authority to own or lease its properties and conduct its business as such
business is now being conducted.
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 Holdings have been duly and validly authorized by the Board of
Directors of Holdings and all requisite corporate action has been taken to make
them valid and binding upon Holdings in accordance with their respective terms.
Neither such execution, delivery or performance, nor the consummation of the
transactions contemplated hereby or thereby will violate any provision of its
Certificate 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 Holdings is a party.
3.3 Accuracy of Representations. No representation or warranty of
Holdings contained in this Agreement and no statement contained in any
certificate, list, schedule, exhibit or other document referred to in this
Agreement, whether heretofore or hereafter furnished to Shareholders,
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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 not false or misleading.
3.4 Shares Fully Paid and Nonassessable. The shares of common stock of
Holdings to be issued to the Shareholders pursuant to this Agreement will have
been duly authorized and when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable.
3.5 No Conflicts. The execution and delivery of this Agreement by
Holdings does not, and the consummation of the transactions contemplated hereby
by it will not, constitute (i) a breach or violation of, or default under, any
law, rule, or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Holdings or by which Holdings
is subject, which breach, violation or default would have a material adverse
effect on the financial condition, properties, businesses, or results of
operations of Holdings, taken as a whole or on the transactions contemplated
hereby, (ii) to the knowledge of Holdings, a breach or violation of, or a
default under, any law, rule, or regulation or any judgment, decree, order,
governmental permit or license, or agreement, or indenture, or instrument of
Holdings or to which Holdings is subject, or (iii) a breach or violation of, or
a default under the Certificate of Incorporation or Bylaws of Holdings; and the
consummation of the transactions contemplated hereby will not require any
consent, approval under any such law, rule, regulation, judgment, decree, order,
governmental permit, or license or the consent or approval of any other party to
any such agreement, indenture, or instrument other than any required approvals
of shareholders and applicable regulatory authorities.
3.6 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Holdings' knowledge, threatened
against or affecting Holdings, at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which would materially adversely
affect Holdings' performance under this Agreement or the consummation of the
transactions contemplated hereby.
3.7 Reports of Holdings. As of December 31, 1998, Holdings' Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 ("Holdings'
Report") in the form (including exhibits) filed with the Securities and Exchange
Commission ("SEC") does not contain any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. There is no fact or circumstance that, individually
or in the aggregate, materially and adversely has affected or is so affecting,
or, to the knowledge of Holdings, is likely in the future to so affect, the
business, financial condition, net worth, properties or results of operations of
Holdings taken as a whole, that has not been disclosed in the Holdings' Report.
The balance sheet in the Holdings' Report (including the related notes) fairly
presents the financial position of the entity or entities to which it relates as
of its date and each of the statements of income and stockholders' equity and
statement of cash flows or equivalent statements in the Holdings' Report
(including any related notes and schedules) fairly presents the results of
operations and
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changes in stockholders' equity, as the case may be, of the entity or entities
to which it relates for the periods set forth therein (subject, in the case of
unaudited statements, to year-end audit adjustments that will not be material in
amount or effect), in each case in accordance with GAAP consistently applied
during the periods involved, except as may be noted therein. Complete and
accurate copies of the Holdings' Report have been furnished to Shareholders.
3.8 No Material Adverse Change. Since December 31, 1998, there has been
no event or condition of any material character (whether actual, or to the
knowledge of Holdings, threatened or contemplated) that has had or is likely to
have, or that, if concluded or sustained adversely to Holdings, would have, a
material adverse effect on the financial condition, results or operations or
business of Holdings.
3.9 Commission Schedule. Attached hereto as Schedule 3.9 is the current
commission schedule with respect to businesses sold by BCS for the insurance
companies listed therein.
4. CERTAIN OTHER MATTERS.
4.1 Tax Matters. Shareholders and Holdings agree that (a) Holdings
shall prepare, and file in a timely manner all federal, state and other income
tax returns which are required to be filed by the Company after the Closing Date
for the period from January 1, 1999 through the Closing Date, and (b) Holdings
shall pay all taxes, assessments and other charges upon or against the Company,
or its income, revenues or profits, including interest and penalties related
thereto, with respect to any periods or portions of periods from January 1, 1999
up to and including the Closing Date; provided however, the Shareholders shall
be responsible for any taxes, assessments and other charges imposed as a result
of the Merger failing to qualify as a tax-free reorganization under Section 368
of the Code, and Holdings shall have no obligation for any such taxes,
assessments and charges.
5. CONDITIONS PRECEDENT TO HOLDINGS' OBLIGATIONS.
All obligations of Holdings 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 Holdings' Counsel. All proceedings taken by
the Company and the Shareholders 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 satisfactory to
Holdings' counsel.
5.2 Representations and Warranties; Certificates of Compliance. All
representations and warranties of Shareholders contained in this Agreement or in
any certificate or document heretofore delivered to Holdings or hereafter
delivered to Holdings pursuant hereto shall be true and correct both on the date
of this Agreement and such certificate or document and as of the Closing; and
all
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agreements and conditions required by this Agreement to be performed or
satisfied prior to or at the Closing (except agreements on the part of Holdings)
shall have been fulfilled; and Holdings 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 Holdings shall have been
furnished with certificates of Shareholders dated the Closing Date, certifying
as to such truth, correctness and fulfillment and further certifying that
neither the Company nor any Shareholder is a party to any litigation other than
as reflected in the Schedules to this Agreement and that Shareholders have no
knowledge of any pending or threatened claim, seeking to recover damages from
the Company or to prevent the Company from continuing to use its assets or to
conduct its business in the manner the same were used or conducted prior
thereto.
5.3 Property Not Destroyed or Business Interrupted. Neither the assets
or property of the Company shall have been destroyed or damaged by fire,
accident or other casualty or any labor disturbance, riot or act of God or the
public enemy which affects in a material and adverse way the conduct of the
Company's business, and the business and operations shall not have been stopped
or interrupted by a strike, lockout or other labor dispute.
5.4 Litigation. No action or proceeding shall have been instituted or
threatened by third parties against Holdings, the Company or Shareholders to
restrain or prohibit, or to obtain damages in respect of, the transactions
contemplated by this Agreement if such action or proceeding in the opinion of
Holdings makes it inadvisable to consummate such transactions.
5.5 Changes. The Company 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.
5.6 Delivery of Documents. Shareholders and the Company shall have
delivered to Holdings the instruments and documents referred to in Section 1.7
hereof and any other documents referred to elsewhere in this Agreement.
5.7 Notes Receivable. Except for the account receivable due the Company
from Lynn High as set forth in Schedule 2.14, all notes and accounts receivable
due and owing to the Company from any Shareholder shall have been paid in full
on or prior to Closing and satisfactory evidence of such payment shall be
presented to Holdings.
5.8 Endorsements. All third party trade associations which have entered
into endorsement agreements, license agreements or marketing agreements
(collectively, the "Endorsement Agreements") with the Company, as further
described on Schedule 5.8 hereto, have consented to the transaction contemplated
hereunder and have indicated to the Company in writing that consummation of such
transaction will not in any way limit any endorsements or any other relationship
between the Company, or its successors, and the trade associations contemplated
under the Endorsement Agreements.
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5.9 Termination of GenMark, Inc. Agreement. The Company shall have
caused the termination of that certain Marketing Agreement between GenMark, Inc.
and American Financial Institution Services Corp. dated September 18, 1998.
5.10 Payables to Shareholders. Other than as contemplated hereunder,
all notes and other forms of indebtedness other than amounts due for salaries,
bonuses, pursuant to any Employee Benefit Plan, for reimbursement of expenses
and any other items of compensation owing to any Shareholder from the Company
shall be cancelled and forgiven in full prior to the Closing Date and
satisfactory evidence of such cancellation shall be presented to Holdings.
5.11 Consents. Holdings' senior lender shall have approved the
transaction contemplated hereby.
5.12 D&L Flyers Agreement. The Company and D&L Flyers, Inc. ("Flyers")
shall enter into a service agreement mutually acceptable to both parties.
5.13 Waiver. Any of the foregoing conditions may be waived in writing
by Holdings.
6. CONDITIONS PRECEDENT TO SHAREHOLDERS' OBLIGATIONS.
All obligations of the Company and Shareholders 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 Shareholders' Counsel. All proceedings taken
by Holdings 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 Shareholders' counsel.
6.2 Representations and Warranties; Compliance with Conditions. All
representations and warranties of Holdings 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 respects as of the Closing;
and Holdings 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 Shareholders shall have been furnished with
certificates of appropriate officers of Holdings 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 Holdings, the Company or the Shareholders to
restrain or prohibit, or to obtain damages in respect of, the transactions
contemplated by this Agreement, if such action or proceeding in the opinion of
the Shareholders makes it inadvisable to consummate such transactions.
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6.4 Changes. Holdings 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 in the ordinary course of business,
none of which shall have been materially adverse.
6.5 Delivery of Documents. Holdings shall have delivered to
Shareholders the instruments and documents referred to in Section 1.8 hereof and
any other documents referred to elsewhere in this Agreement.
6.6 D&L Flyers Agreement. The Company and Flyers shall enter into a
service agreement mutually acceptable to both parties.
6.7 Waiver. Any of the foregoing conditions may be waived in writing by
Shareholders.
7. TERMINATION.
This Agreement may be terminated at any time prior to the Closing:
(a) By mutual consent of Holdings and Shareholders;
(b) By either Holdings or Shareholders at any time after June 30,
1999, if the Closing has not occurred by that date;
(c) At the option of Holdings upon the nonsatisfaction of any of the
conditions precedent set forth in Section 5 hereof, which in the judgment of
Holdings, cannot be corrected or cured on or prior to the Closing Date; or
(d) At the option of Shareholders upon the nonsatisfaction of any of
the conditions precedent set forth in Section 6 hereof, which in the judgment of
Shareholders, cannot be corrected or cured on or prior to the Closing Date.
Either Holdings or Shareholders may, at its/their election, waive in
writing any of its/their rights to terminate this Agreement under the provisions
of Articles 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. 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 said first-mentioned party of
any of the terms of this Agreement.
8. INDEMNIFICATION.
8.1 Indemnification by the Shareholders.
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Subject to the Indemnity Limit (as defined below), the Shareholders
agree jointly and severally to indemnify, defend, and hold Holdings and the
Company harmless from and against any and all demands, claims, actions, or
causes of action, assessments, losses, settlements, penalties, forfeitures,
expenses (including, but not limited to, reasonable attorneys' fees), damages
and liabilities (collectively, an "Indemnity Loss") asserted against, suffered,
incurred, sustained or required to be paid by Holdings or the Company arising
out of, relating to, or as a direct or proximate result of any misrepresentation
or breach of any representation or warranty of the Shareholders or the Company
contained in this Agreement or any breach or failure of the Shareholders or the
Company to perform any covenant or obligation of the Shareholders or the Company
contained in this Agreement or any Related Agreement (other than any employment
agreement), Exhibit, Schedule, certificate or other instrument or document
required to be furnished or to be furnished by the Shareholders or the Company
pursuant to this Agreement. Notwithstanding anything contained in this Agreement
to the contrary, the obligation of each Shareholder to indemnify Holdings and
the Company from any and all Indemnity Losses pursuant to this Section 8 shall
be limited in the aggregate to the amount of the Merger Consideration actually
received by such Shareholder and no more ("Indemnity Limit"), which Indemnity
Limit shall be determined on the basis of the value of the Merger Consideration
at the Merger Effective Date.
8.2 Indemnification by Holdings. Holdings agrees to indemnify, defend,
and hold the Shareholders harmless from and against any and all Indemnity Loss
asserted against, suffered, incurred, sustained or required to be paid by the
Shareholders arising out of, relating to or as a direct or proximate result of
any misrepresentation in or breach of any representation or warranty of Holdings
contained in this Agreement, any breach or failure of Holdings to perform any
covenant or obligation of Holdings contained in this Agreement, or any Related
Agreement (other than any employment agreement), Exhibit, Schedule, certificate
or other instrument or other document furnished or to be furnished pursuant to
this Agreement.
8.3 Notice. If the claimant hereunder (the "Claimant") believes that it
has suffered or incurred any Indemnity Loss, it shall so notify the party which
the Claimant believes has an obligation to indemnify (the "Indemnifying Party")
promptly in writing describing such loss or expense, the amount thereof, if
known, and the method of computation of such loss or expense, all with
reasonable particularity (the "Indemnification Notice"). If any action at law,
suit in equity, or administrative action is instituted by or against a third
party with respect to which the Claimant intends to claim any liability or
expense as an Indemnity Loss under this Section 8, it shall promptly notify the
Indemnifying Party in writing of such action or suit (the "Litigation Notice").
8.4 Defense of Claims. The Claimant shall have thirty (30) business
days after sending out the Litigation Notice to notify the Indemnifying Party
that it elects to conduct and control any legal or administrative action or suit
with respect to an indemnifiable claim at the Indemnifying Party's expense (the
"Election Notice"). If the Claimant does not give the foregoing notice, the
Indemnifying Party shall have the obligation to defend, contest, settle, or
compromise such action or suit at its expense. If the Claimant gives the
Election Notice to the Indemnifying Party, the Claimant shall have the right to
undertake, conduct, and control, through counsel of its or their own
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choosing and at the expense of the Indemnifying Party, the conduct and
settlement of such action or suit, and the Indemnifying Party shall cooperate
with the Claimant in connection therewith; provided, however, that (a) the
Claimant shall not thereby consent to the imposition of any injunction against
the Indemnifying Party without the written consent of the Indemnifying Party;
and (b) the Claimant shall permit the Indemnifying Party to participate in such
conduct or settlement through counsel chosen by the Indemnifying Party, but the
fees and expenses of such counsel shall be borne by the Indemnifying Party.
8.5 Payment of Losses.
(a) The Indemnifying Party shall pay to the Claimant in cash the
amount to which the Claimant may become entitled by reason of the provisions of
this Section 8 (an "Indemnity Payment"), such payment to be made within fifteen
(15) days after the amount of any Indemnity Loss is known and the mutual
agreement of the parties that the Indemnifying Party is liable to the Claimant
for an Indemnity Loss.
(b) In addition to the foregoing, Holdings shall have the option of
recouping all or any part of any Indemnity Loss which Holdings may suffer by, at
Holdings' option (i) drawing upon the Escrow Account pursuant to the Escrow
Agreement or (ii) setting off against amounts due Shareholders pursuant to
Section 1.3 hereof.
9. EXPENSES.
9.1 Expenses of Shareholders. Shareholders shall pay all expenses
incurred or to be incurred by them or on their behalf in connection with
entering into and carrying out this Agreement or otherwise incidental hereto or
as specified herein, as they may allocate such expenses amongst themselves,
including without limitation:
(a) Transfer taxes arising out of the conveyance and transfer of
the Shares to Holdings; and
(b) Fees and expenses of their counsel and accountants.
9.2 Expenses of Holdings. Holdings shall pay all expenses incurred or
to be incurred by it or on its behalf in connection with entering into and
carrying out this Agreement or otherwise incidental hereto or as specified
herein, including without limitation fees and expenses of its counsel and
accountants.
10. SURVIVAL OF WARRANTIES, REPRESENTATIONS AND AGREEMENTS.
The representations, warranties, covenants and agreements set forth in
this Agreement or in any writing delivered to Holdings or Shareholders in
connection with this Agreement shall survive the Closing Date and the
consummation of the transactions contemplated hereby for a period of
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one (1) year following the Closing Date and shall not be affected by any
examination made for or on behalf of Holdings or Shareholders, the knowledge of
any Shareholders or any of Holdings' officers, directors, shareholders,
employees or agents, or the acceptance by Holdings or any Shareholder of any
certificate or opinion; provided, however, that the representations, warranties,
covenants and agreements made with respect to (i) Sections 2.7, and 2.2 hereof
shall survive for a period of four (4) years following the Closing Date, and
(ii) Sections 2.8, and 2.24 hereof shall survive until the applicable statute of
limitations has expired.
11. CERTAIN COVENANTS OF PARTIES.
11.1 Information and Access. From and after the date of this Agreement
and to the Closing Date, each Shareholder will furnish, and will cause the
Company to furnish, to Holdings and its duly authorized representatives and
agents any requested information about the Company and its properties and
businesses, and will give Holdings and its duly authorized representatives and
agents during normal business hours complete access to the Company's officers,
employees, accountants, auditors, books, records, agreements, tax returns,
physical facilities and assets for the purpose of conducting an investigation of
the same, provided that such investigation shall be conducted in a manner that
will not unreasonably disrupt the Company's business activities. Holdings will
furnish Shareholders a copy of all reports filed with the SEC.
11.2 No Solicitation. Prior to termination of this Agreement, (a) no
Shareholder nor the Company shall, directly or indirectly, initiate contact with
any person or entity in an effort to solicit any Acquisition Proposal (as
hereinafter defined), nor will any Shareholder or the Company authorize or
permit any officer, director or employee of, or any investment banker, attorney,
accountant, broker, agent or other representative of or retained by, any
Shareholder or the Company, directly or indirectly, to initiate any such
contact, (b) no Shareholder or the Company shall negotiate or otherwise
cooperate with or furnish or cause to be furnished to any person or entity any
information concerning the business, financial condition, properties or assets
of the Company in connection with any Acquisition Proposal, and (c) each
Shareholder and the Company will promptly notify Holdings of all relevant
details relating to any Acquisition Proposal received by any Shareholder or the
Company. As used in this Section, "Acquisition Proposal" shall mean any proposal
for the purchase, exchange and/or a merger or other business combination
involving the acquisition by a third party of a substantial equity interest in
the Company or of a substantial portion of the assets of the Company, other than
in connection with this Agreement.
12. NOTICES. All notices, consents, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given 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 (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:
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If to Holdings, to:
Clark/Bardes, Inc.
2121 San Jacinto Street
Suite 2200
Dallas, Texas 75201
Attention: Mel G. Todd, President
Phone: (214) 871-8717
Fax No.: (214) 871-7690
with a required copy to:
Vedder, Price, Kaufman & Kammholz
222 North LaSalle Street
Suite 2600
Chicago, IL 60601-1003
Attention: Stanley B. Block, Esq.
Lane R. Moyer, Esq.
Phone: (312) 609-7500
Fax No.: (312) 609-5005
If to Shareholders, to:
Kathryn Orr Smith
National Institute for Community Banking, Inc.
One Galleria Tower
1355 Noel Road, Suite 1715
Dallas, Texas 75240
with a required copy to:
Jeanne P. Breckinridge
Jenkens & Gilchrist, a Professional Corporation
600 Congress Avenue
Suite 2200
Austin, Texas 78701
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.
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13. ENTIRE AGREEMENT.
This Agreement, including the exhibits hereto, contains the entire
understanding of the parties hereto with respect to the subject matter hereof.
14. AMENDMENTS.
This Agreement may be amended by an instrument in writing made by the
parties to be bound thereby.
15. SPECIFIC PERFORMANCE.
Each Shareholder acknowledges and agrees that the Shares are unique,
that damages for the failure of any Shareholder to transfer the Shares pursuant
to this Agreement would be an inadequate remedy, and that Holdings shall be
entitled to enforcement by judgment for specific performance.
16. PUBLICITY.
All notices to third parties and all other publicity relating to the
transactions contemplated by this Agreement shall be jointly planned,
coordinated and agreed to by Holdings and the Shareholders, except to the extent
disclosures are required by law.
17. FURTHER ASSURANCES.
From time to time after the Closing and without further consideration
from Holdings, Shareholders shall execute and deliver such other instruments of
conveyance and transfer and such other documents, and take such other action, as
Holdings may reasonably request more effectively to convey, assign, transfer and
deliver to, and vest in, Holdings full and complete title to the Shares to put
Holdings in possession of all assets and property belonging to the Company 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.
18. 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.
36
<PAGE> 42
19. 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 Disclosure Schedule, 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.
20. 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 Holdings 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 Holdings or with
or into which Holdings may be consolidated or merged).
21. 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.
37
<PAGE> 43
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
/s/ David Shuster
----------------------------------------
David Shuster, (a Shareholder)
/s/ Lynn High
----------------------------------------
Lynn High (a Shareholder)
/s/ Kathryn Orr Smith
----------------------------------------
Kathy Smith (a Shareholder)
/s/ Kelly W. Earls
----------------------------------------
Kelly Earls (a Shareholder)
NICB AGENCY, INC.
(Company)
By: /s/ Kathryn Orr Smith
----------------------------------
Its: President
CLARK/BARDES HOLDINGS, INC.
(Holdings)
By: /s/ Thomas M. Pyra
----------------------------------
Its: Chief Financial Officer
38
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF MERGER
OF
NICB AGENCY, INC.
AND
CLARK/BARDES HOLDINGS, INC.
The undersigned corporations
DO HEREBY CERTIFY:
1. The name and state of incorporation of each of the constituent
corporations in the merger is as follows:
(i) NICB AGENCY, INC., which is incorporated under the laws of the
State of Texas; and
(ii) CLARK/BARDES HOLDINGS, INC., which is incorporated under the
laws of the State of Delaware.
2. A Plan of Merger has been approved, adopted, certified, executed and
acknowledged by each of the aforesaid constituent corporations in accordance
with the provisions of Section 252 of the General Corporation Law of the State
of Delaware.
3. The name of the surviving corporation in the merger herein certified
is CLARK/BARDES HOLDINGS, INC., which will continue its existence as said
surviving corporation under its present name upon the effective date of said
merger pursuant to the provisions of the General Corporation Law of the State of
Delaware.
4. The Certificate of Incorporation of CLARK/BARDES HOLDINGS, INC., as
now in force and effect, shall continue to be the Certificate of Incorporation
of said surviving corporation until amended and changed pursuant to the
provisions of the General Corporation Law of the State of Delaware.
5. The executed Plan of Merger between the aforesaid constituent
corporations is on file at the principal place of business of the aforesaid
surviving corporation, the address of which is as follows:
2121 San Jacinto Street
Suite 2200
Dallas, Texas 75201
<PAGE> 2
6. A copy of the aforesaid Plan of Merger will be furnished by the
aforesaid surviving corporation on request, and without cost, to any stockholder
of each of the aforesaid constituent corporations.
7. The Plan of Merger between the aforesaid constituent corporations
provides that the merger herein certified shall be effective upon the issuance
of a Certificate of Merger by the Secretary of State of the State of Delaware
and Articles of Merger by the Secretary of State of the State of Texas.
Dated: May 18, 1999.
CLARK/BARDES HOLDINGS, INC.
By: /s/ Thomas M. Pyra
----------------------------
Its: Chief Financial Officer
Dated: May 18, 1999.
NICB AGENCY, INC.
By: /s/ Kathryn Orr Smith
----------------------------
Its: President
<PAGE> 3
PLAN OF MERGER
MERGING
NICB AGENCY, INC.
(A TEXAS CORPORATION)
WITH AND INTO
CLARK/BARDES HOLDINGS, INC.
(A DELAWARE CORPORATION)
**************
THIS PLAN OF MERGER, is made and entered into as of May 18, 1999 (the
"Agreement"), by and between Clark/Bardes Holdings, Inc., a Delaware corporation
("Holdings"), and NICB Agency, Inc., a Texas corporation ("NICB"). Holdings and
NICB are hereinafter sometimes referred to as the "Constituent Corporations."
W I T N E S S E T H:
WHEREAS, Holdings is a corporation duly organized and existing under
the laws of the State of Delaware, having authorized capital stock consisting of
20,000,000 shares of common stock, $.01 par value ("Holdings Shares"); and
WHEREAS, NICB is a corporation duly organized and existing under the
laws of the State of Texas having authorized capital stock consisting of 100,000
common shares, $1.00 par value per share ("NICB Shares");
WHEREAS, Holdings, NICB and certain other persons are parties to that
certain Agreement and Plan of Reorganization dated as of May 18, 1999 (the
"Merger Agreement"); and
WHEREAS, the Board of Directors of Holdings and the Board of Directors
and shareholders of NICB deemed it advisable and in the best interests of said
corporations that NICB merge with and into Holdings upon the terms and
conditions set forth herein and in accordance with the laws of the States of
Delaware and Texas (the "Merger").
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1
EFFECT OF THE MERGER; CONVERSION OF SHARES
1.1 MERGER. At the Effective Time (as hereinafter defined) of the
Merger, NICB shall be merged with and into Holdings, the separate corporate
existence of NICB (except to the extent provided by the laws of the State of
Texas) shall cease, and Holdings shall continue as the
<PAGE> 4
surviving corporation. The Merger shall have the further effects set forth under
the laws of the State of Delaware. Holdings, in its capacity as the surviving
corporation of the Merger, is hereinafter sometimes referred to as the
"Surviving Corporation."
1.2 HOLDINGS SHARES. At the Effective Time, each Holdings Share issued
and outstanding immediately prior to the Effective Time shall not be affected by
the Merger and after the Effective Time shall continue to be an issued and
outstanding Holdings Share.
1.3 NICB SHARES. At the Effective Time, each NICB Share issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action by the holder of such NICB Share or any other
person, automatically be converted into the right to receive 39.697 shares of
common stock of Holdings and up to 384,452 shares of common stock of Holdings,
all in accordance with and pursuant to the terms of that certain Agreement and
Plan of Reorganization dated as of May 18, 1999, by and among Holdings, NICB and
the shareholders of NICB. Any NICB Share held in the treasury of NICB shall be
canceled and no payment shall be made in respect thereof.
1.4 FRACTIONAL SHARES. It is anticipated that fractional shares shall
not be issued as part of the merger consideration, but in the case where a
holder of NICB Shares would, except for this provision be entitled under the
terms of the Merger Agreement to receive a fractional share of Holdings Shares,
Holdings shall deliver to such holder of NICB Shares that amount of cash equal
to the value of such fractional share.
SECTION 2
EFFECTIVE TIME
2.1 ARTICLES/CERTIFICATE OF MERGER. Following approval of the Merger by
the Board of Directors of Holdings and the shareholders and Board of Directors
of NICB, and provided that this Agreement has not been abandoned pursuant to
Section 4.2 hereof, each of Holdings and NICB shall cause appropriate
Certificate or Articles of Merger to be executed, acknowledged and filed with
the Secretary of State of the States of Delaware and Texas.
2.2 EFFECTIVE TIME. The Merger shall become effective upon the issuance
of a Certificate or Articles of Merger, as the case may be, by the Secretary of
State of the States of Delaware and Texas (the "Effective Time").
SECTION 3
CERTIFICATE OF INCORPORATION;
BY-LAWS; BOARD OF DIRECTORS AND OFFICERS
3.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Holdings (a certified copy of which is attached hereto as EXHIBIT A) as in
effect at the Effective Time shall
2
<PAGE> 5
continue to be the Certificate of Incorporation of the Surviving Corporation
until the same shall be amended in the manner provided by law.
3.2 BY-LAWS. The By-laws of Holdings as in effect at the Effective Time
shall continue to be the By-laws of the Surviving Corporation until the same
shall be altered, amended or repealed in accordance with the provisions thereof.
3.3 BOARD OF DIRECTORS AND OFFICERS. The members of the Board of
Directors and the officers of Holdings holding office immediately prior to the
Effective Time shall be and remain the members of the Board of Directors and
officers of the Surviving Corporation and shall hold such offices until the
expiration of their current terms, or their prior resignation, removal or death.
SECTION 4
AMENDMENT; ABANDONMENT
4.1 AMENDMENT. At any time prior to the Effective Time, whether before
or after approval by the stockholders of the Constituent Corporations, this
Agreement may be amended in a written agreement executed by the parties hereto.
4.2 ABANDONMENT. This Agreement may be terminated and the Merger
abandoned for any reason by a resolution adopted by the Board of Directors of
any of Holdings or NICB at any time prior to the Effective Time notwithstanding
the approval of this Agreement by the stockholders of Holdings or NICB.
[Signature Page Follows]
3
<PAGE> 6
IN WITNESS WHEREOF, this Agreement is hereby executed on behalf of each
of the Constituent Corporations and attested to by their respective secretaries
thereunto duly authorized as of the date first written above.
CLARK/BARDES HOLDINGS, INC.
ATTEST:
By: /s/ MEL TODD
------------------------------------
/s/ KEITH STAUDT Name: Mel Todd
- ----------------------- Title: President and Chief Executive Officer
Keith Staudt, Secretary
NICB AGENCY, INC.
ATTEST:
By: /s/ KATHRYN ORR SMITH
/s/ [ILLEGIBLE] -----------------------------------
- ------------------------ Name: Kathryn Orr Smith
- -------------, Secretary Title: President
4
<PAGE> 1
EXHIBIT 10.46
LEASE OF OFFICE SPACE
DATE: FEBRUARY 20, 1990
BETWEEN: T.H.S. NORTHSTAR ASSOCIATES LIMITED PARTNERSHIP,
(ADDRESS) a Minnesota Limited Partnership
200 Northstar East
608 Second Avenue South
Minneapolis, Minnesota 55402 ("Landlord")
AND: PHYNQUE, INC.,
(ADDRESS) 370 Northstar East
608 Second Avenue South
Minneapolis, Minnesota 55402 ("Tenant")
FOR PREMISES IN: Northstar East Suites 370 & 1001
608 Second Avenue South
Minneapolis, Minnesota 55402
LANDLORD AND TENANT, in consideration of the covenants herein contained, hereby
agree as follows:
ARTICLE 1.00 DEFINITIONS
1.01 DEFINITIONS. In this Lease:
(a) "Annual Rent" means the amount payable by Tenant to Landlord in
respect of each year of the Term under Article 4.01.
(b) "Article" means an article of this Lease.
(c) "Commencement Date" means the first day of the Term.
(d) "Exhibit A" means the plan(s) attached hereto as Exhibit A.
(e) "Exhibit B" means the provisions relating to Occupancy Costs and
other matters attached hereto as Exhibit B.
(f) "Exhibit C" means the Rules and Regulations attached hereto as
Exhibit C.
(g) "Fiscal Year" means a twelve month period (all or part of which
falls within the Term) from time to time determined by Landlord
with concurrence of the appropriate taxation authorities, at the
end of which Landlord's books are balanced for auditing and/or
taxation purposes.
(h) "Lease" means this lease, Exhibits A, B, C and (if attached) D to
this lease, and every properly executed instrument which by its
terms amends, modifies or supplements this lease.
(i) "Occupancy Costs" means amounts payable by Tenant to Landlord under
Article 4.02.
(j) "Other Charges" means amounts payable to Landlord under Article
4.03.
(k) "Premises" means 9,824 square feet, more or less, on the 3rd and
10th floor of the Building as generally indicated on Exhibits A and
A-1.
(l) "Rent" means the aggregate of all amounts payable by Tenant to
Landlord under Articles 4.01, 4.02 and 4.03.
(m) "Term" means the period of time set out in Article 3.01.
<PAGE> 2
ARTICLE 2.00 GRANT OF LEASE
2.01 GRANT. Landlord hereby demises and leases the Premises to Tenant, and
Tenant hereby leases and accepts the Premises from Landlord, to have
and to hold during the Term, subject to the terms and conditions of
this Lease.
2.02 QUIET ENJOYMENT. Landlord shall warrant and defend Tenant in the quiet
enjoyment and possession of the Premises during the Term, subject to
the terms and conditions of this Lease.
2.03 COVENANTS OF LANDLORD AND TENANT. Landlord covenants to observe and
perform all of the terms and conditions to be observed and performed by
Landlord under this Lease. Tenant covenants to pay the Rent when due
under this Lease, and to observe and perform all of the terms and
conditions to be observed and performed by Tenant under this Lease.
ARTICLE 3.00 TERM AND POSSESSION
3.01 TERM. Notwithstanding Articles 3.02 and 3.03, the term of this Lease
shall be 4 years beginning on the first day of the month of January 1,
1990 and ending on the last day of the month of September, 1994, unless
terminated earlier as provided in this Lease.
3.02 EARLY OCCUPANCY. If Tenant begins to conduct business in all or any
portion of the Premises before the Commencement Date, Tenant shall pay
to Landlord on the Commencement Date a rental in respect thereof for
the period from the date Tenant begins to conduct business therein to
the Commencement Date, which rental shall be that proportion of Rent
for one calendar year which the number of days in such period bears to
365. The provisions of this Lease shall be applicable during such
period.
3.03 DELAYED POSSESSION. If Landlord is delayed in delivering possession of
all or any portion of the Premises to Tenant on or before the
Commencement Date, then Tenant shall take possession of the Premises on
the date (not later than one year after the Commencement Date) when
Landlord delivers possession of all of the Premises, which date shall
be conclusive established by notice to Tenant, accompanied and
confirmed by an Architect's Certificate, at least 5 days before such
date. This Lease shall not be void or voidable nor shall Landlord be
liable to Tenant for any loss or damage resulting from any delay in
delivering possession of the Premises to Tenant, but unless such delay
is principally caused by or attributable to Tenant, its servants,
agents or independent contractors, no Rent shall be payable by Tenant
for the period prior to the date on which Landlord can so deliver
possession of all of the Premises, unless Tenant elects to take
possession of a portion of the Premises whereupon Rent shall be payable
in respect thereof from the date such possession is so taken.
3.04 ACCEPTANCE OF PREMISES. Taking possession of all or any portion of the
Premises by Tenant shall be conclusive evidence as against Tenant that
the Premises or such portion thereof are in satisfactory condition on
the date of taking possession, subject only to latent defects and
deficiencies (if any) listed in writing in a notice delivered by Tenant
to Landlord not more than thirty days after the later of the date of
taking possession and the Commencement Date.
ARTICLE 4.00 RENT AND OCCUPANCY COSTS
4.01 ANNUAL RENT. Tenant shall pay to Landlord as Annual Rent for the
Premises the sum of $30,454.44 in respect of each year of the Term,
payable in advance and without notice in monthly installments of
$2,537.87 each on the Commencement Date and on the first day of each
calendar month thereafter during the Term.
4.02 OCCUPANCY COSTS. Tenant shall pay to Landlord, at the times and in the
manner provided in Article 4.06, the Occupancy Costs (if any)
determined under Exhibit B.
4.03 OTHER CHARGES. Tenant shall pay to Landlord, at the times and in the
manner provided in this Lease or, if not so provided, as reasonably
required by Landlord, all amounts (other than that payable under
Articles 4.01 and 4.02) which are payable by Tenant to Landlord under
this Lease.
<PAGE> 3
4.04 PAYMENT OF RENT - GENERAL. All amounts payable by Tenant to Landlord
under the Lease shall be deemed to be Rent and shall be payable and
recoverable as Rent in the manner herein provided, and Landlord shall
have all rights against Tenant for default in any such payment as in
the case of arrears of rent. Rent shall be paid to Landlord, without
deduction or set-off, in legal tender of the jurisdiction in which the
Building is located, at the address of Landlord as set forth in the
beginning of this Lease, or to such other person or at such other
address as Landlord may from time to time designate in writing.
Tenant's obligation to pay Rent shall survive the expiration or earlier
termination of this Lease.
4.05 ANNUAL RENT - EARLY TERMINATION. If the Term ends on a day other than
the last day of a calendar month, the installment of Annual Rent
payable on the first day of the last calendar month of the Term shall
be that proportion of the Annual Rent which the number of days from the
first day of such last calendar month to the last day of the Term bears
to 365.
4.06 PAYMENT - OCCUPANCY COSTS.
(a) Prior to the Commencement Date and the beginning of each Fiscal
Year thereafter, Landlord shall compute and deliver to Tenant a
bona fide estimate of Occupancy Costs for the appropriate Fiscal
Year and without further notice Tenant shall pay to Landlord in
monthly installments one-twelfth of such estimate simultaneously
with Tenant's payments of Annual Rent during such Fiscal Year.
(b) Unless delayed by causes beyond Landlord's reasonable control,
Landlord shall deliver to Tenant within 120 days after the end of
each Fiscal Year a written statement (the "Statement") setting
out in reasonable detail the amount of Occupancy Costs for such
Fiscal Year and certified to be correct by an officer of
Landlord. If the aggregate of monthly installments of Occupancy
Costs actually paid by Tenant to Landlord during such Fiscal Year
differs from the amount of Occupancy Costs payable for such
Fiscal Year under Article 4.02, Tenant shall pay or Landlord
shall refund the difference (as the case may be) without interest
within 30 days after the date of delivery of the Statement.
(c) If Landlord and Tenant disagree on the accuracy of Occupancy
Costs as set forth in the Statement, Tenant shall nevertheless
make payment in accordance with any notice given by Landlord, but
the disagreement shall immediately be referred by Landlord for
prompt decision by a mutually acceptable public accountant,
architect, insurance broker or other professional consultant who
shall be deemed to be acting as expert(s) and not arbitrator(s),
and a determination signed by the selected expert(s) shall be
final and binding on both Landlord and Tenant. Any adjustment
required to any previous payment made by Tenant or Landlord by
reason of any such decision shall be made within 14 days thereof,
and the party required to make payment under such adjustment
shall bear all costs of the expert(s) making such decision,
except where that payment represents 3% or less of the Occupancy
Costs that were the subject of the disagreement in which case
Tenant shall bear all such costs.
(d) Neither party may claim a re-adjustment in respect of Occupancy
Costs for a Fiscal Year if based upon any error of computation or
allocation except by notice delivered to the other party within
six months after the date of delivery of the Statement.
ARTICLE 5.00 USE OF PREMISES
5.01 USE. The Premises shall be used and occupied only as business offices
for the business of Tenant as initially conducted in the Premises, or
for such other purpose as Landlord may specifically authorize in
writing.
5.02 COMPLIANCE WITH LAWS. The Premises shall be used and occupied in a
safe, careful and proper manner so as not to contravene any present or
future governmental or quasi-governmental laws in force or regulations
or orders. If due solely to Tenant's use of the Premises, improvements
are necessary to comply with any of the foregoing or with the
requirements of insurance carriers, Tenant shall pay the entire costs
thereof. Landlord affirms that it shall pay costs of any repairs or
alterations to the Premises necessitated by future laws relating to
asbestos, radon, freon and fire sprinklers. Landlord shall restore the
Premises to the condition existing before the need for such repairs or
alterations, but any enhancements to the Premises which Tenant may
desire as an indirect result of making such repairs or alterations
shall be the responsibility of Tenant.
5.03 ABANDONMENT. Tenant shall not abandon the Premises at any time during
the Term without Landlord's written consent.
5.04 NUISANCE. Tenant shall not cause or maintain any nuisance in or about
the Premises, and shall keep the Premises free of debris, rodents,
vermin and anything of a dangerous, noxious or offensive nature or
which could create a fire hazard (through undue load on electrical
circuits or otherwise) or undue vibration, heat or noise.
<PAGE> 4
ARTICLE 6.00 SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY LANDLORD
6.01 OPERATION OF BUILDING. During the Term Landlord shall operate and
maintain the Building in accordance with all applicable laws and
regulations and with standards from time to time prevailing for
first-class office buildings in the area in which the Building is
located and, subject to participation by Tenant by payment of Occupancy
Costs under Article 4.02, shall provide the services set out in Article
6.02 and 6.03.
6.02 SERVICES TO PREMISES. Landlord shall provide in the Premises:
(a) heat, ventilation and cooling as required for the comfortable use
and occupancy of the Premises during normal business hours,
(b) janitor services, including window washing, as reasonably
required to keep the Premises in a clean and wholesome condition,
provided that Tenant shall leave the Premises in a reasonably
tidy condition at the end of each business day,
(c) electric power for normal lighting and small business office
equipment (but not equipment using amounts of power
disproportionate to that used by other tenants in the Building),
(d) intentionally omitted,
(e) maintenance, repair, and replacement as set out in Article 6.04.
6.03 BUILDING SERVICES. Landlord shall provide in the Building:
(a) domestic running water and necessary supplies in washrooms
sufficient for the normal use thereof by occupants in the
Building,
(b) access to and egress from the Premises, including elevator or
escalator service if included in the Building,
(c) heat, ventilation, cooling, lighting, electric power, domestic
running water, and janitor service in those areas of the Building
from time to time designated by Landlord for use during normal
business hours by Tenant in common with all tenants and other
persons in the Building but under the exclusive control of
Landlord,
(d) a general directory board on which Tenant shall be entitled to
have its name shown, provided that Landlord shall have exclusive
control thereof and of the space thereon to be allocated to each
tenant, and
(e) maintenance, repair, and replacement as set out in Article 6.04.
6.04 MAINTENANCE, REPAIR AND REPLACEMENT. Landlord shall operate, maintain,
repair and replace the systems, facilities and equipment necessary for
the proper operation of the Building and for provision of Landlord's
services under Article 6.02 and 6.03 (except as such may be installed
by or be the property of Tenant), and shall be responsible for and
shall expeditiously maintain and repair the foundations, structure and
roof of the Building and repair damage to the Building which Landlord
is obligated to insure against under Article 9.00, provided that
(a) if all or part of such systems, facilities and equipment are
destroyed, damaged or impaired, Landlord shall have a reasonable
time in which to complete the necessary repair or replacement,
and during that time shall be required only to maintain such
services as are reasonably possible in the circumstances,
(b) Landlord may temporarily discontinue such services or any of them
at such times as may be necessary due to causes (except lack of
funds) beyond the reasonable control of Landlord,
(c) Landlord shall use reasonable diligence in carrying out its
obligations under this Article 6.04, but shall not be liable
under any circumstances for any consequential damage to any
person or property for any failure to do so,
(d) no reduction or discontinuance of such services under this
Article 6.04 (a) or (b) shall be construed as an eviction of
Tenant or (except as specifically provided in this Lease) release
Tenant from any obligation of Tenant under this Lease, and
(e) nothing contained herein shall derogate from the provisions of
Article 16.00.
<PAGE> 5
6.05 ADDITIONAL SERVICES.
(a) If from time to time requested in writing by Tenant and to the
extent that it is reasonably able to do so, Landlord shall
provide in the Premises services in addition to those set out in
Article 6.02, provided that Tenant shall within ten days of
receipt of any invoice for any such additional service pay
Landlord therefor at such reasonable rates as Landlord may from
time to time establish.
(b) Tenant shall not without Landlord's written consent install in
the Premises equipment (including telephone equipment) which
generates sufficient heat to affect the temperature otherwise
maintained in the Premises by the air conditioning system as
normally operated. Landlord may install supplementary air
conditioning units, facilities or services in the Premises, or
modify its air conditioning system, as may in Landlord's
reasonable opinion be required to maintain proper temperature
levels, and Tenant shall pay Landlord within ten days of receipt
of any invoice for the cost thereof, including installation,
operation and maintenance expense.
(c) If Landlord shall from time to time reasonably determine that the
use of electricity or any other utility or service in the
Premises is disproportionate to the use of other tenants,
Landlord may separately charge Tenant for the excess costs
attributable to such disproportionate use. At Landlord's request,
Tenant shall install and maintain at Tenant's expense, metering
devices for checking the use of any such utility or service in
the Premises.
6.06 ALTERATIONS BY LANDLORD. Landlord may from time to time:
(a) make repairs, replacements, changes or additions to the
structure, systems, facilities and equipment in the Premises
where necessary to serve the Premises or other parts of the
Building,
(b) make changes in or additions to any part of the Building not in
or forming part of the Premises, and
(c) change or alter the location of those areas of the Building from
time to time designated by Landlord for use during normal
business hours by Tenant in common with all tenants and other
persons in the Building but under the exclusive control of
Landlord.
provided that in doing so Landlord shall not unreasonably disturb or
interfere with Tenant's use of the Premises and operation of its
business any more than is reasonably necessary in the circumstances and
shall repair any damage to the Premises caused thereby.
6.07 ACCESS TO LANDLORD. Tenant shall permit Landlord to enter the Premises
outside normal business hours, and during normal business hours where
such will not unreasonably disturb or interfere with tenant's use of
the Premises and operation of its business, to examine, inspect, and
show the Premises to persons wishing to lease them, to provide services
or make repairs, replacements, changes or alterations as set out in
this Lease, and to take such steps as Landlord may deem necessary for
the safety, improvement or preservation of the Premises or the
Building. Landlord shall whenever possible (except in an emergency)
consult with or give reasonable notice to Tenant prior to such entry,
but no such entry shall constitute an eviction or entitle Tenant to any
abatement of Rent.
6.08 ENERGY, CONSERVATION AND SECURITY POLICIES. Landlord shall be deemed to
have observed and performed the terms and conditions to be performed by
Landlord under this Lease, including those relating to the provision of
utilities and services, if in so doing it acts in accordance with a
directive, policy or request of a governmental or quasi-governmental
authority serving the public interest in the fields of energy,
conservation or security.
ARTICLE 7.00 MAINTENANCE, REPAIR, ALTERATIONS AND IMPROVEMENTS BY TENANT
7.01 CONDITION OF PREMISES. Except to the extent that Landlord is
specifically responsible therefor under this Lease, Tenant shall
maintain the Premises and all improvements therein in good order and
condition subject to ordinary wear and tear, including (a)
intentionally omitted, and (b) making repairs, replacements and
alterations as needed, including those necessary to comply with the
requirements of any governmental or quasi-governmental authority having
jurisdiction only when said requirements are unique to Tenant's
business, and not relating to general office use.
<PAGE> 6
7.02 FAILURE TO MAINTAIN PREMISES. If Tenant fails to perform any obligation
under Article 7.01, then on not less than ten days' notice to Tenant
Landlord may enter the Premises and perform such obligation without
liability to Tenant for any loss or damage to Tenant thereby incurred,
and Tenant shall pay Landlord for the cost thereof, plus 10% of such
cost for overhead and supervision, within ten days of receipt of
Landlord's invoice therefor.
7.03 ALTERATIONS BY TENANT. Tenant may from time to time at its own expense
make changes, additions and improvements in the Premises to better
adapt the same to its business, provided that any such change, addition
or improvement shall
(a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction,
(b) be made only with the prior written consent of Landlord,
(c) equal or exceed the then current standard for Building, and
(d) be carried out only by persons selected by Tenant and approved in
writing by Landlord, which approval will not be unreasonably
withheld or delayed, who shall if required by Landlord deliver to
Landlord before commencement of the work performance and payment
bonds as well as proof of worker's compensation and public
liability and property damage insurance coverage, with Landlord
named as an additional insured, in amounts, with companies, and
in form reasonably satisfactory to Landlord, which shall remain
in effect during the entire period in which the work will be
carried out,
Any increase in property taxes on or fire or casualty insurance
premises for the Building attributable to such change, addition or
improvement shall be borne by Tenant.
7.04 TRADE FIXTURES AND PERSONAL PROPERTY. Tenant may install in the
Premises its usual trade fixtures and personal property in a proper
manner, provided that no such installation shall interfere with or
damage the mechanical or electrical systems or the structure of the
Building. If Tenant is not then in default hereunder, trade fixtures
and personal property installed in the Premises by Tenant may be
removed from the Premises.
(a) from time to time in the ordinary course of Tenant's business or
in the course of reconstruction, renovation, or alteration of the
Premises by Tenant, and
(b) during a reasonable period prior to the expiration of the Term,
provided that Tenant promptly repairs at its own expense any damage to
the Building resulting from such installation and removal.
7.05 MECHANIC LIENS. Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenant in the Premises which could result
in any lien or encumbrance on Landlord's interest in the Land or
Building or any part thereof, shall keep the title to the Land or
Building and every part thereof free and clear of any lien or
encumbrance in respect of such work, and shall indemnify and hold
harmless Landlord against any claim, loss, cost, demand and legal or
other expense, whether in respect of any lien or otherwise, arising out
of the supply of material, services or labor for such work. Tenant
shall immediately notify Landlord of any such lien, claim of lien or
other action of which it has or reasonably should have knowledge and
which affects the title to the Land or Building or any part thereof,
and shall cause the same to be removed within five days (or such
additional time as Landlord may consent to in writing), failing which
Landlord may take such action as Landlord deems necessary to remove the
same and the entire cost thereof shall be immediately due and payable
by Tenant to Landlord.
7.06 SIGNS. Any sign, lettering or design of Tenant which is visible from
the exterior of the Premises shall be at Tenant's expense and subject
to approval by Landlord, and shall confirm to the uniform pattern of
identification signs for tenants in the Building as prescribed by
Landlord. Tenant shall not inscribe or affix any sign, lettering or
design in the Premises or Building which is visible from the exterior
of the Building.
ARTICLE 8.00 TAXES
8.01 LANDLORD'S TAXES. Landlord shall pay before delinquency (subject to
participation by Tenant by payment of Occupancy Costs under Article
4.02) every real estate tax, assessment, license fee and other charge,
excepting Tenant's Taxes under Article 8.02, which is imposed, levied,
assessed or charged by any governmental or quasi-governmental authority
having jurisdiction and which is payable in respect of the Term upon or
on account of the Land or Building.
<PAGE> 7
8.02 TENANT'S TAXES. Tenant shall pay before delinquency every tax,
assessment, license fee, excise and other charge, however described,
which is imposed, levied, assessed or charged by any governmental or
quasi-governmental authority having jurisdiction and which is payable
in respect of the Term upon or on account of:
(a) operations at, occupancy of, or conduct of business in or from
the Premises by or with the permission of Tenant,
(b) fixtures or personal property in the Premises which do not belong
to the Landlord, and
(c) the Rent paid or payable by Tenant to Landlord for the Premises
or for the use and occupancy of all or any part thereof; provided
that if Landlord so elects by notice to Tenant, Tenant shall add
any amounts payable under this Article 8.02 to the monthly
installments of Annual Rent payable under Article 4.01 and
Landlord shall remit such amounts to the appropriate authorities.
8.03 RIGHT TO CONTEST. Landlord and Tenant shall each have the right to
contest in good faith the validity or amount of any tax, assessment,
license fee, excise fee and other charge which it is responsible to pay
under this Article 8.00, provided that no contest by Tenant may involve
the possibility of forfeiture, sale or disturbance of Landlord's
interest in the Premises, that Tenant provides to Landlord security for
the taxes contested by Tenant adequate in the opinion of Landlord, and
that upon the final determination of any contest by Tenant, Tenant
shall immediately pay and satisfy the amount found to be due, together
with any costs, penalties and interest. Landlord shall refund to
Tenant, Tenant's prorata share of refunds received.
ARTICLE 9.00 INSURANCE
9.01 LANDLORD'S INSURANCE. During the Term, Landlord shall maintain at its
own expense (subject to participation by Tenant by payment of Occupancy
Costs under Article 4.02) liability insurance, fire insurance with
extended coverage, boiler and pressure vessel insurance, and other
insurance on the Building and all property and interest of Landlord in
the Building with coverage and in amounts not less than those which are
from time to time acceptable to a prudent owner in the area to which
the Building is located. Policies for such insurance shall waive, to
the extent available from Landlord's carrier(s), any right of
subrogation against Tenant.
9.02 TENANT'S INSURANCE. During the Term, Tenant shall maintain at its own
expense:
(a) fire insurance with extended coverage and water damage insurance
in amounts sufficient to fully cover Tenant's improvements and
all property in the Premises which is not owned by Landlord, and
(b) liability insurance, with Landlord named as an additional
insured, against claims for death, personal injury and property
damage in or about the Premises, in amounts which are from time
to time acceptable to a prudent tenant in the community in which
the Building is located, but not less than $3,000,000.00 for
death, illness or injury to one or more persons, and
$3,000,000.00 property damage, in respect of each occurrence.
Policies for such insurance shall be in a form and with an insurer
reasonably acceptable to Landlord, shall require at least 30 days
written notice to Landlord of termination or material alteration during
the Term, and shall waive, if possible, any right of subrogation
against Landlord. If requested by Landlord, Tenant shall from time to
time promptly deliver to Landlord certified copies of other evidence of
such policies, and evidence satisfactory to Landlord that all premiums
thereon have been paid and the policies are in full force and effect.
ARTICLE 10.00 INJURY TO PERSON OR PROPERTY
10.01 INDEMNITY BY TENANT. Tenant shall indemnify and hold harmless Landlord
from and against every demand, claim, cause of action, judgment and
expense, and all loss and damage arising from:
(a) any injury or damage to the person or property of Tenant, any
other tenant in the Building or too any other person rightfully
in the Building, where the injury or damage is caused by
negligence or misconduct of Tenant, its agents, servants or
employees, or of any other person entering upon the Premises
under express or implied invitation of Tenant, or results from
the violation of laws or ordinances, governmental orders of any
kind or of the provisions of this Lease by any of the foregoing,
and
(b) any loss or damage, however caused, to books, records, files,
money, securities, negotiable instruments or papers in or about
the Premises.
<PAGE> 8
(c) any loss or damage resulting from interference with or
obstruction of deliveries to or from the Premises, and
(d) any injury or damage not specified above to the person or
property of Tenant, its agents, servants or employees, or any
other person entering upon the Premises under express or implied
invitation of Tenant, where the injury or damage is caused by any
reason other than the negligence or misconduct of Landlord, its
agents, servants, or employees.
10.02 SUBROGATION. The provisions of this Article 10.00 are subject to the
waiver of any right of subrogation against Tenant in Landlord's
Insurance under Article 9.01 and to the waiver of any right of
subrogation against Landlord in Tenant's Insurance under Article 9.02.
ARTICLE 11.00 ASSIGNMENT AND SUBLETTING - SEE EXHIBIT D
11.01 [Intentionally omitted.]
11.02 [Intentionally omitted.]
11.03 [Intentionally omitted.]
11.04 [Intentionally omitted.]
11.05 [Intentionally omitted.]
11.06 [Intentionally omitted.]
ARTICLE 12.00 SURRENDER
12.01 POSSESSION. Upon the expiration or other termination of the Term,
Tenant shall immediately quit and surrender possession of the Premises
in substantially the condition in which Tenant is required to maintain
the Premises excepting only reasonable wear and tear and damage covered
by Landlord's insurance under Article 9.01. Upon such surrender, all
right, title and interest of Tenant in the Premises shall cease.
<PAGE> 9
12.02 TRADE FIXTURES, PERSONAL PROPERTY AND IMPROVEMENTS. Subject to Tenant's
rights under Article 7.04, after the expiration or other termination of
the Term all of Tenant's trade fixtures, personal property remaining in
the Premises shall be deemed conclusively to have been abandoned by
Tenant and may be appropriated, sold, destroyed or otherwise disposed
of by Landlord without notice or obligation to compensate Tenant or to
account therefor, and Tenant shall pay to Landlord on written demand
all costs incurred by Landlord in connection therewith.
12.03 MERGER. The voluntary or other surrender of this Lease by Tenant or the
cancellation of this Lease by mutual agreement of Tenant and Landlord
shall not work a merger, and shall at Landlord's option terminate all
or any subleases and subtenancies or operate as an assignment to
Landlord of all or any subleases or subtenancies. Landlord's option
hereunder shall be exercised by notice to Tenant and all known
sublessees or subtenants in the Premises or any part thereof.
12.04 PAYMENTS AFTER TERMINATION. No payments of money by Tenant to Landlord
after the expiration or other termination of the Term or after the
giving of any notice (other than a demand for payment of money) by
Landlord to Tenant, shall reinstate, continue or extend the Term or
make ineffective any notice given to Tenant prior to the payment of
such money. After the service of notice or the commencement of a suit,
or after final judgment granting Landlord possession of the Premises,
Landlord may receive and collect any sums of Rent due under the Lease,
and the payment thereof shall not make ineffective any notice, or in
any manner affect any pending suit or any judgment theretofore
obtained.
ARTICLE 13.00 HOLDING OVER
13.01 MONTH-TO-MONTH TENANCY. If with Landlord's written consent Tenant
remains in possession of the Premises after the expiration or other
termination of the Term, Tenant shall be deemed to be occupying the
Premises on a month-to-month tenancy only, at a monthly rental equal to
the Rent as determined in accordance with Article 4.00 or such other
rental as is stated in such written consent, and such month-to-month
tenancy may be terminated by Landlord or Tenant on the last day of any
calendar month by delivery of at least 30 days' advance notice of
termination to the other.
13.02 TENANCY AT SUFFERANCE. If without Landlord's written consent Tenant
remains in possession of the Premises after the expiration or other
termination of the Term, Tenant shall be deemed to be occupying the
Premises upon a tenancy at sufferance only, at a monthly rental equal
to two times the Rent determined in accordance with Article 4.00. Such
tenancy at sufferance may be terminated by Landlord at any time by
notice of termination to Tenant, and by Tenant on the last day of any
calendar month by at least 30 days' advance notice of termination to
Landlord.
13.03 GENERAL. Any month-to-month tenancy or tenancy at sufferance hereunder
shall be subject to all other terms and conditions of this Lease except
any right of renewal and nothing contained in this Article 13.00 shall
be construed to limit or impair any of Landlord's rights of re-entry or
eviction or constitute a waiver thereof.
ARTICLE 14.00 RULES AND REGULATIONS
14.01 PURPOSE. The Rules and Regulations in Exhibit C have been adopted by
Landlord for the safety, benefit and convenience of all tenants and
other persons in the Building.
14.02 OBSERVANCE. Tenant shall at all times comply with, and shall cause its
employees, agents, licensees and invitees to comply with, the Rules and
Regulations from time to time in effect, provided such Rules and
Regulations are enforced against all Tenant's on a non-discriminatory
[TEXT RUNS OFF PAGE].
14.03 MODIFICATION. Landlord may from time to time, for the purposes set out
in Article 14.01, amend, delete from, or add to the Rules and
Regulations, provided that any such modification:
(a) shall not be repugnant to any other provision of this Lease,
(b) shall be reasonable and have general application to all tenants
in the Building, and
(c) shall be effective only upon delivery of a copy thereof to Tenant
at the Premises.
14.04 NON-COMPLIANCE. Landlord shall use its best efforts to secure
compliance by all tenants and other persons with the Rules and
Regulations from time to time in effect, but shall not be responsible
to Tenant for failure of any person to comply with such Rules and
Regulations.
<PAGE> 10
ARTICLE 15.00 EMINENT DOMAIN
15.01 TAKING OF PREMISES. If during the Term all of the Premises shall be
taken for any public or quasi-public use under any statute or by right
of eminent domain, or purchased under threat of such taking, this Lease
shall automatically terminate on the date on which Tenant vacates the
Premises which date shall be within 30 days after Tenant receives
notice of such taking from Landlord.
15.02 PARTIAL TAKING OF BUILDING. If during the Term only part of the
Building is taken or purchased as set out in Article 15.01, then
(a) if in the reasonable opinion of Landlord substantial alteration
or reconstruction of the Building is necessary or desirable as a
result thereof, whether or not the Premises are or may be
affected, Landlord shall have the right to terminate this Lease
by giving the Tenant at least 30 days' written notice of such
termination, and
(b) if more than one-third of the number of square feet in the
Premises is included in such taking or purchase, Landlord and
Tenant shall each have the right to terminate this Lease by
giving the other at least 30 days' written notice thereof.
If either party exercises its right of termination hereunder, this
Lease shall terminate on the date stated in the notice, provided,
however, that no termination pursuant to notice hereunder may occur
later than 60 days after the date of such taking.
15.03 SURRENDER. On any such date of termination under Article 15.01 or
15.02, Tenant shall immediately surrender to Landlord the Premises and
all interests therein under this Lease. Landlord may re-enter and take
possession of the Premises and remove Tenant therefrom, and the Rent
shall no longer accrue from the date of termination. Rent shall abate
on the former date in respect of the portion taken. After such
termination, and on notice from Landlord stating the Rent then owing,
Tenant shall forthwith pay Landlord such Rent.
15.04 PARTIAL TAKING OF PREMISES. If any portion of the Premises (but less
than the whole thereof) is so taken, and no rights of termination
herein conferred are timely exercised, the Term of this Lease shall
expire with respect to the portion so taken on the date of such taking
[TEXT RUNS OFF PAGE] to reconstruct or alter the Premises, said
reconstruction shall be completed within 180 days; and if not completed
by said date, Tenant shall have the right to terminate the Lease by
giving written notice thereof within 10 days after expiration of the
180 day reconstruction period. In such event the Rent payable hereunder
with respect to such portion so taken shall no longer accrue from such
date, and the Rent thereafter payable with respect to the remainder not
so taken shall be adjusted pro rata by Landlord in order to account for
the resulting reduction in the number of square feet in the Premises.
15.05 AWARDS. Upon any such taking or purchase, Landlord shall be entitled to
receive and retain the entire award or consideration for the affected
lands and improvements, and Tenant shall not have nor advance any claim
against Landlord for the value of its property or its leasehold estate
or the unexpired Term of the Lease, or for costs of removal or
relocation, or business interruption expense or any other damages
arising out of such taking or purchase. Nothing herein shall give
Landlord any interest in or preclude Tenant from seeking and recovering
on its own account from the condemning authority any award or
compensation attributable to the taking or purchase of Tenant's
chattels or trade fixtures. If any such award made or compensation paid
to either party specifically includes an award or amount for the other,
the party first receiving the same shall promptly account therefor to
the other.
ARTICLE 16.00 DAMAGE BY FIRE OR OTHER CASUALTY
16.01 LIMITED DAMAGE TO PREMISES. If all or part of the Premises are rendered
untenantable by damage from fire or other casualty which, in the
reasonable opinion of an architect acceptable to Landlord and Tenant,
can be substantially repaired under applicable laws and governmental
regulations within 180 days from the date of such casualty (employing
normal construction methods without overtime or other premium),
Landlord shall forthwith at its own expense repair such damage other
than damage to improvements, furniture, chattels or trade fixtures
which do not belong to Landlord, which shall be repaired forthwith by
Tenant at its own expense.
16.02 MAJOR DAMAGE TO PREMISES. If all or part of the Premises are rendered
untenantable by damage from fire or other casualty which, in the
reasonable opinion of an architect acceptable to Landlord and Tenant,
cannot be substantially repaired under applicable laws and governmental
regulations within 180 days from the date of such casualty (employing
normal construction methods without overtime or other premium), then
either Landlord or Tenant may [ILLEGIBLE] terminate this Lease as of
the date of such casualty by written notice delivered to the other not
more than 10 days after receipt of such architect's opinion, failing
which Landlord shall forthwith at its own expense repair such damage
other than damage to improvements, furniture, chattels or trade
fixtures which do not belong to Landlord, which shall be repaired
forthwith by Tenant at its own expense.
<PAGE> 11
16.03 ABATEMENT. If Landlord is required to repair damage to all or part of
the Premises under Article 16.01 or 16.02 the Rent payable by Tenant
hereunder shall be proportionately reduced to the extent that the
Premises are thereby rendered untenantable from the date of such
casualty until five days after completion by Landlord of the repairs to
the Premises (or the part thereof rendered untenantable) or until
Tenant again uses the Premises (or the part thereof rendered
untenantable) in its business, whichever first occurs.
16.04 MAJOR DAMAGE TO BUILDING. If all or a substantial part (whether or not
including the Premises) of the Building is rendered untenantable by
damage from fire or other casualty to such a material extent that in
the reasonable opinion of Landlord the Building must be totally or
partially demolished, whether or not to be reconstructed in whole or in
part, Landlord may elect to terminate this Lease as of the date of such
casualty (or on the date of notice if the Premises are unaffected by
such casualty) by written notice delivered to Tenant not more than 60
days after the date of such casualty.
16.05 LIMITATION ON LANDLORD'S LIABILITY. Except as specifically provided in
this Article 16.00, there shall be no reduction of Rent and Landlord
shall have no liability Tenant by reason of any injury to or
interference with Tenant's business or property arising from fire or
other casualty, howsoever caused, or from the making of any repairs
resulting therefrom in or to any portion of the Building or the
Premises. Notwithstanding anything contained herein, Rent payable by
Tenant hereunder shall not be abated, if the damage is caused by any
act or omission of Tenant, its agents, servants, employees or any other
person entering upon the Premises under expressly or implied invitation
of Tenant.
ARTICLE 17.00 TRANSFERS BY LANDLORD
17.01 SALES, CONVEYANCE AND ASSIGNMENT. Nothing in this Lease shall restrict
the right of Landlord to sell, convey, assign or otherwise deal with
the Building, subject only to the rights of Tenant under this Lease.
17.02 EFFECT OF SALE, CONVEYANCE OR ASSIGNMENT. A sale, conveyance or
assignment of the Building shall operate to release Landlord from
liability from and after the effective date thereof upon all of the
covenants, terms and conditions of this Lease, express or implied,
except as such may relate to the period prior to such effective date,
and Tenant shall thereafter look solely to Landlord's
successor-in-interest in and to this Lease. This Lease shall not be
affected by any such sale, conveyance or assignment, and Tenant shall
attorn to Landlord's successor-in-interest thereunder.
17.03 [Intentionally omitted.] - SEE EXHIBIT D
17.04 ATTORNMENT. Subject to Article 17.05, if the interest of Landlord is
transferred to any person (herein called "Purchaser") by reason of
foreclosure or other proceedings for enforcement of the First Mortgage,
or by delivery of a deed in lieu of such foreclosure or other
proceedings, Tenant shall immediately and automatically attorn to
Purchaser.
17.05 NONDISTURBANCE. No attornment under Article 17.04 shall be effective
unless:
(a) the holder of the First Mortgage has subordinated, in whole or in
part, the First Mortgage to this Lease, or
(b) Purchaser delivers to Tenant a written undertaking, in a form
satisfactory to Purchaser, binding upon Purchaser and enforceable
by and for the benefit of Tenant under applicable law, that this
Lease and Tenant's rights hereunder shall continue undisturbed
while Tenant is not in default despite such enforcement
proceedings and transfer.
17.06 EFFECT OF ATTORNMENT. Upon attornment under Article 17.04, this Lease
shall continue in full force and effect as a direct lease between
Purchaser and Tenant, upon all of the same terms, conditions and
covenants as are set forth in this Lease except that, after such
attornment, Purchaser shall not be:
(a) subject to any offsets or defenses which Tenant might have
against Landlord, or
<PAGE> 12
(b) bound by any prepayment by Tenant of more than one month's
installment of Rent, or by any previous modification of this
Lease, unless such prepayment or modification shall have been
approved in writing by Purchaser or any predecessor in interest
except Landlord, or
(c) subject to the obligations of Landlord hereunder except during
this period of Purchaser's ownership of the Building or Land.
17.07 EXECUTION OF INSTRUMENTS. The subordination and attornment provisions
of this Article 17.00 shall be self-operating and (except as
specifically required in Articles 17.03 and 17.05) no further
instrument shall be necessary. Nevertheless Tenant, on request by and
without cost to Landlord or any successor in interest, shall execute
and deliver any and all instruments further evidencing such
subordination and (where applicable hereunder) attornment.
ARTICLE 18.00 NOTICES, ACKNOWLEDGEMENTS, AUTHORITIES FOR ACTION
18.01 NOTICES. Any notice from one party to the other hereunder shall be in
writing and shall be deemed duly served if delivered personally to a
responsible employee of the party being served, or if mailed by
registered or certified mail addressed to Tenant at the Premises
(whether or not Tenant has departed from, vacated or abandoned the
same) or to Landlord at the place from time to time established for the
payment of Rent. Any notice shall be deemed to have been given at the
time of personal delivery or, if mailed, seven days after the date of
mailing thereof. Either party shall have the right to designate by
notice, in the manner above set forth, a different address to which
notices are to be mailed.
18.02 ACKNOWLEDGEMENTS. Each of the parties hereto shall at any time and from
time to time upon not less than 20 days prior notice from the other
execute, acknowledge and deliver a written statement certifying
(a) that this Lease is in full force and effect, subject only to such
modifications (if any) as may be set out therein,
(b) that Tenant is in possession of the Premises and paying Rent as
provided in this Lease,
(c) the dates (if any) to which Rent is paid in advance,
(d) that there are not, to such party's knowledge, any uncured
defaults on the part of the other party hereunder, or specifying
such defaults in any are claimed, and
(e) as true and accurate such other information concerning this Lease
or tenancy as may be reasonably required by any First Mortgage
lender.
Any such statement may be relied upon by any prospective transferee or
encumbrancer of all or any portion of the Building, or any assignee of
any such persons. If Tenant fails to timely deliver such statement,
Tenant shall be deemed to have acknowledged that this Lease is in full
force and effect, without modification except as may be represented by
Landlord, and that there are no uncured defaults in Landlord's
performance.
18.03 AUTHORITIES FOR ACTION. Landlord may act in any matter provided for
herein by its Property Manager and any other person who shall from time
to time be designated by Landlord by notice to Tenant. Tenant shall
designate in writing one or more persons to act on its behalf in any
matter provided for herein and may from time to time change, by notice
to Landlord, such designation. In the absence of any such designation,
the person or persons executing this Lease for Tenant shall be deemed
to be authorized to act on behalf of Tenant in any matter provided for
herein.
ARTICLE 19.00 DEFAULT
19.01 INTEREST AND COSTS. Tenant shall pay to Landlord interest at a rate
equal to the lesser of 1-1/2% per month, or the maximum rate permitted
by applicable law, upon all Rent required to be paid hereunder from the
due date for payment thereof until the same is fully paid and
satisfied. Tenant shall indemnify Landlord against all costs and
charges (including legal fees) lawfully and reasonably incurred in
enforcing payment thereof, and in obtaining possession of the Premises
after default of Tenant or upon expiration or earlier termination of
the Term of this Lease, or in enforcing any covenant, proviso or
agreement of Tenant herein contained.
19.02 RIGHT OF LANDLORD TO PERFORM COVENANTS. All covenants and agreements to
be performed by Tenant under any of the terms of this Lease shall be
performed by Tenant, at Tenant's sole cost and expense, and without any
abatement of Rent. If Tenant shall fail to perform any act on its part
to be performed hereunder, and such failure shall continue for 10 days
after notice thereof from Landlord, Landlord may (but shall not be
obligated so to do) perform such act without waiving or releasing
Tenant from any of its obligations relative thereto. All sums paid or
costs incurred by Landlord in
<PAGE> 13
so performing such acts under this Article 19.02, together with
interest thereon at the rate set out in Article 19.01 from the date
each such payment was made or each such cost incurred by Landlord,
shall be payable by Tenant to Landlord on demand.
19.03 EVENTS OF DEFAULT. If and whenever:
(a) Tenant fails to pay Base Rent, Additional Rent or any other Rent
payable by Tenant under the terms of this Lease when due, and
such failure continues for 5 days after written notice from
Landlord to Tenant of such failure; provided that with respect to
Base Rent and Additional Rent, Tenant will be entitled to only 3
notices of such failure during any Lease Year and if, after 3
such notices are given in any Lease Year, Tenant fails, during
such Lease Year, to pay any such amounts when due, such failure
will constitute a Default without further notice by Landlord or
additional cure period.
(b) the Term on any goods, chattels or equipment of Tenant is taken
or eligible in execution or in attachment or if a writ of
execution is issued against Tenant, or
(c) Tenant becomes insolvent or commits an act of bankruptcy or
becomes bankrupt or takes the benefit of any statute that may be
in force for bankrupt or insolvent debtors or becomes involved in
voluntary or involuntary winding-up proceedings or if a receiver
shall be appointed for the business, property, affairs or
revenues of Tenant, or
(d) Tenant makes a bulk sale of its goods or moves or commences,
attempts or threatens to move its goods, chattels and equipment
out of the Premises (other than in the normal course of its
business) or ceases to conduct business from the Premises, or
(e) Tenant fails to observe, perform and keep each and every one of
the covenants, agreements, provisions, stipulations and
conditions herein contained to be observed, performed and kept by
Tenant (other than payment of Rent) and persists in such failure
after 20 days notice by Landlord requiring that Tenant remedy,
correct, desist or comply (or if any such breach would reasonably
require more than 20 days to rectify, unless Tenant commences
rectification within the 20 day notice period and thereafter
promptly and effectively and continuously proceeds with the
rectification of the breach),
then and in any such cases, at the option of Landlord, the full amount
of the current month's and the next ensuing three month's installments
of Annual Rent shall immediately become due and payable and Landlord
may immediately distrain for the same, together with any arrears then
unpaid; and Landlord may without notice or any form of legal process
forthwith re-enter upon and take possession of the Premises or any part
thereof in the name of the whole and remove and sell Tenant's goods,
chattels and trade fixtures therefrom, any rule of law or equity to the
contrary notwithstanding.
19.04 WAIVER OF EXEMPTION AND REDEMPTION. Notwithstanding anything contained
in any statute now or hereafter in force limiting or abrogating the
right of distress, none of Tenant's goods, chattels or trade fixtures
on the Premises at any time during the continuance of the Term shall be
exempt from levy by distress for Rent in arrears, and upon any claim
being made for such exemption by Tenant or on distress being made by
Landlord this agreement may be pleaded as an estoppel against Tenant in
any action brought to test the right to the levying upon any such goods
as are named as exempted in any such statute, Tenant hereby waiving all
and every benefit that could or might have occurred to Tenant under and
by virtue of any such statute but for this Lease. Tenant hereby
expressly waives any and all rights of redemption granted by or under
any present or future laws in the event of Tenant being evicted or
dispossessed for any cause, or in the event of Landlord obtaining
possession of the Premises, by reason of the violation by Tenant of any
of the terms or conditions of this Lease or otherwise.
19.05 SURRENDER. If and whenever Landlord is entitled to or does re-enter,
Landlord may terminate this Lease by giving notice thereof, and in such
event Tenant shall forthwith vacate and surrender the Premises.
19.06 PAYMENTS. If Landlord shall re-enter or if this Lease shall be
terminated hereunder, Tenant shall pay to Landlord on demand:
(a) Rent up to the time of re-entry or termination, whichever shall
be the later, plus accelerated rent as herein provided, and
(b) all expenses incurred by Landlord in performing any of Tenant's
obligations under this Lease, re-entering or terminating and
re-letting, collecting sums due or payable by Tenant, realizing
upon assets seized (including brokerage, legal fees and
disbursements), and the expense of keeping the Premises in good
order, repairing the same and preparing them for re-letting, and
<PAGE> 14
(c) as damages for the loss of income of Landlord expected to be
derived from the Premises, the amounts (if any) by which the Rent
which would have been payable under this Lease exceeds the
payments (if any) received by Landlord from other tenants in the
Premises, payable on the first day of each month during the
period which would have constituted the unexpired portion of the
Term had it not been terminated, or if elected by Landlord by
notice to Tenant at or after re-entry or termination, a lump sum
amount equal to the Rent which would have been payable under this
Lease from the date of such election during the period which
would have constituted the unexpired portion of the Term had it
not been terminated, reduced by the rental value of the Premises
for the same period, established by reference to the terms and
conditions upon which Landlord re-lets them if such re-letting is
accomplished within a reasonable period after termination, and
otherwise established by reference to all market and other
relevant circumstances; Rent and rental value being reduced to
present worth at an assumed interest rate of 10% on the basis of
Landlord's estimates and assumptions of fact which shall govern
unless shown to be erroneous.
19.07 REMEDIES CUMULATIVE. No reference to nor exercise of any specific right
or remedy by Landlord shall prejudice or preclude Landlord from
exercising or invoking any other remedy in respect thereof, whether
allowed at law or in equity or expressly provided for herein. No such
remedy shall be exclusive or dependent upon any other such remedy, but
Landlord may from time to time exercise any one or more of such
remedies independently or in combination.
ARTICLE 20.00 MISCELLANEOUS
20.01 RELATIONSHIP OF PARTIES. Nothing contained in this Lease shall create
any relationship between the parties hereto other than that of landlord
and tenant, and it is acknowledged and agreed that Landlord does not in
any way or for any purpose become a partner of Tenant in the conduct of
its business, or a joint venturer or a member or common enterprise with
Tenant.
20.02 CONSENT NOT UNREASONABLY WITHHELD. Except as otherwise specifically
provided, whenever consent or approval of Landlord or Tenant is
required under the terms of this Lease, such consent or approval shall
not be unreasonably withheld or delayed. - SEE EXHIBIT D
20.03 NAME OF BUILDING. Landlord shall have the right, after 30 days notice
to Tenant, to change the name, number or designation of the Building,
during the Term without liability to Tenant.
20.04 APPLICABLE LAW AND CONSTRUCTION. This Lease shall be governed by and
construed under the laws of the jurisdiction in which the Building is
located, and its provisions shall be construed as a whole according to
their common meaning and not strictly for or against Landlord or
Tenant. The words Landlord and Tenant shall include the plural as well
as the singular. If this Lease is executed by more than one tenant,
Tenants' obligations hereunder shall be joint and several obligations
of such executing tenants. Time is of the essence of this Lease and
each of its provisions. The captions of the Articles are included for
convenience only, and shall have no effect upon the construction or
interpretation of this Lease.
20.05 ENTIRE AGREEMENT. If there are any terms and conditions which at the
date of execution of this Lease are additional or supplemental to those
set out on the first 15 pages and in Exhibits A, B and C, such terms
and conditions are contained in Exhibit D (if any) attached hereto as
part of this Lease. This Lease contains the entire agreement between
the parties hereto with respect to the subject matter of this Lease.
Tenant acknowledges and agrees that it has not relied upon any
statement, representation, agreement or warranty except such as are set
out in this Lease. If this Lease is made pursuant to an Offer to Lease,
then the term "Lease" in this Article 20.05 shall be deemed to include
such Offer to Lease.
20.06 AMENDMENT OR MODIFICATION. Unless otherwise specifically provided in
this Lease, no amendment, modification, or supplement to this Lease
shall be valid or binding unless set out in writing and executed by the
parties hereto in the same manner as the execution of this Lease.
<PAGE> 15
20.07 CONSTRUED COVENANTS AND SEVERABILITY. All of the provisions of this
Lease are to be construed as covenants and agreements as through the
words importing such covenants and agreements were used in each
separate Article hereof. Should any provision of this Lease be or
become invalid, void, illegal or not enforceable, it shall be
considered separate and severable from the Lease and the remaining
provisions shall remain in force and be binding upon the parties hereto
as though such provision had not been included.
20.08 NO IMPLIED SURRENDER OR WAIVER. No provisions of this Lease shall be
deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord. Landlord's waiver of a breach of any term or
condition of this Lease shall not prevent a subsequent act, which would
have originally constituted a breach, from having all the force and
effect of any original breach. Landlord's receipt of Rent with
knowledge of a breach by Tenant of any term or condition of this Lease
shall not be deemed a waiver of such breach. Landlord's failure to
enforce against Tenant or any other tenant in the Building any of the
Rules and Regulations made under Article 14.00 shall not be deemed a
waiver of such Rules and Regulations. No act or thing done by Landlord,
its agents or employees during the Term 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 in writing signed by Landlord.
The delivery of keys to any of Landlord's agents or employees shall not
operate as a termination of this Lease or a surrender of the Premises.
No payment by Tenant, or receipt by Landlord, of a lesser amount than
the Rent due hereunder shall be deemed to be other than on account of
the earliest stipulated Rent, nor shall any enforcement or statement on
any check or any letter accompanying any check, or payment as Rent, be
deemed an accord and satisfaction, and Landlord may accept such check
or payment without prejudice to Landlord's right to recover the balance
of such Rent or pursue any other remedy available to Landlord.
20.09 SUCCESSORS BOUND. Except as otherwise specifically provided, the
covenants, terms, and conditions contained in this Lease shall apply to
and bind the heirs, successors, executors, administrators and assigns
of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
T.H.S. NORTHSTAR ASSOCIATES LIMITED
PARTNERSHIP PHYNQUE, INC.
By: TRIZEC PROPERTIES, INC.,
Managing Agent
By: /s/ ILLEGIBLE
-----------------------------
By: /s/ ILLEGIBLE By:
------------------------------------ -----------------------------
Michael J. Irwin
Senior Vice President
By: /s/ James T. Austin
------------------------------------
James T. Austin
Vice President, Leasing --------------------------
Witness to the signature of
Tenant if not incorporated
<PAGE> 16
AMENDED AND RESTATED OFFICE LEASE
THIS AMENDED AND RESTATED OFFICE LEASE ("Amended and Restated Lease")
is made on April, 1994, between T.H.S. NORTHSTAR ASSOCIATES LIMITED PARTNERSHIP,
a Minnesota Limited Partnership, by BROOKFIELD DEVELOPMENT INC., its managing
agent ("Landlord") , whose address is 725 Northstar East, 608 Second Avenue
South, Minneapolis, MN. 55402, and PHYNQUE, INC., a Minnesota corporation
("Tenant"), whose address is 370 Northstar East, 608 Second Avenue South,
Minneapolis, MN. 55402.
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into a Lease dated February 22,
1990 ("the Initial Lease"), a copy of which is attached hereto as Exhibit C, for
the premises commonly known as Suite 370 of the Northstar East ("Building"),
Minneapolis, Minnesota ("Premises");
WHEREAS, Landlord and Tenant amended the Initial Lease by First
Amendment of Office Lease dated November 6, 1990, pursuant to which the Premises
was expanded; certain adjustments to Annual Rent and Occupancy Costs were made;
and Landlord agreed to reimburse Tenant for certain tenant improvement costs;
WHEREAS, Landlord and Tenant further amended the Initial Lease by
Second Amendment of Office Lease dated January 14, 1991, pursuant to which the
calculation of Occupancy Costs was clarified; Landlord agreed to reimburse
Tenant for costs and expenses for improvements to the Premises; Additional Rent
was increased for reimbursement for such improvements; and certain lease
provisions were limited to certain areas of the Premises;
WHEREAS, Landlord and Tenant further amended the Initial lease by Third
Amendment of Office Lease dated November 4, 1991, pursuant to which the Premises
was expanded further; certain adjustments to Annual Rent Occupancy Costs were
made; and Landlord agreed to reimburse Tenant for certain tenant improvement
costs;
WHEREAS, Landlord and Tenant further amended the Initial Lease by
Fourth Amendment of Office Lease dated February 19, 1992, pursuant to which the
Premises was expanded further and certain adjustments to Annual Rent and
Occupancy Costs were made;
WHEREAS, Landlord and Tenant further amended the Initial Lease BY Fifth
Amendment of Office Lease dated December 4, 1992, pursuant to which the Premises
were reduced on the Third floor of the Building and expanded on the Tenth Floor
of the Building;
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<PAGE> 17
adjustments to Annual Rent and Occupancy Costs were made; Landlord agreed to a
leasehold improvement allowance and an early termination option for the expanded
area of the Premises; and Landlord agreed to certain terms regarding an asbestos
abatement program for the Building;
WHEREAS, Landlord and Tenant further amended the Initial Lease by Sixth
Amendment of office Lease dated January 13, 1993 pursuant to which the Premises
were reduced on a certain portion of the Tenth floor of the Building and
expanded on a different portion of the Tenth floor of the Building; adjustments
to Annual Rent and Occupancy Costs were made; Landlord agreed to a leasehold
improvement allowance and an early termination option for the expanded area of
the Premises; and Landlord agreed to certain terms regarding an asbestos
abatement program for the Building;
WHEREAS, Landlord and Tenant agree that the terms and conditions of the
First, Second Third, Fourth, Fifth and Sixth Amendments (together, hereinafter
referred to together as the "Amendments") have been fully performed by both
parties;
WHEREAS, Landlord and Tenant intend to restate the Initial Lease and
Amendments (the Initial Lease and Amendments are hereinafter referred to
together as the "Lease") by incorporating the terms of the Initial Lease and the
foregoing recitals into this Agreement without need for further reference to the
Amendments; and
WHEREAS, Landlord and Tenant desire to further supplement and amend the
Lease as hereinafter provided.
NOW, THEREFORE, in consideration of the Premises, the mutual covenants
herein contained and other good and valuable consideration, Landlord and Tenant
hereby agree that the Lease is hereby restated, amended and supplemented as
follows:
1.0 Definitions
1.1. Except as specifically defined herein, all captioned terms
shall have the meanings given them in the Lease.
1.2. In this Amended and Restated Lease:
(a) "Premises", including the Sixth Expansion Space, as
defined below, means approximately 31,227 rentable square
feet as further described in Article 17.00 below and as
generally shown on the attached Exhibit A.
(b) "Sixth Expansion Space" means approximately 6,290
rentable square feet, located on the tenth floor of the
Building as shown by crosshatching on Exhibit B hereto.
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<PAGE> 18
(c) "Sixth Expansion Space Delivery Date" means five (5) days
after the execution of this Amended and Restated Lease by
both Landlord and Tenant.
(d) "Sixth Expansion Space Commencement Date" means the
earlier of (i) the date Tenant occupies all or any part
of the Sixth Expansion Space for the regular conduct of
its business, or (ii) October 1, 1994.
(e) "Sixth Expansion Space Improvement Allowance" means an
amount equal to $220,150.00.
(f) "Sixth Expansion Space Additional Improvement Allowance"
means an amount equal to $18,870.00.
(g) "Additional Costs" shall be as defined pursuant to
Section 3.12 of this Amended and Restated Lease.
(h) "Seventh Expansion option" shall be as defined pursuant
to Section 4.1 of this Amended and Restated Lease.
(i) "Seventh Expansion Option Space" means approximately
5,037 rentable square feet, located on the tenth floor of
the Building as shown by crosshatching on Exhibit D
hereto.
(j) "Seventh Expansion Option Space Delivery Date" means a
date occurring no later than one hundred and eighty (180)
days after receipt of Seventh Expansion Option Space
Notice from Tenant.
(k) "Seventh Expansion Option Space Commencement Date" means
the earlier of (i) the date Tenant occupies all or any
part of the Seventh Expansion option Space for the
regular conduct of its business, or (ii) a date ninety
(90) days after the Seventh Expansion Option Space
Delivery Date.
(l) "Seventh Expansion Option Space Improvement Allowance"
means a present value amount when amortized with interest
at a rate of 7% per annum on a monthly basis during the
period from the Seventh Expansion Space Commencement Date
through September 30, 1999, equals an annualized total of
$4.00 per rentable square foot. For example, if at the
time of the Seventh Expansion Option Space Commencement
Date there remains thirty-three (33) months in the Term,
then the Seventh Expansion Option Space Improvement
Allowance shall be $10.04 per rentable square foot
calculated as follows: a monthly payment of $.3333 ($4.00
divided by 12) times
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<PAGE> 19
the remaining 33 months in the Term with an annualized
interest rate equal to 7%.
(m) "Eighth Expansion option" shall be as defined pursuant to
Section 5.1 of this Amended and Restated Lease.
(n) "Eighth Expansion Option Space" means approximately 6,
000 useable square feet, located on the tenth floor of
the Building as shown by crosshatching on Exhibit E
hereto; or, in the event such space is not available,
Eighth Expansion Option Space shall be defined as an area
of not less than 3,000 useable square feet located on the
eleventh floor of the Building as shown by crosshatching
on Exhibit E(l) hereto. Within thirty (30) days after
receipt of Tenant's Eighth Expansion Option Space Notice,
Landlord shall provide notice to Tenant of the location
available for Tenant's occupancy.
(o) "Eighth Expansion Option Space Delivery Date" means a
date occurring no later than July 1, 1999.
(p) "Eighth Expansion option space Commencement Date" means
the earlier of (i) the date Tenant occupies all or any
part of the Eighth Expansion option Space for the regular
conduct of its business, or (ii) October 1, 1999.
(q) "First Offer Space All shall mean that certain space
located on the tenth (10th) floor of the Building as is
shown crosshatched on Exhibit F.
(r) "First Offer Space B11 shall mean that certain space
located on the eleventh (11th) floor of the Building as
is shown crosshatched on Exhibit G.
(s) "Contraction Right" shall be as defined pursuant to
Section 10.1 of this Amended and Restated Lease.
(t) "Released Space" shall be as defined pursuant to Section
10.1 of this Amended and Restated Lease.
2.0 Replacement Definitions.
2.1. Exhibit B, Sections 1.01 (d), (h) and (j) are deleted in their
entirety and the following Sections (d), (h), (j), (m), (n),
(o), (p), (q), (r), (s) and (t) are substituted therefor:
(d) "Building" means the three buildings known collectively as
Northstar Center (which consist of
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<PAGE> 20
Northstar, Northstar East and Northstar West), bordered by
Second Avenue South, Marquette Avenue South and South Seventh
Street, in Minneapolis, Hennepin county, Minnesota; the land
(whether leased or owned) on which the buildings are located;
the bridges and tunnels connecting the Buildings with other
buildings; and any additional real property located proximate to
the Building that may be operated by Landlord from time to time
in conjunction with the Building. The Building does not include
the hotel or parking ramp adjacent to the Building, or any
portions of the Building that may be conveyed separately from
the Building by Landlord from time to time.
(h) "Common Areas" means certain interior and exterior common
and public areas located at the Building and in the Building as
may be designed by Landlord for the nonexclusive use in common
by Tenant, Landlord and other tenants, and their employees,
guests, customers, agents and invitees. Common Areas include the
underground tunnels and elevated bridges over public streets
connecting the Buildings with other buildings; provided,
however, that Landlord and the owners of such other building
will have the right in their sole discretion to adopt rules and
regulations relating to bridge and tunnel use.
(j) "Expenses" means the aggregate of any and all costs (other
than those expressly excluded below) incurred or accrued during
each Fiscal Year according to generally accepted accounting
principles for operating, managing, administering, equipping,
securing, protecting, insuring, heating, cooling, ventilating,
maintaining, decorating, inspecting, and providing water, sewer
and other energy and utilities to, the Office Complex;
management fees in an amount equal to 5% of Landlord's total
revenue from the Building (provided that if Landlord elects to
discontinue the services of a managing agent, Expenses will
include, instead of management fees, administrative fees
calculated in the same manner as management fees were
calculated) ; fees and expenses (including reasonable attorney's
fees) incurred in contesting the validity of any Laws that would
cause an increase in Expenses; depreciation on personal property
and moveable equipment which is or should be capitalized on
Landlord's books, provided such is for a depreciation period
recognized by generally acceptable accounting principles;
occupancy costs associated with the Building management off ice,
consisting of Base Rent costs plus the proportionate share of
Expenses and Taxes attributable to such office; Capital Expenses
made by reason of insurance requirements; and costs (whether
capital or not) that are
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<PAGE> 21
incurred in order to conform to changes subsequent to the date
of the Lease in any Laws, or that are made by reason of
insurance requirements, or that are intended to reduce Expenses
or the rate of increase in Expenses (such costs will be charges
to Expenses in annual installments over the useful life of the
items for which such costs are incurred as recognized by
generally acceptable accounting principles (in the case of items
required by changes in Laws or insurance requirements), or over
the period Landlord reasonably estimates (using generally
acceptable accounting principles) that it will take for the
savings in Expenses achieved by such items to equal their cost
(in the case of items intended to reduce Expenses or their rate
of increase) ; and in either case, with interest on the
unamortized balance for each Fiscal Year, such costs are charged
to Expenses, at an interest rate of 1% in excess of the average
Prime Rate charged by Norwest Bank Minnesota, N.A., in effect
during such Fiscal Year. Expenses will not include (1) mortgage
principal or interest; (2) ground lease payments; (3) leasing
commissions; (4) costs of advertising space for lease in the
Building; (5) costs for which Landlord is reimbursed by
insurance proceeds or from tenant of the Office Premises (other
than such tenants' regular contributions to Expenses); (6) any
depreciation, amortization or interest on capital expenditures
(except as expressly provided above) ; (7) legal fees incurred
for negotiating leases or collecting rents; (8) costs directly
and solely related to the maintenance and operation of the
entity that constitutes the Landlord, such as accounting fees
incurred solely for the purpose of reporting Landlord's
financial condition; (9) costs of operating, repairing or
maintaining the parking facilities serving the Office Premises
of the Project; (10) improvements, additions or alterations to
the Project except as otherwise provided in the Lease; and (11)
major structural repairs to the Project. For each Fiscal Year
during the Term, the amount by which those Expenses that vary
with occupancy (such as cleaning costs) would have increased had
the Office Premises been 100% occupied and operational and had
all standard services been provided to all tenants will be
included in Expenses for such Fiscal Year.
(m) "Office Premises" means the portion of the Building
designated by Landlord from time to time as rentable office
premises and a reasonable and proportionate allocation of the
Land on which it is located.
(n) "Office Common Areas" means that portion of the Common Areas
designated from time to time by Landlord of the benefit of the
Office Premises and a reasonable and
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<PAGE> 22
proportionate allocation of the Land on which it is located.
(o) "Office Complex" means the aggregate of the office Premises
and the Office Common Area.
(p) "Taxes" means the amount accrued during each Fiscal Year
according to generally accepted accounting principles for that
portion of the following items that is allocable to the Office
Complex; all ad valorem real and personal property taxes and
assessments, special or otherwise, levied upon, or with respect
to, the office Complex, the personal property used in operating
the Office Complex, and the rents and additional charges payable
by tenant of the office Complex, and imposed by any taxing
authority having jurisdiction; all taxes, levies and charges
which may be assessed, levied or imposed in replacement of, or
in addition to, all or any part of ad valorem real or personal
property taxes or assessments as revenue sources (which
assessments shall be paid over the longest period provided by
law), and which in whole or in part are measured or calculated
by or based upon the Office Complex, the leasehold estate of
Landlord or the tenants of the Office Complex, or the rents and
other charges payable by such tenants; capital and place-of
-business taxes, and other similar taxes assessed relating to
the office Complex; and any reasonable expenses incurred by
Landlord in attempting to reduce or avoid an increase in Taxes,
including, without limitation, reasonable legal fees and costs.
Taxes will not include any net income taxes of Landlord. Tenant
acknowledges that Taxes may increase during the Term.
(q) "Retail Common Areas" means the portion of the Common Areas
designated from time to time by Landlord for the benefit of the
Retail Premises.
(r) "Retail Complex" means the aggregate of the Retail Premises
and the Retail Common Areas as each is designated by Landlord
from time to time.
(s) "Retail Premises" means that portion of the Building
designated by Landlord from time to time as rentable retail and
service premises.
(t) "Laws" means any and all present or future federal, state or
local laws, statutes, ordinances, rules, regulations or orders
of any and all governmental or quasi-governmental authorities
having jurisdiction."
2.2. Exhibit B Sections 2.02 through 2.04 are deleted in their
entirety and the following Sections substituted:
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<PAGE> 23
2.02 Occupancy Costs. Tenant agrees to pay Landlord, as
Occupancy Costs, in the manner provided in Section
4.06 of the Lease for each Fiscal Year, Tenant's
Share (as defined below) of Expenses and Taxes for
such Fiscal Year.
2.03 Tenant's Share. Tenant's Share shall be deemed to be
.04838 (4.838%) of all Expenses and Taxes of the
Office Complex, subject to equitable adjustment for
contraction and expansion of the Premises pursuant to
this Amended and Restated Lease.
2.04 Square Feet in the Office Complex. Total square
footage for the office complex is deemed to be
645,460 rentable square feet subject to equitable
adjustment as otherwise provided in the Lease.
3.0 Addition of Sixth Expansion Space.
3.1. Landlord hereby demises and leases to Tenant the Sixth
Expansion Space, and Tenant hereby leases and accepts from
Landlord the Sixth Expansion Space to have and to hold, on and
subject to the terms and conditions of the Lease, except as
provided in this Amended and Restated Lease.
3.2. The Sixth Expansion Space shall be added to the Premises for
all purposes under the Lease as of the Sixth Expansion Space
Delivery Date, except that Tenant's obligation to pay Annual
Rent shall commence on the Sixth Expansion Space Commencement
Date.
3.3. The term for the lease of the Sixth Expansion Space shall
commence on the Sixth Expansion Space Delivery Date, and shall
end on the same day the Lease terminates.
3.4. Subject to Section 3.5 of this Amended and Restated Lease,
Annual Rent for the Sixth Expansion Space shall be equal to:
(a) $5.50 multiplied by the number of rentable square feet in
the Sixth Expansion Space for each twelve month period,
commencing on the Sixth Expansion Space Commencement
Date, and ending September 30, 1999.
3.5. Provided Tenant is not in default under the terms of the
Lease, no Annual Rent on the Sixth Expansion Space shall be
due and payable during the interval between the Sixth
Expansion Space Delivery Date and the Sixth Expansion Space
Commencement Date.
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<PAGE> 24
3.6. Tenant shall pay Annual Rent to Landlord in advance in equal
monthly payments at the times and manner as rental payments
are required by the Lease.
3.7. Renewals -- The Sixth Expansion Space shall be subject to the
same rights of renewal (if any) as are contained in the Lease,
and any renewal of the Lease in accordance therewith shall be
deemed a renewal of the Sixth Expansion Space.
3.8. Default -- Any remedy exercised by Landlord arising from a
default by Tenant under the Lease shall apply to the Sixth
Expansion Space, and any default by Tenant of any term or
condition contained in this Amended and Restated Lease shall
be deemed to be a default under the Lease.
3.9. Termination -- If the Lease terminates for any reason
whatsoever, Tenant's right to occupy the Sixth Expansion Space
shall terminate on the same date.
3.10. Occupancy Costs -- Tenant shall pay as additional rent
Occupancy Costs and Other Charges relating to the Sixth
Expansion Space at the times and manner as other Occupancy
Costs and Other Charges required by the Lease.
3.11. Condition of Sixth Expansion Space -- Taking possession of all
or any portion of the Sixth Expansion Space shall be
conclusive evidence as against Tenant that the Sixth Expansion
Space is in satisfactory condition on the date of taking
possession, except for minor punchlist items which Landlord
agrees to complete in a timely fashion. Except for Tenant's
Work, Landlord shall, at its expense, supply the Sixth
Expansion Space improved and finished to the extent described
below which work shall be deemed "Landlord's Work":
(i) Remove all below ceiling improvements with demising
walls taped and sanded to receive finishes;
(ii) Floor prepared to receive building standard carpet;
(iii) Repair existing ceiling grid as necessary;
(iv) Building standard HVAC providing a constant air volume
through two central air conditioning units distributed
by four perimeter air conditioning units per floor that
supply 1.25 cfm/sf, and ceiling mounted diffusers to be
distributed to Tenant's plans that satisfy current fresh
air exchange standards as specified in ASHRAE 62-89;
(v) Install sprinklers to Tenant's plans;
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<PAGE> 25
(vi) Provide new Building standard ceiling tile, specified as
USG 708, stacked on the floor ready for Tenant's
installation and a sufficient quantity of 21 x 21
fluorescent parabolic U-tube light fixtures (similar to
the existing 21x 21 fluorescent parabolic U-tube
fixtures) which, together with the existing 21x 21
fluorescent parabolic U-tube light fixtures, will equal a
ratio of one fixture per 50 rentable square feet; and
Subject to the terms and conditions of Section 3.12 below,
Tenant shall be responsible and pay for any work which is not
designated "Landlord's Work" but which is desired by Tenant
for occupancy hereinafter (hereinafter "Tenant's Work").
Tenant and Landlord agree that Landlord will perform Tenant's
Work, and the cost of Tenant's Work shall be reimbursed
pursuant to Section 3.13 below, in accordance with the plans
and specifications approved by both Landlord and Tenant, which
plans and specifications are dated April 12, 1994 and numbered
3893 and are attached hereto as Exhibit H ("Plans and
Specifications"). Landlord and Tenant mutually appoint KM
Builders (11KM11) as the general contractor to perform
Tenant's Work, provided KM agrees that it shall -
competitively bid all subcontracts in excess of Five Thousand
and no/100 Dollars ($5,000) necessary to complete Tenant's
Work (obtaining bids from a minimum of no less than three (3)
subcontractors) in order to establish a fair and reasonable
cost for construction. KM shall provide Tenant a copy of all
subcontract bids, and Tenant's consent shall be required for
the selection of said subcontractors; provided, however, such
consent shall not be unreasonably withheld. Upon completion of
Tenant's Work, and the disbursement of the Sixth Expansion
Space Tenant Allowance, Landlord and KM shall provide Tenant a
copy of the documents otherwise required in Section 4.12
below. Upon completion of Tenant's Work, Tenant shall prepare
a punch list of items which are defective or improperly
installed and Landlord shall diligently proceed to repair or
replace such punch list items. Tenant shall have the right to
prepare a second punch list within thirty (30) days after the
Sixth Expansion Space Commencement Date of items which are
defective or improperly installed and Landlord shall
diligently proceed to repair or replace such punch list items.
3.12. Sixth Expansion Space Improvement Allowance -- Subject to
compliance with the terms and conditions of the Lease,
Landlord shall contribute a credit against the cost of
construction and completion of Tenant's Work in an amount
equal to the Sixth Expansion Space Improvement Allowance.
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In the event the actual costs and expenses of constructing the
Sixth Expansion Space exceed the Sixth Expansion Space
Improvement Allowance ("Additional Costs"), and except as
otherwise herein provided, Tenant shall escrow the Additional
Costs necessary to satisfy the construction contract plus the
costs of any change order requested by Tenant. Should Tenant
not have fully expended the Sixth Expansion Space Improvement
Allowance upon completion of construction of the Premises,
Landlord shall credit such difference to Tenant's payment of
Annual Rent due and owing Landlord for the period commencing
October 1, 1994. Notwithstanding anything contained herein to
the contrary, should Landlord perform any of Tenant's Work
other than the improvements shown on Tenant's Plans and
Specifications for the Sixth Expansion Space; or if Tenant
requests or provides Landlord written consent and Landlord
performs other work or supplies materials or equipment on
behalf of Tenant, then Tenant shall pay Landlord the direct
cost thereof plus, in the event Landlord is not the general
contractor, a coordination fee equal to two percent (2%) of
such costs. Except as otherwise provided in this Section,
Tenant shall not be required to pay Landlord a coordination
fee for the initial construction of improvements to the Sixth
Expansion Space.
3.13. Sixth Expansion Space Additional Improvement Allowance --
Provided there exists no material default (beyond any
applicable grace period) under the terms of the Lease,
Landlord shall pay to Tenant the Sixth Expansion Space
Additional Improvement Allowance. The Sixth Expansion Space
Additional Improvement Allowance shall be used to defer
Tenant's costs and expenses for design, architectural and
engineering fees incurred for construction of the Sixth
Expansion Space. Within thirty (30) days after request from
Tenant, Landlord shall pay to Tenant the Sixth Expansion Space
Additional Improvement Allowance provided Tenant has submitted
to Landlord, paid invoices totaling the amount requested by
Tenant. In the event that Tenant's expenditures for such
design, architectural and engineering fees to the Sixth
Expansion Space are more than the Sixth Expansion Space
Additional Improvement Allowance, such additional costs shall
be the sole responsibility of Tenant. In the event that
Tenant's expenditures for such design, architectural and
engineering fees to the Sixth Expansion Space are less than
the Sixth Expansion Space Improvement Allowance, Landlord
shall credit such difference to Tenant's payment of Annual
Rent due and owing Landlord for the period commencing October
1, 1994. In the event Landlord fails to pay Tenant all or any
portion of the Sixth Expansion Space Additional Improvement
Allowance as
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required by this Section, Tenant shall have the right to
offset such amount against the Annual Rent next due and owing
Landlord.
4.0 New Expansion Option -- Seventh Expansion Option Space
4.1. Tenant shall have an option ("Seventh Expansion option") to
add to the Premises the Seventh Expansion option Space. The
Seventh Expansion Option shall be exercised, if at all, upon
no less than six (6) months prior written notice from Tenant
to Landlord given not earlier than March 1, 1995 nor later
than October 1, 1996 (such notice is hereinafter referred to
as the Seventh Expansion Option Space Notice").
4.2. If Tenant gives Landlord the Seventh Expansion Option Space
Notice, the Seventh Expansion Option Space shall be added to
the Premises as of the Seventh Expansion Option Space Delivery
Date. Landlord agrees to provide no less than thirty (30) days
prior written notice to Tenant as to when such Seventh
Expansion Option Space Delivery Date will occur. The Seventh
Expansion Option Space shall be added to the Premises for all
purposes under the Lease as of the Seventh Expansion Option
Space Delivery Date, except that Tenant's obligation to pay
Annual Rent shall commence on the Seventh Expansion Option
Space Commencement Date.
4.3. The term for the lease of the Seventh Expansion option Space
shall commence on the Seventh Expansion Option Space Delivery
Date, and shall end on the same day the Lease terminates.
4.4. Subject to the provisions of paragraph 4.5 of this Amended and
Restated Lease, Annual Rent for the Seventh Expansion Space
shall be equal to:
(a) $5.50 multiplied by the number of rentable square feet in
the Seventh Expansion Option Space for each twelve month
period commencing on the Seventh Expansion Space
Commencement Date, and ending September 30, 1999.
4.5. Provided Tenant is not in default under the terms of the
Lease, no Annual Rent on the Seventh Expansion option Space
shall be due and payable during the interval between the
Seventh Expansion Option Space Delivery Date and the Seventh
Expansion Option Space Commencement Date.
4.6. Tenant shall pay Annual Rent to Landlord in advance in equal
monthly payments at the times and manner as rental payments
are required by the Lease.
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4.7. Renewals -- The Seventh Expansion Option Space shall be
subject to the same rights of renewal (if any) contained in
the Lease, and any renewal of the Lease in accordance
therewith shall be deemed a renewal of Seventh Expansion
Option Space.
4.8. Default -- Any remedy exercised by Landlord arising from a
default by Tenant under the Lease shall apply to the Seventh
Expansion Option Space, and any default by Tenant of any term
and condition contained in this Amended and Restated Lease
shall be deemed to be a default under the Lease.
4.9. Termination -- If the Lease terminates for any reason
whatsoever, Tenant's right to occupy the Seventh Expansion
Option Space shall terminate on the same date.
4.10. Occupancy Costs -- Tenant shall pay as additional rent
Occupancy Costs and Other Charges relating to the Seventh
Expansion Option Space at the times as other Occupancy Costs
and Other Charges are required by the Lease.
4.11. Condition of Seventh Expansion Option Space -- Subject to
Section 4.12, Tenant shall take the Seventh Expansion Option
Space in "as-is" condition, and no Landlord's Work shall be
required in respect thereto. Tenant may, at any time after the
Seventh Expansion option Space Delivery Date, at its sole cost
and expense construct improvements to the Seventh Expansion
Option Space pursuant to plans approved by Landlord, subject
to all applicable provisions of the Lease.
4.12. Seventh Expansion Option Space Improvement Allowance --
Subject to compliance with the terms and conditions of this
Section, Landlord shall pay to Tenant the Seventh Expansion
Option Space Allowance for construction and completion of
Tenant's Work. Upon final completion of all of Tenant's Work,
Tenant shall submit to Landlord (a) a copy of the final
unqualified certificate of occupancy for the Seventh Expansion
option space (b) a sworn affidavit from Tenant reasonably
acceptable to Landlord stating (i) in reasonable detail the
actual direct costs paid by Tenant for construction and
completion of Tenant's work, (ii) the names and addresses of
all designers, contractors, subcontractors or suppliers in
respect of Tenant's Work and (iii) that all of the person
identified in clause (b)(ii) have been paid in full, and (c)
full mechanic's lien waivers from each person identified in
clause (b)(ii). Within thirty (30) days after receipt of all
such items, Landlord shall pay the Seventh Expansion Option
Space Improvement Allowance to Tenant. In the event Landlord
fails to pay Tenant all or
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any portion of the Seventh Expansion Space Additional
Improvement Allowance as required by this Section, Tenant
shall have the right to offset such amount against the Annual
Rent next due and owing Landlord.
5.0 New Expansion Option - Eighth Expansion Option Space
5.1. Provided Tenant has exercised its Seventh Expansion option
pursuant to Section 4.0, and Option to Extend pursuant to
Section 6.0, Tenant shall have an option ("Eighth Expansion
Option") to add to the Premises the Eighth Expansion Option
Space. The Eighth Expansion option shall be exercised, if at
all, by written notice from Tenant to Landlord given not later
than October 1, 1998 (such notice is hereinafter referred to
as the Eighth Expansion option Space Notice").
5.2. If Tenant gives Landlord the Eighth Expansion option Space
Notice, the Eighth Expansion Option Space shall be added to
the Premises as of the Eighth Expansion option Space Delivery
Date. The Eighth Expansion Option Space shall be added to the
Premises for all purposes under the Lease as of the Eighth
Expansion option Space Delivery Date, except that Tenant's
obligation to pay Annual Rent shall commence on the Eighth
Expansion Option Space Commencement Date.
5.3. The term for the lease of the Eighth Expansion option Space
shall commence on the Eighth Expansion Option Space Delivery
Date, and shall end on the same day the Lease terminates.
5.4. Subject to the provisions of paragraph 5.5 of this Amended and
Restated Lease, Annual Rent for the Eighth Expansion Space
shall be equal to Market Rent as determined pursuant to
Section 7.0 below.
5.5. Provided Tenant is not in default under the terms of the
Lease, no Annual Rent on the Eighth Expansion option Space
shall be due and payable during the interval between the
Eighth Expansion Option Space Delivery Date and the Eighth
Expansion Option Space Commencement Date.
5.6. Tenant shall pay Annual Rent to Landlord in advance in equal
monthly payments at the times and manner as rental payments
are required by the Lease.
5.7. Renewals -- The Eighth Expansion Option Space shall be subject
to the same rights of renewal (if any) as are contained in the
Lease, and any renewal of the Lease in accordance therewith
shall be deemed a renewal of Eighth Expansion Option Space.
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5.8. Default -- Any remedy exercised by Landlord arising from a
default by Tenant under the Lease shall apply to the Eighth
Expansion option Space, and any default by Tenant of any term
and condition contained in this Amended and Restated Lease
shall be deemed to be a default under the Lease.
5.9. Termination -- If the Lease terminates for any reason
whatsoever, Tenant's right to occupy the Eighth Expansion
Option Space shall terminate on the same date.
5.10. Occupancy Costs -- Tenant shall pay as additional rent
Occupancy Costs and other Charges relating to the Eighth
Expansion Option Space at the times and manner as other
Occupancy Costs and Other Charges required by the Lease.
5.11. Condition of Eighth Expansion Option Space -- Tenant shall
take the Eighth Expansion Option Space in "as-is" condition,
and no Landlord Work shall be required in respect thereto.
Tenant may, at any time after the Eighth Expansion Option
Space Delivery Date, at its sole cost and expense construct
improvements to the Eighth Expansion Option Space pursuant to
plans approved by Landlord, subject to all applicable
provisions of the Lease.
6.0 Tenant's Option to Extend
6.1. Landlord hereby grants to Tenant the option to extend the Term
upon the terms and conditions set forth in this Section 6.0
provided:
(a) Tenant is not in default under this Lease at the time
such option is exercised or at the commencement of the
extended Term; and
(b) Tenant delivers to Landlord, no later September 30, 1998
written notice exercising its option to extend the Term.
If Tenant fails to give such notice, Tenant shall have
waived its right to extend the Term, and this option to
extend the Term shall thereupon terminate.
6.2. With respect to the extended Term:
(a) Annual Rent shall be equal to Market Rent as determined
pursuant to Section 7.0 below, provided however, in the
event Tenant's Premises equal or exceed 25,000 rentable
square feet at the commencement of the extended Term,
Annual Rent shall equal to ninety percent (90%) of such
Market Rent.
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(b) The extended Term shall be five (5) years, commencing
upon the expiration of the original Term with no further
right of renewal;
(c) the other terms and conditions of the renewal lease shall
be as set out in this Lease.
6.3. Documentation -- Landlord and Tenant shall execute and deliver
appropriate documentation to evidence extension of the Term
and the terms and conditions of the renewal lease.
6.4. Non-Severability -- The rights of Tenant under this Section
6.0 shall not be severed from this Lease or separately sold,
assigned, or otherwise transferred, and shall expire on the
expiration or earlier termination of this Lease.
7.0 Market Rent Determination
7.1. Market Rent -- "Market Rent" means the market net rental rate
for the premises in question with respect to the time period
in question, taking into account all pertinent factors
including but not limited to the then existing condition of
the Premises (i.e. as-is condition) , the market rent for
lease renewals versus new leases, the presence or absence of
tenant inducements and/or allowances typically provided in the
downtown Minneapolis market for comparable office space, the
term in question, the size and creditworthiness of tenant, and
assuming the Landlord to be a prudent person willing to lease,
but being under no compulsion to do so, and assuming the
Tenant to be a prudent person willing to lease, but being
under no compulsion to do so. Market Rent shall be paid as
Annual Rent under this Lease, in addition to all other sums
payable as Rent by Tenant under this Lease. Whenever Annual
Rent under this Lease is based on Market Rent, Landlord shall
initially determine the Market Rent for the area in question
and shall thereupon give Tenant notice ("Landlord's Notice")
of such determination and of the amount of Annual Rent for the
space as to which Market Rent is applicable. Landlord shall
provide Tenant its determination of Market Rent within thirty
(30) days after Tenant exercises any renewal right or
expansion option to which Market Rent is applicable.
7.2. Disagreement on Market Rent.
(a) If Tenant does not agree with Landlord's determination of
Market Rent, Tenant shall give notice to Landlord of such
disagreement
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("Disagreement Notice") within twenty (20) days
("Disagreement Notice Period") after receipt of
Landlord's Notice. If Tenant fails to give a Disagreement
Notice for any reason, then Tenant shall be bound by
Landlord's determination of Market Rent. If Tenant does
provide Landlord with such Disagreement Notice, Tenant
shall include in its Disagreement Notice the reasons for
such disagreement and Tenant's determination of Market
Rent for the Premises using the same factors as described
in Section 7.1 above.
(b) If Tenant gives Landlord a Disagreement Notice within the
Disagreement Notice Period, each party will choose a
person with at least five (5) years experience as a real
estate appraiser in the Minneapolis Metropolitan Area who
shall be a member in good standing of the American
Institute of Real Estate Appraisers (or successor
organization or, if no such organization exists, then
persons of similar professional qualifications), with the
designation M.A.I., and shall have had no business or
professional relationship with the party designating that
person within the prior two (2) years. Each party will
give notice of the name and address of such person to the
other within ten (10) days after Tenant delivers the
Disagreement Notice. Those two (2) appraisers shall
within five (5) days after designation select a third
appraiser with the same credentials, who shall not have
had any business or professional relationship with either
party during the prior three (3) years. The three (3)
appraisers (singularly, the "Expert" and collectively,
the "Experts") shall make a determination of Market Rent
as expeditiously as possible thereafter and in any event
within thirty (30) days after the selection of the third
Expert. The determination of the Experts shall be made as
follows:
(i) Each party shall promptly submit to the Experts all
information deemed relevant by that party in the
determination by the Experts of Market Rent
(including disclosure by Landlord of the three most
recent leases for one floor or more executed by
Landlord with tenants in the Building), and each
Expert will independently determine the Market Rent
and then all will meet and contemporaneously
disclose to the others their, respective
determinations.
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(ii) If neither the highest nor the lowest determination
differs from the middle determination by more than
ten percent (10%) of such middle determination, then
the Market Rent shall be the average of all three
determinations.
(iii) If subparagraph (ii) does not apply, then the
Market Rent shall be the average of the two
determinations closest by dollar amount.
(iv) The Experts shall promptly notify Landlord and
Tenant of each of their separate determinations and
the resulting Market Rent. In the absence of notice
from Tenant rescinding the prior exercise, the
determination of Market Rent as set forth above
shall be final, binding and conclusive upon Landlord
and Tenant and may be confirmed by either party by
application to any Court having jurisdiction
thereof.
(c) From and after the determination of Market Rent based on
this Article 7.0, Tenant shall pay Annual Rent for the
applicable space at the Market Rent, and within thirty
(30) days after Landlord and Tenant receive notice of
such determination of Market Rent, if Tenant has been
obligated to pay Annual Rent at the rate designated by
Landlord for space that is subject to a Market Rent
determination, Tenant shall pay to Landlord the amount of
any underpayment, or Landlord shall refund to Tenant the
amount of any overpayment (or credit the same to the next
Rent payments due, at Landlord's option), as the case may
be.
(d) Each party will pay any and all fees and expenses
incurred in connection with such party's Expert and the
fees and expenses for the third Expert will be borne
equally by the parties except that if the annual Rent
resulting from any determination under this Article 7.0
is equal to or greater than ninety-five percent (95%) of
the amount of Annual Rent set forth in Landlord's Notice
to
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Tenant, then Tenant shall pay all fees and expenses of
all three of the Experts and if the Annual Rent is less
than or equal to eighty percent (80%) of the amount of
Annual Rent set forth in Landlord's Notice to Tenant,
then Landlord shall pay all fees and expenses of all
three of the experts.
8.0 Right of First Offer Space A
8.1. Right of First Offer. Landlord shall give Tenant written
notice of the availability of First offer Space A whenever
First Offer Space A first becomes available to Landlord for
releasing upon expiration of the existing lease (including any
extension thereof agreed to between Landlord and the existing
tenant), or the earlier termination thereof, if any, for First
offer Space A. The notice shall set out the Annual Rent
(Landlord's determination of Market Rent) for that First Offer
Space A. Tenant shall have the right to lease the First Offer
Space A upon the terms and conditions set out in this Section
8.0 if:
(a) Tenant is not in default under this Lease,
(b) the tenant, its assigns or subtenants (if any) in
possession of all or part of the First Offer Space A has
no desire to remain in possession and enter into a lease
with Landlord,
(c) other tenants in the Building with present rights to
lease all or part of the First Offer Space A have no
desire to enter into a lease with Landlord,
(d) the remaining Term on Tenant's existing Lease for the
Premises is for no less than two (2) years at the
commencement of the extended Term; and
(e) Tenant delivers to Landlord written notice exercising its
right to lease the First Offer Space A within ten (10)
days of receipt of Landlord's notice of availability of
that First Offer space A; and
(f) in the event Tenant exercises its right to lease the
First Offer Space A, then Tenant's Eighth Expansion
Option shall be limited to that square footage not
otherwise included in the First Offer Space A; provided,
however, Tenant shall have, at its election, the right to
exercise its Eighth Expansion Option to the entire Eighth
Expansion Option Space pursuant to Section 5.0 above at
the time Tenant receives Landlord's notice described in
subsection 8.1(e) above.
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If Tenant fails to exercise its right to lease the First Offer Space A, then
Tenant shall have no further right to lease the First Offer Space A under this
Section 8.0 until six (6) months have passed; provided, however, if Landlord
agrees to lease the First offer Space A to any prospective third party tenant at
Market Rent that is equal to or greater than ten percent (10%) less than the
Market Rent offered to Tenant, then Landlord shall be required to re-offer in
writing the First Offer Space A to Tenant, and Tenant shall have an additional
ten (10) days after receipt of such re-offer to either accept or reject the
First Offer Space A upon the same terms and conditions offered to the
prospective third party tenant.
8.2. Terms. A lease of space under this Section 8.0 shall contain
the following:
(a) Annual Rent shall be determined pursuant to Section 8.1
above;
(b) Occupancy Costs shall be determined in accordance with
this Lease;
(c) Commencement Date for the lease of First Offer (Space A)
shall be the later of the date the First Offer (Space A)
becomes available to Landlord for releasing or sixty (60)
days after notice from Landlord that the First Offer
Space A is available;
(d) Term shall end on the expiration or earlier termination
or this Lease, subject to the same option to extend (if
any) as this Lease;
(e) Tenant shall take the space in an "as-is" condition with
all improvements to be Tenant's responsibility at
Tenant's cost;
(f) the other terms and conditions shall be as set out in
this Lease.
8.3. Documentation. Within fifteen (15) days of receipt from
Landlord, Tenant shall execute and deliver to Landlord those
instruments Landlord may request to evidence any lease of
space under this Section 8.0.
8.4. Non-Severability. The rights of Tenant under this Section 8.0
shall not be severed from this Lease or separately sold,
assigned, or otherwise transferred, and shall expire on the
expiration or earlier termination of this Lease.
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9.0 Right of First Offer Space B
9.1. Right of First Offer. Landlord shall give Tenant written
notice of the availability of First Offer Space B whenever
First offer Space B first becomes available to Landlord for
releasing after expiration or earlier termination of the
existing lease, if any, for First Offer Space B. The notice
shall set out the Annual Rent (Landlord's determination of
Market Rent] for that First Offer Space B. Tenant shall have
the right to lease the First Offer Space B upon the terms and
conditions set out in this section 9.0 if:
(a) Tenant is not in default under this Lease,
(b) the tenant or subtenant in possession of all or part of
the First Offer Space B has no desire to remain in
possession and enter into a lease with Landlord,
(c) other tenants in the Building with present or future
rights to lease all or part of the First Offer Space B
have no desire to enter into a lease with Landlord,
(d) the remaining Term on Tenant's existing Lease for the
Premises is for no less than two (2) years at the
commencement of the extended Term; and
(e) Tenant delivers to Landlord written notice exercising its
right to lease the First Offer Space B within ten (10)
days of receipt of Landlord's notice of availability of
that First offer Space B; and
(f) in the event Tenant exercises its right to lease the
First Offer Space B, then Tenant's Eighth Expansion Space
shall be limited as described in subsection 8.1(f) above;
provided, however, Tenant shall have the right to
exercise its Eighth Expansion Option, as described in
such subsection, at such time as Tenant receives
Landlord's notice described in subsection 9.1(e) above.
If Tenant fails to exercise its right to lease the First Offer
Space B, then Tenant shall have no further right to lease the
First Offer Space B under this Section 9.0 until six (6)
months have passed; provided, however, if Landlord agrees to
lease the First Offer Space B to any prospective third party
tenant at Market Rent that is equal to or greater than ten
percent (10%) less than the Market Rent offered to Tenant,
then Landlord shall be
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required to re-offer in writing the First Offer Space B to
Tenant, and Tenant shall have an additional ten (10) days
after receipt of such re-offer to either accept or reject the
First Offer Space B upon the same terms and conditions offered
to the prospective third party tenant.
9.2. Terms. A lease of space under this Section 9. 0 shall contain
the following:
(a) Annual Rent shall be determined pursuant to Section 9.01
of this Amended and Restated Lease;
(b) Occupancy Costs shall be determined in accordance with
this Lease;
(c) Commencement Date for the lease of First Offer Space B
shall be the later of the date the First Offer Space B
becomes available to Landlord for releasing or sixty (60)
days after notice from Landlord that the First Offer
Space B is available;
(d) Term shall end on the expiration or earlier termination
or this Lease, subject to the same option to extend (if
any) as this Lease;
(e) Tenant shall take the space in an "as-is" condition with
all improvements to be Tenant's responsibility at
Tenant's cost;
(f) the other terms and conditions shall be as set out in
this Lease.
9.3. Documentation. Within fifteen (15) days of receipt from
Landlord, Tenant shall execute and deliver to Landlord those
instruments Landlord may request to evidence any lease of
space under this Section 9.0.
9.4. Non-Severability. The rights of Tenant under this Section 9.0
shall not be severed from this Lease or separately sold,
assigned, or otherwise transferred, and shall expire on the
expiration or earlier termination of this Lease.
10.0 Tenant's Contraction Right
10.1. Tenant shall have the right but not the obligation to reduce
the Premises ("Contraction Right"), by an amount not to exceed
20,000 rentable square feet ("Released Space") as of September
30, 1997 (the "Contraction Date"), on the following terms and
conditions:
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(a) Tenant provides Landlord with written notice on or before
September 30, 1996, of its election to exercise its
Contraction Right. Such notice shall describe the amount
and location of the Released Space. If Tenant fails to
give such notice, then Tenant shall have waived its
Contraction Right and this Contraction Right shall
thereupon terminate; and
(b) Tenant is not in default under the Lease either at the
time of the notice or on the Contraction Date; and
(c) Tenant shall have the obligations as set forth in Article
12.00 of the Lease in connection with the Released Space
as if there had been a termination under the Lease; and
(d) Any Released Space shall be located on a single floor, be
in a regular configuration and have reasonable and legal
access to the core facilities, services and systems of
the Building so that Landlord shall have the ability to
market and lease the release Space to any prospective
tenant. Within ten (10) days after receipt of an invoice
from Landlord, Tenant shall pay for all reasonable
construction costs associated with returning the Released
Space to a marketable configuration including the cost to
construct demising walls (taped and sanded) and
separation of electricity; and
(e) The Released Space shall be an area of not greater than
20,000, nor less than 5,000 rentable square feet;
provided, however, the total amount of Released Space
shall be evenly divisible by a factor of 5,000; and
(f) On the Contraction Date, Tenant shall pay Landlord the
unamortized cost of tenant inducements on the Released
Space for the remaining thirty three months of the Term,
including interest at a rate of 9%, which shall equal the
unamortized cost of improvements to the 31,227 rentable
square feet contained in the initial Premises blended
with the unamortized cost of improvements to the Seventh
Expansion Option Space, if any. Landlord and Tenant
stipulate that (x) the cost of improvements to the
initial Premises was $449,701; and as of the Contraction
Date, the unamortized cost for such improvements equals
approximately $202,815 or $6.49 per rentable square foot,
and (y) the cost of
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improvements for the 5,037 rentable square feet contained
in the Seventh Expansion Option Space shall equal the
amount described in subsection 1.2(l) above; and as of
the Contraction Date, the unamortized cost for such
improvements equals approximately $7.49 per rentable
square foot. By way of example, if Tenant fails to
exercise its Seventh Expansion option Space, then on the
Contraction Date, Tenant shall pay Landlord an amount
equal to $6.49 times the rentable square feet contained
in the Released Space. If Tenant exercises its Seventh
Expansion Option, then the unamortized cost of the
Released Space shall equal (i) the unamortized cost of
the Premises which equals $202,815, (ii) plus, the
unamortized portion of the Seventh Expansion option Space
which equals $37,742 as of September 30, 1997, (iii)
divided by the total rentable square feet (which equals
36,324 under this example), (iv) equaling a blended total
of $6.63 times the rentable square feet contained in the
Released Space.
Notwithstanding anything contained herein to the contrary, in
the event Tenant elects to exercise its Contraction Right
pursuant to this Section 10.0, any unexercised expansion
rights granted Tenant under the Lease shall terminate and
shall be considered null and void and of no further force and
effect.
10.2. Documentation. Within fifteen (15) days of receipt from
Landlord, Tenant shall execute and deliver to Landlord those
instruments Landlord may request to evidence the release of
space under this Section 10.0.
10.3. Non-Severability. The rights of Tenant under this Section 10.0
shall not be severed from this Lease or separately sold,
assigned, or otherwise transferred, and shall expire on the
expiration or earlier termination of this Lease.
11.0 ADA Compliance
11.1. Section 5.02 of the Lease is hereby amended and the following
language shall be added thereto:
"Notwithstanding anything to the contrary contained in this
Section 5.02, Tenant shall not be responsible for any actions
or causes of actions regarding the Americans' with
Disabilities Act (the "ADA") for any condition outside the
Premises; or any change required of any base building system;
or
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structural change to the Premises not otherwise resulting from
Tenant's specific use, plan, or design of the Premises; or
which would otherwise be the obligation of the Landlord under
this Lease. Nothing herein shall prohibit Landlord from
including such cost and expense incurred to comply with the
ADA as a portion of occupancy Costs. Landlord agrees that any
increase in occupancy Costs incurred as a direct result of
such ADA compliance shall be limited to $30,000.00 (the "Cap")
per Fiscal Year. Provided, however, in the event the actual
increase in occupancy Costs as a direct result of such
compliance is greater than the Cap, such excess shall be added
to the following years succeeding Cap; provided that such Cap
in any successive year shall not exceed $30,000.00."
Notwithstanding anything contained in this Section 11.1 to the
contrary, Landlord shall, at its sole cost and expense, be
responsible for installing a separate unisex bathroom on the
third and tenth floors in compliance with the ADA.
12.0 Tenant's Right to Audit
12.1. Section 4.06 of the Lease is hereby amended and the following
language shall be added thereto:
"Tenant shall have the right, but not more than once each
Fiscal Year, to have conducted by a nationally recognized
accounting firm an audit performed in accordance with
generally accepted accounting principles of all operating
Costs (as that term is described in Section 2.00 of Exhibit B)
which audit shall be conducted at Landlord's offices;
provided, however, Tenant shall perform such audit at its sole
cost and expense and shall give Landlord at least thirty (30)
days' prior written notice of its intent to perform such an
audit. If the results of any such audit show that Landlord's
statement of Tenant's Occupancy Costs (excluding Taxes) have
been overstated by more than four percent (0), Landlord shall
bear all such reasonable costs incurred by Tenant as a direct
result of such audit."
13.0 HVAC, Utilities and Additional Services
13.1. The Standard Building HVAC System described in Section
3.11(iv) is designed to provide temperatures to the Premises
in the range of 68 to 76 degrees Fahrenheit during the hours
of 7:30 a.m. to 6:00 p.m., Monday through Friday, and 7:30
a.m. to 1:00 p.m. on Saturdays.
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<PAGE> 41
13.2. Landlord shall have the right, at Landlord's election to
require Tenant, at Tenant's cost, to separately meter the
utilities to the Premises (including any additions pursuant to
this Amended and Restated Lease). Landlord shall have the
right to either require Tenant to pay the billing utility
company directly and/or to require Tenant to pay the cost of
the utility to Landlord as Additional Rent, in addition to,
and not in lieu of, the Annual Rent due under Article 16.0
below. In the event Landlord elects to have Tenant pay any
utility bill directly to the billing utility company and
Tenant fails to pay such utility bill, Landlord shall have the
right, after written notice to the Tenant, to pay such utility
bill on Tenant's behalf and require Tenant to pay the cost
thereof as Additional Rent pursuant to the terms of this
Section 13.2. Tenant's failure to pay any utility expense
required hereunder shall be deemed a default of amounts due
and payable under the terms and conditions of this Amended and
Restated Lease.
13.3. Section 6.05 of the Lease is hereby amended and the following
language shall be added thereto:
"At the current time, Landlord's charges for after-hours HVAC
services in the Building (per floor or partial floor) are
$25.00 per hour for cooling plus $5.00 per hour for heat or
fans.
14.0 Non-disturbance
14.1. Section 17.05 of the Lease is hereby amended and the following
language shall be added thereto:
"Landlord agrees that it shall deliver to Tenant, within
thirty (30) days after receipt by Tenant of a fully-executed
copy of this Amended and Restated Lease, a non-disturbance
agreement in a form which is substantially equivalent in form
and content to the non-disturbance agreement attached hereto
as Exhibit I, from its current mortgagees of the Building."
15.0 Term
15.1. Section 3.01 of the Lease is hereby amended such that the Term
of Lease for the initial Premises, including any and all
additional space added thereto pursuant to any amendment of
Lease, shall be extended by five (5) years. Unless terminated
earlier as provided in the Lease, the Lease shall expire on
September 30, 1999.
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<PAGE> 42
16.0 Annual Rent
16.1. Section 4. 01 of the Lease is hereby amended and the following
language shall be added thereto:
"Tenant shall pay to Landlord as Annual Rent for the Premises
for the period commencing October 1, 1994 through September
30, 1999 the sum of $5.50 per rentable square foot payable in
accordance with the terms and conditions of this Section
4.01."
17.0 Assignment and Subletting
17.1. Notwithstanding anything contained to the contrary in Section
23.3 of the Lease, Landlord's consent to an assignment or
sublease of the Premises, shall not be withheld provided that:
(i) Tenant is not in default beyond any applicable
cure period under the terms and conditions of the
Lease or this Amended and Restated Lease on either
the date Tenant requests such transfer or the date
of the transfer;
(ii) Such assignee or sublessee is of a quality and
character consistent with other tenants in the
Office Complex;
(iii) Such assignee or sublessee is not a tenant in the
Building at the time such assignment or sublease
is requested; and
(iv) Tenant remains liable under the terms and
conditions of the Lease and this Amended and
Restated Lease.
18.0 Condition of Existing Space
18.1. With respect to the 24,937 rentable square feet of the
Premises located on the tenth (10th) and third (3rd) floors of
the Building and which Tenant is presently occupying, Landlord
agrees, at its sole cost and expense to provide the following
alterations :
(i) Install heat pump cooling unit and thermostat in
one office located on the third floor;
(ii) Install sprinklers to existing floor plan for
third floor; and
(iii) Provide air balancing to existing Premises located
on tenth floor.
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<PAGE> 43
Such additional work shall be completed by Landlord on or
before October 1, 1994, or, at such later date as it mutually
agreed to by both parties.
19.0 Parking
During the Term, Landlord will make available to Tenant at Tenant's
expense twenty (20) parking contracts in the Building; of which no more
than 18% of the total parking spaces leased by Tenant shall be in the
heated section of the parking ramp. The parking spaces will be for the
sole use of Tenant. The parking contract shall be on the parking
manager's standard parking contract and at the monthly rental rate from
time to time in effect (currently $173.00 per month for non-heated and
$191.00 per month for heated parking). on or before September 1, 1994,
Tenant shall notify Landlord of the total number of parking contracts
Tenant desires to enter into. Upon Tenant entering into such contracts,
Landlord shall be deemed to have complied with this Section 19.0 and
shall have no further obligation with respect thereto. In the event
Tenant fails to notify Landlord on or before September 1, 1994 of the
number of parking contracts Tenant would like to enter into, Tenant
shall be deemed to have waived such right and Landlord shall have no
further obligation to reserve such parking contracts for Tenant's use.
Notwithstanding anything contained herein to the contrary, provided
Tenant has not exercised its Contraction Option pursuant to Section
10.0 above, Landlord agrees that it shall allocate further parking
rights of one (1) parking contract per 2,000 rentable square feet of
additional space added to the Premises in the event Tenant exercises
any expansion rights provided under this Amended and Restated Lease.
20.0 Storage
Landlord will make available to Tenant approximately 1, 600 rentable
square feet of storage space in the area generally designated as Suite
#B-93B located on the basement level of the Building, to be leased f or
periods of one year each, which storage space shall be renewable upon
each succeeding anniversary date of the Sixth Expansion Space
Commencement Date. Rent on the storage space for the first year,
commencing on the Sixth Expansion Space Commencement Date and
continuing until the first anniversary of the Sixth Expansion Space
Commencement Date, shall equal $10.00 per rentable square foot payable
in equal monthly installments pursuant to the terms and conditions of
this Amended and Restated Lease. Within 30 days prior to each
anniversary date of the Sixth Expansion Space Commencement Date,
Landlord shall provide Tenant notice of any change in Rent for such
storage space. In the event that Landlord fails to provide Tenant
written notice of any such storage space Rent increase as required
28
<PAGE> 44
herein, Rent f or such storage space shall equal the amount paid during
the previous year. In the event Tenant elects to terminate its
occupancy of the storage space, Tenant shall provide Landlord written
notice of such termination at least 10 days prior to the respective
anniversary date at the Sixth Expansion Space Commencement Date. In the
event that Tenant fails to provide such written notice of termination
as required herein, then such storage space shall be deemed renewed for
an additional year.
21.0 Pet Policy
Provided Tenant is not in violation of any applicable City ordinances
and/or codes, Tenant shall have the right to bring one (1) pet per week
to each of the third and tenth floor Premises leased by Tenant. Tenant
shall be required to use only the service elevator or freight elevator
to transport such pets and must refrain from transporting pets during
such service elevator's peak hours of operation. Such pet policy shall
not result in undue clean-up or wear and tear in the Premises or
Building, or become a nuisance to other tenants or visitors in the
Building. Tenant shall be responsible for the cost of any repair to
damage or clean-up as a result of such pet use. Landlord shall provide
Tenant written notice of any violation of this Section by Tenant or its
employees. In the event Landlord provides written notice to Tenant of
three violations during any consecutive twelve month period, Landlord
shall have the right to cancel such policy.
22.0 Tenant Identification
Tenant's corporate name shall appear on the directory board of the East
Building lobby with up to ten (10) individual names. Landlord shall
bear all reasonable costs associated with this directory listing.
23.0 Estoppel
Landlord and Tenant shall, at any time and from time to time on not
more than twenty (20) days' written notice from the other, execute and
deliver to the requesting party a written statement substantially in
form of Exhibit H ("Estoppel Certificate"). Either parties failure to
execute and deliver the Estoppel Certificate within said twenty (20)
day period shall be deemed to make conclusive and binding upon such
party the statements contained in the Estoppel Certificate as true and
correct, without exception.
24.0 Asbestos Abatement
Landlord shall be responsible, at its sole cost and expense
(including any management costs), for the removal of all
29
<PAGE> 45
asbestos contained in any portion of the Premises which is otherwise in
violation of any federal, state, municipal or local law, ordinance,
rule of regulation; or which is otherwise included in Landlord's
asbestos abatement plan for the Building. Landlord and Tenant
acknowledge the presence of asbestos containing materials in the third
and tenth floor mechanical rooms in the Building, and that Landlord is
undertaking an asbestos removal or containment policy in portions of
the Building. To the best of Landlord's knowledge the asbestos
contained in the third and tenth floors mechanical rooms is not
otherwise in violation of any federal, state, municipal or local law,
ordinance, rule or regulation. Tenant may request Landlord to perform
asbestos air monitoring tests in the tenth floor Premises, at
Landlord's sole cost and expense, during construction projects on the
tenth floor, or in the absence of such construction projects no more
than once per year. In the event that the results of any such test
discloses air borne asbestos particles in excess of standards permitted
by federal, state, municipal or local law, ordinance, rule or
regulation, Landlord shall diligently undertake remedial procedures
necessary to ensure the air quality in the Premises complies with the
permitted levels specified in any such laws, ordinances, rules or
regulations. Upon remediation, Landlord shall provide Tenant written
notice of such remediation and Tenant shall have the right to request
such additional air monitoring tests necessary to ensure compliance as
described in this Article.
25.0 Security
Landlord provides twenty-four (24) hour security to the Building.
Tenant shall have the right to request Landlord's security personnel to
escort its employees, agents or invitees to the parking ramp or to
other portions of the Building. Tenant shall make such request through
the Building's central operations, and such security personnel shall
respond to such request in an efficient manner.
26.0 Except as herein specified, supplemented and amended, the Lease shall
remain in full force and effect.
27.0 The execution of this Amended and Restated Lease shall be subject to
the approval of the partners comprising Landlord, if Landlord at the
time of its execution is a partnership and, if required, by Landlord's
lenders for the Building.
28.0 In the event of any conflict in terms between this Amended and Restated
Office Lease and the Initial Lease the terms and conditions of this
Amended and Restated Office Lease shall control.
30
<PAGE> 46
29.0 Payment of Leasing Commission; Right of Offset
Landlord acknowledges that Landlord is obligated to pay to the
Keewaydin Group a commission for leasing the Premises to Tenant in the
amount of $3.00 per square foot (the "Commission") by November 15,
1994, for a total amount due to the Keewaydin Group of $93,681.00. In
the event that Landlord does not pay such Commission to Keewaydin Group
by November 15, 1994, upon five (5) days prior written notice to
Landlord, Tenant may offset the commission, or such portion thereof,
which remains due and owing the Keewaydin Group, against Annual Rent
due and payable beginning on December 1, 1994. In such event, Tenant
agrees to indemnify, defend and hold Landlord harmless against any
claim to the Commission or other compensation by the Keewaydin Group
arising out of its activities with respect to this Lease.
31
<PAGE> 47
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amended and
Restated Lease as of the date first written above.
LANDLORD:
T.H.S. NORTHSTAR ASSOCIATES
LIMITED PARTNERSHIP
By: /s/ ILLEGIBLE
------------------------------------
Brookfield Development Inc.,
Its managing agent
By /s/ ILLEGIBLE
------------------------------------
Its: VICE PRESIDENT
------------------------------------
By: /s/ ILLEGIBLE
------------------------------------
Its: ASSISTANT SECRETARY
------------------------------------
TENANT:
PHYNQUE, INC.
By: /s/ ILLEGIBLE
------------------------------------
Its
------------------------------------
32
<PAGE> 48
FIRST AMENDMENT OF THE AMENDED AND RESTATED OFFICE LEASE
DATE: August 10, 1995
BETWEEN: T.H.S. NORTHSTAR ASSOCIATES LIMITED PARTNERSHIP
a Minnesota limited partnership
by Brookfield Development Inc.
Its managing agent
725 Northstar East
608 Second Avenue South
Minneapolis, Minnesota 55402 ("Landlord")
AND: Phynque, Inc.
a Minnesota Corporation
370 Northstar East
608 Second Avenue South
Minneapolis, Minnesota 55402 ("Tenant")
FOR PREMISES IN: Northstar East
LANDLORD AND TENANT hereby agree as follows:
1. In this First Amendment of the Amended and Restated Office Lease:
(a) "Building" means Northstar East located in the city of
Minneapolis, Minnesota as further described in the Amended and
Restated Office Lease.
(b) "Prime Lease" means the lease between Landlord and Tenant as
defined in the Amended and Restated Office Lease dated April,
1994.
(c) "Sixth Floor Expansion Space" means approximately 13,634
rentable square feet consisting of Suite 600 comprising 9,050
rentable square feet ("Suite 600"), and Suite 650 comprising
4,584 rentable square feet ("Suite 650") located on the 6th
floor Building, as generally shown on Exhibit I attached
hereto and by this reference incorporated herein.
<PAGE> 49
(d) "Sixth Floor Expansion Space Term" means with respect to (1)
Suite 600, that period of time commencing the earlier of. (x)
September 15, 1995, or (y) the date Tenant occupies any part
of Suite 600 for purposes of conducting business ("Suite 600
Commencement Date"); (11) with respect to Suite 650, that
period of time commencing the earlier of- (x) February 15,
1996, or (y) the date Tenant occupies any part of Suite 650
for purpose of conducting business ("Suite 650 Commencement
Date"), and the Sixth Floor Expansion Space Term shall end on
the same date on which the prime Lease shall terminate.
(e) "Annual Rent for the Sixth Floor Expansion Space" means:
(i) $4,147,92 per month commencing on the Suite 600
Commencement Date continuing through the Suite 650
Commencement Date;
(ii) $6,248.92 per month commencing on the Suite 650
Commencement Date through September 30, 1996;
(iii) $6,817.00 per month commencing on October 1, 1996
through September 30, 1997.
(iv) $7,385.08 per month commencing on October 1, 1997
through September 30, 1998.
(v) $7,953.17 per month commencing on October 1, 1998
through September 30, 1999.
Annual Rent shall be payable in advance without notice on the first day of each
calendar month of the term in accordance with the Prime Lease; provided,
however, if Suite 600 Commencement Date or Suite 650 Commencement Date is on a
day other than the first day of a month, Tenant will pay a pro rata share of the
applicable Annual Rent for said partial month.
(f) All other words and phrases, unless otherwise defined herein,
have the meanings attributed to them in the Prime Lease.
2. Landlord hereby demises and leases the Sixth Floor Expansion Space to
Tenant and Tenant accepts the lease of the Sixth Floor Expansion Space
to have and to hold during the Term, on the same terms and conditions
as are contained in the Prime Lease, except as herein otherwise
provided and expressly excepting the following:
(a) Renewals: The Sixth Floor Expansion Space shall be subject to
Tenant's right to extend the Term according to Section 6.0 of
the Prime Lease and renewal of the Prime Lease shall be deemed
a renewal of the Sixth Floor Expansion Space.
(b) Contraction Right: The Sixth Floor Expansion Space shall be
specifically excluded from Tenant's contraction right in
Section 10.0 of the Prime Lease.
<PAGE> 50
(c) Condition of the Sixth Floor Expansion Space:
(i) Landlord shall deliver and Tenant shall accept Suite
600 and Suite 650 on the date of this First Amendment
of the Amended and Restated Office Lease in its then
"as-is" condition and Landlord shall have no obligation
to make improvements, modifications, or changes
thereon. At Tenant's sole, cost and expense, Tenant may
at any time after Landlord delivers the Sixth Floor
Expansion Space, construct improvements to Suite 600
and Suite 650 pursuant to plans and specifications
approved by Landlord ("Plans").
(d) Tenant Improvement Allowance: Provided Tenant is not in
default with the terms and conditions of the Prime Lease,
Landlord shall provide Tenant an improvement allowance as
described in this Paragraph 2 (d). The Tenant Improvement
Allowance will be payable to Tenant within 30 days upon
Landlord's receipt from Tenant of reasonable evidence of paid
construction invoices and lien waivers for construction of
improvements in the Sixth Floor Expansion Space in accordance
with the Plans. The Tenant Improvement Allowance shall equal:
(i) With respect to Suite 600, $45,250.00, payable as
described above, but in no event shall Landlord be
obligated to pay Tenant said portion of the Tenant
Improvement Allowance prior to the Suite 600
Commencement Date.
(ii) With respect to Suite 650, $20,307.00, payable as
described above but in no event shall Landlord be
obligated to pay Tenant said portion of the Tenant
Improvement Allowance prior to the Suite 650
Commencement Date.
(iii) Immediately upon execution of this First Amendment of
the Amended and Restated Office Lease, $108,157.75,
(representing the funds due to Tenant pursuant to the
Sixth Expansion Space Improvement Allowance, which
funds were to be credited to Tenant's payment of Annual
Rent due and owing Landlord for the period commencing
October 1, 1994 pursuant to Section 3.12 of the Prime
Lease, but were not so credited) shall be available to
Tenant for payment for design and construction of
improvements to Suite 600 and Suite 650. Commencing
upon execution of this First Amendment, Tenant shall
provide bi-monthly evidence of paid construction
invoices and lien waivers to Landlord. Landlord shall
reimburse Tenant for amounts paid pursuant thereto
within thirty (30) days after receipt of such
documentation. In the event Tenant has requested
reimbursement for less than $108,157.75, Tenant may
offset* Tenant's Annual Rent due and owing for the
period immediately thereafter.
*the difference between $108,157.75 and the amount
actually reimbursed to Tenant against
<PAGE> 51
(e) Additional Tenant Improvement Allowance: Provided Tenant is
not in default under the terms and conditions of the Prime
Lease, Landlord shall provide Tenant an additional improvement
allowance as described in this Paragraph 2 (e) (the
"Additional Tenant Improvement Allowance"). The Additional
Tenant Improvement Allowance shall be an amount equal to 50%
of the construction costs of improvements to the Sixth Floor
Expansion Space, in accordance with the Plans, in excess of
$173,714.75, but in no event shall the Additional Tenant
Improvement Allowance exceed $52,445.00. The Additional Tenant
Improvement Allowance will be allocated to Suite 600 and Suite
650 in the amounts prescribed below in sub-paragraphs (i) and
(ii) of this Paragraph 2 (e). The Additional Tenant
Improvement Allowance will be payable to Tenant within 30 days
upon Landlord's receipt from Tenant of reasonable evidence of
paid construction invoices and lien waivers for construction
of improvements in the Sixth Floor Expansion Space in
accordance with the Plans, but in no event shall Landlord be
obligated to pay Tenant the Additional Tenant Improvement
Allowance prior to the respective commencement dates for
Suites 600 and 650. The Additional Tenant Improvement
Allowance shall be allocated as follows:
(i) With respect to Suite 600, Landlord shall provide
Tenant 69.025% of any Additional Tenant Improvement
Allowance due under this Paragraph 2 (e), provided
Landlord's contribution to the Additional Tenant
Improvement Allowance for Suite 600 shall not exceed a
maximum of $36,200,00.
(ii) With respect to Suite 650, Landlord shall provide
Tenant 30.975% of any Additional Tenant Improvement
Allowance due under this Paragraph 2 (e), provided
Landlord's contribution to the Additional Tenant
Improvement Allowance for Suite 650 shall not exceed a
maximum of $16,245.00.
The Additional Tenant Improvement Allowance, if any, paid by
Landlord to Tenant shall be amortized over the remainder of
the initial Term in equal monthly installments which shall
include an interest rate of eleven percent (11%) per annum on
a monthly basis during the period from the applicable Suite
600 Commencement Date and Suite 650 Commencement Date, and
shall be payable by Tenant as Annual Rent in addition to the
amounts prescribed in Paragraph I (e) above beginning on the
respective commencement dates for Suite 600 and Suite 650.
(f) Occupancy Costs: Tenant shall pay Landlord Occupancy Costs
according to the Prime Lease.
(g) Tenant's Share: Tenant's Share of Expenses shall be as
follows:
(i) Upon the Suite 600 Commencement Date, Tenant's share
shall be increased to .06240 (6.24%).
<PAGE> 52
(ii) Upon the Suite 650 Commencement Date, Tenant's share
shall be increased to .06950 (6.95%).
(h) Seventh Expansion Option: Section 4.0 of the Prime Lease shall
be amended as follows:
(i) Sections 1.2 (j), 1.2 (1) and 4.12 of the Prime Lease
are deleted in their entirety.
(ii) Sections 4.1, 4.2 and 4.4 of the Prime Lease are
deleted and the following are substituted therefor:
(x) 4.1 Tenant shall have an option ("Seventh Expansion
Option"), to add to the Premises the Seventh Expansion
Option Space. The Seventh Expansion Option shall be
exercised, if at all, by Tenant providing Landlord
written notice ("Seventh Expansion Option Space
Notice") on or before December 31, 1996 ("Seventh
Expansion Option Space Notice Date").
(y) 4.2 If Tenant give Landlord the Seventh Expansion
Option Space Notice, the Seventh Expansion Option Space
shall be delivered by Landlord in its then as-is
condition no later than June 30, 1997 ("Seventh
Expansion Option Space Delivery Date"). Landlord shall
have no obligation to make improvements, modifications,
or changes to the Seventh Expansion Option Space. The
Seventh Expansion Option Space shall be added to the
Premises for all purposes under the Lease as of the
Seventh Expansion Option Space Delivery Date, except
that Tenant's obligation to pay Annual Rent shall
commence on the Seventh Expansion Option Space
Commencement Date. The Seventh Expansion Option Space
Commencement Date shall be the earlier of (i) ninety
(90) days after the Seventh Expansion Option Space
Delivery Date, or (ii) the date Tenant occupies any of
the Seventh Expansion Space for the conduct of
business.
(z) 4.4 Subject to the provisions of Section 4.5 of the
Amended and Restated Office Lease, Annual Rent for the
Seventh Expansion Option Space shall be equal to the
greater of:
(a) $5.50 multiplied by the number of rentable square
feet in the Seventh Expansion Option Space for each
twelve month period commencing on the Seventh
Expansion Space Commencement Date, and ending
September 30, 1999; or
<PAGE> 53
(b) Market Rent as defined in Section 7.0 of the
Amended and Restated Office Lease.
(iii) The following Section 4.13 is added to Prime Lease:
4.13 Contraction Right: The Seventh Expansion Option
Space shall be specifically excluded from the
Tenant's Contraction right in Section 10.0 of the
Prime Lease.
3. In the event Tenant fails to observe any obligation or condition
required by this First Amendment of the Amended and Restated Office
Lease, such default shall be deemed a default under the Lease.
4. Except as specifically provided herein, the terms and conditions of the
Prime Lease including Landlord's obligations under Section 3.12,
Section 13.1 and Section 18.1 (iii) are confirmed and shall continue in
full force and effect.
5. This First Amendment of the Amended and Restated Office Lease shall be
binding on the heirs, administrators, successors and assigns (as the
case may be) of the parties hereto.
IN WITNESS OF THIS FIRST AMENDMENT OF THE AMENDED AND RESTATED OFFICE LEASE
Landlord and Tenant have properly executed it as of the date set out on page
one.
LANDLORD: TENANT:
T.H.S. NORTHSTAR ASSOCIATES
LIMITED PARTNERSHIP PHYNQUE, INC.
By Brookfield Development Inc. a Minnesota Corporation
Its managing agent
By: /s/ ILLEGIBLE By: /s/ ILLEGIBLE
--------------------------------------- ----------------------------
Name. Name.
------------------------------------- --------------------------
Title: Title:
------------------------------------ -------------------------
By: /s/ ILLEGIBLE
---------------------------------------
Name.
-------------------------------------
Title:
------------------------------------
<PAGE> 54
2ND AMENDMENT OF AMENDED AND RESTATED OFFICE LEASE
THIS 2ND AMENDMENT OF AMENDED AND RESTATED OFFICE LEASE ("2nd
Amendment") is made on April 14, 1997 between T.H.S. NORTHSTAR ASSOCIATES
LIMITED PARTNERSHIP ("Landlord"), whose address is 450 Fisher Building, 3011 W.
Grand Blvd., Detroit, Michigan 48202-3099 and PHYNQUE, INC. ("Tenant"), whose
address is 370 Northstar East, 608 Second Avenue South, Minneapolis, MN 55402.
RECITALS
This 2nd Amendment is based upon the following recitals:
A. Landlord and Tenant entered into a Lease dated February 22, 1990 and
restated in the Amended and Restated Office Lease dated April, 1994
(collectively the "Lease"), for the premises on the 3rd, 6th and 10th floors of
the Northstar East Building, ("Building"), Minneapolis, Minnesota ("Premises").
B. Landlord and Tenant amended the Amended and Restated Lease by 1st
Amendment dated August 10, 1995 (Lease and Amendment(s) collectively, "Lease as
amended").
C. Landlord and Tenant desire to further amend the Lease as amended to
expand the Premises, renew the Term, modify Annual Rent and otherwise amend the
Lease as amended accordingly.
THEREFORE, in consideration of the mutual covenants and agreements
stated in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. PREMISES EXPANSION. Effective as of the "7th Floor Expansion Space
Commencement Date" defined below, the Premises shall be expanded to include that
area known as Suite 770 of the Northstar East Building ("7th Floor Expansion
Space"). Therefore the Premises shall encompass and be described as "Suites 370,
600, 650, 1020, 1025, 1035, 1040, 1050 ("Original Premises") and Suite 770", in
total encompassing approximately 56,231 rentable square feet on the 3rd, 6th,
7th and 10th Floors of the Building, as shown hatched on the "Expanded and
Option Premises Floor Plans" attached and incorporated as Exhibits J through
J-3.
3. EXTENSION OF LEASE TERM. The Term for the Premises shall be extended
for a 3-year and 4 month term only, to begin October 1, 1999 and expire on
January 31, 2003 ("1st Extension Term").
4. EXPANSION SPACE LEASE TERM. The Lease Term as it pertains to the 7th
Floor Expansion Space shall commence September 1, 1997, ("7th Floor Expansion
Commencement Date"), and shall expire on January 31, 2003.
1
<PAGE> 55
5. ANNUAL RENT and OCCUPANCY COSTS. Effective on the 7th Floor
Expansion Commencement Date and throughout the 1st Extension Term, Annual Rent
and Occupancy Costs shall be as follows:
A. commencing on the 7th Floor Expansion Commencement Date the
Annual Rent due for the 7th Floor Expansion Space only shall be payable in equal
monthly installments of $11,313.15 through January 31, 1998; commencing on
February 1, 1998 through January 31, 2003 Annual Rent due for the 7th Floor
Expansion Space shall be $13,445.03 per month; and
B. commencing October 1, 1999 through September 30, 2000, Annual
Rent due for the Original Premises only shall be payable in equal monthly
installments of $30,841.94; commencing October 1, 2000 through September 30,
2001 Annual Rent for the Original Premises shall be payable in monthly
installments of $32,711.15; and commencing, October 1, 2001 through January 31,
2003 Annual Rent for the Original Premises shall be payable in equal monthly
installments of $34,580.35; and
C. Occupancy Costs for the entire Premises shall be payable
according to Exhibit B of the Lease as amended and the Tenant's Share shall be
increased to 8.7118% (.087118).
6. DELIVERY OF AND IMPROVEMENTS TO 7TH FLOOR EXPANSION SPACE. Landlord
shall deliver and Tenant shall accept the 7th Floor Expansion Space in "broom
clean" condition. All improvements to the 7th Floor Expansion Space shall be
subject to Landlord's prior written approval and all construction shall be
conducted pursuant to Landlord's rules and regulations for same.
7. ALLOWANCE. Provided that Tenant is not in default under this Lease,
Landlord shall pay to Tenant an amount not to exceed $127,787.00 to be used only
for the costs of approved leasehold improvements to the 7th Floor Expansion
Space only ("7th Floor Expansion Improvement Allowance"). Landlord shall pay the
7th Floor Expansion Improvement Allowance within thirty (30) days following
receipt of reasonable invoices and lien waivers for said work.
8. ANNUAL RENT CREDIT. In the event that the entire 7th Floor Expansion
Improvement Allowance is not required for leasehold improvements to the 7th
Floor Expansion Space, the remaining amount, if any, shall be credited to
Tenants next due obligation for the payment of Annual Rent.
9. EARLY OCCUPANCY. Tenant has no right to enter the 7th Floor
Expansion Space until Landlord tenders possession. Notwithstanding what is set
forth herein, Landlord hereby gives permission for Tenant to enter all or any
portion of the 7th Floor Expansion Space prior to the 7th Floor Expansion
Commencement Date so that Tenant may do such work as may be required to prepare
the 7th Floor Expansion Space for Tenant's occupancy, including the installation
of cabling, telephone equipment, computer and other office systems and any
leasehold improvements approved by Landlord. If Tenant so enters any portion the
7th Floor Expansion Space prior to the 7th Floor Expansion Commencement Date,
Tenant will not interfere with any other tenant or occupant of the Building. All
acts of any of Tenant's contractors, subcontractors or laborers are the
responsibility of Tenant, and Tenant shall indemnify and hold Landlord harmless
from and against any and all loss, cost, damage or expense of any nature caused
by such personnel. In addition, any such access shall be consistent with
generally accepted construction practices and in accordance with any and all
applicable regulatory requirements. If at any time such access causes or
threatens to cause disharmony or interference, including labor disharmony,
Landlord will have the right to immediately withdraw such permission. At all
times while Tenant is in occupation of the 7th Floor Expansion Space prior to
the 7th Floor Expansion Commencement Date. Tenant will be subject to and will
comply with all of the terms and provisions of the Lease as amended, except that
no Annual Rent or Occupancy Costs will be
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terms and provisions of the Lease as amended, except that no Annual Rent or
Occupancy Costs will be payable by Tenant prior to the 7th Floor Expansion
Commencement Date. No early occupancy under this Section 8 will change the 7th
Floor Expansion Commencement Date or the Expiration Date.
10. DELETED PROVISIONS. Upon full execution of this 2nd Amendment and
satisfaction of any conditions hereto, Articles 4.0, 5.0, 8.0, 9.0 and 10.0 of
the Amended and Restated Office Lease shall be deleted and of no further force
nor effect.
11. REVISED 7TH EXPANSION OPTION. Provided that Tenant has not
defaulted in performing and failed to cure any of its obligations under the
Lease, and is not in default at the time of its exercise of this option, Tenant
shall have the option to expand ("7th Expansion Option") into the area shown
hatched on Exhibit "J-3" attached and incorporated ("7th Expansion Option
Space"), consisting of approximately 5,037 rentable square feet, upon all of the
following conditions:
(A) Tenant shall exercise this Expansion Option by written notice
which must be received by Landlord no later than 5:00 p.m. on January 31, 1999;
and
(B) The Lease Term for 7th Expansion Option Space shall commence
February 1, 2000 ("7th Expansion Option Commencement Date") and shall expire on
January 31, 2003; and
(C) The Annual Rent for 7th Expansion Option Space shall be
determined by Landlord within thirty (30) days after the date of Tenant's
notice, based upon Market Rent as set forth in Article 7 of the Amended and
Restated Office Lease; and
(D) Occupancy Costs shall be determined at the time Tenant exercises
this 7th Expansion Option and shall be payable according to Exhibit B of the
Lease as amended and the "Tenant's Share" shall be increased by .7804%
(.007804); and
(E) Landlord shall deliver the 7th Expansion Option Space in an "as
is" condition; and
(F) Tenant's failure to expand into 7th Expansion Option Space shall
render all other remaining Expansion Options void.
(G) Time is of the essence of this Expansion Area.
Except as to the above modifications, all other provisions of this Lease shall
apply to 7th Expansion Option Space. This 7th Expansion Option applies to Tenant
only and shall be void if Tenant fails to exercise it precisely according to
each and all of the conditions stated above, or if Tenant assigns the Lease or
sublets the Premises or otherwise transfers all or part of its interest in the
Lease or of the Premises.
12. REVISED 8TH EXPANSION OPTION. Provided that Tenant has not defaulted
in performing and failed to cure any of its obligations under the Lease, and is
not in default at the time of its exercise of this option, Tenant shall have the
option to expand ("8th Expansion Option") into the area shown hatched on Exhibit
"J-3" attached and incorporated ("8th Expansion Option Space"), consisting of
approximately 3,068 rentable square feet, upon all of the following conditions:
(A) Tenant shall exercise this Expansion Option by written notice
which must be received by Landlord no later than 5:00 p.m. on August 31, 2000;
and
(B) The Lease Term for 8th Expansion Option Space shall commence
February 1, 2001 ("8th Expansion Option Commencement Date") and shall expire on
the January 31, 2003; and
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(C) The Annual Rent for 7th Expansion Option Space shall be
determined by Landlord within thirty (30) days after the date of Tenant's
notice, based upon Market Rent as set forth in Article 7 of the Amended and
Restated Office Lease; and
(D) Occupancy Costs shall be determined at the time Tenant exercises
this 8th Expansion Option and shall be payable according to Exhibit B of the
Lease as amended and "Tenant's Share" shall be increased by .4753% (.004753);
and
(E) Landlord shall deliver the 8th Expansion Option Space in an "as
is" condition; and
(F) Tenant's failure to expand into 8th Expansion Option Space shall
render all other remaining Expansion Options void.
(G) Time is of the essence of this Expansion Area.
Except as to the above modifications, all other provisions of this Lease shall
apply to 8th Expansion Option Space. This 8th Expansion Option applies to Tenant
only and shall be void if Tenant fails to exercise it precisely according to
each and all of the conditions stated above, or if Tenant assigns the Lease or
sublets the Premises or otherwise transfers all or part of its interest in the
Lease of the Premises.
13. OPTION TO EXTEND THE TERM. Provided that Tenant has not defaulted
in performing and failed to cure any of its obligations under the Lease as
amended, and is not in default at the time of its exercise of this option,
Tenant shall have the option, during the 1st Extension Term only, to extend the
Term ("Extension Option") for an additional five (5) year period only ("2nd
Extension Term") upon all of the following conditions:
(A) Tenant shall exercise this Extension Option by written notice to
Landlord which must be received by Landlord no later than 5:00 p.m. on January
31, 2002; and
(B) Within thirty (30) days after the date of Tenant's notice
Landlord shall compute the "Extension Rate" which shall be at 95% of the Market
Rent as provided in Article 7 of the Amended and Restated Office Lease and
notify Tenant in writing of the resulting amount ("Determination Date"). All
other terms of this Lease, except this Extension Option and any Landlord's work
or Allowances shall apply during the 1st Extension Term.
(C) Time is of the essence of the Extension Option.
This Extension Option applies only to an extension of the Lease as amended for
the 2nd Extension Term only. Except for the above modifications, all other
provisions and conditions of the Lease as amended shall apply in the 2nd
Extension Term. This Extension Option shall be void if Tenant fails to exercise
it precisely according to each and all of the conditions stated above, or if
Tenant assigns the Lease or sublets the Premises or otherwise transfers all or
part of its interest in the Lease or the Premises, except as allowed under the
Lease.
14. MORTGAGEE'S APPROVAL. This 2nd Amendment is subject to the written
approval of Traveler's Insurance Company, the holder of an existing mortgage
against the Building. Landlord agrees to promptly submit this 2nd Amendment for,
and to use reasonable efforts to obtain, such approval. If such approval is not
obtained within sixty (60) days after the Date, either Landlord or Tenant may
terminate this 2nd Amendment by giving written notice of termination to the
other
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party. Unless such approval has then been obtained, this 2nd Amendment will
terminate upon the giving of such notice.
15. CONDITIONS TO EFFECTIVENESS OF 2ND AMENDMENT. Landlord and Tenant
agree that this 2nd Amendment shall become effective only upon receipt by
Landlord of Mortgagee's approval of this 2nd Amendment and full execution of a
Termination Agreement, satisfactory to Landlord, between Landlord and the
American Express Travel Related Services for the 7th Floor Expansion Space.
Failure of any of the above conditions shall render the 2nd Amendment void, and
neither Landlord not Tenant shall have any liability to the other under this 2nd
Amendment.
16. CONFLICTING PROVISIONS. If any provisions of this 2nd Amendment
conflict with any of those of the Lease as amended, then the provisions of this
2nd Amendment shall govern.
17. REMAINING LEASE PROVISIONS. Except as stated in this 2nd Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Term.
18. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this 2nd Amendment shall bind and inure to the benefit of
the parties, and their respective successors, assigns and representatives as of
the date first stated.
AFFIRMING THE ABOVE, the parties have executed this 2ND AMENDMENT OF
AMENDED AND RESTATED OFFICE LEASE on the date first stated.
WITNESSES LANDLORD
T.H.S. NORTHSTAR ASSOCIATES LIMITED
PARTNERSHIP
By: TrizecHahn Office Properties Inc.,
Manager
/s/ ILLEGIBLE By: /s/ Cynthia K. Yott
- ------------------------------- ------------------------------------
Cynthia K. Yott
Assistant Secretary
/s/ ILLEGIBLE By: /s/ Antonio A. Bismonte
- ------------------------------- ------------------------------------
Antonio A. Bismonte
Vice President
TENANT
PHYNQUE, INC.
/s/ ILLEGIBLE By: /s/ ILLEGIBLE
- ------------------------------- ------------------------------------
5
<PAGE> 59
3RD AMENDMENT OF AMENDED AND RESTATED OFFICE LEASE
THIS 3rd AMENDMENT OF AMENDED AND RESTATED OFFICE LEASE ("3rd
Amendment") is made on December 27, 1997 between T.H.S. NORTHSTAR ASSOCIATES
LIMITED PARTNERSHIP ("Landlord"), whose address is 450 Fisher Building, 3011 W.
Grand Blvd., Detroit, Michigan 48202-3099 and PHYNQUE, INC. ("Tenant"), whose
address is 370 Northstar East, 608 Second Avenue South, Minneapolis, MN 55402.
RECITALS
This 3rd Amendment is based upon the following recitals:
A. Landlord and Tenant entered into a Lease dated February 22, 1990 and
restated in the Amended and Restated Office Lease dated April, 1994
(collectively the "Lease"), for the premises on the 3rd, 6th and 10th floors of
the Northstar East Building ("Building"), Minneapolis, Minnesota ("Premises").
B. Landlord and Tenant amended the Amended and Restated Lease by 1st
Amendment dated August 10, 1995 and 2nd Amendment dated April 14, 1997 (Lease
and Amendment(s) collectively, "Lease as amended").
C. Landlord and Tenant desire to further amend the Lease as amended to
modify Annual Rent and otherwise amend the Lease as amended accordingly.
THEREFORE, in consideration of the mutual covenants and agreements
stated in the Lease as amended and below, and for other sufficient consideration
received and acknowledged by each party, Landlord and Tenant agree to amend the
Lease as amended as follows:
1. RECITALS. All recitals are fully incorporated.
2. ANNUAL RENT. Commencing November 1, 1997 Annual Rent due for the 7th
Floor Expansion Space, as defined in the 2nd Amendment of Amended and Restated
Office Lease, only shall be payable in equal monthly installments of $8,780.15
through January 31, 1998; commencing on February 1, 1998 through April 30, 1999
Annual Rent due for the 7th Floor Expansion Space shall be $10,912.03 per month;
commencing on May 1, 1999 through January 31, 2003 Annual Rent due for the 7th
Floor Expansion Space only shall be $13,445.03 per month.
3. ALLOWANCE. Paragraph 7 of the 2nd Amendment of Amended and Restated
Office Lease shall be deleted in its entirety and the following substituted
therefore:
"Provided that Tenant is not in default under this Lease, Landlord
shall pay to Tenant an amount not to exceed $104,723.00 to be used only
for the costs of approved leasehold improvements to the 7th Floor
Expansion Space ("7th Floor Expansion Improvement Allowance"). Landlord
shall pay the 7th Floor Expansion Improvement Allowance within thirty
(30) days following receipt of reasonable invoices and lien waivers for
said work, but in no event prior to May 1, 1999 or later than October
1, 1999".
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4. DELETED PROVISIONS. Paragraph 8 of the 2nd Amendment of Amended and
Restated Office Lease shall be deleted and be of no further force or effect.
5. CONFLICTING PROVISIONS. If any provisions of this 3rd Amendment
conflict with any of those of the Lease as amended, then the provisions of this
3rd Amendment shall govern.
6. REMAINING LEASE PROVISIONS. Except as stated in this 3rd Amendment,
all other viable and applicable provisions of the Lease as amended shall remain
unchanged and continue in full force and effect throughout the Term.
7. BINDING EFFECT. Landlord and Tenant ratify and confirm the Lease as
amended and agree that this 3rd Amendment shall bind and inure to the benefit of
the parties, and their respective successors, assigns and representatives as of
the date first stated.
AFFIRMING THE ABOVE, the parties have executed this 3RD AMENDMENT OF
AMENDED AND RESTATED OFFICE LEASE on the date first stated.
WITNESSES LANDLORD
T.H.S. NORTHSTAR ASSOCIATES
LIMITED PARTNERSHIP
By: TrizecHahn Office Properties Inc.,
Manager
/s/ ILLEGIBLE By: /s/ Cynthia K. Yott
- ------------------------------ ----------------------------------------
Cynthia K. Yott
Assistant Secretary
/s/ ILLEGIBLE By: /s/ Antonio A. Bismonte
- ------------------------------ ----------------------------------------
Antonio A. Bismonte
Vice President
TENANT
PHYNQUE, INC.
/s/ ILLEGIBLE By: /s/ ILLEGIBLE
- ------------------------------ ----------------------------------------
2
<PAGE> 1
EXHIBIT 10.47
CLARK/BARDES, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 5th day of April, 1999, between DONALD C.
WEGMILLER ("the Executive") and CLARK/BARDES, INC. ("CBI").
INTRODUCTION
CBI desires to employ the Executive, and the Executive desires to accept such
employment, on the terms outlined below.
TERMS
1. Employment
a. Position. CBI employs the Executive as President and CEO of CBI
HealthCare Compensation Group ("Division"), and President and
CEO of HealthCare Compensation Strategies (formerly known as
MCG/HealthCare), an operating unit within the Division. In this
position, the Executive shall have overall charge and
responsibility for the business and affairs of the Division,
and shall perform such duties as the Executive shall reasonably
be directed to perform by the President of Clark/Bardes
Holdings, Inc., or any successor thereto ("Parent"). The
Executive's sole responsibilities shall be as described in the
March 18, 1999 memorandum attached hereto as Exhibit A. The
Executive shall report directly to the President.
b. Scope. During the term of the Executive's employment, and
excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive shall devote substantially
all of his business and affairs to the Division. It shall not
be a violation of this Agreement for the Executive to (i) serve
on corporate, civic, or charitable boards or committees, (ii)
deliver lectures, fulfill speaking engagements, or teach
occasional courses or seminars at educational institutions, or
(iii) manage personal investments, so long as such activities
under clauses (i), (ii) and (iii) do not interfere, in any
substantial respect, with the Executive's responsibilities
hereunder.
c. Initial Term. The term of the Executive's employment commences
on the date that CBI closes the acquisition of the assets of
Phynque, Inc. (d/b/a Management Compensation Group/Healthcare)
("MCG") ("Commencement Date") and, subject to the renewal
provisions of d, below, ends on December 31, 2003.
d. Automatic Renewal. Absent notice of termination (described
below), commencing on January 1, 2004, and continuing on each
subsequent anniversary, the term of the
<PAGE> 2
Executive's employment shall automatically be extended for an
additional 12 months. To cause the Executive's employment to
terminate at the end of the original or an extended term,
either party, at least 12 months prior to such date, shall give
written notice to the other party that the Agreement will
terminate at the end of the then current term.
2. CASH COMPENSATION AND BENEFITS. Until otherwise agreed between the
parties, CBI agrees to compensate the Executive as follows:
a. Base Salary. CBI shall pay to the Executive in bi-weekly
installments an annualized base salary of $335,000. CBI shall
increase the base salary on January 1 each year by the consumer
price index that was used to determine increases in Social
Security retirement for such year. Any additional increases in
base salary shall be as determined by CBI.
b. Marketing Bonus Opportunity
i. Generally. Beginning March 2000, CBI shall pay to the
Executive a marketing bonus in March each year equal to
3% of the Division's "healthcare first year gross
revenues" ("Marketing Bonus"). "Healthcare first year
gross revenues" are gross first year consulting fees,
Commissions and Carrier Payments (except for renewals)
paid to the Division during the immediately preceding
calendar year; provided, that the Marketing Bonus
relating to the 1999 calendar year shall be based on
"healthcare first year gross revenues" paid between the
Commencement Date and December 31, 1999. Subject to
potential reduction under Paragraph 2.e, below, the
minimum annual bonus payable to the Executive shall be
$150,000, prorated for the period from the Commencement
Date through December 31, 1999.
ii. "Commissions and Carrier Payments." The term
"Commissions and Carrier Payments" means first-year
commissions and first-year carrier payments on products
purchased by Division's clients (including add-ons,
whether occurring during or after the first year of the
case), but does not include any renewal commissions on
such products. By way of example, "carrier payments"
include, but are not limited to, Paul Revere Premier
Production 1st Year Incentive, Paul Revere 1st Year
Production Bonus, additional 10% Expense Reimbursement
Allowance from Prudential for Paul Revere disability
policies sold, Prudential SSP Bonus, Equitable
Reimbursement Allowance, UNUM New Business Bonus, and
mutual fund l2b-1 fees. Carrier payments specifically
do not include Paul Revere Premier Production Renewal
Incentive, Paul Revere Disability In-Force Block Bonus,
Prudential QUIP Bonus, and similar payments that do not
vary by level of new products sold in such year.
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iii. Levelized Compensation. A description of the existing
levelized products and existing commission deals is
attached hereto as Exhibit B. This Exhibit shall
identify the portion of the Levelized Compensation that
is counted as first-year commissions for purposes of
Paragraph 2.b.ii, above. Executive will continue to
receive compensation in accordance with such existing
levelized products and commission deals. If commissions
and/or other carrier payments are levelized with
respect to other products in the future, a new
levelized compensation agreement will be negotiated
between the parties.
iv. ADVANCE. CBI shall pay the Executive a monthly advance
on the Marketing Bonus in the annualized amount of
$323,235 ($26,936.25 per month), or such other amount
agreed to between CBI and the Executive. In December of
each year, CBI shall make an interim determination of
the Marketing Bonus, less Contingency Rollback Amount,
due the Executive through October of that year. If the
amount determined by CBI is greater than the amount of
advances paid to the Executive during the year, CBI
shall pay the difference to the Executive on or before
the last business day of the year. If the amount
determined by CBI is less than the amount of advances
paid to the Executive during the year, the Executive
shall pay the difference to CBI on or before the last
business day of the year. CBI shall pay any Marketing
Bonus for the full year, less any Contingency Rollback
Amount, in excess of the advances (as adjusted by the
interim determination) with the first payroll in March
following the end of the year. If the advances exceed
the actual Marketing Bonus earned for the year, the
Executive shall pay the difference to CBI on or before
the date of the first payroll in March following the
end of the year. If the Executive terminates employment
at anytime during the year with amounts remaining to be
recaptured, the balance shall be recaptured from all
cash distributions otherwise payable to the Executive.
In all events, the Executive shall continue to be
liable to CBI for the amount of any unrecovered excess
Marketing Bonus (and advances), which shall include any
amounts Executive owes CBI pursuant to Section 2.e.
v. BONUS CONTINUATION. CBI shall also pay the Marketing
Bonus to the Executive (or to the Executive's estate)
on Levelized Compensation CBI receives within 12 months
following the Executive's termination of employment, to
the extent such amounts would otherwise have been
included in calculating the Executive's Marketing Bonus
but for the termination. CBI shall pay the bonus to the
Executive quarterly based on fees and commissions
received during such quarter.
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c. Basic Benefits. The Executive and his eligible family members
shall be eligible to participate on terms no less favorable to
the Executive and his eligible family members than the terms
offered to CBI employees generally in any group medical, life,
disability, pension, profit sharing, 401(k), stock purchase
plan and similar benefits plans or other fringe benefits of
CBI; provided, however, that CBI shall assume and during the
remainder of 1999 shall maintain the group medical plan
sponsored by MCG immediately prior to the Commencement Date. If
CBI reduces qualified pension plan contributions or benefits
below those provided by MCG immediately prior to the
Commencement Date, CBI shall restore such amounts to the
Executive through a fully vested nonqualified deferred
compensation plan.
d. Supplemental Benefits. CBI shall provide to the Executive
supplemental benefits, as follows:
i. A cash auto allowance of $800.00 per month, plus
reimbursement for fuel, maintenance, insurance and
heated parking.
ii. Membership and dues in the Hazeltine National Golf Club
and Troon Golf and Country Club.
iii. Employee and dependent medical and dental insurance,
and medical and dental expense reimbursement for
expenses that qualify for a deduction under Section 213
of the Internal Revenue Code of 1986, as amended, not
otherwise covered under CBI's insured plans, subject to
a $10,000 annual maximum.
iv. Four weeks of vacation annually consistent with the
Executive's duties, to be taken as determined by the
Executive using prudent business judgment; provided,
however, that such vacation is in lieu of amounts the
Executive would otherwise be entitled to take under
CBI's generally applicable vacation policy.
v. Premium payments up to $11,800 annually on the
individually owned Variable Universal Life Insurance
policy on the Executive.
vi. Premium payments on the existing Paul Revere individual
Long Term Disability policy in effect for the Executive
on the Commencement Date, including any AIB increases.
vii. Cellular phone and unlimited airtime, including long
distance and roaming charges.
viii. Tax preparation fees, not to exceed $2,000 annually.
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<PAGE> 5
ix. Airline club dues for two airlines.
x. First class airline travel, so long as such first class
travel is actually billed to and paid by Division's
client.
xi. Frequent flyer miles earned on business travel.
Notwithstanding anything in the foregoing to the contrary, to
the extent that CBI determines in its reasonable judgment that
the payment of amounts described in this Section 2.d or under
the plans and programs described in Section 2.c results in
additional taxable income to the Executive, Executive agrees
that he shall be in receipt of such additional taxable income,
and CBI shall be under no obligation to provide the Executive
with any tax gross-up.
e. Contingency Rollback. The base salary, Marketing Bonus and
stock options (described below) shall be subject to the
Contingency Rollback Provisions described in Attachment 1. The
Contingency Rollback Provisions shall not apply to any base
salary and Marketing Bonus earned after December 31, 2003, and
shall not reduce the base salary and marketing bonus by more
than 18% in the first year (i.e., from the Commencement Date
through December 31, 1999), 16% in the second, 15% in the
third, and 10% in the fourth and fifth.
f. Stock Options. The Executive is granted options to purchase
185,000 shares of CBI stock. The purchase price for such shares
shall be the price of the last trade on the Commencement Date
(or, if no trades were made on the Commencement Date, as of the
preceding day on which such shares were traded). The Options
shall vest and become exercisable at the rate of 20% on each
December 30 of the years 1999, 2000, 2001, 2002 and 2003,
subject to the Contingency Rollback provisions described in
Attachment 1. CBI shall have a right of first refusal to
acquire shares acquired by the exercise of the options under
this Section which right is set forth in the Investment
Agreement, dated as of the Commencement Date, which is attached
as Exhibit D to the Asset Purchase Agreement relating to CBI's
acquisition of the assets of Phynque, Inc.
Notwithstanding the foregoing, and subject to the vesting
provisions noted above, the Executive agrees to exercise 1/5 of
the total options (to the extent vested) on the anniversaries
of the Commencement Date; provided, however, that the Executive
shall not be required to exercise the 1/5 options on an
anniversary date unless and until the market price of the
shares (based on last trade of the day) has been greater than
the option price for at least 10 trading days prior to the
agreed exercise date, provided further, that the Executive
agrees to exercise such options as of the first future date
after the applicable anniversary date on which the market price
of the shares meets or exceeds the requirements set forth in
the preceding clause.
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<PAGE> 6
3. Severance Benefits. CBI's obligation to provide severance benefits
depends upon the circumstances surrounding the Executive's termination
of employment, as described below. Capitalized terms are defined at the
end of this Paragraph 3.
a. Voluntary Termination of Employment. If the Executive
voluntarily terminates employment with CBI and all affiliates,
unless the provisions of Paragraphs 3.d or e apply, the
Executive shall not be entitled to any Severance Compensation
under this Agreement, and the Restrictive Covenants shall be
binding on the Executive until the later of December 31, 2003
or the date that is 24 months following termination of
employment. However, CBI shall pay the marketing bonus
continuation described in Paragraph 2.b.v, above ("Bonus
Runoff").
b. Involuntary Termination of Employment without Cause. If CBI
terminates the Executive's employment with CBI and all
affiliates without Cause, (i) CBI shall provide to the
Executive the Severance Compensation for 12 months and the
Bonus Runoff; (ii) the Restrictive Covenants shall be binding
on the Executive during the 12-month period; and (iii) the
Executive shall be 100% vested in all stock options under the
CBI Stock Option Plan and in the Deferred Retention Plan
benefits described above. If such termination occurs within
four years after the effective date of this Agreement, then CBI
shall have the option of extending the period during which
Severance Compensation will be paid, and the corresponding
period during which the Restrictive Covenants will apply, for
any period CBI selects, but not later than the fifth
anniversary of the effective date of this Agreement. CBI shall
communicate the selected period to the Executive in writing
within 5 business days following the date of the Executive's
termination of employment. If CBI fails to give notice during
the 5-day period, then CBI's option to extend the Severance
Compensation and Restrictive Covenant period shall lapse, and
such periods shall be limited to the stated 12 months.
c. Involuntary Termination of Employment for Cause. If CBI
terminates the Executive's employment with CBI and all
affiliates for Cause, the Executive shall not be entitled to
any Severance Compensation under this Agreement, and the
Restrictive Covenants shall be binding on the Executive until
the later of December 31, 2003 or the date that is 24 months
following the termination. However, CBI shall pay to the
Executive the Bonus Runoff.
d. Force-Out Event NOT Following Change of Control. If (i) a
Force-Out Event occurs other than within 12 months following a
Change of Control, and (ii) the Executive voluntarily
terminates employment within 3 months following the Force-Out
Event, the Executive shall elect either (a) to receive a full
12 months of Severance Compensation and be bound by the
Restrictive Covenants for such 12-month period, or (b) to
receive no Severance Compensation and not be bound by the
Restrictive
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Covenants. The Executive shall communicate the selected option
to CBI in writing within 5 business days following the date of
the Executive's termination of employment. If the Executive
fails to give timely notice during the 5-day period, the
Executive shall be deemed to have elected no Severance
Compensation and no Restrictive Covenants. Whether the
Executive elects Severance Compensation or not, CBI shall pay
to the Executive the Bonus Runoff, and the Executive shall be
100% vested in all stock options under the CBI Stock Option
Plan and in the Deferred Retention Plan benefits described
above.
e. Force-Out Event Following Change of Control. If (i) a Force-Out
Event occurs within 12 months following a Change of Control,
and (ii) the Executive voluntarily terminates employment within
3 months following the Force-Out Event, the Executive shall
immediately upon such termination become 100% vested in all
benefits (including, but not limited to, stock options under
the CBI Stock Option Plan and benefits under the Deferred
Retention Plan), and the Executive shall elect either (a) to
receive a full 12 months of Severance Compensation and be bound
by the Restrictive Covenants for such 12-month period, or (b)
to receive no Severance Compensation and not be bound by the
Restrictive Covenants. The Executive shall communicate the
selected option to CBI in writing within 5 business days
following the date of the Executive's termination of
employment. If the Executive fails to give timely notice during
the 5-day period, the Executive shall be deemed to have elected
no Severance Compensation and no Restrictive Covenants. In
either case, CBI shall pay to the Executive the Bonus Runoff.
f. Termination of Employment for Disability. Termination of the
Executive's employment for disability shall be deemed to arise
on the earlier of (i) the commencement of disability benefit
payments under any group or individual long-term disability
insurance covering the Executive, the premiums for which
coverage are paid by CBI, or (ii) the agreement of the
physician retained by CBI and the Executive's physician that
the Executive has suffered a sickness, accident or injury which
prevents the Executive from performing substantially all of the
Executive's normal duties for the Company. Upon termination of
employment for disability, CBI shall provide to the Executive
the Severance Compensation for 12 months, commencing on the
date of the termination, but reduced by any benefits the
Executive receives under group or individual disability
insurance, to the extent the premiums for such coverage over
the 12 months preceding the date of termination have been paid
by the Company. CBI shall also pay to the Executive the Bonus
Runoff, and the Executive shall be 100% vested in all stock
options under the CBI Stock Option Plan and in the benefits
under the Deferred Retention Plan. The Restrictive Covenants
shall be binding on the Executive for 24 months following the
date of termination of employment.
7
<PAGE> 8
g. Termination of Employment for Death. If the Executive's
employment with CBI and all affiliates terminates due to the
Executive's death, no Severance Compensation shall be payable
under this Agreement, but the Executive's estate shall be 100%
vested in all stock options under the CBI Stock Option Plan and
in the Deferred Retention Plan benefits described above, and
CBI shall pay the Bonus Runoff to the Executive's estate.
h. Termination of Employment at Expiration of Contract. If the
Executive's employment with CBI and all affiliates terminates
due to a party giving notice of nonrenewal under Section 1,
above, CBI shall not pay any Severance Compensation, and the
Restrictive Covenants shall not apply, but CBI shall pay the
Bonus Runoff to the Executive. However, if CBI gives such
notice, the Executive shall be 100% vested in benefits under
the Deferred Retention Plan.
i. Definitions. Capitalized terms in this Paragraph 3 are defined
as follows:
i. Cause means any of the following:
o Loss (other than for non-payment of licensure
fees) of any insurance or securities license
o Gross negligence or willful misconduct in
connection with the Executive's
responsibilities
o Fraudulent activity
o Embezzlement
o Felonious conduct
o Substantial failure of performance by the
Executive that is repeated and continued after
thirty (30) days written notice to the
Executive of such failure by the President of
Clark/Bardes Holdings, Inc., or any successor
thereto, which failure is not cured by the
Executive within such thirty (30) day period.
ii. CHANGE OF CONTROL means either of the following:
o An individual or group of individuals acting in
concert acquiring actual ownership or control
of 30% or more of the outstanding voting shares
of CBI, or Clark/Bardes Holdings, Inc., or of
the Division
o Sale of all or substantially all of the assets
of Clark/Bardes Holding, Inc., CBI, or the
Division.
iii. FORCE-OUT EVENT means any of the following:
o 25% or more reduction in total compensation
(i.e., the sum of salary, benefits and bonus
opportunity) that, except for reductions that
result from the Contingency Rollback, is
disproportionately greater for the Executive
than for other employees of CBI with similar
responsibilities and compensation levels. If a
change in total
8
<PAGE> 9
compensation involves a reduction in any
incentive or commission percentage, the
percentage reduction in total compensation shall
be determined by applying the new compensation
formula to the Executive's performance over the
12 months preceding the effective date of the
reduction to determine whether total
compensation actually earned over such period
would have been reduced by 25% or more under the
new formula.
o Relocation of the Executive's primary place of
employment without his consent more than 25
miles from its location as of the date of this
Agreement
o Significant reduction in the Executive's
authority or responsibilities
iv. Restrictive Covenants means any of the Non-Compete and
Non-Solicitation provisions in Paragraph 4, and the
restrictive covenants in CBI's standard Intellectual
Property and Confidentiality Agreement.
v. Severance Compensation means the Executive's cash
compensation (defined as (i) base salary at the rate in
effect on the date of termination, plus (ii) Marketing
Bonus based on the "healthcare first year gross
revenues" for the 12 complete calendar months prior to
the Executive's date of termination), and all benefits
as in effect for the Executive at the date of
termination.
CBI shall have the option to pay in cash the value of any benefit that
CBI elects not to provide in kind. The "value" of an insured benefit is
the premiums CBI would have paid to continue the coverage during the
severance period.
Commencing upon the Executive's termination of employment, the Executive
shall cease to be an employee of CBI for any purpose. The payment of
Severance Compensation under this Agreement shall be payments to a
former employee.
If the Executive dies during the severance benefit period, CBI shall
continue to pay the cash elements of the Severance Compensation to the
Executive's estate for the balance of the severance period.
4. Non-Compete; Non-Solicitation. In consideration of the compensation and
benefits described above, the Executive covenants as follows:
a. Executive acknowledges that as a director, officer and/or
employee of CBI, Executive has become familiar with trade
secrets and other confidential information and data concerning
CBI and its affiliates. Executive covenants and agrees that for
a period of time set forth in the applicable subsection of
Section 3 (the "Non-Compete Period") Executive shall not, in
North America, including the United States, Canada
9
<PAGE> 10
and Mexico, and in any other areas in which CBI or its
affiliates have done business within five (5) years preceding
the first date of the Non-Compete Period (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 (i) carry on or be engaged in any
business which is in competition with CBI or any of its
affiliates, or (ii) solicit business from, or sell to, any of
CBI's or its affiliates' customers in the Territory or any other
person, firm or corporation in the Territory to whom CBI or its
affiliates have sold products within five (5) years preceding
the first date of the Non-Competition Period where such
solicitation or sale would involve the sale of products
competitive with CBI or any of its affiliates. Nothing herein
shall prohibit Executive from being an owner of not more than 2%
of the outstanding stock of any class of a corporation which is
publicly traded, so long as Executive has no active
participation in the business of such corporation.
b. Executive agrees that during the Non-Compete Period, Executive
will not directly or indirectly offer employment to or hire any
person who is currently or was within the last year employed by
CBI or any of its affiliates, or, is or will be employed by CBI
or any of its affiliates, except with the prior written consent
of CBI.
c. Executive shall abide by the terms of CBI's standard
Intellectual Property and Confidentiality Agreement.
The limitations under this Paragraph 4 shall survive any other
termination of this Agreement.
5. Specific Performance. The Executive recognizes that CBI, in addition to
ceasing Severance Compensation, may recover Severance Compensation
previously paid and use any legal means, including obtaining an
injunction, to enforce the restrictive covenants under Paragraph 4.
6. Severability. If any portion of this Agreement is determined by a court
to be unenforceable as written, such portion shall be limited to the
extent necessary to be enforceable, and the remaining provisions of
this Agreement shall remain in effect.
7. Arbitration. Except as provided in Paragraph 5 regarding CBI's ability
to use any legal means, including obtaining an injunction, to enforce
the restrictive covenants under Paragraph 4, any dispute arising under
this Agreement shall be resolved through nonbinding arbitration by a
panel of three individuals -- one selected by each party, and a third
selected jointly by the first two. The parties shall select the first
two representatives within 15 days after one party gives written notice
to the other party of a dispute. The two representatives shall then
designate the third arbitrator within 15 days after the end of the
first 15-day period. The dispute shall then be resolved by the majority
vote of the three arbitrators. Except as
10
<PAGE> 11
modified in this section, the evidentiary and hearing rules of the
American Arbitration Association shall control.
8. Governing Law. This Agreement is entered into and shall be construed
under the laws of the State of Minnesota.
[Signatures Follow]
11
<PAGE> 12
SIGNATURE PAGE TO WEGMILLER EMPLOYMENT AGREEMENT
-----------------------------------------
DONALD C. WEGMILLER
CLARK/BARDES, INC.
BY
------------------------------------
ITS
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF INCOME AND BALANCE SHEET OF CLARK/BARDES HOLDINGS, INC. AS OF AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,302
<SECURITIES> 0
<RECEIVABLES> 10,039
<ALLOWANCES> 394
<INVENTORY> 0
<CURRENT-ASSETS> 20,297
<PP&E> 5,110
<DEPRECIATION> 2,005
<TOTAL-ASSETS> 107,050
<CURRENT-LIABILITIES> 19,659
<BONDS> 0
0
0
<COMMON> 96
<OTHER-SE> 55,283
<TOTAL-LIABILITY-AND-EQUITY> 107,050
<SALES> 53,776
<TOTAL-REVENUES> 53,776
<CGS> 0
<TOTAL-COSTS> 47,445
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,577
<INCOME-PRETAX> 4,912
<INCOME-TAX> 2,005
<INCOME-CONTINUING> 2,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,907
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.33
</TABLE>
