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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
CHECK ONE:
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM _____ TO _____.
COMMISSION FILE NUMBER 000-25959
PRIVATE BUSINESS, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1453841
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
9010 OVERLOOK BLVD. 37027
BRENTWOOD, TENNESSEE (Zip Code)
(Address of principal executive offices)
(615) 221-8400
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK
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 the
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of registrant's voting stock held by
non-affiliates of the registrant, computed by reference to the price at which
the stock was sold, or average of the closing bid and asked prices, as of March
20, 2000 was $18,694,778.
On March 20, 2000, 27,465,259 shares of the registrant's $0.01 par
value Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for its 2000
annual meeting of stockholders are incorporated by reference into Part III,
Items 10, 11, 12 and 13 of this Form 10-K.
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PART I
ITEM 1. BUSINESS.
MATERIAL 1999 CORPORATE DEVELOPMENTS
New Chief Executive Officer. On November 1, 1999, Private Business,
Inc. ("Private Business" or the "Company") announced that Kevin M. McNamara had
joined the Company as its Chief Executive Officer and as a director. It was also
announced that Jerry L. Cover, formerly President and Chief Executive Officer,
would remain with the Company as President. Prior to joining Private Business,
Mr. McNamara served as Senior Vice President and Chief Financial Officer of
ENVOY Corporation, a leading publicly traded provider of healthcare EDI and
transaction processing services, from 1996-1999. From 1994-1995, Mr. McNamara
was President of NaBANCO Merchant Services Corporation, one of the world's
then-largest merchant credit card processors.
GENERAL
Private Business was incorporated in Tennessee in 1990. We are a
leading provider of technology-driven solutions that help community banks manage
accounts receivable funding of small businesses. The Company's principle
product, Business Manager(R), is based on software, targeted marketing services
and online electronic transaction processing provided through a large client
network of banks nationwide. This Internet-based e-commerce solution provides
cash flow to thousands of small businesses across the U.S. by enabling them to
sell their receivables to their community bank. All client banks and small
business customers utilizing the Company's Business Manager electronic commerce
solution currently go through www.BusinessManager.com, the Company's
business-to-business Internet portal, to conduct daily transactions. The
Company's principal executive offices are located at 9010 Overlook Blvd,
Brentwood, Tennessee 37027, and its telephone number at that address is
(615) 221-8400.
The Business Manager solution enables our network of over 1,250 client
banks to purchase accounts receivable from their small business customers. The
banks then process, bill and track those receivables on an ongoing basis. As a
major component of our solution, we work with client banks to design, implement
and manage the sale of Business Manager accounts receivable financing services
to their small business customers. We also outsource, for our client banks,
application hosting and transaction processing by using the Business Manager
software in our data center and by providing transaction processing services
from our facilities. Business Manager uses Windows-based technology and is
easy-to-use, flexible and scalable. Client banks and small business customers
are able to transmit information and obtain reports electronically through our
Internet portal, BusinessManager.com. BusinessManager.com is also an electronic
gateway through which customers access various business tools that help them
manage their business.
Business Manager has been endorsed by the American Bankers Association,
through its subsidiary, the Corporation for American Banking, since 1994. The
American Bankers Association employs a competitive process in endorsing
products, including conducting interviews with banks and customers regarding the
product. Only 17 companies have the American Bankers Association's endorsement,
and Business Manager is the only product of its type that has received the
endorsement.
As a complement to Business Manager, we advise and train our client
banks concerning risk management procedures and offer insurance products that
mitigate their exposure to fraud and non-payment. We assume none of the payment
risk in the banks' purchase of receivables; all such risk falls upon the client
banks and their small business customers.
The Business Manager solution benefits both our client banks and their
small business customers. The solution introduces our client banks to a new type
of high-margin fee generating service, helping them attract new small business
customers and enhance existing customer relationships. Business Manager also
provides small business customers with access to a new type of bank financing.
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Typically, we provide our services under exclusive long-term contracts
with client banks with terms ranging from three to five years with automatic
renewals for a predefined term thereafter. We receive initial fees for set-up
and royalty payments equal to a percentage of every receivable purchased by the
banks from their small business customers. During 1999, approximately 85% of our
revenue resulted from royalty payments.
During 1999, our network of client banks purchased approximately $6.1
billion of accounts receivable from approximately 8,700 small businesses.
INDUSTRY BACKGROUND
The primary drivers of our business are:
- the need for alternative financing for small businesses.
- the desire of community banks to attract and retain small
business customers using alternative financing products.
- the growing acceptance of electronic commerce among community
banks and small businesses.
Electronic Commerce Services for the Financial Sector. The market for
electronic commerce products and services in the United States has grown
dramatically in recent years. A large portion of the electronic commerce
services infrastructure has been provided by third-party vendors and outsourcing
companies. The financial sector has been a major user of outsourced electronic
commerce services. Examples of outsourced electronic commerce applications in
this sector include electronic authorization, processing and settlement of
credit card transactions and electronic data interchange.
Most of the outsourced electronic commerce activity in the financial
sector has focused on servicing larger merchants and businesses. However, small
businesses have many of the same financial needs as large businesses and also
some unique needs particularly suited for electronic commerce outsourcing. While
small businesses have taken advantage of certain outsourcing and/or electronic
commerce services such as credit card and merchant services, other services
generally have been unavailable in the small business credit and cash management
market.
Financing for Small Businesses. Dun & Bradstreet tracks approximately
10.9 million small businesses in the U.S. with less than $25 million of annual
sales. Private Business believes that approximately six million of these
businesses are potential prospects for the Business Manager system based on
their size, industry and receivables patterns. We believe that, for many of
these small businesses, the need for working capital is a significant obstacle
to growth, and that these businesses spend much time, money and effort on
receivables and cash management. Many of these small businesses are growing
rapidly and are financially sound, but are not eligible for sufficient
traditional bank financing. Traditional banks may be unwilling to provide
financing to small businesses for a number of reasons such as the particular
small business's lack of credit history or the industry or geographic areas in
which a particular small business operates. In other cases, businesses have
reached their bank's credit limit for traditional bank financing.
Despite the fact that the small business sector provides a very large
and potentially profitable market opportunity, financial service providers have
encountered difficulty in managing cost-effective sales and support of targeted
financial services to small businesses. Community banks have generally provided
basic financial services such as business deposit accounts, credit card merchant
services, and, in some instances, traditional lines of credit to small
businesses. However, these banks typically have been unable to provide small
businesses with more sophisticated cash management products such as accounts
receivable or lease financing services.
The Community Bank Market. In response to the competitive pressures
arising from deregulation and consolidation, many community banks are adapting
their business practices to meet these new challenges. According to the Federal
Deposit Insurance Corporation ("FDIC"), strategies for coping with these
pressures include:
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- outsourcing business functions.
- expanding the use of non-traditional financing.
- partnering with non-bank service providers.
- emphasizing personalized services and developing niches or
specialty offerings to serve a broader customer base.
At the same time, given the limited asset base of community banks and
the need to improve margins, the adoption of these strategies must take into
account the need to control operating expenses, maintain proper risk control and
minimize operating complexity.
OUR SOLUTION, BUSINESS MANAGER
Business Manager is an integrated solution that includes software,
targeted marketing services, online electronic transaction processing and
ongoing support. Business Manager enables the management of accounts receivable
financing for banks, from the purchase of receivables from small businesses to
the ongoing processing, billing and tracking of these receivables. The banks
either process the transactions themselves or outsource this activity to our
in-house processing facility. To automate the process further, we offer
electronic links for the banks and their small business customers through secure
connections to our Internet portal, BusinessManager.com.
Our extensive network of local sales consultants, or Business
Development Managers, helps our client banks develop new marketing strategies
and facilitate the market penetration of Business Manager. Once a client bank
contracts to utilize Business Manager, our Business Development Managers help
the client banks design, implement and manage the sale of the Business Manager
accounts receivable financing program to the client banks' small business
customers and prospects. Utilizing a database of likely small business customers
of the program, the Business Development Manager generally works directly with
the client banks' commercial loan officers to target and meet with qualified
small business customers as part of the direct sale of the program to these
businesses. Once the client bank has signed up a new small business customer,
our Business Development Managers continue to work with the small business
customer in conjunction with the bank loan officer to ensure proper
implementation and post-implementation support. We also help design the
appropriate procedures and controls to successfully implement Business Manager
in order to minimize risk to our client banks.
Business Manager allows banks to provide differentiated, high-margin
financial services to their existing small business customers and new prospects
without incurring the cost of internal technology development and additional
personnel. Business Manager can benefit our client banks by:
- increasing their revenues with high margin fee income.
- creating additional relationships with their existing small
business customers.
- attracting new small business customers.
- improving access to small business customers' financial
information, enabling better credit decisions.
Business Manager can also benefit a bank's small business customers by:
- improving cash flow and making funds available for growth.
- providing customized aging, sales and customer balance
reports.
- reducing management time, effort and cost associated with
billing and tracking receivables.
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- improving receivables tracking and payment by involving
the bank.
STRATEGY
We intend to grow our business by implementing the following
strategies:
Expand into Additional Metropolitan Areas. We intend to expand our
Business Development Managers into more major metropolitan markets. Metropolitan
markets tend to have a large number of small businesses in a more concentrated
area. These markets have been virtually untapped by Business Manager. Though
Private Business typically offers these financing opportunities through
community banks, we also work with regional and national funding sources to
provide financing if our client banks are unable to participate.
Expand and Market Our In-house Processing and Service Capabilities. We
are expanding our processing and service center in Williamson County, Tennessee.
With expanded capability, we intend to increase our marketing of the processing
and service center. Our processing and service center provides our client banks
with an outsourcing alternative for processing and customer service and allows
for quick implementation of Business Manager with minimum training while
reducing the need of our client banks to assign or hire dedicated staff. These
features assist in the retention of existing client banks and in the attraction
of new client banks. Furthermore, use of the processing and service center
eliminates restrictions on the growth of Business Manager due to a client bank's
difficulty in adding staff or office space. We believe that a growing number of
our new client banks will use the processing and service center.
Expand Electronic Commerce Services. We are expanding our electronic
commerce services by hiring new electronic commerce specialists, enhancing our
Internet communications infrastructure and more actively marketing our
electronic commerce services. Our electronic commerce specialists work directly
with our client banks and their small business customers to implement
browser-based electronic communications between the small business and the bank
through our Internet server. We continue to upgrade our Internet communications
infrastructure to improve security, scalability, redundancy and availability. We
are also continuing to actively market our capabilities in every new sale of
Business Manager to increase adoption of our electronic commerce solution. To
date, approximately 400 banks and 1,600 small business customers use these
services.
Continue to Broaden Products and Services Offerings. We are
successfully using our sales and distribution channel to offer new products and
services to our network of over 1,250 client banks. For example, we have
introduced credit and fraud insurance, database marketing services, and industry
focused applications for the medical and dental markets. In 1999, we began to
offer point of sale communications systems and equipment leasing for small
businesses. Additionally, we are further expanding the scope of
BusinessManager.com, our Internet portal, to encompass the basic business
functions, such as payroll processing, that every small business engages in
daily. Currently, over 1,600 businesses transact business daily thorough our
portal.
Pursue Strategic Acquisitions and Alliances. The market for financial
services offered to small businesses through community banks is fragmented, and
our industry is still in its formative stage. We believe there is an opportunity
for strategic transactions such as acquisitions, alliances or other partnerships
to broaden our product portfolio and assist us in delivering our services
efficiently. During 1999, we evaluated and pursued strategic transactions to
better position our business. We have no current commitments or understandings
with respect to any material acquisitions, although we have entered into
definitive agreements with two other small business portals that will soon offer
Business Manager and its related services to the small businesses that currently
use them. We have also formed one strategic alliance to co-brand an auction
website delivered via our portal.
PRODUCTS & SERVICES
We provide the following products and services through our Business
Manager solution:
Marketing Services. We provide comprehensive marketing services to
client banks as a key part of the Business Manager solution. We analyze a bank's
market area using our extensive database and provide a detailed
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assessment of the market opportunity for Business Manager in a given geographic
area. A Business Development Manager uses this market analysis to help the
client bank sell Business Manager to small businesses.
As of December 31, 1999, we employed approximately 138 full-time
Business Development Managers, including 8 Regional Managers. Each Business
Development Manager is responsible for 1 to 15 banks, depending on bank size and
market potential, with the typical Business Development Manager responsible for
7 banks. The Business Development Manager and the client bank work together,
using the market analysis, to develop a prospect list of the bank's small
business customers who would be likely Business Manager users. The master
prospect list is prioritized, and, together, the client bank and a Business
Development Manager approach the businesses on that list. As a follow-up, a
Business Development Manager periodically contacts small business customers on
the system to help the client bank retain their small business customers.
Business Manager Software. We develop, update and support the Business
Manager software, a Windows-based software package, installed at our client
banks and in our processing and service center, that enables banks to purchase
and manage accounts receivable from their small business customers. Business
Manager provides over 50 detailed reports to keep the client bank and the small
business owner informed about the performance and aging of the receivables. In
addition, Business Manager's software enables the client bank to periodically
confirm customers' receivables balances for risk control purposes.
Processing Services. Our processing and service center can perform for
the client bank and its small business customers all the processing and service
functions that would normally be performed by the client bank's operations
staff. With this option, the processing and service center provides all data
entry, account set-up, batch processing, lock box maintenance, preparation and
mailing of statements and confirmation letters, invoicing and response to
customer service inquiries. The client bank retains the decision-making
responsibility for credit underwriting and for monitoring the small businesses'
daily financial transaction activity.
Electronic Commerce Capabilities. We provide electronic commerce
capabilities that enable data exchange between the small business customers, our
client banks and our service center. This enables small business customers to
deliver new invoice information electronically and have this information
accessed by our client banks through a Web browser. The small business can
upload this data directly from their accounting software such as Peachtree(R) or
QuickBooks(R) or input this data into a predetermined form provided through the
Internet server and accessible via a Web browser. Our Internet communications
infrastructure provides the gateway to a central repository for this
information. This infrastructure also enables small businesses to access
critical cash management reports online through their Web browser. We believe
this capability reduces the time and cost of processing new invoices for the
small business and enhances our client banks' relationships with their small
business customers.
Risk Management Procedures. The Business Manager solution also assists
client banks with credit risk management, using a variety of tools, including:
- Underwriting Control. The client bank decides which businesses
participate in Business Manager and approves limits on the
amount of receivables to be purchased from those businesses.
- Monitoring Capability. Information provided by the Business
Manager software enables the bank to monitor the payment
performance of the receivables, to detect trends in the
business that may impact the bank's risk, and to facilitate
confirmation of outstanding receivables.
- Primary Source of Payment. The receivables purchased by the
bank are the primary source of payment. In most cases, a small
business' customer makes payment of the receivables directly
to the client bank.
- Reserve. As the client bank buys receivables from small
businesses, a portion of the purchase price is deposited into
a reserve account to protect the client bank against potential
losses on the receivables. The reserve is adjusted each month
to reflect the condition of the receivables.
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- Repurchase Obligation. The small business maintains ultimate
responsibility for accounts receivable collection. Receivables
that age beyond a designated period (typically 90 to 120 days)
are repurchased by the small business. Client banks may
require additional collateral and personal guarantees to
secure the repurchase obligation.
Credit and Fraud Insurance. Our insurance brokerage subsidiary offers
two insurance products for the Business Manager solution. Both products are
primarily underwritten by Continental Credit, an affiliate of CNA Financial
Corporation and one of the nation's major multi-line insurers. Accounts
receivable credit insurance protects the client bank and/or its small business
customers from default in payment of the receivable. Fraud insurance protects
the client bank from two types of fraudulent acts by the client banks' small
business customers: fraudulent invoices and diversion of customer payments.
TRAINING AND SUPPORT
We conduct a variety of training activities for our client banks. This
training is designed to give bank personnel detailed operating knowledge of the
Business Manager solution and the roles that both bank and our personnel play in
the system's success for a particular client bank.
An initial two-day training session is conducted approximately 40 times
per year at our corporate training center by experienced members of our training
and bank services departments. These sessions encompass training for both bank
credit officers and for process coordinators who operate the Business Manager
software. Process coordinators receive detailed instruction and practical
training in effective utilization of the Business Manager software. Credit
officers learn how Business Manager relationships are developed as well as how
they are underwritten, documented, and monitored. Newly licensed banks send both
a credit officer and a process coordinator to this training prior to
implementation of the program. Banks may send additional personnel to these
sessions for training or re-training at any time. In addition, both beginning
and advanced software training for bank process coordinators is offered
throughout the year at various locations around the country.
Other bank credit officers and relationship managers periodically
receive training in the business development and risk control aspects of the
program, either at the bank site or at mini-conferences held at various
locations around the country.
In addition to training, we offer a variety of support services to our
client banks, including:
- Technical Support. We maintain a technical support department
that handles approximately 30,000 calls annually and is
available five days a week from 7 am to 7 pm (Central Time) to
field questions from client banks and resolve any problems
that may be encountered during processing.
- Field Support. Our regionally placed field support technicians
visit client banks periodically to examine their processing
procedures, and they are available for on-site
troubleshooting.
- Electronic Commerce Specialists. We have electronic commerce
specialists that help banks and small business customers set
up secure Internet connections for the transmittal of
information from the business to BusinessManager.com then to
the processing facility in the bank or to our own processing
and service center. These specialists also assist small
business customers in facilitating electronic communication
between their accounting systems and the processing
facilities.
- Bank Services. Our bank services department works with client
banks on a variety of banking issues that arise related to the
Business Manager solution, including dealing with regulatory
issues, documentation, credit policies, risk control and
operational issues.
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- Reference Guide. We provide full documentation in our
reference guide as a comprehensive resource for the ongoing
operation of the Business Manager solution. This reference
guide serves as a source book for answers to day-to-day
questions about the software, as well as credit and operations
issues.
SALES AND MARKETING
Our sales effort is focused on marketing Business Manager to banks and
their small business customers.
Our dedicated bank sales force targets community banks, primarily those
which have assets of $1 billion or less. As of December 31, 1999, there were
8,584 FDIC insured commercial banks with total assets less than $1 billion.
These sales professionals utilize our database marketing tools to provide a
detailed analysis of small businesses that are likely candidates for the
Business Manager product in the prospect bank's market area.
Once a bank contracts to utilize Business Manager, one of our
approximately 130 Business Development Managers works with the bank, combining
the bank's customer list with our prospect analysis and creating a prioritized
master prospect list. Our Business Development Managers and our network of banks
together form a channel for the sale of Business Manager to small businesses.
In early 2000, we added a national funding source, giving us
alternatives to funding small businesses with not only the local bank, but with
a national funding source as well. This should allow us to go into markets and
industries that a local bank may not service in its current capacity, without
having to expand sales and marketing efforts already being put forth.
We employ marketing analysts who are responsible for the design and
production of internal and external marketing materials to assist our banks in
finding small businesses who can benefit from the Business Manager program.
These marketing professionals also attend trade shows and coordinate various
marketing programs, such as direct mail campaigns and conferences.
We have recently formed a new group entitled the National Accounts
Division. The goal of this group is to focus on the banks and businesses that
yield the highest historic revenue for Private Business, and by doing so,
potentially increase the retention of our highest revenue customers. This new
focus may yield better retention of our most important customers.
CUSTOMERS AND CONTRACTS
As of December 31, 1999, Business Manager was licensed to over 1,250
banks. No client bank contributed more than five percent of our revenue in 1997,
1998 or 1999. Our network of client banks purchased approximately $6.1 billion
of accounts receivable from approximately 8,700 small businesses.
The typical agreement between Private Business and a client bank
provides that the bank pay an initial fee upon execution of the agreement and an
annual fee on each anniversary date thereafter. In addition, the agreement
provides that the bank pay a fee equal to a percentage of the receivables
purchased by the bank from a small business customer during the first thirty
days after signing such small business customer. Thereafter, the agreement
provides for a monthly ongoing fee based on a percentage of the discount charged
against the receivables purchased from each small business customer.
The agreements generally have terms of three to five years plus
provisions that the bank pay ongoing fees on all accounts transferred to a
similar program for a period of 48 months after termination.
If an existing client bank wishes to outsource its processing services
to Private Business, the bank enters into a processing addendum to the original
agreement. The processing addendum provides for set-up fees and transaction
processing fees. The processing addendum includes a confidentiality provision
with respect to all information received from the client bank relating to the
small business customer and its accounts. Most new client banks now enter into
an
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agreement that provides for processing from the outset. The terms of the
agreement are very similar to those as set out above.
We also provide client banks with a standard form Business Manager
agreement to be used between the client bank and its small business customers.
Private Business is not a party to this agreement, but the general form of the
agreement provides that the bank will purchase up to a set amount of the small
business's accounts receivable for the face amount less a discount. The Business
Manager agreement provides that the bank will establish an interest-bearing
reserve account for the benefit of the small business and will deposit a portion
(generally between 10 percent and 20 percent) of the face amount of each
receivable purchased into such reserve account. The agreement further provides
that the bank may require the small business to repurchase all or any portion of
any receivable if any minimum payment remains unpaid after a designated period
(typically 90 to 120 days). These agreements have a term of one year and are
automatically extended for additional one year periods, but may be terminated
without penalty by either party upon 60 days written notice.
TECHNOLOGY
The Business Manager software program is a PC-based system written
primarily in Smalltalk and "C." Private Business has developed two versions of
Business Manager, a field version used by client banks and an in-house version
used in our processing and service center. The in-house version supports larger
numbers of concurrent users and generates reports via the Internet. Both
versions of the software are 32-bit, enabling them to run on Windows 95/98 and
NT/2000. For reporting, both versions use Seagate's Crystal Reports report
writer. The field version is capable of running in stand-alone mode or
supporting multiple users on Novell or Microsoft NT networks. Disk space needed
for usage varies with the size of the bank's portfolio, but is usually under 200
MB. Upgrades to the program are released periodically and generally no less than
annually. Private Business also has the ability to handle non-PC-based small
businesses.
Our processing and service center receives invoice information from
small business customers, via our Internet server and uses a PC-based server
system to process this information. The processing and service center uses
fail-safe fiber ring communications and is connected to two separate
telecommunications service providers.
COMPETITION
The market for small business financial services continues to be
intensely competitive, fragmented and rapidly changing. We believe that we
compete effectively as a result of our highly trained and motivated sales force
as well as the functionality of Business Manager.
We face primary competition from companies offering products similar to
Business Manager to banks. Only a limited number of companies offer solutions
similar to Business Manager. We believe that we are the largest of such
companies offering these services in terms of revenue and number of client
banks.
We also compete with banks that use their internal information
technology departments to develop proprietary systems or purchase software from
third parties to offer similar services to small businesses, and with providers
of traditional sources of financing to small businesses such as lines of credit,
amortizing loans and factoring. Many banks and other traditional providers of
financing are much larger and more established than Private Business. Most
providers of traditional sources of financing and banks that have already
established relationships with small businesses may be able to leverage their
relationships to discourage these customers from purchasing Business Manager or
persuade them to replace our products with their products.
We expect that competition will increase as other established and
emerging companies enter the accounts receivable financing market, as new
products and technologies are introduced and as new competitors enter the
market, some of which may market via the Internet. In addition, as we develop
new services, such as equipment leasing, we may begin competing with companies
with whom we have not previously competed. Increased competition may result in
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price reductions, lower profit margins and loss of our market share, any of
which could materially adversely affect our business, financial condition and
operating results.
EMPLOYEES
At March 1, 2000, we employed 402 people, 4 of whom were part-time
employees. We have 191 employees involved in direct sales, marketing and
business development activities.
RISK FACTORS
THIS ANNUAL REPORT ON FORM 10-K INCLUDES FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES,"
"ANTICIPATES," "INTENDS," "EXPECTS," "ESTIMATES," "MAY," "WILL," "LIKELY" AND
WORDS OF SIMILAR IMPORT. SUCH STATEMENTS INCLUDE STATEMENTS CONCERNING THE
COMPANY'S BUSINESS STRATEGY, OPERATIONS, INDUSTRY, ECONOMIC PERFORMANCE,
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING
STATEMENTS BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THIS
"RISK FACTORS" SECTION AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. THE
FORWARD LOOKING STATEMENTS ARE MADE AS OF THE DATE OF THIS ANNUAL REPORT ON FORM
10-K AND THE COMPANY DOES NOT UNDERTAKE TO UPDATE THE FORWARD-LOOKING STATEMENTS
OR TO UPDATE THE REASONS THAT ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED
IN THE FORWARD-LOOKING STATEMENTS.
This Section summarizes certain risks, among others, that should be
considered by stockholders and prospective investors in the Company. Many of
these risks are discussed in other sections of this report. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected. In such case, the trading
price of our common stock could decline, and you may lose all or part of your
investment.
Possible NASDAQ De-listing. On November 10, 1999, NASDAQ sent us a
letter noting that our common stock had failed to maintain a closing bid price
greater than or equal to $5.00 for the last thirty (30) consecutive trading
dates. The letter further noted that our securities would be subject to
de-listing from the NASDAQ National Market if we were unable to demonstrate
compliance with the minimum bid price requirement or any other listing criteria
by February 8, 2000. In response to such letter, we requested a hearing before
the NASDAQ Listing Qualifications Hearing Panel (the "Panel"). The Panel stayed
de-listing and granted the Company a hearing, which took place on March 9, 2000.
At such hearing, we requested a temporary waiver of the bid price requirement in
order to facilitate either continued listing on the NASDAQ National Market or
proposed listing on the NASDAQ Small-Cap Market. On March 29, 2000, we received
a letter from NASDAQ indicating that the Panel had determined to continue the
listing of our securities on the NASDAQ National Market provided that on or
before June 30, 2000 our common stock has maintained a bid price of at least
$5.00 for a minimum of ten consecutive trading days, and provided that we
continue to demonstrate compliance with all other continued listing requirements
of the NASDAQ National Market. There can be no assurance, however, that NASDAQ
will not ultimately de-list the Company from the NASDAQ National Market, in
which case we will apply for listing on the NASDAQ Small Cap Market.
Primary Dependence on One Product. We currently derive substantially
all of our revenues from the sale of Business Manager, with approximately 5% of
our revenues derived from new agreements with client banks and approximately 85%
derived from royalties based on accounts receivables purchased by our bank
clients from small businesses. We expect to continue to derive significant
revenues from this product and related services. If total revenues derived from
Business Manager decline, we do not have sufficient other products or services
to replace that lost revenue, so any events that adversely impact Business
Manager will adversely impact our business. We cannot be certain that we will be
able to continue to successfully market and sell Business Manager to both banks
and their small business customers or that problems will not develop with
Business Manager that could materially impact our business.
Potential Inability to Promote Business Manager to New and Existing
Small Business Customers. Other than the initial contract fee and a small annual
support fee, we do not generate any income from banks contracting to utilize
Business Manager unless small businesses finance their accounts receivable
through our client banks. If the Company and its client banks cannot convince
existing and potential small business customers of the benefits of Business
Manager, such businesses will not be willing to use our products and services.
Since small business customers of our client banks are the foundation of our
business, their unwillingness to use Business Manager could have a material
adverse effect on our business, operating results and financial condition.
10
<PAGE> 11
Dependence on Banking Industry for Clients. Business Manager is used
almost exclusively by banks, primarily community banks. Due to our dependence
upon the banking industry, any events that adversely impact the industry in
general and community banks in particular, such as changed or expanded bank
regulations, could adversely affect the Company and its operations. The banking
industry is subject to supervision by several federal and/or state governmental
regulatory agencies. Regulation of banks, especially with respect to receivable
services such as Business Manager, can indirectly affect our business. The use
of Business Manager by banks is currently in compliance with or is not subject
to banking regulations. But, these regulatory agencies could change or impose
new regulations on banks, including modifying the banks' ability to offer
products and services similar to ours to their small business customers. These
new regulations, if any, could prevent or lessen the use of our services by
banks.
Potential Inability to Successfully Market our Products and Services to
New Client Banks or to Retain Current Client Banks. Our success depends to a
large degree on our ability to convince prospective client banks to utilize
Business Manager and offer it to small businesses. Failure to maintain market
acceptance, retain clients or successfully expand our offered services could
adversely affect our business, operating results and financial condition. We
have spent, and will continue to spend, considerable resources educating
potential customers about our products and services. However, even with these
educational efforts, we may not be able to maintain market acceptance and client
retention. In addition, as we continue to offer new products and expand our
services, existing and potential client banks or their small business customers
may be unwilling to accept the new products or services.
Potential Inability to Attract, Hire, or Retain Enough Qualified Sales
and Marketing Personnel. If we are unable to implement our growth plans and
strategies, our business, operating results and financial condition could be
adversely affected. An important part of our sales strategy is to attract, hire
and retain qualified sales and marketing personnel in order to maintain our
marketing capabilities in our current markets and expand the number of markets
we serve. Since competition for experienced sales and marketing personnel is
intense, we cannot be certain that we will be able to attract and retain enough
qualified sales and marketing personnel or that those we do hire will be able to
generate new business at the rate we currently expect. If the Company is unable
to hire and retain enough sales and marketing personnel or those we hire are not
as productive as we expect, the Company may not be able to implement its sales
plans.
Potential Inability to Sustain or Manage Intended Rapid Growth of
Business. Our business has grown significantly in size and complexity over the
past several years. We may not be able to sustain this growth. If we cannot
sustain growth or if our management is unable to manage growth effectively, our
business, operating results and financial condition could be adversely affected.
Our growth has placed, and any additional growth would be expected to continue
to place, a significant strain on our management, systems and operational
resources. We anticipate that continued growth, if any, will require us to
recruit, hire and retain a substantial number of new managerial, finance, sales,
marketing and support personnel. We cannot be certain that we will be successful
in recruiting, hiring or retaining such personnel. Our ability to compete
effectively and to manage our future growth, if any, will depend on our ability
to maintain and improve operational, financial, and management information
systems on a timely basis and to expand, train, motivate and manage our work
force. If we continue to grow, we cannot be certain that our personnel, systems,
procedures and controls will be adequate to support our operations.
Also, one element of our growth strategy is to actively evaluate and
pursue strategic acquisitions of and alliances with businesses that are
complementary to the Company's. We cannot be certain that we will be able to
integrate fully any such acquisitions or alliances with our existing operations
or otherwise implement our growth strategy.
Intended Expansion of Offered Products and Services May Lower Our
Overall Profit Margin. Part of our business strategy is to expand our products
and services offering, including offering leasing services for the equipment
needs of small businesses. We believe that we can provide these services
profitably, but such services are likely to generate a lower profit margin than
our current products and services. As a result, by offering additional products
and services, we may lower our overall profit margin. Although gross revenues
would likely increase, the lowering of our profit margin may be viewed
negatively by the stock market, possibly resulting in a reduction in our stock
price.
11
<PAGE> 12
Our Products and Services May Not be as Successful in a Slower Economy.
Since the introduction of Business Manager, the United States economy generally
has been fairly strong. If the United States economy weakens or enters into a
recession or depression, our client banks and their small business customers may
view the services and benefits provided by Business Manager differently and may
be reluctant to use the products and services we provide. In addition, in an
economic recession or depression, the customers of small businesses may reduce
their purchases of goods and services thus reducing accounts receivable eligible
for our solution. This development could have a material adverse effect on our
business, operating results and financial condition.
Potential Inability to Compete in the Financial Services Market. The
market for small business financial services is competitive, rapidly evolving,
fragmented and highly sensitive to new product introductions and marketing
efforts by industry participants. Increased competition for services similar to
Business Manager could lower our market share and negatively impact our business
and stock price. The Company faces primary competition from a limited number of
companies that offer to banks products similar to Business Manager. We believe
that we are the largest of the companies offering these services in terms of
revenues and number of client banks under contract.
We also compete with banks that use their internal information
technology departments to develop proprietary systems or purchase software from
third parties to offer similar services to small businesses. In addition, we
compete with traditional sources of financial services to small businesses such
as lines of credit, amortizing loans and factoring. Many banks and other
traditional providers of financing are much larger and more established than
Private Business, have significantly greater resources, generate more revenues
and have greater name recognition. We cannot be certain our competitors will not
develop products and services comparable or superior to those that we have
developed or adapt more quickly to new technologies, evolving industry trends or
changing small business requirements. Most providers of traditional sources of
financing have already established relationships with small businesses, may be
able to leverage these relationships to discourage these customers from
purchasing the Business Manager solution or persuade them to replace our
products with their products.
We expect that competition will increase as other established and
emerging companies enter the accounts receivable financing market, as new
products and technologies are introduced and as new competitors enter the
market. In addition, as we develop new services, such as equipment leasing, we
may begin competing with companies with whom we have not previously competed.
Increased competition may result in price reductions, lower profit margins and
loss of our market share, any of which could have a material adverse effect on
our business, operating results and financial condition.
Dependence on Key Employees. Our future performance will also largely
depend on the efforts and abilities of our executive officers, as well as our
key employees and our ability to retain them. Generally, our executive officers
and key employees do not have employment agreements. The loss of any of our
executive officers or key employees could have a material adverse effect on our
business, operating results and financial condition.
A Large Percentage of Our Common Stock is Owned by Our Executive
Officers, Directors and Their Affiliates. As of December 31, 1999, our executive
officers, directors and their affiliates beneficially owned approximately 82% of
the outstanding shares of common stock. As a result, these stockholders are able
to control all matters requiring stockholder approval and, thereby, the
Company's management and affairs. Matters that typically require stockholder
approval include, among others, the election of directors, the approval of
mergers or consolidations and the sale of all or substantially all of the
Company's assets. This concentration of ownership may delay, deter or prevent
acts that would result in a change of control of the Company, which in turn
could possibly reduce the market price of our common stock.
Our Charter and Bylaws and Tennessee Law Contain Provisions that Could
Discourage a Takeover. Our charter and our bylaws and Tennessee law contain
provisions that could make it more difficult for a third party to obtain control
of the Company. For example, our charter provides for a staggered board of
directors, restricts the ability of stockholders to call a special meeting and
prohibits stockholder action by written consent and our bylaws allow the board
to expand its size and fill any vacancies without stockholder approval. In
addition, the Tennessee Business
12
<PAGE> 13
Corporation Act contains provisions such as the Tennessee Business Combination
Act and the Tennessee Greenmail Act which impose restrictions on stockholder
actions.
Potential Inability to Adequately Protect Our Proprietary Technology.
Our success and ability to compete are dependent largely upon our proprietary
technology. Third party claims against our proprietary technology could
negatively affect our business. We cannot be certain that we have taken adequate
steps to deter misappropriation or independent third-party development of our
technology. In addition, we cannot be certain that third parties will not assert
infringement claims in the future or, if infringement claims are asserted, that
such claims will be resolved in our favor. Although we are not currently subject
to any dispute either protecting our proprietary technology or asserting a third
party claim against our proprietary technology, any infringement claims resolved
against us could have a material adverse effect on the Company's business,
operating results and financial condition.
Failure of Our Network Infrastructure and Equipment Would Have a
Material Effect on Our Business. Failure of our network infrastructure and
equipment, upon which our business is greatly dependent, as well as the
occurrence of significant human error, a natural disaster or other unanticipated
problems could halt our services, damage network equipment and result in
substantial expense to repair or replace damaged equipment. In addition, the
failure of our telecommunications providers to supply the necessary services
could also interrupt our business, in particular, the application hosting and
transaction processing services we offer to our client banks via secure Internet
connections. The inability to supply these services to our customers could
negatively affect our business, operating results and financial condition and
may also harm our reputation.
ITEM 2. PROPERTIES.
The Company owns a 36,000 square foot modern corporate office building
in Brentwood, Tennessee, situated on approximately 5.1 acres of land. This
building houses the Company's executive offices as well as
administration/operations and other staffs. The Company leases approximately
23,500 square feet of office space in Brentwood, Tennessee and Franklin,
Tennessee for processing, insurance and other staff offices. In early 1999, the
Company sold approximately 8.1 acres of undeveloped land adjacent to the
corporate office to a developer who is building a new building. The Company will
lease approximately 45,000 square feet of office space in this building on a
long-term basis. The Company intends to move its processing and service center
into the new building which will replace the Company's currently leased space
and allow for future expansion. The Company expects to occupy the new facility
in mid-2000.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is subject to claims and suits arising
in the ordinary course of business. The Company is not currently a party to any
proceeding which, in management's opinion, would have a material adverse effect
on the Company's business, operating results and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The common stock of the Company is currently traded on the NASDAQ
National Market System under the designation "PBIZ". As of March 20, 2000, there
were approximately 2,250 shareholders of record. The following table sets forth
representative bid quotations of the common stock for each quarter since the
Company's initial public offering of its common stock on May 26, 1999 as
provided by NASDAQ. The following bid quotations reflect interdealer prices
without retail mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions. The Company is currently subject to being
de-listed from the NASDAQ National Market System. See "Business - Risk Factors -
Possible NASDAQ De-listing."
<TABLE>
<CAPTION>
BID QUOTATIONS
--------------
For the year ended HIGH LOW
December 31, 1999 ---- ---
- ------------------
<S> <C> <C>
2nd Quarter $12.50 $8.63
3rd Quarter $10.63 $3.94
4th Quarter $5.063 $1.88
</TABLE>
The Company has not paid any cash dividends on its Common Stock in
1999. The Company intends to retain its earnings to finance growth and
development of its business and does not expect to pay any cash dividends in the
foreseeable future. The Company's credit facility prohibits the payment of cash
dividends on the Common Stock during the term of the current loan outstanding.
Certain directors and affiliates of other directors purchased an
aggregate of 750,000 shares of common stock at $8.00 per share in a private
placement prior to our initial public offering in May 1999. These shares were
purchased by TA Associates Group, Summit Partners, Bill King, Tom Black, Greg
Thurman, Ken Keith and Carl Brasser. This transaction was deemed to be exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
as a transaction not involving a public offering. No other securities of the
Company were sold during the year ended December 31, 1999 without registration
under the Securities Act of 1933, as amended.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data below is derived from the audited
consolidated financial statements of the Company and should be read in
conjunction with those financial statements, including the related notes
thereto. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(In thousand, except per share data)
1999 1998 1997 1996 1995
-------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Revenues $ 57,558 $ 50,805 $43,660 $33,988 $ 23,722
Operating income 13,459 1,516 14,304 9,187 1,093
Income (loss) from operations before
income taxes and extraordinary item 7,418 (2,046) 14,017 9,187 1,093
Income tax provision (benefit) 1,645 (2,585) 743 582 129
Extraordinary item 418 0 0 0 0
Net income 5,355 539 13,274 8,605 964
Preferred stock dividends and accretion (2,029) (2,204) 0 0 0
-------- --------- ------- ------- --------
Net income (loss) available to common
stockholders $ 3,326 $ (1,665) $13,274 $ 8,605 $ 964
======== ========= ======= ======= ========
Earnings (loss) per common share (diluted) $ 0.16 $ (0.10) $ 0.65 $ 0.42 $ 0.05
======== ========= ======= ======= ========
BALANCE SHEET DATA (AT YEAR END):
Cash and cash equivalents $ 5,953 $ 285 $ 4,816 $ 6,391 $ 1,986
Working capital (deficit) 1,465 (7,834) 2,772 2,851 (550)
Total assets 39,210 31,596 20,995 16,386 5,466
Long-term debt, net of current portion 49,122 90,375 4,078 846 0
Redeemable convertible preferred stock 0 59,707 0 0 0
Total shareholders' equity (deficit) (29,186) (139,291) 8,643 8,128 937
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this 10-K.
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<PAGE> 16
OVERVIEW
We are a leading provider of technology-driven solutions that address
the problems faced by community banks in managing accounts receivable financing
provided to their small business customers. Our solution to these problems is
called Business Manager and is based on software, marketing services and online
electronic transaction processing. One element of this solution is our
proprietary software that enables our network of client banks to purchase
accounts receivable from their small business customers. The banks then process,
bill and track those receivables on an ongoing basis. As a major component of
our solution, we work with client banks to design, implement and manage the sale
of Business Manager accounts receivable financing services to their small
business customers. We also give our client banks the option of outsourcing to
us their application hosting and transaction processing through secure Internet
connections, thereby allowing them to receive accounts receivable information
and make funding decisions electronically.
We generate revenues from three main sources:
- royalties earned on client bank purchases of small business
accounts receivable.
- software license fees from new client banks.
- maintenance fees and other revenues, comprised primarily of
fees received for insurance brokerage services, paper-based
form sales, software maintenance, medical, leasing and
processing services.
There are two types of royalty fees. The first type is earned upon the
client bank's initial purchase of a small business' accounts receivable during
the first 30 days in our program. The second type is an ongoing royalty fee
earned from subsequent period purchases. Both types of fees are based on a
percentage of the receivables that a client bank purchases from its small
business customers during each month. The second type of fee is a smaller
percentage of the ongoing receivables purchased.
Software license fees consist of two components: the license fee and
customer training and support fee. These are one-time fees that we receive upon
the initial licensing of our Business Manager program to a community bank. Our
license agreements are executed with terms ranging from three to five years and
are renewable for subsequent terms. We recognize revenues from the license fee
at the time of initiation of the agreement and the customer training and support
fee ratably over the twelve-month service period subsequent to signing the
license agreement. Software license fees for new agreements range from
approximately $5,000 to $156,000 and are generally based on the asset size of
the client bank.
Maintenance fees and other revenues include several ancillary products
and services we provide to client banks. Annual software maintenance fees are
generated from our client banks starting on the first anniversary date of the
Business Manager license agreement and annually thereafter. These revenues are
recognized ratably over a twelve month period beginning on the first anniversary
date of the agreement. Additionally, since 1995, we have brokered, through our
Private Business Insurance subsidiary, credit and fraud insurance products from
a national insurance company. We earn fees based on a percentage of the premium
that is paid to the insurance company. We also provide a standard set of forms
that client banks may purchase and use in the normal course of administering the
Business Manager program. Revenues related to these forms are recognized in the
period that they are shipped to the client bank. We offer processing services to
our client banks for an additional fee based on the volume of transactions
processed through the system. We have also developed some industry focused
applications for the medical and dental markets. In July of 1999, we introduced
a new equipment leasing program for use by small business customers where we
receive a one time license fee, an annual fee from the client bank and a fee
from the leasing company based on a percentage of the cost of the equipment
being leased by the small business customer.
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<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship of the identified consolidated statement of operations
items to total revenues.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenues:
Royalties 85.1% 86.2% 88.1%
Software license 4.6 5.8 6.6
Maintenance and other 10.3 8.0 5.3
----- ----- -----
Total revenues 100.0 100.0 100.0
Operating expenses:
General and administrative 27.2 26.4 27.1
Selling and marketing 46.2 40.3 36.3
Research and development 1.6 1.7 2.6
Amortization 1.3 0.9 0.4
Other operating 0.3 0.6 0.8
Recapitalization charges 0 27.1 0
----- ----- -----
Total operating expenses 76.6 97.0 67.2
Operating income 23.4 3.0 32.8
Other expenses:
Interest expense 10.5 6.7 0.3
Minority interest 0 0.3 0.3
----- ----- -----
Total other expenses 10.5 7.0 0.7
----- ----- -----
Income (loss) before income taxes
and extraordinary item 12.9 (4.0) 32.1
Income tax provision (benefit) 2.9 (5.1) 1.7
----- ----- -----
Net income before extraordinary
item 10.0 1.1 30.4
Extraordinary item 0.7 0.0 0.0
----- ----- -----
Net income available to common
shareholders 9.3% 1.1% 30.4%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Royalties. Royalties increased $5.2 million, or 11.9%, to $49.0 million
for the year ended December 31, 1999 compared to $43.8 million for the year
ended December 31, 1998. The increase resulted from additional
17
<PAGE> 18
funding through the Business Manager program, which increased 8.9% to
approximately $6.1 billion for the year ended December 31, 1999 compared to
approximately $5.6 billion for the year ended December 31, 1998. The increase
was primarily due to an increase in the average amount funded per bank client.
As a percentage of total revenue, royalties decreased to 85.1% for the year
ended December 31, 1999, from 86.2% for the year earlier period, primarily as a
result of a greater increase in maintenance and other revenues during the same
period.
Software license. Software license fees decreased 9.6% to $2.7 million
for the year ended December 31, 1999, compared to $2.9 million for the year
ended December 31, 1998. The decrease was primarily due to a decrease in the
number of new software license agreements entered into during 1999 compared to
1998. We believe that new software license agreements have decreased as a result
of several contributing factors, including our focus on marketing more
specifically to banks in targeted areas where we wish to penetrate the small
business market, the fact that as we increase our penetration into a market, it
becomes more difficult to add new license agreements from the smaller universe
of potential bank clients and increased competition. Software license fees
accounted for 4.6% of total revenues for the year ended December 31, 1999,
compared to 5.8% for the year earlier period primarily as a result of the
decrease in fees discussed above and more rapid growth of royalties and
maintenance and other revenues.
Maintenance and other. Maintenance and other revenues increased $1.8
million, or 45.3%, to $5.9 million for the year ended December 31, 1999 compared
to $4.1 million for the year ended December 31, 1998. Insurance fees increased
approximately $897,000, or 37.9%, to $3.3 million for the year ended December
31, 1999 compared to $2.4 million for 1998. This increase was primarily
attributable to increased participation by client banks and small businesses in
our credit and fraud insurance programs. Software maintenance fees increased
19.1% to approximately $525,000 in 1999 compared to approximately $441,000 in
1998 which reflected more banks completing their first anniversary of
participation in the Business Manager program, as compared to the year ended
December 31, 1998. Processing fees increased approximately $117,000 to $292,000
in 1999 from $175,000 in 1998. This increase resulted primarily from increased
marketing of our processing capabilities which resulted in increased utilization
of our processing services by our client banks. Equipment leasing fees, which
began in 1999, generated approximately $232,000 in new fees compared to 1998
while other miscellaneous revenues increased 43.3% to $813,000 in 1999 from
$568,000 in 1998. The increase in other miscellaneous revenue was primarily
attributable to an increase in Medical processing fees of 513.6% to
approximately $312,000 in 1999 compared to $51,000 in 1998. This increase was a
result of more focus during 1999 on the medical and dental industry. As a
percentage of total revenues, maintenance and other revenue increased to 10.3%
for the year ended December 31, 1999, from 8.0% for the year ended December 31,
1998.
Total revenues. As a result of the foregoing revenue categories, total
revenues increased 13.3% to $57.6 million for the year ended December 31, 1999,
compared to $50.8 million for the year ended December 31, 1998.
General and administrative. General and administrative expenses
increased 16.8% to $15.6 million for the year ended December 31, 1999, compared
to $13.4 million for the year ended December 31, 1998. General and
administrative expenses include the cost of our executive, finance, human
resources, information services, support services, administrative functions and
general operations. The increase was primarily due to certain administrative
expenses, particularly salaries and benefits, telephone and depreciation,
increasing due to the hiring of additional employees to support our expanding
client base and our purchase of new computer hardware and software products. In
1999, we also no longer performed management and administrative functions for
certain related parties where a management fee was charged and netted against
general and administrative expenses. As a percentage of total revenues, general
and administrative expenses increased 0.8% to 27.2% for the year ended December
31, 1999 from 26.4% for the year ended December 31, 1998.
Selling and marketing. Selling and marketing expenses increased 29.8%
to $26.6 million for the year ended December 31, 1999, compared to $20.5 million
for the year ended December 31, 1998. Selling and marketing expenses include
cost of wages and commissions paid to our dedicated business development and
bank sales force, travel costs of the dedicated sales force, recruiting for new
sales and marketing personnel and marketing fees associated with direct and
telemarketing programs. The increase was primarily due to the hiring of
additional
18
<PAGE> 19
sales staff and additional marketing programs provided to client banks. As a
percentage of total revenues, selling and marketing expenses increased 5.9% to
46.2% for the year ended December 31, 1999, compared to 40.3% for the year ended
December 31, 1998.
Research and development. Research and development expenses increased
7.1% to $923,000 for the year ended December 31, 1999, compared to $862,000 for
the previous year ended December 31, 1998. These costs include the direct costs
associated with developing new versions of the Business Manger system. As a
percentage of total revenues, research and development expenses decreased to
1.6% for the year ended December 31, 1999 from 1.7% for the year ended December
31, 1998.
Amortization. Amortization expenses increased 67.9% to $744,000 for the
year ended December 31, 1999, compared to $443,000 for the previous year. These
expenses include the cost of amortizing intangible assets including trademarks
and the associated costs of goodwill and debt issuance costs related to our
recapitalization in 1998. The increase is primarily due to amortizing an entire
year of goodwill and debt issuance costs in 1999 compared to a partial year in
1998 since the recapitalization was completed in August of 1998.
Other operating expenses. Other operating expenses include property
taxes and other miscellaneous costs associated with providing support and
services to our client banks. Other operating expenses decreased $126,000 for
the year ended December 31, 1999 to approximately $186,000.
Recapitalization expenses. Recapitalization expenses represented a
series of transactions in August 1998 which effectively resulted in a
recapitalization of the Company. The one-time charge consisted of a special
one-time bonus to employees, investment banking, and legal and accounting fees.
Operating income. As a result of the above factors, our operating
income increased 787.8% to $13.5 million for the year ended December 31, 1999,
compared to $1.5 million for the previous year period. The 1998 operating income
included the $13.8 million one-time recapitalization charge.
Interest expense. Interest expense increased $2.6 million to $6.0
million for the year ended December 31, 1999, compared to $3.4 million in 1998.
The increase was primarily due to $95 million of new long-term debt incurred in
connection with our recapitalization transaction in August 1998. In May 1999, we
completed our IPO and private placement and used approximately $38.4 million of
the proceeds to reduce long-term debt.
Minority interest. Minority interest consisted of the share of earnings
of Private Business Insurance allocated to its minority shareholders. Concurrent
with the closing of the recapitalization transaction completed in August 1998,
we purchased the minority interest in Private Business Insurance; therefore, no
minority interest was incurred during 1999.
Income tax provision. The income tax provision was $1.6 million for the
year ended December 31, 1999, compared to a tax benefit of $2.6 million for the
year ended December 31, 1998. This change was a result of our conversion from an
S Corporation to a C Corporation during 1998. The 1998 tax benefit consisted of
a benefit recorded at the time of conversion of $1.1 million and a benefit of
$2.0 million for the net operating loss incurred during the C Corporation period
in 1998 offset by a state income tax provision of $451,000 during the 1998 S
Corporation period. The 1999 tax provision includes a $1.3 million tax benefit
accruing to the C Corporation based on the final 1998 S Corporation tax return
filed in 1999. This benefit has been recognized as additional equity that the S
Corporation stockholders contributed to the C Corporation.
Extraordinary item. The extraordinary item represents the after tax
write-off of a portion of the unamortized debt issuance costs in the amount of
$418,000 as a result of paying down approximately $38.4 million in long-term
debt using proceeds from our IPO and private placement in May 1999 and cash from
operations.
19
<PAGE> 20
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Royalties. Royalties increased 13.9% to $43.8 million for the year
ended December 31, 1998, compared to $38.5 million for the year ended December
31, 1997. This increase resulted from larger amounts of receivables purchased
through Business Manager, partially offset by a decrease in the average fee per
receivable charged by our client banks to their small business customers, of
which we receive a percentage. The decrease in the average fee is primarily due
to an increase in the average size of the receivables portfolio purchased by our
client banks. Receivables purchased by our client banks increased 21.7% to
approximately $5.6 billion for the year ended December 31, 1998, compared to
approximately $4.6 billion for the year ended December 31, 1997. As a percentage
of total revenues, royalties decreased to 86.2% for the year ended December 31,
1998, from 88.1% for the year ended December 31, 1997, primarily due to a
greater increase in maintenance and other revenues during the same period.
Software license. Software license fees increased 2.1% to $2.9 million
for the year ended December 31, 1998, compared to $2.9 million for the year
ended December 31, 1997. This slight increase was primarily due to larger
average fees paid with the execution of new license agreements, partially offset
by a decrease in the number of new license agreements entered into in 1998. The
decrease in the number of new software license agreements reflects a number of
contributing factors, including our recent focus on marketing more specifically
to banks in targeted areas where we wish to better penetrate the small business
market, the fact that as we increase our market penetration it becomes more
difficult to add new license agreements from the smaller universe of potential
bank clients and increased competition. The average fee increased in 1998 to
$17,400 from $13,500 in 1997. Software license fees accounted for 5.8% of total
revenues for the year ended December 31, 1998, compared to 6.6% for the year
ended December 31, 1997. This decrease is primarily due to more rapid growth of
royalties and maintenance and other revenues.
Maintenance and other. Maintenance and other fees increased 74.9% to
$4.1 million for the year ended December 31, 1998, compared to $2.3 million for
the year ended December 31, 1997. Insurance fees increased 151.0% to $2.4
million for the year ended December 31, 1998, compared to $943,000 for the year
ended December 31, 1997. This increase primarily resulted from increased
participation of client banks and small businesses in our credit and fraud
insurance programs. Revenues from the sale of forms to client banks decreased
13.7% to $515,000 for year ended December 31, 1998, compared to $597,000 for the
year ended December 31, 1997. This decrease resulted from our client banks
utilizing their own business forms. Software maintenance fees, which were
initially introduced as part of our standard license agreement in 1995,
increased 57.4% to $441,000 for the year ended December 31, 1998, compared to
$280,000 for the year ended December 31, 1997. This increase resulted from more
client banks completing their first anniversary of participation in the Business
Manager program as compared to the year ended December 31, 1997. Processing fees
increased by $160,000 to $176,000 for the year ended December 31, 1998, compared
to $16,000 for the year ended December 31, 1997. This increase resulted from
increased marketing of our processing capabilities and a significant increase in
the utilization of our processing services by our client banks. Other
miscellaneous revenues increased 15.9% to $568,000 for the year ended December
31, 1998, from $490,000 for the year ended December 31, 1997. As a percentage of
total revenues, maintenance and other revenues increased to 8.0% for the year
ended December 31, 1998, from 5.3% for the year ended December 31, 1997.
Total revenues. As a result of changes in the foregoing revenue
categories, total revenues increased 16.3% to $50.8 million for the year ended
December 31, 1998, compared to $43.7 million for the year ended December 31,
1997.
General and administrative. General and administrative expenses
increased 13.2% to $13.4 million for the year ended December 31, 1998, compared
to $11.8 million for the year ended December 31, 1997. This increase was
primarily due to the hiring of 54 additional employees to support our expanding
client base, projected growth and new product initiatives. General and
administrative expenses as a percentage of total revenues decreased to 26.4% for
the year ended December 31, 1998 from 27.1% for the year ended December 31,
1997.
20
<PAGE> 21
Selling and marketing. Selling and marketing expenses increased 29.2%
to $20.5 million for the year ended December 31, 1998, compared to $15.9 million
for the year ended December 31, 1997. This increase was primarily due to the
hiring of 31 additional business development sales personnel, additional
marketing programs and additional travel expenses associated with our expanded
marketing efforts. The increases in sales personnel and marketing programs are
primarily to expand our efforts to market Business Manager to small business
customers in our existing client banks' markets. Additionally, we have expanded
our efforts to market to client banks our outsourcing of the processing
function. Selling and marketing expenses as a percentage of total revenues
increased to 40.3% for the year ended December 31, 1998 from 36.3% for the year
ended December 31, 1997.
Research and development. Research and development expenses decreased
23.3% to $862,000 for the year ended December 31, 1998, compared to $1.1 million
for the year ended December 31, 1997. This decrease reflects the reassignment of
employees previously dedicated to software development. This reassignment
resulted from the expansion of our electronic commerce and processing services.
Research and development expenses as a percentage of total revenues decreased to
1.7% for the year ended December 31, 1998 from 2.6% for the year ended December
31, 1997.
Amortization. Amortization expenses include the cost of amortizing
intangible assets, including trademarks and the associated costs of goodwill and
debt issuance costs related to our recapitalization in 1998. Amortization
increased 134.6% to $443,000 for the year ended December 31, 1998, compared to
$189,000 for the year ended December 31, 1997. The increase is primarily related
to $5.7 million of goodwill and debt issuance costs associated with our
recapitalization transaction completed in August 1998.
Other operating expenses. Other operating expenses include property
taxes and other miscellaneous costs associated with providing support and
services to our client banks. Other operating expenses remained relatively
constant at $312,000 for the year ended December 31, 1998, compared to $340,000
for the year ended December 31, 1997.
Recapitalization charges. Recapitalization charges were $13.8 million
for the year ended December 31, 1998. These expenses consisted of special one
time bonuses totaling $10.0 million to employees and $3.8 million of transaction
related fees, including investment banking, legal and accounting fees. As a
group, our officers received approximately $7.9 million of the special one-time
bonus.
Operating income. As a result of the above factors, our operating
income decreased 89.4% to $1.5 million for the year ended December 31, 1998,
compared to $14.3 million for the year ended December 31, 1997. Excluding
recapitalization charges of $13.8 million, operating income would have been
$15.3 million for the year ended December 31, 1998, representing an increase of
6.9% over the comparable prior year period.
Interest expense. Interest expense increased $3.3 million to $3.4
million for the year ended December 31, 1998, from $146,000 for the year ended
December 31, 1997. This increase was primarily due to $95.0 million of new
long-term debt incurred in connection with our recapitalization transaction
completed in August 1998.
Minority interest. Minority interest increased $17,000 to $158,000 for
the year ended December 31, 1998, from $140,000 for the year ended December 31,
1997. Minority interest consists of the share of the earnings of Private
Business Insurance allocated to its minority stockholders. Concurrent with the
closing of the recapitalization transaction completed in August 1998, we
purchased the minority interest in Private Business Insurance.
Income tax provision (benefit). The income tax benefit was $2.6 million
for the year ended December 31, 1998 compared to a tax provision of $743,000 for
the year ended December 31, 1997. This change is a result of our conversion from
an S Corporation to a C Corporation during 1998. In 1997, the entire tax
provision was for state income taxes, whereas in 1998, the tax benefit consisted
of a benefit recorded at the time of conversion of $1.1 million and a benefit of
$2.0 million for the net operating loss incurred during the C Corporation period
in 1998 offset by a state income tax provision of $451,000 during the 1998
S Corporation period.
21
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of capital have historically been cash provided by
operations and investment from stockholders. During 1999 our operating
activities provided cash of $7.3 million while we expended $3.0 million in cash
for investing activities primarily for purchases of furniture, fixtures,
equipment and software development. Cash provided by financing activities
totaled $1.4 million for 1999, which consisted of the proceeds from our IPO and
private placement sale of common stock and credit facility partially offset by
repayments of long-term debt.
On May 26, 1999 we completed our IPO and private placement of our
common stock. We issued 5,002,500 shares in the IPO and 750,000 shares in the
private placement at an offering price of $8.00 per share. As a result of the
IPO, all preferred stock and accrued dividends on the preferred stock was
converted into common shares. The net proceeds of approximately $42.2 million
were used to pay down a portion of the term loans and revolver under our credit
facility.
In April of 1999, we entered into an agreement to sell a plot of land
for $1.4 million, consisting of a note receivable of approximately $1.0 million
and $400,000 in cash, adjacent to our headquarters in a sale-lease back
transaction. A building is currently under construction which will house our new
Technology and Business Service Center. The actual sale of the land will be
recorded upon the completion of the construction project which is expected to be
May 2000. We incurred capital expenditures of $3.1 million and $1.9 million for
1999 and 1998, respectively, primarily for computer hardware and software
products. We currently estimate that total capital expenditures for 2000 will be
approximately $8.0 million of which approximately $4.5 million is directly
related to leasehold improvements to our new Technology and Business Service
Center.
Our credit facility includes term loans with current balances of $21.3
million and $32.1 million, and also provides for a revolving line of credit in
the amount of $15.0 million, including a $3.0 million sublimit for swing line
advances and a $2.0 million sublimit for standby letters of credit. The credit
facility bears interest in accordance with a grid pricing formula based on the
achievement of various financial ratios. The formula calls for advances to bear
interest ranging from 1.00% to 2.50% above prime rate or 2.25% to 3.75% above
the Eurodollar rate. The facility also includes a provision requiring early
payment on the term loans if we have excess cash, as defined in the credit
agreement, on hand at year end. Any required early payments for a fiscal year
are included in the current portion of long term debt on the consolidated
year-end balance sheet and must be paid during the next fiscal year.
The $21.3 million loan is generally repayable in quarterly installments
which increase annually from $590,000 beginning December 31, 1999 to $1.5
million beginning December 31, 2003 until maturity (August 7, 2004). The $32.1
million loan is repayable in equal quarterly installments of $74,000 until
December 31, 2004, at which time the required quarterly payments increase to
$3.3 million until December 31, 2005 and $4.4 million until maturity (August 7,
2006). The revolver bears an annual commitment fee and matures August 7, 2004.
As of December 31, 1999, we had $21.3 million outstanding at 9.44%, $32.1
million outstanding at 9.94%, and no outstanding letters of credit.
The credit facility is secured by a pledge of all of our assets and
imposes financial covenants and requirements on us and contains limitations on
our ability to sell material assets, redeem capital stock and pay cash
dividends, among other actions.
As of December 31, 1999, we had working capital of approximately $1.5
million compared to a working capital deficit of approximately $7.8 million as
of December 31, 1998. The change in working capital resulted primarily from
decreases in accrued liabilities and dividends payable and increases in cash and
accounts receivable. We believe that the existing cash available and future
operating cash flows will be sufficient to meet our working capital, debt
service and capital expenditure requirements for the next twelve months.
We may, in the future, acquire businesses or products complementary to
our business, although we cannot be certain that any such acquisitions will be
made. The need for cash to finance additional working capital or to make
acquisitions may cause us to seek additional equity or debt financing. We cannot
be certain that such
22
<PAGE> 23
financing will be available, or that our need for higher levels of working
capital will not have a material adverse effect on our business, financial
condition or results of operations.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"), effective, as amended, for fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires all derivatives to be recognized
in the statements of financial position and to be measured at fair value. The
Company anticipates to adopt the provisions of SFAS No. 133 effective January 1,
2001 and is continuing to determine the effect of SFAS No. 133 on its financial
statements.
SEASONALITY
We have generally realized lower revenues and income in the first quarter and,
to a lesser extent, in the second quarter of the year. We believe that this is
primarily due to a general slowdown in economic activity following the fourth
quarter's holiday season and more specifically a decrease in purchased
receivables by our client banks. Therefore, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and that
such comparison cannot be relied upon as indicators of our future performance.
Due to the relatively fixed nature of costs such as personnel, facilities and
equipment costs, a revenue decline in a quarter will typically result in lower
profitability for that quarter.
INFLATION
We do not believe that inflation has had a material effect on our
results of operation. There can be no assurance, however, that our business will
not be affected by inflation in the future.
NOTE REGARDING FORWARD LOOKING INFORMATION
This report contains several "forward-looking statements" concerning
our operations, prospects, strategies and financial condition, including our
future economic performance, intent, plans and objectives, and the likelihood of
success in developing and expanding our business. These statements are based
upon a number of assumptions and estimates which are subject to significant
uncertainties, many of which are beyond our control. Words such as "may,"
"would," "could," "will," "expect," "anticipate," "believe," "intend," "plan,"
and "estimate" are meant to identify such forward-looking statements. Actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially are discussed in "Business - Risk Factors" and elsewhere in this
Report on Form 10-K, and include, among other factors, the timely development
and market acceptance of products and technologies and competitive market
conditions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are subject to market risk from exposure to changes in interest
rates based on our financing and cash management activities. Our exposure
relates primarily to our long-term debt obligations which expire in 2004 and
2006. In the event that interest rates associated with these debt obligations
were to increase 100 basis points, the impact on future cash flows would be
approximately $534,000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements are contained on pages F-1 through F-20 of this
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information concerning directors and executive officers of the Company
is incorporated by reference to the Company's definitive proxy statement (the
"Proxy Statement") for the annual meeting of the stockholders to be held on June
1, 2000.
ITEM 11. EXECUTIVE COMPENSATION.
Executive compensation information is incorporated by reference to the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management
information is incorporated by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning relationships and related transactions of the
Company is incorporated by reference to the Proxy Statement.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Financial statements and schedules of the Company and its subsidiaries
required to be included in Part II, Item 8 are listed below.
FINANCIAL STATEMENTS
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants
Schedule II - Valuation and Qualifying Accounts
No other schedules are required or are applicable
EXHIBITS
The Exhibits filed as part of the Report on Form 10-K are listed in the
Index to Exhibits immediately following the signature page.
24
<PAGE> 25
REPORTS ON FORM 8-K DURING THE LAST QUARTER OF THE YEAR ENDED DECEMBER 31, 1999
On November 1, 1999 the Company reported on Form 8-K that it had hired
Kevin M. McNamara as its Chief Executive Officer and that Jerry L. Cover would
remain with the Company as its President.
25
<PAGE> 26
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................................................................. F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.............................................. F-3
Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997................ F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997...... F-5
Consolidated Statements of Cash Flows for the years December 31, 1999, 1998 and 1997...................... F-6
Notes to Consolidated Financial Statements................................................................ F-7
</TABLE>
F-1
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Private Business, Inc.:
We have audited the accompanying consolidated balance sheets of PRIVATE
BUSINESS, INC. (a Tennessee Corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Private Business,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 14, 2000
F-2
<PAGE> 28
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 5,953 $ 285
Restricted cash ............................................. 5,240 0
Accounts receivable--trade, net of allowance for doubtful
accounts of $87 and $60, respectively .................... 6,883 5,527
Accounts receivable--other .................................. 90 152
Deferred tax asset .......................................... 979 1,104
Other current assets ........................................ 1,594 903
-------- ---------
Total current assets ................................. 20,739 7,971
-------- ---------
PROPERTY AND EQUIPMENT, NET .................................... 11,875 10,456
OTHER ASSETS:
Restricted cash ............................................. 0 5,000
Note receivable ............................................. 0 7
Software development costs, net ............................. 401 309
Deferred tax asset .......................................... 715 1,932
Intangible and other assets, net ............................ 5,480 5,921
-------- ---------
Total other assets ................................... 6,596 13,169
-------- ---------
Total assets ......................................... $ 39,210 $ 31,596
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ............................................ $ 3,077 $ 2,449
Accrued liabilities ......................................... 4,831 5,754
Dividends payable ........................................... 0 2,175
Deferred revenue ............................................ 1,895 1,677
Current portion of long-term debt ........................... 4,231 3,750
Other payable ............................................... 5,240 0
-------- ---------
Total current liabilities ............................ 19,274 15,805
-------- ---------
OTHER LONG-TERM PAYABLE ........................................ 0 5,000
LONG-TERM DEBT, net of current portion ......................... 49,122 90,375
-------- ---------
Total liabilities .................................... 68,396 111,180
-------- ---------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, Series A Convertible, no par value;
5,624,404 authorized, issued and outstanding in 1998 ....... 0 59,707
STOCKHOLDERS' DEFICIT:
Common stock, no par value; 100,000,000 and 23,920,910 shares
authorized and 27,393,148 and 10,128,056 shares issued and
outstanding, respectively ................................ 0 0
Additional paid-in capital .................................. (22,706) (130,798)
Accumulated deficit ......................................... (6,480) (8,493)
-------- ---------
Total stockholders' deficit .......................... (29,186) (139,291)
-------- ---------
Total liabilities and stockholders' equity ........... $ 39,210 $ 31,596
======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
F-3
<PAGE> 29
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Royalties ................................................ $ 48,987 $ 43,793 $38,450
Software license ......................................... 2,665 2,947 2,886
Maintenance and other .................................... 5,906 4,065 2,325
-------- -------- -------
Total revenues .................................... 57,558 50,805 43,661
-------- -------- -------
OPERATING EXPENSES:
General and administrative ............................... 15,643 13,397 11,835
Selling and marketing .................................... 26,603 20,494 15,868
Research and development ................................. 923 862 1,125
Amortization ............................................. 744 443 189
Other operating .......................................... 186 312 340
Recapitalization charges ................................. 0 13,781 0
-------- -------- -------
Total operating expenses .......................... 44,099 49,289 29,357
-------- -------- -------
OPERATING INCOME ............................................ 13,459 1,516 14,304
OTHER EXPENSES:
Interest expense ......................................... 6,041 3,405 147
Minority interest ........................................ 0 157 140
-------- -------- -------
Total other expenses .............................. 6,041 3,562 287
-------- -------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM ....................................... 7,418 (2,046) 14,017
Income tax provision (benefit) .............................. 1,645 (2,585) 743
-------- -------- -------
INCOME BEFORE EXTRAORDINARY ITEM ............................ 5,773 539 13,274
Extraordinary item, loss on write-off of debt issuance costs,
net of income taxes of $256 .............................. 418 0 0
-------- -------- -------
NET INCOME .................................................. 5,355 539 13,274
Preferred stock dividends and accretion ..................... (2,029) (2,204) 0
-------- -------- -------
NET INCOME (LOSS) AVAILABLE TO COMMON
STOCKHOLDERS ............................................. $ 3,326 $ (1,665) $13,274
======== ======== =======
EARNINGS (LOSS) PER SHARE:
Basic .................................................... $ 0.16 $ (0.10) $ 0.66
======== ======== =======
Diluted .................................................. $ 0.16 $ (0.10) $ 0.65
======== ======== =======
PRO FORMA INFORMATION ASSUMING CONVERSION
TO C CORP (Note 12):
Net income (loss) available to common
stockholders .......................................... $ (5,117) $ 8,540
======== =======
Basic .................................................... $ (0.32) $ 0.43
======== =======
Diluted .................................................. $ (0.32) $ 0.42
======== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE> 30
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
(IN THOUSANDS) STOCK CAPITAL DEFICIT) TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 ................................. 20,056 $ 1,190 $ 6,938 $ 8,128
1997 net income ....................................... 0 0 13,274 13,274
Common stock dividends ................................ 0 0 (12,759) (12,759)
------- --------- -------- ---------
Balance, December 31, 1997 ................................. 20,056 1,190 7,453 8,643
Net income through August 7, 1998 ..................... 0 0 6,828 6,828
Common stock dividends ................................ 0 0 (7,776) (7,776)
Payments to common stockholders in recapitalization ... (9,928) (131,988) (6,505) (138,493)
Preferred stock dividends ............................. 0 0 (2,175) (2,175)
Comprehensive loss:
1998 net loss for C Corp period .................... 0 0 (6,289) (6,289)
Accretion on Preferred Stock ....................... 0 0 (29) (29)
-------- ---------
(6,318) (6,318)
------- --------- -------- ---------
Balance, December 31, 1998 ................................. 10,128 (130,798) (8,493) (139,291)
Preferred stock dividends ............................. 0 0 (2,012) (2,012)
Issuance of stock ..................................... 6,016 42,468 0 42,468
Conversion of preferred stock ......................... 11,249 63,911 0 63,911
Tax benefit of exercise of non-qualified stock options 0 400 0 400
Equity contributed by former S Corp stockholders ..... 0 1,313 (1,313) 0
Comprehensive income:
1999 net income .................................... 0 0 5,355 5,355
Accretion on preferred stock ....................... 0 0 (17) (17)
-------- ---------
5,338 5,338
------- --------- -------- ---------
Balance, December 31, 1999 ................................. 27,393 $ (22,706) $ (6,480) $ (29,186)
======= ========= ======== =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-5
<PAGE> 31
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................ $ 5,355 $ 539 $ 13,274
Adjustments to reconcile net income to net cash
provided by operating activities:
Write-off of debt issuance costs ............................... 674 0 0
Depreciation and amortization .................................. 2,384 1,605 910
Bad debt expense ............................................... 27 0 60
Deferred taxes ................................................. 1,342 (3,036) 0
Minority interest .............................................. 0 157 140
Changes in assets and liabilities:
Accounts receivable ......................................... (1,321) (123) (2,309)
Other current assets ........................................ (291) (369) 31
Other noncurrent assets ..................................... (452) (1,852) (3)
Accounts payable ............................................ 628 1,079 (859)
Accrued liabilities ......................................... (1,314) 936 1,005
Deferred revenue ............................................ 218 (162) 469
-------- --------- --------
Net cash provided by (used in) operating activities .... 7,250 (1,226) 12,718
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................ (3,107) (1,938) (4,644)
Software development costs ..................................... (298) (229) (285)
Proceeds from sale of equipment ................................ 0 0 38
Acquisition of minority interest ............................... 0 (4,500) 0
Payments received on notes receivable .......................... 7 12 18
Proceeds received from sale of land ............................ 391 0 0
-------- --------- --------
Net cash used in investing activities .................. (3,007) (6,655) (4,873)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt issuance .......................... 0 95,000 3,339
Repayments on note payable ..................................... 0 (4,184) 0
Repayments on long-term debt ................................... (2,623) (875) 0
Early extinguishment of debt, net .............................. (38,420) 0 0
Proceeds from sale of preferred stock, net ..................... 0 59,678 0
Payments to common stockholders in recapitalization ............ 0 (138,493) 0
Proceeds from sale of common stock, net ........................ 42,204 0 0
Proceeds from exercise of employee stock options ............... 264 0 0
Dividends on common stock ...................................... 0 (7,776) (12,759)
-------- --------- --------
Net cash provided by (used in) financing activities .... 1,425 3,350 (9,420)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH ................................... 5,668 (4,531) (1,575)
CASH AND CASH EQUIVALENTS at beginning of year .................... 285 4,816 6,391
-------- --------- --------
CASH AND CASH EQUIVALENTS at end of year .......................... $ 5,953 $ 285 $ 4,816
======== ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for income taxes during period ................... $ 250 $ 852 $ 762
======== ========= ========
Cash payments of interest during period ........................ $ 5,989 $ 3,405 $ 195
======== ========= ========
SUPPLEMENTAL NONCASH DISCLOSURES:
Dividends accrued on preferred stock ........................... $ 2,012 $ 2,175 $ 0
======== ========= ========
Preferred stock and accrued dividends conversion to common stock $ 63,911 $ 0 $ 0
======== ========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 32
PRIVATE BUSINESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Private Business, Inc. (the "Company") was incorporated under the laws of
the state of Tennessee on December 26, 1990 for the purpose of developing,
marketing and servicing a software package to be used by financial institutions
to purchase and manage small business receivables. The Company operates
primarily in the United States and its customers consist of banks of various
sizes, primarily community banks. During 1998, the Company purchased the
minority interests in three majority owned subsidiaries, Private Business
Insurance, Inc. ("Insurance"), Private Business Processing, Inc. ("Processing")
and Private Business Capital, Inc. ("Capital"). Insurance brokers credit and
fraud insurance, which is underwritten through a third party, to its customers.
Processing performs the outsourced Business Manager functions for various client
banks and Capital markets the Business Manager accounts receivable financing
solution directly to small businesses.
The market for the Company's services, which is concentrated in the banking
industry, is characterized by risk and uncertainty as a result of the Company's
reliance on one product to generate substantially all of the Company's revenues,
increasing number of competitors and alternative products available and the
rapid consolidations in the banking industry. Consequently, the Company is
exposed to a high degree of concentration risk relative to the banking industry
environment and its limited product offerings.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company records minority interest in
earnings to the extent of earnings allocable to minority interests and minority
interests in losses to the extent minority interests capital exists. As
mentioned above, all minority interests in subsidiaries were purchased by the
Company during 1998. All significant intercompany transactions and balances have
been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
In connection with the purchase of the treasury stock by the Company during
1998, the Company is required to maintain cash in escrow for payment to the
buyers of the convertible preferred stock if claims arise in connection with the
purchase and to the sellers of the treasury shares to the extent the escrow is
not subject to such claims. The cash is held in escrow until the 30th day
following the delivery of the Company's 1999 audited financial statements to the
purchasers. The restricted cash balance is offset by a payable to either the
buyers of the convertible preferred stock, if so claimed, or to the sellers of
the treasury stock when the escrow agreement terminates.
F-7
<PAGE> 33
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is calculated
using an accelerated method over 39 years for buildings, 5 to 10 years for
equipment, 3 years for software and the life of the lease for all leasehold
improvements. Expenditures for maintenance and repairs are charged to expense as
incurred, whereas expenditures for renewals and betterments are capitalized.
SOFTWARE DEVELOPMENT COSTS
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility has been established. After such time, any
additional costs are capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed. Capitalized software
development costs are amortized on a straight-line basis over three years.
INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist primarily of the excess of purchase
price over the fair value of the identifiable assets acquired for the minority
share of Insurance purchased during 1998 and debt issuance costs associated with
the bank debt acquired during 1998. The excess of the purchase price over the
fair value of unidentifiable assets acquired (goodwill) is being amortized on a
straight-line basis over a period of 20 years. Debt issuance costs are being
amortized on a straight-line basis over the respective terms of the bank loans.
REVENUE RECOGNITION
The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 97-2, Software
Revenue Recognition ("SOP 97-2"). Further, the Company has adopted the
provisions of SOP 98-9 Modification of SOP 97-2, Software Revenue Recognition,
With Respect to Certain Transactions, which supercedes and clarifies certain
provisions of SOP 97-2.
Software Licenses
The Company licenses its software under automatically renewing agreements,
which allows the licensees use of the software for the term of the agreement and
each renewal period. The fee charged for this license is specifically stated in
the contract and is not inclusive of any postcontract customer support. The
agreement does not allow for cancellation during the term of the agreement;
therefore, the entire fee is non-refundable and is recognized at the time a
contract is signed and executed and the software has been mailed.
The original license agreement also includes a fee for postcontract
customer support ("PCS"), which must be renewed annually. This fee covers all
customer training costs, marketing assistance, phone support, and any and all
software enhancements and upgrades. The Company defers the entire amount of this
fee and recognizes it over the twelve-month period in which the PCS services are
provided.
Royalties
The Company's license agreements are structured in a manner that provides
for a continuing royalty to be paid for all receivables purchased by customers.
These royalties are recognized as earned based on the volume of receivables
purchased by customers.
F-8
<PAGE> 34
Maintenance and Other
Maintenance revenue is deferred and recognized over the period in which PCS
services are provided. Insurance's, Processing's, Capital's and other revenues
are recognized as the services are performed.
INCOME TAXES
During 1997 and through August 7, 1998, the Company was an S Corporation,
which resulted in all federal tax liability flowing through to the stockholders.
On August 7, 1998, the Company converted to a C Corporation, therefore income
earned from that date through December 31, 1998 is subject to federal income
taxes. The income tax provisions recorded in 1997 and through August 7, 1998 in
the accompanying financial statements are for state income taxes.
The Company accounts for income taxes under SFAS No. 109, Accounting for
Income Taxes. Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the fiscal years in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
CONCENTRATION OF REVENUES
Substantially all of the Company's revenues are generated from financial
institutions that in turn provide cash management services to small and medium
size operations.
PER SHARE DATA
The Company applies the provisions of SFAS No. 128 ("SFAS 128"), Earnings
per Share, which establishes standards for both the computing and presentation
of basic and diluted EPS on the face of the statement of operations. Basic
earnings per share have been computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares outstanding
during each year presented. Diluted earnings per common share have been computed
by dividing net income (loss) available to common shareholders by the weighted
average number of common shares outstanding plus the dilutive effect of options
outstanding during the applicable periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS
To meet the reporting requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company calculates the fair value of
financial instruments at quoted market prices. At December 31, 1999 and 1998,
there were no material differences in the book values of the Company's financial
instruments and their related fair values.
LONG-LIVED ASSETS
The Company applies the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of, to
periodically evaluate the carrying value of its properties and other long-lived
assets in relation to the future undiscounted cash flows of the related assets
in order to assess recoverability.
F-9
<PAGE> 35
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 requires that the changes in the amounts of certain items,
including gains and losses on certain securities, be shown in the financial
statements. The Company adopted the provisions of SFAS No. 130 on January 1,
1998.
SEGMENT DISCLOSURES
During 1998, the Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 establishes standards for
the method that business enterprises report information about operating segments
in annual and interim financial statements. SFAS No. 131 also establishes
standards for related disclosures about products and services, geographic area
and major customers. The Company operates in one industry segment, banking
services, and accordingly, the adoption of SFAS No. 131 had no impact on the
Company's financial statement disclosures.
USE OF ESTIMATES
The preparation of financial statements in accordance with auditing
standards generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"),
effective, as amended, for fiscal years beginning after June 15, 2000. SFAS No.
133 establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires all derivatives to be recognized in the
statements of financial position and to be measured at fair value. The Company
anticipates to adopt the provisions of SFAS No. 133 effective January 1, 2001
and is continuing to determine the effect of SFAS No. 133 on its financial
statements.
2. RECAPITALIZATION
On August 7, 1998, the Company completed a series of transactions
effectively resulting in a recapitalization of the Company. A summary of the
transactions is as follows:
The Company acquired term loan debt from a bank in the amount of
$93,429,311, net of debt issuance costs of $1,570,689.
The Company issued 5,624,404 shares of Series A Convertible Preferred
Stock for $10.67 per share, or $60,000,000. Each share of convertible
preferred stock was originally convertible into one share of common
stock, but, as a result of the split of the common stock, became
convertible into two shares of common stock. This split effectively
adjusted the issuance price to $5.34 per share. The Company determined
that the adjusted issuance price per share of $5.34 was the fair
market value of the Company's common stock after the
F-10
<PAGE> 36
issuance of the debt. Costs associated with the issuance of these
shares approximated $322,000 and have been netted against additional
paid-in capital in the accompanying consolidated financial statements.
The Company purchased 9,927,502 (49.5%) shares of the Company's common
stock then outstanding for $138,492,931 ($13.95 per share), which
includes acquisition costs of approximately $152,000. The common stock
was immediately retired. In accordance with generally accepted
accounting principles, the entire consideration paid has been
reflected as cost of the common stock (which had an estimated fair
market value of $9.88 per share prior to the issuance of the debt) and
has been reflected as a reduction of paid-in-capital and undistributed
earnings as of the recapitalization date.
The Company acquired the minority interests of Insurance for
$4,500,000, which resulted in approximately $4,100,000 of goodwill
being recorded.
Taking into consideration the above events, the Company also adjusted the
exercise prices for all stock options outstanding as of August 7, 1998. The
adjusted exercise prices meet the criteria set forth in Emerging Issues Task
Force 90-9 "Changes to Fixed Employee Stock Option Plans as a Result of
Restructuring", therefore, the repricing of the options did not result in a new
measurement date and no additional compensation expense has been recorded in the
accompanying consolidated financial statements. Furthermore, the Company's Board
of Directors approved a special bonus to employees totaling approximately
$10,000,000, which is included in Recapitalization charges in the accompanying
1998 consolidated statement of operations. Also included in Recapitalization
charges are fees paid for various services performed relating to the
recapitalization, including investment banking, legal and accounting services,
which amounted to approximately $3,800,000.
3. PROPERTY AND EQUIPMENT
Property and equipment are classified as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------
<S> <C> <C>
Building ................................. $ 5,843 $ 5,826
Land ..................................... 770 1,968
Land under contract to be sold ........... 1,198 0
Purchased software ....................... 2,313 1,204
Leasehold improvements ................... 287 175
Furniture and equipment .................. 5,988 4,096
-------- --------
16,399 13,269
Less accumulated depreciation ......... (4,524) (2,813)
-------- --------
$ 11,875 $ 10,456
======== ========
</TABLE>
During April of 1999, the Company entered into an agreement with an
unrelated third party to sell a parcel of land adjacent to the Company's
headquarters. The third party intends to build an office building on this land,
of which the Company has agreed to lease approximately half of the available
office space. As a result, the Company has accounted for this transaction using
the deposit method of accounting, as described in SFAS No. 98 "Accounting For
Leases". As such, the Company has not recorded the sale of the land and the
portion of the sales price that has been received in cash from the third party
has been deferred and included in the accompanying consolidated balance sheet in
accrued liabilities as of December 31, 1999.
F-11
<PAGE> 37
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill, net of accumulated amortization of $298 and $86 ............. $3,835 $4,046
Debt issuance costs, net of accumulated amortization of $339 and $111.. 1,127 1,758
Prepaid insurance, net of current portion ............................. 367 0
Other, net ............................................................ 151 117
------ ------
$5,480 $5,921
====== ======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- --------------------------------------------------------------------
<S> <C> <C>
Employee bonuses ............................... $2,855 $3,703
Commissions and other payroll costs............. 478 545
Other .......................................... 1,498 1,506
------ ------
$4,831 $5,754
====== ======
</TABLE>
6. SHORT-TERM BORROWINGS
The Company has a secured revolving credit facility agreement in place with
a bank that allows for the Company to draw up to a maximum of $15,000,000. The
facility matures August 7, 2004. The interest rate is based on the Eurodollar or
prime rate plus a margin. As of December 31, 1999 and 1998 there were no amounts
drawn against this facility. Weighted average borrowings drawn against the
facility during the years ended December 31, 1999 and 1998 were $1,000,000 and
$1,416,667, respectively. See Note 7 for additional information.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Term Loan A with a bank, principal due quarterly; interest due
monthly at the Eurodollar or bank prime rate plus a margin
(9.44% at December 31, 1999); matures August 7, 2004 ...... $ 21,253 $ 39,250
Term Loan B with a bank, principal due quarterly; interest due
monthly at the Eurodollar or bank prime plus a margin
(9.94% at December 31, 1999); matures August 7, 2006 ...... 32,100 54,875
-------- --------
53,353 94,125
Less current portion ...................................... (4,231) (3,750)
-------- --------
$ 49,122 $ 90,375
======== ========
</TABLE>
Term Loans A and B and the revolving credit facility are secured by
substantially all assets of the Company and its subsidiaries. All three debt
instruments include certain restrictive financial covenants related to maximum
capital expenditures, minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA"), ratio of consolidated debt to EBITDA, interest coverage
ratio and fixed coverage ratio. The debt agreement prohibits the Company from
declaring and paying any
F-12
<PAGE> 38
cash dividends during the respective terms of the loans. As of December 31,
1999, the Company was in compliance with these covenants.
The interest margin for the term loans above is determined by the lender
based on the ratio of consolidated debt to EBITDA. The debt agreement also
includes a provision requiring early payment on the term loans if the Company
has excess cash, as defined in the credit agreement, on hand at year end. As of
December 31,1999, the Company had approximately $1,279,000 of excess cash which
has been included in the current portion of long-term debt in the accompanying
1999 consolidated balance sheet.
During 1999, the Company retired $38,419,880 of debt early using the
proceeds from its initial public stock offering. Early repayment of this debt
resulted in the write-off of $673,887 of related debt issuance costs. This
amount, net of applicable income tax benefits of $256,077, is included as an
extraordinary item in the accompanying consolidated statement of operations.
The annual maturities of long-term debt as of December 31, 1999, are as
follows:
<TABLE>
<CAPTION>
(in thousands)
- --------------------------------------------------------------------------------
<C> <C>
2000.......................................................... $ 4,231
2001.......................................................... 4,132
2002.......................................................... 5,166
2003.......................................................... 5,756
2004.......................................................... 7,970
Thereafter.................................................... 26,098
-------
$53,353
=======
</TABLE>
F-13
<PAGE> 39
8. INCOME TAXES
Income tax provision (benefit) consisted of the following for the three
years ended December 31, 1999:
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current income tax expense .................... $ 47 $ 451 $743
Conversion from S Corp to C Corp status........ 0 (1,054) 0
Deferred tax expense (benefit) ................ 1,342 (1,982) 0
------ ------- ----
Income tax expense (benefit), net ..... $1,389 $(2,585) $743
====== ======= ====
</TABLE>
For the first seven months of 1998, the Company, as a S Corp, had income
before taxes of approximately $7,300,000 for which a state tax provision of
$450,957 was recorded. At the time of conversion from an S Corp to a C Corp, the
Company recorded a net deferred tax asset of approximately $1,054,000 for the
temporary differences that existed as of the conversion date. For the last five
months of 1998, the Company, as a C Corp, had a taxable loss of approximately
$5,300,000, resulting in an income tax benefit of approximately $1,982,000. A
reconciliation of the tax benefit from the U.S. Federal statutory rate to the
effective rate for the year ended December 31, 1999 and for the C Corp period
ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Tax expense (benefit) at U.S. Federal statutory rate.................. $2,293 $(3,264)
State tax expense (benefit), net of reduction to federal taxes........ 267 (279)
Expenses not deductible............................................... 92 1,561
Other .............................................................. (1,263) 0
-------- -------
$1,389 $(1,982)
======= ========
</TABLE>
The $1,263,000 benefit reflected as other in the rate reconciliation above
relates to the recognition of the actual deferred tax benefit accruing to the C
Corp based on the final 1998 S Corp tax return filed in 1999. Accordingly, the
benefit has been recognized as additional equity that the S Corp stockholders
contributed to the C Corp. As a result, the accompanying consolidated statement
of stockholders' equity reflects a reclassification of $1,312,728 from retained
earnings to additional paid-in-capital during the year ended December 31, 1999.
All tax provisions for 1997 and the first seven months of 1998 were state
income tax provisions.
Significant components of the Company's deferred tax liabilities and
assets, using a tax rate of 38% at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets (liabilities):
Deferred revenue............................................. $ 720 $ 637
Software development costs................................... (152) (132)
Reserves on assets........................................... 50 0
Liabilities not yet deductible............................... 361 599
--------- -------
Net current asset....................................... 979 1,104
Noncurrent assets (liabilities):
Net operating loss carryforwards............................. 515 1,943
Other ...................................................... 200 (11)
-------- -------
Net noncurrent asset ................................... 715 1,932
-------- -------
Total net deferred tax asset ........................... $ 1,694 $ 3,036
======== =======
</TABLE>
F-14
<PAGE> 40
The tax benefit associated with the exercise of stock options reduced
income taxes payable by $400,000 in 1999, and was reflected as an increase in
additional paid-in capital in the accompanying consolidated statement of
stockholders' equity.
In accordance with SFAS 109, management has evaluated the need for a
valuation allowance for the Company's deferred tax assets. Based on expected
future earnings, management believes that deferred tax assets are realizable,
and therefore, no valuation allowance has been provided. Net operating loss
carryforwards of approximately $1,356,000 expire in 2018.
9. STOCK SPLIT AND INITIAL PUBLIC OFFERING
On May 14, 1999, the Board of Directors of the Company approved a 2-for-1
common stock split in the form of a stock dividend. All shares and per share
amounts have been retroactively restated for all periods presented to reflect
this stock split.
On May 28, 1999, the Company completed an initial public offering of
5,002,500 shares of common stock at $8.00 per share. 750,000 shares were also
issued at that time in a private placement to certain directors and shareholders
at $8.00 per share. Proceeds totaled $42,204,232, net of issuance costs of
$3,815,768. The proceeds of this offering were used to reduce debt and fund
operations.
10. CONVERTIBLE PREFERRED STOCK
On August 7, 1998, the Company sold 5,624,404 shares of Series A
Convertible Preferred Stock for a total of $60,000,000. The preferred stock was
entitled to dividends, in preference to the holders of any and all other classes
of capital stock of the Company, at a rate of $.96 per share of preferred stock
per annum commencing on the date of issuance. Subsequent to the initial public
offering, all outstanding shares of preferred stock were converted to 11,248,802
shares of common stock at two shares of common stock for each share of preferred
stock. Unpaid accrued dividends totaling $4,186,406 were also contributed to
common stock capital upon conversion.
F-15
<PAGE> 41
11. EMPLOYEE STOCK OPTION PLAN
The Company has two stock option plans: the 1994 Stock Option Plan and the
1999 Stock Option Plan. Options under these plans include nonqualified and
incentive stock options and are issued to officers, key employees and
nonemployee directors of the Company. The Company has reserved 6,000,000 shares
of common stock for these plans under which the options are granted at a minimum
of 100% of the fair market value of common stock on the date of the grant,
expire 10 years from the date of the grant and are exercisable at various times
determined by the Board of Directors. The Company applies Accounting Principles
Board ("APB") Opinion No. 25 in accounting for its options and, accordingly, no
compensation cost has been recognized.
A summary of the status of the Company's stock options is as follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF WEIGHTED
SHARES EXERCISE PRICE
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996................................ 784,000 $ 0.93
Granted.................................................. 586,000 2.06
Exercised................................................ 0 0
Canceled................................................. (25,000) 0.965
----------- ---------
Balance at December 31, 1997................................ 1,345,000 $ 1.42
Granted.................................................. 470,000 5.34
Exercised................................................ 0 0
Canceled................................................. (36,000) 1.06
----------- ---------
Balance at December 31, 1998................................ 1,779,000 $ 2.46
Granted.................................................. 2,539,700 7.24
Exercised................................................ (263,790) 1.00
Canceled................................................. (119,954) 5.74
----------- ---------
Balance at December 31, 1999................................ 3,934,956 $ 5.54
=========== =========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- -----------------------------
WEIGHTED WEIGHTED
RANGE OF EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE
OPTIONS EXPIRING IN NUMBER PRICES PRICE NUMBER PRICE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2005 211,042 $0.33 to $0.50 $ 0.42 211,042 $ 0.42
2006 301,569 $1.53 $ 1.53 217,194 $ 1.53
2007 512,041 $2.06 $ 2.06 233,432 $ 2.06
2008 427,000 $5.33 $ 5.33 136,555 $ 5.33
2009 2,483,304 $2.13 to $12.00 $ 7.22 358,052 $ 7.55
--------- ------------ --------- ------------
Total 3,934,956 $ 5.54 1,156,275 $ 3.75
========= ============ ========= ============
</TABLE>
During the period from January 1, 2000 to February 14, 2000, options to
purchase 538,900 shares of common stock were granted to certain key employees.
All of these options were granted with an exercise price equal to the market
price of the Company's stock on the date of grant, therefore no compensation
expense has been incurred. These options vest over 48 months and expire 10 years
from the date of grant.
At the end of 1999, 1998 and 1997, the number of options exercisable was
approximately 1,156,000, 70,000 and 70,000, respectively, and the weighted
average exercise price of these options was $3.75, $0.33 and $0.33,
respectively.
F-16
<PAGE> 42
As discussed above, the Company accounts for all options using APB No. 25,
however, all 1996 through 1999 options are subject to the disclosure
requirements of SFAS No. 123 "Accounting For Stock-Based Compensation". SFAS No.
123 requires that compensation expense, related to options granted, be
calculated based on the fair value of the options as of the date of grant. The
fair value calculations take into account the exercise prices and expected lives
of the options, the current price of the underlying stock, its expected
volatility, the expected dividends on the stock, and the current risk-free
interest rate for the expected life of the option. Under SFAS No. 123, the
weighted average fair value of the 1999, 1998 and 1997 options at the date of
grant was approximately $5.69, $1.60 and $1.13 per share, respectively. The fair
value was calculated using a weighted average risk-free rate of 5.89%, 4.45% and
5.75%, an expected dividend yield of 0.0% and expected stock volatility of
22.8%, 0.0% and 0.0% for 1999, 1998 and 1997, respectively, and an expected life
of the options of eight years. Had the Company adopted SFAS 123 to account for
such options, the Company's pro forma net income and earnings per share would be
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) available to common stockholders....... $ 964 $ (1,882) $ 13,151
Earnings per share:
Basic ............................................... $ 0.05 $ (0.12) $ 0.66
======= =========== ==========
Diluted.............................................. $ 0.05 $ (0.12) $ 0.64
======= =========== ==========
</TABLE>
F-17
<PAGE> 43
12. NET INCOME (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding during the year. Diluted earnings per share is computed by dividing
net income (loss) by the weighted average number of common and common equivalent
shares outstanding during the fiscal year, which includes the additional
dilution related to conversion of stock options as computed under the treasury
stock method. Neither the outstanding stock options nor the Series A Convertible
Preferred Stock have been included in the adjusted weighted average common
shares outstanding for 1998 as the effects of conversion are antidilutive.
The following table is a reconciliation of the Company's basic and diluted
earnings per share in accordance with SFAS 128:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) available to common stockholders $ 3,326 $ (1,665) $13,274
======= ======== =======
Basic Earnings per Share:
Weighted average common shares outstanding .... 20,335 15,919 20,056
======= ======== =======
Basic earnings (loss) per share ............... $ 0.16 $ (0.10) 0.66
======= ======== =======
Diluted Earnings per Share:
Weighted average common shares outstanding .... 20,335 15,919 20,056
Incremental stock option shares outstanding ... 1,067 0 372
------- -------- -------
Total diluted shares outstanding .............. 21,402 15,919 20,428
======= ======== =======
Diluted earnings (loss) per share ............. $ 0.16 $ (0.10) $ 0.65
======= ======== =======
</TABLE>
The Company converted from an S Corp to a C Corp on August 7, 1998. The
following pro forma amounts present the basic earnings per share and diluted
earnings per share as if the Company had been a C Corp for the years ended
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(PRO FORMA)
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Net income (loss) available to common stockholders $(1,665) $ 13,274
Additional tax provision ......................... (3,452) (4,734)
------- --------
Pro forma net income (loss) available to common
stockholders ............................... $(5,117) $ 8,540
======= ========
Basic earnings (loss) per share .................. $ (0.32) $ 0.43
======= ========
Diluted earnings (loss) per share ................ $ (0.32) $ 0.42
======= ========
</TABLE>
F-18
<PAGE> 44
13. COMMITMENTS AND CONTINGENCIES
The Company leases office space and office equipment under various
operating lease agreements. Rent expense for the years ended December 31, 1999,
1998 and 1997 totaled approximately $538,000, $379,000 and $370,000,
respectively, and is included in general and administrative expense in the
consolidated statement of operations.
As mentioned in Note 3, the Company sold a parcel of land adjacent to its
headquarters on which a third party is building an office building. The Company
has entered into a 10 year lease agreement to commence on March 31, 2000 to
lease approximately half of the available space. The future minimum lease
payments for the lease are included in the table below.
As of December 31, 1999, the future minimum lease payments relating to the
operating lease obligations are as follows:
<TABLE>
<S> <C>
2000....................................................... $ 1,063
2001....................................................... 1,120
2002....................................................... 1,093
2003....................................................... 1,074
2004....................................................... 1,030
Thereafter................................................. 5,790
---------
$ 11,170
=========
</TABLE>
The Company is one of three defendants in a lawsuit filed by a small
business merchant participant in the Company's Business Manager program. The
plaintiff alleges misrepresentation of the Business Manager program by the
defendants. Management believes that this lawsuit will ultimately be settled out
of court and that the Company's exposure, net of reserves, is not material to
its financial condition or results of operations.
The Company is also subject to various other legal proceedings and claims
which arise in the ordinary course of its business. In the opinion of
management, the amount of any ultimate liability with respect to these actions
will not materially affect the financial position or results of operations of
the Company.
14. EMPLOYEE SAVINGS PLAN
The Company has an employee savings plan, the Private Business, Inc. 401(k)
Profit Sharing Plan ("the Plan"), which permits participants to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The Company matches contributions ($1, $1 and $0.50 in 1999, 1998
and 1997, respectively, for every $1 contributed by employees) up to a maximum
of $1,000, $1,000 and $750 per employee per year for 1999, 1998 and 1997,
respectively, and may, at its discretion, make additional contributions to the
plan. Employees are eligible for participation beginning with the quarter
immediately following one year of service. Total contributions made by the
Company to the plan were $201,920, $151,858 and $105,767 in 1999, 1998 and 1997,
respectively, and are included in the general and administrative expense in the
consolidated statements of operations.
F-19
<PAGE> 45
15. RELATED PARTY TRANSACTIONS
The Company performs various management and administration functions for
Board Member, Inc.; Madison Land Co.; Maryland Farms Land, LLC; Maryland Farms
South, LLC; Private Business Partners, Inc.; Careers, Inc.; Discount Brokerage
Services, Inc.; Senior Achievement; and Imagic Corporation, which are each owned
by some of the principal stockholders of the Company. The Company charges a
monthly management fee, which is equal to a percentage of certain Company
employees' salaries for these services. These charges totaled approximately
$35,000, $180,000 and $74,000 for 1999, 1998 and 1997, respectively, and have
been netted against general and administrative expenses in the accompanying
statements of operations.
The Company entered into two promissory note agreements dated February 7,
1994 and June 15, 1994 for $50,000 and $15,000, respectively, with A.R. Systems,
Inc. ("A.R. Systems") and Monty E. Strecker, the sole stockholder of A.R.
Systems and a former employee of the Company. The terms of the notes called for
quarterly principal and interest payments beginning January 1 and July 1, 1995,
respectively, and ending on February 1 and April 1, 1999, respectively.
Outstanding principal on the notes, which were paid in full at December 31, 1999
totaled $7,474 at December 31, 1998. The Company had also entered into an option
agreement dated February 7, 1994 with A.R. Systems and Monty E. Strecker, which
gives the Company the exclusive right to purchase A.R. Systems for a term of
five years from the date of the agreement. The agreement is nonbinding to the
Company and the formula for calculating the purchase price is explicitly stated
in the agreement. As of December 31, 1999, the Company had not exercised this
option.
The Company leases office space from Madison Land Co., which is owned by
some of the principal stockholders of the Company. Total rent paid to Madison
Land Co. was approximately $79,000, $75,000 and $43,000 for 1999, 1998 and 1997,
respectively.
As of December 31, 1999, Board Member, Inc. owed the Company $669 for
payables processed and paid by the Company, which are reimbursed by Board
Member, Inc. as funds are available. As of December 31, 1998, the Company owed
Board Member, Inc. $34,462, relating to an overpayment made by Board Member,
Inc. to the Company.
F-20
<PAGE> 46
REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS
To Private Business, Inc.:
We have audited, in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of Private
Business, Inc. and subsidiaries for the three years ended December 31, 1999
included in the Form 10-K and have issued our report thereon dated February 14,
2000. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The Schedule listed under
Item 14 (a) (ii) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic consolidated financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth herein in relation to the basic consolidated financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 14, 2000
S-1
<PAGE> 47
SCHEDULE II
PRIVATE BUSINESS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING OF COSTS AND (CHARGE OFFS) BALANCE AT
PERIOD EXPENSES (1) (1) END OF PERIOD
<S> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts ........ $60,000 $176,000 $149,000 $87,000
======= ======== ======== =======
Year ended December 31, 1998:
Allowance for doubtful accounts ........ $60,000 $ -- $ -- $60,000
======= ======== ======== =======
Year ended December 31, 1997:
Allowance for doubtful accounts ........ $ 0 $ 60,000 $ -- $60,000
======= ======== ======== =======
</TABLE>
- ------------------
(1) Additions to the allowance for doubtful accounts are included in
general and administrative expense. All deductions or charge offs are
charged against the allowance for doubtful accounts.
S-2
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Schedule 13 or 15(d) 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.
PRIVATE BUSINESS, INC.
/s/ Kevin M. McNamara
------------------------------
Kevin M. McNamara
Chief Executive Officer
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ William B. King Chairman of the Board March 29, 2000
- ------------------------------------
William B. King
/s/ Kevin M. McNamara Chief Executive Officer March 29, 2000
- ------------------------------------ and Director
Kevin M. McNamara
/s/ Jerry L. Cover President and Director March 29, 2000
- ------------------------------------
Jerry L. Cover
/s/ Fred P. Read Chief Financial Officer (Principal March 29, 2000
- ------------------------------------ Financial and Accounting Officer)
Fred P. Read
/s/ Thomas L. Black Director March 28, 2000
- ------------------------------------
Thomas L. Black
/s/ Gregory A. Thurman Director March 29, 2000
- ------------------------------------
Gregory A. Thurman
/s/ Brian J. Conway Director March 29, 2000
- ------------------------------------
Brian J. Conway
/s/ Bruce R. Evans Director March 29, 2000
- ------------------------------------
Bruce R. Evans
/s/ Gary W. Cage Director March 29, 2000
- ------------------------------------
Gary W. Cage
/s/ Fred Goad Director March 29, 2000
- ------------------------------------
Fred Goad
</TABLE>
<PAGE> 49
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
3.1 Amended and Restated Charter of the Company (incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on No. 333-75013 Form S-1)
3.2 Amended and Restated Bylaws of Private Business (incorporated by referenced
to Exhibit 3.2 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.1 Stock Purchase Agreement dated as of July 24, 1998 (incorporated by referenced
to Exhibit 10.1 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.2 Stockholders Agreement dated as of August 7, 1998 (incorporated by referenced
to Exhibit 10.2 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.3 Registration Rights Agreement dated as of August 7, 1998 (incorporated by referenced
to Exhibit 10.3 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.4 Credit Agreement dated as of August 7, 1998 (incorporated by referenced to Exhibit
10.4 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.4.1 Amendment No. 1 to Credit Agreement dated as of May 5, 1999 (incorporated by
referenced to Exhibit 10.4.1 to the Company's Registration Statement
No. 333-75013 on Form S-1).
10.4.2 Amendment No. 2 to Credit Agreement dated as of December 31, 1999.
10.5 Form of Indemnification Agreement between Private Business and each of its
Officers and Directors (incorporated by referenced to Exhibit 10.5 to the Company's
Registration Statement No. 333-75013 on Form S-1).
10.6 Form of Nonqualified Stock Option Agreement without change of control provision
(incorporated by referenced to Exhibit 10.6 to the Company's Registration Statement
No. 333-75013 on Form S-1).
10.7 Form of Nonqualified Stock Option Agreement with change of control provision
(incorporated by referenced to Exhibit 10.7 to the Company's Registration Statement
No. 333-75013 on Form S-1).
10.8 Private Business, Inc. 1999 Amended and Restated Stock Option Plan (incorporated
by referenced to Exhibit 10.8 to the Company's Registration Statement
No. 333-75013 on Form S-1).
10.9 Cendant Termination and Non Competition Agreement. (incorporated by referenced
to Exhibit 10.9 to the Company's Registration Statement No. 333-75013 on Form S-1).
10.10 Employment Agreement between Kevin M. McNamara.
10.11 Lease Between Triple Brentwood as Landlord and Private Business, Inc. as Tenant
21 Subsidiaries of Private Business.
27 Financial Data Schedule (FOR SEC USE ONLY).
</TABLE>
The attachments referenced in these exhibits are not included in this filing but
are available from Private Business upon request.
<PAGE> 1
EXHIBIT 10.4.2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 2, dated as of December 31, 1999 (this
"Amendment") to Credit Agreement, by and among Private Business, Inc., a
Tennessee corporation (the "Borrower", the Lenders, Fleet National Bank, as the
Initial Issuing Bank, the Swing Line Bank and the Administrative Agent, and
BankBoston N.A., as Syndication Agent.
PRELIMINARY STATEMENTS
(A) The Borrower, the Lenders, Fleet National Bank, as the
Initial Issuing Bank, the Swing Line Bank and the Administrative Agent, and
BankBoston N.A., as Syndication Agent, are parties to the Credit Agreement,
dated as of August 7, 1998 (the "Credit Agreement"),
(B) The Borrower has requested that the Lenders amend the
Credit Agreement as more fully set forth below,
(C) The Administrative Agent and the Lenders are willing to
amend the Credit Agreement on the terms and conditions set forth herein; and
(D) The terms defined in the Credit Agreement and not
otherwise defined herein shall have the meanings ascribed to them in the Credit
Agreement,
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1. Amendments to Credit Agreement.
Section 1.1 Amendment. This Amendment shall be deemed to be an
amendment to the Credit Agreement and shall not be construed in any way as a
replacement or substitution therefor. All of the terms and conditions of, and
terms defined in, this Amendment are hereby incorporated by reference into the
Credit Agreement as if such terms and provisions were set forth in full therein.
Section 1.2 Amendments to Credit Agreement. Effective upon the
satisfaction of the conditions precedent set forth in Article 4 hereof, the
Credit Agreement is hereby amended as follows:
(a) Section 6.17 of the Credit Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"SECTION 6.17 Capital Expenditures. Make, or permit any of its
Subsidiaries to make, any Capital Expenditures that would cause the aggregate of
all such Capital Expenditures made by the Borrower and its Subsidiaries in any
period set forth below to exceed the amount set forth below for such period.
<PAGE> 2
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through December 31, 1998 $3,000,000
Fiscal Year 1999 $3,500,000
Fiscal Year 2000 $8,000,000
Fiscal Year 2001 $4,000,000
Fiscal Year 2002 $4,000,000
Fiscal Year 2003 $4,000,000
Fiscal Year 2004 $4,000,000
Fiscal Year 2005 $4,000,000
Fiscal Year 2006 $4,000,000
</TABLE>
; provided, however, that amounts permitted to be expended in a Fiscal Year
that are not expended in such fiscal year, but not in excess of fifty (50%)
percent of such prior year's unused amount (not including any amount permitted
to be carried forward from a prior year) shall be permitted to be expended in
(but only in) the subsequent fiscal year."
(b) Section 8.1 of the Credit Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"SECTION 8.1. Minimum EBITDA. Maintain for each period set
forth below EBITDA at not less than the respective amounts set forth below:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Minimum EBITDA
---------------------------------------- ---------------
<S> <C>
December 31, 1998 $20,000,000
March 31, 1999 $18,000,000
June 30, 1999 $17,000,000
September 30, 1999 $17,000,000
December 31, 1999 $14,000,000
March 31, 2000 $12,000,000
June 30, 2000 $12,500,000
September 30, 2000 $13,500,000
December 31, 2000 $15,500,000
March 31, 2001 $21,000,000
June 30, 2001 $21,500,000
September 30, 2001 $22,000,000
December 31, 2001 $22,500,000
March 31, 2002 $23,000,000
June 30, 2002 $23,500,000
September 30, 2002 $24,000,000
December 31, 2002 $25,000,000
March 31, 2003 $25,500,000
June 30, 2003 $26,000,000
September 30, 2003 $26,500,000
December 31, 2003 and thereafter $27,500,000"
</TABLE>
-2-
<PAGE> 3
(c) Section 8.2 of the Credit Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"SECTION 8.2 Ratio of Consolidated Debt to EBITDA. Maintain as of the
end of each fiscal quarter of the Borrower a Ratio of Consolidated Debt to
EBITDA for the most recently completed four fiscal quarters of the Borrower of
not more than the ratio set forth below:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 4.85:1
March 31, 1999 5.25:1
June 30, 1999 5.40:1
September 30, 1999 5.40:1
December 31, 1999 5.25:1
March 31, 2000 4.25:1
June 30, 2000 4.00:1
September 30, 2000 3.75:1
December 31, 2000 3.50:1
March 31, 2001 4.00:1
June 30, 2001 3.85:1
September 30, 2001 3.65:1
December 31, 2001 3.50:1
March 31, 2002 3.25:1
June 30, 2002 3.25:1
September 30, 2002 3.25:1
December 31, 2002 3.00:1
March 31, 2003 3.00:1
June 30, 2003 3.00:1
September 30, 2003 3.00:1
December 31, 2003 and thereafter 2.75:1"
</TABLE>
(d) Section 8.3 of the Credit Agreement is amended by deleting
such Section in its entirety and replacing it with the following:
"SECTION 8.3 Interest Coverage Ratio. Maintain as of each date set
forth below, a ratio of (i) EBITDA for the most recently completed four fiscal
quarters of the Borrower to (ii) Consolidated cash Interest Expense for such
period (except that in respect of the first three testing periods referred to
below, actual amounts expended for cash Interest Expense, in each case since the
Closing Date shall be computed on an annualized basis) of not less than the
ratio set forth below for such period:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 2.25:1
March 31, 1999 2.00:1
June 30, 1999 2.00:1
September 30, 1999 2.00:1
</TABLE>
-3-
<PAGE> 4
<TABLE>
<S> <C>
December 31, 1999 2.15:1
March 31, 2000 2.25:1
June 30, 2000 2.35:1
September 30, 2000 2.75:1
December 31, 2000 3.00:1
March 31, 2001 2.75:1
June 30, 2001 2.75:1
September 30, 2001 2.85:1
December 31, 2001 and thereafter 3.00:1"
</TABLE>
(e) Section 8.4 of the Credit Agreement is amended by
deleting such Section in its entirety and replacing it with the following:
"SECTION 8.4 Fixed Charge Coverage Ratio. Maintain as of the end of
each fiscal quarter of the Borrower a ratio of (i) EBITDA for the most recently
completed four fiscal quarters of the Borrower, less Capital Expenditures made
by the Borrower and its Subsidiaries during such period (except that in respect
of the first three testing periods referred to below, the amount of Capital
Expenditures shall be deemed to be equal to the lesser of (x) actual amounts
expended for Capital Expenditures, in each case since the Closing Date, computed
on an annualized basis and (y) $3,500,000), less the aggregate amount of
federal, state, local and foreign taxes paid by the Borrower and its
Subsidiaries in cash during such period, less cash dividends paid by the
Borrower to the holders of its common stock during such period, to the (ii) sum
of (x) cash interest payable by the Borrower and its Subsidiaries on all Debt
during such period (except that in respect of the first three testing periods
referred to below, actual amounts expended for cash Interest Expense, in each
case since the Closing Date shall be computed on an annualized basis), plus (y)
principal amounts of all Debt payable by the Borrower and its Subsidiaries
during such period (except that in respect of the first three testing periods
referred to below, such principal amounts payable in each case since the Closing
Date, computed on an annualized basis, shall be deemed to be equal to
$3,000,000), of not less than the ratio set forth below for such period:
<TABLE>
<CAPTION>
Four Fiscal Quarters ending on or about: Ratio
---------------------------------------- -----
<S> <C>
December 31, 1998 1.10:1
March 31, 1999 1.00:1
June 30, 1999 1.00:1
September 30, 1999 1.00:1
December 31, 1999 1.05:1
March 31, 2000 .70:1
June 30, 2000 .40:1
September 30, 2000 .40:1
December 31, 2000 .60:1
March 31, 2001 and thereafter 1.10:1"
</TABLE>
-4-
<PAGE> 5
ARTICLE 2. Confirmations and References.
Section 2.1 Continuing Effect. The Credit Agreement and the other
Loan Documents delivered in connection therewith are, and shall continue to be,
in full force and effect, and are hereby ratified and confirmed in all respects
except that on and after the date hereof.
(a) All references in the Credit Agreement and all references
in the other Loan Documents:
(i) to the "Credit Agreement." "thereto," "thereof,"
"thereunder" or words of like import referring to the Credit Agreement shall
mean the Credit Agreement as amended hereby; and
(ii) to the "Loan Documents" shall be deemed to
include this Amendment.
(b) All references in the Credit Agreement to "this
Agreement," "hereto," "hereof," "hereunder" or words of like import referring to
the Credit Agreement shall mean the Credit Agreement as amended hereby.
Section 2.2 Confirmation of Liens. The Liens granted pursuant to the
Collateral Documents secure, without limitation, the Obligations of the Borrower
and its Subsidiaries to the Lenders and the Administrative Agent under the
Credit Agreement as amended by this Amendment. The term "Obligations" as used in
the Collateral Documents (or any other term used therein to refer to the
liabilities and obligations of the Borrower and its Subsidiaries to the Lenders
and the Administrative Agent), include, without limitation, Obligations to the
Lenders and the Administrative Agent under the Credit Agreement as amended by
this Amendment.
ARTICLE 3. Representations and Warranties.
The Borrower and each Loan Party hereby represents and warrants to the
Lenders and the Administrative Agent that:
Section 3.1 Existing Representations. Each of the representations and
warranties contained in Article 4 of the Credit Agreement is true in all
material respects on, and as though made as of, the date hereof, other than any
such representation or warranties that, by their terms, refer to a specific
date, in which case, as of such specific date.
Section 3.2 No Default. As of the date hereof, there exists no Default
or Event of Default under the Credit Agreement, as amended hereby, and no event
which, with the giving of notice or lapse of time, or both, would constitute
such a Default or Event of Default.
Section 3.3 Power, Authority, Consents. The Borrower has the power to
execute, deliver and perform the Credit Agreement, as amended by this Amendment.
The Borrower has taken all necessary action to authorize the execution, delivery
and performance of this Amendment. No consent or approval of any Person, no
consent or approval of any landlord or mortgagee, no waiver of any lien or right
of distraint or other similar right and no consent,
-5-
<PAGE> 6
license, approval, authorization or declaration of any governmental authority,
bureau or agency, is required in connection with the execution, delivery or
performance by the Borrower or the validity, enforcement or priority, of this
Amendment.
Section 3.4 No Violation of Law or Agreements. The execution and
delivery by the Borrower of this Amendment and performance by it hereunder, will
not violate any provision of law presently in effect and will not conflict with
or result in a breach of any order, writ, injunction, ordinance, resolution,
decree, or other similar document or instrument presently in effect of any court
or governmental authority, bureau or agency, domestic or foreign, or the
certificate of incorporation or by-laws of the Borrower, or create (with or
without the giving of notice or lapse of time, or both) a default under or
breach of any agreement, bond, note or indenture presently in effect to which
the Borrower is a party, or by which it is bound or any of its properties or
assets is affected, or result in the imposition of any Lien of any nature
whatsoever upon any of the properties or assets owned by or used in connection
with the business of the Borrower, except for the Liens created and granted
pursuant to the Collateral Documents as acknowledged and confirmed herein.
Section 3.5 Binding Effect. This Amendment has been duly executed and
delivered by the Borrower and constitutes the valid and legally binding
obligation of the Borrower, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws, now or hereafter in effect, relating to or affecting the enforcement of
creditors' rights generally, and except that the remedy of specific performance
and other equitable remedies are subject to judicial discretion.
ARTICLE 4. Conditions to Amendment.
The effectiveness of the amendments contained in Article 1 shall be
subject to the fulfillment of the following conditions precedent:
Section 4.1 Amendment. The Borrower and the Required Lenders shall
have executed and delivered to the Administrative Agent this Amendment.
Section 4.2 Resolutions; Incumbency. The Administrative Agent shall
have received copies of the following:
(a) Copies of resolutions of the Board of Directors of the
Borrower authorizing the execution and delivery of this Amendment, duly
certified by the secretary or an assistant secretary of the Borrower; and
(b) An incumbency certificate with the names and true
signatures of the officers of the Borrower authorized to sign this Amendment.
Section 4.3 No Default. There shall exist no Event of Default or
Default under the Credit Agreement.
Section 4.4 Representations and Warranties. The representations and
warranties contained in Article 3 hereof shall be true and correct in all
material respects on the date hereof;
-6-
<PAGE> 7
and the Administrative Agent shall have received a certificate dated the date
hereof certifying that the conditions set forth in this Article 4 are satisfied
as of the date of effectiveness hereof.
Section 4.5 Amendment Fee. The Borrower shall have paid an amendment
fee to the Administrative Agent, for the account of each Lender which has
approved this Amendment, as evidenced by such Lender's timely execution and
delivery of a counterpart signature page to this Amendment, in an amount equal
to 0.15% of the aggregate of such Lender's Commitments.
ARTICLE 5. Miscellaneous.
Section 5.1 Continued Effectiveness. Except as specifically amended
herein, the Credit Agreement and each of the other Loan Documents shall remain
in full force and effect in accordance with their respective terms.
Section 5.2 Governing Law. This Amendment shall be governed and
construed in accordance with the laws of the State of New York.
Section 5.3 Severability. The provisions of this Amendment are
severable, and if any clause or provision shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction and shall not in any manner affect such clause or provision in
any other jurisdiction, or any other clause or provision in this Amendment in
any jurisdiction.
Section 5.4 Counterparts. This Amendment may be signed in any number
of counterparts with the same effect as if the signatures thereto and hereto
were upon the same instrument. Delivery of an executed counterpart of this
Amendment by facsimile shall be as effective as delivery of an originally
executed counterpart.
Section 5.5 Binding Effect; Assignment. This Amendment shall not
become effective unless executed and delivered by the Required Lenders. This
Amendment shall be binding upon and inure to the benefit of the Borrower and its
respective successors and to the benefit of the Administrative Agent and the
Lenders and their respective successors and assigns. The rights and obligations
of the Borrower under this Amendment shall not be assigned or delegated without
the prior written consent of the Lenders, and any purported assignment or
delegation without such consent shall be void.
Section 5.6 Expenses. The Borrower shall pay the Administrative Agent
upon demand for all reasonable expenses, including reasonable fees of counsel
for the Administrative Agent, incurred by the Administrative Agent in connection
with the preparation, negotiation and execution of this Amendment and any
documents required to be furnished herewith.
-7-
<PAGE> 1
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT OF
KEVIN M. MCNAMARA
This Executive Employment Agreement ("AGREEMENT") is entered into between
PRIVATE BUSINESS, INC., a Tennessee corporation ("COMPANY"), and KEVIN M.
MCNAMARA, a resident of Brentwood, Tennessee ("EXECUTIVE"), executed and
effective October 31, 1999. The Company and the Executive are sometimes referred
to herein as the "PARTIES."
1. Introduction. The Company desires to employ Executive and the Executive
desires to be employed by the Company. Accordingly, the Company and the
Executive intend by this Agreement to specify the terms and conditions of the
Executive's employment relationship with the Company.
2. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon terms and conditions set forth
herein.
3. Duties and Responsibilities.
3.1 Extent of Service. The Executive shall, during the term of this
Agreement, devote such of his entire time, attention, energies and business
efforts to his duties as an executive of the Company as are reasonably necessary
to carry out his duties specified in Paragraph 3.2 below. The Executive shall
not, during the term of this Agreement, engage in any other business activity
(whether or not such business activity is pursued for gain, profit or other
pecuniary advantage) if such business activity would impair the Executive's
ability to carry out his duties hereunder. This Paragraph 3.1, however, shall
not be construed to prevent the Executive from investing his personal assets as
a passive investor.
3.2 Position and Duties. Subject to the power of the Board of Directors
of the Company to elect and remove officers and the power of the stockholders to
remove directors, the Executive shall serve the Company as Chief Executive
Officer and be appointed to the Board of Directors by the current members of the
Board of Directors; and shall perform, faithfully and diligently, the services
and functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the Board of Directors of the
Company or its designee(s); provided that all such services and functions shall
be reasonable and within the Executive's area of expertise, and provided further
that the Executive shall be physically capable of performing the same.
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3.3 Place of Employment. During the term of this Agreement, the Company
shall maintain its principal executive offices in the Nashville, Tennessee area,
and the Executive's primary place of employment shall be at such principal
executive offices. During the term of this Agreement, the Company will provide
the Executive with a private office and other customary staff support services
commensurate with the services and functions to be performed by him hereunder.
4. Salary and Other Benefits. Subject to the terms and conditions of this
Agreement:
4.1 Salary. As compensation for his services under and during the term of
his employment under this Agreement, the Executive shall be paid an annual
salary of not less than Two Hundred Ten Thousand Dollars ($210,000), payable in
accordance with the then current payroll policies of the Company. Such salary
shall be subject to increase by the Board of Directors of the Company (or the
appropriate committee thereof) from time to time. The annual salary payable from
time to time by the Company to the Executive pursuant to this Paragraph 4.1 is
herein sometimes referred to as his "BASE SALARY."
4.2 Incentive Bonus Eligibility. Beginning with calendar year 2000, the
Executive shall be eligible to be paid an annual incentive cash bonus of up to
one hundred percent (100%) of his Base Salary subject to performance criteria
for the Company and Executive established from time to time by the Board of
Directors, or its designee(s), and Executive.
4.3 Stock Option Grants.
(a) Executive shall be granted options to acquire Five Hundred
Thousand (500,000) shares of the Company's common stock at an exercise
price equal to the closing trading price of such stock on October 29,
1999. Such grant shall be made pursuant to an Incentive Stock Option
Agreement between the Company and Executive to the extent Executive is
eligible for incentive options under applicable tax laws and, with
respect to any excess, a Non-Qualified Stock Option Agreement between the
Company and the Executive. Such agreement(s) will provide for vesting of
such options over three (3) years at the rate of 1/36th per month. In all
events such options shall be subject to the terms and conditions of the
Company's 1999 Amended and Restated Stock Option Plan, as the same may be
amended from time to time.
(b) Executive shall also be granted, effective the effective date
of this Agreement reflected above, options to acquire an aggregate of
Five Hundred Thousand (500,000) shares of the Company's common stock at
the following exercise prices:
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Number of Shares Exercise Price Per Share
---------------- ------------------------
250,000 $ 8.00
250,000 $12.00
Such grants shall be made pursuant to an Incentive Stock Option Agreement
between the Company and Executive to the extent Executive is eligible for
incentive options under applicable tax laws and, with respect to any excess, a
Non-Qualified Stock Option Agreement between the Company and Executive. Such
agreement(s) will provide for vesting of such options over three (3) years at
the rate of 1/36th per month. In all events such options shall be subject to the
terms and conditions of the Company's 1999 Amended and Restated Stock Option
Plan, as the same may be amended from time to time.
4.4 Other Benefits. As long as the Executive is employed by the
Company, the Executive shall be entitled to receive the following benefits in
addition to his Base Salary:
(a) The Executive shall have the right to participate in all group
benefit plans of the Company in accordance with the Company's regular
practices with respect to its senior officers.
(b) The Executive shall be entitled to reimbursement from the
Company for reasonable out-of-pocket expenses incurred by him in the
course of the performance of his duties hereunder, subject to compliance
with the Company's standard expense policies and procedures.
(c) The Executive shall be entitled to such vacation, holidays and
other paid or unpaid leaves of absence as are consistent with the
Company's other senior officers.
4.5 Initial Payment. Within five (5) days of Executive's execution of
this Agreement, the Company shall pay Executive an initial payment, in addition
to any other payments under this Agreement, of Fifty Thousand Dollars ($50,000),
subject to the Company's standard payroll practices and withholding taxes. In
the event Executive resigns within ninety (90) days of the date hereof, he shall
refund the initial payment to the Company in full within five (5) days.
5. Term. The term of this Agreement shall be for an initial period of two
(2) years and two months ending on December 31, 2001, and shall thereafter
automatically be extended for an additional period of one (1) year on a yearly
basis, unless on or before October 1 of any subsequent year, either the
Executive or the Company gives the other party notice that the term of this
Agreement will not be so extended, in which case the term of this Agreement will
end on the end of the year designated in the notice. Notwithstanding
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the foregoing, the indemnification provisions of this Agreement contained in
Paragraph 10 shall survive until the expiration of the statute of limitations
for assessment of any excise tax under Section 4999 of the Code with regard to
an Excess Parachute Payment on account of the Change of Control.
6. Termination and Resignation. The Company shall have the right to
terminate the Executive's employment hereunder at any time and for any reason,
and upon any such termination the Executive shall be entitled to receive from
the Company prompt payment of the amount determined pursuant to the applicable
subparagraph of Paragraph 7 below. The Executive shall have the right to
terminate his employment hereunder at any time by resignation, and he shall
thereupon be entitled to receive from the Company prompt payment of the amount
determined pursuant to the applicable subparagraph of Paragraph 7 below.
7. Payments Upon Termination and Resignation.
7.1 Pro Rata Payments Upon Termination for Cause, Resignation Prior to
Change in Control, Death or Disability. If (a) the Company at any time
terminates the Executive's employment for Cause (as defined below), or (b) prior
to the occurrence of a Change In Control (as defined below) of the Company, the
Executive voluntarily resigns for any reason other than because of an uncured
material breach by the Company of any term of this Agreement, then in each case
the Executive shall be entitled to receive only his Base Salary on a pro rata
basis to the date of termination plus any amounts due Executive through the date
of termination in accordance with Paragraph 4.4. If the Executive during the
term of this Agreement dies or becomes disabled (being the inability of the
Executive to perform his normal employment duties for six (6) months during any
twelve (12) month period because of either physical or mental incapacity), the
Executive or his estate shall be entitled to receive any amounts due Executive
pursuant to Section 4.4 and to receive his Base Salary plus Bonus on a pro rata
basis to the date of termination or resignation. For purposes of this Paragraph
7.1, "pro rata" shall mean the product of the Executive's annual Base Salary and
Bonus that would have been payable had the Executive's employment not terminated
multiplied by a fraction the denominator of which is 365 and the numerator of
which is the number of days during the calendar year that have passed through
the date of the termination of the Executive's employment.
7.2 Base Salary and Average Bonus Payment Upon Termination Prior to
Initial Change in Control Event or Upon Resignation Based on Material Breach
Prior to Change in Control. If (a) prior to the occurrence of an Initial Change
in Control Event (as defined below), the Company terminates the Executive's
employment because of a Discharge Event (as defined below), or if (b) prior to
the occurrence of a Change in Control of the Company, the Executive resigns
because of the uncured material breach by the Company of any term of this
Agreement, then in each case the Executive shall be entitled to receive
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a lump sum payment equal to his Base Salary and Average Bonus (as defined
below). If prior to the occurrence of an Initial Change in Control Event the
Company terminates the Executive's employment without Cause and without a
Discharge Event, then the Executive shall be entitled to receive the greater of
(a) a lump sum payment equal to his Base Salary and Average Bonus, or (b) his
Base Salary and Bonus as provided in Paragraph 4.2 for the remainder of the
unexpired term of this Agreement.
7.3 Multiple Base Salary Payment Upon Termination After Initial Change
of Control Event or Upon Termination or Resignation After a Change in Control.
If after the occurrence of an Initial Change of Control Event of the Company,
the Company terminates the Executive's employment hereunder (a) because of a
Discharge Event, or (b) without Cause and without any Discharge Event, then in
either case the Company will pay to the Executive a lump sum termination payment
equal to two (2) times the sum of his Base Salary and his Average Bonus (as
defined below) (collectively, the "LUMP SUM PAYMENT"). If after the occurrence
of a Change in Control of the Company, (a) the Company terminates the
Executive's employment hereunder for any reason other than for Cause (other than
his death or disability), or (b) the Executive voluntarily resigns his
employment hereunder for any reason (other than his death or disability), then
in each case the Company will pay to the Executive the Lump Sum Payment.
7.4 Certain Definitions. The following terms not defined elsewhere in
this Agreement shall have the following definitions:
(a) "AVERAGE BONUS" shall mean that result obtained by dividing
the sum of the Bonuses, if any, actually paid to the Executive pursuant
to Paragraph 4.2 above in respect of the two (2) years immediately
preceding the year in which a Change in Control of the Company occurs by
the number of years during such two-year period in which the Executive
was entitled to receive a bonus pursuant to Paragraph 4.2 above;
provided, however, that with respect to a termination of employment that
occurs prior to 2001, the Average Bonus of the Executive shall be the
greater of (i) fifty percent (50%) of the Base Salary of the Executive,
or (ii) the Bonus Executive actually received with respect to calendar
year 2000.
(b) Termination by the Company of the Executive's employment for
"CAUSE" shall mean termination upon the willful misappropriation of funds
or properties of the Company or the willful contravention of the
standards referred to in the last sentence of Paragraph 11 below. For
purposes of this definition, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without reasonable belief
that the Executive's action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Executive shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to the
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Executive a copy of a resolution, duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Board
of Directors of the Company at a meeting of the Board duly called and
held (after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board)
finding that in the good faith opinion of the Board the Executive was
guilty of the conduct set forth above and specifying the particulars
thereof in detail.
(c) A "CHANGE IN CONTROL" shall be conclusively deemed to have
occurred if (and only if) any of the following shall have taken place:
(i) a change in control is reported by the Company in response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("EXCHANGE ACT"), or Item 1
of Form 8-K promulgated under the Exchange Act; (ii) any person (as such
term is used in Section 13(d) and 14(d)(2) of the Exchange Act) is or
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange
Act) directly or indirectly, of securities of the Company representing
forty percent (40%) or more of the combined voting power of the Company's
then outstanding securities; or (iii) following the election or removal
of directors, a majority of the Board consists of individuals who were
not members of the Board two (2) years before such election or removal,
unless the election of each director who was not a director at the
beginning of such two-year period has been approved in advance by
directors representing at least a majority of the directors then in
office who were directors at the beginning of the two-year period.
(d) The "CODE" shall refer to the Internal Revenue of 1986, as
amended.
(e) A "DISCHARGE EVENT" shall have occurred if the Executive shall
have received a copy of a resolution duly adopted by the affirmative vote
of a majority of the members of the Compensation Committee of the Board
of Directors of the Company finding that, upon the recommendation of and
for the reasons cited by the Chairman of the Company, the Executive is no
longer discharging his duties in a manner consistent with the effective
administration of the affairs of the Company and hence the continued
employment of the Executive is no longer in the best interest of the
Company.
(f) An "INITIAL CHANGE IN CONTROL EVENT" shall be conclusively
deemed to have occurred when any individual, group, partnership,
corporation, trust or other entity ("PERSON") initiates a course of
action or conduct that, in the good faith judgment of the Board of
Directors of the Company, might reasonably be expected to lead to a
Change in Control of the Company. For example and without limiting the
scope of the foregoing, an Initial Change in Control Event would include
the public announcement or other disclosure by a Person of its intention
(i) to acquire
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by private or open market purchase, tender offer, exchange offer, or
otherwise forty percent (40%) or more of the combined voting power of the
Company's outstanding securities, or (ii) to solicit proxies or consents
for the removal of at least three (3) incumbent directors or the election
of at least three (3) persons to serve as directors of the Company in
opposition to nominees proposed by the Board of Directors of the Company.
(g) A "MATERIAL BREACH" by the Company of this Agreement shall
include, without limitation, the removal of the Executive without his
prior written consent from the position of Chief Executive Officer and/or
a Director (except in the event of termination for Cause or a Discharge
Event).
8. Acceleration of Options. Contemporaneously with the occurrence of a
Change in Control of the Company, all outstanding options previously granted to
the Executive under any then existing Company stock option, stock appreciation
or other employee incentive plan that are not otherwise exercisable by the
Executive at the time the Change in Control of the Company occurs will
immediately vest. In the event of termination of employment by the Company for
any reason other than for Cause, either before or after a Change in Control,
Executive's vested stock options shall remain exercisable for the duration of
the option term specified in the applicable option agreement(s) and subject to
the terms and conditions of the Company's 1999 Amended and Restated Stock Option
Plan as to incentive stock options.
9. Tax Reimbursement Payment.
9.1 Notwithstanding anything to the contrary contained in this Agreement,
in any plan of the Company, or in any other agreement or understanding, the
Company will pay to the Executive, at the times herein specified, an amount (the
"ADDITIONAL AMOUNT") equal to the excise tax under Section 4999 of the Internal
Revenue Code of 1986, as amended (the "CODE"), if any, incurred or to be
incurred by the Executive by reason of the payments under this Agreement,
acceleration of vesting of stock options, stock appreciation rights or
restricted stock granted under the Company's various stock option, stock
appreciation or other employee incentive plans, or payments under any other
plan, agreement or understanding between the Executive and the Company,
constituting Excess Parachute Payments (as defined below), plus all excise taxes
and federal, state and local income taxes incurred or to be incurred by the
Executive with respect to receipt of the Additional Amount. For purposes of this
Agreement, the term "EXCESS PARACHUTE PAYMENT" shall mean any payment or any
portion thereof which would be an "excess parachute payment" within the meaning
of Section 280G(b) of the Code, and which would result in the imposition of an
excise tax on the Executive under Section 4999 of the Code. Attached hereto as
Exhibit A is an example illustrating the computation of the Additional Amount.
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9.2 All determinations required to be made regarding the Additional
Amount, including whether payment of any Additional Amount is required and the
amount of any Additional Amount, shall be made by the independent accounting
firm which is advising the Company (the "ACCOUNTING FIRM"), which shall provide
detailed support calculations to the Company and the Executive on or before the
last day of the calendar year during which occurs the Change of Control (the
"CHANGE OF CONTROL YEAR"). In computing taxes, the Accounting Firm shall use the
highest marginal federal, state and local income tax rates applicable to single
taxpayers for the year in which the Additional Amount is to be paid (unless,
within thirty (30) days after the occurrence of the Change in Control the
Executive specifies in writing to the Company his marginal tax rate) and shall
assume the full deductibility of state and local income taxes for purposes of
computing federal income tax liability. The portion of the Additional Amount
based on the excise tax as determined by the Accounting Firm to be due for the
Change of Control Year shall be paid to the Executive no later than March 1
immediately following the end of the Change of Control Year. The portion of the
Additional Amount based on the excise tax as determined by the Accounting firm
to be due for each calendar year following the Change of Control Year shall be
paid to the Executive on or before March 1 immediately following the end of each
such calendar year. If the Company determines that the excise tax for any year
will be different from the amount originally calculated in the report of the
Accounting Firm delivered at the end of the Change of Control Year, then the
Company shall provide to the Executive detailed support calculations by the
Accounting Firm specifying the basis for the change in the Additional Amount.
10. Indemnification. In addition to such indemnification by the Company
afforded Executive pursuant to a separate Indemnification Agreement executed on
or about the date hereof, the terms of which are hereby incorporated by
reference, Executive shall be indemnified as follows:
10.1 Litigation Costs. If the Executive shall have to institute
litigation brought in good faith to enforce any of his rights under the
Agreement, the Company shall indemnify the Executive for his reasonable
attorney's fees and disbursements incurred in any such litigation.
10.2 Excise Tax. In the event that an excise tax is ever assessed by the
Internal Revenue Service against the Executive (or if the Company and the
Executive mutually agree that an excise tax is payable) by reason of the payment
under this Agreement, acceleration of vesting of stock options, stock
appreciation rights or restricted stock granted under the Company's stock
option, stock appreciation or other employee incentive plans, or payments under
any other plan, agreement or understanding between the Executive and the
Company, constituting Excess Parachute Payments, and if such excise tax was not
included in the determination by the Accounting Firm of the Additional Amount
that has been actually paid to the Executive, the Company agrees to indemnify
the Executive by
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paying to the Executive the amount of such excise tax, together with any
interest and penalties, including reasonable legal and accounting fees and other
out-of-pocket expenses incurred by the Executive, attributable to the failure to
pay such excise tax by the date it was originally due, plus all federal, state
and local income taxes incurred with respect to payment of the excise tax
calculated in a manner analogous to Exhibit A. Upon Executive's receipt from the
Internal Revenue Service ("IRS") of any deficiency notice, notice of assessment
or any other written communication relating to the excise tax on Excess
Parachute Payment, Executive shall give notice thereof to the Company within ten
(10) business days of receipt thereof. In the event of any dispute concerning
the potential excise tax (including any administrative proceedings within the
IRS of court proceedings), the Company, as the indemnifying party, shall be
entitled to assume the defense of such a dispute or proceeding, no Compromise or
settlement of such claim may be effected without the Company's and Executive's
mutual consent (which consents shall not be unreasonably withheld) and the
Company shall have no liability with respect to any compromise or settlement of
such claims effected without its consent. In addition, in the event the Company
assumes defense of any proceeding, the Executive shall not be entitled to
indemnification for outside legal fees and expenses independently incurred by
Executive. This indemnification obligation shall survive the termination of the
Agreement and shall apply to all such excise taxes on Excess Parachute Payments,
whether due before or after termination of employment.
10.3 Repayment of Excess Payment. If the excise tax for any year which is
actually imposed on the Executive is finally determined to be less than the
amount taken into account in the calculation of the Additional Amount that was
paid to the Executive pursuant to Paragraph 9, then the Executive shall repay to
the Company, at the time that the amount of such reduction in excise tax is
finally determined, the portion of the Additional Amount attributable to such
reduction (including the portion of the Additional Amount attributable to the
excise tax and federal and state income taxes imposed on the Additional Amount
being repaid by the Executive, to the extent that such repayment results in a
reduction in such excise tax, federal or state income tax), plus interest on the
amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code.
11. Preservation of Business; Fiduciary Responsibility. The Executive shall
use his best efforts to preserve the business and organization of the Company,
to keep available to the Company the services of present employees and to
preserve the business relations of the Company with suppliers, distributors,
customers and others. The Executive shall not commit any act, or in any way
assist others to commit any act, which would injure the Company. So long as the
Executive is employed by the Company, the Executive shall observe and fulfill
proper standards of fiduciary responsibility attendant upon his service and
office.
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12. Restrictive Covenants.
12.1 Non-Compete. During the term of this Agreement (including any
renewal periods as provided in Paragraph 5) and for a period of twenty-four (24)
months following the termination of Executive's employment with the Company
under this Agreement, whether Executive's employment terminates pursuant to the
provisions of Paragraph 6 of this Agreement or otherwise (collectively, the
"RESTRICTED PERIOD"), Executive covenants and agrees that he will not, without
the express approval of the Board of Directors, directly or indirectly anywhere
in the continental United States engage in any activity which is, or participate
or invest in, or provide or facilitate the provision of financing to, or assist
(whether as owner, shareholder, member, partner, director, officer, trustee,
employee, agent or consultant, or in any other capacity), any business,
organization or person other than the Company (or any subsidiary or affiliate of
the Company) whose business, activities, products or services (collectively,
"Business Activities") are competitive with either (i) any of the Business
Activities conducted or offered by the Company or its subsidiaries or affiliates
during any period in which Executive is employed by the Company or any of its
subsidiaries or affiliates, which Business Activities shall include in any event
and without limitation providing software products and marketing, training,
management, billing, collection and insurance brokerage services to entities in
the business of purchasing or financing accounts receivable or in the factoring
business, or (ii) any other Business Activities which the Company or its
subsidiaries or affiliates conducts or offers on, or is actively planning and
actually conducts or offers within twelve (12) months after the date Executive's
employment with the Company terminates. Notwithstanding the foregoing, Executive
may own, directly or indirectly, solely as an investment, securities of any
entity if Executive (a) is not a controlling person with respect to such entity
and (b) does not, directly or indirectly, own five percent (5%) or more of any
class of the securities of such entity.
12.2 Trade Secrets; Confidential Information. Executive covenants and
agrees that, at all times during and after the Restricted Period, he shall keep
secret and not disclose to others or appropriate to his own use or the use of
others any trade secrets, or secret or confidential information or knowledge
pertaining to the Company Business or the affairs of the Company or any of its
affiliates including without limitation trade know-how, trade secrets,
consultant contracts, customer lists, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, technical processes, designs
and design projects, inventions and research projects; provided, however, that
the following shall not constitute a breach or violation of this Paragraph: any
disclosure made by the Executive in the course of his employment by the Company
as provided in this Agreement, or any disclosure reasonably believed by
Executive to be compelled by law or legal process. Information shall not be
deemed confidential or secret for purposes of this Agreement if it is generally
known in the industry.
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12.3 Employees of the Company. During the Restricted Period, Executive
shall not directly or indirectly hire away or solicit to hire away from the
Company or any of its affiliates any employee of the Company or its affiliates.
12.4 Property of the Company. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by Executive or made
available to Executive during his employment by the Company concerning the
business or affairs of the Company or any of its affiliates, other than any of
such which may also pertain personally to Executive, shall be the exclusive
property of the Company and shall be delivered to the Company promptly upon the
termination of Executive's employment with the Company or at any other time on
request by the Board of Directors of the Company or such affiliates.
12.5 Rights and Remedies Upon Breach. If Executive breaches, or threatens
to commit a breach of, any of the provisions of Paragraphs 12.1 through 12.4 of
this Agreement (collectively, the "RESTRICTIVE COVENANTS"), the Company shall
have the following rights and remedies, each of which shall be independent of
the other and severally enforceable, and all of which shall be in addition to,
and not in lieu of, any other rights and remedies available to the Company: (a)
the right and remedy to have any of the Restrictive Covenants specifically
enforced by any court having jurisdiction and in Tennessee by an arbitration
panel as provided in Paragraph 15 of this Agreement, it being hereby
acknowledged and agreed by Executive that any such breach or threatened breach
will cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and (b) the right and remedy to
require Executive to account for and pay over to the Company all compensation,
profits, monies, accruals, increments or other benefits derived or received by
Executive as a result of any transactions constituting a breach of any of the
Restrictive Covenants, and Executive shall account for and pay over such
benefits to the Company.
12.6 Severability of Covenants. If it is determined that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions. If it is
determined that any of the Restrictive Covenants, or any part thereof, is
unenforceable because of the duration of such provision, the geographical area
covered thereby, or any other determination of unreasonableness of the
provision, the arbitration panel making such determination shall have the power
to reduce the duration, area or scope of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
13. Notice. All notices, requests, demands and other communications given
under or by reason of this Agreement shall be in writing and shall be deemed
given when delivered in person or when mailed, by certified mail (return receipt
requested), postage prepaid,
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addressed as follows (or to such other address as a party may specify by notice
pursuant to this provision):
(a) To the Company:
Private Business, Inc.
9010 Overlook Boulevard
Brentwood, Tennessee 37027
Attention: Chairman
(b) Kevin M. McNamara
6313 Wescates Court
Brentwood, Tennessee 37027
14. Controlling Law and Performability. The execution, validity, interpretation
and performance of this Agreement shall be governed by the law of the State of
Tennessee.
15. Arbitration. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration in Nashville, Tennessee. In the
proceeding the Executive shall select one (1) arbitrator, the Company shall
select one (1) arbitrator and the two (2) arbitrators so selected shall select a
third (3rd) arbitrator. The decision of a majority of the arbitrators shall be
binding on the Executive and the Company. Should one party fail to select an
arbitrator within five (5) days after notice of the appointment of the an
arbitrator by the other party or should the two (2) arbitrators selected by the
Executive and the Company fail to select an arbitrator within ten (10) days
after the date of the appointment of the last of such two (2) arbitrators, any
person sitting as a Judge of the United States District Court for the Middle
District of Tennessee, Nashville Division, upon application of the Executive or
the Company, shall appoint an arbitrator to fill such space with the same force
and effect as though such arbitrator had been appointed in accordance with the
first sentence of this Paragraph 15. Any arbitration proceeding pursuant to this
Paragraph 15 shall be conducted in accordance with the rules of the American
Arbitration Association. Judgment may be entered on the arbitrators' award in
any court having jurisdiction.
16. Expenses. The Company will pay or reimburse the Executive for all costs and
expenses (including arbitration and court costs and attorneys' fees) incurred by
the Executive as a result of any claim, action or proceeding arising out of, or
challenging the validity, advisability or enforceability of this Agreement or
any provision thereof.
17. No Obligation to Mitigate. The Executive shall not be required to mitigate
the amount of any payment provided for in Paragraph 7 by seeking other
employment or otherwise, nor shall the amount of any payment provided for in
Paragraph 7 be reduced
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by any compensation earned by the Executive as a result of employment by another
employer or otherwise.
18. Additional Instruments. The Parties shall execute and deliver any and all
additional instruments and agreements that may be necessary or proper to carry
out the purposes of this Agreement.
19. Entire Agreement and Amendments. This Agreement contains the entire
agreement of the Parties relating to the matters contained herein and supersedes
all prior agreements and understandings, oral or written, between the Parties
with respect to the subject matter hereof. This Agreement may be changed only by
an agreement in writing signed by the Party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
20. Separability. If any provision of the Agreement is rendered or declared
illegal or unenforceable by reason of any existing or subsequently enacted
legislation or by the decision of any arbitrator or by decree of a court of last
resort, the Parties shall promptly meet and negotiate substitute provisions for
those rendered or declared illegal or unenforceable to preserve the original
intent of this Agreement to the extent legally possible, but all other
provisions of this Agreement shall remain in full force and effect.
21. Assignments. The Company may assign (whether by operation of law or
otherwise) this Agreement only with the written consent of the Executive, which
consent shall not be withheld unreasonably, and in the event of an assignment of
this Agreement, all covenants, conditions and provisions hereunder shall inure
to the benefit of and be enforceable against the Company's successors and
assigns. The rights and obligations of Executive under this Agreement are
personal to him, and no such rights, benefits or obligations shall be subject to
voluntary or involuntary alienation, assignment or transfer.
22. Effect of Agreement. Subject to the provisions of Paragraph 21 with respect
to assignments, this Agreement shall be binding upon the Executive and his
heirs, executors, administrators, legal representatives and assigns and upon the
Company and respective successors and assigns.
23. Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one and the
same instrument.
24. Waiver of Breach. The waiver by either Party of a breach of any provision of
the Agreement by the other Party shall not operate or be construed as a waiver
by such Party of any subsequent breach by such other Party.
13
<PAGE> 14
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
October 31, 1999.
PRIVATE BUSINESS, INC.
By: /s/ William B. King
-----------------------------
William B. King, Chairman
EXECUTIVE
/s/ Kevin M. McNamara
---------------------------------
KEVIN M. MCNAMARA
14
<PAGE> 15
EXHIBIT A
1. Excess Parachute Payment Subject to Excise Tax $50,000
----------------------------------------------
2. Excise Tax on Item 1 @ 20% $10,000
--------------------------
3. Total Additional Amount Under Agreement* $24,752
---------------------------------------
4. Verification of Total Additional Amount
---------------------------------------
1) Excise Tax on additional $24,752 @ 20% $ 4,950
2) Federal Income tax on $24,752
a) Additional Income $24,752
b) State Income Tax Deduction 0
-------
c) Net Additional Federal Taxable Income 24,752
d) Federal Income Tax @ 39.6% $ 9,802
4) Total Taxes on Additional Amount $14,752
5) Net Amount Available to Key Employee to Pay $10,000
Excise Tax in #2
- ------------------
*The formula used to compute the Additional Amount is to divide the Excise Tax
amount on the excess parachute payment by a percentage equal to 100% less the
sum of the Excise Tax percentage plus the state income tax percentage plus the
federal tax percentage less a percentage determined by multiplying the federal
tax percentage times the state tax percentage. Thus in the example above, the
following percentages should be subtracted from 100%:
1) Excise Tax Percentage - 20.00%
2) Assumed State Tax Percentage - 0.00%
3) Federal Income Tax Percentage - 39.60%
-----
Total 59.60%
Less 39.6% Times 0% 0.00%
------
59.60%
The resulting percentage of 100% - 59.60% = 40.40% should be divided into
$10,000 = $24,752.
15
<PAGE> 1
EXHIBIT 10.11
LEASE
BETWEEN
TRIPLE T BRENTWOOD LLC
AS LANDLORD
AND
PRIVATE BUSINESS, INC.
AS TENANT
<PAGE> 2
BASIC LEASE INFORMATION
LEASE DATE:
LANDLORD: Triple T Brentwood LLC
a Delaware limited liability company
ADDRESS OF
LANDLORD
FOR NOTICES
(SECTION 27): Triple T Brentwood LLC
c/o The Travelers Insurance Company
215 Lennon Lane, Suite 201
Walnut Creek, California 94598
Attention: Guy R. McComb,
Vice President
and
The Travelers Insurance Company
One Tower Square
Hartford, Connecticut 06183-2030
Attention: Travelers Investment Group, 9PB
Regional Counsel
and
Loeb & Loeb LLP
1000 Wilshire Boulevard, Suite 1800
Los Angeles, California 90017
Attention: Susan V. Noonoo, Esq.
TENANT: Private Business, Inc.,
a Tennessee corporation
ADDRESS OF TENANT
FOR NOTICES
(SECTION 27):
TYPE/NATURE OF TENANT'S BUSINESS: General Business
PERMITTED USE OF PREMISES (SECTION 5): General office use
PREMISES (SECTION 1): Approximately 54,643 rentable square feet consisting of
the entire 4th floor and 3rd floors as shown on Exhibit "A"
PARKING RIGHTS (SECTION 1): 4.96 surface parking spaces per 1,000 usable square
feet in the area designated on Exhibit "B"
LEASE TERM (SECTION 2): 10 years
2
<PAGE> 3
BASE RENT (SECTION 3): Years 1 through 4: $18.85 per rentable square foot
Years 5 through 8: $19.85 per rentable square foot
Years 9 and 10: $20.85 per rentable square foot
PREPAID RENT (SECTION 3): N/A
SECURITY DEPOSIT (SECTION 3): $1,000,000
TENANT'S PROPORTIONATE SHARE OF INCREASES IN DIRECT COSTS (SECTION 4): rentable
area of Premises divided by rentable area of Building: 52.13%
LANDLORD'S BROKER (SECTION 35): The Trammell Crow Company
TENANT'S BROKER (SECTION 35): The Trammell Crow Company
GUARANTOR (SECTION 38.19): N/A
RENTABLE AREA OF BUILDING: 104,825 rentable square feet
ADDITIONAL PROVISIONS: See Addendum attached hereto and hereby made a part
hereof
3
<PAGE> 4
LEASE
THIS LEASE ("Lease") is entered into as of the date specified in the
Basic Lease Information (as defined in Section 1 below) between Triple T
Brentwood LLC, a Delaware limited liability company ("Landlord"), and the tenant
specified in the Basic Lease Information ("Tenant"), upon the following terms
and conditions:
1. PREMISES; COMMON AREAS; PARKING; BASIC LEASE INFORMATION.
1.1 Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, upon the terms and conditions set forth in this Lease,
those certain premises (the "Premises") described in the Basic Lease
Information and designated in Exhibit "A" attached hereto and hereby made a
part hereof. The Premises are or shall be situated in a four (4) story office
building (the "Building") located at Overlook Park, Brentwood, Tennessee. The
real property upon which the Building is located consists of (a) approximately
8.06 acres, more or less, designated as Lots 13, 10-C, 10E and 10-F on the
Preliminary and Final Plat Resubdivision of Lots 10-A, 10-B and 10-D on the
Final Plat of the Resubdivision of Lots 1, 3, 6, 7, 9 and 10 of Overlook Park,
as of record in Plat Book 23, page 98, Register's Office for Williamson County,
Tennessee (the "Official Records") and (b) that certain adjacent tract of land
consisting of approximately 11,000 square feet, more or less, and being shown
on the tax rolls for Williamson County, Tennessee as Map 11-F, Group "A,",
Parcel A, (collectively, the "Property"). The Property, together with the
Building and all related improvements, facilities and appurtenances, shall
hereinafter be collectively referred to as the "Project." The terms and
conditions of this Lease shall include, without limitation, the Basic Lease
Information; provided, however, as to any inconsistence between the terms of
this Lease and the terms of the Basic Lease Information, the terms of this
Lease shall control.
As used in the Basic Lease Information and elsewhere in this Lease, the
term "rentable square feet" and similar variations thereof shall have the
meaning set forth below:
1.1.1 In the case of a single tenancy floor, all floor
areas measured from the predominate feature of the Building (i.e., the inside
surface of the outer glass or finished column walls of the Building) to the
inside surface of the opposite wall excluding only the areas within the outside
walls used for elevator, mechanical rooms, Building stairs, elevators shafts,
flues, vents and other vertical ducts, plus an allocation of the square footage
of the Building's Common Areas as defined in Section 1.2 below.
1.1.2 In the case of a multi-tenant floor, all floor areas
measured from the predominate feature of the Building (i.e., the inside surface
of the outer glass or finished column walls of the tenant occupied portion of
the floor) measured to the mid point of the walls separating the areas leased by
or held for lease to other tenants or from floor areas devoted to corridors,
elevator foyers, rest room mechanical rooms, vending areas or other similar
facilities for the use of all tenants on a particular floor, but including a
proportionate part of the foregoing floor specific common areas located on such
floor, plus an allocation of the square footage of the Common Areas as defined
in Section 1.2 below.
1.1.3 The rentable square footage in the Premises
calculated on the basis of the foregoing definitions is estimated to be 54,643
as shown on the Basic Lease Information. Landlord and Tenant agree that the
actual rentable square footage shall be determined by Landlord's architect on
the basis of the final Plans and Specifications for the Premises as
constructed. If the actual rentable square footage in the Premises differs from
the estimated rentable square footage as set forth above, then the rentable
square footage in the Premises shall be changed to conform to the actual
rentable square footage in the Premises. Upon Substantial Completion (as
defined in Section 2.1 below), Landlord and Tenant both agree to execute a
certificate evidencing the exact number of rentable square feet contained in
the Premises when such figure is accurate determinable.
1.1.4 In the event the estimated rentable square footage is
changed to conform to actual square footage in accordance with the foregoing
paragraph, Base Rent, as defined in Section 3, shall be adjusted to reflect the
actual rentable square feet in the Premises and all such determinations shall be
governed by BOMA standards to the extent inconsistent with the
4
<PAGE> 5
preceding requirements and the allocation of square footage for common areas for
both single tenant floors and multi-tenant floors, as applicable from time to
time, all in accordance with BOMA's standards.
Each reference in this Lease to any of the Basic Lease
Information shall be construed to incorporate, in addition to the Basic Lease
Information, the terms and conditions set forth in the particular Lease section
in which such reference is made.
1.2 The term "common areas" as used in this Lease shall
mean all areas and facilities around the Premises and within the exterior
boundaries of the Property which are provided and designated from time to time
by Landlord for the general use and convenience of Tenant and other tenants of
the Project and their respective employees, invitees or other visitors. Common
areas include, without limitation, the lobby area, walkways, parking
facilities, landscaped areas, sidewalks, driveways, service quarters, hallways,
restrooms (if not part of the Premises), stairways, elevators (except elevators
which may be reserved for the exclusive use of one or more other tenants),
walls, fire stairs, telephone and electric closets, aisles, truck docks,
plazas, service areas, lobbies and all other common and service areas of the
Property and Building or any other area of the Project intended for such use.
Floors wholly occupied by Tenant shall not have any facilities which would be
used in common with other tenants, except for fire stairs, shafts and similar
installations. Tenant, its employees and invitees shall have the nonexclusive
right to use the common areas along with others entitled to use same, subject
to Landlord's rights and duties as hereinafter set forth and subject to the
other provisions of this Lease. Without Tenant's consent and without liability
to Tenant, and provided that Landlord uses reasonable efforts to minimize the
duration and extent of any resultant interference with Tenant's use of and
access to the Premises, Landlord may do the following:
1.2.1 Establish and enforce reasonable rules and
regulations concerning the maintenance, management, use and operation of the
common areas;
1.2.2 Close off any of the common areas to whatever extent
required in the reasonable opinion of Landlord and its counsel to prevent a
dedication of any of the common areas or the accrual of any rights by any person
or the public to the common areas; provided, however, that any such closure of
the common areas shall not materially adversely effect Tenant's use of the
Premises;
1.2.3 Close any of the common areas for maintenance,
alteration or improvement purposes areas; provided, however, that any such
closure of the common areas shall not materially adversely effect Tenant's use
of the Premises;
1.2.4 Select, appoint and/or contract with any person for
the purpose of operating and maintaining the common areas; and
1.2.5 Change the size, use, shape or nature of any of the
common areas.
1.3 Tenant shall have the right, so long as this Lease
remains in full force and effect, and subject to applicable rules and
regulations, to use the parking spaces designated on Exhibit "B" in the surface
parking lot which forms a part of the Project (the "Parking Lot"), upon such
terms and conditions as may be specified in the Basic Lease Information.
Landlord and Tenant acknowledge and agree that Exhibit "B" provides for a
minimum of 271 surface parking lot spaces which shall be available to the
Tenant at all times during the initial term of this Lease without charge. Such
minimum number of parking spaces shall be based upon the ratio of parking
spaces per thousand rentable square feet specified in the Basic Lease
Information and subject to increase if and when the Tenant occupies additional
rentable square feet in the Premises (said number of parking spaces as adjusted
from time to time herein the "Minimum Parking Spaces"). No other tenant of the
Building shall be afforded a more generous parking to rentable square footage
ratio than Tenant.
Tenant acknowledges and agrees that its rights to such Minimum
Parking Spaces, as adjusted from time to time, shall not be exclusive but shall
be shared in common with other tenants in the Building and their respective
invitees, visitors , customers and the general public. Except for designation of
a mutually acceptable number of spaces as being reserved for visitors, there
shall not be any spaces specifically reserved for Landlord's exclusive use or
for the
5
<PAGE> 6
exclusive use of any other tenant of the Building.
To insure that Tenant's access to the Minimum Parking Spaces
remains available under all circumstances, Landlord acknowledges and agrees
that Landlord may be required, either by Tenant or by other tenants of the
building, to institute a cost-efficient procedure to control access to the
Parking Lot (e.g., gates or other means of ingress and egress control);
provided, however that Landlord shall not be required to install such access
control system until Substantial Completion of the Premises has occurred. The
reasonable cost and expenses of installing and maintaining such access control
system, if installed, shall be included as a part of Direct Costs of operating
the Building. Unless and until an access control system is installed, Landlord
shall not be permitted to charge Tenant or its invitees, visitors or customers
for use and access to the Minimum Parking Spaces or any excess spaces as may
ultimately be or become available after construction of the Building. After
installation of an access control system, Landlord may charge for spaces used
by Tenant in excess of the Minimum Parking Spaces, provided that revenue from
such charges shall be used to defray costs of the access control system thereby
reducing Direct Costs and provided further that such charges shall be borne
equably by all tenants in the Building.
If and to the extent necessary to satisfy Landlord's
obligations under this Section 1.3, Landlord shall have the right to rearrange,
relocate or to close temporarily parking spaces and improvements in the Parking
Lot for thepurpose of maintaining, restoring, repairing, altering and improving
the same, as Landlord in Landlord's reasonable discretion may determine. If
Landlord closes all or any portion of the Parking Lot or relocates Tenant's
parking spaces, Landlord will use its best efforts to provide Tenant with
alternative parking arrangements not less convenient than the arrangements
Tenant previously enjoyed.
2. TERM AND POSSESSION. 2.1 The term of this Lease shall
commence on the date (the "Commencement Date") which is the earlier of (a) the
date on which Landlord achieves Substantial Completion or (b) March 31, 2000,
provided that Landlord has achieved Substantial Completion, or would have
achieved Substantial Completion but for Tenant Delay or Force Majeure. In no
event shall the Commencement Date be prior to February 1, 2000 nor later than
March 31, 2000, subject, however, to delays caused by Force Majeure (as
hereinafter defined) and Tenant Delay (as hereinafter defined).
For purposes of the preceding provisions, the Premises shall
be substantially completed and "Substantial Completion" shall have occurred on
the last to occur of the following: (1) the Landlord's obtaining a temporary or
permanent Certificate Of Use And Occupancy (or equivalent) permitting the full
use and occupancy of the Premises by Tenant as contemplated by Section 5, (2)
building fire alarms, fire sprinklers, smoke detectors, exit lights, life safety
equipment and other building code requirements having been installed and being
operational, (3) the mechanical, electrical and plumbing services serving the
Premises having been installed and in good working order and access to the
Premises is available, (4) the Tenant Improvements (as hereinafter defined)
being substantially completed as evidence by a written certification by the
architect designing such improvements subject, however, to Punch List items (as
hereinafter defined), so as to enable Tenant to move in and install its
furniture, fixtures, equipment and machinery, and (5) the Parking Lot being
accessible and useable by Tenant as set forth in Section 1.3 above. If and to
the extent compliance with the conditions set forth above would have occurred
earlier but for Tenant Delay, then compliance with such conditions shall be
deemed to have occurred on the day on which it would have occurred but for such
Tenant Delay (i.e., Substantial Completion would be accelerated on a day-for-day
basis for each day of Tenant Delay).
For the purposes of the foregoing, the term "Tenant Delay"
shall mean any delay in achieving Substantial Completion as a direct result of
the following: (1) Tenant's failure to furnish any required information,
documents or approvals within specified time periods in accordance with the Work
Agreement to the extent such failure causes delay, (2) any change orders
including any change in the construction documents relative to Tenant
Improvements to the extent such change orders cause delay, or (3) any delay
caused by interference or hindrance by the Tenant's employees or the agents with
the contractor's prosecuting of the Tenant
6
<PAGE> 7
Improvements to the extent such interference or hindrance causes delay.
For purposes of the foregoing, the term "Force Majeure" shall
be deemed to refer to strikes, lockouts, labor controversies, fuel shortages,
accidents,acts of God, and/or the elements or any other causes beyond the
reasonable control of Landlord, so long as Landlord has taken reasonable steps
to minimize the effect of such Force Majeure.
In the event the Commencement Date has not occurred by March
31, 2000; subject, however, to delays occasioned by Force Majeure and Tenant
Delay, then Landlord shall reimburse Tenant for all of direct cost, loss, and
expense incurred by Tenant due to such delay as may result from payments of
holdover rent in excess of the applicable base rent. Tenant shall provide to
Landlord an itemized accounting of all such costs and expenses claimed by Tenant
against Landlord, together with such supporting documentation as Landlord may
reasonably require to verify such items. Landlord shall reimburse Tenant for all
such costs and expenses within fifteen (15) business days of receipt of such
accounting. Notwithstanding the foregoing and in addition to such remedy, the
Tenant shall have the absolute right, without any further liability or
obligation to Landlord, by written notice to terminate this Lease in the event
the Commencement Date has not occurred by July 1, 2000, subject, however, to the
effects of Force Majeure and Tenant Delay.
The term of the Lease shall continue for the balance of the
month in which the Commencement Date occurs (if the Commencement Date occurs on
other than the first day of any calendar month) and thereafter for the number of
whole years and months specified in the Basic Lease Information, unless sooner
terminated pursuant to any provision hereof. The parties hereto shall execute a
written statement in the form of Exhibit "C" attached hereto and made a part
hereof setting forth the Commencement Date and the date of expiration of this
Lease promptly after same have been ascertained, but the enforceability of this
Lease shall not be affected should either party fail or refuse to execute such
statement. If permission is given to Tenant, in Landlord's sole discretion, to
enter or occupy the Premises prior to the Commencement Date, such early entrance
or occupancy shall be subject to all the terms of such permission and all the
provisions of this Lease (other than payment of Base Rent or other rental) which
could be reasonably and logically construed as applying thereto.
2.2 Subject to Landlord's completion of the base building
improvements described in Exhibit "D" attached hereto (together with the floor
plans and Building elevations included in Exhibit "D", the "Base Building
Improvements") and the tenant improvements described in the Work Agreement (as
hereinafter defined) so that the Project has reached Substantial Completion,
subject to any remaining Punch List items (as hereinafter defined), Tenant shall
accept the Premises in its "as-is condition".
3. BASE RENT; SECURITY DEPOSIT.
3.1 Tenant shall pay to Landlord as base rent ("Base
Rent") for the Premises, without prior notice or demand, throughout the term of
this Lease, the amount(s) so specified in the Basic Lease Information
applicable to the period(s) specified therein, in advance, in equal monthly
installments, on or before the first day of each and every calendar month
during the term hereof. Base Rent and any other rent due under this Lease for
any period during the term hereof which is for less than one (1) month shall be
a prorated portion of the monthly amount due, based upon a thirty (30) day
month. Rent and all other amounts due to Landlord shall be paid to Landlord,
without deduction, offset or abatement, except as may otherwise be expressly
set forth in this Lease, at Landlord's address as specified in the Basic Lease
Information or to such other firm or at such other place as Landlord may from
time to time designate in writing. Landlord shall have the right to accept all
rent and other payments, whether full or partial, and to negotiate checks in
payment thereof without any waiver of rights, irrespective of any conditions to
the contrary sought to be imposed by Tenant. Rent hereunder shall be deemed
paid to Landlord when received by Landlord, or its designee, at Landlord's
address, or at such other address as Landlord shall have designated.
3.2 Within five (5) business days of the Commencement
Date, Tenant shall pay to Landlord a security deposit in the amount specified
in the Basic Lease Information for the faithful performance of all terms,
covenants and conditions of this Lease. The security deposit shall be in the
form of cash or a letter of credit in the face amount of $1,000,000, which
letter of
7
<PAGE> 8
credit shall be in form and substance and issued by a financial institution
satisfactory to Landlord. Provided that no material default specified in Section
19 then exists under this Lease, commencing on the first anniversary of the
Commencement Date and continuing annually on each anniversary date thereafter
throughout the term of this Lease, Tenant's security deposit shall be reduced in
equal proportions over the remaining initial ten (10) year term of the Lease
until such deposit has been released in full. The amount of each such reduction
shall be paid to Tenant by Landlord within five (5) business days of each
anniversary if a security deposit is cash. If Tenant's security deposit is in
the form of a letter of credit, upon Tenant's delivery to Landlord of
replacement letters of credit (in form and substance, and issued by a financial
institution satisfactory to Landlord, in the applicable reduced amounts,
Landlord within five (5) business days of each anniversary shall surrender to
Tenant the letter of credit then being held by Landlord. Notwithstanding the
foregoing, if Tenant's stock is sold to the public pursuant to an "IPO",
commencing on the anniversary of the Commencement Date immediately following the
date of Tenant's IPO and provided that Tenant is not then in material default
hereunder, the remaining balance of Tenant's security deposit shall be
proportionately reduced in equal proportions over a five (5) year term until
such deposit has been fully released.
Landlord's retention of Tenant's security deposit is not
intended as a penalty but as a full and complete liquidated damages to
compensate Landlord for any and all damages suffered by reason of Tenant's
failure to take occupancy of the Premises pursuant the provisions of this Lease.
Landlord shall keep the security deposit in an escrow account,
and Tenant shall be entitled to interest or other earnings on such security
deposit. Such interest bearing account shall be opened jointly by Landlord and
Tenant, subject, however, to the provisions of an escrow agreement acceptable to
Landlord and Tenant. The escrow agreement shall permit Tenant to direct the
investment of such funds and shall provide that all interest or other earnings
(net of any fees and charges payable with respect to the escrow account) shall
automatically be paid out to Tenant not less frequently than quarterly, unless
there is an uncured default under this Lease.
4. ADDITIONAL RENT.
4.1 If, in any calendar year after the initial lease year
of this Lease, the Direct Costs (as hereinafter defined) shall exceed the sum
of $5.50 per net rentable square feet of the Building (the "Base Direct
Costs"), Tenant shall pay as additional rent ("Additional Rent") the Tenant's
Proportionate Share of such excess, in addition to and at the time provided for
payment of Base Rent. For purposes of the preceding provisions, the term
"Tenant's Proportionate Share" shall mean 52.13%. In the event the amount of
space leased by Tenant or the amount of space contained in the Building shall
increase or decrease subsequent to the date of this Lease, Tenant's
Proportionate Share shall be appropriately adjusted. Such percentage at the
time of execution of this Lease is calculated by dividing the Tenant's
estimated rentable area by the total estimated rentable area in the Building.
Tenant's Proportionate Share shall always and at any particular time be the
percentage derived form dividing Tenant's rentable square footage by the total
rentable square footage contained in the Building at such time.
4.2 From and after May 1, 2001, for each year during the
term of this Lease, Landlord may furnish to Tenant a written statement or
statements showing in reasonable detail Landlord's estimated Direct Costs for
the immediately succeeding calendar year, the amount, if any, of the excess of
such estimated Direct Costs over the Base Direct Costs, and the amount of any
Additional Rent estimated to be payable by Tenant, appropriately prorated on a
monthly basis. Thereafter, the monthly Additional Rent payment becoming due
hereunder shall be in the amount set forth in such estimated additional rent
statement from Landlord. Landlord's failure to deliver, nor the late delivery
of, such statement or statements more than six (6) months after the end of a
calendar year shall not constitute a default by Landlord hereunder but shall
constitute a waiver of Landlord's right to any estimated or actual Additional
Rent (excluding, however, those items of Additional Rent that are being
disputed in good faith and the outcome is not known at the expiration of such
six (6) month period).
4.3 If Landlord has furnished to Tenant the statement or
statements referred to in Section 4.2 above, within one hundred twenty (120)
days following the close of each calendar year, Landlord shall furnish to Tenant
a written statement of reconciliation (the "Reconciliation")
8
<PAGE> 9
showing in reasonable detail Landlord's actual Direct Costs for the relevant
calendar year, together with a statement of any adjustments necessary to
reconcile any sums paid (or credited) hereunder as estimated Additional Rent
during such calendar year with those sums actually payable and due hereunder for
such calendar year as set forth in the Reconciliation. If the Reconciliation
shows that additional sums are due from Tenant hereunder, Tenant shall pay such
sums to Landlord within ten (10) days after receipt of the Reconciliation. If
the Reconciliation shows that a credit is due Tenant, such sum shall be refunded
to Tenant within ten (10) days after Tenant's receipt of the Reconciliation. In
the event this Lease has expired or been terminated prior to the end of a
calendar year, the obligation to reconcile shall survive such expiration or
termination. Within one hundred twenty (120) days following the expiration or
termination of this Lease, Landlord shall furnish to Tenant the Reconciliation,
and if such Reconciliation shows that additional sums are due from Tenant
hereunder, Tenant shall pay such sums to Landlord within ten (10) days after
receipt of the Reconciliation. Landlord's failure to deliver the Reconciliation
to Tenant as provided herein shall not constitute a default by Landlord
hereunder but shall operate as a waiver of Landlord's right to collect all
Additional Rent and other sums due hereunder for the year in question. Where
only a portion of a calendar year falls within the term hereof, Landlord shall
calculate estimated (or actual, as the case may be) Additional Rent based upon a
reasonable proration of estimated (or actual) Direct Costs for such calendar
year.
4.4 Landlord may divide the statements referred to above
into separate statements for Tax Costs (as hereinafter defined) and Operating
Costs (as hereinafter defined). Additionally, Landlord may estimate and measure
Tax Costs or Operating Costs, or both, on a fiscal year instead of a calendar
year basis, and in such event any and all references in this Section 4 to
calendar year shall be deemed to refer to such fiscal year.
4.5 Notwithstanding anything to the contrary contained
herein, under no circumstances shall the provisions of this Section 4 cause
Base Rent to be reduced. Any reference to Landlord's "actual" Direct Costs in
this Section 4 shall be deemed to include an allowance for any adjustment to
reflect the level of occupancy of the Building to the extent provided for
below, if at all.
4.5.1 Tenant shall have the right during normal business
hours to audit, either by itself or with a person or firm selected by Tenant,
the records of Landlord relating to the calculation of Direct Costs; provided,
however, that Tenant's audit rights shall be limited to once per year during
the term of the Lease and any such audit shall not cover more than the
immediately preceding three (3) calendar years. Any such firm involved in the
audit shall be a nationally recognized accounting firm experienced in
conducting audits of expense pass-throughs for similar commercial buildings. If
such audit reveals errors or other discrepancies in the excess of fifteen
percent (15%) in the Landlord's determination of Direct Costs in any particular
year, then Landlord shall pay for the costs of such audit; otherwise, the cost
of such audit shall be paid entirely by Tenant. If such audit is conducted,
Tenant shall only be responsible for the portion of such Direct Costs as is
verified by such audit, and Landlord, within five (5) business days of Tenant's
demand therefor, shall refund to Tenant any excess Direct Costs which may have
been previously paid by Tenant to Landlord
4.6 "Tax Costs" shall mean the sum of the following: any
and all real property taxes, assessments (including, but not limited to,
general and special assessments), charges, surcharges, license and other fees,
levies, costs of improvement bonds, penalties (to the extent such penalties are
not imposed as a result of Landlord's negligence), and any and all other taxes
(other than income, franchise and estate taxes of Landlord) on or relating to
all or a portion of the Project (as it may exist from time to time) including,
but not limited to, walkways, the Parking Lot, common areas, landscaped areas,
fountains and art works or any legal or equitable interest of Landlord therein
which may be imposed, levied, assessed or charged for any reason by any
authority having the direct or indirect power to tax including, but not limited
to, the United States or the state, county or city in which the Building is
located or any other local governmental authority, agency, district or
political subdivision thereof, together with personal property taxes,
assessments, fees and charges (other than those paid by Tenant pursuant to
Section 28 below) and fees of tax consultants and attorneys retained to seek a
reduction, to contest or to act in some other manner in connection with any of
the foregoing Tax Costs, together with any tax, assessment or other amount
(including, without limitation, commercial rental taxes) imposed, levied or
charged as a substitute for or a supplement to the foregoing. If the assessed
valuation or
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Tax Costs of the Building for any calendar year during the term of this Lease
shall not be based upon a completed building at least ninety-five percent (95%)
occupied, then the Tax Costs during such year or years shall be adjusted to
reflect the taxes which would have been payable for such year or years if the
Building had been completed and was ninety-five percent (95%) occupied during
such year or years. Tax Costs for each tax year shall be appropriately prorated
to determine the Tax Costs for the subject calendar year.
4.7 "Operating Costs" shall mean the sum of the
following: any and all costs, expenses and disbursements paid or incurred by
Landlord in connection with the management, operation, security, maintenance
and repair of, and janitorial services for, the Project (as it may exist from
time to time) including, but not limited to, salaries, wages, benefits and
related costs for employees; management fees, either as charged to Landlord by
outside management companies or an amount not exceeding the amount typically
charged by outside management companies if Landlord manages the Project itself,
in either event not to exceed four percent (4%) together with the rental value
of space occupied as the Project management office; charges for utilities and
services (including any taxes thereon); the cost of insurance; the cost of
cleaning and building supplies and materials; any amounts payable under any and
all reciprocal easement agreements, covenants, conditions and restrictions (as
same may be supplemented or amended from time to time) or other instrument
pertaining tot he sharing of costs by the Building; a reasonable allowance for
depreciation (or amortization) with respect to machinery and equipment; and
costs relating to the financing of capital investment items (which, if
internally financed, shall include interest at an annual rate reasonably
determined by Landlord). If, during any calendar year, the Building is less
than ninety-five percent (95%) occupied, the Operating Costs shall be adjusted
to reflect the Operating Costs of the Building as though ninety-five percent
(95%) occupied.
4.7.1 Notwithstanding the foregoing, for purposes of this
Lease operating costs shall not, however, include:
(a) costs, including marketing costs, legal fees,
space planners' fees, advertising and promotional expenses, and brokerage fees
incurred in connection with the original construction or development, or
original or future leasing of the Project and costs, including permit, license
and inspection costs, incurred with respect to the installation of tenant
improvements made for new tenants initially occupying space in the Project after
the Lease Commencement Date or incurred in renovating or otherwise improving,
decorating, painting or redecorating vacant space for tenants or other occupants
of the Project (excluding, however, such costs relating to any common areas of
the Project or parking facilities);
(b) costs for which the Landlord is reimbursed by any
tenant or occupant of the Project or by insurance by its carrier or any tenant's
carrier or by anyone else, and electric power costs for which any tenant
directly contracts with the local public service company;
(c) any bad debt loss, rent loss, or reserves for bad
debts or rent loss;
(d) all items and services for which Tenant or any
other tenant in the Project reimburses Landlord or which Landlord provides
selectively to one or more tenants (other than Tenant) without reimbursement;
and
(e) costs arising from the gross negligence or
willful misconduct of Landlord or its agents, employees, vendors, contracts, or
providers of materials or services.
(f) Costs incurred by Landlord or its affiliates due
to a violation or violations by Landlord or by any tenants of the terms and
conditions of any leased space in the Building (excluding, however, any costs
incurred by Landlord or its affiliates in connection with the installation of
any parking access control program);
(g) Overhead or profit increment paid to the Landlord
for any service in the Building to the extent such causes the costs of such
services to exceed the costs to the Landlord if provided by third parties on a
competitive bid basis;
(h) Compensation paid to clerks, attendants or any
commercial concessions operated by Landlord or its employees or any compensation
payable to persons above the grade
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of on-site property manager; and
(i) Costs of a capital nature (excluding costs
associated with the installation of any parking access control system) and
including, without limitation, capital improvements, capital repairs, capital
equipment, except where such improvements are expected to reduce operating costs
net of any associated amortization of the cost of such improvements.
4.8 "Direct Costs" shall mean both Tax Costs and
Operating Costs, whether determined separately or jointly.
5. RESTRICTIONS ON USE.
Tenant shall use and occupy the Premises only as specified in
the Basic Lease Information. Tenant shall not do or permit anything to be done
in or about the Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building or injure or annoy them,
nor use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause or maintain or permit any
nuisance in or about the Premises, nor shall Tenant cause or permit any
Hazardous Materials (as hereinafter defined) to be brought to the Premises or
used, handled, stored, released or disposed of in, under or about the Premises,
the Building or the Project except for ordinary and general office supplies
typically used in the ordinary course of business within office buildings (some
or all of which may constitute "Hazardous Materials" as defined in this Lease).
Tenant shall not conduct business or other activity in or about the Premises of
such a nature as to place an unreasonable or excessive burden upon the common
areas. Tenant shall not commit or suffer the commission of any waste in or
about the Premises. As used in this Lease, the term "Hazardous Materials" shall
mean and include any hazardous or toxic materials, substances or wastes as now
or hereafter designated under any law, statute, ordinance, rule, regulation,
order or ruling of any agency of the State, the United States Government or any
local governmental authority including, without limitation, asbestos,
petroleum, petroleum hydrocarbons and petroleum based products, urea
formaldehyde and other chloroflurocarbons.
6. COMPLIANCE WITH LAWS.
Tenant shall not use the Premises or permit anything to be
done in or about the Premises which shall in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall not do or permit anything to
be done on or about the Premises or bring or keep anything therein which will
in any way increase the rate of any insurance upon the Building in which the
Premises are situated or any of its contents or cause a cancellation of said
insurance or otherwise affect said insurance in any manner, and Tenant shall at
its sole cost and expense promptly comply with all laws, statutes, ordinances
and governmental rules, regulations and requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted relating to or
affecting the condition, use or occupancy of the Premises.
7. CONSTRUCTION OF BUILDING; IMPROVEMENTS AND ALTERATIONS.
7.1 Construction of Building. Landlord, at its sole cost
and expense, shall construct the Building and related improvements on the
Property, which shall include an office building of approximately 104,825 net
rentable square feet, all in accordance with the Base Building Improvements
which shall be reviewed and approved by Tenant. The Base Building Improvements
may be modified and supplemented as hereinafter provided.
Landlord covenants and agrees that the Building will be
constructed with all new, good quality material in a good and workmanlike
manner, in accordance with good construction practices, and in accordance with
the approved Base Building Improvements (as the same may be modified or
supplemented as hereinafter provided) and all applicable codes, ordinances and
laws, including, without limitation, the requirements of the Americans With
Disabilities Act, the zoning ordinances and building code of the city, county or
other political subdivision having jurisdiction in which the Property is
located, and any building or architectural restrictions contained in any
restrictions to which the Property is subject. Landlord shall obtain all
approvals, permits and other governmental consents necessary or required to
construct the
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Building in the manner herein provided and Landlord shall pay the cost thereof
(excluding any City of Brentwood impact fees which were assigned and transferred
to Landlord in connection with Landlord's acquisition of the Property).
Landlord represents, warrants and covenants that construction
of the Building will commence as soon as practicable, but in all events within
thirty (30) days after Landlord acquires title to the Property. Landlord shall
diligently prosecute the same to completion in a timely manner so that the
Commencement Date of this Lease shall occur as set forth in Section 2 above.
All final decisions on plans and other design and engineering
decisions relating to construction of the Building shall be made by Landlord,
except that any material change in the scope of work depicted in the Base
Building Improvements and any material substitution of materials or methods of
construction from those described in the Base Building Improvements shall
require the prior written approval of Tenant. Such approval shall not be
unreasonably withheld or delayed, provided that such change or substitution (1)
is not inconsistent with the intent of the Base Building Improvements and does
not result in the substitution of inferior materials or methods of construction,
(2) does not materially delay or extend the Commencement Date (subject to Force
Majeure or Tenant Delay), (3) does not increase the financial commitment or
obligations or risk of legal liability on the part of Tenant under this Lease,
and (4) does not materially adversely affect Tenant's business operations to be
conducted from the Building. Upon notice to Landlord, Tenant shall, at all
reasonable times, have the right to inspect the progress and performance of the
construction of the Building to determine compliance with the Base Building
Improvements.
In construction of the Building, Landlord shall assure and
does hereby represent, warrant, covenant and agree that the Building shall be
constructed and equipped by Landlord, at its sole cost and expense (and not as a
part of the Tenant Improvement Allowance set forth in Section 7.2 below), so
that it shall include all of the Base Building Improvements. If and to the
extent Landlord fails to deliver the Building with all Base Building
Improvements in place and Tenant is required to bear such expense out of its
Tenant Improvement Allowance, such Tenant Improvement Allowance shall be deemed
increased dollar for dollar by Landlord to such extent, and Landlord shall
reimburse Tenant such amounts within five (5) business days of Tenant' demand
therefor.
7.2 Initial improvements to the Premises shall be
governed by the provisions of Exhibit "E" attached hereto and hereby made a
part hereof ("Work Agreement") and the other provisions of this Lease not in
conflict therewith. Landlord shall make a contribution to Tenant of $21.00 per
rentable square feet of the Premises (the "Tenant Improvement Allowance") to
defray a portion of the tenant improvement costs for the Premises and the costs
actually incurred by Tenant for telecommunications, architectural and
engineering services, permit fees and related infrastructure costs, all as more
fully set forth in the Work Agreement. In no event shall any portion of the
Tenant Improvement Allowance be used to pay the cost of Tenant's personal
property. If and to the extent Landlord fails to deliver the Building with all
Base Building Improvements in place and Tenant is required to bear such expense
out of the Tenant Improvement Allowance, such allowance shall be increased
dollar-for-dollar by Landlord to such extent.
7.3 Without the prior written consent of Landlord,
Tenant shall not make or permit to be made any alterations, additions or
improvements in, on or to the Premises or the Project or any part thereof,
except for interior, nonstructural alterations to the Premises not exceeding
Five Dollars ($5.00) per net rentable square feet in cumulative costs
throughout the term hereof. Notwithstanding any contrary provision herein,
Tenant shall not, in any event, make any alterations, additions or improvements
which affect structural portions of the Building or Building systems or which
are visible from the exterior of the Premises or which interfere with or
disrupt other tenants in the Building or with any work then being carried out
therein by Landlord or its contractors. Any alterations, additions or
improvements desired by Tenant shall be made at Tenant's sole cost and expense
in compliance with Section 9 below and in accordance with plans and
specifications, and pursuant to governmental permits, approved in advance by
Landlord. Any contractor selected by Tenant to make same must be bondable and
licensed and be approved in advance by Landlord and must provide insurance
coverage acceptable to Landlord. At Landlord's option, any alterations,
additions or improvements desired by Tenant shall be made
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by Landlord (or its contractors) for Tenant's account, and Tenant shall pay
the cost thereof to Landlord prior to Landlord's contracting for such work;
provided, however, that the bid obtained by Landlord shall not exceed the lowest
bona fide bid, from a contractor reasonably satisfactory to Landlord,
theretofore obtained by Tenant and communicated to Landlord. Upon completion of
any alterations, additions or improvements, Tenant shall furnish to Landlord a
set of "as built" plans and specifications therefor, and, within ten (10) days
after such completion, Tenant shall cause an appropriate notice of completion to
be recorded in the Official Records. Tenant shall cause all such alterations,
additions or improvements to be completed in a good, workmanlike, diligent,
prompt and expeditious manner in compliance with all applicable laws. Landlord's
approval of Tenant's plans and specifications shall not constitute a
representation or warranty of Landlord as to the adequacy thereof or compliance
thereof with applicable laws.
8. REPAIRS AND MAINTENANCE.
8.1 By taking possession of the Premises, Tenant shall
accept the Premises as being in the condition in which Landlord is obligated to
deliver them and otherwise in good order, condition and repair, subject to
punch list items to be installed, completed or repaired by Landlord within
mutually agreeable time frames ("Punch List") as contained in an itemized
listing which must be submitted, if at all, by Tenant to Landlord within thirty
(30) of the Commencement Date. Notwithstanding the foregoing, concerning
Tenant's acceptance and any other waivers contained elsewhere in this Lease,
Tenant shall not be deemed to have waived claims or rights against Landlord for
any latent defects in the Building or the Premises which, by their nature, are
not reasonably discoverable within such thirty (30) day period. As to such
defects, Tenant shall have thirty (30) days from the date of actual discovery
to notify Landlord in writing of claims for latent defects, and Landlord shall
thereafter take such steps as may be reasonably necessary to resolve such
issues. Subject to the provisions of Section 22 below, Tenant shall, at all
times during the term hereof and, at Tenant's sole cost and expense, keep the
Premises and every part thereof in good order, condition and repair. It is
hereby understood and agreed that Landlord has no obligation to alter, remodel,
improve, repair, decorate or paint the Premises or any part thereof, except as
specified in Section 22 below or in the Work Agreement, and that no
representations relating to the condition of the Premises, the Building or the
Project have been made by Landlord (or any employee or agent thereof) to
Tenant, except as may be expressly set forth in this Lease.
8.2 Subject to the provisions of Section 8.1. above and
Section 22 below, Landlord shall maintain the common areas, the foundation and
structural portions of the Building, and the Building systems providing the
services and utilities to be furnished by Landlord pursuant to Section 13.1.
below, in reasonably good order and condition and repair.
8.3 Landlord shall be responsible for compliance of the
Project (excluding the interior of the Premises) with the Americans With
Disabilities Act and any similar state or other federal laws (collectively, the
"ADA Laws") in effect on the Commencement Date of the Lease; provided, however,
Landlord shall be responsible for any emergency exit signs located within the
Premises and for the bathrooms within the Premises. Landlord shall be
responsible for the Project's compliance with any modifications, revisions or
changes in such laws which are effective after the Commencement Date provided
that the necessity for complying with such laws is a result of a "Compliance
Triggering Event" (as hereinafter defined). For the purposes hereof, a
"Compliance Triggering Event" shall mean any of the following (a) receipt by
Landlord, Tenant or any tenant of a notice from any governments agency or
authority (federal, state or local) requiring that the Project of any portion
thereof comply with the ADA Laws, (b) the making, filing or threatening to make
or file a claim of action arising, in whole or in part, out of alleged
non-compliance of the Project, or any portion thereof, with the ADA Laws, (c)
the non-compliance of the Project or any portion thereof with the ADA Laws
causing a default under any loan secured by the Project, or (d) any actions of
Landlord, Tenant or any tenant with respect to the Property that cause any of
the foregoing to occur.
9. LIENS.
Tenant shall keep the Project free from any liens arising out
of any work performed, material furnished or obligations incurred by Tenant,
unless Tenant is contesting such lien in good faith by appropriate proceedings
and so long as Landlord's interest in the Building is
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not jeopardized or Landlord's financing threatened. In the event that Tenant
shall not, within thirty (30) days following the imposition of any such lien,
cause the same to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other remedies provided herein and at
law or in equity, the right, but not obligation, to cause same to be released by
such means as it shall deem proper including, but not limited to, payment (from
the security deposit referred to in Section 3.2. above or otherwise) of the
claim giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered additional rent and
shall be payable to it by Tenant on demand with interest at the Interest Rate
(as defined in Section 29 below). Landlord may require, at Landlord's sole
option, that Tenant cause to be provided to Landlord, at Tenant's sole cost and
expense, a performance and labor and materials payment bond reasonably
acceptable to Landlord with respect to any improvements, additions or
alterations to the Premises. Landlord shall have the right at all times to post
and keep posted on the Premises any notices permitted or required by law, or
which Landlord shall deem proper, for the protection of Landlord, the Project
and any other party having an interest therein from mechanics' and materialmen's
liens, and Tenant shall give to Landlord at least five (5) business days' prior
notice of commencement of any work on the Premises.
10. ASSIGNING AND SUBLETTING.
10.1 Tenant shall not assign, sublease or otherwise
transfer, voluntarily, by operation of law or otherwise, any interest herein or
in the Premises, nor shall Tenant permit any transferee to further assign,
sublease or otherwise transfer any such interest, without Landlord's prior
written consent, which shall not be unreasonably withheld. For purposes of this
Article, the term "transfer" shall include, without limitation, entering into
any license or concession agreement or otherwise permitting any third party
other than Tenant and Tenant's employees, contractors, invitees and guests to
occupy or use the Premises or any portion thereof. In determining whether to
grant such consent, Landlord may consider various factors including, without
limitation, the following: (a) business criteria relating to the proposed
transferee's background, experience, reputation, general operating ability and
ability to perform Lease obligations, and potential for succeeding in its
business, (b) financial criteria relating to the proposed transferee's
financial responsibility, credit rating and capitalization, (c) the identity
and personal characteristics of the proposed transferee and its invitees and
guests, and (d) the nature of the proposed use and business of the proposed
transferee and its effect on the tenant mix of the Building. Without limiting
the generality of the foregoing, Landlord hereby reserves the right to
condition any such consent upon Landlord's determination that (i) the proposed
transferee is at least as financially and morally responsible as Tenant then
is, or was upon the execution hereof, whichever is greater, and (ii) the
proposed transferee shall use the Premises in compliance with Section 6 above.
Notwithstanding any provision in this Lease to the contrary, Tenant shall not
enter into any proposed assignment, sublease or other transfer of any interest
herein or in the Premises (x) with a prospective tenant which is negotiating
directly with Landlord to lease space in the Building or (y) which would result
in (A) detraction from the first-class character or image of the Building or
diminution in the value thereof (B) the Premises being occupied by more than
three (3) tenants per floor, or (C) a breach by Landlord of any then existing
exclusive right in favor of any other tenant of the Building, any loan
obligation or agreement, any covenants, conditions and restrictions of record,
or any insurance policy. Tenant shall submit the following information with a
written request for Landlord's consent to any assignment, sublease or other
transfer: (1) all transfer and related documents, (2) financial statements, (3)
business, credit and personal references and history, and (4) such other
information as Landlord may reasonably request relating to the proposed
transfer and the parties involved therein. Any transaction which does not
comply with the provisions of this Section shall be voidable at the option of
Landlord and shall constitute a breach of and default under this Lease by
Tenant.
10.2 Notwithstanding any provision in this Lease to the
contrary, if Tenant desires, at any time to assign, sublease or otherwise
transfer the entirety of its interest herein or in the Premises to any party
other than an affiliate for the balance of the initial Lease term or if Tenant
desires to assign, sublease or otherwise transfer any interest herein or in the
Premises to any party (other than an affiliate) for the balance of the initial
term of this Lease or any extension term, it shall first notify Landlord of its
desire to do so and shall designate in such notice the space and time period
involved. Landlord shall have sixty (60) days in which to elect, at its option,
to terminate this Lease as to said space, for said time period, in which event
said space shall be
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excluded from the term "Premises" during said time period and Base Rent,
Additional Rent, Tenant's parking rights, and any other provisions hereof based
on the size of the Premises shall be equitably reduced to reflect such
exclusion. If Landlord does not, within such sixty (60) day period, deliver to
Tenant notice of its election to so recapture such space, Tenant may proceed to
assign, sublease or otherwise transfer in accordance with the terms designated
in Tenant's notice, subject to the other provisions of this Lease including,
without limitation, Landlord's reasonable consent thereto pursuant to the
foregoing.
10.2.1 If Landlord elects to exercise its election to
recapture (as set forth in Section 10.2 above) and Landlord such recaptured
space, Landlord shall pay to Tenant, promptly following Landlord's receipt
thereof, an amount equal to fifty percent (50%) of the amount, if any, by which
all rental and other payments (whether paid in installments, as lump sums or
otherwise) received by Landlord with respect to the space in question received
by Landlord exceed the aggregate of the Base Rent, Additional Rent and other
amounts payable pursuant to this Lease for the subject period with respect to
such space after deducting commissions and other out-of-pocket costs paid by
Landlord in connection with the transaction, and any tenant improvements costs,
free rent and any other concessions granted to the new lessee.
10.2.2 If Landlord elects to exercise its election to
recapture (as set forth in Section 10.2 above) and Landlord leases such
recaptured space, the term of such lease shall not extend beyond the then
remaining balance of the initial term of this Lease. If, upon the expiration or
earlier termination of a lease of such recaptured space, Landlord receives a
bona fide offer, in writing, to re-lease all or any portion of such recaptured
space, Tenant shall have a right of first refusal to re-lease such recaptured
space on the same terms and conditions upon which such third party has offered
to re-lease such recaptured space. Within five (5) business days after Landlord
has provided such written notification to Tenant of the terms and conditions on
which such third party has offered to re-lease such recaptured space together
with a true, complete and accurate copy of such offer to re-lease as executed by
such third party. Tenant shall notify Landlord, in writing, of Tenant's election
to re-lease such recaptured space on the same terms and conditions as such third
party is willing to re-lease such recaptured space or, alternatively, of
Tenant's election not to re-lease such recaptured space. Tenant's failure to
deliver its written election notice to Landlord within the time period specified
above shall be deemed to be Tenant's election not to re-lease such recaptured
space.
10.3 With respect to any assignment, sublease or other
transfer of any interest herein or in the Premises, Tenant shall,
notwithstanding any contrary provision herein, pay to Landlord, promptly
following Tenant's receipt thereof, fifty percent (50%) of the amount by which
all rental and other payments (whether paid in installments, as lump sums, or
otherwise) relating to the space in question received by Tenant exceed the
aggregate of the Base Rent, Additional Rent and other amounts payable pursuant
to this Lease for the subject period with respect to such space (with the rental
and other amounts payable by Tenant for the Premises allocated on the basis of
rentable area) after deducting reasonable commissions and other reasonable
out-of-pocket costs paid by Tenant in connection with the transaction in
question, any fee paid to Landlord pursuant to Section 10.4 tenant improvement
costs, free rent and any other concessions granted to the transferee. The
provisions of this Section 10.3 shall apply regardless of whether such
assignment, sublease or other transfer is made in compliance with the provisions
of this Lease. Any payments made to Landlord pursuant to this Section shall not
cure any default under this Lease arising from such assignment, sublease or
transfer. Tenant shall not artificially structure any sublease, assignment or
other transfer in order to reduce the amount payable to Landlord under this
Section, nor shall Tenant take any other steps for the purpose of circumventing
its obligation to pay amounts to Landlord under this Section; in the event that
Tenant does same, the amount payable to Landlord under this Section shall be the
amount that would have been payable to Landlord had same not occurred.
10.4 Tenant shall pay to Landlord a fee of $500 plus
Landlord's costs and expenses (including, but not limited to, reasonable
attorneys', accountants', architects', engineers' and consultants' fees)
incurred in connection with the processing and documentation of any requested
assignment, sublease or other transfer.
10.5 No assignment, sublease or other transfer, even with
the consent of Landlord, shall result in Tenant's being released from any of
its obligations hereunder. Landlord's consent
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to any one transfer shall apply only to the specific transaction thereby
authorized and such consent shall not be construed as a waiver of the duty of
Tenant or any transferee to obtain Landlord's consent to any other or subsequent
transfer or as modifying or limiting Landlord's rights hereunder in any way.
Upon any assignment hereof, the assignee shall assume in writing all obligations
and covenants of Tenant thereafter to be performed or observed hereunder.
Landlord's acceptance of rent directly from any assignee, subtenant or other
transferee shall not be construed as Landlord's consent thereto nor Landlord's
agreement to accept the attornment of any subtenant in the event of any
termination of this Lease. In no event shall Landlord's enforcement of any
provision of this Lease against any transferee be deemed a waiver of Landlord's
right to enforce any term of this Lease against Tenant or any other person. If
Tenant's obligations hereunder have been guaranteed, Landlord's consent to any
assignment, sublease or other transfer shall not be effective unless the
guarantor also consents to such transaction.
10.6 Except in connection with Tenant's initial public
offering of its equity ("Tenant's IPO"), if Tenant is a corporation, an
unincorporated association or a partnership, any cumulative transfer, assignment
or hypothecation of any stock or interest in such corporation, association or
partnership greater than fifty percent (50%) thereof, or any cumulative
transfer, assignment or hypothecation (other than in the ordinary course of
business) of any assets of such corporation, association or partnership greater
than twenty-fifty percent (50%) thereof, shall be deemed an assignment within
the meaning and provisions of this Section and shall be subject to the
provisions hereof.
11. WAIVER; INDEMNITY.
11.1 Notwithstanding any contrary provision in this Lease,
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for any injury or damage to any person or property or any other loss
(including, but not limited to, loss of income) in or about the Premises, the
Building or the Project by or from any cause whatsoever, and, without limiting
the generality of the foregoing, whether caused by water leakage of any
character from the roof, walls, basement or any other portion of the Premises,
the Building or the Project, or by gas, fire, oil or electricity, or by any
interruption of utilities or services, or by any tenant, occupant or other
person, or by any other cause whatsoever in, on or about the Premises, the
Building or the Project. Notwithstanding any contrary provision in this Lease,
Landlord and its agents shall in no event be liable for consequential damages
hereunder.
11.2 Except to the extent arising from the gross
negligence or willful misconduct of Landlord, Tenant shall indemnify Landlord,
its partners, officers, agents, servants, employees and invitees (collectively,
the "Landlord Parties") and hold the Landlord Parties harmless from and against
any and all claims, demands, losses, damages, liabilities, costs and expenses
(including, but not limited to, reasonable attorneys' fees) arising from
Tenant's use or enjoyment of the Project, from the conduct of Tenant's
business, from any act or omission, work or thing done, permitted or suffered
by Tenant (or any officer, employee, agent, contractor, representative,
licensee, guest, invitee or visitor thereof) in or about the Project, or from
any default under this Lease by Tenant. If any action or proceeding is brought
against any Landlord Party by reason of any such matter, Tenant shall, upon
Landlord's request, defend same at Tenant's expense by counsel satisfactory to
Landlord, in its sole and absolute discretion. The provisions of this Section
11.2. shall survive the expiration or termination of this Lease with respect to
any claims or liability arising from events occurring prior to such expiration
or termination.
12. INSURANCE.
12.1 From and after the date of delivery of possession of
the Premises from Landlord to Tenant and throughout the term hereof, Tenant
shall carry and maintain, at its own expense, the following types, amounts and
forms of insurance:
12.1.1 Tenant shall carry and maintain a policy of
commercial general liability insurance with a combined single limit of Two
Million Dollars ($2,000,000) per occurrence in the name of Tenant (with
Landlord and, if requested by Landlord, any mortgagee, trust deed holder,
ground lessor or secured party with an interest in this Lease, the Building or
the Project named as additional insured). Such policy shall specifically
include, without limitation, personal injury, broad form property damage,
liquor liability (if alcoholic beverages shall be sold or served, with a
license being required therefor, in or on the Premises), and contractual
liability coverage, the
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last of which shall cover the insuring provisions of this Lease and the
performance by Tenant of the indemnity agreements in Section 11 above. Such
policy shall contain cross-liability endorsements and shall provide coverage on
an occurrence basis. The amount of such insurance required hereunder shall be
subject to adjustment from time to time as reasonably requested by Landlord.
12.1.2 Tenant shall carry and maintain a policy or policies
of property insurance in the name of Tenant covering Tenant's leasehold
improvements and any property of Tenant at the Premises and providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, special extended peril (all
risk) and sprinkler leakage, in an amount equal to at least one hundred percent
(100%) of the replacement cost thereof from time to time (including, without
limitation, cost of debris removal), with an agreed amount endorsement, and
providing protection against loss of income and extra expense. Any proceeds
from such insurance shall be used for the repair or replacement of the property
damaged or destroyed, unless this Lease is terminated pursuant to the
provisions hereof. If the Premises are not repaired or restored following
damage or destruction, Landlord shall receive any proceeds from such insurance
allocable to Tenant's leasehold improvements.
12.1.3 Tenant shall carry and maintain a policy or policies
of workers' compensation and employers' liability insurance in compliance with
all applicable laws.
12.1.4 All of the policies required to be obtained by Tenant
pursuant to the provisions of this Section 12.1. shall be issued by companies
licensed to do business in Tennessee, and shall be in form and content,
acceptable to Landlord. All policies must be issued by insurers with a policy
holder rating of "A" or better and a financial rating of "X" in the most recent
version of Best's Key Rating Guide. Without limiting the generality of the
foregoing, any deductible amounts under said policies shall be subject to
Landlord's approval. Tenant shall, prior to delivery of the Premises by
Landlord to Tenant, provide Landlord with copies of and certificates for all
insurance policies. All insurance policies shall provide that they may not be
altered or cancelled until after thirty (30) days' written notice to Landlord
(by any means described in Section 27 below) and to any other additional
insureds thereunder. Tenant shall, at least thirty (30) days prior to the
expiration of any of such policies, furnish Landlord with a renewal or binder
therefor. Tenant may carry insurance under a so-called "blanket" policy,
provided that such policy provides that the amount of insurance required
hereunder shall not be prejudiced by other losses covered thereby. All
insurance policies carried by Tenant shall be primary with respect to, and
non-contributory with, any other insurance available to Landlord. Such policies
shall provide that the interests of Landlord and any other additional insureds
designated by Landlord shall not be invalidated due to any breach or violation
of any warranties, representations or declarations contained in such policies
or the applications therefor. If Tenant fails to carry any insurance policy
required hereunder or to furnish copies thereof and certificates therefor
pursuant hereto, Landlord may, without limiting Landlord in the exercise of any
other right or remedy, obtain such insurance, and Tenant shall reimburse
Landlord for the costs thereof with the next monthly rental payments due
hereunder.
12.2 During the term of this Lease, Landlord shall keep
and maintain property insurance for the Project in such amounts, and with such
coverages, and Landlord may keep and maintain such other insurance (including,
but not limited to, earthquake insurance), as is customary for similar
buildings in the greater Nashville Metropolitan area or as any lienholder may
require. Tenant acknowledges that it shall not be a named insured in such
policies and that it has no right to receive any proceeds from any such
insurance policies carried by Landlord. Notwithstanding any contrary provision
herein, Landlord shall not be required to carry insurance covering the property
described in Section 12.1.2. above or covering flood or earthquake.
12.3 Each party hereto hereby waives any and all rights to
recover against the other party, or against the officers, employees or
principals thereof, for loss or damage arising from any peril to the extent
insured against under any property or workers' compensation insurance policy
carried by such waiving party. The foregoing waiver shall be effective only to
the extent permitted under each such insurance policy, and, to the extent
reasonably available, each such policy shall be endorsed to reflect the
foregoing.
12.4 Tenant shall pay any increases in insurance premiums
relating to property in the
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Project to the extent that any such increase is specified by the
insurance carrier as being caused by Tenant's acts or omissions or use or
occupancy of the Premises.
13. SERVICES AND UTILITIES.
13.1 Subject to the provisions contained elsewhere herein
and to the rules and regulations of the Building, Landlord shall cause to be
furnished to the Premises water and electricity, and heating, ventilation and
air conditioning, required in Landlord's judgment for the comfortable use and
occupation of the Premises (but not in excess of such utilities and services
which are customarily furnished in comparable office buildings in the immediate
market area), during the business hours of the Building, which shall be 7:00
A.M. to 7:00 P.M., Monday through Friday, and 8:00 A.M. to 1:00 P.M. on
Saturday, except for New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day and such other holidays as may be determined by
Landlord from time to time (collectively, the "Holidays") and, provided that
the Premises are used exclusively as offices and are kept reasonably in order
by Tenant, janitorial services during the times and in the manner that such
services are customarily furnished in comparable office buildings in the market
area of the Project but not less than the services shown on Exhibit "H". If
Landlord elects to provide additional or after-hours heating, ventilation, air
conditioning or any of the other utilities or services referred to above at
Tenant's request, Tenant shall pay to Landlord an amount equal to Landlord's
actual costs per hour (plus an allocable charge for depreciation of equipment)
or such other reasonable charge therefor as determined by Landlord from time to
time. Tenant shall keep and cause to be kept closed all window coverings when
necessary because of the sun's position, and Tenant also shall at all times
cooperate fully with Landlord and abide by all the regulations and requirements
which Landlord may prescribe for the proper functioning and protection of the
heating, ventilation and air conditioning system. If any heat-generating
machine, excess lighting or equipment in the Premises affects the temperature
otherwise maintained by the air conditioning system, Landlord may install (or
at Tenant's request shall install) supplementary air conditioning units in the
Premises, and the cost thereof (including, but not limited to, the cost of
installation, operation and maintenance thereof) shall be paid by Tenant to
Landlord upon demand by Landlord.
13.2 Notwithstanding the last sentence of Section 13.1.
above, Tenant shall not, without the prior written consent of Landlord, use in
the Premises any apparatus, device, machine or equipment using excess lighting,
electricity or water; nor shall Tenant connect any apparatus or device to
sources of electrical current or water except through existing electrical
outlets or water pipes in the Premises. If Tenant shall require excess
electricity, or water or any other resource in excess of that customarily
supplied for use of similar premises as general office space, Tenant shall
first request the consent of Landlord and obtain, at Tenant's sole cost and
expense, any additional consent required from governmental authorities. In the
event that Landlord gives its consent and any such additional consent is
obtained, Landlord may cause a separate metering device to be installed in the
Premises so as to measure the amount of the resource consumed within the
Premises. The cost of any such separate metering device including, but not
limited to, the cost of installation, maintenance and repair thereof shall be
paid by Tenant. Tenant shall promptly pay the cost of all excess resources
consumed within the Premises, together with any additional administrative
expense incurred by Landlord in connection therewith. For purposes of the
foregoing, excess electricity shall be deemed to consist of any amount in
excess of 3 watts at 120/208 volts per usable square foot on an annualized
basis for lighting and 1.5 watts at 277/480 volts per usable square foot on an
annualized basis for purposes other than lighting.
13.3 Landlord shall not be in default hereunder or be
liable for any damages directly or indirectly resulting from any interruption
of utilities or services caused by (i) the installation or repair of any
equipment in connection with the furnishing of utilities or services, (ii) acts
of God or the elements, labor disturbances of any character, any other
accidents or any other conditions beyond the reasonable control of Landlord, or
by the making of repairs or improvements to the Premises or the Project, or
(iii) the limitation, curtailment, rationing or restriction imposed by any
governmental agency or service or utility supplier on use of water or
electricity, gas or any other form of energy or any other service or utility
whatsoever serving the Premises or the Project. Furthermore, Landlord shall be
entitled, without any obligation or compensation to Tenant, to cooperate
voluntarily in a reasonable manner with the efforts of national, state or local
governmental agencies or service or utility suppliers in reducing the
consumption of energy or
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other resources; if Landlord shall so cooperate, Tenant shall also reasonably
cooperate therewith.
13.4 Any sums payable under this Section 13 shall be
considered additional rent and may be added to any installment of rent
thereafter becoming due, and Landlord shall have the same remedies for a default
in payment of such sums as for a default in the payment of rent.
14. TENANT'S CERTIFICATE.
Within ten (10) days after delivery of the Premises to Tenant
and thereafter within ten (10) days after any written request which Landlord
may make from time to time, Tenant shall execute and deliver to Landlord a
certificate (the "Certificate") substantially in the form attached hereto as
Exhibit "F" and hereby made a part hereof, together with such financial
information relating to Tenant or any guarantor as Landlord or any prospective
purchaser or lender may reasonably request. Landlord shall have the right to
request that Tenant agree to amend or otherwise supplement the Certificate to
include such other information and provisions as may reasonably be requested by
any existing or prospective lender or by any prospective purchaser. Any failure
by Tenant to so execute and deliver the Certificate shall, at Landlords
election, constitute a certification by Tenant that the statements included in
the Certificate (as same may have been so amended or supplemented) are true and
correct, except as Landlord shall otherwise indicate. Landlord and Tenant
intend that the Certificate may be relied upon by any existing or prospective
lender or by any prospective purchaser.
15. HOLDING OVER.
If Tenant, with Landlord's written consent, remains in
possession of all or any portion of the Premises after the expiration or sooner
termination of the term hereof, such holding over shall be deemed to constitute
a tenancy from month to month only, upon such terms and conditions hereof as
could be reasonably and logically construed as applying thereto; provided,
however, that during such holding over, Base Rent shall be one hundred fifty
percent (150%) of the Base Rent in effect immediately prior to such expiration
or termination, and any and all options and rights of first refusal or other
preferential rights of Tenant shall be deemed to have lapsed and to be of no
further force or effect. Landlord may terminate such tenancy from month to
month by giving to Tenant at least seven (7) days' written notice thereof at
any time. Acceptance by Landlord of any rent after such expiration or
termination shall not be deemed to constitute Landlord's consent to such
holding over.
16. SUBORDINATION; REQUIREMENTS OF LENDERS.
16.1 Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a subordination, this
Lease shall be subject and subordinate at all times to (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting all or
any portion of the Project, and (b) the lien of any mortgage or deed of trust
which may now exist or hereafter be executed affecting all or any portion of the
Project, provided that such ground lease, underlying lease, mortgage or deed of
trust is approved by the mortgagor under a first mortgage or the beneficiary
under a first deed of trust, as the case may be, encumbering the Building and
provided further that the Tenant is granted usual and customary non-disturbance
rights which are acceptable to Tenant, in its reasonable discretion.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed or a
deed in lieu of foreclosure is made for any reason, Tenant shall,
notwithstanding any subordination, attorn to and become the Tenant of the
successor in interest to Landlord. So long as Tenant is not in default under
this Lease, Tenant's possession of the Premises and all of Tenant's rights under
this Lease shall not be disturbed or altered as a result of such termination,
foreclosure or deed in lieu of foreclosure. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord or any lienholder or successor in
interest, any additional documents evidencing the priority or subordination of
this Lease and the attornment of Tenant with respect to any such ground leases
or underlying leases or the lien of any such mortgage or deed or trust subject
always to Tenant's obtaining such usual and customary non-disturbance rights
which are acceptable to Tenant, in its reasonable discretion.
16.2 If, in connection with the obtainment of financing
for the Project or any portion
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thereof, the lender requests reasonable modifications hereto as a condition to
the furnishing of such financing, Tenant shall not unreasonably withhold or
delay its consent thereto, provided that such modifications do not materially
increase the obligations of Tenant hereunder or materially adversely affect
Tenant's rights hereunder.
17. RULES AND REGULATIONS.
Tenant shall observe and comply with the rules and
regulations set forth in Exhibit "G" attached hereto and hereby made a part
hereof and any and all reasonable modifications thereof and additions thereto
from time to time established by Landlord. In the event of any conflict between
said rules and regulations and the other provisions hereof, the latter shall
control.
18. ACCESS BY LANDLORD.
Landlord reserves, and Landlord (and its agents, contractors
and employees) shall at reasonable times have, the right to enter the Premises
to inspect same, to supply janitor service and any other service to be provided
by Landlord to Tenant hereunder, to show the Premises to any prospective
purchaser, beneficiary, mortgagee or tenant, to post notices of
nonresponsibility, and to make any alteration, improvement or repair to the
Premises or any portion of the Building, without abatement of rent, and may for
that purpose erect, use and maintain scaffolding, pipes, conduits and other
necessary structures in and through the Premises where reasonably required by
the character of the work to be performed, provided that entrance to the
Premises shall not be blocked thereby, and further provided that the business
of Tenant shall not be interfered with unreasonably. Except in the case of
Landlord's negligence or willful misconduct, Tenant hereby waives any claim for
damages for any injury or inconvenience to or interference with Tenant's
business, any loss of occupancy or quiet enjoyment of the Premises, and any
other loss occasioned thereby. For each of the aforesaid purposes, Landlord
shall at all times have and retain a key with which to unlock all of the doors
in, upon and about the Premises, excluding Tenant's vaults and safes, and
Landlord shall have the right to use any and all means which Landlord may deem
necessary or proper to open said doors in an emergency, in order to obtain
entry to any portion of the Premises, and any entry to the Premises or portions
thereof obtained by Landlord by any of such means or otherwise shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual or constructive,
of Tenant from the Premises or any portion thereof. With the Tenant's consent
not to be unreasonably withheld, conditioned or delayed, Landlord shall also
have the right at any time, without same constituting an actual or constructive
eviction and without incurring any liability to Tenant therefor, to change the
arrangement and/or location of entrances or passageways, doors and doorways,
and corridors, elevators, stairs, toilets or other public parts of the
Building, provided that such changes do not unreasonably interfere with the
suitability of the Premises for Tenant's use as provided in Section 5 above.
19. DEFAULT BY TENANT.
The occurrence of any of the following shall constitute a
breach of, and default under, this Lease by Tenant:
19.1 Failure by Tenant to pay any amount (including,
without limitation, monthly installments of Base Rent and Additional Rent) when
and as same becomes payable in accordance with the provisions of this Lease,
and the continuation of such failure for a period of ten (10) days.
19.2 Failure by Tenant in the due, prompt and complete
performance or observance of any other express or implied covenant, agreement
or obligation of Tenant contained in this Lease, and the continuation of such
failure for a period of thirty (30) days after written notice from Landlord to
Tenant specifying the nature of such failure; provided, however, that if any
such failure not involving a hazardous condition cannot reasonably be cured
within such period, Tenant shall not be deemed to be in default hereunder if
Tenant promptly commences such cure within such period and thereafter
diligently pursues such cure to completion within a reasonable time but, in no
event, more than one hundred twenty (120) days after such notice.
19.3 Tenant's vacating, abandoning or failing to accept
tender of possession of the
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Premises or any significant portion thereof.
19.4 Any financial statement or any representation given
to Landlord by Tenant, or any assignee, sublessee or successor of Tenant or any
guarantor of this Lease, proves to be materially false or misleading.
19.5 The insolvency of Tenant; the making by Tenant of any
assignment for the benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged bankrupt or of a petition for reorganization or
arrangement under any law relating to bankruptcy, insolvency or creditors'
rights in general (unless in the case of a petition filed against Tenant, the
same is dismissed within sixty (60) days); the appointment of a trustee or
receiver to take possession of all or a substantial part of Tenant's assets or
of Tenant's interest under this Lease, where such seizure is not discharged
within sixty (60) days. The occurrence of any of the acts or events referred to
in this subsection with respect to any guarantor of this Lease, if any, shall
also constitute a default hereunder.
19.6 The attachment, execution or other judicial seizure
of a substantial portion of Tenant's assets or of Tenant's interest in this
Lease, where such seizure is not discharged within sixty (60) days.
19.7 Tenant's failure to cause to be released any
mechanics' liens filed against the Premises or the Project as required in the
Lease.
19.8 Tenant's failure to observe or perform according to the
provisions of Section 14 and Section 16 hereof within two (2) business days
after notice from Landlord.
20. REMEDIES OF LANDLORD.
20.1 In the event of Tenant's breach of or default under
this Lease as provided in Section 19 above, Landlord, at Landlord's option, and
without limiting Landlord in the exercise of any other right or remedy Landlord
may have on account of such default, and without any further demand or notice,
may terminate Tenant's right to possession of the Premises by any lawful means,
in which case this Lease and the term hereof shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord.
20.2 If Landlord terminates this Lease as provided in
Section 20.1. above, Landlord shall be entitled to recover from Tenant the
aggregate of all amounts permitted by law including, but not limited to:
20.2.1 The worth at the time of award of the unpaid rent
and charges equivalent to rent earned as of the date of the termination hereof;
plus
20.2.2 The worth at the time of award of the amount by
which the unpaid rent and charges equivalent to rent which would have been
earned after the date of termination hereof until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus
20.2.3 The worth at the time of award of the amount by
which the unpaid rent and charges equivalent to rent for the balance of the
term hereof after the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus
20.2.4 Any other amount necessary to compensate Landlord
for the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which, in the ordinary course of things, would
be likely to result therefrom, specifically including, but not limited to, the
cost of recovering possession of the Premises, expenses of releasing, including
necessary renovation and alteration of the Premises, reasonable attorneys'
fees, any real estate commissions actually paid by Landlord and the unamortized
value of any free rent, reduced rent, tenant improvement allowance or other
economic concessions provided by Landlord.
For purposes of this Section, the "time of award" shall mean
the date upon which the judgment in any action brought by Landlord against
Tenant by reason of such default is entered or such earlier date as the court
may determine; the "worth at the time of award" of the
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amounts referred to in Sections 20.2.1. and 20.2.2. shall be computed by
allowing interest at the Interest Rate, but not less than the legal rate; and
the "worth at the time of award" of the amount referred to in Section 20.2.3.
shall be computed by discounting such amount at the discount rate of the
Federal Reserve Bank at the time of the award plus one percent (1%).
20.3 Nothing in this Section 20 shall prevent Landlord,
in the event of Tenant's breach or default under this Lease as provided in
Section 19 above, at Landlord's option, and without limiting Landlord in the
exercise of any other right or remedy Landlord may have on account of such
default, and without any further demand or notice, maintain Tenant's right of
possession in which event Landlord shall have the remedy which permits Landlord
to continue this Lease in effect after Tenant's breach and abandonment and
recover rent as it becomes due.
20.4 Nothing in this Section 20, and no termination
pursuant to any other provision of this Lease, shall be deemed to affect
Landlord's right to indemnification for liability or liabilities arising prior
to the termination of this Lease under the indemnification clause or clauses
contained in this Lease.
20.5 If Tenant abandons or vacates the Premises, Landlord,
at Landlord's option and without limiting Landlord in the exercise of any other
right or remedy Landlord may have on account of such default, will also have
the right to re-enter the Premises such re-entry shall not be deemed to
constitute Landlord's election to accept surrender of the Premises or to
relieve Tenant from liability for its breach of this Lease. No surrender of the
Premises shall be effective against Landlord unless Landlord has entered into a
written agreement with tenant in which Landlord expressly agrees to (a) accept
a surrender of the Premises and (b) relieve Tenant of liability under this
Lease. The deliver of keys to Landlord or any employee or agent of Landlord
shall not constitute the termination of the Lease or the surrender of the
Premises. Accordingly, if Landlord does not elect to terminate this Lease on
account of any default by Tenant, Landlord may, from time to time, without
terminating this Lease, enforce all of its rights and remedies under this
Lease, including the right to recover all rent as it becomes due.
20.6 The terms "rent" and "rental", as used in this
Section 20 and in any and all other provisions of this Lease, shall mean Base
Rent, Additional Rent and any and all other amounts payable by Tenant pursuant
to the provisions of this Lease.
20.7 All rights, powers and remedies of Landlord hereunder
and under any other agreement now or hereafter in force between Landlord and
Tenant shall be cumulative and not alternative and shall be in addition to all
rights, powers and remedies given to Landlord at law or in equity. The exercise
of any one or more of such rights or remedies shall not impair Landlord's right
to exercise any other right or remedy including, without limitation, any and
all rights and remedies of Landlord under Tennessee law.
20.8 Tenant hereby assigns and transfers to Landlord all
of Tenant's interest in all rent and income arising from any sublease
heretofore or hereafter made, and Landlord may collect such rent and income (or
appoint a receiver to collect such rent and income) and apply same toward
Tenant's obligations under this Lease; provided, however, that until Tenant
shall be in default hereunder, Tenant may receive, collect and enjoy the rent
and income accruing under such sublease.
20.9 To the extent permitted by law, Tenant hereby waives
all provisions of, or protection under, any decisions, statutes, rules,
regulations or other laws of the State of Tennessee to the extent same are
inconsistent and in conflict with specific terms and provisions hereof.
20.10 If at any time during the term hereof Tenant fails,
refuses or neglects to do any of the things herein provided to be done by
Tenant, Landlord shall have the right, but not the obligation, to do the same,
but at the expense and for the account of Tenant. The amount of any money so
expended or obligations so incurred by Landlord, together with interest thereon
at the Interest Rate, shall be repaid to Landlord within five (5) days of
Tenant's receipt of written notice, and unless so paid shall be added to the
next monthly rental payment coming due hereunder.
21. DEFAULT BY LANDLORD; LIMITATION OF LIABILITY.
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21.1 Landlord shall not be deemed to be in default
hereunder unless obligations required of Landlord hereunder are not performed
by Landlord, or by any beneficiary under any deed of trust, mortgagee, ground
lessor or other lienholder with rights in all or any portion of the Project,
within thirty (30) days after written notice thereof by Tenant to Landlord (or
such shorter time if any provided elsewhere in this Lease) and to such other
parties whose names and addresses are furnished to Tenant in writing, which
notice specifies that there has been a failure to perform such obligations;
provided, however, that if the nature of such obligations is such that more
than thirty (30) days are reasonably required for their cure, Landlord shall
not be deemed to be in default hereunder if Landlord or any of such other
parties commences such cure within such period and thereafter diligently
prosecutes such cure to completion within a reasonable time but, in no event,
more than one hundred twenty (120) days after such notice.
21.2 If Landlord is in default hereunder, which default is
not cured during any applicable cure periods, Tenant shall have all such rights
and remedies as may be afforded in this Lease or otherwise provided at law or
in equity, including, but not limited to, the right to terminate this Lease as
set forth in Section 2.1 for failure to deliver the Premises on a timely basis.
If Tenant obtains a judgment against Landlord, such judgment may be satisfied
only out of the proceeds of sale received upon execution of such judgment and
levy against the right, title and interest of Landlord in the Project and out
of the rent or other revenue receivable by Landlord from the Project or out of
any proceeds receivable by the Landlord from the sale or other disposition of
all or any portion of Landlord's right, title and interest in the Project.
Neither Landlord nor any of the partners comprising Landlord shall be
personally liable for any deficiency or otherwise.
22. DAMAGE AND DESTRUCTION.
22.1 If the Premises or the Project is damaged by an
insured casualty, occurring more than six (6) months prior to the expiration of
the term hereof, Landlord shall forthwith repair same, or cause same to be
repaired, to the extent that insurance proceeds are made available to Landlord
therefor and provided that such repairs can, in Landlord's reasonable opinion,
be made within ninety (90) days from the date of such damage (without payment
of overtime or other premiums) under the laws and regulations of the federal,
state and local governmental authorities having jurisdiction thereof. Tenant
hereby acknowledges that Landlord's right to proceeds under the property
insurance policies described in Section 12.2. above shall be subject to the
rights of any mortgagees, trust deed holders or other secured parties having an
interest in the Building. If Landlord is not so required to repair such damage,
Landlord shall have the option within thirty (30) days from the date of such
damage either to (i) notify Tenant of Landlord's election to repair such
damage, in which event Landlord shall thereafter repair same, or (ii) notify
Tenant of Landlord's election to immediately terminate this Lease, in which
event this Lease shall be so terminated. Landlord shall refund to Tenant any
rent previously paid for any period of time subsequent to such termination.
Notwithstanding any contrary provision herein, and regardless of whether caused
by casualty, (a) Landlord shall not be required to repair any damage to the
property of Tenant or to repair or replace any paneling, decorations, railings,
floor coverings, alterations, additions, fixtures or improvements installed on
the Premises by or at the expense of Tenant, and (b) any damage caused by the
negligence or willful misconduct of Tenant or any of its agents, contractors,
employees, invitees or guests shall be promptly repaired by Tenant, at its sole
cost and expense, to the reasonable satisfaction of Landlord.
22.2 If Landlord repairs damage to the Premises pursuant
to the provisions of Section 22.1. above, Base Rent and Additional Rent payable
hereunder until such repairs are completed shall be abated in the proportion
that the rentable area of the portion, if any, of the Premises rendered
unusable by Tenant (and therefore not used thereby) bears to the rentable area
of the Premises; a material portion of the Premises is so rendered unusable for
more than fifteen (15) consecutive business days after notice thereof by Tenant
to Landlord. Except for such rental abatement, Tenant shall have no claim
against Landlord with respect to any such damage or repairs.
23. EMINENT DOMAIN.
If the entire Premises, or so much thereof (but not less
than 25% of the rentable area of the Premises) as to render the balance thereof
not reasonably usable for the conduct of
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Tenant's business, shall be taken or appropriated under the power of eminent
domain or conveyed in lieu thereof, either party hereto may, by serving written
notice upon the other party hereto within thirty (30) days thereafter,
immediately terminate this Lease. If any substantial part of the Project
excluding the Premises shall be taken or appropriated under the power of
eminent domain or conveyed in lieu thereof, Landlord may so terminate this
Lease. In either of such events, Landlord shall receive (and Tenant shall
assign to Landlord upon demand by Landlord) any income, rent, award or any
interest therein which may be paid in connection therewith, and Tenant shall
have no claim against Landlord for any part of any sum so paid, whether or not
attributable to the value of the unexpired term of this Lease. If a part of the
Premises shall be so taken, appropriated or conveyed and neither party hereto
shall elect to so terminate this Lease, (a) Base Rent and Additional Rent
payable hereunder shall be abated in the proportion that the rentable area of
the portion of the Premises so taken, appropriated or conveyed bears to the
rentable area of the entire Premises, and (b) if the Premises shall have been
damaged as a consequence of such partial taking, appropriation or conveyance,
Landlord shall, to the extent of any severance damages received by Landlord,
restore the Premises continuing under this Lease; provided, however, that
Landlord shall not be required to repair or restore any damage to the property
of Tenant or to make any repairs to or restoration of any alterations,
additions, fixtures or improvements installed on the Premises by or at the
expense of Tenant, and Tenant shall pay any amount in excess of such severance
damages required to complete such repairs or restoration. Notwithstanding
anything to the contrary contained in this Section, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under the
power of eminent domain or conveyed in lieu thereof during the term of this
Lease, this Lease shall be and remain unaffected by such taking, appropriation
or conveyance and Tenant shall continue to pay in full all rent payable
hereunder by Tenant during the term of this Lease; in the event of any such
temporary taking, appropriation or conveyance, Tenant shall be entitled to
receive a separate award (not reducing Landlord's award) as compensation for
loss of the use or occupancy of the Premises during the term of this Lease.
24. SALE BY LANDLORD.
If Landlord sells or transfers all or any portion of the
Project, including the Premises, Landlord shall, upon consummation of such sale
or transfer, be released from any liability relating to obligations or
covenants thereafter to be performed or observed under this Lease, and in such
event Tenant agrees to look solely to Landlord's successor in interest with
respect to any such liability provided that such release shall be effective
only if and to the extent that Landlord has fully paid and discharged any and
all liabilities and obligations owing by Landlord to Tenant prior to such
transfer, excluding, however, any of such liabilities and obligations which are
the subject of good faith contests or disputes. Landlord shall remain fully
liable for all such obligations until such are paid in full subject, in all
cases, to Landlord's right to dispute, in good faith, any of such obligations.
Landlord may transfer or credit any security deposit or prepaid rent to
Landlord's successor in interest, and upon such transfer or credit Landlord
shall be discharged from any further liability therefor.
25. SURRENDER OF PREMISES.
Tenant shall, upon the expiration or sooner termination of
the term hereof, surrender to Landlord the Premises, and all repairs, changes,
alterations, additions and improvements thereto, in good and first class order,
condition and repair, ordinary wear and tear excepted, clean and free of
debris. Tenant shall, upon the expiration or sooner termination of the term
hereof, and at Tenant's sole cost and expense, remove all movable furniture,
equipment and other personal property belonging to Tenant. Tenant shall
immediately, at its sole cost and expense, repair any damage caused by the
removal of any property. Tenant shall, upon the expiration or sooner
termination of the term hereof, deliver to Landlord all keys to all doors in,
upon and about the Premises including, but not limited to, all keys to any
vault or safe to remain on the Premises.
26. QUIET ENJOYMENT.
So long as Tenant is not in default hereunder, Tenant shall
have the right to the quiet and peaceful enjoyment and possession of the
Premises and the common areas during the term of this Lease, subject to the
terms and conditions of this Lease.
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27. NOTICES.
Any notice, demand or other communication given under the
provisions of this Lease by either party hereto to the other party hereto shall
be effective only if in writing and (a) personally served, (b) mailed by United
States registered or certified mail, return receipt requested, postage prepaid,
or (c) sent by a nationally recognized courier service (such as Fed Ex) for
next-day delivery, to be confirmed in writing by such courier, addressed as set
forth in the Basic Lease Information. In the event that a different address is
furnished by either party hereto to the other party hereto in writing, notices,
demands and other communications shall thereafter be sent or delivered to the
new address. Notices, demands and other communications given in the foregoing
manner shall be deemed given when actually received or refused by the party to
whom sent, unless mailed, in which event same shall be deemed given on the day
of actual delivery as shown by the addressee's registered or certified mail
receipt or at the expiration of the third (3rd) business day after the date of
mailing, whichever first occurs.
28. TAXES PAYABLE BY TENANT.
Unless properly contested by Tenant in good faith, Tenant
shall pay before delinquency all taxes, assessments, license fees and other
charges (collectively, "taxes") that are levied and assessed against Tenant's
trade fixtures and other personal property installed or located in or on the
Premises, and that become payable during the term. On demand by Landlord,
Tenant shall furnish Landlord with satisfactory evidence of such payments. If
any taxes on Tenant's personal property are levied against Landlord or
Landlord's property, or if the assessed value of the Building and other
improvements in which the Premises are located is increased by the inclusion of
a value placed on Tenant's personal property or leasehold improvements, as
determined by Landlord, and if Landlord pays the taxes on any of these items or
the taxes based on the increased assessment of these items, Tenant, on demand,
shall immediately reimburse Landlord for the sum of the taxes levied against
Landlord, or the proportion of the taxes resulting from the increase in
Landlord's assessment. Landlord shall have the right to pay these taxes
regardless of the validity of the levy.
29. INTEREST AND LATE CHARGES.
Any amount not paid by Tenant to Landlord when due hereunder
shall bear interest at a rate (the "Interest Rate") equal to the lesser of (a)
the prime rate per annum as announced by Citibank, N.A. on the date on which
the subject payment becomes delinquent plus two (2) percentage points, or (b)
the maximum rate permitted by law, from the due date until paid, unless
otherwise specifically provided herein, but the payment of such interest shall
not excuse or cure any such failure by Tenant under this Lease. The parties
agree that it would be impracticable and extremely difficult to fix Landlord's
actual damages in such event. Such interest and late charges are separate and
cumulative and are in addition to and shall not diminish or represent a
substitute for any or all of Landlord's rights or remedies under any other
provision of this Lease.
30. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Sections 10 and 24 above,
the terms, covenants and conditions contained herein shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
31. ATTORNEYS' FEES.
In any litigation or other action arising herefrom between
any of the parties hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs incurred therein. The term "prevailing
party" means the party obtaining substantially the relief sought, whether by
compromise, settlement or judgment.
32. LIGHT AND AIR.
Tenant covenants and agrees that no diminution of light, air
or view by any structure which may hereafter be erected (whether or not by
Landlord) shall entitle Tenant to any reduction of rent under this Lease,
result in any liability of Landlord to Tenant, or in any other
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way affect this Lease or Tenant's obligations hereunder.
33. SIGNS AND IDENTITY.
INTENTIONALLY DELETED
34. WAIVER.
If Landlord waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any other breach of the same or of any other term, covenant or
condition contained herein. Furthermore, the acceptance of any payments due
from one party to the other shall not constitute a waiver of any preceding
breach by such party of any term, covenant or condition of this Lease, other
than the failure of Tenant to pay the particular amount so accepted, regardless
of knowledge of such preceding breach at the time such payment was accepted.
Failure by either party to enforce any of the terms, covenants or conditions of
this Lease for any length of time shall not be deemed to waive or to affect the
right of such party to insist thereafter upon strict performance. Waiver by
either party of any term, covenant or condition contained in this Lease may
only be made by a written document signed by such party.
35. BROKERS.
Landlord has entered into an agreement with the real estate
broker specified as Landlord's broker in the Basic Lease Information
("Landlord's Broker") pursuant to which Landlord has granted to Landlord's
Broker the exclusive right to lease space in the Building. Landlord shall pay
any commissions or fees that are payable to Landlord's Broker with respect to
this Lease in accordance with the provisions of a separate commission contract.
Landlord shall have no further or separate obligation for payment of
commissions or fees to any other real estate broker, finder or intermediary.
Tenant represents that it has not had any dealings with any real estate broker,
finder or intermediary with respect to this Lease, other than Landlord's Broker
and Tenant's broker ("Tenant's Broker"), if any, specified in the Basic Lease
Information. Any commissions or fees payable to Tenant's Broker with respect to
this Lease shall be paid exclusively by Landlord's Broker and/or Tenant.
Subject to the foregoing, each party hereto shall indemnify and hold harmless
the other party hereto from and against any and all damages, liabilities,
losses, costs and expenses (including, but not limited to, reasonable
attorneys' fees and related costs) resulting from any claims that may be
asserted against such other party by any real estate broker, finder or
intermediary arising from any act of the indemnifying party in connection with
this Lease.
36. AUTHORITY.
If Tenant is a corporation, trust or partnership, Tenant
represents and warrants that the party executing this instrument is duly
authorized to so execute and deliver this Lease. If Tenant is a corporation,
trust or partnership, it shall, within ten (10) days after execution of this
Lease, deliver to Landlord satisfactory evidence of such authority. If Tenant
is a corporation, it shall, upon demand by Landlord, also deliver to Landlord
satisfactory evidence of (a) good standing in Tenant's state of incorporation,
and (b) qualification to do business in Tennessee.
37. MISCELLANEOUS.
37.1 Landlord shall make available to Tenant, without
charge, six (6) keys to the Premises. Tenant shall pay for any additional keys
made available by Landlord.
37.2 Any voluntary or other surrender of this Lease by
Tenant, mutual termination hereof or termination hereof by Landlord shall not
work a merger, and shall, at the option of Landlord, terminate all or any
existing subleases or subtenancies, or may, at the option of Landlord, operate
as an assignment to Landlord of any or all such subleases or subtenancies. No
act or omission of Landlord or any representative thereof shall be deemed to
constitute acceptance of any surrender, and no surrender shall be deemed to
have occurred, unless in a writing executed by Landlord and approved in writing
by the mortgagee under any first mortgage or the beneficiary under any first
deed of trust, as the case may be, encumbering the Building.
37.3 A memorandum hereof, including Tenant's rights of
first offer with respect to
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certain leased premises within the Building and Tenant's right of first refusal
to purchase the Project, shall be recorded.
37.4 Rent and all other sums payable under this Lease
must be paid in lawful money of the United States of America.
37.5 None of Landlord's rights or remedies hereunder
shall be deemed to be exclusive, but shall, wherever possible, be cumulative
with all other rights and remedies hereunder and at law and in equity.
37.6 Except as otherwise provided herein, whenever in
this Lease a consent is to be granted by either Landlord or Tenant, such
provisions shall be deemed to include language to the effect that such consent
shall not be unreasonably withheld, delayed or conditioned by the party
required to grant or deny such consent. If consent is to be withheld, the party
withholding such consent shall, upon request, provide a written statement
specifying the reasons for withholding such consent and identifying alternative
circumstances, if any, under which such consent might be obtained.
37.7 This Lease may be executed in counterparts with the
same effect as if both parties hereto had executed the same document. Both
counterparts shall be construed together and shall constitute a single lease.
37.8 Nothing contained in this Lease shall be construed
to create the relationship of principal and agent, partnership, joint venture
or any other relationship between the parties hereto, other than the
relationship of landlord and tenant.
37.9 Any provision of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof, and such other provisions shall remain in full force and
effect.
37.10 The term "Premises" shall be deemed to include
(unless, based on the context, such meaning would be clearly unintended) the
space demised and improvements now or at any time hereafter comprising or built
in such space.
37.11 The term "Tenant" or any pronoun used in place
thereof shall indicate and include the masculine or feminine, the singular or
plural number, individuals, firms or corporations.
37.12 The section headings herein are for convenience of
reference only and shall in no way define, increase, limit or describe the
scope or intent of any provision of this Lease.
37.13 In any case where this Lease is entered into by
co-tenants, the obligations of such co-tenants hereunder shall be joint and
several.
37.14 Time is of the essence of this Lease and all of its
provisions.
37.15 This Lease shall in all respects be governed by the
laws of the State of Tennessee. In any action or proceeding arising herefrom,
Tenant hereby consents to the jurisdiction of any competent court within the
State of Tennessee and to service of process by any means authorized by
Tennessee law.
37.16 This Lease contains the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes any
previous negotiations. There have been no representations made by Landlord or
any representative thereof or understandings made between the parties other
than those set forth in this Lease.
37.17 This Lease may not be modified except by a written
document executed by the parties hereto.
37.18 Neither Landlord nor any broker, agent or representative
thereof has made any warranty or representation with respect to the tenant mix
of the Building, the identity of prospective or other tenants of the Building,
or profitability.
37.19 If any guarantee of this Lease is required by
Landlord, such guarantee shall be in form and content acceptable to Landlord.
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37.20 The words "person" and "persons" as used herein
shall include individuals, firms, partnerships, associations and corporations.
37.21 The language in all parts of this Lease shall be in
all cases construed simply according to its fair meaning, and not strictly for
or against Landlord or Tenant. Any reference to any Section herein shall be
deemed to include all subsections thereof unless otherwise specified or
reasonably required from the context. Any reference to "days" or "months"
herein shall refer to calendar days or months, respectively, unless
specifically provided to the contrary. Unless clearly inconsistent with the
context, any reference herein to "the term hereof" or "the term of this Lease"
shall refer to the term of this Lease as the same may be extended pursuant to
any extension options(s) contained herein. The terms "herein", "hereunder" and
"hereof" as used in this Lease shall mean "in this Lease", "under this Lease"
and "of this Lease", respectively, except as otherwise specifically set forth
in this Lease.
37.22 Any and all exhibits and addenda referred to in this
Lease are incorporated herein by reference as though fully set forth herein.
37.23 Tenant hereby acknowledges and agrees that the
exterior walls of the Building and the area between the finished ceilings of
the Premises and the slab of the floor of the Building thereabove have not been
demised hereby. Except as reasonably necessary for the installation,
maintenance, repair or replacement of certain of the Tenant's personal property
including but not limited to wiring, conduits, electrical or electronic
equipment, computer hardware, servers, cables, or other equipment and
facilities used or useable in Tenant's business, the use thereof, together with
the right to install, maintain, use, repair and replace pipes, ducts, conduits
and wires leading through, under or above the Premises, is hereby excepted and
reserved unto Landlord. To accommodate Tenant's rights relative to such areas,
Landlord grants to Tenant a non-exclusive license to access such areas from
time to time as necessary for the foregoing purposes provided that Tenant shall
be responsible for any damage caused by such access and shall not alter any
Building systems in such areas without Landlord's consent.
37.24 Tenant and Landlord hereby warrants and represents
that neither its execution of nor performance under this Lease shall cause it
to be in violation of any agreement, instrument, contract, law, rule or
regulation by which either is bound, and each agrees to indemnify the other
against any loss, cost, damage or liability including, without limitation,
reasonable attorneys' fees arising out of such breach of this warranty and
representation.
37.25 Rent shall not be abated, nor may this Lease be
terminated by Tenant, except as may otherwise be expressly provided herein or
as determined by a court of law.
37.26 Tenant covenants by and for itself, its successors
and assigns, and all persons claiming under or through them, and this Lease is
made and accepted upon and subject to the following conditions: That there
shall be no discrimination against or segregation of any person or group of
persons, on account of sex, marital status, age, race, color, religion, creed,
national origin or ancestry, in the leasing, subleasing, renting, transferring,
use, occupancy, tenure or enjoyment of the Premises herein leased, nor shall
Tenant itself, or any person claiming under or through it, establish or permit
such practice or practices of discrimination or segregation with reference to
the selection, location, number, use or occupancy of tenants, lessees,
sublessees, subtenants or vendees in the Premises.
37.27 Landlord and Tenant each acknowledge that it has
retained counsel to represent it with respect to this Lease; Landlord and
Tenant have each read and understand this Lease; Landlord and Tenant have each
been advised by its counsel with respect to its rights and obligations under
this Agreement; and the principal of construction against draftsmen shall have
no application in the interpretation of this Lease.
37.28 Tenant acknowledges and agrees that the terms of this
Lease are confidential and constitute proprietary information of Landlord.
Disclosure of the terms hereof may adversely affect the ability of Landlord to
negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, except as required by law or reasonably necessary in connection
with Tenant's business including by way of illustration and not limitation in
connection with Tenant's IPO. Tenant agrees that it, and its partners,
officers, directors, employees, agents and attorneys, shall not intentionally
and voluntarily disclose the terms and conditions of this Lease to any
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newspaper or other publication or any other tenant or apparent prospective
tenant of the Building or the Project or any real estate agent (other than the
broker(s) identified in the Basic Lease Information), either directly or
indirectly, without the prior written consent of Landlord; provided further,
however, that Tenant may disclose the terms to prospective subtenants or
assignees under this Lease and to its attorneys and accountants on a
"need-to-know" basis, provided all of the same are instructed as to the
confidentiality hereof."
37.29 The submission of this Lease by Landlord or its
agent or representative for examination or execution by Tenant does not
constitute an option or offer to lease the Premises upon the terms and
conditions contained herein or a reservation of the Premises in favor of Tenant;
it being intended hereby that this Lease shall become effective only upon the
execution hereof by Landlord and delivery of a fully executed counterpart hereof
to Tenant.
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IN WITNESS WHEREOF, the parties hereto have executed this
Lease as of the date first hereinabove set forth.
"LANDLORD" "TENANT"
TRIPLE T BRENTWOOD LLC PRIVATE BUSINESS, INC.,
a Delaware limited liability company a Tennessee corporation
By: Travelers Casualty and Surety By
Company, a Connecticut ---------------------------------
corporation Its
--------------------------------
By:
----------------------------------
Its:
---------------------------------
THIS LEASE HAS BEEN PREPARED FOR TENANT'S REVIEW AND FOR
TENANT'S SUBMISSION TO ITS LEGAL AND/OR TAX CONSULTANT. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY LANDLORD OR BROKER, OR THE AGENTS OR EMPLOYEES OF
EITHER, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTIONS RELATING HERETO.
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ADDENDUM
This Addendum is attached to and made a part of that certain
Lease ("Lease") dated __________________, between Triple T Brentwood LLC, as
Landlord, and Private Business Partners, Inc., as Tenant, relating to premises
located at Overlook Park, Brentwood, Tennessee. This Addendum shall supplement
and amend the Lease, and the provisions set forth below shall supersede any
inconsistent provisions set forth in the Lease. To the extent possible, the
provisions set forth below have been numbered to coincide with the numbered
sections of the Lease to which they relate. Except as may otherwise be
specifically provided below, any terms used below which are defined in the
Lease shall have their respective meanings set forth in the Lease.
38. Extension Option.
(a) Tenant shall have the right to extend the term of this
Lease for two five (5) year extensions of the term of this Lease upon prior
written notice ("Tenant's Election") to Landlord given not sooner than twelve
(12) months prior to the expiration of the then existing term of this Lease;
provided, however, that at the time Tenant gives Tenant's Election Notice to
Landlord and for the remainder of the then existing term of this Lease there is
no material of default by Tenant under this Lease. During such extension
period, the provisions of this Lease, as it may be amended in writing prior to
the date of the commencement of such extension period, shall continue in
effect, except that Tenant shall occupy the Premises in their then "AS-IS"
condition and there shall be no abatement of rent, nor shall there be credit or
allowance given to Tenant for improvements to the Premises. The Base Rent will
be an amount equal to ninety-five percent (95%) of the Fair Market Value Rate
if no commission is payable to any person (other than Landlord's Broker) and
one hundred percent (100%) thereof if any commission is payable to any person
(other than Landlord's Broker) as a result of Tenant's exercise of such
options; provided, however, in no event shall the Base Rent for such extension
period be less than the Base Rent due for the last month of the initial term of
the Lease. It is understood and agreed that Tenant's delivery of Tenant's
Election Notice shall bind Tenant to such extension subject to the agreement of
the parties with respect to rent.
"Fair Market Value Rate" shall mean the annual amount per
rentable square foot then being charged during the term of any new leases for
delivery on or about the applicable delivery or effective date for comparable
non-sublease, non-encumbered (i.e., not affected by any options to expand,
contract or extend or rights of first refusal or rights of first offer),
non-equity space and comparable office buildings in the general vicinity in
Brentwood, Tennessee which buildings have been similarly improved ("Qualified
Buildings"), taking into consideration annual rental, rates per rentable square
foot, the type of escalation and clauses (including but without limitation
operating expense, real estate tax, CPI or other adjustments), the floor level
on which the Leased Premises are located, tenant improvements or allowances
therefore provided by Landlord or to be provided for such comparable space,
parking arrangements, rental abatement or other concessions, if any, the length
of the relevant term, the extent of services to be provided to the leased
premises, the date as to which the term is to become effective, and any other
relevant terms and conditions.
39. Right of Offer - First Floor and Second Floor.
Tenant's rights described in this Section 39 are subject to
Travelers _________ ("Travelers") right of first offer to lease (and re-lease,
as the case may be) any space in the Building upon receipt of written notice
from Landlord describing the premises then available and the terms and
conditions upon which Landlord is offering to lease (or re-lease, as the case
may be) such premises, all in accordance with that certain Lease dated as of
_____________, 1999 between Landlord and Travelers. If Landlord elects to lease
any then unleased portion of the first and second floors of the Building,
Landlord shall notify Tenant, in writing, of such space and the terms and
conditions on which Landlord is willing to lease such space, which terms and
conditions shall be comparable to the terms and conditions Landlord proposes to
offer to prospective third party tenants. Landlord shall not rent such space to
any third party on terms less favorable than the terms and conditions offered
to Tenant. Within ten (10) business days after Tenant's receipt of Landlord's
offer to lease, Tenant shall notify Landlord, in writing, of Tenant's desire to
lease or not to lease the subject space. If Tenant
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notifies Landlord that Tenant does not wish to lease such space or if Tenant
does not deliver a written notification to Landlord within the time period
specified, Tenant's rights hereunder shall terminate until the space again
becomes available and Landlord shall have the right to lease such space to any
person; provided, however, that if Landlord subsequently determines to offer
such space to a third party or parties on terms which are materially more
favorable than the terms previously offered to Tenant, then the foregoing right
of first offer shall once again be applicable, and the Landlord shall not lease
such space to a third party until Landlord has resubmitted Landlord's offer to
lease to Tenant. For purposes of the preceding sentence, the phrase "materially
more favorable than the terms previously offered to Tenant, then the foregoing
right of first offer shall once again be applicable, and the Landlord shall not
lease space to a third party until Landlord has resubmitted Landlord's offer to
lease to Tenant. For purposes of the preceding sentence, the phrase "materially
more favorable" shall be deemed to be mean terms which reflect a Fair Market
Value Rate which is lower by more than ten percent (10%) than the rate
previously specified to Tenant or any other material favorable change of
condition.. If a third party (i.e., not a Landlord Affiliate (as defined in
Section 42 hereof)) leases any of the first and second floors of the Building,
such lease shall include, among other things, the right of Landlord to relocate
such tenant to other suitable space in the Building from and after the date on
which all rights of first refusal, first option, expansion and extension of the
tenant under the Travelers Lease have expired. Tenant shall pay the costs of
any such relocation if such relocation is necessary to accommodate Tenant's
exercise of its rights in this Section 41.
40. Right of First Refusal to Purchase.
If Landlord receives a bona fide offer in writing to purchase
the Property from a third party which is not a "Landlord Affiliate" (as
hereinafter defined), Tenant shall have a right of first refusal to purchase
the Property on the same terms and conditions upon which a third party
purchaser has offered to purchase the Property. Within five (5) business days
after Landlord has provided written notification to Tenant of the terms and
conditions on which such third party purchaser has offered to purchase the
Property together with a true, complete and accurate copy of such offer as
executed by the proposed purchaser, Tenant shall notify Landlord, in writing,
of Tenant's election not to purchase the Property or, alternatively, to
purchase the Property on the same terms and conditions as such third party
purchaser is willing to purchase the Property. Tenant's failure to deliver its
written election notice to Landlord within the time period specified above
shall be deemed to be Tenant's election not to purchase the Property. If Tenant
elects to purchase the Property, the closing on Tenant's acquisition shall
occur on the later of the date specified in such offer or sixty (60) days after
Landlord's receipt of Tenant's written election to purchase.
For the purposes hereof, the term "Landlord Affiliate" shall
mean any entity which is a wholly-owned subsidiary, either directly or
indirectly through one or more wholly-owned subsidiaries, of Citigroup, Inc.
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EXHIBIT "A"
PREMISES
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EXHIBIT "B"
TENANT'S DESIGNATED PARKING AREA
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EXHIBIT "C"
FORM OF LEASE COMMENCEMENT LETTER
Private Business, Inc.
9010 Overlook Drive
Brentwood, Tennessee 37027
Attention: Fred Read
Re: Suite #
---------
------------------------
(the "Premises")
Gentlemen:
Reference is made to that certain Lease dated as of
___________, ___ (the "Lease") between Triple T Brentwood LLC, as Landlord, and
Private Business, Inc., as Tenant, for the Premises. All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Lease.
The Commencement Date of the Lease is _____________, ____.
Please countersign the enclosed copy of this letter
indicating your acknowledgement of and agreement with the foregoing.
TRIPLE T BRENTWOOD, LLC
By: Travelers Property and Casualty
Company, a Connecticut corporation
By:
-------------------------------------
Its:
------------------------------------
ACKNOWLEDGED AND AGREED TO THIS
_____ DAY OF ____________, ____
PRIVATE BUSINESS, INC.
By:
---------------------------
Its:
--------------------------
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EXHIBIT D
BASE BUILDING IMPROVEMENTS
The Base Building Improvements and systems described below shall be furnished
by Landlord at Landlord's sole cost and expense. The term "Base Building
Improvements" is defined as the condition of the Premises after installation of
shell construction, but prior to commencement of construction and/or
installation of the Tenant Improvements. The Base Building Improvements
include:
1. Compliance with all applicable codes and governing authorities.
2. All site walkways will be concrete. All drives and parking areas will
be asphalt paving with extruded concrete curbs. The entry plaza is
highlighted with landscape planters and lighting.
3. Site lighting levels will average two foot candles for all parking
areas and one foot candle at perimeter of parking area and building.
The finish of all site lighting fixtures shall match the aluminum
storefront color.
4. Two lighted monument signs will be located at each entrance drive as
permitted pursuant to the applicable city codes for Brentwood,
Tennessee. Individual cast letter signage will identify the building
address.
5. Native, select trees, shrubs, planting areas and grass will be used to
enhance project aesthetics. All planting areas will be irrigated with
an automatically controlled irrigation system.
6. A separate loading area accessible to a service elevator will be
available. This loading area will also be accessible to a common area
mail room located on the first floor.
7. The building structure is designed for a floor live load of 100 psf
reducible at the core area between stair #2 and the passenger
elevators and 80 psf reducible between core area and perimeter walls.
The open floor space between the core area columns and perimeter wall
columns will have a clear span. The building frame will consist of
reinforced concrete foundations and columns with post-tensioned
concrete floors and roof. The main lobby entrance consists of an all
glass wall system with glass doors and custom hardware to match
building window system. The roof will consist of a single ply, fully
adhered EPDM roof membrane over rigid insulation. The structure will
provide positive slope to internal roof drains. A concrete floor will
be installed with a smooth trowel finish (in compliance with
specifications of the American Concrete Institute) ready to accept the
installation of glued down carpet. All floor covering within the
Tenant's Premises will be at Tenant's cost. The floor will be poured
level and finished in accordance with industry standards.
8. The building shell will consist of brick veneer (similar to the
existing PBI building adjacent to the site, subject to availability
and cost constraints) over fully insulated metal stud wall system and
one inch, insulated glass set in aluminum frames (window glass and
frame to be similar in color with existing PBI building adjacent to
site). (Landlord shall use its reasonable efforts, subject to
availability and cost constraints, to implement Tenant's desire that
the brick veneer and the color of the window glass and frame of the
Building be as similar as possible to the PBI building adjacent to the
site.) All exterior wall framing and insulation is by Landlord. All
drywall work for interior surface of exterior walls and concrete
column enclosures is by Tenant. The finished interior core will
include all common area corridors, 1st floor elevator lobby, stairwell
enclosures, men's and women's restroom facilities, drinking fountains,
electrical, telephone, mechanical and janitorial closets. The Tenant
side of core walls will be taped and floated drywall. The interior
materials and finishes for the common areas for the Base Building
Improvements will be as follows:
1ST FLOOR LOBBY
FLOORS: Stone
WALLS: Custom panelized wood panels
CEILINGS: Gypsum Board
LIGHTING: Recessed down lights and indirect lighting
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BASE BOARD: Wood or stone base throughout
DIRECTORY: A building directory is provided by landlord in the entry
lobby. Tenant shall be allowed space on the directory for
individual letters, at Tenant's sole cost and expense.
COMMON AREA CORRIDORS (1ST - 4TH FLOORS)
FLOORS: Carpet
WALLS: Vinyl wall covering
CEILINGS: Building standard 2x2 suspended acoustical ceiling in
corridors
BASE BOARD: 4" resilient cove base
PASSENGER ELEVATOR CABS
CUSTOM: Wood panels and recessed down lighting in each elevator cab
with carpet floors.
RESTROOMS
FLOORS: Ceramic tile
WALLS: Ceramic tile Wainscot behind toilets. Vinyl wall covering
elsewhere
CEILINGS: Gypsum board accents with acoustical ceiling
LIGHTING: Down lights and indirect fluorescent alcove lighting
PARTITIONS: Ceiling mounted plastic laminate partitions
VANITY TOP: Stone with porcelain bowls; full length mirror above
ACCESSORIES: Stainless steel
DOORS
3'-0" wide x full height stain grade solid core wood doors
(clear select birch, rotary cut) in hollow metal frames with
ADA approved hardware.
9. The Building will have three (3) automatic 3,000 lb. (175 ft/min)
hydraulic passenger elevators and one (1) automatic 4,000 lb.
hydraulic service elevator. Doors, frames, and inside trim are
stainless steel.
10. The Building Plumbing will include wet stacks and waste system located
near each end of the building to facilitate Tenant requirements. The
typical core restroom on each floor will consist of six water closets
and four lavatories for the women's restroom and two water closets,
three urinals, and three lavatories for the men's restroom. The
fixtures will be porcelain with wall-hung urinals and water closets.
11. The Heating, Ventilation and Air Conditioning Systems shall consist of
four variable volume DX type roof top units, 88.5 ton minimum, (one
serving each floor, average 295 RSF/ton) with scroll compressors. The
Base Building Improvements will include medium pressure supply
ductwork, low pressure return ductwork routed to each floor, and any
V.A.V. or fan terminals required for the core area. No heat is planned
for the Tenant Improvement area under the Base Building Improvements
package. Tenant is responsible for all mechanical doct loops, branch
lines and V.A.V. or fan terminals in Tenant's Premises. The overall
HVAC system will be controlled by Andover DDC, a computerized, energy
management system, utilizing space sensors with tenant adjustable set
points of +/-5(0)F indoor design temperature of 70(0)F, year round.
12. A life safety system will be installed, in accordance with applicable
national, state and local codes, throughout the Building, including
all common areas and stairwells. It will consist of sprinklers, smoke
detectors, internal fire alarms and annunciator system, common area
emergency lighting, common area self illuminating exit signs, fire
department hose connections, and fire extinguishers as required by
applicable codes. The sprinkler system will have an approved water
flow alarm connection and tamper resistant detection device connected
to a U.L. Listed 24 hour Central Monitoring Station, and it will
include all distribution of mains, laterals, uprights and upright
heads. Tenant will be responsible for all costs to drop sprinkler
heads as required under Tenant Improvements. While Landlord will
provide common area fire extinguishers, at Landlord's sole cost and
expense, Tenant shall provide annual inspections, repair and or
replacement of all fire extinguishers located within Tenant's
Premises, as required by all applicable state, federal and local laws,
rules, and regulations. Tenant, at its sole cost and expense, will be
required to connect to Landlord's life safety system.
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13. The building electrical service will be 2500 amps. Electrical
distribution will be provided to the main panel boxes in the
electrical closet on each floor. Each floor will have a two-section,
400 amp, 277/480 volt distribution panel for all mechanical units,
tenant and shell lighting circuits and a 75 KVA transformer for tenant
low voltage requirements. The low voltage panels shall be 225 amp,
120/208 volt, two section for each floor. A 100 KW/125 KVA emergency
generator will be provided to serve life safety lighting.
Approximately 80 KW will be available for some critical tenant loads,
distributed in proportion to the total rentable area, which Tenant
occupies in the building. Any Tenant loads required beyond this
allowance will be at Tenant's sole cost and expense.
14. Telephone terminal boards and vertical raceways will be provided in
electrical closet on each floor. Tenant telephone hardware design and
installation shall be by Tenant, at Tenant's sole cost and expense.
15. An electronically controlled card access control system will be
provided. This system will control all entry areas to Tenant's
Premises from Building exterior doors, stairwells, and elevators only.
This system will control Tenant's Premises 24 hours a day and Building
entrances after the normal hours of operation of the Building.
16. The Base Building Improvements work will be similar to the attached
site plan, S-1, floor plans, P-1, P-2, P-3, and P-4, and Building
elevation plans, E-1 and E-2 designed by Hayden Architects. 1.
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EXHIBIT "E"
TENANT IMPROVEMENT WORK AGREEMENT
This TENANT IMPROVEMENT WORK AGREEMENT ("Agreement") is made
and entered into this _____ day of April 1999, by and between PRIVATE BUSINESS,
INC., a Tennessee corporation ("Tenant"), and TRIPLE T BRENTWOOD LLC, a
Delaware limited liability company ("Landlord")
A. Landlord and Tenant have entered into a lease dated
as of April ___, 1999 (hereinafter the "Lease") for the entire rentable area of
the third and fourth floors (the "Premises") in a building to be constructed by
Landlord located in Overlook Park, Brentwood, Tennessee, and
B. Certain tenant improvement work is to be completed
within the Premises; and
C. All capitalized terms not otherwise defined herein
have the same meaning as ascribed thereto in the Lease.
NOW, THEREFORE, for and in consideration of the agreement to
lease the Premises; pay rent and mutual covenants contained herein, the parties
agree as follows:
1. Tenant Improvements. Tenant improvements (the
"Tenant Improvements") means the materials, their respective quantities and the
labor to install same in the Premises in accordance with Architectural
Construction Documents and Additional Construction Documents (as defined in
Section 5 and Section 6 hereof) together with the associated architectural,
design, engineering, miscellaneous consulting services and reimbursables,
moving labor, telecommunications charges, material and labor necessary for
Tenant's relocation to the Premises.
2. Tenant's Architect. Tenant has designated the firm
identified on Schedule 1 hereto as its architect (such architect or such other
architect as may be selected by Tenant in substitution for such firm subject to
Landlord's reasonable approval is referred to as "Tenant's Architect").
3. Landlord's Architect. Landlord has designated the
firm identified on Schedule 2 hereto as its architect (such architect, or such
other architect as may be selected by Landlord is substitution for such firm,
is hereinafter referred to as "Landlord's Architect").
4. Space Utilization Plans.
4.1. As promptly as possible, Tenant will
furnish Landlord with initial space utilization plans and outline
specifications in sufficient detail for Landlord's review and approval. The
space utilization plans shall include, but shall not be limited to the
following: partition layout; door locations; electrical outlet locations and
anticipated usage; telephone outlet locations; light switching requirements;
and special lighting requirements. Tenant should also identify any area of the
Premises where: (1) the occupancy loads are expected to exceed building
standard (as defined in Exhibit D to the Lease); (2) special heating,
ventilation and air-conditioning equipment is required; (3) computer rooms and
related special areas are located; (4) floor loads or storage requirements
might exceed structural capacities; and (5) modifications might be required to
the structural, mechanical, fire protection, electrical or life safety systems.
Within ten (10) business days, Landlord shall indicate its acceptance or
rejection of such initial space utilization plans and outline specifications.
In the event Landlord rejects the same, Landlord shall advise Tenant and
Tenant's Architect of the reasons for such rejection and shall work with Tenant
and Tenant's Architect to arrive at mutually acceptable alternatives to such
plans and specifications.
4.2. If, pursuant to Section 4.1. above,
Landlord rejects Tenant's initial space utilization plans, Tenant shall submit
revised space utilization plans to Landlord within ten (10) business days
following receipt by Tenant of written advice of such rejection and the reasons
therefor.
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4.3. If Tenant is required to submit revised
space utilization plans pursuant to Section 4.2. above, Landlord shall indicate
its acceptance or rejection of the revisions within ten (10) business days
following receipt by Landlord of such revised space utilization plans. In the
event Landlord rejects such revisions, Landlord shall advise Tenant and
Tenant's Architect in writing of the reasons for such rejection and shall work
with Tenant and Tenant's Architect to arrive at mutually acceptable
alternatives to such plans and specifications.
4.4. Landlord shall not unreasonably withhold
its acceptance and approval of the space utilization plans or outline
specifications, or of any of the Architectural Construction Documents or
Additional Construction Documents to be prepared pursuant to Section 5 and
Section 6 hereof or Revised Plans pursuant to Section 10.4. hereof; unless the
improvements called for thereby, in Landlord's reasonable judgment, would
materially adversely affect or require material modification of the exterior,
structural, electrical, fire protection, heating, ventilating, air conditioning
or mechanical elements of the efficient operation of the Building, would
intrude into the common elements of the Building, would be visible from the
exterior of the Building or would require unreasonable entry into another
tenant's premises (a "Design Defect").
5. Architectural Construction Documents.
5.1. Using the space utilization plans prepared
by Tenant's Architect and approved by Landlord, Tenant shall cause Tenant's
Architect to prepare and deliver Architectural Construction Documents
("Architectural Construction Documents") to Landlord and Tenant.
5.2. Within ten (10) business days following
receipt by Landlord of the Architectural Construction Documents referred to in
Paragraph 5.1. above, Landlord shall indicate its acceptance or reasonable
rejection of such Architectural Construction Documents. In the event Landlord
rejects such Architectural Construction Documents, Landlord shall advise Tenant
and Tenant's Architect in writing of the reasons for such rejection and shall
work with Tenant and Tenant's Architect to arrive at mutually acceptable
Architectural Construction Documents.
5.3. If, pursuant to Section 5.2. above,
Landlord rejects Tenant's Architectural Construction Documents, Tenant shall
submit revised Architectural Construction Documents to Landlord within ten (10)
business days following receipt by Tenant of written advice of such rejection
and the reasons therefor and shall work with Tenant and Tenant's Architect to
arrive at mutually acceptable Architectural Construction Documents.
5.4. If Tenant is required to submit revised
Architectural Construction Documents pursuant to Section 5.3. above, Landlord
shall indicate its acceptance or reasonable rejection of the revisions within
ten (10) business days following receipt by Landlord of such revised
Architectural Construction Documents. In the event Landlord rejects such
revisions, Landlord shall advise Tenant and Tenant's Architect in writing of
the reasons for such rejection and shall work with Tenant and Tenant's
Architect to arrive at mutually acceptable Architectural Construction
Documents.
6. Additional Construction Documents. Concurrently with
the Architectural Construction Documents, Tenant's Architect shall prepare and
deliver to Landlord and Tenant the Additional Construction Documents
("Additional Construction Documents") including fire protection, heating,
ventilating, air conditioning, electrical and mechanical drawings and
specifications. Landlord shall cause Landlord's Architect and Tenant shall
cause Tenant's Architect to cooperate in the coordination of the preparation of
such Additional Construction Documents with the Building documents and
specifications, and with the preparation of such Architectural Construction
Documents pursuant to Section 5 hereof. Within ten (10) business days of
receipt of such Additional Construction Documents, Landlord shall indicate its
acceptance or reasonable rejection in writing. In the event Landlord rejects
such Additional Construction Documents, Landlord shall advise Tenant and
Tenant's Architect of the reasons for such rejection and shall work with Tenant
and Tenant's Architect to arrive at mutually acceptable versions of such
Additional Construction Documents. Tenant's Architect shall then, at the sole
cost of Tenant unless such revisions are made necessary by reason of an error
on the part of the
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Landlord's Architect, revise such Additional Construction Documents. Revisions
shall be subject to Landlord's approval or reasonable rejection, which shall be
given in writing within ten (10) business days of receipt of such revised
Additional Construction Documents. The final Additional Construction Documents
must be approved by Landlord, not to be unreasonably withheld or delayed.
Architectural Construction Documents and Additional Construction Documents are
collectively referred to as "Construction Documents". Landlord and Tenant
agree, to the extent reasonably possible, to coordinate the review and approval
process as to each aspect of the Construction Documents so as to facilitate the
bidding process described in Section 9.2(c).
7. INTENTIONALLY OMITTED
8. Construction of Tenant's Improvements. Unless
otherwise agreed to in writing by Landlord and Tenant, all work involved in
construction and equipping of the Tenant Improvements shall be carried out by
the Landlord's Contractor (as defined below) under a construction contract or
contracts on AIA Form A101 (1997 Edition), amended as necessary, or on other
appropriate standard AIA forms, directly with the Landlord and under the sole
direction of the Landlord. Landlord agrees that all services and work performed
in the Premises, on behalf of, or for the account of Tenant by Landlord,
including general construction of the Tenant Improvements by the Landlord's
Contractor, shall be done in a first-class workman-like manner using only good
grades of material.
9. Pricing and Bidding Procedures.
9.1. Selection of Landlord's Contractor.
Landlord acknowledges that Tenant has a legitimate interest in identifying,
selecting, and using a contractor, subcontractors and suppliers reasonably
acceptable to Tenant to perform the construction of the Tenant Improvements.
Landlord shall therefore consult with Tenant in determining which contractors,
subcontractors and suppliers shall be afforded the opportunity to bid on Tenant
Improvements.
9.2. General Contractor and Standards for
Competitive Bidding. Landlord shall employ a licensed General Contractor (the
"Landlord's Contractor"), subcontractors for all trades, and all suppliers
engaged to complete the Tenant Improvements. Landlord shall competitively bid
the construction contract with Landlord's Contractor and shall require that
Landlord's Contractor competitively bid all trades in accordance with the
following conditions:
a) All competitive bidding shall be
based on obtaining a minimum of three (3) competitive bids for each particular
aspects of the work.
b) Notwithstanding the foregoing,
fewer than three (3) competitive bids may be accepted by Landlord or Landlord's
Contractor, as applicable, if such items have a completed value of less than
Twenty Thousand and No/100 Dollars ($20,000.00) or if all three (3) bids cannot
be obtained within five (5) days (or such other time period as may be specified
herein) of the date of request for such bids.
c) Tenant shall cooperate with
Landlord and Landlord's Contractor to promote the efficient and expeditious
completion of all such work. Tenant shall cause Tenant's Architect to submit
final plans, drawings, information, and instructions with respect to discreet
portions or components of the Tenant Improvements as promptly as possible upon
completion of each phase of the Architectural Construction Documents. Landlord
shall immediately submit such information to Landlord's Contractor, who shall,
within twelve (12) business days, procure written, firm competitive bids as
required above for the costs of such work. Within five (5) business days after
receipt of such bids, Landlord will then submit to Tenant such bids of the cost
of each phase of Tenant's Improvements from the Landlord's Contractor. Tenant
shall accept or reject such bids within five (5) days by delivering to Landlord
its expenditure authorization for such work. In the event that Tenant rejects
or fails to respond to such bids within such five (5) day period, Tenant shall
have until the tenth (10th) day following such five (5) day period in which to
cause Tenant's Architect to resubmit plans, drawings, information and
instructions, if necessary, and to accept new bids from Landlord's Contractor.
d) Tenant shall have the right to
review and approve, which
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shall not be unreasonably withheld or delayed, the final AIA form construction
contract for the Tenant Improvements prior to the execution by Landlord and
Landlord's Contractor.
10. Construction.
10.1. Construction by Tenant. Landlord, through
Landlord's Contractor and its or their subcontractors, shall secure all
required permits, and shall, with due diligence, cause the Tenant Improvements
to be constructed within the Premises and prepared for Tenant's occupancy, as
required by the Lease, this Agreement and the Construction Documents submitted
to and approved by Landlord and by Landlord's Architect. Landlord shall
furnish, install and perform or cause to be furnished, installed and performed
all Tenant Improvements in the Premises in compliance with all applicable laws,
ordinances, city codes and standard minimum insurance requirements as set forth
in said Construction Documents, all as revised in accordance with the
provisions hereof with said Tenant Improvements to be in the quantity and of
the quality specified. Upon Substantial Completion (as defined in the Lease) of
the Tenant Improvements, Landlord and Tenant shall inspect the Premises and
prepare a Punch List (as defined in the Lease) of any defects or uncompleted
items necessary to correct. The Premises shall not be deemed incomplete or not
ready for occupancy if only insubstantial details of construction, decoration
or mechanical adjustments remain to be done.
10.2. Rules and Regulations. Landlord's
Contractor and all subcontractors shall comply with the Rules and Regulations
established by Landlord with respect to the construction of Tenant
Improvements. Such Rules and Regulations are attached to Tenant's Lease as
Exhibit "G" and may be modified from time to time by Landlord, in its
reasonable discretion, provided that Tenant's rights and obligations are not
adversely affected.
10.3. Non-Compliance. In the event of any
material non-compliance by Landlord and Landlord's Contractor or their
subcontractors with any of the material provisions of this Agreement or any
other similar agreement relative to construction or occupation of the Premises,
Tenant, in addition to and not in lieu of any other right or remedy, may and
shall have the right, in its reasonable discretion and after the expiration of
applicable written notice and cure periods, to declare and treat such
non-compliance as a default under the Lease and exercise any right available
under the Lease, including any right of termination provided in the Lease. In
such event, Tenant may, but shall not be obligated to, perform Landlord's
construction obligations hereunder, at Landlord's expense. Notwithstanding the
foregoing, if Landlord's Contractor defaults or neglects to carry out the
construction of the Tenant Improvements in accordance with the Construction
Documents, in all material respects, and fails, within thirty (30) days after
receipt of written notice from Tenant, to commence and continue correction of
such default or neglect with diligence and promptness, Tenant reserves the
right after thirty (30) days to make good such deficiencies and charge such
costs to the Landlord; provided, however, if such default or neglect cannot
reasonably be cured within such 30 day period, Landlord's Contractor shall not
be deemed to be in default under the Construction Documents (and Tenant shall
not have the right to make good such deficiencies and charge such costs to
Landlord) if Landlord's Contractor (or Landlord or its designate) have
commenced such cure within such 30 day period.
10.4. Extra Work. In the event Tenant desires to
make revisions to the Tenant Improvements after completion of the Construction
Documents, Tenant or Tenant's Architect must request the revisions in writing.
Minor revisions ($1,000.00 or less) may be made to maintain schedule with
documentation to follow. Tenant shall cause to be prepared and delivered to
Landlord, for Landlord's review and approval, which shall not be unreasonably
withheld or delayed, Revised Plans for the Extra Work. After reviewing the
Revised Plans, Landlord shall notify Tenant of Landlord's approval or
reasonable disapproval thereof and, in the event of its disapproval, Landlord
shall specify the reasons for such disapproval and cooperate with Tenant in
reaching mutually acceptable Revised Plans. Tenant may cause the Revised Plans
to be modified and resubmitted to Landlord for Landlord's further review and
approval within five (5) business days after Landlord notifies Tenant of its
disapproval.
11. Payment for Work.
11.1. Landlord's Dollar Contribution. Apart from
any other sums herein specified to be paid or credited by Landlord, Landlord
shall make a contribution of $21.00 per rentable square foot of the Premises
toward the cost of Tenant Improvements. The parties
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acknowledge and agree that the Landlord, as a part of the costs of Tenant
Improvements, shall be allowed, for itself or for any third party it may
engage, a construction management fee or similar charge of one and one-half
percent (1.5%) of the cost of the Tenant Improvements up to a maximum of
Fifteen Thousand and No/100 Dollars ($15,000.00).
11.2. Costs Above Landlord's Contribution. Tenant
shall pay any costs of construction of the Tenant Improvements which exceed
Landlord's Contribution. Upon Landlord's payment of the Landlord Contribution,
Tenant shall, on a periodic basis and not more than seven (7) business days
after Landlord's written request (together with copies of the documentation
delivered to Landlord by Landlord's Contractor), pay to Landlord (and Landlord
shall pay to Landlord's Contractor) such amounts as necessary to pay the
applicable costs of construction of the Tenant Improvements in excess of
Landlord's Contribution.
11.3. Applications for Payment and Approval
Thereof. It is expected that payments to Landlord's Contractor and to the
subcontractors, suppliers and consultants will be made by Landlord on a monthly
basis as the work progresses, upon suitable application, invoice, or required
documentation and based on the value of work satisfactorily completed and
materials in place or suitably stored and segregated. Landlord shall permit
Tenant and Tenant's representative to be present at and participate in all
meetings (normally once monthly) at which such applications for payment are
submitted for review, discussion and approval, and to lodge all such
objections, if any, but failure to lodge such objections at such time shall not
prejudice Tenant or Landlord's right under any other provision of this
Agreement.
11.4. Landlord's Payments. Periodically, but not
more than thirty (30) days after Landlord's Contractor has submitted to
Landlord, applications or invoices for Tenant Improvements performed to date
and appropriate partial lien waivers from Landlord's Contractor which includes
subcontractors' invoices for Tenant Improvements performed to date and
appropriate partial lien waivers from the subcontractors, Landlord shall pay
out of Landlord's Contribution, the cost of the Tenant Improvements performed
to date as shown on the invoice which has been approved by Landlord, less
retainage of ten percent (10%), less amounts previously paid out of Landlord's
Contribution. No later than forty-five (45) days after Landlord has received
the final invoice and including appropriate final lien waivers from Landlord's
Contractor (including final subcontractors' invoices and appropriate final lien
waivers from the subcontractors), Landlord shall pay out of Landlord's
Contribution the cost of the Tenant Improvements shown on the final invoice,
less amounts previously paid out of Landlord's Contribution.
11.5. Liens. Except as otherwise provided herein
and subject to Landlord's right to contest any liens in good faith, Landlord
shall not permit any mechanics' lien, material lien, or any other lien to be
filed against the Premises, the Building or Tenant by reason of any Tenant
Improvements or by reason of any other work performed by Landlord, its
Contractor, subcontractors or suppliers. Landlord shall indemnify and hold
Tenant wholly harmless from and against all loss, cost, expense liability, and
damage resulting from any failure of Landlord to pay for the Tenant
Improvements, which failure is not caused by Tenant's failure to pay the costs
of Tenant Improvements in excess of Landlord's Contribution.
12. Certain Other Documents. Landlord shall provide
Tenant with a construction schedule (and all amendments thereto) for the Tenant
Improvements.
13. Access By Tenant Prior to Commencement of Lease.
Upon prior notice, Landlord shall permit Tenant and Tenant's agents to enter
the Premises after commencement of the Tenant Improvements in order that Tenant
or its agents may monitor construction of the Tenant Improvements, such
permission shall constitute a license only and not a lease and such license
shall be conditioned upon:
a) Tenant furnishing Landlord with evidence of
such insurance as Landlord may reasonably require against liabilities which may
arise out of such entry,
b) Tenant not interfering with Landlord,
Landlord's Contractor, and any subcontractors, mechanics and suppliers,
c) Tenant's assuming responsibility for any
damages it causes, and
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d) Landlord shall have the right to withdraw
such license for any reasonable cause. Tenant assumes full responsibility for
any of its employees, agents or contractors admitted to the Premises pursuant
to this paragraph, and does hereby indemnify Landlord because of their
presence, or by or through said employees, agents or contracts.
14. Miscellaneous.
14.1. Headings. The headings are for convenience
only.
14.2. Governing Law. This Agreement shall be
governed by the laws of the State of Tennessee without regard to conflicts of
laws principles.
14.3. Time is of the Essence. Landlord and Tenant
agree time is of the essence in this Agreement
14.4. Entire Agreement. This Agreement, the Lease
and its exhibits hereto attached set forth the entire agreement of Tenant and
Landlord regarding Tenant Improvements.
14.5. Amendment. This Agreement may only be
amended in writing, duly executed by both Landlord and Tenant.
14.6. Dates. Any date specified herein which may
fall on a Saturday, Sunday, or federal or state holiday shall be deemed to be
extended to the next day which is not a Saturday, Sunday, or federal or state
holiday.
15. Designated Representatives: Cooperation
15.1. Landlord and Tenant shall each appoint one
(1) qualified and readily available representative with the authority to give
and receive notices, other materials and information relating to the Tenant
Improvements and approvals required under this Agreement. Initially, Landlord's
representative shall be as shown on Schedule 1, and Tenant's representative
shall be as shown on Schedule 2.
15.2. Tenant and Landlord agree to make their
respective architects and engineers available to the other to answer questions
and provide clarifications and additional information as is reasonable for the
timely progress and completion of the Tenant Improvements.
"LANDLORD" "TENANT"
TRIPLE T BRENTWOOD, LLC, a PRIVATE BUSINESS, INC., a
Delaware limited liability company Tennessee corporation
By: Travelers Property and Casualty By:
Company, a Connecticut ----------------------------
corporation
Its:
By: ---------------------------
---------------------------
Its:
--------------------------
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SCHEDULE 1
TO EXHIBIT E
Landlord's Architect and pertinent information
Hayden Architects, Inc.
1808 West End Ave., Suite 928
Nashville, TN 37203
Greg Hayden
Telephone: (615) 380-3123
Landlord's Designated Representative
and pertinent information
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SCHEDULE 2
TO EXHIBIT E
Tenant's Architect
and pertinent information
Tenant's Designated Representative
and pertinent information
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EXHIBIT "F"
FORM OF TENANT'S CERTIFICATE
__________________________
__________________________
__________________________
Attention:
_______________
Re: Tenant's Certificate
--------------------
Gentlemen:
The undersigned, as Tenant under that certain Lease ("Lease")
dated ______________________, entered into with Triple T Brentwood, LLC, as
Landlord ("Landlord"), relating to certain premises designated as Suite
#_________ (the "Premises"), located at Overlook Park, Brentwood, Tennessee,
37027 hereby certifies that, as of the date hereof and subject to only those
exceptions, if any, noted below:
I. A true, correct and complete copy of the Lease is attached
as Exhibit "A" hereto. Except as identified below, in Item 3, there have been
no amendments, modifications, extensions, assignments or subleases of or
relating to the Lease. To Tenant's knowledge, the Lease is in full force and
effect. The term of the Lease commenced on __________, 19__, and will expire on
__________, ____.
1. Possession of the Premises has been
delivered by Landlord to the undersigned, and the undersigned has accepted and
does occupy the Premises providing Tenant makes no representations as to the
presence or absence of latent or other defects.
2. No more than one (1) month's rent has been
paid in advance; a security deposit in the amount set forth in the Lease has
been paid; no other amounts have been paid in advance to Landlord or deposited
therewith by the undersigned.
3. To Tenant's knowledge, no defense or offset
to the enforcement of the Lease by Landlord exists. To Tenant's knowledge,
Landlord is not in default under the Lease and, to Tenant's knowledge, has not
committed any breach thereunder, nor has any event occurred known to Tenant
which, with the passage of time or the giving of notice, or both, would
constitute a default or breach thereunder by Landlord. Furthermore, to Tenant's
knowledge, Landlord has fully performed all of its obligations under any and
all agreements relating to the Lease or the Premises (including, but not
limited to, its obligations under any improvement agreement and any inducement
obligations).
4. The undersigned does not have any right to
any concession (rental or otherwise) or similar compensation in connection with
the Premises other than as provided in the Lease except as follows:
____________________________________________________.
5. Except as set forth in the Lease and
Addendum thereto, the undersigned does not have any (a) right to renew or
extend the term of the Lease, (b) option or preferential right to purchase all
or any part of the Premises or the building of which the Premises are a part,
or (c) right, title or interest with the respect to the Premises other than as
Tenant under the Lease.
The undersigned acknowledges that you are relying hereon and
warrants, represents and declares, for your benefit and that of your successors
and assigns that each of the foregoing certifications is materially true,
correct and complete, subject to only the following exceptions, if any:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
47
<PAGE> 48
______________________________
Dated: ________________________.
PRIVATE BUSINESS, INC.
By
--------------------------------
Its
------------------------------
By
--------------------------------
Its
------------------------------
48
<PAGE> 49
EXHIBIT "G"
RULES AND REGULATIONS
1. Sidewalks, halls, passageways, exits,
entrances, elevators, escalators and stairways shall not be permanently
obstructed by Tenant or used by Tenant for any purpose other than for ingress
to and egress. The halls, passageways, exits, entrances, elevators, escalators
and stairways are not for the use of the general public, and Landlord shall
retain the right to control and prevent access thereto by all persons whose
presence, in the judgment of Landlord, shall be prejudicial to the safety,
character, reputation or interests of the Building and its tenants and
occupants. Neither Tenant nor any of Tenant's employees shall go upon the roof
of the Building, without the prior consent of Landlord or its designate.
2. No curtains, blinds, shades or screens
shall be attached or to hung in, or used in connection with any window of the
Premises (other than Landlord's standard window covering) without Landlord's
prior consent. All electric ceiling fixtures hung in offices or spaces along
the perimeter of the Building must be fluorescent, of a quality, type, design
and bulb color approved by Landlord. Neither the interior nor exterior of any
windows shall be coated or otherwise sunscreened without Landlord's prior
consent.
3. Except as otherwise provided in that
certain Letter dated as of __________, 1999, between Landlord and Tenant, with
respect to Building signage (the "Side Letter"), no signs, pictures, placard,
advertisement, notice, lettering, direction or handbill shall be exhibited,
distributed, painted, installed, displayed, inscribed, placed or affixed by
Tenant on any part of the exterior of Premises or the interior of the Premises
which is visible from the exterior of the Premises, the Building or the Project
without the prior consent of Landlord. In the event of the violation of the
foregoing by Tenant, Landlord may remove same without any liability, and may
charge the expense incurred in such removal to Tenant. Except as otherwise
provided in the Side Letter, interior signs on doors shall be inscribed,
painted or affixed for Tenant by the Landlord, at Tenant's expense, and shall
be of a size, color and style acceptable to Landlord. Except as otherwise
provided in the Side Letter, nothing may be placed on the exterior of corridor
walls or corridor doors other than Landlord's building standard sign on the
corridor door, applied and installed by Landlord.
4. The Building directory will be provided
exclusively for the display of the name and location of tenants of the Building
(including Tenant) and Landlord reserves the right to exclude any other names
therefrom.
5. Tenant shall not drill into, or in any way
deface any part of the Premises. No boring, cutting or stringing of wires or
laying of linoleum or other similar floor coverings shall be permitted, except
with the prior consent of Landlord.
6. No bicycles, vehicles, birds or animals of
any kind shall be brought into or kept in or about the Premises or the
Building, and no cooking shall be done or permitted by Tenant on the Premises,
except that the preparation of coffee, tea, hot chocolate and similar items for
Tenant and Tenant's employees shall be permitted; provided, however, that the
power required shall not exceed that amount which can be provided by a 30 amp
circuit. Tenant shall not cause or permit any unusual or objectionable odors to
be produced or to permeate the Premises or the Building.
7. The Premises shall not be used for
manufacturing or for the storage of merchandise except as such storage may be
incidental to the use of the Premises for general office purposes. Tenant shall
not occupy or permit any portion of the Premises to be occupied as an office
for a public stenographer or typist or for the manufacture or sale of liquor,
narcotics, or tobacco in any form, or as a medical office, or as a barber or
manicure shop, or as an employment bureau or as a retail travel agency. Tenant
shall not sell or permit the sale of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises. Tenant
shall not engage or pay any employees in the Premises except those actually
working for Tenant in the Premises nor shall Tenant advertise for laborers
giving an address at the Premises. The Premises shall not be used for lodging
or sleeping or for any immoral or illegal purposes.
49
<PAGE> 50
8. Except with respect to the proposed gym
facility for the benefit of Tenant and its employers. Tenant shall not make or
permit to be made, any unseemly noises which disturb other occupants of the
Building, whether by the use of any musical instrument, radio, television,
phonograph, screening room, loud, unusual or disruptive noise, or in any other
way. Tenant shall not use, keep or permit to be used any foul or noxious gas or
substance in, on or about the Premises.
9. Neither Tenant nor any of Tenant's
employees shall, at any time, bring or keep within the Premises or the Building
any flammable, combustible or explosive fluid, chemical substance, or material.
Electric space heaters shall not be used at any time by Tenant.
10. No new or additional locks or bolts of any
kind shall be placed upon any of the doors by Tenant, nor shall any changes be
made in existing locks or the mechanism thereof without Landlord's prior
consent. If Landlord consents to such a lock change, Tenant must furnish
Landlord with a key. Tenant must, upon the termination of its tenancy, give,
return, and restore to Landlord all keys of stores, offices, vaults, and toilet
rooms, either furnished to, or otherwise procured by Tenant, and in the event
at any time of any loss of keys so furnished, Tenant shall pay to Landlord the
cost of replacing the same or of changing the lock or locks opened by such lost
key if Landlord shall deem it necessary to make such changes. Nothing herein
shall prohibit Tenant from utilizing a security system so long as Landlord
receives prior written notice thereof and is provided a means of reasonable
access to the Premises.
11. Furniture, freight, pictures, equipment,
safes, bulky matter or supplies of any description shall be moved in or out of
the Building only, after Landlord (or its designate) has been furnished with
prior notice and given its approval and only during such hours and in such
manner as may be prescribed by Landlord from time to time. The scheduling and
manner of Tenant's move-ins and move-outs shall be subject to the discretion
and approval of Landlord, and said move-ins and move-outs shall only take place
after 6:00 P.M. on weekdays, on weekends, or such other times as Landlord may
designate. In the event Tenant's movers damage the elevator or any other part
of the Building, Tenant shall immediately pay to Landlord the amount required
to repair said damage. The moving of safes or other fixtures or bulky or heavy
matter of any kind must be done under supervision of Landlord (or its
designate) and the person employed by Tenant for such work must be reasonably
acceptable to Landlord, but such persons shall not be deemed to be agents or
servants of Landlord (or its designate) and Tenant shall be responsible for all
acts of such persons. Landlord reserves the right to inspect all safes, freight
or other bulky or heavy articles to be brought into the Building and to exclude
from the Building all safes, freight or other bulky or heavy articles which
violate any of these Rules or Regulations or the Lease of which these Rules and
Regulations are a part. Landlord reserves the right to determine the location
and position of all safes, freight, furniture or bulky or heavy matter brought
onto the Premises, which must be placed upon supports approved by Landlord to
distribute the weight.
12. No furniture shall be placed in front of
the Building or in any lobby or corridor, without Landlord's prior written
consent. Landlord shall have the right to remove all non-permitted furniture,
without notice to Tenant, and at the expense of Tenant.
13. Tenant shall not purchase water, ice,
towel, janitorial or maintenance or other like services from any person or
persons not approved in writing by Landlord. Tenant shall not obtain or
purchase food or beverages in the Premises, the Building or the Project from
any vendor or supplier except at hours and under regulations fixed by Landlord.
The foregoing shall not apply to any "day maid" employed by Tenant or any
"break room" or cafeteria operated by Tenant or to vending machines located on
the Premises provided that such "break room" or cafeteria shall not contain any
gas or electric cooking ovens or stoves except for microwave ovens.
14. Except as agreed else where in the Lease
(or side letter) Landlord shall have the right to prohibit any advertising by
Tenant which, in Landlord's opinion, tends to impair the reputation of the
Building or the Project or the desirability thereof as an office building
project and, upon written notice from Landlord, Tenant shall immediately
refrain from or discontinue such advertising.
50
<PAGE> 51
15. Landlord reserves the right to exclude from
the Building between the hours of 7:00 P.M. and 7:00 A.M., Monday through
Friday, and at all hours on Saturday, Sunday, state and federal holidays, all
persons who are not authorized by Tenant. Such authorization shall be in
accordance with procedures established by Landlord, in its sole and absolute
discretion. Tenant shall be responsible for all persons for whom it causes to
be present in the Building and shall be liable to Landlord for all acts of such
persons. In the case of invasion, riot, public excitement, act of God, or other
circumstance rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access of all persons (including Tenant) to the
Building during the continuance of the same by such actions as Landlord may
deem appropriate, including the closing and locking of doors.
16. Any persons employed by Tenant to do so any
work in or about the Premises shall, while in the Building and outside of the
Premises, be subject to and under the control and discretion of Landlord's
designate (i.e., the superintendent or manager of the Building) but shall not
be deemed to be an agent or servant of said superintendent or the Landlord, and
Tenant shall be responsible for all acts of such persons.
17. All doors opening onto public corridors
shall be kept closed, except when in use for ingress and egress. All doors
leading to equipment and utility rooms shall be kept closed.
18. Canvassing, soliciting and peddling in the
Building are prohibited and each Tenant shall cooperate to prevent the same.
19. All office equipment of any electrical
nature shall be placed by Tenant in the Premises in settings and locations
approved by Landlord, to absorb or prevent any vibration, noise and annoyance.
20. No air conditioning unit or other similar
apparatus shall be installed or used by Tenant without Landlord's prior
consent.
21. Tenant shall faithfully observe and comply
with the terms of any and all covenants, conditions and restrictions applicable
to it recorded against the Project.
22. Restrooms and other water fixtures shall
not be used for any purpose other than that which the same are intended, and
any damage resulting to the same from misuse on the part of Tenant or Tenant's
employees shall be paid for by Tenant. Tenant shall be responsible for causing
all water faucets, water apparatus and utilities to be shut off before Tenant
or Tenant's employees leave the Premises each day and Tenant shall be liable
for any waste or damage sustained by other tenants or occupants of the Building
or Landlord as a result of Tenant's failure to perform said duty.
23. In the event that Building or the Premises
is or later becomes equipped with an electronic access control device, Tenant
shall pay to Landlord the actual cost of each identification key or card issued
to Tenant as a deposit against the return of the identification key or card to
Landlord.
51
<PAGE> 52
EXHIBIT "H"
JANITORIAL SERVICE AND SUPPLIES
<TABLE>
<CAPTION>
<S> <C>
ENTRANCE LOBBY - MARBLE FLOOR FREQUENCY OF
- ----------------------------- ------------
SERVICE
-------
Dust all horizontal surfaces 5 x per week
Clean and polish all bright metal work 5 x per week
Clean both sides of all glass doors and side glass 5 x per week
Empty all trash receptacles and replace liners as necessary 5 x per week
Empty and damp wipe ashtrays (clean cigarette urns, smooth sand, and replace 5 x per week
as necessary)
Spot clean all walls, light fixtures, and doors 5 x per week
Spot clean revolving door glass (side glass and push bars) 5 x per week
Dust high and low areas (pictures, clocks, partition tops, etc.) 1 x per week
Dust mop hard surface floor with high speed buffer 3 x per week
Damp mop entire area 5 x per week
Clean lobby directory signs - removing all soil 5 x per week
Dust mop all hard surface floor with treated or electrostatic dust mop or buff 5 x per week
COMMON AREAS/HALLWAYS
- ---------------------
Fully vacuum all carpets from wall to wall 1 x per week
Vacuum all carpeted traffic lane areas 5 x per week
Spot clean all walls, light switches, and doors 5 x per week
Using approved spotter, spot clean carpeted areas 1 x per week
Dust all low reach areas 1 x per week
Dust all high reach areas 1 x per week
EXECUTIVE OFFICES
- -----------------
Fully vacuum all carpets from wall to wall 5 x per week
Empty all trash receptacles and replace liners as necessary 5 x per week
Clean all glass partition 1 x per week
Spot clean all glass partition 5 x per week
Polish all wood furniture surfaces with approved polish 1 x per week
Dust all furniture surfaces with approved polish 1 x per week
Dust wipe all telephones (including the ear and mouth piece) 1 x per week
Dust all high and low areas (pictures, clocks, partition tops, etc.) 5 x per week
Dust all horizontal surfaces 5 x per week
Spot clean all walls, light switches and doors 1 x per week
Using approved spotter, clean carpeted areas 1 x per week
OFFICE/CUBICLES
- ---------------
Fully vacuum all carpets from wall to wall 1 x per week
Vacuum all carpeted traffic lane areas 5 x per week
Empty all trash receptacles and replace liners as necessary 5 x per week
Clean all glass partitions 1 x per week
Spot clean all glass partition 5 x per week
Polish all wood furniture surfaces with approved polish 1 x per week
Dust all furniture, fixtures, equipment and accessories 1 x per week
Dust wipe all telephones (including the ear and mouth piece) 1 x per week
Dust high and low areas (pictures, clocks, partition tops, etc.) 1 x per week
Dust all horizontal surfaces 5 x per week
Spot clean all walls, light switches and doors 1 x per week
Using approved spotter, spot clean carpeted areas 1 x per week
RESTROOMS - TILE
- ----------------
Hand dust, clean and wash all restroom partitions and walls 1 x per week
Refill dispensers, empty trash, clean mirrors and wipe counters 5 x per week
Clean and sanitize all restroom fixtures 5 x per week
Wipe chrome and spot wipe partitions 5 x per week
Sweep and damp mop floors using a germicidal cleaner 5 x per week
Dust and clean all return air vents 1 x per month
</TABLE>
52
<PAGE> 53
<TABLE>
<S> <C>
Clean both sides of all doors 1 x per week
Empty and clean sanitary disposal receptacle/replace plastic bag in receptacle 5 x per week
Machine scrub floors 2 x per month
Strip and wax floors 2 x per year
OFFICES - HARD SURFACES
- -----------------------
Empty all trash receptacles and replace liners as necessary 5 x per week
Clean all glass partition 1 x per week
Spot clean all glass partition 5 x per week
Polish all wood furniture surfaces with approved polish 1 x per week
Dust all furniture, fixtures, equipment and accessories 1 x per week
Dust wipe all telephones (including ear and mouth piece) 1 x per week
Dust high and low areas (pictures, clocks, partition tops, etc.) 1 x per week
Dust all horizontal surfaces 5 x per week
Spot clean all walls, light switches and doors 1 x per week
Dust mop all hard surface floors with treated or electrostatic dust mop 5 x per week
Damp mop entire area 1 x per week
Mop all stains and spills, especially coffee and drink spills 5 x per week
Using a standard floor machine spray buff all hard surface areas 1 x per week
BREAKROOMS
- ----------
Empty all trash receptacles and replace liners as necessary 5 x per week
Damp wipe all cafeteria and lunch room tables 5 x per week
Spot clean all walls, light switches and doors 1 x per week
Dust high and low areas (pictures, clocks, partition tops, etc.) 1 x per week
Using a damp cloth, dust all horizontal surfaces 5 x per week
Dust mop all hard surface floors with treated or electrostatic dust mop 5 x per week
Damp mop entire area 5 x per week
Using a high speed floor machine, spray buff all hard surface areas 1 x per week
FILE/STORAGE ROOMS
- ------------------
Empty all trash receptacles and replace liners as necessary 5 x per week
Dust high and low areas (pictures, clocks, partition tops, etc.) 1 x per week
Dust all horizontal surfaces 5 x per week
Spot clean all walls, light fixtures and doors 1 x per week
Dust mop all hard surface floors with treated or electrostatic dust mop 5 x per week
Damp mop entire area 1 x per week
Mop all stains and spills, especially coffee and drink spills 5 x per week
Using a high speed floor machine, spray buff all hard surface areas 1 x per week
CONCRETE EXIT HALLS - CONCRETE
- ------------------------------
Spot clean all walls, light switches and doors 1 x per week
Dust mop all hard surface floors with treated or electrostatic dust mop 1 x per week
Damp mop entire area 1 x per week
STAIRS/ELEVATORS
- ----------------
Spot clean all walls, light switches and doors 1 x per week
Polish threshold plates in front of each elevator entry 1 x per week
Dust rails and ledges 1 x per week
Spot clean walls 1 x per week
Dust mop 1 x per week
Clean and polish elevator bright work 1 x per week
Wet mop stairs, dust railings, ledges and spot clean 1 x per week
Using approved spotter, spot clean carpeted area 1 x per week
Completely clean and vacuum carpeted area 5 x per week
PERIODIC WORK
- -------------
Clean all ceiling vents 1 x per month
Dust all venetian blinds 1 x per month
Clean all baseboards 1 x per month
TRASH REMOVAL
- -------------
Remove all collected trash to designated area 5 x per week
DAY PERSONNEL DUTIES
- --------------------
Cigarette urns or trash receptacles in common areas are to be checked 5 x per week
morning and afternoon
Lavatories are to be checked and kept neat and clean at all times 5 x per week
</TABLE>
53
<PAGE> 54
<TABLE>
<S> <C>
All glass at building entrances and directories are to be cleaned and polished 5 x per week
morning and afternoon
Wipe metal surface at building entrances and lobby directory with a treated 5 x per week
dust cloth
DAY PERSONNEL DUTIES CONT.
- --------------------------
Lobby directory glass and inside surfaces of lobby glass subject to handprints 5 x per week
are to be cleaned and polished as required
Pick up trash and sweep sidewalk area and building grounds daily 5 x per week
Perform other duties as may be required by the Building Manager consistent As Required
with duties of position
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C>
Exhibit "A"............................................................Premises
Exhibit "B".............................................Designated Parking Area
Exhibit "C"...................................Form of Lease Commencement Letter
Exhibit "D" .........................................Base Building Improvements
Exhibit "E"......................................................Work Agreement
Exhibit "F"........................................Form of Tenant's Certificate
Exhibit "G"...............................................Rules and Regulations
Exhibit "H"...........................................Janitorial Specifications
</TABLE>
55
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TABLE OF CONTENTS PAGE(S)
----------------- -------
PAGE
----
1. Premises; Common Areas; Parking; Basic Lease Information.........4
2. Term and Possession..............................................6
3. Base Rent; Security Deposit......................................7
4. Additional Rent..................................................8
38. Extension Option................................................30
39. Right of Offer - First Floor and Second Floor...................30
40. Right of First Refusal to Purchase..............................31
56
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF PRIVATE BUSINESS, INC.
Private Business, Inc. is the owner of one hundred percent (100%) of
the stock of the following entities:
Private Business Insurance, Inc., a Tennessee corporation;
Private Business Processing, Inc., a Tennessee corporation; and
Private Business Capital, Inc., a Tennessee corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PRIVATE BUSINESS, INC. FOR THE YEAR ENDED DECEMBER 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,953
<SECURITIES> 0
<RECEIVABLES> 6,973
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,739
<PP&E> 11,875
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,210
<CURRENT-LIABILITIES> 19,274
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (29,186)
<TOTAL-LIABILITY-AND-EQUITY> 39,210
<SALES> 57,558
<TOTAL-REVENUES> 57,558
<CGS> 0
<TOTAL-COSTS> 44,099
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,041
<INCOME-PRETAX> 7,418
<INCOME-TAX> 1,645
<INCOME-CONTINUING> 5,773
<DISCONTINUED> 0
<EXTRAORDINARY> 2,447
<CHANGES> 0
<NET-INCOME> 3,326
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.16
</TABLE>
