<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 22, 1999
REGISTRATION NO. 333-*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NICHOLS TXEN CORPORATION
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8741 63-1182099
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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10 INVERNESS CENTER PARKWAY, SUITE 500
BIRMINGHAM, ALABAMA 35242
(205) 995-9898
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
PAUL D. REAVES
CHIEF EXECUTIVE OFFICER
NICHOLS TXEN CORPORATION
10 INVERNESS CENTER PARKWAY, SUITE 500
BIRMINGHAM, ALABAMA 35242
(205) 995-9898
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
JOHN R. WYNN, ESQ. J. VAUGHAN CURTIS, ESQ.
LANIER FORD SHAVER & PAYNE, P.C. ALSTON & BIRD LLP
P.O. BOX 2087 ONE ATLANTIC CENTER, 1201 WEST PEACHTREE ST.
HUNTSVILLE, ALABAMA 35804 ATLANTA, GEORGIA 30309-3424
(256) 535-1100 (404) 881-7000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC. As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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AMOUNT OF
TITLE OF EACH CLASS OF PROPOSED MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED AGGREGATE OFFERING AMOUNT(1) FEE(1)
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<S> <C> <C>
Common Stock, $0.01 par value.............. $35,000,000 $9,730
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
JANUARY 22, 1999
2,175,000 Shares
(NICHOLS TXEN LOGO)
Common Stock
------------------
This is an initial public offering of shares of common stock of Nichols TXEN
Corporation. Nichols Research Corporation, which currently owns all of the
common stock of Nichols TXEN, will own approximately 78% of the outstanding
shares of the common stock after the offering. Accordingly, Nichols Research
will be able to control the management and operation of Nichols TXEN. We
anticipate that the initial public offering price will be between $12.00 and
$14.00 per share.
We have applied to list the common stock on the Nasdaq National Market under the
symbol "NTXN."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to the Company..................................... $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Nichols TXEN has granted the underwriters the right to purchase up to 325,000
additional shares to cover any over-allotments.
BT ALEX. BROWN
CIBC OPPENHEIMER
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 3
(Inside front cover)
Nichols TXEN
Improving the Cost Effectiveness & Quality of Health Care
with Technology-based Outsourcing Solutions for the
Administrative-side of Physician Practices and Managed Care Organizations
Information Technology Outsourcing Administrative Services Outsourcing
(photo -- software screens and (photo -- people in the administration
people working on computer systems department working on computers)
collage)
- Enterprise-Level Complete Back Office -
Software Applications Administrative
Processing Services
- Decision Support
Applications Entire Functional Area -
or Department Specific
- Back Office IT Outsourcing
Management
Nichols TXEN Technology & Nichols TXEN Technology &
the Customer's Personnel Nichols TXEN Personnel
Network Data Center
(photo -- computer center
operation collage)
Comprehensive
Marketplace
Connectivity
Physician Practice Management -integrated solutions- Managed Care Administration
Software Applications Software Applications
MDr98 - billing, insurance TXEN-MHS - premium billing,
processing, appointments, capitation, benefit plan administration
master patient index, membership & provider
advanced payor connectivity management, claim processing
Decision Manager - activity- FirstSTEPP - medical utilization
based cost analysis, care management, case management,
analysis, performance analysis authorizations
Xtend DSS - quality and
performance analysis
<PAGE> 4
MDr98(TM), Decision Manager 3.0(TM), TXEN MHS(TM), Xtend(TM), Xtend/MHS(TM),
Xtend/HEDIS(TM) and FirstSTEPP(TM) are trademarks of Nichols TXEN. Trade names
and trademarks of other companies appearing in this prospectus are the property
of their respective holders.
----------------------------
As used in this prospectus, the "Company," "Nichols TXEN," "we," "us" and "our"
mean Nichols TXEN Corporation, and "Nichols Research" means Nichols Research
Corporation and its consolidated subsidiaries.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
The entire prospectus should be read carefully, including the Risk Factors
section and the financial statements and the notes to those statements. This
prospectus contains forward-looking statements that involve risk and
uncertainties. These forward-looking statements can be generally identified
because the content of the statement will usually contain words such as we
"believe," "anticipate," "expect," "plan," "estimate" and words of similar
import. Similarly, statements that describe our future plans, objectives, goals,
or strategies are forward-looking statements. These forward-looking statements
are subject to various risks and uncertainties that could cause actual results
to differ materially from those projected in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors."
NICHOLS TXEN
OUR BUSINESS
We are a leading provider of outsourcing solutions for information
technology and administrative services in the managed care and physician
practice management markets within the health care industry. We offer a broad
range of medical billing and claims processing outsourcing solutions. Our
solutions improve quality and reduce costs by minimizing the time and personnel
needed to process health care transactions. As a result of our fee structure for
these outsourcing solutions, approximately 72% of total revenues in 1997 and
approximately 77% of total revenues in 1998 were recurring. We consider
recurring revenue to be revenue based on the number of enrolled health plan
members per month, the number of transactions processed, fixed monthly fees or a
percentage of customer collections.
Our outsourcing solutions enable customers to concentrate on providing
quality health care. We allow customers the flexibility to perform
administrative functions with their own staffs utilizing our technology, or to
outsource to us certain administrative and processing functions. Each customer
contracts with us for the level of outsourcing service needed. Significant
benefits to our customers include:
- streamlined administrative functions;
- variable rate operating cost structure;
- faster implementation;
- reduced capital expenditures for administrative health care
technologies;
- less technology risk;
- access to knowledgeable and experienced personnel;
- sophisticated enterprise-level application software and decision
support tools;
- enhanced marketplace connectivity; and
- ability to focus on core businesses.
We maintain a centralized network data center to process transactions and
provide technology services for our customers. We believe that our ability to
offer both technical solutions and administrative services through our network
data center differentiates us from competitors that offer only turnkey software
solutions or only administrative services.
We are organized into two divisions, one providing technology and services
to managed care entities, and the other providing technology and services to
physician organizations. As of November 30, 1998, we had 90 managed care
services customers representing over three million lives nationwide, and over
285 practice management services customers representing approximately 3,000
physicians, primarily in the Southeast.
3
<PAGE> 6
OUR MARKET OPPORTUNITY
Health care costs in the United States have risen dramatically over the
past two decades to approximately $1.0 trillion in 1996, or approximately 14% of
the gross domestic product. Membership in commercial health maintenance
organizations, or HMOs, is expected to rise from 66 million members in 1997 to
105 million members in 2001. This increase in membership in managed care,
especially Medicaid and Medicare, is creating many new start-up organizations
and fueling rapid growth in existing organizations. Reimbursement for health
care has historically been fee-for-service. However, federal and state
governments, insurance companies and other payors are increasingly using
alternative reimbursement models and complex arrangements to control costs. For
example, payors are using fixed-fee systems, such as a capitation, that shift
the financial risk from payors to health care providers. These organizations
often lack the information technology and operational resources to efficiently
function within this more complex and sophisticated health care environment. As
a result, it is estimated that 32% of every health care dollar spent covers
administrative costs.
To meet these additional requirements, health care information technology
expenditures are expected to grow to over $21.0 billion by 2000 from $13.6
billion in 1997. Historically, health care expenditures for information
technology have lagged behind other industries, with investments averaging 2% to
3% of operating revenues, compared with an average of 6% to 8% for other
industries and 12% to 14% for information-sensitive sectors such as financial
services. A Health Information Management System Society, or HIMSS, 1998 survey
indicates that health care organizations are poorly equipped to support managed
care. Less than 10% of the companies surveyed indicated that they had the
software capability to perform each of the following: utilization management,
capitation and risk management, benefits management, claims management and
health outcomes reporting. The HIMSS survey also indicates an increasing demand
for health care information technology outsourcing solutions. Currently,
approximately 61% of health care organizations surveyed outsource some portion
of their information technology services. Market research also predicts health
care information technology outsourcing will grow from $2.9 billion in 1997 to
$4.0 billion in 2001. In addition, we believe that the demand for administrative
services outsourcing is increasing.
OUR STRATEGY
Our objective is to be the leading national provider of outsourcing
solutions for information technology and administrative services in the managed
care and physician practice management markets of the health care industry. Our
strategy includes the following key elements:
- focus on providing outsourcing solutions for the administrative
challenges of health care;
- continue to capitalize on niche market opportunities;
- expand high recurring revenue model;
- increase internal efficiencies through automation;
- expand decision support and medical utilization management software and
services; and
- acquire complementary businesses and technologies.
4
<PAGE> 7
OUR HISTORY
We are the resulting organization of several acquisitions made by our
parent company, Nichols Research Corporation. Nichols Research formed CSC
Acquisition, Inc. as a wholly owned subsidiary on June 6, 1995. On June 30,
1995, CSC Acquisition acquired all of the assets and certain liabilities of
Computer Services Corporation. Since its incorporation in 1967, Computer
Services performed administrative services and information technology services
for, and sold turnkey computer systems to, physician practices. Nichols Research
formed Nichols SELECT Corporation as a wholly owned subsidiary on September 17,
1996. On September 23, 1996, CSC Acquisition was merged into Nichols SELECT. On
December 16, 1994, Nichols Research acquired 19.9% of the capital stock of TXEN,
Inc. with an option to acquire the remaining 80.1% of TXEN. Since its
incorporation in 1989, TXEN provided information technology outsourcing and
administrative services outsourcing for the managed health care industry. On
August 29, 1997, Nichols Research acquired the remaining 80.1% of TXEN through a
merger of TXEN into Nichols SELECT, which after the merger continued to be
wholly owned by Nichols Research. After the TXEN acquisition, Nichols SELECT
changed its name to Nichols TXEN Corporation.
Our executive offices are located at 10 Inverness Center Parkway, Suite
500, Birmingham, Alabama, and our telephone number is (205)995-9898. Our
Internet address is www.nicholstxen.com.
THE OFFERING
Common stock offered........................ 2,175,000 shares
Shares to be outstanding after this
offering(1)................................. 9,675,000 shares
Use of proceeds............................. For working capital, to fund
possible acquisitions and other
general corporate purposes.
Proposed Nasdaq National Market symbol...... NTXN
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(1) Excludes 766,000 shares of common stock issuable upon exercise of employee
and director stock options outstanding on November 30, 1998, pursuant to
the Nichols TXEN 1998 Stock Option Plan and the Non-Employee Director Stock
Option Plan. These options were granted subject to completion of the
offering at an exercise price equal to the initial public offering price.
---------------------
Unless we otherwise indicate, all information in this prospectus assumes no
exercise of the over-allotment option to purchase additional shares of 325,000
common stock granted to the underwriters.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NICHOLS TXEN CORPORATION
-------------------------------------------------------------------
THREE MONTHS
ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
(HISTORICAL BASIS)(1):
Revenues........................................ $ 8,357 $ 9,382 $10,370 $12,438 $43,480 $ 8,958 $12,236
Gross profit.................................... 2,653 3,082 3,932 4,669 20,224 4,166 5,602
Selling, general and administrative expenses.... 1,336 1,859 1,932 2,251 7,367 1,523 2,295
Research and development........................ 634 762 710 1,155 2,771 498 760
Write-off of purchased in-process research and
development(2)................................ -- -- -- 8,500 -- -- --
Income (loss) from operations................... 332 112 343 (8,222) 5,539 1,209 1,445
Net income (loss)............................... 228 71 320 (7,673) 3,252 709 867
PER SHARE DATA(3):
Basic earnings per share(3)..................... $ 0.43 $ 0.09 $ 0.12
Weighted average common shares outstanding(3)... 7,500 7,500 7,500
</TABLE>
<TABLE>
<CAPTION>
TXEN, INC.
-------------------------------------
YEARS ENDED JUNE 30,
-------------------------------------
1994 1995 1996 1997
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
(HISTORICAL BASIS)(1):
Revenues........................................ $ 2,653 $ 4,706 $ 6,860 $14,980
Gross profit.................................... 1,274 2,972 3,648 10,132
Selling, general and administrative expenses.... 1,017 1,371 2,467 2,945
Research and development........................ 126 624 926 1,069
Income (loss) from operations................... (59) 631 (277) 5,409
Net income (loss)............................... (105) 683 (153) 3,421
</TABLE>
<TABLE>
<CAPTION>
NICHOLS TXEN CORPORATION
-------------------------------------------------------------------
THREE MONTHS
ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
(COMBINED BASIS)(1):
Revenues........................................ $11,551 $14,140 $18,274 $27,921 $43,480 $ 8,958 $12,236
Gross profit.................................... 4,179 6,122 6,886 14,787 20,224 4,166 5,602
OTHER STATISTICAL DATA (COMBINED BASIS)(1):
Revenue Mix (Percent of Revenues):
Managed care.................................. 27.7% 33.6% 43.3% 55.5% 66.4% 63.5% 68.4%
Practice management........................... 72.3% 66.4% 56.7% 44.5% 33.6% 36.5% 31.6%
Recurring(4).................................. 75.1% 76.4% 78.0% 71.6% 76.6% 73.7% 76.9%
Non-recurring(4).............................. 24.9% 23.6% 22.0% 28.4% 23.4% 26.3% 23.1%
Growth of revenues.............................. 13.8% 22.4% 29.2% 52.8% 55.7% 61.0% 36.6%
Gross profit margin............................. 36.2% 43.3% 37.7% 53.0% 46.5% 46.5% 45.8%
Customer Data:
Number of managed care customers.............. 24 33 50 70 87 76 90
Number of practice management customers(5).... 191 184 202 231 252 231 286
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
---------------------
AS
ACTUAL ADJUSTED(6)
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(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 6,084 $31,780
Total assets.............................................. 59,068 84,764
Long-term debt............................................ -- --
Total stockholders' equity................................ 49,948 75,644
</TABLE>
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(1) The historical statements of operations data include the results of
operations of Nichols TXEN and TXEN, Inc. Combined statements of operations
and other statistical data are presented on a combined basis by combining
the historical data of Nichols TXEN with that of TXEN conformed to 12 month
periods ending August 31.
(2) In December 1994, Nichols Research purchased 19.9% of TXEN for
approximately $1.5 million with an option to purchase the remaining 80.1%
of TXEN. Nichols Research exercised its option to acquire the remaining
80.1% of TXEN on August 29, 1997. Aggregate consideration of approximately
$43.8 million was paid at closing, $17.5 million in cash and 1,084,148
shares of Nichols Research stock valued at approximately $26.3 million. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the purchase price of approximately $45.3 million was
allocated to the individual TXEN assets acquired and liabilities assumed
based upon their respective fair values at the date of acquisition. The
transaction resulted in cost in excess of tangible net assets acquired of
approximately $42.8 million, of which $8.5 million was allocated to
in-process research and development and charged to expense in the fourth
quarter of 1997. In addition, goodwill was valued at $17.4 million and
other intangibles were valued at $16.9 million.
(3) The earnings per share data gives effect to the outstanding capital stock
of Nichols TXEN held by Nichols Research on a pro forma basis applied for
Nichols Research's proportionate share for all periods presented.
(4) We define recurring revenue to be revenue based on the number of enrolled
health plan members per month, the number of transactions processed, fixed
monthly fees or a percentage of customer collections. We consider non-
recurring revenues to be revenues based on sales of computer hardware and
software and professional services based on time and materials.
(5) Turnkey customers are excluded.
(6) Adjusted to give effect to the receipt of the estimated net proceeds of
this offering based upon an assumed initial public offering price of $13.00
per share and the application of the net proceeds.
7
<PAGE> 10
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of common stock.
WE MAY NOT BE ABLE TO CONTINUE COMPETING SUCCESSFULLY WITH OTHER INFORMATION
TECHNOLOGY AND ADMINISTRATIVE OUTSOURCING COMPANIES
Our business is highly competitive. The market for our technology and
services is rapidly changing and requires potentially expensive technological
advances. We believe our future success will depend, in part, upon our ability
to:
- enhance our current technology and services;
- respond effectively to technological changes;
- sell additional services to our existing client base;
- introduce new technologies; and
- meet the increasingly sophisticated needs of our clients.
Competitors may develop products or technologies that are better or more
attractive than those offered by us or that may render our technology and
services obsolete. In addition, we plan to significantly limit the sale of
turnkey computer systems to customers who desire to process their transactions
internally. Accordingly, we may be at a competitive disadvantage to other
vendors offering such systems. Many of our current and potential competitors are
larger and offer broader services and have significantly greater financial,
marketing and other competitive resources than us.
AFTER THIS OFFERING, WE WILL STILL BE CONTROLLED BY NICHOLS RESEARCH AND THIS
MAY PRESENT CONFLICTS OF INTEREST
Upon completion of this offering, Nichols Research will own approximately
78% of our outstanding common stock (75% if the underwriters' over-allotment
option is exercised in full). Therefore, Nichols Research will control us and
have the power to elect all of our directors and appoint our management. In
addition, Nichols Research will be able to approve actions requiring the consent
of our shareholders. Initially, three of the seven directors will be officers or
directors of Nichols Research, two of the directors will be our employees and
only two directors will be independent directors who are not Nichols Research
affiliates or our employees. Our directors who are also directors of Nichols
Research may favor Nichols Research in certain decisions.
Nichols Research has entered into a Voting Agreement, a Corporate Services
Agreement and a Tax Sharing Agreement with us. The agreements were negotiated
while we were a wholly owned subsidiary of Nichols Research. As a result, the
terms of such agreements may be less favorable to us than the terms we could
have attained from unaffiliated third parties. The concentration of ownership by
Nichols Research could limit the price that certain investors might be willing
to pay in the future for our shares and could make it more difficult for a third
party to acquire us. See "Certain Transactions -- Services Agreement,"
"-- Voting Agreement" and "-- Tax Sharing Agreement."
IF CUSTOMERS TERMINATE OR MODIFY EXISTING CONTRACTS, IT COULD ADVERSELY AFFECT
OUR EARNINGS
We believe that our long-term success largely depends upon our ability to
retain customers and generate recurring revenues from contracts. Although we
enter into multi-year customer agreements, a majority of our customers are able
to reduce or cancel their use of our services before the end of the contract
term. We also provide services to certain customers without long-term contracts.
In addition, our operating expenses are relatively fixed and cannot be reduced
on short notice to compensate for unanticipated contract cancellations or
reductions. As a result, any termination, significant reduction, or modification
of our business relationships with any of our significant
8
<PAGE> 11
customers or with a number of smaller customers could have a material adverse
effect on our business, financial condition or results of operations.
WE NEED TO RETAIN OUR KEY PERSONNEL
Our success will depend in large part on the continued services of key
management and skilled personnel. There is substantial competition for key
management personnel from other companies. In addition, our present executives
and managers may accept positions within the Nichols Research family of
companies causing them to be unavailable to serve us. The loss of the services
of one or more of our key management employees, or the inability to hire
additional key management personnel as needed, could have a material adverse
effect on our business. See "Management."
IT MAY BE DIFFICULT TO RECRUIT AND RETAIN SKILLED EMPLOYEES
There is significant competition for employees with the technical skills we
require. Qualified employees are in great demand and are likely to remain a
limited resource for the foreseeable future. We have taken many steps to address
these issues, including in-house training programs for college graduates, but
these steps may not be adequate. In the future, we may not be successful in
attracting and retaining needed personnel. Although we currently experience
relatively low rates of turnover for skilled employees, the rate of turnover may
increase in the future.
ERRORS OR IMPROPER HANDLING OF CUSTOMER TRANSACTIONS MAY OCCUR
Our customers demand reliability and quality when their transactions are
processed. Although we devote substantial resources to meeting these demands,
errors may occur. Errors and mistakes in processing customer transactions may
result in loss of data, inaccurate information and delays. Such errors could
cause us to lose customers and could result in liability. Our service agreements
contain contractual limitations on liability and we maintain insurance to
protect against claims associated with the use of our services. However, the
contractual provisions and insurance coverage may not provide adequate coverage
against all possible claims that may be asserted. In addition, appropriate
insurance may be unavailable in the future at commercially reasonable rates. A
successful claim in excess of our insurance coverage could have a material
adverse effect on our business, financial condition or results of operations.
Even unsuccessful claims could result in the expenditure of funds in litigation,
as well as diversion of management time and resources.
WE MAY INCUR LIABILITY AS A RESULT OF PROVIDING UTILIZATION REVIEW SERVICES
We recommend to our customers whether a claim for payment or service should
be denied or existing coverage should be continued based on the customer's plan
or contract and industry standard clinical support criteria. Our customers are
ultimately responsible for deciding whether to deny claims for payment or
medical services. It is possible, however, that liability may be asserted
against us for denial of medical service or payment of medical claims. Even
though we have certain protections under customer contracts and insurance
policies, such protections may not be adequate. See "Business -- Government
Regulation."
THERE IS INCREASED GOVERNMENT SCRUTINY OF BILLING AND CLAIMS ACTIVITIES
We perform billing and claims services which are governed by numerous
federal and state civil and criminal laws. The federal government in recent
years has placed increased scrutiny on billing and collection practices of
health care providers and related entities and particularly on potential
fraudulent billing practices such as submissions of inflated claims for payment
and upcoding. Violations of the laws regarding billing and coding may result in
civil monetary penalties, criminal fines, imprisonment, or exclusion from
participation in Medicare, Medicaid and other federally funded health care
programs for us and our customers. See "Business -- Government Regulation."
9
<PAGE> 12
IF WE ARE UNABLE TO MAKE FUTURE ACQUISITIONS, OUR RATE OF GROWTH MAY BE
ADVERSELY AFFECTED
If we are unable to make acquisitions, we may not meet our growth
expectations. While we are not currently a party to any agreements or
understandings for any material acquisitions, we expect to acquire companies as
part of our growth strategy. However, we may be unable to identify suitable
acquisition candidates. We compete with other companies to acquire other
businesses. We expect this competition to continue to increase, making it more
difficult to acquire suitable companies on favorable terms.
IF WE CANNOT INTEGRATE ACQUIRED COMPANIES WITH OUR BUSINESS, OUR PROFITABILITY
MAY BE ADVERSELY AFFECTED
Even though we may acquire additional companies in the future, we may be
unable to successfully integrate the acquired businesses and realize anticipated
economic, operational and other benefits in a timely manner. Integration of an
acquired business is especially difficult when we acquire a business in a market
in which we have limited or no expertise, or with a corporate culture different
from ours. If we are unable to successfully integrate acquired businesses, we
may incur substantial costs and delays or other operational, technical or
financial problems. In addition, the failure to successfully integrate
acquisitions may divert management's attention from our existing business and
may damage our relationships with our key clients and employees.
ACQUISITIONS MAY DECREASE OUR STOCKHOLDERS' PERCENTAGE OWNERSHIP IN NICHOLS TXEN
AND REQUIRE US TO INCUR DEBT
We may issue equity securities in future acquisitions that could be
dilutive to our stockholders. We also may incur debt and additional amortization
expense related to goodwill and other intangible assets in future acquisitions.
This debt and additional amortization expense may reduce significantly our
profitability and materially and adversely affect our business, financial
condition and results of operations.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 CONCERNS, WE MAY LOSE REVENUE OR INCUR
ADDITIONAL COSTS
Many computer programs were designed and developed without considering the
upcoming change in the century, which could lead to failure of computer
applications or create erroneous results by or at the year 2000. This issue is
referred to as the "Year 2000" problem. It is possible that our computer
systems, software products or other business systems, or those of our suppliers
or customers, could malfunction as a result of the Year 2000 problem. In
addition, telecommunication and utility services which are important to our
operations could malfunction due to the Year 2000 problem. We have conducted a
review of our business systems, including computer systems, in an attempt to
identify ways in which these systems could be affected by the Year 2000 problem.
Based on this review, we do not expect the Year 2000 problem will have a
material adverse effect on our systems. Despite our efforts, there is always a
possibility that we may not identify and correct all Year 2000 problems.
We have also requested assurances from our software vendors for
confirmation that their software will correctly process date information. In
addition, we have also questioned other suppliers and significant customers as
to their progress in identifying and addressing potential Year 2000 problems. As
a result of the Year 2000 problem, many of our customers may suffer delays in
reimbursement from Medicare and Medicaid programs, other federal or state health
care programs and other third-party payors. Such delays may also damage us.
Nichols TXEN may not be able to identify, successfully remedy or assess all
date-handling problems in our business systems or operations or those of our
customers and suppliers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
10
<PAGE> 13
A SYSTEM FAILURE COULD ADVERSELY AFFECT OUR BUSINESS
To succeed, we must be able to operate our network data center without
interruption. Substantially all customer transactions are processed at our
network data center, which is located at a single site. Although we have
safeguards for emergencies, we do not have a permanent mirror processing site to
which processing could be transferred in case of a catastrophic event. In order
to operate without interruption, we must guard against:
- power outages, fires, tornadoes and other natural disasters at the
network data center;
- telecommunications failures;
- equipment failures;
- security breaches; and
- other potential interruptions.
Any interruption could cause us to reduce fees charged to customers in
accordance with performance guarantees in customer contracts, require us to
spend money replacing existing equipment or adding redundant facilities, damage
our reputation for reliable services, or make it more difficult for us to
attract new customers.
THERE ARE RISKS RELATED TO THE LICENSING OF OUR CORE PROCESSING SOFTWARE
Our core processing software for the managed care services business, known
as MHS, was licensed in 1989 from CSC Healthcare Services, Inc. We currently
hold three perpetual, non-transferable and non-marketable source code and object
code MHS licenses. Since 1989, we have significantly enhanced and modified our
version of MHS, which is known as TXEN MHS. We have not requested nor received
any updates or enhancements from CSC, and we are not dependent upon CSC for
support of TXEN MHS. As a condition to the license grant from CSC, we are
restricted from offering TXEN MHS or managed care administrative services to a
CSC managed care customer without written consent from CSC. We are also
restricted from selling turnkey versions of TXEN MHS without written consent
from CSC. Although we believe that the managed care services market is
sufficiently large to permit us to expand our customer base, these limitations
may reduce market opportunities and restrict our business growth. In addition,
if we violate the restriction or otherwise breach the licensing agreement and do
not cure such violation or breach, CSC could terminate the licenses. Termination
of the licensing arrangements with CSC could have a material adverse effect on
our business, financial condition or results of operations.
WE MAY BE UNABLE TO PROTECT OUR TECHNOLOGY AND CONFIDENTIAL INFORMATION
Our success depends to a significant degree upon proprietary software and
other confidential information. The software and information technology
industries have experienced widespread unauthorized reproduction of software
products and other proprietary technology. We do not own any patents and we have
not registered any copyrights, trademarks, service marks, or trade names with
the United States Patent and Trademark Office. We rely on a combination of trade
secrets, common law intellectual property rights, license agreements,
nondisclosure and other contractual provisions and technical measures to
establish and protect our proprietary rights in our intellectual property and
confidential information. However, these actions may not protect our technology
or information, and these actions do not prevent independent third-party
development of competitive products or services.
We believe that our proprietary rights do not infringe upon the proprietary
rights of third parties. However, third parties may assert infringement claims
against us in the future, and we could be required to enter into a license
agreement or royalty arrangement with the party asserting the claim. We may also
be required to indemnify customers for claims made against them.
11
<PAGE> 14
CHANGES IN THE HEALTH CARE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS
The health care industry in the United States is in a period of rapid
change and uncertainty. Certain changes may cause health care organizations to
change the way they operate and pay for services. Our transaction processing
technology and services are designed to function within the current health care
financing and reimbursement system. During the past several years, the health
care industry has been subject to increasing levels of government regulation of,
among other things, reimbursement rates and certain capital expenditures. In
addition, proposals to reform the health care system have been considered by
Congress. These proposals, if enacted, may further increase government
involvement in health care, lower reimbursement rates and otherwise change the
operating environment for our customers. As in the past, health care
organizations may react to these proposals and the uncertainty surrounding such
proposals in ways that could result in a reduction or deferral in the use of our
technologies and services. For example, several HMOs have recently withdrawn
from taking Medicare risk because they felt that reimbursement rates were no
longer adequate. We cannot predict with any certainty what impact, if any, such
proposals or health care reforms might have on our business, financial condition
or results of operations. See "Business -- Government Regulation."
NEW REGULATIONS REGARDING COMPUTER MEDICAL RECORDS COULD INCREASE OUR COSTS
The United States Department of Health and Human Services has proposed
regulations regarding electronic signatures and the maintenance and transmission
of computer medical records. These regulations establish certain standards for
electronic record-keeping. We do not know if these regulations will be adopted
in their present form or a different form, or at all. However, if these
regulations are adopted, they may require modifications to our computer software
and record-keeping practices. These changes may require us to make substantial
capital investments.
WE MAY BE REQUIRED TO COMPLY WITH ADDITIONAL LICENSING REGULATIONS AND CONSUMER
PROTECTION LAWS
Various state laws regulate the operation of companies that provide
administrative and business services to health plans. In addition, federal and
state consumer protection laws may apply to us when we bill patients directly
for the cost of physician services provided. Failure to comply with any of these
laws or regulations could result in a loss of licensure, or other fines and
penalties. See "Business -- Government Regulation."
CHANGES IN LAWS REGARDING THE PROTECTION OF CONFIDENTIAL PATIENT INFORMATION
COULD PREVENT CUSTOMERS FROM USING OUR SERVICES
The confidentiality of patient records is subject to substantial regulation
by state governments. These state laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of the physician or other health care providers, regulations
governing patient confidentiality rights are evolving rapidly. Additional
legislation governing the dissemination of medical record information has been
proposed at both the state and federal level. This legislation may require
holders of medical information to implement security measures and impose
restrictions on the ability of third-party processors, like us, to transmit
certain patient data without specific patient consent. Any change in legislation
could restrict health care providers from using our services. See
"Business -- Government Regulation."
WE MUST MAINTAIN THE SECURITY OF OUR NETWORK DATA CENTER
We have confidential customer and patient information in our network data
center. Therefore, it is critical that our facilities and infrastructure remain
secure. Despite the implementation of security measures, our infrastructure may
be vulnerable to physical break-ins, computer viruses, program-
12
<PAGE> 15
ming errors, attacks by third parties or similarly disruptive problems. Any
material security breach could result in liability and damage to our reputation.
WE HAVE LARGE AMOUNTS OF PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
TECHNOLOGY WHICH MAY NEVER BE SUCCESSFULLY DEVELOPED
In August 1997, Nichols Research acquired TXEN, Inc. and allocated $8.5
million to in-process technology. The acquired in-process technology consisted
of ten software development projects to perform managed care administrative
functions and provide enhanced information reports. The fair value of the
acquired in-process technology was determined based on an analysis of the
markets, projected cash flows and risks associated with achieving such cash
flows. At the date of acquisition, the technological feasibility of the acquired
technology had not been established and the acquired technology has no
alternative future uses. In addition, at that time, we estimated that the cost
to complete these projects was $1.75 million, of which $445,000 was spent in
fiscal year 1998 and of which $1.3 million is expected to be spent in fiscal
year 1999. The purchased in-process technology may never be successfully
developed. To the extent the in-process technology is not successfully
developed, this could have a material adverse effect on our business, financial
condition or results of operations.
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE
The market price for the common stock could drop as a result of sales of a
large number of shares of common stock in the market after the offering or the
perception that such sales could occur. These factors also could make it more
difficult for us to raise funds through future offerings of common stock.
There will be 9,675,000 shares of common stock outstanding immediately
after the offering (10,000,000 shares if the underwriters' over-allotment option
is exercised in full). Of the total shares outstanding, the shares sold in this
offering will be freely transferable without restriction or further registration
under the Securities Act, except for any shares purchased by our "affiliates,"
as defined in Rule 144 under the Securities Act. Persons who may be deemed to be
our affiliates after the offering generally include our directors and executive
officers and principal stockholders. The shares of common stock outstanding
after the offering held by Nichols Research will be "restricted securities" as
defined in Rule 144. These shares may be sold in the future without registration
under the Securities Act to the extent permitted by Rule 144 or another
exemption under the Securities Act. In addition, Nichols Research may cause us
to register for sale any or all of its shares of the common stock. Also,
additional shares of common stock issued upon exercise of options granted under
our stock-based compensation plans will become available for future sale in the
public market. Future sales of our common stock could cause our stock price to
decline.
In connection with the offering, our executive officers and directors,
Nichols Research and executive officers and directors of Nichols Research have
agreed that, with certain exceptions, they will not sell any shares of common
stock for 180 days after the date of this prospectus without the consent of BT
Alex. Brown Incorporated. See "Underwriting."
13
<PAGE> 16
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The market price of the common stock may fluctuate significantly due to a
variety of factors, including:
- announcements of technological innovations or new products or
services by us or our competitors;
- fluctuations in our results of operations;
- changes in the general condition of the economy or the health care
or information technology industries;
- changes in earnings estimates by public market analysts; and
- changes in our business strategies.
Also, the stock market is subject to other factors outside the control of
Nichols TXEN that can cause extreme price and volume fluctuations.
In addition, prior to this offering, there has not been a public market for
our common stock. The initial public offering price for our common stock was
determined through negotiations with the underwriters, and this price may not be
the price at which our common stock will trade. Although our common stock will
be quoted on the Nasdaq National Market, an active trading market may not
develop or continue after the offering.
14
<PAGE> 17
USE OF PROCEEDS
The net proceeds from the sale of the 2,175,000 shares of common stock
offered in this offering, after deducting the underwriting discounts and
estimated offering expenses payable by us and assuming an initial offering price
of $13.00 per share, are estimated to be $25,696,000 ($29,625,000 if the
underwriters' over-allotment option is exercised in full). The net proceeds will
be used for working capital and other general corporate purposes. Some of the
net proceeds may be used to fund possible acquisitions of complementary
products, technologies or businesses. While we continually evaluate acquisition
opportunities, no such acquisitions are currently being negotiated.
DIVIDEND POLICY
Currently we intend to retain our earnings to finance future growth, and
therefore do not anticipate paying cash dividends in the foreseeable future. The
Board of Directors may review our dividend policy from time to time to determine
the desirability and feasibility of paying dividends after giving consideration
to our capital requirements, operating results and financial condition and other
factors as the Board of Directors deems relevant.
15
<PAGE> 18
CAPITALIZATION
The following table sets forth as of November 30, 1998: (i) the
capitalization of Nichols TXEN and (ii) the capitalization of Nichols TXEN as
adjusted to reflect the sale of the shares of common stock offered at an assumed
offering price of $13.00 per share, the application of the estimated net
proceeds from the offering and certain other events, all as if they occurred on
November 30, 1998. This table should be read in conjunction with the financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
NOVEMBER 30, 1998
---------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Total debt.................................................. $ -- $ --
------- -------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000 shares
authorized; 7,500,000 issued and outstanding; 9,675,000
shares issued and outstanding, as adjusted(1).......... 75 97
Additional paid-in capital............................. 52,833 78,507
Retained earnings (deficit)............................ (2,960) (2,960)
------- -------
Total stockholders' equity........................... 49,948 75,644
------- -------
Total capitalization........................................ $49,948 $75,644
======= =======
</TABLE>
- ---------------
(1) The adjusted number of shares issued and outstanding does not include
options to purchase 766,000 shares of common stock at the initial public
offering price per share.
16
<PAGE> 19
DILUTION
The net tangible book value of Nichols TXEN as of November 30, 1998 was
approximately $13,052,000, or $1.74 per share of common stock. Net tangible book
value per share is equal to the Nichols TXEN total tangible assets less total
liabilities, divided by 7,500,000 shares of common stock outstanding. After
giving effect to the sale of 2,175,000 shares of common stock from the offering
at an assumed initial public offering price of $13.00 per share and after
deduction of the estimated underwriting discounts and commissions and offering
expenses, net tangible book value of Nichols TXEN as of November 30, 1998 would
have been approximately $38,748,000 or $4.00 per share of common stock. This
represents an immediate increase in net tangible book value of $2.26 per share
of common stock to existing investors and an immediate dilution of $9.00 per
share to new investors purchasing shares in the offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $13.00
Net tangible book value before the offering(1)......... $1.74
Increase per share attributable to new investors....... 2.26
-----
Net tangible book value per share after the offering........ 4.00
------
Dilution per share to new investors(2)...................... $ 9.00
======
</TABLE>
The following table summarizes as of November 30, 1998, the differences
between the number of shares of common stock purchased from Nichols TXEN, the
aggregate cash consideration paid and the average price per share paid by
existing stockholders and new investors purchasing shares of common stock in
this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors............... 7,500,000 77.5% $52,850,000(3) 65.1% $ 7.05
New investors.................... 2,175,000 22.5% 28,275,000 34.9% 13.00
--------- ----- ----------- -----
Total.................. 9,675,000 100.0% $81,125,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------
(1) The adjusted number of shares issued and outstanding does not include
options to purchase 766,000 shares of Common Stock at the initial public
offering price per share.
(2) Dilution is determined, after giving effect of this offering, by
subtracting net tangible book value per share from the assumed initial
public offering price of $13.00 per share. Dilution to new investors will
be $8.73 per share if the underwriters' over-allotment option is exercised
in full.
(3) Represents the book value of the net assets transferred by Nichols Research
to Nichols TXEN.
17
<PAGE> 20
SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data for Nichols
TXEN, which should be read in conjunction with our financial statements and
related notes included elsewhere in this prospectus. The statement of operations
data set forth below, for the years ended August 31, 1996, 1997, and 1998 and
the balance sheet data at August 31, 1997 and 1998, have been audited by Ernst &
Young LLP, independent auditors. The statement of operations data for the years
ended August 31, 1994 and 1995, the three-month periods ended November 30, 1997
and 1998 and the balance sheet data at August 31, 1994, 1995, 1996 and at
November 30, 1997 and 1998, are derived from the unaudited financial statements
of Nichols TXEN. We believe that the unaudited financial data fairly reflect the
results of operations and the financial condition of Nichols TXEN for the
respective periods.
<TABLE>
<CAPTION>
NICHOLS TXEN
---------------------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
(HISTORICAL BASIS):
Revenues........................ $ 8,357 $ 9,382 $10,370 $12,438 $43,480 $8,958 $12,236
Cost of revenues................ 5,704 6,300 6,438 7,769 23,256 4,792 6,634
--------- --------- --------- --------- --------- --------- ---------
Gross profit.................... 2,653 3,082 3,932 4,669 20,224 4,166 5,602
Selling, general and
administrative expenses....... 1,336 1,859 1,932 2,251 7,367 1,523 2,295
Research and development........ 634 762 710 1,155 2,771 498 760
Depreciation and amortization... 351 349 947 985 4,547 936 1,102
Write-off of purchased
in-process research and
development(1)................ -- -- -- 8,500 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations... 332 112 343 (8,222) 5,539 1,209 1,445
Other income (expense)(2)....... 9 -- 94 656 (4) (1) --
Income taxes.................... 113 41 117 107 2,283 499 578
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $228 $71 $320 $(7,673) $3,252 $709 $867
========= ========= ========= ========= ========= ========= =========
Basic earnings per share(3)..... $0.43 $0.09 $0.12
========= ========= =========
Weighted average common shares
outstanding(3)................ 7,500 7,500 7,500
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
--------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $872 $2,224 $900 $2,223 $5,780 $2,589 $6,084
Total assets.................... 2,059 8,349 10,497 52,052 57,715 54,896 59,068
Long-term debt.................. -- -- -- -- -- -- --
Total stockholder's equity...... 1,497 9,382 9,702 45,829 49,081 46,538 49,948
</TABLE>
- ---------------
(1) The total purchase price of TXEN was allocated to net assets acquired of
which $8.5 million was allocated to in-process research and development and
was expensed in the fourth quarter of 1997. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- TXEN
Acquisition."
(2) Includes Nichols TXEN's 19.9% proportional share of income for TXEN in
years 1996 and 1997, recorded using the equity method of accounting, and
other miscellaneous items.
(3) The earnings per share data gives effect to the outstanding capital stock
of Nichols TXEN held by Nichols Research on a pro forma basis applied for
Nichols Research's proportionate share for all periods presented.
18
<PAGE> 21
On August 29, 1997, TXEN, Inc. was merged with Nichols TXEN. Due to the
significance of TXEN, we have included selected financial data related to TXEN
which should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The following table
summarizes certain selected financial data for TXEN which should be read in
conjunction with the financial statements of TXEN appearing elsewhere in this
prospectus. The income statement data set forth below, for the years ended June
30, 1995, 1996 and 1997 and the balance sheet data at June 30, 1995, 1996 and
1997, have been audited by Ernst & Young LLP, independent auditors. The
statement of operations data for the year ended June 30, 1994 and the balance
sheet data at June 30, 1994 are derived from the unaudited financial statements
of TXEN. We believe that the unaudited financial data fairly reflect the results
of operations and the financial condition of TXEN for the respective periods.
<TABLE>
<CAPTION>
TXEN, INC.
-------------------------------------
YEARS ENDED JUNE 30,
-------------------------------------
1994 1995 1996 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA (HISTORICAL BASIS):
Revenues.................................................. $ 2,653 $ 4,706 $ 6,860 $14,980
Cost of revenues.......................................... 1,379 1,734 3,212 4,848
------- ------- ------- -------
Gross profit.............................................. 1,274 2,972 3,648 10,132
Selling, general and administrative expenses.............. 1,017 1,371 2,467 2,945
Research and development.................................. 126 624 926 1,069
Depreciation and amortization............................. 190 346 532 709
------- ------- ------- -------
Income (loss) from operations............................. (59) 631 (277) 5,409
Other income (expense).................................... (97) (60) 31 (9)
Income tax expense (benefit).............................. (51) (112) (93) 1,979
------- ------- ------- -------
Net income (loss)......................................... $ (105) $ 683 $ (153) $ 3,421
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------
1994 1995 1996 1997
------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $ (293) $ 197 $ 176 $ 1,846
Total assets.............................................. 1,873 4,147 4,431 9,833
Long-term debt............................................ 1,072 204 897 640
Total stockholders' equity................................ 497 1,103 939 4,390
</TABLE>
19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Nichols TXEN is a leading provider of outsourcing solutions for information
technology and administrative services in the managed care and physician
practice management markets of the health care industry. Our outsourcing
services improve quality and reduce costs by minimizing the time and personnel
needed to process health care transactions by offering customers a broad range
of medical billing and claims processing solutions. Nichols TXEN is organized
into two business divisions. The Managed Care Services division provides
outsourcing services to managed health care organizations. The Practice
Management Services division provides outsourcing services to hospital-based and
other physician groups, hospital emergency departments and physician networks.
Nichols TXEN earns revenue under long-term contracts which are primarily
based on the number of transactions processed or the number of enrolled health
plan members per month. As a result of our fee structure, 78.0%, 71.6% and 76.6%
of our revenues on a combined basis for fiscal years 1996, 1997 and 1998,
respectively, were recurring. On a historical basis, 91.4%, 90.8% and 76.6% of
Nichols TXEN's revenues for fiscal years 1996, 1997 and 1998, respectively, were
recurring. We define recurring revenue as revenue based on the number of
enrolled health plan members per month, the number of transactions processed,
fixed monthly fees or a percentage of customer collections.
Background
Nichols Research formed CSC Acquisition, Inc. as a wholly owned subsidiary
on June 6, 1995. On June 30, 1995, CSC Acquisition acquired all of the assets
and certain liabilities of Computer Services Corporation. Since its
incorporation in 1967, Computer Services performed administrative services and
information technology services for, and sold turnkey computer systems to,
physician practices. Nichols Research formed Nichols SELECT Corporation as a
wholly owned subsidiary on September 17, 1996. On September 23, 1996, CSC
Acquisition was merged into Nichols SELECT. On December 16, 1994, Nichols
Research acquired 19.9% of the capital stock of TXEN, Inc. with an option to
acquire the remaining 80.1% of TXEN. Since its incorporation in 1989, TXEN
provided information technology outsourcing and administrative services
outsourcing for the managed health care industry. On August 29, 1997, Nichols
Research acquired the remaining 80.1% of TXEN through a merger of TXEN into
Nichols SELECT, which after the merger continued to be wholly owned by Nichols
Research. After the TXEN merger, Nichols SELECT changed its name to Nichols TXEN
Corporation.
TXEN Acquisition
In December 1994, Nichols Research purchased 19.9% of TXEN for
approximately $1.5 million. In August 1997, Nichols Research exercised its
option to acquire the remaining 80.1% interest in TXEN for aggregate
consideration of approximately $43.8 million. The total purchase price for the
TXEN acquisition was allocated to the TXEN assets and liabilities. The excess of
the purchase price over the fair market value of the tangible net assets
acquired of approximately $42.8 million was allocated to the following
intangibles: $8.5 million to in-process research and development, $17.4 million
to goodwill, $14.1 million to other intangibles and $2.8 million to capitalized
software development. In-process research and development of $8.5 million was
expensed in the fourth quarter of 1997. The acquired in-process technology
consisted of ten software development projects to perform managed care
administrative functions and provide enhanced information reports. The projects
are expected to be completed in fiscal year 1999. Goodwill and other intangibles
of $30.7 million are being amortized using the straight-line method over an
estimated useful life of 20 years. Other intangibles of $0.8 million are being
amortized using the straight line method over an
20
<PAGE> 23
estimated useful life of seven years. The $2.8 million allocated to capitalized
software development is being amortized using the straight-line method over an
estimated useful life of five years.
Nichols Research Services Agreement
Nichols TXEN is currently a wholly owned subsidiary of Nichols Research.
After the offering, Nichols Research will retain a controlling equity interest
in Nichols TXEN. Nichols Research will furnish administrative services to us
pursuant to a Corporate Services Agreement. Under the Services Agreement,
Nichols Research will provide various administrative services, including public
reporting compliance, certain corporate record keeping, risk management, certain
employee benefit administration, investor and media relations administration,
assistance in preparation of tax returns, centralized cash management and
certain financial and other services for an annual fee. In fiscal year 1999, the
fee will be 2.4% of operating expenses less costs of goods sold which are
defined as direct materials and purchased labor. We believe that the charges
under the Services Agreement are reasonable. For additional items, such as
software development services or administrative services that create unusual
demands for resources, Nichols Research will charge Nichols TXEN based upon
costs actually incurred in performing the services, plus a reasonable fee as
agreed to by Nichols Research and Nichols TXEN. We are not obligated to use
Nichols Research for these additional services. The Services Agreement has an
initial term of one-year and automatically renews for successive one year terms,
unless canceled by either Nichols Research or Nichols TXEN upon 90 days prior
written notice.
Practice Management Reorganization
Historically, we have offered both outsourcing services and turnkey systems
to potential practice management customers. Nichols TXEN has made a strategic
decision to discontinue turnkey computer systems sales to practice management
customers. On November 3, 1997, when Nichols TXEN announced it would discontinue
sales of turnkey systems to practice management customers, we had 84 practice
management customers with turnkey systems. Nichols TXEN offered technical
support to these customers through December 31, 1998. Revenues related to the
support of these practice management turnkey customers for fiscal year 1998 were
approximately $0.4 million or less than 1.0% of Nichols TXEN's total revenues
for 1998.
The conversion of our practice management customers from turnkey systems to
outsourcing services reduced our revenues and increased costs during the
transition period which began in November 1997 and which ended in December 1998.
Since November 1997, Nichols TXEN has not received any revenues from turnkey
system sales to practice management customers. Prior to our announcement,
turnkey system sales for practice management customers were approximately $0.5
million in each of fiscal years 1997 and 1996. Revenues associated with turnkey
sales typically have higher margins in the year installed than outsourcing
services revenues; however, turnkey revenues are non-recurring and less
predictable. We believe that by offering only outsourcing services to practice
management customers, we will achieve a predictable, recurring revenue stream
which over time will exceed the operating margins attained through turnkey
system sales. In order to offer only outsourcing services to practice management
customers, we have increased support staff and infrastructure. If we are
unsuccessful in efficiently executing our strategy to provide outsourcing
services for practice management customers, we may continue to experience margin
pressures within the Practice Management Services division.
REVENUE COMPOSITION -- COMBINED BASIS
We are organized into two divisions. Our Managed Care Services division
represents the business conducted by TXEN prior to the acquisition of TXEN by
Nichols TXEN in 1997. The Practice Management Services division represents the
business conducted by Computer Services prior to its acquisition by Nichols
Research in 1995. The information set forth in the tables below is presented by
combining the historical data of Nichols TXEN with the historical data of TXEN
for the
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<PAGE> 24
periods prior to the TXEN acquisition conformed to the 12-month period ended
August 31 ("Combined Basis"). Significant intercompany transactions have been
eliminated. Due to the significance of Nichols TXEN, we believe the presentation
of revenues on a Combined Basis presents a more meaningful and complete
discussion of our business.
Our Managed Care Services division provides technology and services to
managed care customers, such as health maintenance organizations, or HMOs;
physician-hospital organizations, or PHOs; independent practice associations, or
IPAs; integrated delivery systems, or IDSs; provider sponsored organizations, or
PSOs; Medicare and Medicaid HMOs; insurance carriers and managed third-party
administrators. The Practice Management Services division provides technology
and services to hospital-based physicians, hospital emergency departments,
physician groups and physician networks. As of November 30, 1998, Nichols TXEN
had 90 managed care services customers representing over three million lives
nationwide and over 285 practice management services customers representing
approximately 3,000 physicians, primarily in the Southeast.
Combined revenue growth has been primarily driven by market acceptance of
Nichols TXEN's outsourcing solutions for information technology and
administrative services by larger managed care and physician practice entities
resulting in an increase in average contract size. The significant growth in
revenues in the Managed Care Services division versus the growth in revenues in
the Practice Management Services division was the result of a more mature sales
and marketing infrastructure. In conjunction with the TXEN acquisition, the
current management team has formed, and continues to develop, a stronger sales
and marketing infrastructure for the Practice Management Services division. The
following table summarizes our revenues by division for the periods indicated on
a Combined Basis:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Managed Care....................... $ 3,194 $ 4,758 $ 7,904 $15,483 $28,861 $ 5,685 $ 8,370
Practice Management................ 8,357 9,382 10,370 12,438 14,619 3,273 3,866
------- ------- ------- ------- ------- ------- -------
Total....................... $11,551 $14,140 $18,274 $27,921 $43,480 $ 8,958 $12,236
======= ======= ======= ======= ======= ======= =======
PERCENTAGE OF REVENUES:
Managed Care....................... 27.7% 33.6% 43.3% 55.5% 66.4% 63.5% 68.4%
Practice Management................ 72.3 66.4 56.7 44.5 33.6 36.5 31.6
------- ------- ------- ------- ------- ------- -------
Total....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======= ======= =======
</TABLE>
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<PAGE> 25
One of our principal objectives is to increase recurring revenue. We define
recurring revenue as revenue based on the number of enrolled health plan members
per month, the number of transactions processed, a percentage of customer
collections and fixed monthly fees. Revenues from transaction-based or
membership-based fees are recognized as the services are provided. Recurring
revenues as a percentage of total revenues decreased in fiscal 1997 compared to
fiscal 1996 as a result of an increase in software sales in 1997. We consider
our non-recurring revenues to be revenues based on sales of computer hardware
and software and professional services based on time and materials, such as
programming and implementation fees. Revenues from professional services are
recognized when the services are performed. The table below summarizes
information related to our recurring and non-recurring revenues for the periods
indicated on a Combined Basis:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
----------------------------------------------- -----------------
1994 1995 1996 1997 1998 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Recurring.......................... $ 8,675 $10,801 $14,261 $19,985 $33,320 $ 6,601 $ 9,414
Non-recurring...................... 2,876 3,339 4,013 7,936 10,160 2,357 2,822
------- ------- ------- ------- ------- ------- -------
Total....................... $11,551 $14,140 $18,274 $27,921 $43,480 $ 8,958 $12,236
======= ======= ======= ======= ======= ======= =======
PERCENTAGE OF REVENUES:
Recurring.......................... 75.1% 76.4% 78.0% 71.6% 76.6% 73.7% 76.9%
Non-recurring...................... 24.9 23.6 22.0 28.4 23.4 26.3 23.1
------- ------- ------- ------- ------- ------- -------
Total....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED NOVEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED NOVEMBER 30,
1997
Revenues. Revenues increased 36.6% to $12.2 million in the first three
months of fiscal year 1999 from $9.0 million in the corresponding period of
fiscal year 1998. The increase in revenues was a result of the addition of new
customers during fiscal year 1998, as well as an increase in the utilization of
Nichols TXEN's services by existing customers.
Cost of Revenues. Cost of revenues increased 38.4% to $6.6 million in the
first three months of fiscal year 1999 from $4.8 million in the corresponding
period of fiscal year 1998. As a percent of revenues, cost of revenues increased
to 54.2% in the first three months of fiscal year 1999 from 53.5% in the
corresponding period of fiscal year 1998. The dollar and percentage increase was
due primarily to the employment of additional support staff required by the
increase in our business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 50.7% to $2.3 million in the first three
months of fiscal year 1999 from $1.5 million in the corresponding period of
fiscal year 1998. As a percent of revenues, selling, general and administrative
expenses increased to 18.8% in the first three months of fiscal year 1999 from
17.0% in the corresponding period of fiscal year 1998. The dollar and percentage
increase was due primarily to the employment of additional staff resulting from
the increase in our business.
Research and Development. Research and development expenses increased
52.6% to $0.8 million in the first three months of fiscal year 1999 from $0.5
million in the corresponding period of fiscal year 1998. As a percent of
revenues, research and development expenses increased to 6.2% in the first three
months of fiscal year 1999 from 5.6% in the corresponding period of fiscal year
1998. The dollar and percentage increase was due primarily to the hiring of
staff to develop additional products for Nichols TXEN.
Depreciation and Amortization. Depreciation and amortization expenses
increased 17.7% to $1.1 million in the first three months of fiscal year 1999
from $0.9 million in the corresponding
23
<PAGE> 26
period of fiscal year 1998. As a percent of revenues, depreciation and
amortization expenses decreased to 9.0% in the first three months of fiscal year
1999 from 10.4% in the corresponding period of fiscal year 1998. The dollar
increase was due primarily to additional capital expenditures required by the
increase in our business. The decrease as a percentage of revenues was
attributable to a reduction in fixed capital expenditures required by Nichols
TXEN.
Income Taxes. A tax provision of $0.6 million was recorded in the first
three months of fiscal year 1999 compared to $0.5 million in the corresponding
period of fiscal year 1998. The effective tax rate decreased to 40.0% in the
first three months of fiscal year 1999 from 41.3% in the corresponding period in
fiscal year 1998.
YEAR ENDED AUGUST 31, 1998 COMPARED TO YEAR ENDED AUGUST 31, 1997
The principal reason for the change in Nichols TXEN's historical operating
data from 1998 compared to 1997 was the effect on results of operations of the
TXEN acquisition in August 1997. The year ended 1998 contains a full year of
operating results with TXEN, compared to an equity adjustment which reflects
19.9% of the results of operations of TXEN in 1997.
Revenues. Revenues increased 249.6% to $43.5 million in 1998 from $12.4
million in 1997. The primary reason for this increase in our revenues was the
inclusion of TXEN's operations for 12 months in 1998. The increase in revenues
was also a result of the addition of new customers during the last half of 1997
and throughout 1998, as well as an increase in utilization of our services by
existing customers.
Cost of Revenues. Cost of revenues increased 199.3% to $23.3 million in
1998 compared to $7.8 million in 1997. As a percent of revenues, cost of
revenues decreased to 53.5% in 1998 from 62.5% in 1997. The dollar increase was
due to the inclusion of TXEN's operations for 12 months in 1998 in addition to
our decision to transition the practice management business solely to
outsourcing which required an initial investment in infrastructure and support
staff in order to acquire and maintain those customers. The decrease as a
percentage of revenues was attributable to the inclusion of TXEN's operations in
1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 227.3% to $7.4 million in 1998 from $2.3
million in 1997. As a percent of revenues, selling, general and administrative
expenses decreased to 16.9% in 1998 from 18.1% in 1997. The dollar increase was
due to the inclusion of TXEN's operations for 12 months in 1998, and an increase
in the staff necessary to support our increase in revenues. The decrease as a
percentage of revenues was attributable to our ability to generate synergies
resulting from the TXEN acquisition.
Research and Development. Research and development expenses increased
139.9% to $2.8 million in 1998 from $1.2 million in 1997. As a percent of
revenues, research and development expenses decreased to 6.4% in 1998 from 9.3%
in 1997. The dollar increase was due primarily to the inclusion of TXEN's
operations in 1998 and the employment of additional staff needed to develop new
products. The decrease as a percentage of revenues was attributable to our
ability to leverage our research and development infrastructure resulting from
the TXEN acquisition.
Depreciation and Amortization. Depreciation and amortization expenses
increased 361.6% to $4.5 million in 1998 from $1.0 million in 1997. As a percent
of revenues, depreciation and amortization expenses increased to 10.5% in 1998
from 7.9% in 1997. The dollar and percentage increase was due to the inclusion
of TXEN's operations for 12 months in 1998 as well as the amortization of
approximately $2.0 million related to intangible assets acquired in the TXEN
acquisition in August 1997.
Write-off of Purchased In-Process Research and Development. The
acquisition of TXEN was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the individual TXEN assets
acquired and liabilities assumed based upon their respective fair values at the
date of acquisition. The transaction resulted in the allocation of $42.8 million
of
24
<PAGE> 27
acquisition costs to intangible assets, of which $8.5 million was allocated to
in-process research and development and charged to expense in the fourth quarter
of 1997.
Other Income (Expense). Other expense in 1998 was $(0.01) million compared
to other income of $0.7 million in 1997. The dollar change was due to the
inclusion of TXEN's operations for 12 months in 1998 in the statement of
operations compared to the 19.9% investment in TXEN reflected in other income in
1997.
Income Taxes. A tax provision of $2.3 million was recorded in 1998
compared to $0.1 million in 1997. The effective tax rate was 41.2% in 1998. A
tax provision was recorded for the loss before income taxes in 1997 as a result
of the difference between financial and taxable income, primarily the $8.5
million write-off of purchased in-process research and development in 1997 which
was not deductible for tax purposes.
YEAR ENDED AUGUST 31, 1997 COMPARED TO YEAR ENDED AUGUST 31, 1996
The discussion and analysis below includes information on a historical
basis for Nichols TXEN prior to the acquisition of TXEN. The acquisition of TXEN
materially affected our results of operations after the acquisition and the
information presented below should be considered in light of the acquisition.
Revenues. Revenues increased 19.9% to $12.4 million in 1997 from $10.4
million in 1996. The primary reason for this increase in our revenues was an
increase in outsourcing services generated from new customers during fiscal year
1997.
Cost of Revenues. Cost of revenues increased 20.7% to $7.8 million in 1997
from $6.4 million in 1996. As a percent of revenues, cost of revenues increased
to 62.5% in 1997 from 62.1% in 1996. The dollar and percentage increase was due
primarily to the employment of additional support staff required by the increase
in our business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 16.5% to $2.3 million in 1997 from $1.9
million in 1996. As a percent of revenues, selling, general and administrative
expenses decreased to 18.1% in 1997 from 18.6% in 1996. The dollar increase was
due primarily to the employment of additional staff resulting from the increase
in our business. The decrease as a percentage of revenues was attributable to
our ability to leverage our selling, general and administrative infrastructure.
Research and Development. Research and development expenses increased
62.7% to $1.2 million in 1997 from $0.7 million in 1996. As a percent of
revenues, research and development expenses increased to 9.3% in 1997 from 6.8%
in 1996. The dollar and percentage increase was due primarily to the hiring of
staff to develop additional products.
Depreciation and Amortization. Depreciation and amortization expenses
increased 4.0% to $1.0 million in 1997 from $0.9 million in 1996. As a percent
of revenues, combined depreciation and amortization expense decreased to 7.9% in
1997 from 9.1% in 1996. The dollar increase was due primarily to completion of
certain development projects, whose costs were amortized beginning in 1997 over
a useful life of five years. The decrease as a percentage of revenues was
attributable to a reduction in fixed capital expenditures.
Write-off of Purchased In-Process Research and Development. The
acquisition of TXEN was accounted for under the purchase method of accounting.
Accordingly, the purchase price was allocated to the individual TXEN assets
acquired and liabilities assumed based upon their respective fair values at the
date of acquisition. The transaction resulted in the allocation of $42.8 million
of acquisition costs to intangible assets, of which $8.5 million was allocated
to in-process research and development and charged to expense in the fourth
quarter of 1997.
25
<PAGE> 28
Other Income. Other income increased to $0.7 million in 1997 from $0.1
million in 1996. As a percent of revenues, other income increased to 5.3% in
1997 from 0.9% in 1996. The dollar and percentage increase was due primarily to
the 19.9% investment in TXEN.
Income Taxes. An income tax provision of $0.1 million was recorded in 1997
compared to a $0.1 million tax provision in 1996. The tax provision in 1997 was
affected by the non-deductible $8.5 million write-off of purchased in-process
research and development in 1997.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table sets forth certain unaudited quarterly financial data
for each of the most recent five quarters through the period ended November 30,
1998. Nichols TXEN believes that the unaudited data reflect all adjustments
necessary to present fairly the results of operations for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------
NOVEMBER 30, FEBRUARY 28, MAY 31, AUGUST 31, NOVEMBER 30,
1997 1998 1998 1998 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 8,958 $10,092 $11,404 $13,026 $12,236
Gross profit....................... 4,166 4,692 5,367 5,999 5,602
Income from operations............. 1,209 1,194 1,523 1,613 1,445
Net income......................... 709 695 896 952 867
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since 1995, we have financed our operations primarily through a combination
of cash from operations and capital contributions on an as-needed basis from
Nichols Research. Working capital was $6.1 million at November 30, 1998 compared
to $2.6 million at November 30, 1997. Included in working capital are cash and
cash equivalents of $0.9 million at November 30, 1998 compared to $0.4 million
at November 30, 1997. During the three months ended November 30, 1998, operating
activities provided $0.8 million in cash. Investing activities used $1.8 million
for the three months ended November 30, 1998, of which $1.7 million was used to
acquire property, plant and equipment. Accounts receivable from customers were
outstanding on average approximately 85 days during the three months ended
November 30, 1998 compared to approximately 88 days during the three months
ended November 30, 1997.
Working capital was $5.8 million at August 31, 1998 compared to $2.2
million at August 31, 1997. Included in working capital are cash and cash
equivalents of $1.8 million at August 31, 1998 compared to $0.2 million at
August 31, 1997. During 1998, operating activities provided $6.3 million of
cash. Investing activities used $4.7 million for the year ended August 31, 1998,
of which $4.2 million was used to acquire property, plant and equipment.
Accounts receivable from customers were outstanding on average approximately 82
days during fiscal year 1998 compared to approximately 52 days during fiscal
year 1997 excluding the TXEN acquisition. The increase in payment time in fiscal
year 1998 compared to fiscal year 1997 was due primarily to the addition of the
Managed Care business where customers typically take longer to pay their
invoices. The historical time to pay outstanding invoices for the Practice
Management division has been under 60 days and we believe that by applying the
collection procedures used in the Practice Management division to the Managed
Care division that total days outstanding can be reduced.
We believe that the net proceeds from this offering, together with other
available funds, will be sufficient to meet our capital requirements for the
next 12 months. We may also utilize cash to acquire or invest in complementary
products, technologies or businesses. While Nichols TXEN continually evaluates
acquisition opportunities, no such acquisitions are currently being negotiated.
Although we generally expect to have positive cash flow from our existing
operations, we may require additional amounts of cash for acquisitions of
complementary businesses. Nichols TXEN expects to finance any acquisitions
through a combination of the net proceeds from this offering,
26
<PAGE> 29
internally-generated funds, additional debt or equity financing from capital
markets and short-term or long-term borrowings from Nichols Research. We have no
agreement with Nichols Research to ensure that funds will be available on
acceptable terms or at all. Nichols TXEN does not have an independent credit
facility.
YEAR 2000
Overview
Historically, certain computerized systems have had two digits rather than
four digits to define the applicable year, which could result in recognizing a
date using "00" as the year 1900 rather than the year 2000. This could cause
significant software failures or miscalculations and is generally referred to as
the "Year 2000" problem.
We recognize that the impact of the Year 2000 problem extends beyond our
computer hardware and software and may affect utility and telecommunication
services, as well as the systems of customers and suppliers. The Year 2000
problem is being addressed within Nichols TXEN by the individual business
divisions and progress is reported periodically to management. We have committed
resources to conduct extensive risk assessments and to take corrective action,
where appropriate.
Managed Care. The core managed care applications, consisting of TXEN MHS
and FirstSTEPP were designed with a century date field. As a result, these
applications have no pervasive architectural problems with dates spanning the
Year 2000. To ensure no minor programming related issues exist, we have
dedicated an IBM AS/400 server for testing and have set its internal clock for
the middle of the Year 2000. As a result of Year 2000 testing, we identified
minor server and processing issues related to Year 2000 problems that required
approximately 1,500 hours to correct and 300 hours to test. Year 2000 upgrades
and testing of the managed care applications were completed in December, 1998.
We have made our test AS/400 available to customers to perform their own Year
2000 simulations.
Practice Management. Nichols TXEN has identified all of the active
applications specific to the Practice Management Services division including
MDr98, a transaction-based medical practice management application. These
applications are processed by an IBM mainframe computer. We designed a
comprehensive plan to analyze each of these active applications, determine any
Year 2000 problems, implement appropriate modifications and validate the final
changes. As of December 31, 1998, we had completed 1,020 hours of programming
changes. We estimate that there remains 200 hours of programming work and 500
hours of testing before the Practice Management systems are Year 2000 compliant.
We believe that these modifications will be completed by the end of April, 1999.
We believe that our decision support application, Decision Manager 3.0, is Year
2000 compliant.
Internal Information Systems
Nichols TXEN's internal information systems utilize hardware and software
from several commercial suppliers. We have investigated our internal information
systems for Year 2000 compliance and have not identified any hardware or
software applications that require modification. Our accounting software is
installed in an IBM AS/400 and was designed to be Year 2000 compliant.
Third Parties
We have had communications with our significant suppliers and customers to
evaluate their Year 2000 compliance plans and states of readiness and to
determine the extent to which our systems may be affected by the failure of
others to remediate their own Year 2000 issues. However, we have not
independently confirmed all information received from other parties with respect
to
27
<PAGE> 30
Year 2000 issues. As such, there can be no assurance that such other parties
will complete their Year 2000 conversion in a timely fashion or will not suffer
a Year 2000 business disruption.
Contingency Plans
Because our Year 2000 conversions are expected to be completed prior to any
potential disruption to our business, we have not yet completed the development
of a comprehensive Year 2000 specific contingency plan. However, Nichols TXEN
has minimized its exposure to Year 2000 failure of significant third-party
suppliers by purchasing electronic data interchange software and database
resources from multiple suppliers of these products and services. In addition,
we have the ability to manually replicate many of the electronic services
provided by significant suppliers. If we determine that our business is at
material risk of disruption due to the Year 2000 problem, or anticipate that the
Year 2000 conversions will not be completed in a timely fashion, we will work to
enhance our contingency plan.
Cost for Year 2000 Compliance
We believe that the total cost of Year 2000 compliance activity will not be
material to our operations, liquidity and capital resources. We estimate that
the total cost for Year 2000 compliance will be $211,000, which represents 3,520
hours of analysis, modification and testing. As of December 31, 1998, we had
completed 2,820 hours of Year 2000 compliance work at a cost of $169,200.
RECENT ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, which requires changes in comprehensive income to be shown
in a financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for our 1999 fiscal year.
Management does not believe that Nichols TXEN has material other comprehensive
income which would require such separate disclosure.
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, to supersede SOP 91-1, the previously released SOP on this topic.
SOP 97-2 provides additional guidance on when revenue should be recognized and
in what amounts, for licensing, selling, leasing or otherwise marketing computer
software. The provisions of SOP 97-2 are effective for transactions entered into
in fiscal years beginning after December 15, 1997. Adoption of SOP 97-2 is not
expected to have a material adverse effect on our financial statements.
During 1998, the AICPA issued SOP 98-1, Accounting for the Cost of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 is effective for
fiscal years beginning after December 15, 1998. Nichols TXEN believes that it is
substantially in compliance with this pronouncement and that the implementation
of this pronouncement will not have a material adverse effect on our financial
statements.
28
<PAGE> 31
BUSINESS
THE COMPANY
Nichols TXEN is a leading provider of outsourcing solutions for information
technology and administrative services in the managed care and physician
practice management markets within the health care industry. Our outsourcing
services improve quality and reduce costs by minimizing the time and personnel
needed to process health care transactions by offering customers a broad range
of medical billing and claims processing solutions. As a result of our fee
structure for these outsourcing solutions, approximately 72% and 77% of our
revenues for fiscal years 1997 and 1998, respectively, were recurring. We
consider recurring revenue to be revenue based on the number of enrolled health
plan members per month, the number of transactions processed, fixed monthly fees
or a percentage of customer collections.
Nichols TXEN offers a broad range of products and services which allow
customers the flexibility to perform administrative functions with their staff
utilizing our technology or to outsource to us certain administrative and
processing functions. Each customer contracts with Nichols TXEN for the level of
outsourcing service needed. Our outsourcing solutions provide customers with
significant benefits, including:
- streamlined administrative functions;
- variable rate operating cost structure;
- faster implementation;
- reduced capital expenditures for administrative health care
technologies;
- less technology risk;
- access to knowledgeable and experienced personnel;
- sophisticated enterprise-level application software and decision
support tools; and
- enhanced marketplace connectivity.
As a result, our services enable customers to concentrate on providing
quality health care by focusing on core competencies. Nichols TXEN maintains a
centralized network data center to process transactions and provide technology
services for our customers. We believe that our ability to offer both technical
solutions and administrative services through a network data center
differentiates us from competitors that offer only turnkey software solutions or
only administrative services.
Nichols TXEN is organized into two divisions. Our Managed Care Services
division provides technology and services to HMOs, PHOs, IPAs, IDSs, PSOs,
Medicare and Medicaid HMOs, insurance carriers and managed third-party
administrators. Our Practice Management Services division provides technology
and services to hospital-based and other physician groups, hospital emergency
departments and physician networks. As of November 30, 1998, we had 90 managed
care services customers representing over three million lives nationwide and
over 285 practice management services customers representing approximately 3,000
physicians, primarily in the Southeast.
INDUSTRY BACKGROUND
Health care costs in the United States have risen dramatically over the
past two decades to approximately $1.0 trillion in 1996, or approximately 14% of
the gross domestic product. Since 1977, on average, health care costs have grown
approximately 10% per year compared to 5% for the annual increase in the
consumer price index. Pressures from both the private and public sectors to
reduce costs have caused significant changes in the health care industry.
Although reimbursement for health care has historically been fee-for-service
reimbursement, federal and state governments, corporations and other payors are
increasingly using alternative reimbursement models. A fixed-fee
29
<PAGE> 32
payment system, such as capitation, shifts the financial risk of delivering
health care from payors to health care providers. Risk shifting and other cost
reduction factors have resulted in complex arrangements among employers,
providers, and public and private payors. These organizations often lack the
technical and operational resources to function within this more complex and
sophisticated health care environment. In addition, these organizations need
access to a greater spectrum of information related to cost and quality of
health care. As a result of these information requirements, industry research
indicates that the number of health care transactions to be processed will grow
by approximately 42% in the next three years. It is estimated that 32% of every
health care dollar spent covers administrative costs.
Membership in commercial HMOs is expected to rise from 66 million members
in 1997 to 105 million members in 2001. In addition, the Health Care Financing
Administration, or HCFA, estimates that enrollment in Medicare and Medicaid
managed care arrangements will double by 2003. This increase in membership in
managed care, especially Medicaid and Medicare, is creating many new start-up
organizations and fueling rapid growth in existing organizations. Many of these
managed care organizations lack capital to acquire the needed technology or lack
the expertise to perform increasingly complex administrative functions. This
shift to managed care has also increased the level of review and audit by
government and other payors. Regulatory changes and increased scrutiny result in
information and administrative requirements outside the capabilities of many
health care organizations. For example, industry studies indicate approximately
30% to 40% of claim forms are either incomplete or inaccurate. Furthermore,
providers need information to evaluate the profitability of their contracts with
managed care organizations and to assess the overall performance of their
practices.
Health care information expenditures were estimated to be $13.6 billion in
1997 and are expected to grow to over $21.0 billion by 2000. Historically,
health care expenditures for information technology have lagged behind other
industries, with investments averaging 2% to 3% of operating revenues, compared
with an average of 6% to 8% for other industries and 12% to 14% for
information-sensitive sectors such as financial services. A 1998 Health
Information Management System Society, or HIMSS, survey indicates that health
care organizations are poorly equipped to support managed care. Less than 10% of
the companies surveyed indicated they had the software capability to perform
each of the following: utilization management, capitation/risk management,
benefits management, claims management and health outcomes reporting. The HIMSS
survey also indicates an increasing demand for health care information
technology outsourcing solutions with approximately 61% of health care
organizations surveyed outsourcing some portion of their information technology
services. Market research also predicts health care information technology
outsourcing to grow from $2.9 billion in 1997 to $4.0 billion in 2001. In
addition to information technology outsourcing, the change and complexity
affecting the health care industry has resulted in an increase in demand for
administrative services outsourcing. In 1997, approximately 24% of all
hospital-based physicians outsourced their administrative functions.
Outsourcing offers significant advantages through better automation of
eligibility, referrals and billing through electronic data interchange claims
and other contractual and clinical information. Automating the administrative
tasks of health care reduces the cost of administering a single outpatient case
by as much as 32%. By automating the movement of administrative information, it
is estimated that health care administrative management expenses may be reduced
by 20%. For example, cost savings from $0.50 to $2.25 per claim may be realized
by automating claims submission. Private networks, such as Nichols TXEN's
network data center, and public networks, such as the Internet, enable rapid
communication of data among participants in the health care industry. We believe
that HCFA's recent approval of secure transmissions over the Internet will
increase the utilization of electronic health care transactions. In addition,
network data centers improve software systems operations and provide better
decision support information because the integration and access is centralized
and easier to manage. Outsourcing also improves compliance with regulations
governing health care claims and reimbursements.
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STRATEGY
Nichols TXEN's objective is to be the leading national provider of
outsourcing solutions for information technology and administrative services in
the managed care and physician practice management markets within the health
care industry. Our strategy includes the following key elements:
Focus on providing outsourcing solutions for the administrative challenges
of health care. Nichols TXEN believes contractual complexity and an increase in
the volume of health care transactions caused by managed care will continue to
force health care companies to outsource solutions for information technology,
especially administrative services. We plan to focus additional resources on
providing administrative services to meet the increased demand for complete
administrative solutions versus information technology outsourcing or turnkey
alternatives. Our outsourcing solutions provide a faster and more efficient
response to the needs of payors and providers than the alternative of buying a
turnkey system and expanding in-house administrative infrastructure. We believe
that we have an advantage over companies that provide only administrative
services because we control our own technology and can directly and more quickly
address the new, changing information demands of the health care industry.
Continue to capitalize on niche market opportunities. We have successfully
focused our efforts in the managed care and physician practice management
markets of the health care industry, such as hospital emergency departments,
Medicaid HMOs, Medicare HMOs, provider organizations accepting Medicaid and
Medicare risk, managed third-party administrators, hospital-based physicians and
hospital-sponsored managed care organizations. Often, these organizations are
expanding into new lines of business and lack the capability to adequately
process new and increased information demands. To be successful, these
organizations must acquire new information technology to manage contractual
complexity and improve communication connectivity. Our ability to scale our
outsourcing solutions enables us to provide outsourcing solutions to start-up
organizations, as well as established companies within targeted markets.
Expand high recurring revenue model. Nichols TXEN maintains a significant
recurring revenue stream resulting from long-term, transaction-based and
membership-based contracts. In addition, our focus on quality and customer
satisfaction results in high customer retention rates enabling our revenues to
increase as customers grow their businesses. We have identified many
opportunities to provide additional solutions to our existing customers
including operations consulting, software enhancements, add-on software and
outsourcing services, such as information analysis and medical management.
Increase internal efficiencies through automation. Nichols TXEN believes
that improvements in automatic claim filing, automatic claim adjudication and
automatic generation of payments will increase operating efficiencies and
improve customer services. Improvements in technology and services can be made
efficiently because we control the supporting software, technology, centralized
network data center and communications connectivity. We invest in high-speed
peripheral technology in the areas of document imaging, mail room operations and
EDI. Because we actually perform administrative functions using our own
technology, we maintain a dedicated team focused on reengineering processes for
maximum efficiency. We have the ability to link physician practice processing
software and managed care processing software to integrate claims and billing
activities between our managed care clients and our practice management clients
providing for increased efficiency, quality and customer satisfaction.
Increasing efficiency through automation enables us to realize economies of
scale as additional customers are added.
Expand decision support and medical utilization management software and
services. We plan to add new decision support and medical utilization
management services that complement our application software suites. The
diffusion of managed care risk has created a demand for actuarial service plans
requiring new levels of information to evaluate health care costs and outcomes
effectiveness. Employer-sponsored groups, such as the National Coalition for
Quality Assurance, or
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NCQA, are pressuring health plans for comparative information using standard
industry measures, such as the Health Plan Employer Data and Information Set.
Acquire complementary businesses and technologies. We will focus on
acquisitions of businesses, product lines, or technologies that can increase our
customer base or enhance our capabilities. We intend to acquire other companies
whose customer base, product lines or technologies would be complementary to our
network data center operating model.
MANAGED CARE SERVICES DIVISION
The Managed Care Services division's goal is to reduce the time and
personnel needed to perform managed care administrative tasks through an
optimized combination of technology, process automation and well-trained
personnel. Our solutions improve the management of complex benefits plans,
sophisticated provider reimbursement contracts, premium billing, capitation and
risk management. Customers contract for services on a per enrolled health plan
member per month basis which provides predictable administrative costs and
enables customers to expand their business quickly without the need for
additional infrastructure. These services lower the start-up costs and barriers
to entry facing managed care organizations, enabling large organizations to
enter niche markets easily and enabling small organizations to gain market
entry. Our managed care solutions are characterized by ease of use, speed of
implementation, minimal capital requirements, incentive-based pricing, less
technology risk, better decision support information, access to advanced
technology and superior automation. We have identified over 7,000 organizations
that may benefit from our outsourcing services. The chart on the following page
illustrates our Managed Care Services.
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Managed Care Services
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ----------------------------------------------------------
MCT Services - Managed Care MCA Services - Managed Care
Technology Outsourcing Administration Outsourcing
- ------------------------------------------------------------ ----------------------------------------------------------
<S> <C>
Customers outsource their software and system functions to Customers outsource all their information technology needs
Nichols TXEN but use their own administrative staff. and some or all administrative functions. Through Nichols
Through our centralized network data-center, customers access TXEN's back office service centers, customers utilize our
high-end software systems for managed care administration, personnel and technology to perform claims processing,
decision support, medical management and electronic data eligibility verification, member/provider data management,
interchange. capitation processing, premium billing, check processing,
mail room and other related administrative services.
- ------------------------------------------------------------ ----------------------------------------------------------
Nichols TXEN Technology Nichols TXEN Technology
& Customer Personnel & Nichols TXEN Personnel
</TABLE>
<TABLE>
<CAPTION>
-------------------------------- ---------------------------------- -------------------------
Marketplace Connectivity Nichols TXEN - Network Data Center Supporting Technology
-------------------------------- ---------------------------------- -------------------------
<S> <C> <C>
Electronic Data Interchange National Wide Area Network Highly Automated Mailroom
Integrated 3rd Party Applications IBM AS/400s High Speed Scanners
Direct, On-line Connections NT Servers Image Server
Connected LANs High Speed Laser Printers
--------------------------------- ---------------------------------- -------------------------
</TABLE>
Intra-Network Integration with Nichols TXEN
Practice Management Services Applications
<TABLE>
<CAPTION>
- ------------------------------------ --------------------------------------------- -----------------------------------------
First STEPP TXEN-MHS Xtend-DSS
Medical Management Software Managed Care Administration Software Decision Support Software
- ------------------------------------ --------------------------------------------- -----------------------------------------
<S> <C> <C>
Distributed Client/Server medical Enterprise-level managed care administration Executive information and decision support
utilization management software software system for managing and controlling software application suite for analyzing
system for managing tasks and premium billing, capitation, benefit plans transaction data and evaluating
workflow associated with approval of and membership data, eligibility, provider performance and quality. Xtend uses
surgical procedures, hospital contracts, referrals, authorizations, claims, replicated data captured from the
admissions, case management, productivity reporting, accounts receivable, TXEN-MHS and FirstSTEPP applications.
utilization review and specialist accounts payable and general ledger.
referrals. First STEPP is fully
integrated with TXEN-MHS.
- ------------------------------------ --------------------------------------------- -----------------------------------------
</TABLE>
Nichols TXEN High-End
Software
Technology Foundation
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Managed Care Technology (MCT) Services
MCT customers outsource their software and system functions to us but use
their own administrative staff. Customers access our internally-developed,
high-end software systems for managed care administration, decision support and
medical management. In addition, we offer integrated third party supporting
software and marketplace connectivity through our network data center. The
customers' local area networks are connected to our high-speed wide area
network. MCT customers may use the following software products of Nichols TXEN:
- TXEN MHS -- to manage and control premium billing, capitation, benefit
plans, membership data, eligibility, provider contracts, referrals,
authorizations, claims and accounts payable;
- Xtend -- to analyze transaction data and evaluate performance and
quality; and
- FirstSTEPP -- to automate functions previously performed manually, such
as the approval of surgical procedures, hospital admissions, utilization
review and specialist referrals.
We also provide software support, implementation, consulting and software
development services. As of November 30, 1998, we provided MCT services to 58
customers, of which 13 were turnkey customers.
Managed Care Administrative (MCA) Services
MCA customers outsource all of their information technology and some or all
of their administrative functions to our Managed Care Services division. Through
Nichols TXEN's back office service centers, customers utilize our personnel and
technology to perform claims processing, eligibility management, capitation risk
management, premium billing, check processing, mailroom and other related
administrative services. For our MCA customers, we may use TXEN MHS, FirstSTEPP
and Xtend to perform the administrative functions. We create and maintain
membership and eligibility data and provider and employer databases for
customers. We enter claim information which is furnished by customers
electronically or on paper. Our specialized software processes the claim based
upon the applicable plan rules or the provider benefit contract rules. The claim
is then paid or held for further examination. Depending on the nature of the
claim, this adjudication process may be performed automatically by our
specialized software or manually by our trained personnel. As part of our
strategy, we intend to increase our ability to offer automatic claims
adjudication to improve efficiency. Nichols TXEN also performs utilization
review services based on customer approval criteria which include determining
the necessity of medical procedures and issuing certificates of admission or
specialists referrals when appropriate. All denial recommendations are forwarded
to the customer for final decision. We also offer customers in-patient care
management services to monitor quality of care and length of stay. Many of the
managed care organizations in our selected markets do not possess the resources
to initiate a comprehensive utilization review program. We offer this capability
with our internal professional medical staff consisting of physicians and
nurses. As of November 30, 1998, we provided MCA services to 32 customers.
Managed Care Services Supporting Software
TXEN MHS Managed Care Administration System. Over the past nine years, we
have modified and enhanced our licensed core software for managed care
transaction processing in order to offer a comprehensive solution to the entire
spectrum of managed care companies. TXEN MHS is the core software supporting our
MCT and MCA services. We have combined TXEN MHS with third-party products to
provide integrated processing of related transactions. This provides our
customers a single point of access to imaging and workflow management, clinical
editing, provider credentialing and other functions. TXEN MHS has electronic
data interchange features that permit electronic transmission of information.
The modular design and integrated database of TXEN MHS provide the user with
flexibility in system configuration for efficient operation without programmer
intervention.
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We believe TXEN MHS offers higher rates of automatic adjudication, automation
and administrative efficiencies than competitive systems.
FirstSTEPP Medical Management System. FirstSTEPP, our medical management
system, improves the efficiency of utilization review activities. FirstSTEPP,
which is fully integrated with TXEN MHS, supports pre-certification,
authorization and utilization management requirements. FirstSTEPP is a
distributed client-server system with "point and click" functionality for ease
of use. User-defined medical protocols assist medical management staff to comply
with the terms of individual benefit plans. In the FirstSTEPP application, menus
are work driven, with most functions employing "drag and drop" functionality.
Because FirstSTEPP is integrated with TXEN MHS, information is instantly
accessible concerning provider contracts, fee schedules, current enrollment,
eligibility and member demographic data. FirstSTEPP allows utilization review
nurses and physicians to perform quality outcomes management and assign patterns
of treatment criteria. FirstSTEPP guides users through a predetermined task list
of integrated functions that include pre-certifications and admission
processing, review and discharge processing, authorization templates, document
templates, incidents of care templates, correspondence processing, and staff and
workgroup management. FirstSTEPP eliminates paperwork, minimizes compliance
issues, eliminates double data entries and reduces administrative problems.
FirstSTEPP features automated data storage and retrieval as well as internal and
external correspondence capabilities.
Xtend Decision Support Application Suite. The Xtend decision support
application suite assists users in finding, analyzing and interpreting
mission-critical information from managed care transaction data. The Xtend
architecture is divided into two key components. The first component, Xtend/MHS,
is a powerful transaction data replication engine and customized report writer.
Xtend/MHS offers the following features: integration with TXEN MHS, transaction
data replication, easy information retrieval, reporting templates and "point and
click" visual interface. The second component of Xtend is an executive
information system, or EIS, into which specific modules may be connected. The
first module available for the EIS system is the Xtend/HEDIS module which is
based on industry standards for quality comparisons as published by NCQA.
Xtend/HEDIS offers the following features: easy manipulation of HEDIS reporting
measures and other benchmarking measures, quality of care analysis, utilization
and member analysis, and integration with industry-standard spreadsheet and word
processing software.
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PRACTICE MANAGEMENT SERVICES DIVISION
The Practice Management Services division's goal is to reduce the time and
personnel needed to perform practice management administrative tasks through an
optimized combination of technology, process automation and well-trained
personnel. Our solutions assist clients by accelerating collections, improving
compliance, reducing fixed expenses and providing timely data through electronic
connectivity. These solutions also improve the management of patient
information, coding and chart information, claims submission, managed care
requirements, insurance follow-up, statement processing, payment processing and
detailed performance analysis. Customers contract for services on a per
transaction or percentage of revenues basis which provides customers with
predictable administrative costs and enables them to expand their businesses
quickly without the need for additional infrastructure. Our practice management
solutions are characterized by ease-of-use, speed of implementation, minimal
capital requirements, variable cost pricing, reliability, better compliance,
less technology risk and increased decision support information.
The Practice Management Services division targets hospital-based and other
physician groups, hospital emergency departments and physician networks. As of
November 30, 1998, Nichols TXEN had more than 285 practice management customers
representing approximately 3,000 physicians in eight states: Alabama,
Mississippi, Georgia, Tennessee, Florida, North Carolina, Missouri and Texas. We
have initiated marketing efforts in South Carolina, Kentucky, Virginia,
Maryland, Louisiana and Arkansas. We estimate that there are approximately 8,000
potential customers within this fourteen-state region. The chart on the
following page illustrates our Practice Management Services.
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<PAGE> 39
Practice Management Services
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------------------------------------------
PMT Services - Practice Management PMA Services - Practice Management
Technology Outsourcing Administrative Outsourcing
- ------------------------------------------------------------- -------------------------------------------------------------
<S> <C>
PMT Customers outsource their software and system PMA customers outsource all of their information
functions but use their own administrative staff. Through our technology systems and some or all administrative functions.
centralized network data center, customers access high-end Through Nichols TXEN's back office service centers, customers
software systems for complete practice management utilize our personnel and technology to perform billing, data
administration and decision support. Customers connect entry, chart development, coding, claims submission,
directly to payors, hospitals and other providers. statement processing, insurance follow-up, payment posting,
first level collections and performance analysis.
- ------------------------------------------------------------- -------------------------------------------------------------
</TABLE>
Nichols TXEN Technology Nichols TXEN Technology
& Customer Personnel & Nichols TXEN Personnel
<TABLE>
<CAPTION>
- -------------------------------- ---------------------------------- ----------------------------
Marketplace Connectivity Nichols TXEN - Network Data Center Supporting Technology
- -------------------------------- ---------------------------------- ----------------------------
<S> <C> <C>
Electronic Data Interchange Wide Area Network Highly Automated Mailroom
Integrated 3rd Party Applications IBM Mainframe High Speed Scanners
Direct, On-line Connections NT Servers Image Server
Connected LANs High Speed Laser Printers
- -------------------------------- ---------------------------------- ----------------------------
</TABLE>
Intra-Network Integration with Nichols TXEN
Managed Care Services Applications
<TABLE>
<CAPTION>
- -------------------------------------------------------- ------------------------------------------------------
MDr98 Decision Manger 3.0
Physician Practice Management Software Decision Support Software
- -------------------------------------------------------- ------------------------------------------------------
<S> <C>
MDr98 is a network-based practice management Decision Manager is a decision support application
software solution for large physician networks, hospital- designed for Microsoft Access, which enables detailed
based physicians, emergency departments and MSOs. analysis of a physician group's operations. Features of
MDr98 capabilities include: billing management, Decision Manager include activity-based cost analysis,
insurance processing and tracking, appointment procedure analysis and diagnosis, reimbursement
scheduling, windows or text based screens, payments analysis and referral summary, easy data selection and
and statement management, electronic claim filing and sorting, and flexible customized report writer.
remittance, secondary filing, decision management,
master patient index, medical records interfaces and
claims submission management.
- -------------------------------------------------------- ------------------------------------------------------
</TABLE>
Nichols TXEN High-End
Software
Technology Foundation
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Practice Management Technology (PMT) Services
PMT customers outsource their software and system functions to Nichols
TXEN, but use their own administrative staff. Customers access our internally
developed, high-end software systems for practice management administration,
decision support and financial management. In addition, we offer integrated
third party supporting software and marketplace connectivity through our network
data center. Customers connect via LANs or directly to our network data center.
We differentiate our physician practice management solutions by enabling
customers to connect through the network data center directly to payors,
hospitals and other providers. PMT customers may use MDr98, which enables
physician practices to manage and control appointment scheduling, medical
billing, electronic claims submission, electronic remittance, insurance
follow-up and payment processing; and Decision Manager 3.0, which enables
physician practices to analyze billing and practice information to detect trends
regarding payments, utilization, costs and demographics. In addition, we offer
PMT customers access to our automated mailroom and customized statement
processing capabilities. We also provide software support, implementation,
consulting and software development services. As of November 30, 1998, we
provided PMT services to 221 customers.
Practice Management Administrative (PMA) Services
PMA customers outsource all of their information technology systems and
some or all administrative functions to the Practice Management Services
division. Through our back office service centers, customers utilize our
personnel and technology to perform billing, data entry, chart development,
coding, claims submission, statement processing, insurance follow-up, payment
posting, first level collections and performance analysis. For PMA customers, we
may use MDr98 and Decision Manager 3.0 to perform administrative functions. We
create and maintain patient, medical chart, physician credentials, insurance and
referral data bases for customers. Nichols TXEN enters billing information that
is furnished by customers electronically or on paper. Our specialized software
processes the bills based upon payor plan rules, current procedural technology
or CPT guidelines, and applicable provider fee schedules. In addition, our
specialized software edits the bill to ensure accuracy based on predetermined
rules. The bill is then submitted electronically or mailed to the appropriate
payor. As part of our strategy, we intend to increase our ability to automate
billing submissions and remittances electronically to improve efficiency.
Nichols TXEN also performs physician procedure and diagnosis coding based on CPT
guidelines, international classification of diseases (known as ICD-9 Codes)
guidelines, and public and private payor guidelines. In addition, we provide
trained temporary staffing for physician offices for administrative work and
billing-oriented tasks. As of November 30, 1998, we provided PMA services to 65
customers.
Practice Management Services Supporting Software
MDr98 Physician Practice Management System. Over the past 30 years,
Nichols TXEN has modified and enhanced our core software for physician practice
transaction processing. We believe MDr98 is the only software product that
offers practice management organizations the complete functionality and market
place connectivity necessary to succeed in today's complex health care
environment. MDr98 is the core software supporting our PMT and PMA services. Our
MDr98 is a complete medical practice management system consisting of one or more
terminals and printers installed in medical offices and linked by dedicated
communication lines to our network data center. MDr98 is a network-based
practice management solution for large physician networks, hospital-based
physicians, hospital emergency departments and management services
organizations. MDr98 is integrated with the Managed Care Services transaction
processing software so customers may receive real-time eligibility verification,
preliminary claims editing, on-line claims submission and electronic remittance.
MDr98 capabilities include the following functions: billing management,
insurance processing and tracking, appointment scheduling, windows and text
based screens, payments and statement management, electronic claim filing and
remittance, secondary filing,
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<PAGE> 41
decision management, master patient index, medical records interfaces and claims
submission management.
We can file claims electronically from our network data center to more than
300 insurance carriers, Medicare and Medicaid. Explanation of benefits or
payments information appears on-screen for medical office staff to review,
adjust and post with a single keystroke. A claim screening system using edits
and error checking techniques helps assure that the claim has the correct
information before it is transmitted for payment. MDr98 also provides on-line
access to selected payors and hospitals through our network data center. This
capability affords customers the ability to obtain information regarding claim
status, patient eligibility, benefit plan, referring physician,
pre-certification and other data which reduces errors that delay payments.
Customers can also access hospital admission data to apply charges to patient
accounts. We added a master patient index that enables any physician to securely
share information with any other physician on the network and facilitates
integration with hospital systems.
Decision Manager 3.0. Decision Manager 3.0 support application assists
users in finding, analyzing and interpreting mission-critical information from
physician practice transaction data. Decision Manager 3.0 has a powerful
transaction data replication engine and customized report writer. Decision
Manager 3.0 offers the following features: integration with MDr98, transaction
data replication, easy information retrieval, reporting templates and "point and
click" visual interface. Decision Manager 3.0 is a Microsoft Windows-based
decision support application designed for Microsoft Access. Options available
with Decision Manager 3.0 include activity-based cost analysis, procedure
analysis and diagnosis, reimbursement analysis and referral summary. Decision
Manager 3.0 offers improved control over data selection and sorting, along with
greater flexibility to customize reports.
OPERATIONS
Network Data Center
We believe that our method of delivering and accessing health care
information technology utilizing a network data center is superior to a turnkey
system. The accessibility of network resources from a central location gives us
the ability to implement systemwide software upgrades without the delay
experienced by typical turnkey system vendors. The network data center, located
in Birmingham, Alabama, is connected by Microsoft Windows NT or Novell
networking software to over 150 LANs. Customers may connect to the network
directly or through their own LANs utilizing high-speed digital communications.
The network data center presently processes over 500 million transactions per
year. The network uses IBM AS/400 midrange and IBM S/390 massively parallel
servers as the core transaction servers. The servers currently have over 2.5
terabytes of disk space with approximately 7,000 devices attached.
We believe that our network connection with customers adds value to the
technology and services we offer. The cost of computer systems necessary to
process health care related transactions is substantial. Our network data center
model eliminates or reduces costs associated with the following: hardware and
software upgrades and maintenance, performance monitoring, floor space, system
training, insurance, computer operations, electrical power, security
administration, climate control, back-up processes and off-site storage. The
centralized network data center enables Nichols TXEN to achieve economies of
scale utilizing a single system for many customers. This allows us to offer
efficiencies in transaction processing and the ability to supplement our basic
services with more advanced technologies, such as decision support information,
Internet connectivity and higher quality peripheral and supporting technology.
Customers using our network data center have immediate access to new software
products developed by Nichols TXEN, upgrades of existing products and
third-party software connected to the network. In addition, enhancements made to
address issues for one customer may be shared by all users of our network. The
center also facilitates
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customer support because customer representatives can access software and
customer data while answering customer inquiries.
Nichols TXEN has an extensive disaster recovery plan for our network data
center. Our data center is protected from power outages and all data is backed
up daily to a remote location. It is possible, however, that a disaster, such as
a tornado or fire, could disable or destroy our equipment and facilities. As a
contingency plan for such disasters, Nichols TXEN has contracted with a third
party to provide temporary computer facilities, utilizing our data back-ups and
software. We should be able to resume network data center operations within 72
hours of major damage.
Sales and Marketing
We market and sell our services through our own direct sales force. We
divide our sales and marketing activities between obtaining new customers and
expanding services offered to existing customers. Nichols TXEN employs 15 sales
representatives with geographic and market segment assignments to market our
services and technology to new customers. We employ four account managers to
sell additional services and technology to existing customers. These
representatives also support existing customers in obtaining new business by
assisting their marketing programs.
We consider our approach to sales and marketing a competitive advantage.
Nichols TXEN utilizes specialized software to manage marketing and sales
activities. The software helps manage market research, sales management reports,
forecasting and sales-cycle tracking. At the core of all sales and marketing
efforts is a strategic, internally-developed database with detailed records of
each prospect in target markets. Sales prospects are generated through customer
references, requests for proposals, direct mail, trade shows and our internal
telemarketing efforts. We employ seven representatives whose primary function is
to generate sales leads from activities that include telephone calls, Internet
searches, market research and direct mail solicitations. We estimate that we
will make telemarketing calls to approximately 15,000 potential customers in
1999.
Implementation, Support and Training Services
We believe that a close and active service and support relationship is
important to customer satisfaction and provides us with important information
regarding customer requirements and additional sales opportunities. Proper
implementation, training and on-going technical support are necessary for the
solutions to operate effectively and efficiently. Each customer goes through a
detailed implementation process which includes the set-up of business rules and
databases, the conversion of historical data and classroom training conducted at
our training facilities. Nichols TXEN supports each customer with technical
support analysts and account coordinators who oversee customer software and
business issues and answer questions. In addition to on-going support, the
customer receives software updates. Customers may also request custom software
modifications to meet specific customer requirements. These custom modifications
are implemented into our regular upgrades and can, therefore, be shared with all
customers. We provide on-line and printed documentation for software and
implementation information.
Research and Development
Typically, software product vendors primarily rely on customer comments
regarding their products in order to decide upon software enhancements. In
addition to this approach, because we use our own software, we have a unique
insight into enhancements that will improve productivity. These enhancements
improve automation and, therefore, contribute to the efficiency of all users.
Nichols TXEN also leverages customer-funded modifications by making them
available to all network users. Research and development costs were $1.0 million
in 1996, $1.6 million in 1997 and $3.3 million in 1998 of which 3%, 4% and 19%,
respectively, were customer-sponsored research and development related to the
modification and development of software products. As of November 30, 1998, the
research and development staff consisted of 60 employees.
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Nichols TXEN uses graphical user interface, or GUI, tools to make set-up,
information review and workflow on software systems faster, easier and more
intuitive. Planned enhancements designed to achieve this goal include a customer
service module, benefit plan building assistant, Java-based user interface for
TXEN MHS and more extensive care management tracking for FirstSTEPP. We focus a
substantial part of our research and development effort on improving automatic
claim filing and automatic claim adjudication. Planned enhancements to achieve
this goal include computer-aided claims classification, enhanced MDr98 pre-claim
submission audits, increased integration between TXEN MHS and MDr98, optical
character recognition, improved mail room capabilities and enhanced electronic
verifications, submissions and receipts. Currently, we offer two primary
decision support products, Xtend for managed care and Decision Manager 3.0 for
practice management. We also plan to adopt an ORACLE database, create a medical
management module for Xtend and add key indicator views in Decision Manager 3.0
and MDr98 for reporting.
COMPETITION
The business of providing information technology and administrative
services outsourcing to managed care organizations and medical practices is
highly competitive. The market for our transaction processing technology and
services is characterized by rapid change and technological advances requiring
ongoing expenditures for research and development and the timely introduction of
new technology and enhancements of existing technology. Our future success will
depend, in part, upon our ability to enhance our current technology and
services, respond effectively to technological changes, sell additional services
to our existing client base, introduce new technologies and meet the
increasingly sophisticated needs of our clients. Nichols TXEN's competitors vary
in the size, scope and breadth of the products and services they offer. Most of
our sales are derived from competitive procurement processes that require
specific, highly detailed presentations from all qualified vendors. We compete
with firms that sell turnkey computer systems and with firms that offer
information technology outsourcing services. A turnkey system is characterized
by a stand-alone package of hardware and software designed to perform specific
functions. We plan to significantly limit our sale of turnkey computer systems
to customers who desire to process their transactions internally. Accordingly,
Nichols TXEN may be at a competitive disadvantage to other vendors offering such
systems. In certain instances, potential customers may be influenced to select a
turnkey system by the customer's management information systems department who
may believe that our service solutions will reduce the department's internal
staff and equipment requirements. Many of our current and potential competitors
have significantly greater financial, marketing and other competitive resources
than Nichols TXEN. Current and potential competitors, including providers of
information technology to other segments of the health care industry, may
establish joint marketing arrangements or other relationships to compete more
effectively against us and new competitors may emerge.
INTELLECTUAL PROPERTY
Our success is dependent, in part, on our ability to protect our
proprietary software and confidential information from unauthorized use and
disclosure. We do not own any patents and have not registered any copyrights,
trademarks, service marks or trade names with the United States Patent and
Trademark Office. We rely on a combination of trade secrets, common law
intellectual property rights, license agreements, nondisclosure and other
contractual provisions and technical measures to establish and protect our
proprietary rights in our intellectual property and confidential information.
There can be no assurance that the legal protections afforded to us or the steps
taken by us will be adequate to prevent misappropriation of our technology and
confidential information. In addition, these protections do not prevent
independent third-party development of competitive products or services. We
believe that our proprietary rights do not infringe upon the proprietary rights
of third parties. There can be no assurance, however, that third parties will
not assert infringement claims against us in the future or that any such
assertion will not require us to enter into a license agreement or royalty
arrangement with the party asserting the claim.
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FACILITIES
We currently occupy approximately 87,500 square feet in four facilities in
Birmingham, Alabama. We have signed a lease agreement for approximately 74,000
square feet of office space in Birmingham scheduled to be completed for
occupancy by April 1, 1999. At that time, Nichols TXEN's Birmingham operations
will be consolidated into two facilities totalling approximately 109,000 square
feet. Our network data center will remain in its current location. In addition,
we have leased approximately 25,000 square feet in Birmingham that is scheduled
to be occupied by April 2000.
We currently lease approximately 4,800 square feet in Auburn, Alabama to
house a portion of our Managed Care Administration operations and approximately
5,000 square feet in Gadsden, Alabama, and Huntsville, Alabama, to house a
portion of our Practice Management Administration operations.
EMPLOYEES
Nichols TXEN had 606 employees as of November 30, 1998, of which 346 were
in the Managed Care Services division, 204 were in the Practice Management
Services division, and 56 were in Corporate Support Services such as finance,
administration, marketing and internal information technology support.
We believe our relationship with our employees is good. None of our
employees are governed by a collective bargaining agreement. In order to augment
our hiring of ready-to-work skilled individuals, we have employed several
programs to educate and train our work force.
We offer our employees extensive training courses covering software,
managed care and practice management markets, management, claims examination,
project management, and human resources. We augment our regular recruiting
efforts of university visits, job fairs, and employee referral programs with a
special recruiting and training program for college graduates from a variety of
disciplines with high grade point averages. These college graduates are placed
in an intense sixteen-week training program. The training program educates these
new employees on the managed care market and also provides concentrated training
on business division products and service. During fiscal year 1998, we conducted
fall, spring and summer classes training 48 new employees. At the end of the
training program, these new employees were assigned positions with Nichols TXEN.
To recruit and train additional personnel, Nichols TXEN participates in a
six-week pre-employment screening program developed and funded primarily by the
State of Alabama. Instruction provides participants with the basic skills
necessary for a position with us. The State of Alabama screens and selects
applicants expressing an interest in the program. Individuals are not paid for
participation in the program and we are not obligated to hire any of the
participants at the end of the program. We use a database of scanned resumes and
specialized software to manage our recruiting and hiring efforts.
GOVERNMENT REGULATION
The health care industry is subject to intensive regulation by both the
federal and state governments. One of Nichols TXEN's services, the preparation
and submission of claims for payment, has been subject to periodic and
continuing scrutiny for compliance with laws and regulations regarding, among
other things, inducements for patients referrals or services which are
government-reimbursed, incentives to improperly code for procedures, and
licensure. This regulatory framework is complex and the laws are very broad in
scope, subject to differing interpretations and lack substantive court decisions
addressing many arrangements under which we have conducted and expect to conduct
our business. Any failure to comply, or alleged failure to comply, with
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applicable laws and regulations could have a material adverse effect on our
business, financial condition or results of operations.
Licensure, Registration and Consumer Protection
In general, Nichols TXEN's third party administration and utilization
review operations are regulated by statutes and regulations of various states.
We are currently licensed as a Third Party Administrator or Private Review
Agent, or have been deemed to have achieved licensure by virtue of our URAC
accreditation by the American Accreditation Health Care Commission, in all
states in which we provide these services. We believe that we are in substantial
compliance with the licensing laws of each state in which we conduct business.
In addition, federal and state consumer protection laws may apply to our billing
activities in which we bill patients directly for the cost of physician services
provided. We believe that we are in substantial compliance with the consumer
protection laws of each state in which we conduct business.
Professional Practice
Persons engaged in the practice of medicine and nursing must be licensed in
various states. The professional practice of each profession is regulated by its
respective professional board. Professional practice rules and regulations are
comprehensive and generally set forth various activities which constitute
professional misconduct, or for which a professional may be subject to
sanctions, including loss of professional license. We believe that all of our
physicians and nurses are in substantial compliance with all applicable
professional regulations.
Anti-Kickback Statute
Under Medicare, Medicaid and other government funded health care programs,
federal and state governments enforce a federal Anti-Kickback Statute that
prohibits the offer, payment, solicitation or receipt of any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind to induce or in
exchange for (i) the referral of patients covered by the programs, or (ii) the
leasing, purchasing, ordering or arranging for or recommending the lease,
purchase or order of any item, good, facility or service covered by the
programs. Prohibited remuneration includes any kickbacks, bribes, or rebates.
A person or entity that violates the Anti-Kickback Statute may be
penalized. These penalties include criminal fines of up to $25,000 per violation
and imprisonment. In addition, civil penalties can be imposed up to $50,000 per
violation, plus three times the actual damages. Further, the Secretary of the
Department of Health and Human Services has the authority to exclude or bar
individuals or entities who violate the Anti-Kickback Statute from participating
in Medicare and Medicaid. Exclusion may be imposed even if participation is
indirect. If Nichols TXEN, our personnel, or any significant customer is
penalized under the Anti-Kickback Statute, for whatever reason, there may be a
significant loss in our revenue.
The Anti-Kickback Statute is broad in scope and courts have not been
consistent in their interpretations of the law. To clarify what acts or
arrangements will not be subject to prosecution by the DHHS Office of Inspector
General or the United States Attorney, DHHS adopted a set of safe harbor
regulations. DHHS continues to publish clarifications to such safe harbors.
Arrangements that meet all the requirements of an applicable safe harbor are
considered not to violate the Anti-Kickback Statute. The activities covered by
the safe harbors include, but are not limited to, certain investments, rental of
space, land, equipment, personal services and management contracts, sales of
physician practices, physician referral services, warranties, discounts,
payments to employees, group purchasing organizations, and waivers of
beneficiary deductibles and co-payments. Failure to fit within a safe harbor
provision does not necessarily mean that the structure of a transaction is
illegal or that it will be prosecuted under the Anti-Kickback Statute.
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We do not believe that the final regulations contain a safe harbor which
covers all the arrangements under which we provide billing services to our
customers. However, we believe that our billing arrangements with physicians and
other customers do not violate the federal Anti-Kickback Statute, or similar
state laws.
The Health Insurance Portability and Accountability Act of 1996
In an effort to combat health care fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996, or HIPAA. HIPAA broadened the scope of certain fraud and abuse laws,
such as the Anti-Kickback Statute, to include all health care services, whether
or not they are reimbursed under a federal program. Federal health care offenses
include health care fraud and making false statements relative to health care
matters. Any person or entity that knowingly and willfully defrauds or attempts
to defraud a health care benefit program or obtains by means of false or
fraudulent pretenses, representations or promises, any of the money or property
of any health care benefit program in connection with the delivery of health
care services is subject to a fine and/or imprisonment. In addition, any person
or entity that knowingly and willfully falsifies or conceals or covers up a
material fact or makes any materially false or fraudulent statements in
connection with the delivery of or payment of health care services by a health
care benefit plan is subject to a fine and/or imprisonment. Civil fines and
exclusion may be imposed on individuals who retain an ownership or control
interest in a Medicare or Medicaid participating entity after such individuals
have been excluded from participating in the Medicare or Medicaid program. In
particular, civil monetary penalties or exclusion may be imposed on any person
who engages in a pattern or practice of presenting or causing to be presented a
claim for an item or services that is based on a code that the person knows or
should know will result in a greater payment to the person than the code the
person knows or should know is applicable to the item or service actually
provided. We believe that all of our operations comply with HIPAA.
False Claims Act
Under the Federal False Claims Act, liability may be imposed on any person
who knowingly submits or participates in submitting claims for payment to the
federal government which are false or fraudulent, or which contain false or
misleading information. Liability may also be imposed on persons who knowingly
make or use a false record or statement to avoid an obligation to pay the
federal government. "Person" includes an individual, company or corporation.
Various state laws impose liability for similar acts. Claims under the Federal
False Claims Act may be brought by the federal government or private
"whistleblowers." If we are found liable for a violation of the Federal False
Claims Act, or any similar state law, it may result in substantial civil and
criminal penalties. In addition, Nichols TXEN could be prohibited from
processing Medicaid or Medicare claims for payment.
Prompt Payment Laws
Various states have passed laws regarding the prompt payment of medical
claims by health plans. If a claim is brought against us, and we are found to
have violated a law regarding the prompt processing of claims for payment, we
may incur civil or other penalties.
Government Investigations
There is increasing scrutiny by law enforcement authorities, the DHHS
Office of Inspector General, the courts and Congress of arrangements between
health care providers and suppliers or other contractors which have a potential
to increase utilization of government health care resources. In particular,
scrutiny has been placed on coding of claims for payment and contracted billing
arrangements. Investigators have demonstrated a willingness to look beyond the
formalities of business arrangements to determine the underlying purposes of
payments between health care providers and suppliers and contractors. Although,
to our knowledge, neither Nichols TXEN nor any
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of its customers is the subject of any investigation, we cannot tell whether
Nichols TXEN, or its customers, will be the target of governmental
investigations in the future.
Confidentiality
Various federal and state laws establish minimum standards for the
maintenance of medical records to protect the confidentiality of patient medical
information. In the course of our business, we receive medical records for
various patients of our customers. As a result, Nichols TXEN is subject to one
or more of these medical records and confidentiality laws. In addition, we may
become subject to new rules recently mandated by federal law and proposed by the
HCFA to ensure the integrity and confidentiality of patient data by creating
mandatory security standards for entities which maintain or transmit health
information electronically.
LEGAL PROCEEDINGS
We are involved in various lawsuits and claims arising in the normal course
of business. In our opinion, although the outcomes of these suits and claims are
uncertain, in the aggregate they should not have a material adverse effect on
our business, financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas L. Patterson(1)............... 56 Chairman of the Board
Paul D. Reaves(1).................... 41 Chief Executive Officer and Director
H. Grey Wood......................... 42 President, Chief Operating Officer and Director
John D. McKay........................ 36 Chief Financial Officer
W. Sanders Pitman.................... 36 Vice President and General Manager, Managed Care
W. Luckey Crocker.................... 43 Vice President and General Manager, Practice Management
Chris H. Horgen(1)................... 52 Director
Michael J. Mruz(1)................... 53 Director
James D. Kever(2)(3)................. 46 Director
James I. Harrison, Jr.(2)(3)......... 66 Director
Patsy L. Hattox...................... 49 Secretary
Allen E. Dillard..................... 38 Treasurer
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
All directors of the Company hold office until the next annual meeting of
the stockholders and the election and qualification of their successors.
Officers serve at the discretion of the Board of Directors.
Thomas L. Patterson has been employed since 1989 by the Company and one of
its predecessors, TXEN, Inc. Mr. Patterson has been Chairman of the Board of
Nichols TXEN since the acquisition of TXEN, Inc. in August 1997. Since May 1998,
Mr. Patterson has been employed part-time in the capacity of Chairman of the
Board. From 1989 to August 1997, Mr. Patterson served as Chief Executive Officer
and President of TXEN, Inc., which he co-founded. In 1980, Mr. Patterson founded
SEAKO, Inc., an information technology company for practice management and
managed care systems. From 1980 to 1989, Mr. Patterson served as President of
SEAKO, Inc. He also serves on the Board of Directors of Nichols Research.
Paul D. Reaves has been employed since 1989 by the Company and TXEN, Inc.
Mr. Reaves has served as Chief Executive Officer of the Company since May 1998.
Mr. Reaves was a co-founder of TXEN, Inc. and he served as Executive Vice
President of TXEN, Inc. from 1989 to 1997. From 1981 to 1989, Mr. Reaves was
employed by SEAKO, Inc. in programming, implementation, customer support and
sales and marketing. Mr. Reaves served as Vice President of SEAKO, Inc. from
1985 to 1989.
H. Grey Wood has been employed since 1995 by the Company and TXEN, Inc. Mr.
Wood has served as President of the Company since January 1998 and as Chief
Operating Officer of the Company since August 1997. Mr. Wood served as Vice
President and General Manager of TXEN, Inc. from 1995 to 1997. From 1993 to
1995, he was Director and General Manager of the physician Practice Management
Group of CSC Healthcare Systems, Inc., a vendor of turnkey practice management
and managed care software.
John D. McKay has been employed since 1988 by the Company and one of its
predecessors, Computer Services Corporation. Mr. McKay has served as Chief
Financial Officer of the Company since 1997. From 1988 to 1996, he served as
Controller of Computer Services Corporation. From 1982 to 1988, Mr. McKay held
various staff and management positions with Ernst & Young LLP,
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focusing on health care related companies, including HMOs, hospitals and large
physicians groups. Mr. McKay is a Certified Public Accountant.
W. Sanders Pitman has been employed since May 1997 by the Company and TXEN,
Inc. and has served as Vice President and General Manager of the Company's
Managed Care Services division. In 1990, Mr. Pitman assisted in the formation of
MACESS Corporation, a supplier of imaging and workflow solutions for the managed
care industry. From 1990 to 1997, Mr. Pitman served in various positions with
MACESS, most recently as Chief Operating Officer. From 1986 until 1990, Mr.
Pitman held practice management and managed care sales positions with SEAKO,
Inc.
W. Luckey Crocker has been employed since 1996 by the Company and TXEN,
Inc. Mr. Crocker has served as Vice President and General Manager of the
Company's Practice Management Services division since September 1998. Mr.
Crocker served as Vice President of existing account sales from June 1998 to
September 1998. Mr. Crocker was Director of Existing Account Sales from 1996 to
June 1998. Mr. Crocker worked in sales for International Business Machines from
1993 to 1996. He was Director of the Practice Management Division for CSC
Healthcare Systems, Inc., from 1989 to 1993, Vice President for Special Projects
for SEAKO, Inc. from 1988 to 1989, and Vice President of Sales and Customer
Support for Computer Services Corporation from 1987 to 1988.
Chris H. Horgen became a director of the Company in 1998. Mr. Horgen served
as a director of TXEN, Inc. from 1992 to 1994. Mr. Horgen is a co-founder of
Nichols Research and has served as its Chairman of the Board since 1991. Mr.
Horgen served as Chief Executive Officer of Nichols Research from 1983 to 1997.
Mr. Horgen was Co-Chairman of the Board of Nichols Research from 1984 to 1991
and its Executive Vice President from 1976 to 1983. Mr. Horgen also serves as a
director of SouthTrust Bank of Alabama, N.A.
Michael J. Mruz became a director of the Company in 1998. From 1994 to
1997, Mr. Mruz served as President and Chief Operating Officer of Nichols
Research. Mr. Mruz became Chief Executive Officer of Nichols Research in 1997.
Mr. Mruz has been a director of Nichols Research since 1994. From 1989 to 1994,
Mr. Mruz served as Executive Vice President, Chief Financial and Administrative
Officer and a member of the Board of Directors of BDM International, Inc., a
defense contractor.
James D. Kever became a director of the Company in 1998. Mr. Kever has
served as President and Co-Chief Executive Officer of ENVOY Corporation, an
electronics data interchange company, since 1995. He has served as a director of
ENVOY Corporation since 1991. Mr. Kever joined ENVOY Corporation as Treasurer
and General Counsel in 1981. From 1984 to 1995, he served as Executive Vice
President of ENVOY. Mr. Kever is a Certified Public Accountant and an attorney.
James I. Harrison, Jr. became a director of the Company in 1998. Mr.
Harrison is the owner of Carport, Incorporated, a retail automotive parts store
chain, and has served as its Chairman of the Board and Chief Executive Officer
since 1983. Mr. Harrison founded Harco Drug, Inc., a retail drug-store chain, in
1961 and served as its Chairman of the Board and Chief Executive Officer from
1961 to 1997, at which time it was merged with the RiteAid Corporation. Mr.
Harrison serves as a director of AmSouth Bank Corporation and ALFA, Inc.
Patsy L. Hattox became the Company's Secretary in 1998. Ms. Hattox has been
employed by Nichols Research since 1976, and has served as the Secretary and
Chief Administrative Officer of Nichols Research since 1991. Ms. Hattox serves
on the Board of Directors of Nichols Research. Ms. Hattox's compensation is paid
by Nichols Research.
Allen E. Dillard became the Company's Treasurer in 1998. Mr. Dillard has
been employed by Nichols Research since 1992 and has served as the Chief
Financial Officer of Nichols Research since 1994. Mr. Dillard's compensation is
paid by Nichols Research.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Executive Committee is empowered to exercise all authority of the Board
of Directors of the Company except as limited by the Delaware General
Corporation Law. Under Delaware law, an executive committee may not, among other
things, recommend to shareholders actions required to be approved by
shareholders, fill vacancies on the Board of Directors, amend the bylaws or
approve the reacquisition or issuance of shares of the corporation's capital
stock.
The Compensation Committee is responsible for reviewing and recommending
salaries, bonuses and other compensation for the Company's executive officers.
The Compensation Committee also is responsible for administering the Company's
stock option plans and for establishing the terms and conditions of all stock
options granted under these plans, unless these functions have been retained by
the Board of Directors.
The Audit Committee is responsible for recommending independent auditors,
reviewing with the independent auditors the scope and results of the audit
engagement, monitoring the Company's financial policies and control procedures
and reviewing and monitoring the provisions of non-audit services performed by
the Company's auditors.
DIRECTOR COMPENSATION
Prior to completion of this offering, non-employee directors received no
compensation for service on the Board of Directors. Following completion of this
offering, directors not employed by the Company or Nichols Research will receive
a fee of $2,500 for each board meeting attended and $500 for each committee
meeting attended which is held independently of a board meeting.
After completion of this offering, the non-employee directors will be
eligible to receive options pursuant to the Company's Non-Employee Director
Stock Option Plan. The Director Stock Option Plan will become effective upon
consummation of this offering. Under the Director Stock Option Plan, each
director who is not an officer or employee of the Company, Nichols Research or
an officer or employee of a majority-owned subsidiary or joint venture of the
Company (a "Non-Employee Director"), will be granted an option to purchase 5,000
shares of common stock at the initial public offering price. Each subsequently
appointed or elected Non-Employee Director will be granted an option to purchase
1,000 shares of common stock at an exercise price equal to the fair market value
on the date of the grant. In addition, each Non-Employee Director will be
granted an option at each annual meeting of shareholders to purchase 1,000
shares of common stock at an exercise price equal to the fair market value on
the date of the grant. A total of 50,000 shares of common stock are available
for awards under the Director Stock Option Plan.
DIRECTOR INDEMNIFICATION
The Company has Indemnification Agreements with each of its directors that
provide the maximum indemnification allowed to directors under Delaware law,
subject to certain exceptions. In addition, as authorized by the Company's
Amended and Restated Bylaws and Delaware law, the Indemnification Agreements
provide generally that the Company will advance expenses incurred by directors
in any action or proceeding as to which they may be entitled to indemnification,
subject to certain exceptions.
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<PAGE> 51
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by
the Company for the fiscal year ended August 31, 1998, for its Chief Executive
Officer and the four highest compensated executive officers of the Company whose
total annual salary and bonuses determined at August 31, 1998, exceeded $100,000
(collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
YEAR ENDED AUGUST 31, ALL OTHER
1998(1) COMPENSATION(2)
--------------------- ---------------
NAME AND PRINCIPAL POSITION SALARY BONUS
--------------------------- --------- --------
<S> <C> <C> <C>
Paul D. Reaves.................................. $125,000 $78,432 $1,993
Chief Executive Officer
Thomas L. Patterson............................. 133,529 -- 2,000
Chairman of the Board
H. Grey Wood.................................... 125,000 69,368 2,000
President and Chief Operating Officer
W. Sanders Pitman............................... 110,000 187,704 1,420
Vice President and General Manager, Managed
Care
W. Luckey Crocker............................... 78,750 25,000 2,000
Vice President and General Manager,
Practice Management
</TABLE>
- ---------------
(1) "Annual Compensation" for each of the named executives does not include the
value of certain perquisites or other personal benefits, if any, furnished
by the Company to the Named Executive Officers (or for which it reimburses
the Named Executive Officers), unless the value of such benefits in total
exceeds the lesser of $50,000 or 10% of the total annual salary and bonus
reported in the above table for any Named Executive Officer.
(2) Amounts matched into a 401(k) Plan by the Company under the Nichols
Research Retirement Plan for the fiscal year ended August 31, 1998.
EMPLOYEE BENEFIT PLANS
401(k) Plan
Substantially all full-time employees of Nichols TXEN are covered by a
defined contribution plan offered through Nichols Research. Employees are
permitted to defer up to 15% of their salary. Nichols Research matches the
employee contribution's up to a maximum of 2% of the employee's salary.
Discretionary contributions may also be made to the plan as determined annually
by the Nichols Research Board of Directors. Amounts charged to the Company's
earnings with respect to the plan were approximately $38,000, $38,000 and
$124,000 for fiscal years 1996, 1997 and 1998, respectively.
The Company intends to establish its own defined contribution plan with
similar terms in the future. Until that time, the Company will bear its
allocable share of the costs of the Nichols Research plan.
1998 Stock Option Plan
The Company adopted the Nichols TXEN Corporation 1998 Stock Option Plan
(the "1998 Plan") on November 6, 1998. The Company has reserved 1,700,000 shares
of common stock (subject to certain adjustments) for issuance to key employees
(including officers) of the Company, its subsidiaries and its parent
corporation, Nichols Research. As of November 30, 1998, options
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<PAGE> 52
exercisable for 766,000 shares of common stock at an exercise price equal to the
initial public offering price were granted subject to the completion of this
offering.
The 1998 Plan permits a committee composed of either the entire Board of
Directors or two or more disinterested non-employee directors of the Company to
issue incentive stock options ("Incentive Stock Options"), as defined in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), and stock
options that do not conform to the requirements of that Code section
("Non-Statutory Options") (collectively, "Options"). The committee has
discretionary authority to determine the individuals to whom Options will be
granted from among those individuals who are eligible, as well as the number of
Options to be granted to each individual. The exercise price of each Incentive
Stock Option shall not be less than 100% of the fair market value of the common
stock at the time of the grant, except in the case of a grant to an employee who
owns (within the meaning of the Code Section 422(b)(6)) 10% or more of the
outstanding stock of the Company, the exercise price shall be not less than 110%
of such fair market value. The exercise price of each Non-Statutory Option will
be determined by the committee at the time of the grant of the Non-Statutory
Stock Option, which price may not be less than the fair market value of the
shares at the time the option is granted, except that with respect to not more
than 10% of the shares of common stock authorized under the 1998 Plan, a
committee composed solely of disinterested non-employee directors may establish
an exercise price below fair market value. In addition, Options may not be
repriced to specify a price less than the initial exercise price, except that
with respect to not more than 10% of the shares of common stock authorized under
the 1998 Plan, a committee composed solely of disinterested non-employee
directors may approve a repricing of options specifying a lower price.
No Non-Statutory Option is exercisable either in whole or in part prior to
the earlier of: (i) the date specified in the Non-Statutory Option; or (ii) six
months from the date the Non-Statutory Option is granted. No Non-Statutory
Option is exercisable after the earlier of: (i) the date specified in the
Non-Statutory Option; or (ii) the expiration of ten years from the date the
Non-Statutory Option is granted. No Incentive Option is exercisable, either in
whole or in part, prior to two years from the date it is granted and in no event
is an Incentive Option exercisable after the expiration of five years from the
date it is granted. Each Incentive Option is exercisable in three installments.
Up to one-third of the total shares granted may be purchased after 24 months
from the date of the grant, up to an additional one-third may be purchased after
36 months and up to the final one-third may be purchased after 48 months.
Incentive Option recipients may accumulate installments not yet exercised, which
may be exercised, in whole or in part, in any subsequent period but not later
than five years from the date the Incentive Option is granted.
The Board of Directors may amend the 1998 Plan without stockholder
approval, except with respect to: (i) a change in the number of shares for which
Options may be granted under the 1998 Plan either in the aggregate or as to any
individual employee; (ii) a change in the provisions relating to the
determination of employees to whom Options may be granted; (iii) removal of the
administration of the 1998 Plan from the committee; (iv) a decrease in the price
at which Incentive Options may be granted; or (v) a change in the restrictions
on repricing Options.
Employees' Stock Purchase Plan
On November 6, 1998, the Board of Directors and Nichols Research, as the
sole shareholder, adopted and approved the Nichols TXEN Corporation Employees'
Stock Purchase Plan (the "Plan"). A total of 500,000 shares of common stock
(subject to adjustments) have been reserved for purchase by employees upon the
exercise of options granted under the Plan. The Plan will be administered by a
committee composed of either the entire Board of Directors or two or more non-
employee directors who do not have a material financial relationship with the
Company or any of its subsidiaries (the "Committee"). Persons serving on the
Plan's Committee may receive option grants under the Plan.
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All regular, full-time employees of the Company and such subsidiaries as
are designated by the Board are eligible to receive options under the Plan. On
each March 1, June 1, September 1 and December 1, beginning after the effective
date of this offering, each eligible employee will be granted a non-transferable
option to purchase common stock from the Company on the last day of the option
period. Option periods are three month periods beginning on March 1, June 1,
September 1 and December 1 and ending on the next May 31, August 31, November 30
and February 28. Options expire at the end of the option period. The price for
stock purchased under each option is 85% of its fair market value on the first
day or the last day of the option period, whichever is less. Fair market value
on any day means the closing price of the common stock on the Nasdaq National
Market on such day, or if not traded on such day, on the last preceding day on
which the stock was traded.
An employee may exercise the option granted to him only by authorizing
payroll deductions. As of the last day of the option period, the amount of
payroll deductions during such option period will be used to purchase from the
Company whole shares of common stock under the employee's option. If during an
option period an employee becomes ineligible to purchase stock under the Plan
because of the termination of employment or if payroll deductions are
discontinued during an option period, the employee's payroll deductions will be
returned without interest to the employee.
EMPLOYMENT AGREEMENTS
The Company's predecessor, TXEN, Inc., entered into an Employment Agreement
with Thomas L. Patterson on December 16, 1994. His Employment Agreement was
amended by the Company on August 29, 1997, June 1, 1998 and November 6, 1998.
Under the provisions of the Employment Agreement, Mr. Patterson is employed as
the Chairman of the Board of Directors of the Company on a part-time basis for a
term that ends two years after the effective date of this offering. His base
salary is an hourly rate for each hour of service performed by him. The
employment of Mr. Patterson will terminate upon his death or disability, upon 30
days prior written notice by either party, or for good cause. If Mr. Patterson
is terminated by the Company on 30 days prior written notice or if Mr. Patterson
terminates his employment for good cause or due to his death or disability, he
will be paid, as additional compensation, 50% of his annualized base salary for
six months after the date of termination.
The Company's predecessor, TXEN, Inc., entered into an Employment Agreement
with Paul D. Reaves on December 16, 1994. His Employment Agreement was amended
by the Company on August 29, 1997 and November 6, 1998. Under the provisions of
the Employment Agreement, Mr. Reaves is employed as the Chief Executive Officer
for a term that ends two years after the effective date of this offering. The
Employment Agreement automatically renews on a month-to-month basis thereafter.
The Employment Agreement provides that Mr. Reaves will be paid a monthly base
salary of $12,500, subject to increases as authorized by the Board of Directors.
He may be awarded discretionary performance bonuses. The employment of Mr.
Reaves will terminate upon his death or disability, upon 30 days prior written
notice by either party, or for good cause. If Mr. Reaves is terminated by the
Company on 30 days prior written notice or if Mr. Reaves terminates his
employment for good cause or due to his death or disability, he will be paid, as
additional compensation, 50% of his annualized base salary for six months after
the date of termination.
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The Company entered into an Employment Agreement with H. Grey Wood on
August 29, 1997. His Employment Agreement was amended on November 6, 1998. Under
the provisions of the Employment Agreement, Mr. Wood is employed as President
and Chief Operating Officer of the Company for a term that ends two years after
the effective date of this offering. The Employment Agreement automatically
renews on a month-to-month basis thereafter. The Employment Agreement provides
that Mr. Wood will be paid a monthly base salary of $12,500, subject to
increases as authorized by the Board of Directors. He may be awarded
discretionary performance bonuses. The employment of Mr. Wood will terminate
upon his death or disability, upon 30 days prior written notice by either party,
or for good cause. If Mr. Wood is terminated by the Company on 30 days prior
written notice or if Mr. Wood terminates his employment for good cause or due to
his death or disability, he will be paid, as additional compensation, an amount
equal to his monthly base salary for six months after the date of termination.
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CERTAIN TRANSACTIONS
SERVICES AGREEMENT
After this offering, Nichols Research will retain a controlling equity
interest in Nichols TXEN. Nichols Research will furnish administrative services
to the Company pursuant to a Corporate Services Agreement (the "Services
Agreement"). Under the Services Agreement, Nichols Research will provide various
administrative services, including public reporting compliance, certain
corporate record keeping, risk management, certain employee benefits
administration, administration of investor and media relations, tax return
preparation assistance, centralized cash management and certain financial and
other services for an annual fee. In fiscal year 1999, the fee is 2.4% of
operating expenses less costs of goods sold defined as direct materials and
purchased labor. In fiscal years 1996, 1997, and 1998 under a similar
arrangement, the Company paid $192,453, $249,577, and $696,214, respectively, to
Nichols Research for administrative services. The Company believes that the
charges under the Services Agreement are reasonable. For additional items, such
as software development services or administrative services that create unusual
demands for resources, Nichols Research will charge the Company costs actually
incurred in performing such services plus a mutually acceptable fee. For the
fiscal years ended August 31, 1996, 1997 and 1998, the Company paid $145,506,
$174,070 and $0, respectively, to Nichols Research for these additional
services. The Company is not obligated to use Nichols Research for these
additional services. During the term of the Services Agreement, the Nichols TXEN
Board of Directors will elect as Secretary of Nichols TXEN the Secretary of
Nichols Research and will elect as Treasurer of Nichols TXEN the Chief Financial
Officer of Nichols Research. The Secretary and Treasurer of Nichols TXEN will
serve in such capacities without compensation from Nichols TXEN. The Services
Agreement automatically renews for successive one-year terms, unless canceled by
either Nichols Research or the Company upon 90 days prior notice following the
initial one-year term.
VOTING AGREEMENT
Nichols Research has entered into a Voting Agreement with Nichols TXEN
dated November 6, 1998, which will become effective upon completion of this
offering. Pursuant to the Voting Agreement, Nichols Research has agreed to vote
all of its shares of Nichols TXEN common stock at any meeting at which directors
of Nichols TXEN are elected in favor of the election of independent directors so
that after such election, if such persons are elected, there will be at least
two independent directors of Nichols TXEN. The Voting Agreement will terminate
upon the earlier of five years from the date of the Voting Agreement or the date
upon which Nichols Research beneficially owns 50% or less of the common stock of
the Company.
TAX SHARING AGREEMENT
Nichols Research and the Company have entered into a Tax Sharing Agreement
which generally provides for the manner in which the parties will bear taxes for
the period beginning on September 1, 1998, and ending upon the sale by the
Company of the common stock pursuant to this offering and income tax
deficiencies or refunds resulting from future audit adjustments. The Company
will be required to pay to Nichols Research an amount equal to the excess of the
income tax liability which the Company would have for the short period over the
amount which the Company has previously paid (or been charged with by Nichols
Research) with respect to such taxes. If additional taxes must be paid by the
Company or Nichols Research as a result of an adjustment made by a tax
regulatory authority, and as a result of that adjustment the other party would
obtain an offsetting tax benefit, the party obtaining the tax benefit pays an
amount equal to the additional tax to the party whose income tax liability was
increased. Likewise, if income taxes are reduced as a result of an adjustment
made by a tax regulatory authority, and as a result of that adjustment the other
party would suffer an offsetting tax detriment, the party whose taxes were
reduced must pay such amount to the other party. The Tax Sharing Agreement also
contains
53
<PAGE> 56
provisions dealing with contesting adjustments made by tax regulatory
authorities, determining who will bear the expense of any such challenge and
cooperation between the parties.
THE TXEN ACQUISITION
Nichols Research formed CSC Acquisition Inc. ("CSC Acquisition"), as a
wholly owned subsidiary on June 6, 1995. On June 30, 1995, CSC Acquisition
acquired all of the assets and certain liabilities of Computer Services
Corporation ("Computer Services"). Since its incorporation in 1967, Computer
Services performed administrative services and information technology services
for, and sold turnkey computer systems to, physician practices. Nichols Research
formed Nichols SELECT Corporation ("Nichols SELECT") as a wholly owned
subsidiary on September 17, 1996. On September 23, 1996, CSC Acquisition was
merged into Nichols SELECT. On December 16, 1994, Nichols Research acquired
19.9% of the capital stock of TXEN, Inc. ("TXEN") with an option to acquire the
remaining 80.1% of TXEN. Since its incorporation in 1989, TXEN provided
information technology outsourcing and administrative services outsourcing for
the managed health care industry. On August 29, 1997, Nichols Research acquired
the remaining 80.1% of TXEN through a merger of TXEN into Nichols SELECT, which
after the merger continued to be wholly owned by Nichols Research. After the
TXEN acquisition, Nichols SELECT changed its name to Nichols TXEN Corporation.
As part of the TXEN acquisition, the TXEN shares of the following Named
Executive Officers and directors of Nichols TXEN were purchased by Nichols
Research for the following consideration consisting of cash and common stock of
Nichols Research:
<TABLE>
<CAPTION>
AGGREGATE
NAME CONSIDERATION
---- --------------
(IN THOUSANDS)
<S> <C>
Thomas L. Patterson.................. $19,855
Paul D. Reaves....................... 8,519
H. Grey Wood......................... 1,800
W. Luckey Crocker.................... 463
Chris H. Horgen...................... 2,672
</TABLE>
54
<PAGE> 57
PRINCIPAL STOCKHOLDERS
Prior to this offering, Nichols Research owned 7,500,000 shares, or 100% of
Nichols TXEN. The Company will sell 2,175,000 shares in connection with this
offering, and thereafter Nichols Research will own 7,500,000 shares, or
approximately 78% of the Company, 75% if the underwriters' over-allotment option
is exercised. In addition, Chris H. Horgen, the Chairman of the Board of Nichols
Research, has authority to direct the voting and disposition of Nichols
Research's shares of Nichols TXEN and, therefore, beneficially owns these
shares. Mr. Horgen disclaims beneficial ownership of these shares.
As of November 30, 1998, options covering 766,000 shares of common stock
pursuant to the 1998 Stock Option Plan and the Non-Employee Director Stock
Option Plan were granted subject to completion of this offering. The tables
below set forth the option grants to the executive officers and directors of
Nichols TXEN, other officers and employees of Nichols TXEN as a group, and other
officers and employees of Nichols Research as a group.
1998 STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO OPTIONS
------------------
<S> <C>
Nichols TXEN executive officers and directors:
Thomas L. Patterson....................................... 40,000
Paul D. Reaves............................................ 89,000
H. Grey Wood.............................................. 94,000
W. Sanders Pitman......................................... 79,000
W. Luckey Crocker......................................... 22,500
John D. McKay............................................. 22,500
Chris H. Horgen........................................... 35,000
Michael J. Mruz........................................... 35,000
Allen E. Dillard.......................................... 5,000
Patsy L. Hattox........................................... 5,000
Other officers and employees of Nichols TXEN................ 319,000
Other officers and employees of Nichols Research............ 10,000
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
SUBJECT TO OPTIONS
------------------
<S> <C>
James D. Kever.............................................. 5,000
James I. Harrison, Jr....................................... 5,000
</TABLE>
The right to exercise options under the 1998 Stock Option Plan will not
vest until 24 months from the grant date. Up to one-third of the shares subject
to these initial grants may be purchased after 24 months from the date of grant,
up to an additional one-third may be purchased after 36 months from the date of
grant, and up to the final one-third may be purchased after 48 months from the
date of grant. None of the options may be exercised later than five years from
the grant date. The right to exercise options under the Non-Employee Director
Stock Option Plan will not vest until six months from the grant date. The
exercise price per share for all of the stock options listed above is the
initial public offering price.
55
<PAGE> 58
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 30,000,000 shares of
common stock, par value $0.01 per share. As of November 30, 1998, the Company
had issued and outstanding 7,500,000 shares of common stock. After this
offering, the Company will have 9,675,000 shares of common stock outstanding.
COMMON STOCK
Holders of shares of common stock are entitled to one vote per share for
the election of directors and all matters to be submitted to a vote of the
Company's stockholders. The holders of shares of common stock are entitled to
share ratably in such dividends as may be declared by the Board of Directors and
paid by the Company out of funds legally available therefor. In the event of a
dissolution, liquidation, or winding up of the Company, holders of shares of
common stock are entitled to share ratably in all assets remaining after payment
of all liabilities and liquidation preferences, if any. Holders of shares of
common stock have no preemptive, subscription, redemption, or conversion rights.
The outstanding shares of common stock are, and the shares of common stock to be
issued by the Company in connection with this offering will be, duly authorized,
validly issued, fully paid and nonassessable. The transfer agent and registrar
for the common stock is ChaseMellon Shareholder Services.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). In general, Section 203 prohibits a
publicly held Delaware corporation, such as the Company shall become upon
completion of this offering, from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction pursuant to which the person became an interested stockholder,
unless the business combination is approved in a manner prescribed by Delaware
law. For purposes of Section 203, a "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the Company's voting stock. Section 203 could prohibit or
delay mergers or other takeover or change in control attempts with respect to
the Company and, accordingly, may discourage attempts to acquire the Company.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Amended and Restated Certificate of Incorporation provides
that a director of the Company shall not be personally liable to the Company or
its shareholders, except liability for:
- breach of the director's duty of loyalty;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law;
- the unlawful payment of a dividend or unlawful stock purchase or
redemption; and
- any transaction from which the director derives an improper personal
benefit.
The Amended and Restated Certificate of Incorporation and the Amended and
Restated Bylaws also provide that the Company shall indemnify directors and
officers of the Company to the fullest extent permitted by the Delaware General
Corporation Law. The Company has entered into Indemnification Agreements with
each of its directors.
56
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no market for the shares of the
common stock of the Company. The Company can make no predictions as to the
effect, if any, that sales of shares or the availability of shares for sale will
have on the market price prevailing from time to time. Nevertheless, sales of
significant amounts of the common stock in the public market, or the perception
that such sales may occur, could adversely affect prevailing market prices.
Upon consummation of this offering, the Company will have outstanding
9,675,000 shares of common stock. Of the 9,675,000 shares outstanding upon
completion of this offering, the 2,175,000 shares sold in this offering will be
freely tradable without restriction or further registration under the Securities
Act, unless they are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (which sales would be subject to
certain limitations and restrictions described below). The remaining 7,500,000
outstanding shares of common stock may be sold in the public market only if
registered or sold pursuant to an exemption from registration such as Rule 144
or 144(k) promulgated under the Securities Act. Nichols Research may cause the
Company to register for sale any or all of its shares of common stock. Nichols
Research, the officers and directors of the Company and certain officers of
Nichols Research have agreed not to offer, sell, contract to sell, grant any
option to purchase or otherwise dispose of, or agree to dispose of (other than
as gifts), any shares of common stock until 180 days after the date of this
prospectus without the prior written consent of BT Alex. Brown Incorporated. BT
Alex. Brown Incorporated, in its sole discretion and without notice, may earlier
release for sale in the public market all or any portion of the shares subject
to such lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year (including the holding
period of any prior owner except an affiliate) is entitled to sell in "brokers'
transactions" or to market makers, within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of common stock outstanding
(approximately 9,675,000 shares immediately after this offering); or
- the average weekly trading volume in the common stock during the
four calendar weeks preceding the required filing of a Form 144 with
respect to such sale.
Sales under Rule 144 are subject to the availability of current public
information about the Company.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation, or notice filing provisions of Rule 144.
Unless otherwise restricted, such "144(k) shares" may therefore be sold
immediately upon the completion of this offering. After the expiration of the
180-day lock-up period, 7,500,000 shares owned by Nichols Research will be
eligible for sale in the public market subject to compliance with Rule 144.
After the completion of this offering, the Company intends to file a
Registration Statement on Form S-8 under the Securities Act to register:
- the 1,700,000 shares of common stock reserved for issuance under the
1998 Stock Option Plan;
- the 50,000 shares reserved under the Non-Employee Director Stock
Option Plan; and
- the 500,000 shares reserved for issuance under the Employees' Stock
Purchase Plan.
57
<PAGE> 60
UNDERWRITING
Subject to the terms and conditions contained in the underwriting
agreement, the underwriters named below through their representatives, BT Alex.
Brown Incorporated, CIBC Oppenheimer Corp., Friedman, Billings, Ramsey & Co.,
Inc. and The Robinson-Humphrey Company, LLC, have severally agreed to purchase
from the Company, the following respective numbers of shares of common stock at
the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
CIBC Oppenheimer Corp.......................................
Friedman, Billings, Ramsey & Co., Inc.......................
The Robinson-Humphrey Company, LLC..........................
---------
Total.................................................. 2,175,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all shares of the common stock offered hereby if any
of such shares are purchased.
The Company has been advised by the representatives of the underwriters
that the underwriters propose to offer the shares of common stock to the public
at the initial public offering price set forth on the cover page of this
prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The underwriters may allow, and such dealers may allow,
a concession not in excess of $ per share to certain other dealers.
After the initial public offering, the offering price and other selling terms
may be changed by the representatives.
The Company has granted to the underwriters an option, exercisable not
later than 30 days after the date of this prospectus, to purchase up to 325,000
additional shares of common stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent that the underwriters exercise such option, each of
the underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of common stock to be purchased by
it shown in the above table bears to 2,175,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the underwriters. The
underwriters may exercise such option only to cover over-allotments made in
connection with the sale of common stock offered hereby. If purchased, the
underwriters will offer such additional shares on the same terms as those on
which the 2,175,000 shares are being offered.
The following table shows the underwriting fees to be paid to the
underwriters by Nichols TXEN in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
-------- --------
<S> <C> <C>
Per Share................................................... $ $
Total....................................................... $ $
</TABLE>
The underwriters will offer the shares, including the shares from the
over-allotment option if it is exercised, on a firm commitment basis. BT Alex.
Brown Incorporated expects to deliver the shares of common stock to purchasers
on , 1999.
58
<PAGE> 61
The Company has agreed to indemnify the underwriters and their contracting
persons against certain liabilities, including liabilities under the Securities
Act of 1933, as amended.
The Company, Nichols Research, the officers and directors of the Company
and certain officers of Nichols Research, holding in the aggregate approximately
7,500,000 shares of common stock have agreed, subject to certain exceptions, not
to offer, sell or otherwise dispose of any shares of common stock for a period
of 180 days after the date of this prospectus without the prior written consent
of BT Alex. Brown Incorporated. When determining whether to release shares from
the lock-up agreements, BT Alex. Brown Incorporated may consider, among other
factors, market conditions at the time, the number of shares for which the
release is requested and the shareholder's reasons for requesting the release.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thereby creating a
short position in the common stock for their own account. Additionally, to cover
such over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
The representatives of the underwriters have advised the Company that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the common stock will
be determined by negotiations among the Company and the representatives of the
underwriters. Among the factors to be considered in such negotiations will be:
- prevailing market conditions;
- the results of operations of the Company in recent periods;
- the market capitalizations and stages of development of other companies
that the Company and the representatives of the underwriters believe to
be comparable to the Company;
- estimates of the business potential of the Company; and
- the present state of the Company's development and other factors deemed
relevant.
59
<PAGE> 62
LEGAL MATTERS
The validity of the issuance of the shares of the common stock offered
hereby will be passed upon for the Company by Lanier Ford Shaver & Payne P.C.,
Huntsville, Alabama. John R. Wynn is a member of the law firm Lanier Ford Shaver
& Payne, P.C. and is a director of Nichols Research. As of the date of this
prospectus, six attorneys of Lanier Ford Shaver & Payne, P.C., including Mr.
Wynn, beneficially owned an aggregate of 31,321 shares of Nichols Research
common stock. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Alston & Bird LLP, Atlanta, Georgia.
EXPERTS
The financial statements and schedule of Nichols TXEN and financial
statements of TXEN, Inc. appearing in this prospectus and the registration
statement have been audited by Ernst & Young LLP, independent auditors, to the
extent indicated in their reports thereon also appearing elsewhere herein and in
the registration statement. Such financial statements and schedule have been
included herein in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
60
<PAGE> 63
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, schedules and exhibits thereto, the "registration statement") under
the Securities Act with respect to the shares of common stock offered hereby.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information with respect to the Company and the
common stock offered hereby, reference is made to the registration statement.
Statements made in this prospectus as to the contents of any contract,
agreement, or other document are not necessarily complete and in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference. The registration statement and the exhibits and
schedules thereto may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the Commission:
Seven World Trade Center, Room 1400, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at
prescribed rates. In addition, the Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission
maintains a World Wide Web Site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission.
The Company intends to make available to its stockholders annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
61
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
NICHOLS TXEN CORPORATION:
Report of Independent Auditors.............................. F-2
Balance Sheets as of August 31, 1997 and 1998 and November
30, 1997 (unaudited) and November 30, 1998 (unaudited).... F-3
Statements of Operations for the three years ended August
31, 1996, 1997 and 1998 and the three months ended
November 30, 1997 (unaudited) and November 30, 1998
(unaudited)............................................... F-4
Statements of Changes in Stockholder's Equity for the three
years ended August 31, 1996, 1997 and 1998 and the three
month period ended November 30, 1998 (unaudited).......... F-5
Statements of Cash Flows for the three years ended August
31, 1996, 1997 and 1998 and the three months ended
November 30, 1997 (unaudited) and November 30, 1998
(unaudited)............................................... F-6
Notes to Financial Statements............................... F-7
TXEN, INC.:
Report of Independent Auditors.............................. F-16
Balance Sheets as of June 30, 1996 and 1997................. F-17
Statements of Operations for the two years ended June 30,
1996 and 1997............................................. F-18
Statements of Changes in Stockholders' Equity for the two
years ended June 30, 1996 and 1997........................ F-19
Statements of Cash Flows for the two years ended June 30,
1996 and 1997............................................. F-20
Notes to Financial Statements............................... F-21
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of
Nichols TXEN Corporation
We have audited the accompanying balance sheets of Nichols TXEN Corporation
as of August 31, 1997 and 1998, and the related statements of operations,
changes in stockholder's equity and cash flows for each of the three years in
the period ended August 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of Nichols TXEN Corporation as
of August 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended August 31, 1998 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Birmingham, Alabama
January 7, 1999
F-2
<PAGE> 66
NICHOLS TXEN CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
----------------- -----------------
1997 1998 1997 1998
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 237 $ 1,804 $ 384 $ 859
Accounts receivable, less allowance for doubtful
accounts of $150 and $500 at August 31, 1997 and
1998, respectively................................ 6,946 9,919 8,755 11,563
Deferred income taxes................................ 156 436 216 461
Other................................................ 575 1,455 1,060 1,421
------- ------- ------- -------
Total current assets................................... 7,914 13,614 10,415 14,304
Property and equipment, net............................ 4,783 6,527 5,359 7,868
Intangible assets, net................................. 39,355 37,574 39,122 36,896
------- ------- ------- -------
Total assets........................................... $52,052 $57,715 $54,896 $59,068
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable..................................... $ 1,105 $ 751 $ 1,760 $ 539
Accrued compensation and benefits.................... 459 1,444 712 1,799
Income taxes payable................................. 419 2,126 559 529
Payable to Nichols Research and affiliates........... 1,003 2,635 1,852 4,553
Deferred revenue..................................... 2,371 379 2,646 491
Other................................................ 334 499 297 309
------- ------- ------- -------
Total current liabilities.............................. 5,691 7,834 7,826 8,220
Deferred income taxes.................................. 532 800 532 900
Commitments
Stockholder's equity:
Common stock......................................... 1 1 1 75
Additional paid-in capital........................... 52,907 52,907 52,907 52,833
Retained earnings (deficit).......................... (7,079) (3,827) (6,370) (2,960)
------- ------- ------- -------
Total stockholder's equity............................. 45,829 49,081 46,538 49,948
------- ------- ------- -------
Total liabilities and stockholder's equity............. $52,052 $57,715 $54,896 $59,068
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 67
NICHOLS TXEN CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
--------------------------- -------------------
1996 1997 1998 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues............................ $10,370 $12,438 $43,480 $ 8,958 $12,236
Cost of revenues.................... 6,438 7,769 23,256 4,792 6,634
------- ------- ------- ------- -------
Gross profit........................ 3,932 4,669 20,224 4,166 5,602
Selling, general and administrative
expenses.......................... 1,932 2,251 7,367 1,523 2,295
Research and development............ 710 1,155 2,771 498 760
Depreciation and amortization....... 947 985 4,547 936 1,102
Write-off of purchased in-process
research and development.......... -- 8,500 -- -- --
------- ------- ------- ------- -------
Income (loss) from operations....... 343 (8,222) 5,539 1,209 1,445
Other income (expense):
Interest expense.................. -- -- (4) (1) --
Equity in earnings of TXEN,
Inc............................ 94 656 -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes... 437 (7,566) 5,535 1,208 1,445
Income taxes........................ 117 107 2,283 499 578
------- ------- ------- ------- -------
Net income (loss)................... $ 320 $(7,673) $ 3,252 $ 709 $ 867
======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 68
NICHOLS TXEN CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------ PAID-IN EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1995............. 1,000 $ 1 $ 9,107 $ 274 $ 9,382
Net income............................. -- -- 320 320
--------- --- ------- ------- -------
BALANCE AT AUGUST 31, 1996............. 1,000 1 9,107 594 9,702
Contribution from Nichols Research for
acquisition of TXEN.................. -- 43,800 -- 43,800
Net loss............................... -- -- (7,673) (7,673)
--------- --- ------- ------- -------
BALANCE AT AUGUST 31, 1997............. 1,000 1 52,907 (7,079) 45,829
Net income............................. -- -- 3,252 3,252
--------- --- ------- ------- -------
BALANCE AT AUGUST 31, 1998............. 1,000 1 52,907 (3,827) 49,081
Stock dividend affected in the form of
a 7500 to 1 stock split.............. 7,499,000 74 (74) -- --
Net income (unaudited)................. -- -- 867 867
--------- --- ------- ------- -------
BALANCE AT NOVEMBER 30, 1998
(UNAUDITED).......................... 7,500,000 $75 $52,833 $(2,960) $49,948
========= === ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 69
NICHOLS TXEN CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED AUGUST 31, NOVEMBER 30,
------------------------------ -------------------
1996 1997 1998 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................... $ 320 $(7,673) $3,252 $ 709 $ 867
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 947 985 4,547 936 1,102
Provision for doubtful accounts....... -- -- 350 -- --
Equity in earnings of TXEN, Inc....... (94) (656) -- -- --
Deferred income taxes................. 54 (4) (12) (60) 75
Write-off of purchased in-process
research and development............ -- 8,500 -- -- --
Changes in assets and liabilities, net
of effects of acquisition:
Accounts receivable................. (531) (584) (3,323) (1,809) (1,644)
Other assets........................ (228) (73) (880) (485) 34
Accounts payable.................... 2 5 (354) 655 (212)
Accrued compensation and benefits... 59 44 985 253 355
Payable to Nichols Research and
affiliates....................... 438 309 1,632 849 (208)
Other current liabilities........... 115 79 120 378 451
-------- -------- -------- -------- --------
Net cash provided by operating
activities............................ 1,082 932 6,317 1,426 820
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment..... (684) (909) (4,185) (1,110) (1,699)
Payments for acquisitions, net of cash
acquired.............................. -- (17,439) -- -- --
Additions to deferred software
development cost...................... (280) (490) (565) (169) (66)
-------- -------- -------- -------- --------
Net cash used by investing activities... (964) (18,838) (4,750) (1,279) (1,765)
CASH FLOWS FROM FINANCING ACTIVITIES:
Transfers from Nichols Research......... -- 17,892 -- -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities............................ -- 17,892 -- -- --
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents........................... 118 (14) 1,567 147 (945)
Cash and cash equivalents at beginning
of year............................... 133 251 237 237 1,804
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
year.................................. $251 $237 $1,804 $384 $859
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
TRANSACTIONS:
Issuance of Nichols Research common
stock as consideration in
acquisitions.......................... $ -- $26,325 $ -- $ -- $ --
</TABLE>
See accompanying notes.
F-6
<PAGE> 70
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Nichols SELECT Corporation ("the Company"), a wholly owned subsidiary of
Nichols Research Corporation ("Nichols Research"), was incorporated under the
laws of the State of Delaware on September 17, 1996. The Company is a provider
of outsourcing solutions for information technology and administrative services
in the managed care and physician practice management markets. All references to
the Company in the notes to the Financial Statements refer to Nichols TXEN
Corporation and its predecessor businesses and divisions, as discussed below.
Nichols Research formed CSC Acquisition, Inc. ("Acquisition") as a wholly
owned subsidiary on June 6, 1995. On June 30, 1995, Acquisition acquired all of
the assets and certain liabilities of Computer Services Corporation ("Computer
Services"). Nichols Research formed Nichols SELECT Corporation ("Nichols
SELECT") as a wholly owned subsidiary on September 17, 1996. On September 23,
1996, Acquisition was merged into Nichols SELECT. On December 16, 1994, Nichols
Research acquired 19.9% of the capital stock of TXEN, Inc. ("TXEN") with an
option to acquire the remaining 80.1% of TXEN. On August 29, 1997, Nichols
Research exercised its option and acquired the remaining 80.1% of TXEN through a
merger of TXEN into Nichols SELECT, which after the merger continued to be
wholly owned by Nichols Research. After the TXEN merger, Nichols SELECT changed
its name to Nichols TXEN Corporation.
Basis of Presentation
The accompanying financial statements have been prepared using Nichols
Research's historical basis in the selected assets and liabilities of the
Company. The financial statements reflect the results of operations, financial
condition and cash flows of the Company as a component of Nichols Research and
may not be indicative of the actual results of operations and financial position
of the Company. The Company believes the statements of operations include a
reasonable allocation of administrative costs, which are described in Note 2,
incurred by Nichols Research on behalf of the Company.
On November 6, 1998, the Company amended its Certificate of Incorporation
to change the authorized capital stock from 1,000 shares of $1.00 par value
common stock to 30,000,000 shares of $0.01 par value common stock and effected a
7,500-for-1 stock split in the form of a stock dividend of 7,499 shares for each
one share outstanding. As a result of the stock split, the outstanding shares of
common stock of the Company increased to 7,500,000 shares.
Revenue Recognition
Revenue from services is recognized either (i) as the services are
performed based on the Company's standard rates for the applicable services; or
(ii) as contract milestones are achieved, if specified and required under the
contract with the customer. Revenue from post-contract customer support is
recognized in the period the customer support services are provided.
Concentration of Credit Risk and Financial Instruments
Financial instruments which subject the Company to credit risk are
primarily trade accounts receivable. Concentrations of credit risk with respect
to trade accounts receivable are limited due to the large number and diversity
of customers comprising the Company's customer base. The Company believes that
any risk associated with trade accounts receivable is adequately provided for
F-7
<PAGE> 71
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
in the allowance for doubtful accounts. The Company generally does not require
collateral on its trade accounts receivable.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over estimated useful lives of three to ten years for
equipment and furniture and over the terms of the related leases for leasehold
improvements.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement No. 121 in the first quarter of fiscal year 1997 with
no impact to the financial statements.
Income Taxes
Historically, the Company's operations have been included in the
consolidated federal income tax returns filed by Nichols Research. Income tax
expense as presented in the accompanying financial statements has been
calculated on a separate tax return basis. Deferred income taxes are provided
for temporary differences between financial and taxable income, primarily
related to accrued liabilities, intangible amortization and use of accelerated
depreciation methods for income tax purposes.
Earnings Per Share
Historical earnings per share have not been presented since they would not
be meaningful because the Company is a wholly owned subsidiary of Nichols
Research.
Cash and Temporary Cash Investments
The Company considers cash equivalents as those securities that are
available upon demand or have maturities of three months or less at the time of
purchase. At August 31, 1998, temporary cash investments consisted of various
money market accounts, primarily with an Alabama bank.
Intangible Assets
Intangible assets, including goodwill, customer lists and deferred software
development costs, are being amortized on a straight-line basis over five to
twenty year time periods, as applicable. The Company periodically evaluates the
recoverability of such intangibles resulting from business acquisitions and
measures the amount of impairment, if any, by assessing current and future
levels of income and cash flows as well as other factors, such as business
trends and prospects and market and economic conditions. The Company assesses
long-lived assets, of which goodwill associated with assets acquired in a
purchase business combination is included, for impairment evaluations under
Statement No. 121.
Stock Options
From time to time Nichols Research has granted stock options for the
purchase of shares of the common stock of Nichols Research to certain of the
Company's employees. These grants had an
F-8
<PAGE> 72
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
exercise option price equal to the fair value of the shares at the date of
option grant. Nichols Research accounts for stock option grants in accordance
with the Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and intends to continue to do so; accordingly, no
compensation expense for such stock option grants is included in the financial
statements of the Company.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from the estimates.
Interim Financial Statements (Unaudited)
The accompanying unaudited financial statements as of November 30, 1997 and
November 30, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended November 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended August 31, 1999.
2. RELATED PARTY TRANSACTIONS
The Company utilized central cash management systems of Nichols Research to
finance its operations. Cash requirements are satisfied either by intercompany
transactions between Nichols Research and the Company or by cash from
operations. Such intercompany transactions are included in the payable to
Nichols Research account. Intercompany transactions between Nichols Research and
the Company do not bear interest and, therefore, no interest charge is reflected
in the accompanying statements of operations.
Nichols Research provides certain administrative and oversight services for
the Company. Such corporate administrative expenses amounting to $192,453,
$249,577 and $696,214 have been allocated to the Company during the fiscal years
ended August 31, 1996, 1997 and 1998, respectively, and are reflected in the
accompanying statements of operations as selling, general and administrative
expenses. These costs were allocated to the Company by multiplying certain
direct operating expenses by a standard overhead rate for each period presented.
The standard overhead rate was developed through analysis of actual services and
related estimated costs provided to the Company on a historical basis. However,
the costs of these transactions may differ from those that would result from
transactions with unrelated parties.
Substantially all full-time employees of the Company are covered by a
defined contribution plan offered through Nichols Research. Employees are
permitted to defer up to 15% of their salary. Nichols Research matches the
employee's contribution up to a maximum of 2% of the employee's salary.
Discretionary contributions may also be made to the plan as determined annually
by the Nichols Research Board of Directors. Amounts charged to the Company's
earnings with respect to the plan were approximately $38,000, $38,000 and
$124,000 for 1996, 1997 and 1998, respectively.
The Company intends to establish its own defined contribution plan with
similar terms in the future. Until that time, the Company will bear its
allocable share of the costs of the Nichols Research plan.
F-9
<PAGE> 73
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
3. INCOME TAXES
Income taxes allocated to the Company were determined as if the Company
filed on a separate income tax return basis. The provisions for income taxes for
the years ended August 31, consist of the following :
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................... $154 $101 $2,070
State..................................................... 16 10 225
---- ---- ------
170 111 2,295
---- ---- ------
Deferred:
Federal................................................... (46) (4) (11)
State..................................................... (7) -- (1)
---- ---- ------
(53) (4) (12)
==== ==== ======
$117 $107 $2,283
==== ==== ======
</TABLE>
The significant components of deferred tax assets and liabilities as of
August 31:
<TABLE>
<CAPTION>
1997 1998
----- -----
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax assets:
Accrued liabilities not currently deductible.............. $ 92 $255
Allowance for doubtful accounts receivable................ 64 181
---- ----
Total current deferred tax assets........................... 156 436
---- ----
Non-current deferred tax liabilities:
Basis difference for property and equipment............... 311 472
Amortization of intangibles............................... 221 328
---- ----
Total non-current deferred tax liabilities.................. 532 800
---- ----
$376 $364
==== ====
</TABLE>
F-10
<PAGE> 74
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
3. INCOME TAXES (CONTINUED)
Income tax expense as a percentage of income before income taxes for the
years ended August 31, varies from the federal statutory rate due to the
following:
<TABLE>
<CAPTION>
1996 1997 1998
----- ------ -----
<S> <C> <C> <C>
Statutory federal income tax rate........................... 34.0% (34.0)% 34.0%
State income taxes, net of federal benefit.................. 3.7 -- 4.1
Non-deductible write-off of purchased in-process research
and development........................................... -- 38.2 --
Equity in earnings of TXEN, Inc............................. (7.3) (2.9) --
Other....................................................... (3.6) 0.1 3.1
----- ------ -----
26.8% 1.4% 41.2%
===== ====== =====
</TABLE>
The Company made payments in lieu of income taxes to Nichols Research of
approximately $100,000, $75,000 and $1,800,000 in 1996, 1997, and 1998,
respectively.
4. COMMITMENTS
The Company leases office facilities under various operating leases. The
leases generally have terms of one to ten years. Rent expense for all operating
leases for the years ended August 31, was as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C>
Total rent expense.......................................... $ 299 $ 333 $ 821
</TABLE>
Future minimum lease payments under operating leases with remaining terms
of one year or more for the years ended August 31, are (in thousands):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Total............................... $1,535 $1,659 $1,659 $1,659 $1,659 $8,163
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment was comprised of the following as of August 31:
<TABLE>
<CAPTION>
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures...................................... $1,152 $1,400
Data processing and computer equipment...................... 2,627 5,275
Other....................................................... 1,511 2,042
------ ------
5,290 8,717
Less accumulated depreciation............................... 507 2,190
====== ======
$4,783 $6,527
====== ======
</TABLE>
F-11
<PAGE> 75
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
6. INTANGIBLE ASSETS
Intangible assets were comprised of the following as of August 31:
<TABLE>
<CAPTION>
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Goodwill.................................................... $23,536 $23,536
Deferred software development costs......................... 2,864 3,872
Other intangibles, primarily customer base.................. 14,145 14,145
------- -------
40,545 41,553
Less accumulated amortization............................... 1,190 3,979
------- -------
$39,355 $37,574
======= =======
</TABLE>
7. EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE PLANS
Nichols Research has employee stock option plans that provide for the
issuance of incentive stock options (as defined by the Internal Revenue Code)
and nonstatutory stock options to key employees, including officers of the
Company. Options are nontransferable and exercisable only during employment,
with certain exceptions. Options expire five years from the date of grant.
A summary of activity relating to Nichols Research stock options of the
Company's employees is as follows:
<TABLE>
<CAPTION>
INCENTIVE NONSTATUTORY
TOTAL STOCK OPTIONS TOTAL
------- ------------- ------------
<S> <C> <C> <C>
Outstanding at August 31, 1996....................... 104,460 93,996 10,464
Outstanding at August 31, 1997....................... 133,564 123,063 10,501
Outstanding at August 31, 1998....................... 131,385 125,374 6,011
Exercisable at August 31, 1998....................... 19,291 19,291 --
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED
NUMBER WEIGHTED WEIGHTED AVERAGE AVERAGE
RANGE OF OPTIONS AVERAGE REMAINING NUMBER EXERCISABLE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
- --------------- ----------- -------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
$10.00 -- $15.50 43,615 $12.02 1.93 years 18,541 $11.88
$20.38 -- $23.50 52,770 22.49 3.74 years 750 21.50
$24.50 -- $25.00 35,000 24.93 3.94 years -- --
</TABLE>
Nichols Research has an employee stock purchase plan that allows eligible
employees to purchase common stock at less than fair value. The purchase price
is 85% of fair market value on each quarterly purchase date. Purchases are
limited to the lesser of 10% of an employee's annual compensation or $25,000.
Shares of common stock issued under this plan were 2,018, 3,482 and 20,373 in
1996, 1997, and 1998, respectively.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which requires that financial
statements include certain disclosures about the stock-based employees
compensation and allows, but does not require, a fair value-based method of
accounting for such compensation. As allowed under the provisions of Statement
No. 123, the Company has elected to apply APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
stock based plans. Accordingly, no compensation cost has been recognized for the
qualified stock option plans and the employee stock purchase plans. Had
compensation cost for these programs been determined based on the fair value
F-12
<PAGE> 76
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
7. EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE PLANS (CONTINUED)
at the grant dates for awards under these programs consistent with Statement No.
123, the Company's net (loss) would have been reduced to the pro forma amounts
indicated below. The effects of applying Statement No. 123 on a pro forma basis
are not likely to be representative of the effects on reported pro forma net
income (loss) for future years as the estimated compensation cost reflects only
options granted subsequent to August 31, 1995.
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income (loss):
As reported............................................. $ 320 $(7,673) $ 3,252
Pro forma............................................... 302 (7,766) 2,934
</TABLE>
The fair value of each option grant is estimated on the date of grant using
a type of Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants in fiscal 1996, 1997 and 1998, respectively;
dividend yield of 0% for all years, expected volatility factors of 0.378, 0.312
and 0.391; risk-free interest rates of 6.64%, 6.23% and 6.37%; and expected
lives of 4 years.
8. BUSINESS COMBINATIONS
On August 29, 1997, Nichols Research exercised its option to acquire the
remaining 80.1% of TXEN. Aggregate consideration of approximately $43.8 million
was paid at closing, $17.5 million in cash and 1,084,148 shares of Nichols
Research common stock, valued at approximately $26.3 million. The total purchase
price with respect to the TXEN acquisition has been allocated to the TXEN assets
and liabilities. The excess of the purchase price over the fair market value of
the tangible net assets acquired was approximately $42.8 million and has been
allocated to the following intangibles: $8.5 million to in-process research and
development, $17.4 million to goodwill, $14.1 million to other intangibles and
$2.8 million to capitalized software development. The in-process research and
development of $8.5 million was expensed in the fourth quarter of 1997. The
acquired in-process technology consisted of ten software development projects to
reduce the time and personnel needed to perform managed care administrative
functions and provide enhanced information reports. The projects are expected to
be completed in fiscal year 1999. The acquisition of TXEN has been accounted for
as a purchase and the operations of TXEN have been included in the accompanying
financial statements from the date of acquisition.
The following unaudited pro forma summary presents information as if the
TXEN acquisition had occurred at the beginning of the fiscal year ended August
31, 1996. The charge of $8.5 million related to the write-off of purchased
in-process research and development has been included in the pro forma results
for the year ended August 31, 1996. The pro forma information is presented for
informational purposes only. It is based on historical information and does not
necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the combined
companies.
<TABLE>
<CAPTION>
1996 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues........................................ $ 18,274 $27,921
Net income (loss)............................... $(10,266) $ 1,030
</TABLE>
F-13
<PAGE> 77
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
9. SUBSEQUENT EVENTS (UNAUDITED):
In connection with a proposed public offering of a portion of the Company's
common stock, the Company and Nichols Research would execute and deliver certain
related agreements, the proposed forms of which are summarized below.
SERVICES AGREEMENT
Nichols Research will furnish administrative services to the Company
pursuant to a Corporate Services Agreement (the "Services Agreement"). Under the
Services Agreement, Nichols Research will provide various administrative
services, including public reporting compliance, certain corporate record
keeping, risk management, certain employee benefit administration,
administration of investor and media relations, tax return preparation
assistance, centralized cash management and certain financial and other services
for an annual fee. In fiscal year 1999, the fee is 2.4% of operating expenses
less costs of goods sold defined as direct materials and purchased labor. In
fiscal years 1996, 1997, and 1998 under a similar arrangement, the Company paid
$192,453, $249,577, and $696,214, respectively, to Nichols Research for
administrative services. The Company believes that the charges under the
Services Agreement are reasonable. For additional items, such as software
development services or administrative services that create unusual demands for
resources, Nichols Research will charge the Company costs actually incurred in
performing such services plus a mutually acceptable fee. For the fiscal years
ended August 31, 1996, 1997 and 1998, the Company paid $145,506, $174,070 and
$0, respectively, to Nichols Research for these additional services. The Company
is not obligated to use Nichols Research for these additional services. During
the term of the Services Agreement, the Nichols TXEN Board of Directors will
elect as Secretary the Secretary of Nichols Research and will elect as Treasurer
the Chief Financial Officer of Nichols Research. The Secretary and Treasurer
will serve in such capacities without compensation from Nichols TXEN. The
Services Agreement automatically renews for successive one year terms, unless
canceled by either Nichols Research or the Company upon 90 days prior notice
following the initial one year term.
VOTING AGREEMENT
Nichols Research has entered into a Voting Agreement with Nichols TXEN
dated November 6, 1998 which will become effective upon completion of an initial
public offering. Pursuant to the Voting Agreement, Nichols Research has agreed
to vote all of its shares of Nichols TXEN common stock at any meeting at which
directors are elected in favor of the election of independent directors so that
after such election, if such persons are elected, there will be at least two
independent directors of Nichols TXEN. The Voting Agreement will terminate upon
the earlier of five years from the date of the Voting Agreement or the date upon
which Nichols Research owns beneficially 50% or less of the common stock of the
Company.
TAX SHARING AGREEMENT
Nichols Research and the Company have entered into a Tax Sharing Agreement
which generally provides for the manner in which the parties will bear taxes for
the period beginning on September 1, 1998, and ending upon the sale by the
Company of the common stock pursuant to this offering and income tax
deficiencies or refunds resulting from future audit adjustments. The Company
will be required to pay to Nichols Research an amount equal to the excess of the
income tax liability which the Company would have for the short period over the
amount which the Company has previously paid (or been charged with by Nichols
Research) with respect to such taxes. If additional taxes must be paid by the
Company or Nichols Research as a result of an adjustment made by a tax
regulatory authority, and as a result of that adjustment, the other party would
obtain an offsetting tax
F-14
<PAGE> 78
NICHOLS TXEN CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
AUGUST 31, 1998
9. SUBSEQUENT EVENTS (UNAUDITED): (CONTINUED)
benefit, the party obtaining the tax benefit pays an amount equal to the
additional tax to the party whose income tax liability was increased. Likewise,
if income taxes are reduced as a result of an adjustment made by a tax
regulatory authority, and as a result of that adjustment, the other party would
suffer an offsetting tax detriment, the party whose taxes were reduced must pay
such amount to the other party. The Tax Sharing Agreement also contains
provisions dealing with contesting adjustments made by tax regulatory
authorities, determining who will bear the expense of any such challenge and
cooperation between the parties.
F-15
<PAGE> 79
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
TXEN, Inc.
We have audited the accompanying balance sheets of TXEN, Inc. as of June
30, 1996 and 1997, and the related statements of operations, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TXEN, Inc. at June 30, 1996
and 1997, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1996 the Company
changed its method of accounting for depreciation.
ERNST & YOUNG LLP
August 1, 1997
F-16
<PAGE> 80
TXEN, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1997
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 631 $1,146
Accounts receivable, net of allowance for doubtful
accounts of $35 and $125 at June 30, 1996 and 1997,
respectively........................................... 1,096 4,771
Prepaid expenses.......................................... 85 111
Income taxes receivable................................... 25 --
Deferred income taxes..................................... 301 211
Inventory................................................. 17 15
Other..................................................... 4 --
------ ------
Total current assets........................................ 2,159 6,254
Property and equipment, net................................. 2,272 2,917
Deferred software development............................... -- 662
------ ------
Total assets................................................ $4,431 $9,833
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to stockholder............................... $ 8 $ 8
Customer deposits......................................... 129 --
Accounts payable and accrued expenses..................... 171 722
Accrued salaries, bonuses and vacation.................... 209 398
Income taxes payable...................................... -- 433
Current portion of long-term debt......................... 253 276
Short-term notes.......................................... 135 --
Deferred revenue.......................................... 1,071 2,049
Interest payable.......................................... -- 231
Accrued officers salaries................................. -- 288
Other..................................................... 7 3
------ ------
Total current liabilities................................... 1,983 4,408
Interest payable............................................ 200 --
Accrued officers salaries................................... 288 --
Deferred income taxes....................................... 124 395
Long-term debt to stockholders.............................. 258 274
Long-term debt.............................................. 639 366
Stockholders' equity:
Preferred stock, $.002 par value; 1 share authorized, 1
share and 0 shares issued and outstanding at 1996 and
1997, respectively..................................... 1,500 --
Class A common stock, $.002 par value; 5,000,000 shares
authorized, 5,000,000 and 4,000,500 shares issued and
outstanding at 1996 and 1997, respectively............. 10 8
Class B common stock, $.002 par value; 1,250,000 shares
authorized, 0 and 999,500 shares issued and outstanding
at 1996 and 1997, respectively......................... -- 2
Additional paid-in capital................................ 410 1,910
Retained earnings (deficit)............................... (532) 2,889
Notes receivable from stockholders........................ (449) (419)
------ ------
Total stockholders' equity............................. 939 4,390
------ ------
Total liabilities and stockholders' equity.................. $4,431 $9,833
====== ======
</TABLE>
See accompanying notes.
F-17
<PAGE> 81
TXEN, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------
1996 1997
--------- ---------
<S> <C> <C>
Revenues.................................................... $ 6,860 $14,980
Cost of revenues............................................ 3,212 4,848
------- -------
Gross profit................................................ 3,648 10,132
Selling, general and administrative expenses................ 2,467 2,945
Research and development.................................... 926 1,069
Depreciation and amortization............................... 532 709
------- -------
Income (loss) from operations............................... (277) 5,409
Other income (expense):
Interest expense.......................................... (153) (88)
Interest income........................................... 102 75
Other..................................................... -- 4
------- -------
Income (loss) before income taxes and cumulative effect of a
change in accounting principle............................ (328) 5,400
Income tax expense (benefit)................................ (93) 1,979
------- -------
Income (loss) before cumulative effect of a change in
accounting principle...................................... (235) 3,421
Cumulative effect on prior years of changing to a different
depreciation method (net of taxes of $32)................. 82 --
------- -------
Net income (loss)........................................... $ (153) $ 3,421
======= =======
</TABLE>
See accompanying notes.
F-18
<PAGE> 82
TXEN, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
CLASS A CLASS B ADDITIONAL RETAINED RECEIVABLE TOTAL
PREFERRED COMMON COMMON PAID-IN EARNINGS FROM STOCKHOLDERS'
STOCK STOCK STOCK CAPITAL (DEFICIT) STOCKHOLDERS EQUITY
--------- ------- ------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995........... $1,500 $10 $-- $ 410 $ (379) $(437) $1,104
Issuance of notes receivable from
stockholders................... -- -- -- -- -- (65) (65)
Payments received on notes....... -- -- -- -- -- 89 89
Accrued interest on notes........ -- -- -- -- -- (36) (36)
Net loss......................... -- -- -- -- (153) -- (153)
------ --- -- ------ ------ ----- ------
BALANCE, JUNE 30, 1996........... 1,500 10 -- 410 (532) (449) 939
Issuance of notes receivable from
stockholders................... -- -- -- -- -- (16) (16)
Conversion of preferred stock to
common stock................... (1,500) -- 2 1,498 -- -- --
Contribution of common stock to
treasury and subsequent
retirement..................... -- (2) -- 2 -- -- --
Payments received on notes....... -- -- -- -- -- 73 73
Accrued interest on notes........ -- -- -- -- -- (27) (27)
Net income....................... -- -- -- -- 3,421 -- 3,421
------ --- -- ------ ------ ----- ------
BALANCE, JUNE 30, 1997........... $ -- $ 8 $2 $1,910 $2,889 $(419) $4,390
====== === == ====== ====== ===== ======
</TABLE>
See accompanying notes.
F-19
<PAGE> 83
TXEN, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................... $(153) $ 3,421
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 532 709
Cumulative effect of change in accounting principle, net
of tax of $32.......................................... (82) --
Deferred income taxes..................................... (64) 360
Provision for doubtful accounts........................... (65) 90
Loss on sublease.......................................... 6 --
Changes in operating assets and liabilities:
Accounts receivable.................................... 44 (3,764)
Prepaid expenses....................................... (36) (26)
Income taxes receivable................................ (7) 25
Inventory.............................................. 3 2
Other.................................................. 1 (1)
Interest payable....................................... 29 31
Customer deposits...................................... 4 (129)
Accounts payable and accrued expenses.................. (156) 551
Accrued salaries, bonuses and vacation................. 76 190
Income taxes payable................................... -- 433
Deferred revenue....................................... 437 978
------- -------
Net cash provided by operating activities................... 569 2,870
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment......................... (1,060) (1,328)
Additions to deferred software development costs............ -- (688)
------- -------
Net cash used in operating activities....................... (1,060) (2,016)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt........................ (188) (250)
Notes payable............................................... 135 (135)
Payments on debt to stockholders............................ (9) --
Increase in debt to stockholders............................ 63 16
Principal payments on note payable to stockholder........... (42) --
Increase in notes receivable from stockholders.............. (11) 30
------- -------
Net cash used in financing activities....................... (52) (339)
------- -------
Net (decrease) increase in cash and cash equivalents........ (543) 515
Cash and cash equivalents at beginning of year.............. 1,174 631
------- -------
Cash and cash equivalents at end of year.................... $ 631 $ 1,146
======= =======
</TABLE>
See accompanying notes.
F-20
<PAGE> 84
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
TXEN, Inc. (the Company) facilitates the administration of health benefits by
providing health care organizations hardware and software solutions through
either outsourcing or turnkey agreements primarily in the United States. The
Company also provides data processing services through management service
organization (MSO) agreements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Revenue Recognition
Outsourcing/MSO: Outsourcing and MSO fees are recognized as services are
provided.
System sales: Software license fees and equipment revenue are recognized upon
delivery of the software product to the customer, unless the Company has
significant related obligations remaining. Revenue requiring any significant
obligations to customers is deferred and recognized once the remaining
obligations become insignificant.
Professional services: Revenue from professional services is recognized either
(i) as the services are performed based on the Company's standard rates for the
applicable services; or, (ii) as contract milestones are achieved, if specified
and required under the contract with the customer. Revenue from post-contract
customer support is recognized in the period the customer support services are
provided.
Concentration of Credit Risk and Financial Instruments: Financial instruments
which subject the Company to credit risk are primarily trade accounts
receivable. Concentrations of credit risk with respect to trade accounts
receivable are limited due to the large number and diversity of customers
comprising the Company's customer base. Nichols TXEN believes that any risk
associated with trade accounts receivable is adequately provided for in the
allowance for doubtful accounts. The Company generally does not require
collateral on its trade accounts receivable.
Software Development Cost
Under Statement of Financial Accounting Standards No. 86, "Accounting for
Software Costs", once technological feasibility is established related to
software development costs for new products or for enhancements to existing
products which extend the product's useful life, the costs are capitalized until
the product or enhancement is available for release to customers, after which
the capitalized costs are amortized over the product's estimated life giving
consideration to estimates of recoverability and net realizable value. Total
costs capitalized for software development were $0 and $687,338 during the
fiscal years ended June 30, 1996 and 1997, respectively.
Capitalized software development costs are being amortized over five years.
Accumulated amortization of capitalized software development cost were $0 and
$25,887 during fiscal years ended June 30, 1996 and 1997, respectively. The
Company capitalized interest related to software development costs of $0 and
$27,177 during the fiscal years ended June 30, 1996 and 1997, respectively.
F-21
<PAGE> 85
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
Research and development is conducted by the Company under both customer
sponsored and Company sponsored programs. Total research and development costs
incurred by the Company were $926,000 and $1,756,338 during the fiscal years
ended June 30, 1996 and 1997, respectively.
Inventory
Inventory is carried at the lower of cost or market using the specific
identification method.
Property and Equipment and Change in Depreciation Method
Property and equipment is stated on the basis of cost. Property and equipment
are depreciated over the estimated useful lives of the assets (generally three
to seven years). Depreciation and amortization had been provided using the
straight-line method for items purchased prior to July 1, 1994, and
double-declining balance for items purchased after July 1, 1994. During the
fiscal year ended June 30, 1996 the Company adopted the straight-line method of
depreciation for all assets. The new method of depreciation was adopted to
better match the cost of the property and equipment with the revenues generated
by those assets and has been applied retroactively to property and equipment
acquired in prior years. The effect of the change in fiscal year 1996 was to
decrease loss before cumulative effect of the change in accounting principle by
approximately $28,400. The adjustment of $81,615 (after reduction for income
taxes of $32,252) to apply the new method, is included in net loss for fiscal
year 1996.
Income Taxes
All income tax amounts and balances have been computed in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Under Statement No. 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS 123) requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of the grant, no compensation expense is recognized.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-22
<PAGE> 86
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30:
<TABLE>
<CAPTION>
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment.......................................... $2,162 $3,016
Software.................................................... 285 334
Furniture and fixtures...................................... 923 1,112
------ ------
3,370 4,462
Less accumulated depreciation............................... 1,098 1,545
------ ------
$2,272 $2,917
====== ======
</TABLE>
3. LONG-TERM DEBT AND LINES OF CREDIT
The Company has two revolving credit lines with a bank which are payable on
demand totaling $1,000,000 which are collateralized by certain assets of the
Company and the general guaranty of the primary stockholders. There were no
borrowings under the credit lines at June 30, 1996 and 1997.
On March 17, 1994, the Company borrowed $1,342,719 from the bank under a
long-term note. The note, which has a balance of $892,031 and $641,834 at June
30, 1996 and 1997, respectively, and matures on October 17, 1998, bears interest
at prime plus 1/2% and is cross-collateralized with assets pledged under the
revolving credit lines.
Annual maturities of long-term debt are as follows: 1998 -- $275,411 and
1999 -- $366,423.
The Company incurred $54,474 and $19,500 during the fiscal years ended June 30,
1996 and 1997, respectively, of long-term debt to two stockholders for the
purchase of common stock of the Company that was then sold to various employees
of the Company in exchange for notes receivable. Interest accrues at 8.0% and
matures on October 1, 1997.
The Company paid $146,975 and $115,268 in interest during the fiscal years ended
June 30, 1996, and 1997, respectively.
4. LEASES
The Company operates in leased premises and also leases certain equipment.
The future minimum lease payments under operating leases for the next three
years and in the aggregate are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998........................................................ $278
1999........................................................ 98
2000........................................................ 224
----
$600
====
</TABLE>
Rent expense for the fiscal years ended June 30, 1996 and 1997 was $263,668 and
$251,985, respectively. The Company is also subleasing space to another tenant
over the next two years. The total estimated minimum sublease rentals to be
received in the future under this sublease are $33,209 and $6,642 at June 30,
1996 and 1997, respectively.
F-23
<PAGE> 87
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCKHOLDERS' EQUITY
On December 16, 1994, the Company entered into a Stock Purchase Option Agreement
with a third-party. Under the terms of the agreement, the Company sold one share
of convertible preferred stock to the third-party for $1,500,000. The Company
also authorized 1,250,000 shares of Class B common stock which was reserved for
issuance upon the conversion of the preferred stock.
On July 17, 1996, the Stock Purchase Option Agreement with the holder of the
preferred stock was amended to allow the holder of the preferred stock to
accelerate the date to exercise the option to purchase all of the issued and
outstanding Class A common stock of the Company. The option is exercisable for a
period of thirty days after release of the Company's audited financial
statements for the fiscal year ended June 30, 1997. The holder of the preferred
stock converted all of the preferred stock to Class B common stock which is a
condition precedent to the right to exercise the option to purchase all of the
outstanding shares of Class A common stock of the Company. The Company expects
the option to be exercised which will require all related party balances to be
settled prior to the purchase. As a result, accrued officers salaries and the
related interest payable have been classified as current liabilities on the
balance sheet.
6. INCOME TAXES
The Company paid $0 and $1,161,001 in income taxes during the fiscal years ended
June 30, 1996 and 1997, respectively.
Significant components of the Company's current deferred tax liabilities and
assets at June 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
----- ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation................................ $228 $ 260
Software development costs................................ -- 239
---- -----
228 499
Deferred tax assets:
Allowance for doubtful accounts........................... 13 45
Accrued salaries and interest............................. 185 188
Accrued leave............................................. 44 78
Other..................................................... 6 4
Net operating loss carryforwards.......................... 157 --
---- -----
405 315
---- -----
$177 $(184)
==== =====
</TABLE>
F-24
<PAGE> 88
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES (CONTINUED)
Significant components of the provision for income taxes (benefit) are as
follows:
<TABLE>
<CAPTION>
1996 1997
----- ------
(IN THOUSANDS)
<S> <C> <C>
Current:
Federal................................................... $ 4 $1,599
State..................................................... -- 163
Benefit of operating loss carryforward.................... -- (143)
----- ------
Total current............................................... 4 1,619
Deferred:
Federal................................................... (56) 314
State..................................................... (8) 46
----- ------
Total deferred.............................................. (64) 360
----- ------
$ (60) $1,979
===== ======
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has a note payable to a stockholder of the Company for $8,333 at
June 30, 1996 and 1997 bearing interest at 8.0%. Payment of the principal
balance and accrued interest will be made upon demand except where the Company
is restricted from doing so by any agreements with third-parties in force at
that time.
The Company has notes and accrued interest receivable from stockholders of the
Company of $448,783 and $418,833 at June 30, 1996 and 1997, respectively, which
bear interest at 8.0%.
The Company incurred $269,202 in expenses with an affiliated company for
contracted services of which $38,857 is included in accounts payable at June 30,
1997. The Company had $188,037 of revenue from an affiliated company during the
fiscal year ended June 30, 1997.
8. SAVINGS AND RETIREMENT PLAN
The Company has a savings and retirement plan administered by Nichols Research
(the "Plan") for all eligible employees pursuant to Section 401(k) of the
Internal Revenue Code. The Company will match employee contributions to the Plan
at a level determined annually by the Company's Board of Directors. The
Company's contribution for the fiscal years ended June 30, 1996 and 1997 was
$3,400 and $6,009 respectively.
9. STOCKHOLDERS' AGREEMENT
Certain members of management are also stockholders of the Company and owned
approximately 60% of the Class A common stock at June 30, 1997. Under a stock
purchase agreement, the Company is committed to purchase management's common
stock in the event of death, retirement or termination of employment. The price
to be paid for the common stock is set by formula in the Employee Stock Purchase
Agreement. As discussed in Note 5, the holder of the Class B common stock has
the right to exercise an option to purchase all of the outstanding shares of
Class A common stock of the Company for a period of 30 days after release of the
Company's audited financial statements for the fiscal year ended June 30, 1997
which would include all the stock held by members of management.
F-25
<PAGE> 89
TXEN, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTINGENCY
The Company entered into an agreement with a customer whereby the Company must
deliver the final version of software currently under development by August 1,
1999. If the software is not ready to be released to the customer by August 1,
1999, the Company must pay a penalty of $195,000. Management estimates that
delivery of the software under development will occur prior to the deadline and
no penalty will be incurred and, therefore, no accrual for this contingency has
been recorded in the financial statements.
11. STOCK OPTION PLANS
During 1996, the Board of Directors approved the TXEN, Inc. 1996 Incentive Stock
Option Plan which authorized the issuance of options to purchase up to 100,000
shares of common stock and the Key Employee Incentive Stock Option Plan which
authorized the issuance of options to purchase up to 40,000 shares of common
stock. All options under the 1996 Plans have 5-year terms. Incentive stock
options vest and become exercisable at the end of 2 years of continued
employment while non-qualified stock options are exercisable upon grant. Pro
forma information regarding net income is required by SFAS 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method required by SFAS 123. The fair value for these options was
estimated at the date of grant using the minimum value method with the following
assumptions for 1996: risk-free interest rates of 6.30%; weighted-average
expected life of the options of 4 years; no volatility factors of the expected
market price of the Company's common stock because the Company is privately
held; and no dividend yields.
If the Company had adopted SFAS 123 in accounting for its stock options granted
in fiscal year 1996, its net income would have been decreased by approximately
$31,000. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
applying pro forma disclosures based on SFAS 123 are not likely to be
representative of the effects on future net income. As of June 30, 1996, there
were no options which had been exercised. During fiscal year 1997, 123,371
shares were granted with an exercise price of $6.20 and remain outstanding at
June 30, 1997. The weighted average fair value of options granted during the
year was $6.78 with a weighted average contractual life of 4.2 years.
F-26
<PAGE> 90
(Inside back cover)
(Photo - busy office environment)
The Nichols TXEN
High Technology-Driven
Outsourcing Services
Value Proposition
(Photo - Health care claim) - streamlined administrative functions
- variable rate operating cost structure
- faster implementation
(Photo - CD Rom and - reduced capital expenditures for administrative
circuit board) health care technologies
- less technology risk
- access to knowledgeable and experienced personnel
(Photo - person looking - sophisticated enterprise-level application
at computer) software and decision support tools
- enhanced marketplace connectivity
(Photo - Doctors in surgery) - ability to focus on core
businesses
Directions for the Future in health care information technology
<PAGE> 91
- ----------------------------------------------------------
- ----------------------------------------------------------
YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Use of Proceeds........................... 15
Dividend Policy........................... 15
Capitalization............................ 16
Dilution.................................. 17
Selected Financial Data................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 20
Business.................................. 29
Management................................ 46
Certain Transactions...................... 53
Principal Stockholders.................... 55
Description of Capital Stock.............. 56
Shares Eligible for Future Sale........... 57
Underwriting.............................. 58
Legal Matters............................. 60
Experts................................... 60
Additional Information.................... 61
Index to Financial Statements............. F-1
</TABLE>
---------------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
- ----------------------------------------------------------
2,175,000 Shares
(NICHOLS TXEN LOGO)
Common Stock
-------------------
PROSPECTUS
-------------------
BT ALEX. BROWN
CIBC OPPENHEIMER
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
THE ROBINSON-HUMPHREY COMPANY
, 1999
- ----------------------------------------------------------
- ----------------------------------------------------------
<PAGE> 92
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered are:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,730
--------
National Association of Securities Dealers, Inc. filing
fee....................................................... 4,000
--------
Nasdaq National Market listing fee..........................
--------
Accountants' fees and expenses.............................. *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
--------
Total Expenses.................................... $ *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
by the Company of any director, officer, employee or agent of the Company or
person who is serving or was serving at the Company's request as a director,
officer, employee or agent of another corporation or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred by him in connection with the
defense of any threatened, pending or completed action (whether civil, criminal,
administrative or investigative), to which he is or may be a party by reason of
having been such director, officer, employee or agent provided that he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful. The
Company also has the power under Section 145 to indemnify persons set forth
above from threatened, pending or completed actions or suits by or in the right
of the Company to procure a judgment in its favor by reason of the fact that
such person was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation or enterprise against expenses actually and
reasonably incurred by him in connection with the defense or settlement of the
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company, except that no
indemnification can be made with regard to any claim, issue or matter as to
which the person has been adjudged to be liable for negligence or misconduct in
the performance of his duty to the Company unless and only to the extent that
the Delaware Court of Chancery or the court in which the action was brought
determines that the person was fairly and reasonably entitled to indemnity. Any
indemnification (unless ordered by a court) must be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
person is proper in the circumstances because he has met the applicable
standards of conduct. The determination must be made by the Board of Directors
by a majority vote of a quorum consisting of directors who are not parties to
the action, or if a quorum is not obtainable or, even if obtainable, a quorum of
disinterested directors so directs, by independent counsel in a written opinion,
or by the stockholders. The Company may pay the expenses of an action in advance
of final disposition if authorized by the Board of Directors in a specific case,
upon receipt of an undertaking by the person to be indemnified to repay any such
advances unless it shall
II-1
<PAGE> 93
ultimately be determined that such person is entitled to be indemnified by the
Company as authorized by law.
Article XI of the Company's Amended and Restated Certificate of
Incorporation and Article Eight of the Company's Amended and Restated Bylaws
provide for indemnification of the Company's directors, officers, employees or
agents to the extent permitted by Section 145 of the Delaware General
Corporation Law. Article XI of the Company's Amended and Restated Certificate of
Incorporation and Article Eight of the Company's Amended and Restated Bylaws
further provide that the Company may purchase and maintain insurance on behalf
of those persons described above as eligible for indemnification for liability
arising out of such person's duties or status with the Company whether or not
indemnification in respect of such liability would be permissible.
The Company has entered into Indemnification Agreements with each of its
directors to give such directors additional contractual assurances regarding the
scope of the indemnification set forth in the Company's Amended and Restated
Certificate of Incorporation and to provide additional procedural protections.
At present, there is no pending litigation or proceeding involving a director,
officer or employee of the Company regarding which indemnification is sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification.
The Company has in effect an officers and directors liability insurance
policy with National Union Fire Insurance Company. The policy provides indemnity
to the directors and officers of the Company for the loss arising from any claim
by reason of a wrongful act where there is no corporate indemnification. The
insurance provides for the Company to be reimbursed for any indemnification it
may be required by statute or the Company's Amended and Restated Bylaws to make
to any of its directors and officers in connection with a claim by reason of a
wrongful act. Pursuant to exclusions, the policy covers negligent acts, errors,
omissions or breach of duty by a director or officer. The principal exclusions
from coverage include the following: (i) claims involving various violations of
Section 16(b) of the Securities Exchange Act of 1934; (ii) dishonest acts; and
(iii) libel, slander, or non-monetary damages. The policy has no deductible
amount per director or officer for each loss. A $100,000 deductible
self-insurance retention applies to the Company, except for securities law
claims for which a $250,000 deductible applies. The limit of liability under the
policy is $15,000,000 in the aggregate annually in excess of deductibles and
participations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Upon incorporation of the Company on September 17, 1996, five hundred
shares of the Company's $1.00 par value common stock were issued to the founder
and sole stockholder, Nichols Research, in exchange for its initial capital
contribution of $1,000.00 in cash. Upon the merger of Computer Services
Corporation with and into the Company on September 23, 1996, five hundred shares
of the common stock were issued to Nichols Research, the sole stockholder of
Computer Services Corporation, in exchange for all of its shares of Computer
Services Corporation. All 1,000 shares sold were issued pursuant to Section 4(2)
of the Securities Act of 1933, in an exempt transaction by the Company not
involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Proposed form of Underwriting Agreement
2.1 -- Agreement of Merger among Nichols Research Corporation,
Nichols SELECT Corporation, TXEN, Inc. and the shareholders
of TXEN, Inc., dated August 27, 1997
3.1 -- Registrant's Amended and Restated Certificate of
Incorporation
3.2 -- Registrant's Amended and Restated Bylaws
</TABLE>
II-2
<PAGE> 94
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
4.1* -- Specimen Stock Certificate
5.1* -- Opinion and Consent of Lanier Ford Shaver & Payne P.C.
10.1 -- Nichols TXEN Corporation 1998 Stock Option Plan**
10.2 -- Nichols TXEN Corporation Employees' Stock Purchase Plan**
10.3 -- Nichols TXEN Corporation Non-Employee Director Stock Option
Plan**
10.4 -- Employment Agreement dated December 16, 1994, as amended,
between Registrant and Thomas L. Patterson**
10.5 -- Employment Agreement dated December 16, 1994, as amended,
between Registrant and Paul D. Reaves**
10.6 -- Employment Agreement dated August 29, 1997, as amended,
between Registrant and H. Grey Wood**
10.7 -- Corporate Services Agreement dated November 6, 1998, between
Registrant and Nichols Research Corporation
10.8 -- Tax Sharing Agreement dated November 6, 1998, between
Registrant and Nichols Research Corporation
10.9 -- Form of Indemnification Agreement between Registrant and its
directors
10.10 -- Software Licensing Agreement between CSC Healthcare Systems,
Inc. and TXEN, Inc. dated June 1, 1993
10.11 -- Voting Agreement dated November 6, 1998, between Registrant
and Nichols Research Corporation
10.12 -- Commercial Lease dated September 1, 1996, between Computer
Services Corporation and Birmingham S.S.P., Inc.
10.13 -- Commercial Lease dated October 31, 1985, between Computer
Services Corporation and Wimberly & Thomas Building
Restoration Partnership
10.14 -- Lease between Nichols SELECT Corporation and Birmingham
S.S.P., Inc.
10.15 -- Office Space Lease dated May 6, 1998, between the Registrant
and Raytheon Engineers & Constructors, Inc.
10.16 -- Office Lease dated April 13, 1998, between the Registrant
and Metropolitan Life Insurance Company
10.17 -- Sublease dated May 5, 1997, between TXEN, Inc. and ABB
Environmental Systems, Inc.
10.18* -- Lease dated May 8, 1998, between the Registrant and Daniel
Meadow Brook South, LLC
11.1 -- Computation of Earnings Per Share
23.1 -- Consent of Ernst & Young LLP, independent auditors, with
respect to Nichols TXEN Corporation
23.2 -- Consent of Ernst & Young LLP, independent auditors, with
respect to TXEN, Inc.
23.3* -- Consent of Lanier Ford Shaver & Payne P.C. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
** Management contract or compensatory plan or arrangement.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
II-3
<PAGE> 95
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant as been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on the 22nd day of January, 1999.
Nichols TXEN Corporation
By: Paul D. Reaves
------------------------------------
Paul D. Reaves,
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul D. Reaves and John D. McKay, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act of 1993, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Paul D. Reaves Chief Executive Officer January 22, 1999
- ------------------------------------------------ and Director (Principal
Paul D. Reaves Executive Officer)
Thomas L. Patterson Chairman of the Board January 22, 1999
- ------------------------------------------------
Thomas L. Patterson
H. Grey Wood President, Chief Operating January 22, 1999
- ------------------------------------------------ Officer and Director
H. Grey Wood
CHRIS H. HORGEN Director January 22, 1999
- ------------------------------------------------
Chris H. Horgen
Michael J. Mruz Director January 22, 1999
- ------------------------------------------------
Michael J. Mruz
James D. Kever Director January 22, 1999
- ------------------------------------------------
James D. Kever
James I. Harrison, Jr. Director January 22, 1999
- ------------------------------------------------
James I. Harrison, Jr.
John D. McKay Chief Financial Officer January 22, 1999
- ------------------------------------------------ (Principal Financial and
John D. McKay Accounting Officer)
</TABLE>
II-5
<PAGE> 97
AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Stockholder of
Nichols TXEN Corporation
We have audited the financial statements of Nichols TXEN Corporation as of
August 31, 1997 and 1998, and for each of the three years in the period ended
August 31, 1998, and have issued our report thereon dated January 7, 1999,
included elsewhere in this Registration Statement. Our audit also included the
financial statement schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Birmingham, Alabama
January 7, 1999
S-1
<PAGE> 98
NICHOLS TXEN CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
CHARGED TO ADDITIONS
BALANCE AT COSTS AND CHARGED TO BALANCE
BEGINNING EXPENSES OTHER ACCOUNTS DEDUCTIONS AT END
----------- ----------- -------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the three months ended
November 30, 1998
Allowance for doubtful
accounts................... $500 -- -- $(137) $363
---- ---- ---- ----- ----
Total valuation and
qualifying
accounts............ $500 -- -- $(137) $363
==== ==== ==== ===== ====
For the year ended August 31,
1998
Allowance for doubtful
accounts................... $145 $512 -- $(157) $500
---- ---- ---- ----- ----
Total valuation and
qualifying
accounts............ $145 $512 -- $(157) $500
==== ==== ==== ===== ====
For the year ended August 31,
1997
Allowance for doubtful
accounts................... $ 5 -- $140(1) -- $145
---- ---- ---- ----- ----
Total valuation and
qualifying
accounts............ $ 5 -- $140 -- $145
==== ==== ==== ===== ====
For the year ended August 31,
1996
Allowance for doubtful
accounts................... $ 5 -- -- -- $ 5
---- ---- ---- ----- ----
Total valuation and
qualifying
accounts............ $ 5 -- -- -- $ 5
==== ==== ==== ===== ====
</TABLE>
- ---------------
(1) Acquisition of TXEN, Inc.
S-2
<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Proposed form of Underwriting Agreement
2.1 -- Agreement of Merger among Nichols Research Corporation,
Nichols SELECT Corporation, TXEN, Inc. and the shareholders
of TXEN, Inc., dated August 27, 1997
3.1 -- Registrant's Amended and Restated Certificate of
Incorporation
3.2 -- Registrant's Amended and Restated Bylaws
4.1* -- Specimen Stock Certificate
5.1* -- Opinion and Consent of Lanier Ford Shaver & Payne P.C.
10.1 -- Nichols TXEN Corporation 1998 Stock Option Plan**
10.2 -- Nichols TXEN Corporation Employees' Stock Purchase Plan**
10.3 -- Nichols TXEN Corporation Non-Employee Director Stock Option
Plan**
10.4 -- Employment Agreement dated December 16, 1994, as amended,
between Registrant and Thomas L. Patterson**
10.5 -- Employment Agreement dated December 16, 1994, as amended,
between Registrant and Paul D. Reaves**
10.6 -- Employment Agreement dated August 29, 1997, as amended,
between Registrant and H. Grey Wood**
10.7 -- Corporate Services Agreement dated November 6, 1998, between
Registrant and Nichols Research Corporation
10.8 -- Tax Sharing Agreement dated November 6, 1998, between
Registrant and Nichols Research Corporation
10.9 -- Form of Indemnification Agreement between Registrant and its
directors
10.10 -- Software Licensing Agreement between CSC Healthcare Systems,
Inc. and TXEN, Inc. dated June 1, 1993
10.11 -- Voting Agreement dated November 6, 1998, between Registrant
and Nichols Research Corporation
10.12 -- Commercial Lease dated September 1, 1996, between Computer
Services Corporation and Birmingham S.S.P., Inc.
10.13 -- Commercial Lease dated October 31, 1985, between Computer
Services Corporation and Wimberly & Thomas Building
Restoration Partnership
10.14 -- Lease between Nichols SELECT Corporation and Birmingham
S.S.P., Inc.
10.15 -- Office Space Lease dated May 6, 1998, between the Registrant
and Raytheon Engineers & Constructors, Inc.
10.16 -- Office Lease dated April 13, 1998, between the Registrant
and Metropolitan Life Insurance Company
10.17 -- Sublease dated May 5, 1997, between TXEN, Inc. and ABB
Environmental Systems, Inc.
10.18* -- Lease dated May 8, 1998, between the Registrant and Daniel
Meadow Brook South, LLC
11.1 -- Computation of Earnings Per Share
23.1 -- Consent of Ernst & Young LLP, independent auditors, with
respect to Nichols TXEN Corporation
23.2 -- Consent of Ernst & Young LLP, independent auditors, with
respect to TXEN, Inc.
23.3* -- Consent of Lanier Ford Shaver & Payne P.C. (included in
Exhibit 5.1)
24.1 -- Power of Attorney (included on page II-5)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment.
** Management contract or compensatory plan or arrangement.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT OF MERGER
NICHOLS RESEARCH CORPORATION,
NICHOLS SELECT CORPORATION,
TXEN, INC.,
AND
THE SHAREHOLDERS OF
TXEN, INC.
Dated: August 27, 1997
<PAGE> 2
TABLE OF CONTENTS
TO
AGREEMENT OF MERGER
SECTION 1. EFFECTIVE DATE ..................................................1
SECTION 2. GOVERNING LAW ...................................................2
SECTION 3. CAPITALIZATION AND CERTIFICATE OF INCORPORATION .................2
SECTION 4. BYLAWS ..........................................................2
SECTION 5. MERGER CONSIDERATION, CONVERSION OF SHARES AND CAPITAL STOCK OF
THE SURVIVING CORPORATION........................................2
5.1 Contribution to Capital ...........................................2
5.2 Stock of Subsidiary; Class B Common Stock .........................2
5.3 Merger Consideration ..............................................3
5.4 Exchange of Stock Certificates ....................................3
5.5 Exchange Agents ...................................................3
5.6 Stock Options .....................................................3
5.7 Restricted Stock ..................................................5
SECTION 6. BOARD OF DIRECTORS AND OFFICERS .................................5
SECTION 7. EFFECT OF MERGER ................................................5
SECTION 8. APPROVAL OF SHAREHOLDERS ........................................6
SECTION 9. REPRESENTATIONS AND WARRANTIES OF NICHOLS RESEARCH
CORPORATION AND SUBSIDIARY.....................................6
9.1 Organization; Standing; Corporate Power ...........................6
9.2 Authority .........................................................7
9.3 Approvals and Consents ............................................7
9.4 Validity ..........................................................7
9.5 No Breach .........................................................7
9.6 Finders ...........................................................7
9.7 Periodic Reports ..................................................7
9.8 Financial Statements ..............................................7
SECTION 10. REPRESENTATIONS AND WARRANTIES OF TXEN AND SHAREHOLDERS.........8
10.1 Organization; Standing; Corporate Power ...........................8
10.2 Authority ........................................................10
10.3 Approvals and Consents ...........................................10
10.4 Validity .........................................................10
10.5 No Breach ........................................................10
10.6 Personal Property ................................................10
10.7 Financial Statements .............................................10
10.8 No Material Change ...............................................11
10.9 Undisclosed Liabilities and Obligations ..........................11
10.10 Actions Since June 30, 1997 .....................................11
10.11 Inventory .......................................................13
10.12 Tax Matters .....................................................13
10.13 Real Property ...................................................13
10.14 Title and Condition of the Assets and Properties ................14
10.15 Proprietary Rights ..............................................15
10.16 Software and Information Systems ................................15
10.17 Contracts and Leases ............................................16
10.18 Material Commitments ............................................18
10.19 Warranties, Service Commitments, and Maintenance Agreements......18
10.20 Permits and Licenses; Compliance with Laws ......................19
10.21 Employee Benefits ...............................................19
10.22 Labor Matters ...................................................20
10.23 Employees; Wage Increases .......................................20
10.24 No Pending or Threatened Litigation and Claims ..................21
10.25 Environmental Matters ...........................................21
10.26 Customers .......................................................21
10.27 Suppliers .......................................................21
10.28 Insurance .......................................................21
10.29 Product Specifications ..........................................22
10.30 Accounts Receivable .............................................22
10.31 Disclosure ......................................................22
10.32 Accounts ........................................................22
10.33 Transactions with Related Parties ...............................22
10.34 Finders .........................................................23
10.35 Surviving Corporation's Ability to Operate the Business..........23
10.36 Capitalization ..................................................23
10.37 Subsidiaries ....................................................23
10.38 Securities Matters ..............................................23
10.39 Availability of Information .....................................24
10.40 Limited Representations and Warranties of the University.........24
10.40.1 Authority ...............................................25
10.40.2 Ownership ...............................................25
10.40.3 Enforceability ..........................................25
10.40.4 No Consent ..............................................25
10.40.5 Estoppel Provisions .....................................25
10.41 Special Representations and Warranties of Thomas L. Patterson....25
10.41.1 Authority ...............................................25
10.41.2 Ownership ...............................................26
10.41.3 Enforceability ..........................................26
10.41.4 No Consent ..............................................26
10.41.5 Estoppel Provisions .....................................26
<PAGE> 3
SECTION 11. CONDUCT OF CONSTITUENT CORPORATION SPENDING THE
EFFECTIVE DATE.................................................26
11.1 Certificate of Incorporation and Bylaws ..........................26
11.2 Capitalization ...................................................26
11.3 Operate in Ordinary Course .......................................26
11.4 Not Sell or Encumber Purchased Assets ............................27
11.5 Preserve Business Organization ...................................27
11.6 Maintain Properties ..............................................27
11.7 Maintain Books of Account ........................................27
11.8 Comply with Law ..................................................27
11.9 Inventory ........................................................27
11.10 Maintain Insurance ..............................................27
11.11 Advise Surviving Corporation of Adverse Change ..................27
11.12 Access for NRC ..................................................27
11.13 Third-Party Consents ............................................28
11.14 Not Incur Indebtedness ..........................................28
11.15 Preserve Capital Structure ......................................28
11.16 TXEN Authorization ..............................................28
SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF NICHOLS RESEARCH
CORPORATION AND SUBSIDIARY.....................................28
12.1 Representations and Warranties True as of Closing Date............28
12.2 Compliance with Agreement ........................................28
12.3 No Litigation ....................................................29
12.4 Third-Party Consents and Approvals ...............................29
12.5 Compliance with Law ..............................................29
12.6 Material Adverse Effect ..........................................29
12.7 Opinion of Counsel for TXEN ......................................29
12.8 Employment Agreements ............................................29
12.9 Certified Resolutions ............................................29
12.10 Certificates of Fulfillment of Conditions .......................29
12.11 Shareholder Approval ............................................29
12.12 No Dissenting Shareholders ......................................29
12.13 Fairness Opinion ................................................30
12.14 University Resolution ...........................................30
SECTION 13. CONDITIONS PRECEDENT TO OBLIGATIONS OF TXEN ...................30
13.1 Representations and Warranties True on Closing Date ..............30
13.2 Compliance with Agreement ........................................30
13.3 No Litigation ....................................................30
13.4 Opinion of Counsel for Subsidiary ................................30
13.5 Certified Resolutions ............................................30
13.6 Certificates of Fulfillment of Conditions ........................30
SECTION 14. DESIGNATIONS AND AGREEMENTS REQUIRED BY LAW ...................31
SECTION 15. ACCESS ........................................................31
SECTION 16. TERMINATION ...................................................31
16.1 Circumstances of Termination .....................................31
16.2 Effect of Termination ............................................31
SECTION 17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION................................................32
17.1 Survival .........................................................32
17.2 Definition .......................................................32
17.3 Indemnification by Shareholders ..................................32
17.4 Indemnification by Surviving Corporation and NRC .................32
17.5 Allocation of Damages ............................................32
17.6 Notice of Claim ..................................................33
17.7 Defense of Third Party Claims ....................................33
17.8 Reduction for Insurance and Tax Benefits .........................33
17.9 Deductible .......................................................33
17.10 Limitations .....................................................34
17.11 Arbitration .....................................................34
SECTION 18. CERTAIN COVENANTS OF THE PARTIES WITH RESPECT TO TAX MATTERS...34
18.1 Tax Records ......................................................34
18.2 TXEN Final Tax Return ............................................34
SECTION 19. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS .................34
19.1 In General .......................................................34
19.2 Expenses, Limitations and Agreements .............................36
19.3 No Assignment of Piggyback Rights ................................36
19.4 Transfer Restriction .............................................36
19.5 Termination ......................................................36
SECTION 20. POST CLOSING COVENANTS ........................................37
SECTION 21. GENERAL PROVISIONS ............................................37
21.1 Further Assurances ...............................................37
21.2 Waiver ...........................................................37
21.3 Broker ...........................................................37
21.4 Notices ..........................................................37
21.5 Entire Agreement .................................................38
21.6 Governing Law ....................................................38
21.7 Assignment .......................................................38
21.8 Counterparts .....................................................38
21.9 Interpretation and Construction ..................................38
21.10 Shareholder Representative ......................................39
21.11 Corporate Policies, etc .........................................39
21.12 Severability ....................................................39
21.13 Knowledge .......................................................39
<PAGE> 4
EXHIBITS
EXHIBIT
A Articles of Merger
B Certificate of Merger
C Merger Consideration Allocation
D Escrow Agreement
E Schedule of Disclosures
F Opinion of Counsel for TXEN
G-1 Amendment to Thomas L. Patterson Employment Agreement
G-2 Amendment to Paul D. Reaves Employment Agreement
G-3 H. Grey Wood Employment Agreement
H Opinion of Counsel for Subsidiary
I Arbitration Provisions
<PAGE> 5
SCHEDULE OF DISCLOSURES
SECTION
10.1 Foreign Jurisdiction List
10.3 Required Consents and Approvals List
10.6 Personal Property List
10.7 Financial Statements
10.8 Material Change List
10.9 Liabilities and Obligations List
10.10 List of Exceptions to Actions Since June 30, 1997
10.12 Taxes List
10.13 Leased Real Property List
10.15 Proprietary Rights List
10.16 Software List
10.17 Contracts List
10.18 Material Commitments List
10.19 Product Warranty List
10.20 Permit List
10.21 Employee Benefits List
10.23 Employee List
10.24 Litigation and Claims List
10.26 Customer List
10.27 Supplier List
10.28 Insurance Policies List
10.32 Accounts List
10.33 Transactions with Related Parties List
10.36 Shareholders/Number of Shares List
<PAGE> 6
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER, (sometimes referred to as the "Agreement" or the
"Merger"), dated as of August 27, 1997, is among NICHOLS RESEARCH CORPORATION,
a Delaware corporation ("NRC"); NRC's wholly owned subsidiary, NICHOLS SELECT
CORPORATION, a Delaware corporation ("Subsidiary" and sometimes referred to as
the "Surviving Corporation"); TXEN, INC., an Alabama corporation, ("TXEN") and
the holders of all of the $0.002 par value Class A common stock of TXEN listed
on the signature page to this Agreement (the "Shareholders"). Subsidiary and
TXEN shall sometimes be referred to collectively as the "Constituent
Corporations" and individually as a "Constituent Corporation." The Shareholders
execute and deliver this Agreement for the purposes of (i) joining in the
representations and warranties of TXEN, (ii) providing indemnification to NRC
and the Surviving Corporation and (iii) acknowledging receipt and acquiescence
in the disclosures of certain matters with respect to NRC and its common stock.
W I T N E S S E T H:
Each Constituent Corporation deems it advisable for the general welfare of
Constituent Corporation and its shareholders that the Constituent Corporations
merge into a single corporation pursuant to this Agreement and the applicable
laws of the States of Delaware and Alabama. Accordingly, TXEN shall be merged
with and into the Subsidiary with Subsidiary as the Surviving Corporation in
accordance with and pursuant to the provisions of Section 252 of the General
Corporation Law of the State of Delaware and Section 10-2B-11.07 of the Alabama
Business Corporation Act. The name of the Surviving Corporation shall be
"NICHOLS SELECT CORPORATION." The Shareholders of the Constituent Corporations
have consented to this Agreement of Merger in accordance with Delaware and
Alabama law. NRC will make available to Subsidiary (as a contribution to
capital) a sufficient amount of cash and a sufficient number of restricted (and
unregistered) shares of NRC common stock, par value of $0.01 per share (the
"NRC Common Stock") to effect the Merger.
It is agreed that the terms and conditions of the Merger and the mode of
carrying it into effect shall be as follows:
SECTION 1. EFFECTIVE DATE
On August 29, 1997 (the "Closing Date"), provided the conditions to the
consummation of this Agreement have been satisfied or waived, a meeting (the
"Closing") shall take place at the office of Ritchie & Rediker, L.L.C., in
Birmingham, Alabama, at which time the parties to this Agreement shall execute
and deliver (i) the Articles of Merger and Certificate of Merger attached
hereto as Exhibits "A" and "B", respectively, to comply with applicable filing
and recording requirements of the States of Alabama and Delaware and (ii) all
other documents, certificates, opinions and instruments contemplated herein.
The date of such Articles and Certificate shall be the Closing Date and the
effective date of the Merger set forth in such Articles and Certificate shall
be August 31, 1997, at 11:59 p.m., Central Daylight Saving Time (the "Effective
Date"). On the Closing Date, an executed counterpart of the Certificate of
Merger and Articles of Merger shall be personally delivered, mailed or
transmitted by facsimile for filing in the appropriate filing offices in the
States of Delaware and Alabama.
SECTION 2. GOVERNING LAW
The Surviving Corporation shall be governed by the laws of the State of
Delaware.
SECTION 3. CAPITALIZATION AND CERTIFICATE OF INCORPORATION
The number of authorized shares of the capital stock of the Surviving
Corporation shall be 1,000 shares of common stock, par value of $1.00 per
share. The Certificate of Incorporation of Subsidiary as in effect on the date
of this Agreement shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Date.
SECTION 4. BYLAWS
The Bylaws of Subsidiary as in effect on the date of this Agreement shall
be the Bylaws of the Surviving Corporation.
<PAGE> 7
SECTION 5. MERGER CONSIDERATION, CONVERSION OF SHARES
AND CAPITAL STOCK OF THE SURVIVING CORPORATION
5.1 CONTRIBUTION TO CAPITAL. On or prior to the Effective Date, NRC shall
transfer and deliver to Subsidiary, as a contribution to its capital, such
number of shares of NRC Common Stock and such amount of cash or other
immediately funds as shall be necessary to carry out the provisions of this
Section 5.
5.2 STOCK OF SUBSIDIARY; CLASS B COMMON STOCK. None of the capital stock
of Subsidiary issued and outstanding immediately prior to the Effective Date
shall be converted as a result of the Merger, but all of such shares of capital
stock shall remain issued and outstanding shares of capital stock of the
Surviving Corporation. On the Effective Date, each share of $0.002 par value
Class B common stock of TXEN, all of which is owned by NRC, shall be cancelled
and extinguished and none of the merger consideration set forth in Section 5.3
below shall be paid to NRC.
5.3 MERGER CONSIDERATION. The Class A common stock of TXEN (the "TXEN
Common Stock") issued and outstanding immediately prior to the Effective Date
(excluding shares held by TXEN as treasury stock, which shares shall be
cancelled and extinguished on the Effective Date) shall, upon the Effective
Date, by virtue of the Merger and without any action on the part of the holders
thereof, be exchanged for and converted into such number of shares of fully
paid and nonassessable NRC Common Stock having a value as hereinafter
determined of $26,324,706.77 and cash in the amount of $17,550,265.13 (the
"Merger Consideration"). The TXEN Common Stock so exchanged and converted is
herein sometimes referred to as the "Converted TXEN Stock." The value of the
NRC shares of Common Stock shall be determined based on the average of the
daily weighted sale price of such stock as quoted by National Association of
Securities Dealers Automated Quotation System for the ten business day period
ending five days immediately preceding the Closing. The Merger Consideration
shall be paid and allocated to each Shareholder in accordance with Exhibit "C"
attached hereto for each Shareholder and made a part hereof. The Shareholders
shall deposit into escrow a portion of the Merger Consideration identified on
Exhibit "C" for each Shareholder to be held pursuant to the Escrow Agreement
attached hereto as Exhibit "D."
5.4 EXCHANGE OF STOCK CERTIFICATES. As promptly as practicable after the
Effective Date, each holder of an outstanding certificate or certificates
theretofore representing shares of Converted TXEN Stock shall surrender the
same to an agent or agents designated by the Surviving Corporation, and shall
thereupon be entitled to receive in exchange therefor the Merger Consideration
as shown on Exhibit "C" for each Shareholder. Dividends payable after the
Effective Date to holders of record in respect of shares of NRC Common Stock
into which certificates for shares of Converted TXEN Stock shall be
exchangeable shall not be paid to holders of such certificates until their
certificates are surrendered for exchange. Until so surrendered, each
outstanding certificate which, prior to the Effective Date, represented
Converted TXEN Stock shall be deemed for all corporate purposes to evidence
ownership of the Merger Consideration into which the shares of Converted TXEN
Stock prior to the Effective Date shall have been converted.
5.5 EXCHANGE AGENTS. NRC may direct the Surviving Corporation to appoint
an NRC employee, agent or representative, including, without limitation, Allen
Dillard, as the exchange agent for purposes of this Section of the Merger
Agreement. Adoption of this Agreement by the Shareholders of TXEN shall
constitute ratification of the appointment of such exchange agent at the
direction of NRC or the Surviving Corporation.
5.6 STOCK OPTIONS.
(a) At the Effective Date, each option to purchase shares of TXEN
Class A Common Stock pursuant to an option grant under the TXEN, Inc., 1996
Incentive Stock Option Plan or the TXEN, Inc., Key Employee Incentive Stock
Option Plan (the "Option Plans") which are outstanding at the Effective Date
(the "TXEN Options"), whether or not exercisable, shall be converted into and
become rights with respect to NRC Common Stock, and NRC shall assume each TXEN
Option, in accordance with the terms of the Option Plan by which it is
evidenced, except that from and after the Effective Date, (i) NRC and NRC's
Board of Directors shall be substituted for TXEN and the Committee of TXEN's
Board of Directors (including, if applicable, the entire Board of Directors of
TXEN) administering such Option Plans, (ii) each TXEN Option assumed by NRC may
be exercised solely for shares of NRC Common Stock, (iii) the number of shares
of NRC Common Stock subject to such options shall be equal to the number of
shares of TXEN Common Stock subject to each such TXEN Option immediately prior
to the Effective Date multiplied by .451677 (the "Exchange Ratio"), and (iv)
the per share exercise price under each such TXEN Option shall be adjusted by
dividing the per share exercise price under each such TXEN Option by the
Exchange Ratio and rounding up to the nearest cent. Notwithstanding the
provisions of clause (iii) of the preceding sentence, NRC shall not be
obligated to issue any fraction of a share of NRC Common Stock upon exercise of
TXEN Options, and any fraction of a share of NRC Common Stock that otherwise
would be subject to a converted TXEN Option shall represent the right to
receive a cash payment upon exercise between the market value of one share of
NRC Common Stock at the time of exercise of such option and the per share
exercise price of such option. The market value of one share of NRC Common
Stock at the time of exercise of an option shall be the closing price of such
NRC Common Stock on the Nasdaq National Market (as reported by THE WALL STREET
JOURNAL or, if not reported thereby, any other authoritative source selected by
NRC) on the last trading day preceding the date of exercise. NRC and TXEN agree
to take all necessary steps to effectuate the foregoing provisions of this
Section 5.6.
<PAGE> 8
(b) As soon as practicable after the Effective Date, NRC shall
deliver to the participants in the Option Plans an appropriate notice, setting
forth such participant's rights pursuant thereto and the grants subject to such
Option Plans shall continue in effect on the same terms and conditions (subject
to the adjustments required by Section 5.6(a) after giving effect to the
Merger). Within 90 days after the Effective Date, NRC shall file a registration
statement on Form S-8 (or any successor or other appropriate forms), with
respect to the shares of NRC Common Stock subject to such options and shall use
its reasonable efforts to maintain the effectiveness of such registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
(c) All contractual restrictions or limitations on transfer with
respect to TXEN Common Stock awarded under the Option Plans or any other plan,
program or contract of TXEN, to the extent that such restrictions or
limitations shall not have already lapsed (whether as a result of the Merger or
otherwise), and except as otherwise expressly provided in such plan, program,
or contract, shall remain in full force and effect with respect to shares of
NRC Common Stock into which such restricted stock is converted pursuant to
Section 5.6 of this Agreement.
(d) TXEN has an option to purchase 119,732 shares of TXEN Common
Stock from Thomas L. Patterson and Paul D. Reaves, which constitute the source
of the TXEN Common Stock needed to fund the Option Plans. At the Closing, such
option shall be assigned by virtue of the Merger to the Surviving Corporation
which shall thereupon have the right to purchase from Messrs. Patterson and
Reaves the shares of NRC Common Stock into which such 119,732 shares of TXEN
Common Stock have been converted for the purpose of funding the Option Plans
with NRC Common Stock.
5.7 RESTRICTED STOCK. The NRC Common Stock to be transferred to the
Shareholders in exchange for their TXEN Common Stock will not be registered
under the Securities Act of 1933 (the "1933 Act") or the securities laws of any
state, and will therefore be restricted securities. Consequently, the NRC
Common Stock to be received by the Shareholders in the Merger will not be
transferrable unless registered under the 1933 Act or exempt from registration
thereunder and registered under securities laws of applicable states or exempt
from registration thereunder. By their signature to this Merger Agreement, each
Shareholder represents and warrants that he or she has been advised that the
NRC Common Stock will be "Restricted Securities" within the meaning of the 1933
Act and applicable state securities laws and further represents and warrants
that he or she has been advised of the resale limitations.
SECTION 6. BOARD OF DIRECTORS AND OFFICERS
On the Effective Date, the members of the Board of Directors of the
Surviving Corporation shall be Thomas L. Patterson, Chris H. Horgen, Allen
E. Dillard and Patsy L. Hattox.
SECTION 7. EFFECT OF MERGER
On the Effective Date, the separate existence of TXEN shall cease and it
shall be merged with and into the Surviving Corporation. On the Effective Date,
all the rights, privileges, powers and franchises of each of the Constituent
Corporations, both of a public and private nature, all property, real,
personal, and mixed, all debts due on account, and all other things in action
and all intangible assets belonging to each of the Constituent Corporations and
all and every other interests shall be transferred to and vested in the
Surviving Corporation, without further act or deed, as effectually as they were
vested in the respective Constituent Corporations; and the title to any
property, whether vested by deed or otherwise, in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the
Merger. The Surviving Corporation shall thereafter be responsible for all
debts, liabilities, obligations, restrictions, disabilities and duties of each
of the Constituent Corporations and all said debts, liabilities, obligations,
restrictions, disabilities and duties shall thereafter attach to the Surviving
Corporation and may be enforced against it to the same extent as if they had
been incurred or contracted by it, but the liabilities of each Constituent
Corporation or of its stockholders, directors, or officers shall not be
affected, nor shall the rights of creditors of each Constituent Corporation or
of any person dealing with either Constituent Corporation or any liens upon the
property of either Constituent Corporation be impaired by the Merger and any
action or proceeding pending by or against either of the Constituent
Corporations may be carried to judgment the same as if the Merger had not taken
place, which judgment shall bind the Surviving Corporation, or the Surviving
Corporation may be proceeded against or substituted in its place. In accordance
with the provisions of this Agreement, the General Corporation Law of the State
of Delaware and the Alabama Business Corporation Act, at the Effective Date,
TXEN shall be merged with and into Subsidiary, with Subsidiary as the Surviving
Corporation, and the Surviving Corporation shall be a wholly owned subsidiary
of NRC, but shall continue its corporate existence under the laws of the State
of Delaware. The separate corporate existence of TXEN shall terminate at the
Effective Date.
<PAGE> 9
SECTION 8. APPROVAL OF SHAREHOLDERS
This Agreement, the Certificate of Merger and the Articles of Merger have
been approved by the shareholders of each Constituent Corporation as provided
by Section 228 of the General Corporation Laws of the State of Delaware and
Section 10-2B-11.03 of the Alabama Business Corporation Act. However, it shall
be a condition to the Closing of the transaction contemplated by this Agreement
that no Shareholder shall have filed dissenter's rights, an appraisal remedy or
similar proceeding seeking the fair value of his common stock in TXEN.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF
NICHOLS RESEARCH CORPORATION AND SUBSIDIARY
NRC and Subsidiary, jointly and severally, represent and warrant that:
9.1 ORGANIZATION; STANDING; CORPORATE POWER. Subsidiary and NRC are each a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Subsidiary is a wholly-owned subsidiary of NRC.
NRC and Subsidiary each have all requisite power and authority, corporate and
otherwise, to carry on and conduct their respective businesses as they are now
being conducted and to own and lease their properties and assets.
9.2 AUTHORITY. Subsidiary and NRC each has full legal right, power, and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. All corporate and other acts or proceedings
required to be taken by Subsidiary and NRC to authorize the execution,
delivery, and performance of this Agreement and all transactions contemplated
hereby have been duly and properly taken.
9.3 APPROVALS AND CONSENTS. No approval, authorization, consent, order, or
action of, or filing with, any person, entity, court, administrative agency, or
other governmental authority is required for the execution and delivery by
Subsidiary and NRC of this Agreement or the documents to be delivered at
Closing or the consummation by Subsidiary and NRC of the transactions
contemplated hereby or thereby.
9.4 VALIDITY. This Agreement has been, and the documents to be delivered
by Subsidiary and NRC at Closing will be, duly executed and delivered and
constitute lawful, valid, and binding obligations of Subsidiary and NRC
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
reorganization, moratorium, and other laws affecting the rights of creditors
generally and to the discretion of a court in granting equitable relief. The
approval of the shareholders of NRC is not required for the authorization or
issuance of the NRC Common Stock or for any of the other transactions
contemplated by this Agreement.
9.5 NO BREACH. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby are not prohibited by,
will not violate or conflict with any provision of, and will not constitute a
default under or a breach of (a) the charter or bylaws of Subsidiary or NRC,
(b) any contract, agreement, or other instrument to which Subsidiary or NRC is
a party, (c) any order, writ, injunction, decree, or judgment of any court or
governmental agency, or (d) any law, rule, or regulation applicable to
Subsidiary or NRC.
9.6 FINDERS. No finder or broker has acted or is acting on behalf of
Subsidiary or NRC in connection with the transactions contemplated by this
Agreement.
9.7 PERIODIC REPORTS. The information in the NRC Forms 10-Q Reports for
the first, second and third quarters of 1997, NRC's Annual Report to its
Shareholders for 1996, NRC's Proxy Statement for the 1996 Annual Shareholders
Meeting and NRC's Form 10-K for 1996 (copies of which have been furnished to
each Shareholder of TXEN) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
<PAGE> 10
9.8 FINANCIAL STATEMENTS. The Consolidated Balance Sheets of NRC and its
subsidiaries as of August 31, 1996, and the related Consolidated Statements of
Income, Shareholders' Equity and Cashflow for the year ended August 31, 1996,
including the Notes thereto, as included in the NRC Form 10-K Report for 1996,
have been prepared in conformity with generally accepted accounting principles
consistently applied and present fairly the consolidated financial position of
NRC and its subsidiaries as of August 31, 1996, and their consolidated results
of operations for the period then ended. The Consolidated Balance Sheets,
Statements of Income, Shareholders' Equity and Cashflows, and the Notes thereto
set forth in the NRC Quarterly 10-Q Reports for the first, second and third
quarters of fiscal year 1997 have been prepared in conformity with generally
accepted accounting principles consistently applied and present fairly the
consolidated financial position of NRC and its subsidiaries as of such
quarterly date then ended, subject to normal year-end audit adjustments and any
other adjustments described therein.
<PAGE> 11
SECTION 10. REPRESENTATIONS AND WARRANTIES
OF TXEN AND SHAREHOLDERS
Subject to any exceptions described in the schedule of disclosures
attached as Exhibit "E" to this Agreement (the "Schedule"), and the limited
representations and warranties with respect to the Board of Directors of the
University of Alabama for the use of and on behalf of the University of
Alabama, Tuscaloosa, Alabama (the "University") set forth in Section 10.40
hereof, TXEN and each of the Shareholders, jointly and severally, represent and
warrant to NRC and Subsidiary that:
10.1 ORGANIZATION; STANDING; CORPORATE POWER. TXEN is a corporation duly
organized, validly existing, and in good standing under the laws of the State
of Alabama. TXEN has full power and authority, and all requisite licenses,
permits, and franchises, to own, lease, and operate its properties and to carry
on its business as currently conducted. TXEN is duly licensed and qualified to
do business as a foreign corporation and is in good standing in all
jurisdictions where failure to be so licensed or qualified would have a
material adverse effect upon its business or properties. Schedule 10.1 sets
forth an accurate, correct, and complete list of all jurisdictions in which
TXEN is licensed and qualified to do business. The authorized capital stock of
TXEN consists of the following:
<TABLE>
<CAPTION>
Par Value Shares Shares
Designation Per Share Authorized Outstanding
----------- --------- ---------- -----------
<S> <C> <C> <C>
Class A Common Stock $0.002 5,000,000 4,000,500
Class B Common Stock $0.002 1,250,000 999,500
Preferred Stock $0.002 1 -0-
</TABLE>
The shares of TXEN capital stock issued and outstanding are owned as follows:
<TABLE>
<CAPTION>
Shareholder Number of Shares
----------- ----------------
Class A Class B
------- --------
<S> <C> <C>
Thomas L. Patterson 1,820,763 -0-
Thomas L. Patterson, Trustee of the
Patterson Family Charitable Unitrust,
established August 5, 1997 366,000 -0-
Paul D. Reeves 781,255 -0-
Chris H. Horgen 245,000 -0-
Philip Bowling 50,000 -0-
Billy E. Callans 18,750 -0-
William L. Crocker 42,500 -0-
Jeffrey J. Fisher 22,500 -0-
Gregory L. Fuller 31,266 -0-
Noel Gartman 7,500 -0-
Robert D. Goodworth 2,500 -0-
Bryan V. Jennings 22,500 -0-
Amy E. Knowles 25,000 -0-
Scott L. McFarland 25,000 -0-
Patricia R. Mize 11,000 -0-
Todd K. Morgan 37,500 -0-
Nancy R. Onaka 2,000 -0-
Roy T. Sailor 12,500 -0-
Steven A. Selikoff 46,200 -0-
Annie M. Till 31,266 -0-
Maxine Wade 7,500 -0-
Richard G. Waggener 25,000 -0-
David A. Watts 7,500 -0-
Terence A. Weber 37,500 -0-
H. Grey Wood 165,000 -0-
Nichols Research Corporation -0- 999,500
University 157,000 -0-
</TABLE>
<PAGE> 12
There are no warrants, options or other rights with respect to the capital
stock of TXEN, except with respect to an option described below to acquire
119,732 shares of Class A common stock for issuance pursuant to the Option
Plans. A list of the Optionees has been furnished NRC. TXEN has an option, a
copy of which has been furnished NRC, to purchase up to 119,732 shares of TXEN
Common Stock from Thomas L. Patterson and Paul D. Reaves for the purpose of
funding the Option Plans. The aggregate purchase price for the stock TXEN may
purchase from Messrs. Patterson and Reaves is equal to the aggregate option
exercise price TXEN will receive upon exercise of options granted pursuant to
the Option Plans.
10.2 AUTHORITY. TXEN has full legal right, power, and authority to execute
and deliver this Agreement and to carry out the transactions contemplated
hereby. All corporate and other acts or proceedings required to be taken by
TXEN to authorize the execution, delivery, and performance of this Agreement
and all transactions contemplated hereby have been duly and properly taken.
10.3 APPROVALS AND CONSENTS. Except for the consents required as set forth
on Schedule 10.3, no approval, authorization, consent, order, or action of, or
filing with, any person, entity, court, administrative agency, or other
governmental authority is required for the execution and delivery by TXEN of
this Agreement or the documents to be delivered at Closing or the consummation
by TXEN of the transactions contemplated hereby or thereby.
10.4 VALIDITY. This Agreement has been, and the documents to be delivered
at Closing will be, duly executed and delivered and constitute lawful, valid,
and binding obligations of TXEN and the Shareholders enforceable in accordance
with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium, and other laws affecting the rights of creditors generally and to
the discretion of a court in granting equitable relief.
10.5 NO BREACH. Subject to the receipt of all consents and approvals set
forth on Schedule 10.3, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in the
creation of a lien, charge, or encumbrance on the business or properties of
TXEN and are not prohibited by, will not violate or conflict with any provision
of, and will not constitute a default under or a breach of (a) the charter or
by-laws of TXEN, (b) any contract, agreement, or other instrument to which TXEN
is a party or to which any of its assets or properties are subject, (c) any
order, writ, injunction, decree or judgment of any court or governmental
agency, or (d) any law, rule, or regulation applicable to TXEN or its business
and assets.
10.6 PERSONAL PROPERTY. Schedule 10.6 contains a materially true and
complete list of all of TXEN's tangible personal property, whether owned or
leased, including, without limitation, all of the machinery, equipment,
computer equipment, furniture, vehicles, fixtures, tools, tooling inventory,
materials handling equipment, parts and other tangible property of TXEN (the
"Personal Property"). Except as disclosed on Schedule 10.6, TXEN has, and will
on the Closing Date have, good and marketable title to all of the Personal
Property free and clear of all security interests, liens, pledges,
encumbrances, or restrictions, other than liens for personal property taxes and
assessments, both general and special, that are not yet due and payable.
10.7 FINANCIAL STATEMENTS. Set forth on Schedule 10.7 are the following
financial statements of TXEN: (i) an audited balance sheet as of June 30, 1997,
and (ii) an audited income statement for the year ended June 30, 1997. These
financial statements (i) were prepared in accordance with the books and records
of TXEN, and (ii) fairly present the financial condition and results of
operations of TXEN as of the dates and for the period indicated and fairly
present the information purported to be shown therein.
<PAGE> 13
10.8 NO MATERIAL CHANGE. Except as set forth on Schedule 10.8, since June
30, 1997, there has not been:
(a) Any material adverse change in the financial condition, results
of operations, or prospects of TXEN or any adverse change in TXEN's
personnel, or in TXEN's relationships with suppliers, customers,
distributors, lenders, or others having a business relationship with it;
(b) Any damage, destruction, or loss, whether or not covered by
insurance, materially adversely affecting the assets or properties of TXEN
or the operations of TXEN's business; or
(c) Any labor dispute materially affecting TXEN's operations.
10.9 UNDISCLOSED LIABILITIES AND OBLIGATIONS. Except as disclosed on
Schedule 10.9, TXEN has no liabilities or obligations, whether fixed or
contingent, known or unknown, other than:
(a) Liabilities fully shown or reserved against on TXEN's balance
sheet as of June 30, 1997, or disclosed in the notes to the financial
statements;
(b) Current liabilities, not unusual in nature or amount, incurred by
TXEN in the ordinary course of business since June 30, 1997;
(c) Obligations to be performed under the leases, contracts, and
commitments identified on Schedule 10.17; and
(d) Obligations to be performed pursuant to the warranty obligations
identified on Schedule 10.19.
10.10 ACTIONS SINCE JUNE 30, 1997. Except as disclosed in Schedule 10.10
since June 30, 1997, and prior to the Effective Date TXEN has not and will not
have:
(a) Except in the usual and ordinary course of business, consistent
with past practice, incurred any indebtedness, obligations or liabilities,
or guaranteed any indebtedness;
(b) Increased the regular rate of compensation payable by TXEN to any
employee or increased such compensation to employees by bonus, percentage,
compensation service award or similar arrangement and no such increase is
required by the terms of any law or contracts;
(c) Established or agreed to establish any pension, retirement or
welfare plan for the benefit of employees;
(d) Made any single capital expenditure which exceeded $25,000 or
made aggregate capital expenditures which exceeded $50,000;
(e) Written down the value of any of its assets or properties or
written off as uncollectible any notes or accounts receivable, except for
write-downs and write-offs in the ordinary course of business of TXEN,
consistent with past practice, or revalued any of its assets or
properties;
(f) Paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or
arrangement with, NRC, Subsidiary, any Shareholder or any of the officers
or directors of NRC, Subsidiary, TXEN, or Shareholders, except for
reimbursement of ordinary and reasonable business expenses related to the
business of TXEN;
(g) Amended or terminated any material contract, agreement or license
to which TXEN is a party;
<PAGE> 14
(h) Made any change in any method of accounting or accounting
practice;
(i) Cancelled, or failed to continue, insurance coverage;
(j) Acquired, whether by merger, purchase of stocks or purchase of
assets, all or substantially all of the business or assets of any other
business or entity, or engaged in negotiations of any sort concerning such
acquisitions;
(k) Issued any stock or other securities, or taken any action with
respect thereto, or paid any dividends, or made any other distributions to
Shareholders with respect to their stock in TXEN;
(l) Entered into any material contracts, agreements, licenses or
leases except in the ordinary course of TXEN's business, consistent with
past practice;
(m) Mortgaged, pledged, or subjected to lien or other encumbrance any
of the assets or properties of TXEN;
(n) Disposed of any assets or rights, other than the disposal of
property that is worn-out or obsolete, and other than the sale of
inventory in the ordinary course of business;
(o) Canceled or waived any rights or claims of material value;
(p) Changed any credit practices or methods of maintaining books,
accounts, or business records; or
(q) Entered into any material transactions other than in the ordinary
course of business.
10.11 INVENTORY. TXEN has no material inventory for resale and does not
carry material inventory in the ordinary course of business.
10.12 TAX MATTERS. TXEN has previously delivered to NRC true and correct
copies of the tax returns and work papers of TXEN for the 5-year period ending
June 30, 1997. Except as set forth on Schedule 10.12, TXEN has timely filed
with the appropriate governmental agencies all tax returns and tax reports
(including, without limitation, those pertaining to income taxes, excise taxes,
sales and use taxes, payroll taxes, real property taxes, tangible and
intangible personal property taxes, and franchise taxes - - collectively,
"Taxes") required to be filed by TXEN as of the Effective Date; all Tax returns
previously filed by TXEN constitute complete and accurate representations of
the Tax liabilities of TXEN for the periods covered thereunder; all Taxes,
interest, and penalties shown or claimed to be due thereon have been paid; TXEN
has no liability, contingent or otherwise, for any Taxes, interest, and
penalties except for amounts shown on the Financial Statements described in
Section 10.7 and accrued on the books and records of TXEN thereafter in the
ordinary course of business; no agreement has been made by TXEN with the
Internal Revenue Service or any state or municipal official waiving any statute
of limitation or extending the period for assessment and collection of any Tax;
TXEN is not a party to any action or proceeding by any governmental authority
for the assessment or collection of Taxes, interest, or penalties, and no
outstanding claim for assessment or collection of Taxes, interest, or penalties
has been asserted against TXEN. The Internal Revenue Service has not examined
the federal income tax returns of TXEN. There is no audit for any year pending.
No agreement has been made with the Internal Revenue Service or with any other
governmental agency for extending the period of assessment or collection of any
Tax that would involve TXEN.
10.13 REAL PROPERTY.
(a) TXEN owns no fee simple interest in real property or easement
rights. Except as disclosed on Schedule 10.13, TXEN does not lease any
real property. All real property noted on Schedule 10.13 as being leased
is referred to herein as the "Leased Real Property" and all leases
relating to the Leased Real Property are disclosed on Schedule 10.13 and
are referred to herein as the "Leases." TXEN has a good and valid
leasehold as to the Leased Real Property leased by it, free and clear of
all mortgages, security interests, title defects, pledges, liens and the
possibility of liens, charges, tenancies, restrictions and encumbrances
other than Taxes and assessments, both general and special, which are a
lien but not yet due and payable that do not, individually or in the
aggregate, materially detract from the value of the Leased Real Property
or materially impair the use and operation thereof in carrying on the
business of TXEN. There are no pending or, to the best knowledge of TXEN,
threatened proceedings in eminent domain involving the Leased Real
Property or any portion thereof, or for a sale in lieu thereof, or of any
plans for a possible widening of the streets abutting the Leased Real
Property or the imposition of any special taxes or assessments against the
Leased Real Property or any portion thereof. To the best knowledge of
TXEN, the applicable zoning (without reliance on any variance, special
permit or nonconforming use or other similar use), building,
environmental, health and safety laws and regulations permit as a matter
of right and without the incurrence by Surviving Corporation of any
obligation or liability (including the obligation to incur any costs or
expenses) the continued use of the Leased Real Property by Surviving
Corporation for the same purposes and uses as same have been heretofore
used by TXEN, including the operation of TXEN's business.
(b) Except as disclosed on Schedule 10.13, there are no outstanding
written or oral leases covering or in any way affecting, and there are no
tenants occupying or having the right to occupy, the Leased Real Property
or any part thereof, other than the Leases. To the best of TXEN's
knowledge, no person or entity has any right with respect to such Leased
Real Property (whether by option to purchase, land contract, or otherwise)
which would prevent or interfere with possession or use of the Leased Real
Property by the Surviving Corporation on and after the Effective Date.
<PAGE> 15
(c) The Leases are in full force and effect. TXEN has heretofore
provided to NRC a complete, true, and correct copy of the Leases,
including any and all modifications or amendments thereof and any
supplements thereto. All material terms, conditions, and provisions of the
Leases to be performed by TXEN and, to the best knowledge of TXEN, by the
landlords, have been duly and timely performed and complied with. To the
best knowledge of TXEN, no event has occurred or failed to occur which
with the giving of notice, the passage of time, or both, would constitute
a default by the landlords or TXEN under any of the Leases. The landlords
have not waived, or extended the time for performance of, any obligation
of TXEN under any of the Leases. There are no security deposits or prepaid
rent (including last month's rent in advance) with respect to the Leased
Real Property.
(d) To the best knowledge of TXEN, there are no prohibitions or other
limitations, whether contained in the Leases or otherwise, on TXEN's right
to transfer the Leased Real Property in connection with this Agreement.
Except as specifically noted on Schedule 10.13, no consent, authorization,
or approval is required under the Leases in connection with the
consummation of the transactions contemplated hereby or TXEN's ability to
consummate the transactions contemplated hereby.
10.14 TITLE AND CONDITION OF THE ASSETS AND PROPERTIES. The assets and
properties currently utilized by TXEN, whether owned or leased, are in all
material respects in good operating condition and repair and are suitable for
the purposes for which they are presently being used. Such assets and
properties conform in all material respects to all applicable laws, ordinances,
and regulations, and TXEN has not received any written notice to the contrary.
TXEN is the sole and exclusive legal and equitable owner of all right, title
and interest in, and has good and marketable title to, all of its assets and
properties, tangible and intangible, except for such Personal Property that is
leased by TXEN and specifically identified as being leased on Schedule 10.6 and
except for licenses specifically identified on Schedules 10.15 or 10.16.
10.15 PROPRIETARY RIGHTS. Schedule 10.15 sets forth a list of material
inventions, trade secrets, processes, proprietary rights, product
specifications, blueprints, drawings, technical data, engineering information,
other proprietary knowledge and know-how, patents, trademarks, service marks,
trade names, copyrights, marks, symbols, logos, and all material documentation
related thereto, and all licenses and agreements in respect thereof and
applications therefor (collectively, "Proprietary Rights") used or related to
TXEN's business. The Proprietary Rights described on Schedule 10.15 include all
of the Proprietary Rights necessary for the operation of TXEN's business.
Except as set forth on Schedule 10.15, which includes a listing of contracts or
licenses pursuant to which TXEN uses the intellectual property of third
parties, with respect to the Proprietary Rights, (a) TXEN is the sole and
exclusive owner of and has the sole and exclusive right to use its Proprietary
Rights; (b) no action, suit, arbitration, or other proceeding or investigation
is pending or, to the best knowledge of TXEN, threatened which involves any
Proprietary Rights, (c) to the best knowledge of TXEN, none of the Proprietary
Rights infringes upon, conflicts with, or otherwise violates the rights of
others or is being infringed upon by others, (d) none of the Proprietary Rights
is subject to any outstanding order, decree, judgment, stipulation, or charge,
(e) there are no royalty, commission, or similar arrangements and no licenses,
sublicenses, or agreements relating to any of the Proprietary Rights, (f) TXEN
has not received any notice of interference or infringement of or by the
Proprietary Rights, (g) TXEN has not agreed to indemnify any person or entity
for or against any infringement of or by the Proprietary Rights, (h) no other
Proprietary Rights not owned by TXEN are necessary for the conduct of TXEN's
business, and (i) to the best knowledge of TXEN, no other party is operating a
business or otherwise acting in violation or infringement of, TXEN's
Proprietary Rights. Except as set forth on Schedule 10.15, TXEN has good and
marketable title to the Proprietary Rights listed on Schedule 10.15, free and
clear of all security interests, liens, pledges, encumbrances and restrictions.
Except as set forth on Schedule 10.15, all rights of TXEN in and to its
Proprietary Rights are transferable to Surviving Corporation as contemplated
herein without the consent or approval of any third party. TXEN is not subject
to any judgment, order, writ, injunction, or decree of any court, arbitrator,
or governmental agency or instrumentality, domestic or foreign, and is not
party to any agreement, which restricts or impairs the use of any Proprietary
Rights.
10.16 SOFTWARE AND INFORMATION SYSTEMS.
(a) The software described on Schedule 10.16 includes all information
systems, programs and software, other than non-exclusive commercial
software, used in or related to TXEN's business or necessary for the
operation of such business. Schedule 10.16 lists all such software and
identifies (a) software which is owned by TXEN, (b) software which is
licensed to TXEN, and (c) any other software in which TXEN has any use,
possessory, or proprietary rights and which is used in or related to its
business. Except as set forth on Schedule 10.16, TXEN has the sole and
exclusive right, title, and interest in and to all software listed on
Schedule 10.16. Except as set forth on Schedule 10.16, TXEN has good and
marketable title to the software listed, free and clear of all security
interests, liens, pledges, encumbrances and restrictions. Except as set
forth on Schedule 10.16, all of the software which is owned by TXEN,
including all related source codes and documentation, is owned solely by
TXEN and has not been disclosed to any unaffiliated entity or person. The
proprietary software owned by TXEN includes, without limitation, TXEN
FirstStepp. The proprietary software owned by TXEN is (i) owned
exclusively by TXEN, (ii) not subject to any liens, claims, security
interests or encumbrances, (iii) not subject to any outstanding licenses
or agreements, except for the non-exclusive licensing of such proprietary
software by TXEN to customers in the ordinary course of business in the
manner disclosed to Subsidiary, (iv) merchantable and fit for the purposes
for which such software is intended for use, (v) conforming in all
material respects with the specifications and documentation for such
software and (vi) without material defects or material programming errors.
(b) Schedule 10.16 incorporates by reference manuals (copies of which
have been made available to and furnished to NRC) which describe the
functions of all proprietary information systems, programs and software of
TXEN. TXEN has documentation in reasonable detail relating to all such
proprietary information systems, programs and software. Schedule 10.16
identifies each person or entity to whom TXEN has licensed or granted any
other rights to any other proprietary information systems, programs and
software. Except as disclosed on Schedule 10.16(b), no source code or
object code of TXEN is escrowed for the benefit of any third party. Except
as disclosed on Schedule 10.16(b), none of the information systems,
programs and software of TXEN infringe on any patents, trademarks,
copyrights or other rights or intellectual property rights of any third
persons. To the best knowledge of TXEN, no information systems, programs
and software used or owned by any third person or entity infringe on any
rights of TXEN in and to the information systems, programs and software of
TXEN. TXEN has taken reasonable measures necessary to maintain and protect
the information systems, programs and software of TXEN and no claims have
been asserted by any person or entity to the use of the same or
challenging or questioning the validity or effectiveness of the same, and,
to the best knowledge of TXEN, there is no valid basis to any such claim.
<PAGE> 16
(c) Schedule 10.16 also contains a list of the current software
development and consulting activities and projects of TXEN. TXEN has
described such projects and developments to NRC. TXEN knows of no
impediments to fully developing and exploiting the information systems,
programs and software currently under development or to performing its
currently pending consulting contracts.
10.17 CONTRACTS AND LEASES. Schedule 10.17 sets forth an accurate and
complete list of each of the following verbal or written contracts, agreements
and leases ("Contracts") to which TXEN is a party:
(a) Personal and real property leases;
(b) Material licenses, including without limitation, licenses of
software, intellectual property or Proprietary Rights;
(c) Contracts for capital expenditures in excess of
$25,000;
(d) Contracts for the purchase of machinery, equipment, or fixtures
involving expenditures in excess of $25,000;
(e) Royalty agreements;
(f) Agencies;
(g) Marketing agreements, reseller agreements, original equipment
manufacturer agreements and training agreements;
(h) Contracts, arrangements, consulting agreements, bids, proposals,
software agreements, licenses, maintenance agreements, support agreements,
warranties, purchase orders, agreements, or commitments of any kind or
character which (i) relate in any material way to the business activities
of TXEN, to the information systems, programs and software of TXEN or to
TXEN's services with respect thereto or (ii) involve the expenditure by or
receipt of TXEN of more than $25,000 or involve any commitment or
obligations of TXEN for a period of over one (1) month;
(i) Instruments evidencing or related to the deferred purchase price
of property in excess of $25,000 (including trade payables);
(j) Joint venture, partnership, limited liability company or other
arrangements involving a sharing of profits;
(k) Contracts with any government or any agency or instrumentality
thereof;
(l) Contracts with respect to the discharge or removal of effluent,
wastes, or pollutants;
(m) Contracts with any dealer, agent, representative, manufacturer's
representative, distributor, or sales agent;
(n) Employee benefit, bonus or compensation agreements, collective
bargaining agreements or employment agreements or any other agreements or
arrangements with respect to employees (including, without limitation, a
list of employee accrued vacation and sick leave, severance, and other
benefits);
(o) Confidentiality or non-competition agreements; and
(p) Other agreements not entered into in the ordinary course of
business.
Except as set forth on Schedule 10.17, to the best knowledge of TXEN, TXEN has
performed and is performing all material obligations to be performed by it
under each Contract, and, to the best knowledge of TXEN, the other parties
thereto have performed and are performing all material obligations to be
performed by them. To the best knowledge of TXEN, TXEN is not in default, and
has not received any notice of default, under any Contract. No event has
occurred which, with notice or lapse of time or both, would constitute a
default by TXEN thereunder. To the best knowledge of TXEN, none of the
Contracts is subject to any impending cancellation or breach that will result
in a loss or otherwise materially adversely affect the operations of TXEN's
business. Except as disclosed on Schedule 10.17, all Contracts are assignable
to Surviving Corporation and no consents are required except as provided on
Schedule 10.3.
10.18 MATERIAL COMMITMENTS. As used in this Section 10.18, the term
"Material Commitments" means each Contract of TXEN which obligates TXEN to
sell, license, distribute, deliver or provide products or services for a
consideration in excess of $25,000 or over a period of more than one (1) month.
Schedule 10.18 sets forth a "Project List" with respect to each Material
Commitment. The Project List sets forth TXEN's production schedule or
performance schedule, and budget, with regard to each Material Commitment.
Except as described in the Project List, the performance of TXEN or any other
party involved with each Material Commitment is on schedule and within budget,
and no practical or technological problems have been encountered that might
reasonably be expected to impede completion or materially increase the cost of
TXEN's performance. Each Material Commitment was made on a basis calculated to
produce a profit under the circumstances prevailing when it was made, and TXEN
is not aware of any circumstances that might reasonably be expected to prevent
the realization of a profit. Except as set forth on the Project List, no
Material Commitment involves the development of any product or technology that,
to the best knowledge of TXEN, would infringe on the proprietary rights of any
other party.
<PAGE> 17
10.19 WARRANTIES, SERVICE COMMITMENTS, AND MAINTENANCE AGREEMENTS.
Schedule 10.19 contains a correct and complete list of all warranties, service
commitments, and maintenance and/or support agreements, and a statement or
description of the warranties and commitments (e.g. length of warranty, claims
covered, etc.) including, without limitation, all software service and
maintenance agreements, in effect with respect to any products or services
heretofore manufactured, sold, licensed or provided by TXEN. Except as
described on Schedule 10.19, there are no express or implied warranties
outstanding with respect to products or services created, sold, licensed,
provided or otherwise distributed by TXEN. The warranty and return experience
for the three years ended June 30, 1997, is set forth on Schedule 10.19. Except
as set forth on Schedule 10.19, since June 30, 1994, no warranty or service
claim in excess of $5,000 has been made against TXEN, or is pending or, to the
best knowledge of TXEN, is threatened in connection with any product or service
manufactured, sold, licensed or provided by TXEN.
10.20 PERMITS AND LICENSES; COMPLIANCE WITH LAWS. Except as set forth on
Schedule 10.20, TXEN does not own any material permits, licenses, or other
governmental authorizations, and none are required for the operation of the
business as presently conducted. Neither the ownership of its assets by TXEN,
nor the operation of its business as presently and ordinarily conducted,
violates any applicable order, law, ordinance, code, or regulation. No
investigation is pending or, to the best knowledge of TXEN, threatened
concerning any such matter, and TXEN has not received any notice of any such
violation and no basis therefor exists.
10.21 EMPLOYEE BENEFITS. Schedule 10.21 sets forth an employee benefits
list, which identifies each agreement, plan, or arrangement for employee
benefits, including any bonus, deferred compensation, severance, disability,
sick pay, salary continuation, death benefit, vacation, stock purchase or stock
option, hospitalization or other medical, life, or other insurance,
supplemental unemployment benefit, profit-sharing, pension, or retirement plan
or arrangement maintained or contributed to by TXEN in connection with its
business (the "Benefit Plans"). Except as identified on Schedule 10.21, none of
TXEN's Benefit Plans is an "employee pension benefit plan" as defined in
Section 3(2) of ERISA. To the best of TXEN's knowledge, all of the Benefit
Plans and related trusts are in form and have been administered in compliance
with all applicable laws, including ERISA and the Code; none of the Benefit
Plans or related trusts, or any administrator or trustee thereof, or
party-in-interest or disqualified person thereto has engaged in a transaction
that could cause any of them to be liable for a civil penalty under Section 409
or 502(i) or other section of ERISA or a tax under Section 4975 or 4976 or
other section of Chapter 43 of Subtitle D of the Code; all amounts required to
be paid by TXEN to or pursuant to each of the Benefit Plans or related trusts
on or before the date of this Agreement have been paid; no employee pension
benefit plan has incurred any "accumulated funding deficiency," as defined in
Section 412 of the Code; no "reportable event" within the meaning of Title IV
of ERISA has occurred with respect to any Benefit Plan subject thereto; and,
except as described on Schedule 10.21, TXEN is not obligated to pay any
additional amounts to or pursuant to, and have not guaranteed the obligations
of, any Benefit Plan or related trust. No employees of TXEN participate in any
"multi-employer pension plan" within the meaning of the Multi-employer Pension
Plan Amendments Act of 1980, as amended, and TXEN does not have any liability
under ERISA for any complete or partial withdrawal from any such multi-employer
plan. To the best of TXEN's knowledge, no liability under Title IV of ERISA has
been incurred by TXEN or any trade or business, whether or not incorporated,
that would be aggregated with TXEN for purposes of imposition of liability
under Title IV of ERISA (an "ERISA Affiliate") that has not been satisfied in
full, and no condition exists that presents, nor will the consummation of the
transactions contemplated by this Agreement directly result in, a material risk
to TXEN or an ERISA Affiliate of incurring a liability under such Title IV.
Neither TXEN nor an ERISA Affiliate, nor any of their respective directors,
officers, employees, or fiduciaries, has committed any breach of fiduciary
responsibility imposed by ERISA or any other applicable law that would subject
TXEN to liability under ERISA or any other applicable law, contract, agreement,
or commitment. The Pension Benefit Guaranty Corporation ("PBGC") has not
instituted proceedings to terminate any Benefit Plans in which TXEN
participates, and no condition exists that presents a risk that such
proceedings will be instituted. No Benefit Plan provides benefits, including,
without limitation death or medical benefits (whether or not insured), with
respect to current or former employees beyond their retirement or other
termination of service (other than (i) coverage mandated by applicable law,
(ii) deferred compensation accrued on the books of TXEN, (iii) death benefits
or retirement benefits under any "employee pension benefit plan," as that term
is defined in Section 3(2) of ERISA, or (iv) benefits the full cost of which is
borne by the current or former employee (or his or her beneficiary)). If a
Benefit Plan is designed to satisfy the requirements of Section 125, Section
401, Section 401(k), Section 409, Section 501(c)(9), Section 4975(e)(7), and/or
Section 4980B of the Code, the Benefit Plan satisfies such section. No "leased
employee," as that term is defined in Section 414(n) of the Code, performs
services for TXEN. TXEN has heretofore delivered to NRC true and correct copies
of all of the Benefit Plans, the most recent determination letters from the
Internal Revenue Service with respect thereto, the most recent annual reports
(Form 5500 and the schedules thereto), the most recent summary plan
descriptions, and the most recent actuarial valuations.
10.22 LABOR MATTERS. TXEN is not a party to any collective bargaining
agreement relating to TXEN's employees. TXEN is in all material respects in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment, wages and hours,
nondiscrimination in employment, and occupational health and safety, and is not
engaged in any unfair labor practice. Except as disclosed on Schedule 10.22,
there are no pending labor grievances or sexual harassment, discrimination or
other claims as to age, sex, religion, national origin or physical or mental
disability, civil rights, or equal employment opportunity charges against TXEN
relating to or involving employees, or any settlements, consent orders, or
prior decrees of any court or governmental body requiring any continued
observance by TXEN relating to or involving employees. No complaint has been
filed or is pending or, to the best knowledge of TXEN, threatened with the
National Mediation Board or the National Labor Relations Board relating to or
involving any employee of TXEN alleging any unfair labor practices, and there
have not been any work stoppages, strikes, or other significant labor troubles
involving employees of TXEN.
<PAGE> 18
10.23 EMPLOYEES; WAGE INCREASES. Schedule 10.23 lists (i) all current
employees of TXEN, including those employees of TXEN currently on layoff,
disability or any other leave ("Employees"), including their names, addresses,
ages, current rates of compensation and (ii) all employment commitments made by
TXEN to persons other than the Employees. To the extent not set forth on
Schedule 10.17, Schedule 10.23 also lists all employment agreements with
current Employees. TXEN has not, with respect to Employees, made any wage or
salary increase other than the increases already reflected on Schedule 10.23.
10.24 NO PENDING OR THREATENED LITIGATION AND CLAIMS. Except as set forth
on Schedule 10.24, TXEN is not a party to or, to the best knowledge of TXEN,
threatened with any claim, complaint, charge, suit, action, proceeding,
hearing, arbitration, or other method of settling disputes or disagreements, or
any private or governmental investigation. TXEN is not subject to any judgment,
order, writ, injunction, stipulation, or decree of any court, arbitrator, or
governmental agency or instrumentality.
10.25 ENVIRONMENTAL MATTERS. To the best knowledge of TXEN, the TXEN
business as presently conducted by TXEN complies with all applicable laws and
regulations relating to environmental protection, health, and safety,
including, without limitation, laws and regulations relating to the generation,
transportation, handling, treatment, storage, disposal, discharge, emission,
release or threatened release of hazardous substances, solid waste, hazardous
waste, hazardous materials, asbestos containing materials, petroleum or any
fraction thereof, pollutants, irritants, contaminants, toxic substances, or any
other materials defined as such in, or regulated by, any such applicable laws
and regulations. To the best knowledge of TXEN, none of TXEN, its agents, their
affiliates, and prior owners or users of the properties listed on Schedule
10.13 have ever generated, stored, treated, transported, handled, disposed of,
released, or threatened to release, any regulated material in a manner that
could give rise to any liability on the part of the Surviving Corporation. TXEN
has complied with the reporting requirements concerning the disposal,
discharge, emission, spillage, release or threatened release of any hazardous
substance with respect to such properties. TXEN is not a "potentially
responsible party," as defined in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, or under any comparable
state or local statute, in connection with any past or present waste disposal
practices undertaken by it or on its behalf.
10.26 CUSTOMERS. Schedule 10.26 identifies all customers who purchased any
product or service manufactured, licensed, sold, or provided by TXEN since June
30, 1994. TXEN is not aware of any existing or anticipated changes in the
purchasing policies or practices of these customers, or in their financial
condition, that might reasonably be expected to have a material adverse effect
on future orders of TXEN's business.
10.27 SUPPLIERS. Schedule 10.27 is a list of all material suppliers of
materials and services to TXEN since June 30, 1994. Except as listed on
Schedule 10.27, no supplier represents TXEN's sole source of any type or types
of supplies. Except as set forth in Schedule 10.27, no supplier has materially
increased its prices as applicable to the products purchased by TXEN since June
30, 1994 and TXEN has not received notice of any such price increase. TXEN is
not aware of any existing or anticipated changes in the policies or practices
of these suppliers, or in their financial condition, that might reasonably be
expected to have a material adverse effect on the Surviving Corporation's
ability to obtain supplies from these suppliers.
10.28 INSURANCE. Schedule 10.28 identifies all of TXEN's insurance
policies and bonds (the "Insurance Policies"). The Insurance Policies are in
full force and effect; are sufficient for compliance by TXEN with all
requirements of law and of all agreements to which it is a party; and are
valid, outstanding, and enforceable policies and provide that they will remain
in full force and effect through the Effective Date.
10.29 PRODUCT SPECIFICATIONS. To the best knowledge of TXEN, all products
manufactured, developed, licensed and/or distributed by TXEN comply with the
specifications and other criteria contained in the product, sales, and
marketing literature and other documentation used by TXEN in connection with
the sale or marketing of TXEN's products and services and in any applicable
customer specifications.
10.30 ACCOUNTS RECEIVABLE. All outstanding accounts receivable and notes
receivable of TXEN are bona fide receivables, arose in the usual and ordinary
course of business, are due and valid claims against customers for goods
delivered or services performed, subject to no offsets or counterclaims, and
are fully collectable, net of the reserve for doubtful accounts shown on the
Financial Statements of TXEN described in Section 10.7.
10.31 DISCLOSURE. To the best knowledge of TXEN, no representation or
warranty by TXEN and Shareholders in this Agreement, nor any schedules or
exhibits to this Agreement nor any statement or certificate furnished or to be
furnished to NRC or Surviving Corporation pursuant to this Agreement, contains
or will contain any untrue statement of a material fact or omit or will omit to
state a material fact necessary to make the statements contained therein not
misleading. TXEN and the Shareholders do not know of any facts or conditions
relating to the TXEN business which have a reasonably likelihood of materially
adversely affecting the TXEN business.
10.32 ACCOUNTS. Schedule 10.32 sets forth the names and locations of all
banks and other institutions in which TXEN has an account or safe deposit box
and the names of all persons authorized to draw thereon or to have access
thereto. Schedule 10.32 also sets forth the balance in each checking, savings
or other deposit account of TXEN as of June 30, 1997.
10.33 TRANSACTIONS WITH RELATED PARTIES. Except as disclosed on Schedule
10.33, no Shareholder, officer, director, or employee of TXEN, or any
corporation or other entity controlled by or under common control with any of
the foregoing and no relative of any of the foregoing has:
<PAGE> 19
(a) borrowed money from or loaned money to TXEN which remains
outstanding (excluding travel advances in the ordinary course of business
and consistent with past practice);
(b) any contractual or other claim (except for compensation as
disclosed in the schedules to this Agreement) expressed or implied, of any
kind whatsoever against TXEN;
(c) any interest in any business, assets or properties of TXEN
(whether ownership, contractual or otherwise); or
(d) engaged in any other transaction with TXEN (other than employment
relationships) since the date of TXEN's incorporation, not otherwise
reflected on the Financial Statements described in Section 10.7.
10.34 FINDERS. No finder or broker has acted or is acting on behalf of
TXEN in connection with the transactions contemplated by this Agreement.
10.35 SURVIVING CORPORATION'S ABILITY TO OPERATE THE BUSINESS. Upon the
Effective Date, Surviving Corporation shall have received from TXEN all the
property, equipment, inventory, contracts, permits, intellectual property,
leasehold interests, books and records, hardware and software, and other assets
and rights necessary for Surviving Corporation to conduct TXEN's business as
the same is presently conducted by TXEN.
10.36 CAPITALIZATION. TXEN's authorized capital consists of 1 share of
Convertible Preferred Stock, par value of $.002 per share (the "Preferred
Stock"), 5,000,000 shares of Class A Common Stock of the par value of $.002 per
share (the "Class A Common Stock") and 1,250,000 shares of Class B Common Stock
of the par value of $.002 per share (the "Class B Common Stock"). The issued
and outstanding shares of TXEN Stock are held by those individuals and entities
in those amounts shown in Section 10.1. Except for options issued in connection
with the Option Plans, there is no other class of equity securities or
instruments convertible into equity securities outstanding (or options,
warrants, or other rights granting persons the right to acquire same or any
TXEN Common Stock) and TXEN has not issued any bonds, debentures, or other
evidences of indebtedness of a similar nature. From the date of the execution
of this Agreement to the Effective Date, TXEN agrees not to and the
Shareholders agree not to cause TXEN to issue, transfer, assign or sell any
additional shares of TXEN Stock or authorize, create, issue or sell any other
class of equity securities or bonds, debentures or instruments of a similar
nature, and further agree not to execute any options, warrants or other rights
to acquire TXEN stock or any additional rights. All of the shares of TXEN Stock
held by the Shareholders are free and clear of all liens, claims, pledges,
options, rights, security interests and encumbrances, except as provided in
Section 5.6(d) hereof. All outstanding shares of TXEN stock have been duly
authorized and issued and are fully paid and nonassessable. Except as described
on Schedule 10.36, there are no agreements restricting the transfer of TXEN
stock or granting any options, agreements, contracts, cause or commitments of
any character which would restrict the transfer or issuance of any TXEN stock
or which would require the issuance of TXEN stock, or which would require TXEN
to purchase or redeem any shares of TXEN stock. By executing this Agreement,
Shareholders, waive all provisions of any stockholder agreement and consent to
transactions contemplated hereby.
10.37 SUBSIDIARIES. TXEN has no subsidiaries.
10.38 SECURITIES MATTERS. The Shareholders jointly and severally represent
and warrant that they are acquiring their respective portions of NRC Common
Stock for their own accounts, to hold for investment, and with no intention of
dividing their respective parts or their participation with others, or
reselling or otherwise participating, directly or indirectly, in a distribution
of the NRC Common Stock, and that each Shareholder shall not make any sale,
transfer or other disposition of the NRC Common Stock in violation of the 1933
Act or the securities laws of any state. Each of the Shareholders have been
advised that the NRC Common Stock is not being registered under the 1933 Act on
the grounds that such transactions are exempt from registration under one or
more exemptions under the 1933 Act and also are not being registered under any
securities laws of the various states on the grounds that such transactions are
exempt from registration thereunder, and that reliance by NRC on such
exemptions is predicated, in part, on the representation from the Shareholders
set forth in this Section 10.38. The Shareholders further understand that NRC
is required to file periodic reports with the Securities and Exchange
Commission and that, following a one-year holding period, certain sales of the
NRC Common Stock may be exempt from registration under the 1933 Act by virtue
of Rule 144, provided that such sales are made in accordance with all of the
terms and conditions of Rule 144, including compliance with the required
one-year holding period. It is understood and agreed that if Rule 144 is not
available for the sales of the NRC Common Stock, the NRC Common Stock may not
be sold without registration under the 1933 Act or compliance with some other
exemption from such registration, and, except as provided in Section 19 below,
that NRC is not obligated to register the NRC Common Stock to be transferred
pursuant to this Agreement or to take any action necessary in order to make
compliance with an exemption from registration available. It is acknowledged
that all shares of NRC Common Stock shall bear a restrictive legend to the
effect that such shares have not been registered and may not be sold or
transferred except pursuant to a registration or an exemption therefrom. The
Shareholders acknowledge and agree that they have not received any public
solicitation or advertisement concerning an offer to sell or to acquire the NRC
Common Stock.
<PAGE> 20
10.39 AVAILABILITY OF INFORMATION. TXEN and the Shareholders have received
and have had an opportunity to review copies of NRC's Form 10-K Report for the
fiscal year ended August 31, 1996, Proxy Statement for the 1997 Annual
Shareholders Meeting and Annual Report to Shareholders for the year ended
August 31, 1996, and the NRC Quarterly 10-Q Reports for the periods ended
November 30, 1996, February 28, 1997, and May 31, 1997. TXEN and the
Shareholders have had an opportunity to meet with officers of NRC to discuss
the information contained in the above-referenced documents and to receive
answers to any questions they had regarding NRC and the acquisition by
Shareholders of the NRC Common Stock. TXEN and the Shareholders acknowledge and
agree that they are not relying on any representations and warranties (oral or
written) of NRC or Surviving Corporation or their respective officers,
directors, employees and representatives, except those representations and
warranties expressly set forth in this Agreement and the matters set forth in
the Annual and Quarterly Reports described in this Section. Each individual
Shareholder for himself represents and warrants that he, individually or with
the aid of an investor representative of his choice, has the knowledge and
experience to evaluate the merits and risks of accepting the NRC Common Stock
in exchange for their TXEN Common Stock.
10.40 LIMITED REPRESENTATIONS AND WARRANTIES OF THE UNIVERSITY. The
University does not make the representations and warranties set forth in
Sections 10.1 through 10.39 above, and in lieu thereof makes the following
representations and warranties as of the Closing Date and Effective Date:
10.40.1 AUTHORITY. The University has full right, power and authority
to enter into this Agreement and to surrender the Shares owned by it in
exchange for its share of the Merger Consideration as provided in this
Agreement. The execution and performance of this Agreement by the University
has been duly authorized by its Board of Trustees.
10.40.2 OWNERSHIP. The University owns legally and beneficially the
number of Shares of stock set opposite its name in Section 10.1 hereof, free
and clear of all liens, security interests, pledges or encumbrances.
10.40.3 ENFORCEABILITY. This Agreement has been duly and validly
executed and delivered by the University and constitutes the legal, valid and
binding obligation of the University in accordance with its terms.
10.40.4 NO CONSENT. No consent of any lender, trustee, director,
security holder or any other person is required for the University to enter
into this Agreement or to consummate the transactions contemplated hereby, nor
do the governing instruments of the University or any mortgage, indenture or
other agreement, or any law, statute, ordinance, rule or regulation to which
the University is a party or by which it is bound or which affects any of its
properties, including, without limitation, the Shares, conflict with or
restrict the execution, delivery and performance of this Agreement by the
University or the consummation of the transactions contemplated hereby or
thereby.
10.40.5 ESTOPPEL PROVISIONS. As of the Closing Date and the Effective
Date, the University acknowledges that it has no title, claim, demand,
interest, action or cause of action in, to or against TXEN or any of its
officers, directors or shareholders in any capacity whatsoever. This SECTION
10.40.5 shall be construed to constitute a release by the University of any and
all of the foregoing and shall constitute a waiver of any and all of the
foregoing.
TXEN and the other Shareholders do not make the representations and
warranties contained in this Section 10.40.
10.41 SPECIAL REPRESENTATIONS AND WARRANTIES OF THOMAS L. PATTERSON.
Thomas L. Patterson, individually and in his capacity as Trustee of the
Patterson Family Charitable Unitrust, established August 5, 1997 (the "Trust"),
represents and warrants as of the Closing Date and the Effective Date:
10.41.1 AUTHORITY. As Trustee, Thomas L. Patterson has full right,
power and authority to enter into this Agreement and to surrender the Shares
owned by him as Trustee in exchange for the Trust's share of the Merger
Consideration as provided in this Agreement.
10.41.2 OWNERSHIP. Thomas L. Patterson, in his capacity as such
Trustee, owns legally the number of Shares of stock set opposite his name in
Section 10.1 hereof free and clear of all liens, security interests, pledges or
encumbrances.
10.41.3 ENFORCEABILITY. This Agreement has been duly and validly
executed and delivered by Thomas L. Patterson in his capacity as such Trustee
and constitutes the legal, valid and binding obligation of Thomas L. Patterson
as Trustee in accordance with its terms.
10.41.4 NO CONSENT. No consent of any lender, trustee, security
holder or any other person is required for Thomas L. Patterson as Trustee to
enter into this Agreement or to consummate the transactions contemplated
hereby, nor does the Trust instrument or any mortgage, indenture or other
agreement or any law, statute, ordinance, rule or regulation to which the Trust
is a party or by which it is bound or which affects any of its properties,
including, without limitation, the Shares, conflict with or restrict the
execution, delivery and performance of this Agreement by Thomas L. Patterson as
Trustee or the consummation of the transactions contemplated hereby or thereby.
The execution and performance of this Agreement by Thomas L. Patterson in his
capacity as Trustee does not violate any statute, rule or regulations regarding
private foundations, including, but not limited to, provisions contained in
Sections 4940-4948 of the Internal Revenue Code.
10.41.5 ESTOPPEL PROVISIONS. As of the Closing Date and the Effective
Date, Thomas L. Patterson as Trustee acknowledges that he has no title, claim,
demand, interest, action or cause of action in, to or against TXEN or any of
its officers, directors or Shareholders in any capacity whatsoever. This
Section 10.41.5 shall be construed to constitute a release by Thomas L.
Patterson in his capacity as Trustee of any and all of the foregoing and shall
constitute a waiver of any and all of the foregoing.
<PAGE> 21
SECTION 11. CONDUCT OF CONSTITUENT CORPORATIONS
PENDING THE EFFECTIVE DATE
Each Constituent Corporation agrees that, between the date of this
Agreement and the Effective Date:
11.1 CERTIFICATE OF INCORPORATION AND BYLAWS. No change will be made in
the Certificate of Incorporation or Bylaws of either Constituent Corporation
without the prior written consent of the other Constituent Corporation.
11.2 CAPITALIZATION. Neither Constituent Corporation will make any change
in its authorized or issued capital stock, declare or pay any dividend or other
distribution or issue, encumber, purchase or otherwise acquire any of its
capital stock.
11.3 OPERATE IN ORDINARY COURSE. TXEN shall operate its business in the
usual and ordinary manner as heretofore conducted; perform in all material
respects all its respective obligations and not materially modify, amend,
supplement, or waive any obligation under any Contract without the prior
written consent of NRC, which will not be unreasonably withheld.
11.4 NOT SELL OR ENCUMBER PURCHASED ASSETS. TXEN shall not sell or
otherwise dispose of any of its assets or properties, except for the sale of
inventory in the ordinary course of business, and not create or agree to create
any mortgage, security interest, lien, pledge, encumbrance, or restriction on
any of its assets or properties.
11.5 PRESERVE BUSINESS ORGANIZATION. TXEN shall use all reasonable efforts
to preserve intact TXEN's present business organization; to keep available the
services of the current Employees; to preserve TXEN's relationships with
suppliers, distributors, customers, and others having business relationships
with TXEN; and to refrain from changing any material policies (including,
without limitation, accounting, advertising, marketing, pricing, purchasing,
personnel, sales, or budget policies) without the prior written consent of NRC,
which will not be unreasonably withheld.
11.6 MAINTAIN PROPERTIES. TXEN shall retain and maintain all of its assets
and properties in customary repair, order, and condition, except for reasonable
wear, the disposal of worn-out or obsolete equipment, and damage due to
unavoidable casualty.
11.7 MAINTAIN BOOKS OF ACCOUNT. TXEN shall maintain TXEN's books of
account and records in the usual and ordinary manner and in accordance with
generally accepted accounting principles.
11.8 COMPLY WITH LAW. TXEN shall comply in all respects with all laws
applicable to TXEN or contest or settle in good faith, upon the advice of
counsel, any alleged failure to comply with any such laws.
11.9 INVENTORY. Consistent with past practices, TXEN shall not acquire any
inventory.
11.10 MAINTAIN INSURANCE. TXEN shall maintain the Insurance Policies in
full force and effect, with policy limits and scope of coverage not less than
is now provided.
11.11 ADVISE SURVIVING CORPORATION OF ADVERSE CHANGE. TXEN shall promptly
advise NRC of the occurrence of any material adverse change in the financial
condition or results of the operations of TXEN; the occurrence of any other
event or condition that materially and adversely affects its business; or the
imposition of any lien, pledge, or encumbrance on any of its assets or
properties.
11.12 ACCESS FOR NRC. TXEN shall provide NRC's employees, agents, and
authorized representatives with reasonable access, during business hours and
consistent with the normal operation of its business, to the locations owned or
leased by TXEN, and to the books and records of TXEN, to the extent necessary
to enable NRC to make a thorough investigation of the business, to make a
physical examination of its assets and properties, to conduct environmental
examinations (if any), and to examine TXEN's books and records. NRC's
employees, agents, and authorized representatives shall hold all such
information and materials in strict confidence, shall not use the same for any
purpose other than to evaluate this transaction and, treat all such information
in a manner consistent with NRC's policies and procedures concerning its own
confidential and proprietary information. If the transactions contemplated
hereby are not consummated for any reason, NRC shall (a) upon the request of
TXEN, return all originals, copies, and summaries of such information to TXEN
and (b) continue to treat all such information as strictly confidential in a
manner consistent with NRC's policies and procedures concerning its own
confidential and proprietary information.
<PAGE> 22
11.13 THIRD-PARTY CONSENTS. TXEN shall use its best efforts to obtain all
required consents and approvals of third parties, if any, described on Schedule
10.3.
11.14 NOT INCUR INDEBTEDNESS. TXEN shall not incur any indebtedness, other
than indebtedness incurred in the ordinary course of business to fund working
capital arising in the ordinary course of business.
11.15 PRESERVE CAPITAL STRUCTURE. TXEN shall not acquire, merge with, or
consolidate with, or agree to acquire, merge with, or consolidate with, any
business entity, or amend their respective charter or bylaws.
11.16 TXEN AUTHORIZATION. The TXEN directors and shareholders shall
approve this Agreement of Merger and the transactions described herein in
accordance with the Alabama Business Corporation Act on or before the Closing
Date.
SECTION 12. CONDITIONS PRECEDENT TO OBLIGATIONS OF
NICHOLS RESEARCH CORPORATION AND SUBSIDIARY
NRC's and Subsidiary's obligation to consummate this Merger shall be
subject to the fulfillment on or before the Effective Date of each of the
following conditions, unless waived, in writing:
12.1 REPRESENTATIONS AND WARRANTIES TRUE AS OF CLOSING DATE. TXEN's and
Shareholders' representations and warranties made in this Agreement and the
exhibits and schedules hereto are true in all respects on and as of the Closing
Date as though such representations and warranties were made on and as of the
Closing Date.
12.2 COMPLIANCE WITH AGREEMENT. TXEN and each Shareholder has performed
and complied in all respects with all of its or his obligations under this
Agreement that are to be performed or complied with by it or him on or before
the Closing Date, and neither TXEN nor any Shareholder is otherwise in default
in any respect under any of the provisions of this Agreement.
12.3 NO LITIGATION. No litigation, proceeding, investigation, or inquiry
is pending or threatened with respect to TXEN or which, if sustained, would
enjoin or prevent the consummation of the transactions contemplated by this
Agreement.
<PAGE> 23
12.4 THIRD-PARTY CONSENTS AND APPROVALS. TXEN has obtained all third-party
consents and approvals, if any, described on Schedule 10.3, all in form and
substance reasonably satisfactory to NRC and its counsel. At or before the
Closing, TXEN will deliver to NRC all such third-party consents or approvals.
12.5 COMPLIANCE WITH LAW. NRC has made a good faith determination, with
the assistance and advice of counsel, that the Surviving Corporation can
acquire and own the TXEN business following the Effective Date in substantial
compliance with all applicable laws, orders, ordinances, codes, and
regulations.
12.6 MATERIAL ADVERSE EFFECT. There has not occurred any event or casualty
that materially and adversely affects TXEN or its assets or properties, or
Surviving Corporation's ability to carry on TXEN's business as presently and
ordinarily conducted.
12.7 OPINION OF COUNSEL FOR TXEN. TXEN has delivered to Surviving
Corporation and NRC an opinion of counsel dated as of the Closing Date in a
form attached hereto as Exhibit "F."
12.8 EMPLOYMENT AGREEMENTS. Thomas L. Patterson and Paul D. Reaves shall
have entered into an Amendment of their Employment Agreements in the forms
attached hereto, respectively, as Exhibits "G-1" and "G-2." H. Grey Wood shall
have entered into an Employment Agreement with the Surviving Corporation in the
form attached hereto as Exhibit "G-3" (the "Employment Agreements").
12.9 CERTIFIED RESOLUTIONS. TXEN has delivered to NRC a copy of
resolutions adopted by TXEN's Board of Directors, certified as of the Closing
Date by the Secretary or an Assistant Secretary of TXEN, approving the
execution and delivery of this Agreement and the performance by TXEN of its
obligations under this Agreement.
12.10 CERTIFICATES OF FULFILLMENT OF CONDITIONS. TXEN shall have delivered
to NRC certificates, dated as of the Closing Date and signed by its President,
stating that the conditions set forth in this Section 12 have been fulfilled.
<PAGE> 24
12.11 SHAREHOLDER APPROVAL. TXEN's Shareholders shall have unanimously
approved the consummation of the transactions contemplated by this Agreement.
12.12 NO DISSENTING SHAREHOLDERS. Each Shareholder shall have approved
this transaction and no Shareholder shall have filed or perfected dissenter's
rights or appraisal rights.
12.13 FAIRNESS OPINION. NRC shall have received a "fairness opinion" from
The Robinson-Humphrey Company, Inc. that the transactions contemplated by this
Agreement are fair to NRC and its shareholders from a financial point of view,
dated within 10 days of the Closing.
12.14 UNIVERSITY RESOLUTION. The University shall have delivered to NRC a
certificate dated as of the Closing Date signed by an authorized representative
of the University evidencing authority to execute, deliver and perform this
Agreement.
SECTION 13. CONDITIONS PRECEDENT TO OBLIGATIONS OF TXEN
TXEN's and Shareholders' obligation to consummate this Merger shall be
subject to fulfillment on or before the Effective Date of each of the following
conditions, unless waived in writing by TXEN:
13.1 REPRESENTATIONS AND WARRANTIES TRUE ON CLOSING DATE. Subsidiary's and
NRC's representations and warranties made in this Agreement are true in all
respects on and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date.
13.2 COMPLIANCE WITH AGREEMENT. Subsidiary and NRC have performed and
complied in all respects with all of their obligations under this Agreement
that are to be performed or complied with by them on or before the Closing
Date, and Subsidiary and NRC are not otherwise in default in any respect under
any of the provisions of this Agreement.
13.3 NO LITIGATION. No litigation, proceeding, investigation, or inquiry
is pending or threatened which, if sustained, would enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
13.4 OPINION OF COUNSEL FOR SUBSIDIARY. Subsidiary has delivered to
TXEN an opinion of counsel dated as of the Closing Date in a form attached
hereto as Exhibit "H."
13.5 CERTIFIED RESOLUTIONS. Subsidiary and NRC have delivered to TXEN
copies of resolutions adopted by Subsidiary's and NRC's Board of Directors,
certified as of the Closing Date by the Secretary or an Assistant Secretary of
Subsidiary and NRC, approving the execution and delivery of this Agreement and
the performance by Subsidiary and NRC of their respective obligations under
this Agreement.
13.6 CERTIFICATES OF FULFILLMENT OF CONDITIONS. Subsidiary and NRC shall
have delivered to TXEN certificates, dated as of the Closing Date, stating that
the conditions set forth in this Section 13 have been fulfilled.
<PAGE> 25
SECTION 14. DESIGNATIONS AND AGREEMENTS REQUIRED BY LAW
As of the Effective Date, if NRC waives the condition set forth in Section
12.12, the Surviving Corporation agrees that it will promptly pay to any
dissenting Shareholder of TXEN the amount, if any, to which such Shareholder
shall be entitled under the laws of the State of Alabama.
SECTION 15. ACCESS
From the date of this Agreement to the Effective Date, each Constituent
Corporation shall provide the other with such information and permit each
other's officers and representatives such access to its properties, books and
records as the other may, from time to time, reasonably request. Each
Constituent Corporation shall inform the other of materially adverse events
occurring after the date of this Agreement. If the Merger is not consummated,
all documents received in connection with this Agreement shall be returned to
the party furnishing such documents and all information received shall be
treated as confidential.
SECTION 16. TERMINATION
16.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated
(notwithstanding approval by the shareholders of either party):
(a) By the mutual consent in writing of the Board of Directors
of each Constituent Corporation;
(b) By the Board of Directors of TXEN if any condition provided in
Section 13 has not been satisfied or waived on or before the Effective
Date;
(c) By the Board of Directors of NRC or Subsidiary if any condition
provided in Section 12 has not been satisfied or waived on or before the
Effective Date;
16.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to this Section, each party shall pay the costs and expenses
incurred by it in connection with this Agreement and no party (or any of its
officers, directors and shareholders) shall be liable to any other party for
any costs, expenses, damage or loss of anticipated profits hereunder, except
for any breach by a party or parties of any representations, warranties or
covenants herein contained.
<PAGE> 26
SECTION 17. SURVIVAL OF
REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
17.1 SURVIVAL. The representations, warranties, and covenants made by
TXEN, Shareholders, Subsidiary and NRC in this Agreement will survive the
Closing Date and any investigation or inquiry made by either party. The
indemnifications contained in this Section 17 shall survive the Closing until
November 30, 1998. No indemnified party shall be entitled to assert any claim
for indemnification under this Section 17 with respect to the breach of any
representation, warranty or covenant contained herein after the date on which
such representation or warranty ceases to survive pursuant to this Section
17.1. If an indemnified party shall have notified the indemnifying party of a
claim for indemnification under this Section 17 prior to the date on which the
right of indemnification ceases to survive, then the indemnified party shall be
entitled to prosecute the claim to its completion and be entitled to
indemnification hereunder.
17.2 DEFINITION. As used herein, "Damages" shall mean any obligations,
losses, liabilities, security interests, liens, claims, encumbrances, charges,
damages, costs, and expenses (including, without limitation, attorneys' fees
and other costs and expenses incident to and paid by an indemnified party in
connection with the investigation, trial or settlement of any claim, suit,
action or proceedings) incurred, suffered or sustained or paid or required to
be paid by an indemnified party or reasonably expected to be incurred by an
indemnified party. Damages shall be net of any insurance proceeds received by
the indemnified party.
17.3 INDEMNIFICATION BY SHAREHOLDERS. After Closing, each Shareholder
agrees to and shall pay, defend and promptly indemnify Surviving Corporation
and NRC against, and save and hold Surviving Corporation and NRC harmless from
any and all Damages resulting from, arising out of or in connection with (a)
any breach or inaccuracy of any of the representations and warranties made by
TXEN and Shareholders in this Agreement, the exhibits and schedules hereto, and
the certificates and documents executed by them in connection herewith, (b) the
breach or non-fulfillment of any agreement or covenant made by TXEN and
Shareholders in or pursuant to this Agreement and the transactions contemplated
by this Agreement, (c) any undisclosed liabilities or obligations of TXEN
and/or (d) any liability or claim or any threatened or potential liability or
claim disclosed on Schedules 10.15 and 10.24 hereto. The liability of each
Shareholder shall be prorata based on the Merger Consideration received by such
Shareholder over the total Merger Consideration received by all Shareholders.
17.4 INDEMNIFICATION BY SURVIVING CORPORATION AND NRC. Surviving
Corporation and NRC agree to jointly and severally pay, defend and promptly
indemnify the Shareholders against and save and hold them harmless from any
Damages resulting from, arising out of or in connection with (a) any breach or
inaccuracy of any of the representations or warranties made by Subsidiary or
NRC in this Agreement or (b) the breach of any of the covenants made by
Subsidiary or NRC in this Agreement.
17.5 ALLOCATION OF DAMAGES. Any Damages under Section 17.3 may be
recovered either by Surviving Corporation or NRC, as elected by NRC, or such
Damages may be allocated to NRC and Surviving Corporation as NRC, in its sole
discretion, may determine.
17.6 NOTICE OF CLAIM. Any party seeking indemnification hereunder (the
"Indemnitee") shall promptly notify the indemnifying party (the "Indemnitor")
in writing, of any claim for recovery, specifying in reasonable detail the
nature of the Damage, and, if known, the amount, or an estimate of the amount,
of the liability arising therefrom. The Indemnitee shall provide to the
Indemnitor as promptly as practicable thereafter information and documentation
reasonably requested by the Indemnitor to support and verify the claim
asserted.
17.7 DEFENSE OF THIRD PARTY CLAIMS. If the facts pertaining to such
Damages arise out of the claim of any third party, the Indemnitor may assume
the defense thereof by written notice to Indemnitee, including the employment
of counsel or accountants at the Indemnitor's cost and expense. The Indemnitee
shall have the right to employ counsel separate from counsel employed by the
Indemnitor in any such action and to participate therein, but the fees and
expenses of such counsel employed by the Indemnitee shall be at its expenses.
The Indemnitor shall not be liable for any settlement of any such claim
effected without its prior written consent, which shall not be unreasonably
withheld; provided that if the Indemnitor does not assume the defense or the
prosecution of the claim within thirty (30) days of notice thereof, the
Indemnitee may settle such claim without the Indemnitor's consent. The
Indemnitor shall not agree to a settlement of any claim which provides for any
relief other than the payment of monetary damages without the Indemnitee's
prior written consent, which shall not be unreasonably withheld. Whether or not
the Indemnitor defends such claims, all the parties hereto shall cooperate in
the defense or prosecution thereof and shall furnish such records, information
and testimony, and attend such conferences, discovery proceedings, hearings,
trials and appeals, as may be reasonably requested in connection therewith.
<PAGE> 27
17.8 REDUCTION FOR INSURANCE AND TAX BENEFITS. The Damages which
Indemnitor is liable to, for or on behalf of the Indemnitee pursuant to this
Section 17 shall be reduced (including, without limitation, retroactively)
through subsequent repayment as described below in this Section 17.8, by an
amount equal to any insurance proceeds and tax benefits actually recovered by
or on behalf of such Indemnitee relating to the Damages. If an Indemnitee shall
have received or shall have paid on its behalf an indemnity payment in respect
of any Damages and insurance proceeds and tax benefits in respect of such
Damages are also received by the Indemnitee, then such Indemnitee shall pay
Indemnitor the amount of such insurance proceeds and tax benefits or, if less,
the amount of such indemnity payment. The Indemnitee covenants and agrees to
use all reasonable efforts to collect all such sums as are available to it
under its existing insurance policies which would be applicable to any such
Damages. Whether or not Indemnitee receives any tax benefit shall be determined
by Ernst & Young, L.L.P.
17.9 DEDUCTIBLE. An indemnified party shall make no claim against any
indemnifying party for indemnification under this Section 17 unless and until
the aggregate amount of such claims against the indemnifying party exceeds
$200,000.00 (the "Deductible"), in which event an indemnified party may claim
indemnification for all Damages in excess of the Deductible.
17.10 LIMITATIONS. The amount of indemnification either party may be
entitled hereto shall not exceed $4,387,497.19 unless such claims are based on
pending or threatened (in writing) litigation, in which case the amount of
indemnification will not exceed $10,968,742.98. The limitations set forth
herein shall not apply in the case of fraud.
17.11 ARBITRATION. The parties agree that any claim, controversy or
dispute arising out of or relating in any way to this Agreement or the
formation, interpretation, performance, enforcement, breach, termination or
validity thereof, including the construction and scope of the agreement to
arbitrate shall be resolved in accordance with the provisions of Exhibit "I."
SECTION 18. CERTAIN COVENANTS OF THE PARTIES
WITH RESPECT TO TAX MATTERS
18.1 TAX RECORDS. TXEN will provide to NRC and Subsidiary copies of all
its Tax Returns and other Tax related matters between the date of the execution
of this Agreement and the Effective Date and will provide copies to NRC and
Subsidiary of all records and information which may be relevant to such returns
and matters and will retain such records and information. Any information
obtained pursuant to this Section shall be kept confidential by the parties
hereto.
<PAGE> 28
18.2 TXEN FINAL TAX RETURN. The Surviving Corporation agrees that, before
filing TXEN's federal income tax return for any taxable period ending on or
before the Effective Date, including, without limitation, the information
return of TXEN for the partial tax year of TXEN ended on the Effective Date,
they will obtain Shareholder Representative's approval and consent (which
approval and consent shall not be unreasonably withheld or delayed) for all
items of income and deduction shown thereon. The Surviving Corporation will
cause the federal and state income tax returns of TXEN for the period ending
the day before the Effective Date to be filed with the Internal Revenue Service
and state authorities.
SECTION 19. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS
19.1 IN GENERAL. The rights provided for in this section (the "Piggyback
Rights") shall apply to those TXEN Shareholders who receive NRC Common Stock in
exchange for their TXEN Common Stock pursuant to this Agreement. As used in
this section, the term "NRC Common Stock" shall mean the par value $0.01 per
share common stock of NRC outstanding as of the date of the execution of this
Agreement and shall not include any preferred stock or other special class of
stock that may be registered under the Securities Act of 1933 (the "Act"). If
(but without any obligation to do so) NRC proposes to register any NRC Common
Stock under the Act in connection with the public offering of such NRC Common
Stock solely for cash (other than a registration relating solely to the sale of
securities to employees of NRC pursuant to a stock option, stock purchase or
similar plan, relating to a Rule 145 transaction, relating to a merger or other
NRC acquisition, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the NRC Common Stock owned by the
Shareholders), NRC shall, at such time, promptly give each Shareholder who owns
NRC Common Stock pursuant to an exchange for his or her TXEN Common Stock under
this Agreement written notice of such registration. Upon NRC's receipt of the
written request of each such Shareholder given within 20 days after NRC's
mailing of such notice, NRC shall, subject to the other provisions of this
section, cause to be registered under the Act all of the NRC Common Stock that
each such Shareholder has requested to be registered, provided, however, that
each such Shareholder may only request registration for those shares of NRC
Common Stock acquired in exchange for TXEN Common Stock pursuant to this
Agreement (the "Registerable Securities"). NRC shall pay all costs for
registering the Registerable Securities. When required under the terms of this
section to effect the registration of the Registerable Securities, NRC shall,
as expeditiously as reasonably possible:
(a) prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such Registerable
Securities and use its best efforts to cause such registration statement
to become effective.
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all
securities covered by such registration statement.
(c) furnish to the Shareholders who acquired NRC Common Stock
pursuant to this Agreement such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as they may reasonably request in order
to facilitate the distribution of the Registerable Securities owned by
them.
(d) use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky Laws of such jurisdictions as shall be reasonably requested by the
underwriters, provided, however, that the holders of the Registerable
Securities shall not be allowed to cause NRC to register and qualify the
Registerable Securities under any particular security or Blue Sky Law of
any particular state or jurisdiction.
(e) in the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Each
holder of Registerable Securities participating in the underwriting shall
also enter into and perform his or her respective obligations, as
reasonably requested by the managing underwriter, under such an agreement.
It shall be a condition precedent to the obligations of NRC to register the
Registerable Securities that the holders of the Registerable Securities shall
furnish to NRC such information regarding themselves, the Registerable
Securities held by them, and the intended method of disposition of such
Registerable Securities as shall be required to effect the registration of such
Registerable Securities. Notwithstanding any of the foregoing, NRC shall have
the right, in its sole discretion, to terminate the registration of the
Registerable Securities and the registration of the other NRC Common Stock
which triggered the Piggyback Rights if, at such time, the underwriters are of
the opinion that a registration at such time would not be advisable, or if
there has been a material adverse change in the condition, business or
prospects of NRC or if, for any good and sufficient reason, NRC determines to
terminate the registration causing the existence of the Piggyback Rights.
<PAGE> 29
19.2 EXPENSES, LIMITATIONS AND AGREEMENTS. The holders of the Registerable
Securities must bear and pay their prorata portion of any underwriting
discounts and commissions. In connection with any offering involving an
underwriting, NRC shall not be required to include any of the holders of
Registerable Securities in such underwriting unless such holders accept the
terms of the underwriting as agreed upon between NRC and the underwriters
selected by NRC, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by NRC or the NRC
shareholders demanding such registration. If the total amount of Registerable
Securities that all Shareholders with Piggyback Rights under this section
request to be included in such offering exceeds (when combined with the
securities being offered by NRC or its other shareholders) the amount of
securities that the underwriters reasonably believe compatible with the success
of the offering, then NRC shall be required to include in the offering only
that number of Registerable Securities which the underwriters believe will not
jeopardize the success of the offering and the Registerable Securities so
included shall be apportioned, prorata, among the Shareholders in accordance
with their respective ownership percentages or in such other proportions as
they shall mutually agree. The definitive agreements shall contain such other
provisions as the parties may require and agree in connection with the
Piggyback Rights, to include provisions requiring the Shareholders to indemnify
NRC or any underwriter in connection with any untrue statement of material fact
or the omission to state material facts committed or omitted by the
Shareholders in connection with the offering.
19.3 NO ASSIGNMENT OF PIGGYBACK RIGHTS. The Piggyback Rights may not be
assigned by a Shareholder owning Registerable Securities to any person,
executor, personal representative, transferee or assignee of the Registerable
Securities owned by the Shareholder.
19.4 TRANSFER RESTRICTION. Each Shareholder exercising Piggyback Rights
will agree that he or she will not, to the extent requested by NRC and/or any
underwriter, sell, make any short sale of, loan, grant any option for the
purchase of or otherwise transfer or dispose of any NRC Common Stock (including
the Registerable Securities) without the prior written consent of NRC and/or
such underwriter, as the case may be, during the 180 day period following the
effective date of the Registration Statement of NRC filed under the Act. In
order to enforce the foregoing covenant, NRC may impose stop-transfer
instructions with respect to the Registerable Securities until the end of such
180 day period.
19.5 TERMINATION. These Piggyback Rights under this Section shall
terminate one year after the Effective Date and thereafter, no Shareholder
shall have any right to require registration of his or her NRC Common Stock.
SECTION 20. POST CLOSING COVENANTS
After the Closing, NRC and Subsidiary covenant as follows:
(a) Any key employee term life insurance policies owned by TXEN where TXEN
was named beneficiary insuring the Shareholders shall be distributed to the
insured.
(b) Stock options covering 30,000 shares of NRC Common Stock will be
reserved for issuance under the NRC Stock Option Plan to employees of the
Subsidiary as recommended by Thomas L. Patterson, and as approved by the NRC
Stock Option Committee.
(c) The 401(k) Plan of TXEN shall continue to be maintained by the
Subsidiary after the Closing, provided that Subsidiary may maintain such a
separate plan under applicable provisions of the Internal Revenue Code as a
member of a controlled group of corporations and that maintenance of such
separate plan will not disqualify the 401(k) Plan maintained by NRC or the
401(k) Plan maintained by Subsidiary under the qualification provisions of the
Internal Revenue Code or ERISA. Nothing contained herein shall require NRC to
amend or terminate its qualified retirement plan in order to maintain the
separate existence of the 401(k) Plan of TXEN.
<PAGE> 30
SECTION 21. GENERAL PROVISIONS
21.1 FURTHER ASSURANCES. At any time, and from time to time, before and
after the Effective Date, each party will execute such additional instruments
and documents and take such action as may be reasonably requested by any other
party to confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
21.2 WAIVER. Any failure on the part of any party to comply with any of
its obligations, agreements or conditions hereunder may be waived in writing by
any other party.
21.3 BROKER. Each party represents to the others that no broker or finder
has acted for it in connection with this Agreement and agrees to indemnify and
hold harmless the other parties against any fee, loss or expense arising out of
claims by brokers or finders.
21.4 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or on the
second day after sent by prepaid first-class, registered or certified mail,
return receipt requested or on the next day after sent by nationally recognized
overnight delivery service, as follows:
If to Subsidiary or NICHOLS SELECT CORPORATION
the Surviving c/o Chris H. Horgen
Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802
If to NRC: Chris H. Horgen, Chairman and
Michael Mruz, President
Nichols Research Corporation
4040 Memorial Parkway South
Huntsville, Alabama 35802
If to the Thomas L. Patterson
Shareholders: Shareholder Representative
10 Inverness Center Parkway
Suite 140
Birmingham, AL 35242
If to TXEN prior to the Thomas L. Patterson, President
Effective Date: TXEN, INC.
10 Inverness Center Parkway
Suite 140
Birmingham, AL 35242
<PAGE> 31
21.5 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes and cancels any other Agreement,
representation or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.
21.6 GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Alabama.
21.7 ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their successors and assigns, provided,
however, that no party may assign its rights or delegate its duties under this
Agreement and no party may assign this Agreement without the written consent of
the other party, which may be withheld in the sole discretion of the other
party, provided, however, that NRC may assign and/or delegate the Subsidiary's
duties, rights and obligations hereunder and may assign the Agreement as it
relates to Subsidiary to any other wholly owned Subsidiary of NRC.
21.8 COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
21.9 INTERPRETATION AND CONSTRUCTION. Each party to this Agreement
acknowledges and agrees that it and he is sophisticated in business matters and
has been represented, at all times, by counsel of its and his own choosing.
Consequently, any rule of law or construction which would require ambiguities
in this Agreement to be resolved against the party that has drafted this
Agreement shall not be applicable and is waived.
21.10 SHAREHOLDER REPRESENTATIVE. The Shareholders hereby elect and
appoint Thomas L. Patterson as the Shareholder Representative and vest him with
the full power and authority, as agent and attorney-in-fact for the
Shareholders, to communicate and receive all notices, to give notices, counter
notices, joint written instructions and make payments and other communications
on behalf of the Shareholders, and to make agreements, compromises, waivers and
settlements with respect to this Agreement and the Escrow Agreement executed
herewith and to resolve all disputes under this Agreement. Thomas L. Patterson
shall serve as Shareholder Representative until NRC receives written notice
from Shareholders who held, prior to the Effective Date, more than 50% of the
outstanding TXEN Common Stock, that another Shareholder has been named as the
Shareholder Representative. The appointment of Thomas L. Patterson as
Shareholder Representative shall be considered a durable power of attorney, a
power of attorney coupled with an interest and to the extent permitted by law
shall survive the incapacity of any Shareholder and the death of any
Shareholder and the incapacity or death of any Shareholder shall not affect the
validity of such appointment by the other Shareholders.
21.11 CORPORATE POLICIES, ETC. All corporate acts, plans, policies,
approvals and authorizations of TXEN which were valid and effective immediately
prior to the Effective Date shall be taken for all purposes as the acts, plans,
policies, approvals and authorizations of the Subsidiary and shall be as
effective and binding thereon as they were on TXEN. Without limiting the
foregoing, all welfare benefit plans, salaries of the employees of TXEN,
employment policies, and sales and other policies in effect immediately prior
to the Merger shall be continued by the Subsidiary, except to the extent such
employees become employees of NRC. This Section shall not prevent the Board of
Directors or officers of the Subsidiary from amending or termination such acts,
plans, policies, approvals and authorizations after the Effective Date. This
Section is not intended to benefit any employee of TXEN or any other third
party.
21.12 SEVERABILITY. In the event any provision contained in this Agreement
shall be deemed or rendered illegal, against public policy or unenforceable by
any court of competent jurisdiction for any reason, then such provision shall
be deemed amended to the extent consistent with law and public policy,
provided, however, that if such amendment cannot be accomplished, such
provision shall be deemed severed from this Agreement and shall not make or
render any other provision contained herein unenforceable or affect any other
provision in this Agreement in any respect whatsoever.
21.13 KNOWLEDGE. Whenever a matter is represented or warranted with
respect to the knowledge of TXEN, the knowledge of any Shareholder with regard
to such matter shall be deemed to be the knowledge of TXEN and the knowledge of
persons other than a Shareholder shall not be deemed to be the knowledge of
TXEN.
<PAGE> 32
IN WITNESS WHEREOF, each Constituent Corporation, pursuant to authority
duly given by its Board of Directors and NRC, has caused this Agreement to be
executed on its behalf by its duly authorized officers, all in accordance with
Section 103 of the General Corporation Law of the State of Delaware and Section
10-2B-11.05 of Alabama Business Corporation Act, and the Shareholders have
hereunto set their hands and seals, all as of the day and year first above
written.
NICHOLS RESEARCH CORPORATION, a
Delaware corporation
By: Michael J. Mruz
--------------------------------------
Its President
ATTEST:
Patsy L. Hattox
- ----------------------
Secretary
NICHOLS SELECT CORPORATION, a
Delaware corporation
Michael J. Mruz
By: --------------------------------------
Its Chief Executive Officer
ATTEST:
Patsy L. Hattox
- ----------------------
Secretary
TXEN, INC., an Alabama corporation
By: Thomas L. Patterson
--------------------------------------
ATTEST: Its President
Paul D. Reaves
- ----------------------
Secretary
<PAGE> 33
THE SHAREHOLDERS OF TXEN, INC.:
Thomas L. Patterson
--------------------------------------
Thomas L. Patterson
Paul D. Reaves
--------------------------------------
Paul D. Reaves
Chris H. Horgen
--------------------------------------
Chris H. Horgen
Philip Bowling
--------------------------------------
Philip Bowling
Billy E. Callans
--------------------------------------
Billy E. Callans
William L. Crocker
--------------------------------------
William L. Crocker
Jeffery J. Fisher
--------------------------------------
Jeffrey J. Fisher
Gregory L. Fuller
--------------------------------------
Gregory L. Fuller
Noel Gartman
--------------------------------------
Noel Gartman
Robert D. Goodworth
--------------------------------------
Robert D. Goodworth
Bryan V. Jennings
--------------------------------------
Bryan V. Jennings
Amy E. Knowles
--------------------------------------
Amy E. Knowles
Scott L. McFarland
--------------------------------------
Scott L. McFarland
<PAGE> 34
Patricia R. Mize
--------------------------------------
Patricia R. Mize
Todd K. Morgan
--------------------------------------
Todd K. Morgan
Nancy R. Onaka
--------------------------------------
Nancy R. Onaka
Roy T. Sailor
--------------------------------------
Roy T. Sailor
Steven A. Selikoff
--------------------------------------
Steven A. Selikoff
Annie M. Till
--------------------------------------
Annie M. Till
Maxine Wade
--------------------------------------
Maxine Wade
Richard G. Waggener
--------------------------------------
Richard G. Waggener
David A. Watts
--------------------------------------
David A. Watts
Terence A. Weber
--------------------------------------
Terence A. Weber
H. Grey Wood
--------------------------------------
H. Grey Wood
Board of Trustees of the University of
Alabama, for use of and on behalf of the
University of Alabama, Tuscaloosa, Alabama
By: Robert A. Wright
--------------------------------------
Its Vice President for Financial
Affairs and Treasurer
By: Reba J. Essary
--------------------------------------
Its Comptroller and Associate Treasurer
Thomas L. Patterson
----------------------------------------------
Thomas L. Patterson, Trustee of the Patterson
Family Charitable Unitrust, established
August 5, 1997
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NICHOLS TXEN CORPORATION
The undersigned corporation filed its Certificate of Incorporation with
the Delaware Secretary of State on September 17, 1996 under the name Nichols
SELECT Corporation. On November 5, 1997, the corporation filed a Certificate of
Amendment to its Certificate of Incorporation changing its name to "Nichols TXEN
Corporation." These Amended and Restated Articles have been duly adopted by the
board of directors and shareholders of the corporation in accordance with the
provisions of Section 245 & 242 of the General Corporation Law of the State of
Delaware.
Therefore, in accordance with the General Corporation Law of the State
of Delaware, the undersigned corporation, desiring to amend and restate its
Certificate of Incorporation pursuant to Section 245 & 242 of the General
Corporation Law of the State of Delaware, hereby certifies as follows:
ARTICLE I
Name
The name of the corporation is Nichols TXEN Corporation.
ARTICLE II
Period of Duration
The corporation shall have perpetual existence.
ARTICLE III
Purpose
The corporation shall have the right to transact any and all lawful
business for which corporations may be organized under the General Corporation
Law of the State of Delaware.
<PAGE> 2
ARTICLE IV
Capital
The aggregate number of shares which the corporation is authorized to
issue is Thirty Million (30,000,000) shares of $.01 par value voting common
stock all of the same class and none preferred.
ARTICLE V
Registered Agent and Office
The location and mailing address of the registered office of the
corporation is Corporation Trust Center, 1209 Orange Street in the City of
Wilmington, County of New Castle, Delaware 19801.
The name of the registered agent of the corporation at such address is
The Corporation Trust Company.
ARTICLE VI
Action by Unanimous Written Consent
Action of the shareholders may be taken by unanimous written consent
without meeting and it shall have the same effect as the unanimous vote of the
shareholders. Action of the directors may be taken by unanimous written consent
without meeting and it shall have the same effect as the unanimous vote of the
directors.
ARTICLE VII
Number of Directors
The board of directors of the corporation shall consist of one or more
members as established by the By-Laws of the corporation.
ARTICLE VIII
No Preemptive Rights
Existing shareholders shall not have preemptive rights with respect to
the issuance of additional shares of stock.
-2-
<PAGE> 3
ARTICLE IX
By-Laws
The board of directors shall have the power to adopt, amend or repeal
By-Laws of the corporation.
ARTICLE X
Limitation of Liability
A director of the corporation shall not be personally liable to the
corporation or its shareholders for money damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
ARTICLE XI
Indemnity; Insurance
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or she is or was serving as a director, officer,
employee, fiduciary or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, fiduciary or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding to the full extent permitted by the General
Corporation Law of the State of Delaware from time to time in effect. The
indemnification provided by this provision shall not be deemed exclusive of any
other rights to which any such person seeking indemnification may be entitled
under any statute, by-law, agreement, vote of stockholders or disinterested
directors or
-3-
<PAGE> 4
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person. The term
"enterprise" shall include, but not be limited to, plans and trusts established
or for the benefit of employees of the corporation, including plans and trusts
governed under the Employee Retirement Income Security Act of 1974, as amended.
The corporation shall have authority, but shall not be required, to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability. The corporation
may (but shall not be required to) pay for or reimburse the reasonable expenses
incurred by a person entitled to indemnification who is a party to a proceeding
in advance of the final disposition of the proceeding if: (i) the party
furnishes the corporation with a written affirmation of his or her good-faith
belief that he or she conducted himself or herself in good faith and he or she
reasonably believed that the conduct was in the best interests of the
corporation; (ii) the party furnishes the corporation with a written
undertaking, executed personally or on his or her behalf, to repay the advance
if it is determined that he or she did not meet such standard of conduct; and
(iii) determination is made that the facts then known to those making the
determination would not preclude indemnification under this Article.
-4-
<PAGE> 5
ARTICLE XII
Committees
The board of directors shall have the power to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of a committee, who may replace an absent or disqualified member at a meeting of
the committee. The By-Laws may provide that in the absence or disqualification
of a member of a committee, the members thereof present at a meeting and not
disqualified from voting, whether or not they constitute a quorum, may
unanimously appoint another member of the board to act at the meeting, and each
member thereof, shall serve at the pleasure of the board. A committee designated
pursuant to this paragraph, to the extent provided in the resolution of the
board or in the By-Laws, may exercise all powers and authority of the board in
management of the business and affairs of the corporation not prohibited by the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Certificate of Incorporation as of the 6th day of November, 1998.
Nichols TXEN Corporation
By: /s/ Paul D. Reaves
-----------------------------------------
Paul D. Reaves, Chief Executive Officer
-5-
<PAGE> 1
EXHIBIT 3.2
NICHOLS TXEN CORPORATION
=============================
AMENDED AND RESTATED
BYLAWS
=============================
NOVEMBER 6, 1998
<PAGE> 2
AMENDED AND RESTATED
BYLAWS
OF
NICHOLS TXEN CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE ONE - OFFICES.............................................................................................1
1.1 Registered Office...............................................................................1
1.2 Principal Business Office.......................................................................1
ARTICLE TWO - SHAREHOLDERS MEETINGS...............................................................................1
2.1 Annual Meeting..................................................................................1
2.2 Special Meetings................................................................................1
2.3 Place...........................................................................................1
2.4 Notice..........................................................................................2
2.5 Quorum..........................................................................................2
2.6 Proxies; Required Vote..........................................................................2
2.7 Presiding Officer and Secretary.................................................................3
2.8 Conduct of Business.............................................................................3
2.9 Shareholder List................................................................................4
2.10 Action in Lieu of Meeting.......................................................................4
ARTICLE THREE - DIRECTORS.........................................................................................4
3.1 Number of Directors; Quorum.....................................................................4
3.2 Vacancies.......................................................................................4
3.3 Election of Directors...........................................................................5
3.4 Regular Meetings and Special Meetings...........................................................5
3.5 Removal.........................................................................................5
3.6 Resignation.....................................................................................5
3.7 Compensation....................................................................................6
3.8 Chairman........................................................................................6
3.9 Participation in Meetings By Telephone..........................................................6
3.10 Interested Directors and Officers...............................................................7
3.11 Powers..........................................................................................7
ARTICLE FOUR - COMMITTEES.........................................................................................8
4.1 Executive Committee.............................................................................8
4.2 Audit Committee................................................................................10
4.3 Compensation Committee.........................................................................10
4.4 Other Committees...............................................................................11
4.5 Removal........................................................................................11
4.6 Action Without Meeting.........................................................................11
ARTICLE FIVE - DUTIES OF OFFICERS................................................................................12
5.1 General Provisions.............................................................................12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.2 Term of Office.................................................................................12
5.3 Chairman of the Board..........................................................................13
5.4 Chief Executive Officer........................................................................13
5.5 President......................................................................................13
5.6 Executive Vice Presidents, Senior Vice Presidents and Vice Presidents..........................14
5.7 Secretary......................................................................................15
5.8 Chief Financial Officer........................................................................15
5.9 Chief Technical Officer........................................................................15
5.10 Chief Operating Officer........................................................................15
5.11 Chief Medical Officer..........................................................................16
5.12 General Managers...............................................................................16
5.13 Treasurer......................................................................................16
5.14 Assistant and Subordinate Officers.............................................................16
5.15 Duties of Officers May Be Delegated............................................................17
ARTICLE SIX - CAPITAL STOCK......................................................................................17
6.1 Certificates...................................................................................17
6.2 Transfer of Shares.............................................................................18
6.3 Record Dates...................................................................................18
6.4 Registered Owner...............................................................................18
6.5 Transfer Agent and Registrars..................................................................19
6.6 Lost Certificates..............................................................................19
6.7 Fractional Shares or Scrip.....................................................................19
6.8 Regulations....................................................................................20
ARTICLE SEVEN - BOOKS AND RECORDS; SEAL; MISCELLANEOUS...........................................................20
7.1 Inspection of Books and Records................................................................20
7.2 Seal...........................................................................................20
7.3 Annual Statements..............................................................................20
7.4 Facsimile Signature............................................................................20
7.5 Reliance Upon Books, Reports and Records.......................................................20
7.6 Fiscal Year....................................................................................21
7.7 Time Periods...................................................................................21
ARTICLE EIGHT - INDEMNIFICATION..................................................................................21
8.1 Right to Indemnification.......................................................................21
8.2 Right to Advancement of Expenses...............................................................22
8.3 Right of Indemnitee to Bring Suit..............................................................22
8.4 Non-Exclusivity of Rights......................................................................23
8.5 Insurance......................................................................................24
ARTICLE NINE - NOTICES; WAIVERS OF NOTICE........................................................................24
9.1 Notices........................................................................................24
9.2 Waivers of Notice..............................................................................24
ARTICLE TEN - EMERGENCY POWERS...................................................................................25
10.1 Bylaws.........................................................................................25
10.2 Lines of Succession............................................................................25
10.3 Head Office....................................................................................25
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
10.4 Period of Effectiveness........................................................................25
10.5 Notices........................................................................................26
10.6 Officers as Directors Pro Tempore..............................................................26
10.7 Liability of Officers, Directors and Agents....................................................26
ARTICLE ELEVEN - CONTRACTS; CHECKS...............................................................................26
11.1 Contracts......................................................................................26
11.2 Checks.........................................................................................27
ARTICLE TWELVE - AMENDMENTS......................................................................................27
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
BYLAWS
OF
NICHOLS TXEN CORPORATION
ARTICLE ONE
OFFICES
1.1 Registered Office. The corporation shall at all times maintain
a registered office in the State of Delaware and a registered agent at that
address, but it may have other offices located within or outside the State of
Delaware as the Board of Directors may determine.
1.2 Principal Business Office. The corporation shall maintain its
principal place of business in Shelby County, Alabama, and may have other places
of business within or without the State of Alabama as the Board of Directors may
determine.
ARTICLE TWO
SHAREHOLDERS MEETINGS
2.1 Annual Meeting. The annual meeting of shareholders of the
corporation shall be held at such place and such date and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen (13)
months of the last annual meeting. If the place is not so specified, the meeting
shall be held at the principal business office of the corporation in Shelby
County, Alabama.
2.2 Special Meetings. Special meetings of the shareholders may be
called at any time by a majority of the Board of Directors. In addition, the
shareholders holding at least 10% of the outstanding voting common stock of the
corporation may require the Board of Directors to call a meeting of
shareholders. Special meetings shall be held at such a time and place on such
date as shall be specified in the notice of the meeting.
2.3 Place. Annual or special meetings of shareholders may be held
within or without the State of Alabama as may be specified in the notice of
meeting.
-1-
<PAGE> 6
2.4 Notice. Notice of annual or special shareholders meetings
stating place, day and hour of the meeting shall be given in writing not less
than ten (10) nor more than fifty (50) days before the date of the meeting,
either mailed to the last known address of or personally given to each
shareholder. Notice of a meeting may be waived by an instrument in writing
executed before, at or after the meeting. The waiver need not specify the
purpose of the meeting or the business transacted, unless one of the purposes of
the meeting concerns a plan of merger or consolidation, in which event the
waiver shall comply with the further requirements of law concerning such waiver.
Attendance at such meeting in person or by proxy shall constitute a waiver of
notice thereof.
2.5 Quorum. At all meetings of shareholders a majority of the
outstanding shares of voting common stock shall constitute a quorum for the
transaction of business, and except as provided in Section 2.10 below, no
resolution or business shall be transacted without a plurality of the votes cast
at the meeting and entitled to vote. A lesser number may adjourn from day to
day, and shall announce the time and place to which the meeting is adjourned.
2.6 Proxies; Required Vote. At every meeting of the shareholders,
including meetings of shareholders for the election of directors, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, authorized by an instrument in writing or by a transmission permitted by
law. Any copy, facsimile or other reliable reproduction of the writing or
transmission may be substituted in lieu of the original. Each shareholder shall
have one vote for each share of voting common stock, registered in his name on
the books of the corporation. If a quorum is present, the affirmative vote of a
plurality of the votes cast shall be required for approval of all matters coming
before the meeting, except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws. All voting, including on the election of
directors but excepting where otherwise required by law, may be by a voice vote;
provided, however, that upon demand therefore by a stockholder entitled to vote
or by his or her proxy, a stock vote shall be taken. Every stock vote shall be
taken by ballots, each of which shall state the name of the
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<PAGE> 7
stockholder or proxy voting and such other information as may be required under
the procedure established for the meeting. The corporation may, and to the
extent required by law, shall, in advance of any meeting of stockholders, make a
written report thereof. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting. The
corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at a
meeting of stockholders, the person presiding at the meeting may, and to the
extent required by law, shall, appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties, shall
take and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability.
2.7 Presiding Officer and Secretary. At every meeting of
shareholders, the Chairman, or in his absence, the Chief Executive Officer, or
in his absence, the appointee of the holders of a majority of the shares
entitled to vote who are present shall preside. The Secretary, or in his
absence, the appointee of the presiding officer of the meeting, shall act as
secretary of the meeting.
2.8 Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seems appropriate in his or her discretion. The date and time of
the opening and closing of the polls for each matter upon which the stockholders
will vote at the meeting shall be announced at the meeting. The Chief Executive
Officer of the corporation shall call the meeting to order and act as chairman
of the meeting unless a chairman has been elected pursuant to Section 3.8
hereof.
-3-
<PAGE> 8
2.9 Shareholder List. The officer or agent having charge of the
stock transfer books of the corporation shall produce for the inspection of any
shareholder a complete alphabetical list of shareholders entitled to vote
showing the address and share holdings of each shareholder. Such a list shall be
kept on file in the principal business office of the corporation for at least
ten (10) days prior to all meetings of shareholders and shall be subject to
inspection by any shareholder making written request therefor at any time during
usual business hours; such list shall also be available for inspection by any
shareholder at, and continuously during, every meeting of the shareholders.
2.10 Action in Lieu of Meeting. Any action to be taken at a meeting
of the shareholders of the corporation, or any action that may be taken at an
annual or special meeting of the shareholders, may be taken without a meeting
without prior notice and without a vote, if a consent or consents in writing
setting forth the action so taken shall be signed by all the holders of
outstanding voting common stock.
ARTICLE THREE
DIRECTORS
3.1 Number of Directors; Quorum. The Board of Directors shall
consist of such number as the Board of Directors shall from time to time have
designated, except that the Board shall consist of not less than one (1) and not
more than ten (10) members. A majority of said directors shall constitute a
quorum for the transaction of business. All resolutions adopted and all business
transacted by the Board of Directors shall require the affirmative vote of a
majority of the directors present at a meeting at which a quorum is present,
except as provided herein or required by law. Action may be taken by the Board
of Directors without a meeting if all members thereof consent thereto in writing
or writings.
3.2 Vacancies. The directors may fill the place of any Director
which may become vacant prior to the expiration of his term by a vote of the
majority of remaining directors though the remaining directors may be less than
a quorum of the Board of Directors; such appointment by the directors shall
continue until the expiration of the term of the Director whose place has become
vacant and until his
-4-
<PAGE> 9
successor is elected and qualified. Any vacancy which occurs by reason of any
increase in the number of directors shall be filled by a majority of the
directors then in office for the balance of a term or until an election at an
annual meeting or special meeting of shareholders called for such a purpose.
3.3 Election of Directors. Directors shall be elected annually, at
the annual meeting of shareholders and shall serve until the next annual meeting
of shareholders or until their successors have been elected and qualified.
3.4 Regular Meetings and Special Meetings. Regular meetings of the
Board shall be held at such place or places, date or dates and at such time or
times as shall have been established among all directors. A notice of a regular
meeting shall not be required. Special meetings may be called by any two (2)
directors then in office or by the Chief Executive Officer and shall be held at
such place, on such date and at such time as they or he shall fix. Notice of
such special meeting shall be given each Director by whom it is not waived by
mailing written notice not less than two (2) days before the meeting or by
facsimile, electronic mail or other electronic communication facility of such
notice not less than twenty-four (24) hours before such meeting.
3.5 Removal. A Director may be removed from office, with or
without cause, upon the majority vote of the shareholders entitled to vote at an
election of directors, at a meeting with respect to which notice of such purpose
is given. The shareholders, upon the majority vote of the shareholders, may then
forthwith proceed to elect a successor for the unexpired term of the Director
who was removed from the office.
3.6 Resignation. Any Director may resign at any time either orally
at any meeting of the Board of Directors or by so advising to the Chairman of
the Board, if any, or the Chief Executive Officer or by giving written notice to
the corporation. A Director who resigns may postpone the effectiveness of his
resignation to a future date or upon the occurrence of a future event specified
in a written tender of resignation. If no time of effectiveness is specified
therein, a resignation shall be effective upon tender. A
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vacancy shall be deemed to exist at the time a resignation is tendered, and the
Board of Directors or the shareholders may, then or thereafter, elect a
successor to take office when the resignation by its terms becomes effective.
3.7 Compensation. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board of Directors and of any
special or standing committees thereof as may be determined from time to time by
resolution of the Board of Directors.
3.8 Chairman. The Board of Directors may elect from its members a
person who shall serve as Chairman of the Board of Directors. In the absence of
an agreement to the contrary, the Chairman of the Board of Directors shall
preside at every meeting of the shareholders and every meeting of the directors.
If the Chairman who is to preside at a meeting of the shareholders or directors
is absent the Chief Executive Officer shall preside at such meeting.
3.9 Participation in Meetings By Telephone. At all meetings of the
Board of Directors, directors may participate by means of conference telephone
or similar communications equipment by which all persons participating in the
meeting can hear each other, and participation in a meeting by means of such
communications equipment shall constitute the presence in person at such
meeting.
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3.10 Interested Directors and Officers. An interested director or
officer is one who is a party to a contract or transaction with the corporation
or who is an officer or director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions between the
corporation and one or more interested directors or officers shall not be void
or voidable solely because of such relationship or interest or because such a
director is present at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction, if
either: (1) the contract or transaction is approved in good faith by the Board
of Directors or appropriate committee by the affirmative votes or consent of a
majority of disinterested directors at a meeting of the Board or committee at
which the material facts as to the interested person or persons and the contract
or transaction are disclosed or known to the Board or committee prior to the
vote; or (2) the contract or transaction is approved in good faith by the
shareholders after the material facts as to the interested person or persons and
the contract or transaction have been disclosed to them; or (3) the contract or
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified by the Board of Directors or the appropriate committee
(including, in such case, the vote of the interested director), or the
shareholders.
3.11 Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance
with law;
(2) To purchase or otherwise acquire any property, rights
or privileges on such terms as they shall determine;
(3) To authorize the creation, making and issuance, in
such form as they may determine, of written
obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all
things necessary in connection therewith;
(4) To remove any officer of the corporation with or
without cause, and from time to time to devolve the
powers and duties of any officer upon any other
person for the time being, provided that the
corporation may enter into employment
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contracts with its officers and the right of the
corporation to remove an officer or to alter his
duties and responsibilities shall be subject to such
contract terms and provisions;
(5) To confer upon any officer of the corporation the
power to appoint, remove and suspend subordinate
officers, employees and agents;
(6) To adopt from time to time such stock, option, stock
purchase, bonus or other compensation plans for
directors, officers, employees and agents of the
corporation and its subsidiaries as they may
determine;
(7) To adopt from time to time such insurance,
retirement, and other benefit plans for directors,
officers, employees and agents of the corporation and
its subsidiaries as they may determine; and,
(8) To adopt from time to time regulations, not
inconsistent with these Bylaws, for the management of
the corporation's business and affairs.
ARTICLE FOUR
COMMITTEES
4.1 Executive Committee.
(a) The Board of Directors may by resolution adopted by a
majority of the entire Board designate an Executive Committee of the Board of
Directors consisting of such number of members as the Board may designate. Each
member of the Executive Committee shall hold office at the pleasure of the
entire Board of Directors and/or until the first meeting of the Board of
Directors after the annual meeting of shareholders next following his election
and until his successor is elected and qualified, or until his death,
resignation or removal, or until he shall cease to be director.
(b) During the intervals between the meetings of the
Board of Directors, the Executive Committee may exercise all the authority of
the Board of Directors; provided, however, that the Executive Committee shall
not have the power to amend or repeal any resolution of the Board of Directors
that by its terms shall not be subject to amendment or repeal by the Executive
Committee, and unless the entire Board shall otherwise provide in a resolution,
the Executive Committee shall not have the authority of the Board of Directors
in reference to (1) amending the Certificate of Incorporation or Bylaws of the
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corporation; (2) adopting a plan of merger or consolidation; (3) the sale,
lease, mortgage, exchange or other disposition of all or substantially all the
property and assets of the corporation otherwise than in the usual and regular
course of its business; (4) a voluntary dissolution of the corporation or a
revocation of any such voluntary dissolution; (5) filling a vacancy in the Board
of Directors; (6) declaring a dividend or distribution from surplus; or (7)
issuing capital stock.
(c) The Executive Committee shall meet from time to time
on call of the Chairman of the Board, or the Chief Executive Officer or of any
two or more members of the Executive Committee. Meetings of the Executive
Committee may be held at such place or places, within or without the State of
Alabama as the Executive Committee shall determine or as may be specified or
fixed in the respective notices or waivers of such meetings. The Executive
Committee may fix its own rules of procedures, including provision for quorums
and notice of its meetings. It shall keep a record of its proceedings and shall
report these proceeding to the Board of Directors at the meeting thereof held
next after they have been taken, and all such proceedings shall be subject to
revision or alteration by the Board of Directors except to the extent that
action shall have been taken pursuant to or in reliance upon such proceedings
prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of
its members; provided, that contracts or transactions of and by the corporation
in which officers or directors of the corporation are interested shall require
the affirmative vote of a majority of the disinterested members of the Executive
Committee at which the material facts as to the interest and as to the contract
or transaction are disclosed or known to the members of the Executive Committee
prior to the vote; and provided further that if there are only two (2) members
of the Executive Committee, a vote of both such members shall be required.
(e) Members of the Executive Committee may participate in
committee proceedings by means of conference telephone or similar communications
equipment by means of which all persons
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participating in the proceedings can hear each other, and such participation
shall constitute presence in person at such proceedings.
(f) The Board of Directors, by resolution adopted in
accordance with paragraph (a) of this section, may designate one or more
directors as alternate members of the Executive Committee who may act in the
place and stead of any absent member or members at any meeting of said
committee.
4.2 Audit Committee. The Board of Directors shall establish an
Audit Committee of the Board of Directors consisting of at least two members of
the Board, provided that a majority of the members of the Audit Committee shall
be independent directors as defined by rules governing the Nasdaq Stock Market.
The Audit Committee of the Board of Directors shall have the following duties
and responsibilities:
(a) to review the scope of the audit;
(b) to review with the independent auditors the corporate
accounting practices and policies and recommend to
whom reports should be submitted within the company;
(c) to review with the independent auditors their final
report;
(d) to review with internal and independent auditors
overall accounting and financial controls;
(e) to be available to the independent auditors during
the year for consultation purposes; and
(f) to recommend outside auditors.
4.3 Compensation Committee. The Board of Directors shall establish
a Compensation Committee, composed of two or more members, provided that all of
the member of the Compensation Committee shall be non-employee directors as
defined by Rule 16b-3 promulgated by the Securities and Exchange Commission. The
Compensation Committee will be responsible for reviewing and
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recommending salaries, bonuses, and other compensation for the corporation's
executive officers. The Compensation Committee also will be responsible for
administering the corporation's stock option plans and for establishing the
terms and conditions of all stock options granted under these plans, unless such
plans are administered by the entire Board of Directors.
4.4 Other Committees. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate one or more additional
committees, each committee to consist of the number of members as the Board may
determine, which shall have such names or names and shall have and may exercise
such powers of the Board of Directors, except the powers denied to the Executive
Committee, as may be determined from time to time by the Board of Directors.
Such committees shall provide for its own rules of procedure, subject to the
same restrictions thereon as provided above for the Executive Committee.
4.5 Removal. The Board of Directors shall have the power at any
time to remove any member of any committee, with or without cause, and to fill
vacancies in and to dissolve any such committee.
4.6 Action Without Meeting. Action may be taken by an committee
without a meeting if all members thereof consent in writing thereto.
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ARTICLE FIVE
DUTIES OF OFFICERS
5.1 General Provisions. The Board of Directors shall elect a Chief
Executive Officer, President, Chief Operating Officer, Secretary, Treasurer,
Chief Financial Officer, Chief Technical Officer, and Chief Medical Officer and,
in its discretion, a Chairman of the Board of Directors and such number of
Executive Vice Presidents, Senior Vice Presidents, Vice Presidents and General
Managers as the Board may determine. The officers shall be elected by the Board
of Directors at the first meeting of the Board of Directors after the annual
meeting of the shareholders in each year or at any special meeting of the Board
or shall be appointed as provided in these Bylaws. From time to time, the Board
of Directors may create such other offices and appoint such other officers,
subordinate officers and assistant officers as it may determine. The Chief
Executive Officer, the President and other officers (except the Chairman of the
Board) need not be chosen from among the members of the Board of Directors. Any
two or more of such offices other than that of Secretary and Assistant Secretary
may be held by the same person.
5.2 Term of Office. The officers of the corporation shall hold
office at the pleasure of the Board of Directors, and unless sooner removed by
the Board of Directors, until the next annual meeting of the Board of Directors
following the date of their election and/or until their successors are chosen
and qualified. The Board of Directors may remove any officer at any time with or
without cause by a majority vote. Such removal shall be without prejudice to
such person's contract rights, if any, but the election or appointment of any
person as an officer, agent or employee of the corporation shall not of itself
create contract rights. The compensation of officers, agents, and employees of
the corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer, agent or employee as to persons under his or her
direction or control. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his or her duties. A
vacancy in any office, however created, shall be filled by the Board of
Directors.
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5.3 Chairman of the Board. If the Chairman of the Board is an
employee of the corporation, the duties of the Chairman shall be to consult with
and advise senior management regarding overall corporate strategy, acquisitions,
employee and customer relations and business operations of the corporation. 5.4
Chief Executive Officer.
5.4 Chief Executive Officer. The Chief Executive Officer shall be
the chief executive officer of the corporation and shall exercise supervision
over the business of the corporation and over its several officers, subject,
however, to the control of the Board of Directors. He or she shall preside at
all meetings of the shareholders and at meetings of the Board of Directors,
unless the Board shall determine to elect a Chairman of the Board, in which case
the latter shall preside. The powers and duties of the Chief Executive Officer,
subject to the supervision and control of the Board of Directors, shall be those
usually appertaining to such office and whatever other powers and duties are
prescribed by these Bylaws or by the Board of Directors. The Chief Executive
Officer of the corporation shall be the highest executive officer of the
corporation and shall have overall responsibility for the management of the
business of the corporation, including the responsibility for performance of all
orders and resolutions adopted by the Board of Directors, and execution of
authorized conveyances, contracts and other documents in the name of the
corporation, except where the signing and execution thereof may be delegated by
the Board of Directors or these Bylaws to another officer or agent of the
corporation. The Chief Executive Officer shall, subject to Board approval, have
authority to sign all certificates for shares and all deeds, mortgages, bonds,
contracts, notes and other instruments requiring his or her signature and shall
have all the powers and duties prescribed by law and such other powers and
duties as the Board of Directors may from time to time assign to him or her.
5.5 President. The President shall be the second highest executive
officer of the corporation and shall, subject to the direction of the Chief
Executive Officer, exercise supervision and control over the operations of the
corporation and over its several officers, subject, however, to the control of
the Board
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of Directors and the authority of the Chief Executive Officer. The President
shall perform such duties as are conferred upon him or her by these Bylaws, or
as may from time to time be assigned to him or her by the Board of Directors or
the Chief Executive Officer. At the request of the Chief Executive Officer, or
in his or her absence or disability, the President shall perform all the duties
of the Chief Executive Officer and when so acting shall have the powers of the
Chief Executive Officer. The authority of the President to sign in the name of
the corporation all certificates for shares and authorized deeds, mortgages,
bonds, contracts, notes and other instruments shall be coordinate with like
authority of the Chief Executive Officer.
5.6 Executive Vice Presidents, Senior Vice Presidents and Vice
Presidents. Each Executive Vice President, Senior Vice President and Vice
President shall have such powers and perform such duties as the Board of
Directors, the Chief Executive Officer or the President may prescribe and shall
perform such other duties as may be prescribed by these Bylaws. In the absence
or inability to act of the Chief Executive Officer or President, unless the
Board of Directors shall otherwise provide, the Executive Vice President who has
served in that capacity for the longest time and who shall be present and able
to act, shall perform all duties and may exercise any of the powers of the Chief
Executive Officer. The performance of any such duty by an Executive Vice
President, Senior Vice President or Vice President shall be conclusive evidence
of his power to act. Without limiting the generality of the foregoing, an
Executive Vice President appointed by the Board of Directors shall be designated
as the Executive Vice President for a major operation or division of the
corporation and as such shall have responsibility and authority to conduct the
business of such operation or division. Each Executive Vice President shall
report to the Chief Executive Officer and the President and shall have such
other duties as may be assigned to him by the Board of Directors. Each Executive
Vice President shall have the authority to execute on behalf of the corporation
all conveyances, contracts and other documents which pertain to the operation or
division of the corporation for which he has responsibility.
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5.7 Secretary. The Secretary shall keep minutes of all of the
proceedings of the shareholders and Board of Directors and shall make proper
record of the same, which shall be signed by him or her; sign all certificates
for shares, and all deeds, mortgages, bonds, contracts, notes and other
instruments executed by the corporation requiring his or her signature; give
notice of meetings of shareholders and directors; produce on request at each
meeting of shareholders a certified list of shareholders in such form as the
Board or Chief Executive Officer may determine; keep such books as may be
required by the Board of Directors or Chief Executive Officer; and file all
reports to States, to the Federal Government and to foreign countries; and
perform such other and further duties as may from time to time be assigned to
him or her by the Board of Directors or by the Chief Executive Officer.
5.8 Chief Financial Officer. The Chief Financial Officer shall
have general supervision of all finances. He or she shall cause to be kept
adequate and current accounts of the business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements, gains,
losses, stated capital and shares, together with such other accounts as may be
required. Such accounts shall be maintained in accordance with generally
accepted accounting principles and policies and procedures adopted by the
Company. The Chief Financial Officer shall institute and maintain such internal
accounting systems as may be necessary to insure accuracy in the financial
statements of the Company and compliance with applicable laws.
5.9 Chief Technical Officer. The Chief Technical Officer shall be
responsible for the research and development of new application products,
formulating long-term technical objectives, overseeing the research and
development budget, and overseeing development schedules. The Chief Technical
Officer shall report to the President.
5.10 Chief Operating Officer. The Chief Operating Officer shall be
responsible for the operations and profitability of all business units,
establish long-range operating plans, budgets and programs
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for all business units, and development and implement policies and programs as
set forth by the Board of Directors, Chief Executive Officer, and President.
5.11 Chief Medical Officer. The Chief Medical Officer shall be
responsible for the operations and profitability of the medical management
functions of the corporation. He shall develop, implement, and maintain
scientifically based medical management tools. He shall provide medical
management supervision of consultation and outsourced utilization management
services. The Chief Medical Officer shall report to the General Manager of the
managed care services division.
5.12 General Managers. The Board of Directors may appoint such
General Managers as it may deem desirable. Each such General Manager shall hold
office at the pleasure of the Board of Directors, and shall perform such duties
as the Board of Directors may prescribe. A General Manager shall be responsible
for the operations and profitability of a business division. The General Manager
shall also assist the Chief Operating Officer in establishing long-range
operation plans and programs for the business division. Each General Manager
shall report to the President and Chief Operating Officer.
5.13 Treasurer. The Treasurer shall receive and be in charge of all
money, bills, notes, deeds, leases, mortgages, and similar property belonging to
the corporation. The Treasurer shall review financial statements of the company
for accuracy and compliance with applicable law, policies and procedures. The
Treasurer shall also be responsible for cash management functions. The Treasurer
shall perform such other duties as the Board of Directors may prescribe. The
Treasurer shall report to the Board of Directors.
5.14 Assistant and Subordinate Officers. The Board of Directors may
appoint such assistant and subordinate officers as it may deem desirable. Each
such officer shall hold office at the pleasure of the Board of Directors, and
perform such duties as the Board of Directors may prescribe. The Board of
Directors may from time to time authorize any officer to appoint and remove
subordinate officers, to prescribe their authority and duties, and to fix their
compensation.
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5.15 Duties of Officers May Be Delegated. In the absence of any
officer of the corporation or for any other reason the Board of Directors may
deem sufficient, the Board of Directors may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer, or to
any director.
ARTICLE SIX
CAPITAL STOCK
6.1 Certificates. The interest of each shareholder shall be
evidenced by a certificate or certificates representing shares of the
corporation which shall be in such form as the Board of Directors may from time
to time adopt, shall be signed by the Chief Executive Officer or President and
Secretary or Assistant Secretary, and shall be numbered and shall be entered in
the books of the corporation as they are issued. Any or all of the signatures
may be by facsimile. Each certificate representing shares shall set forth upon
the fact thereof the following:
(a) the name of this corporation;
(b) that the corporation is organized under the laws of
the State of Delaware;
(c) the name or names of the person or persons to whom
the certificate is issued;
(d) the number and class of shares, and the designation
of the series, if any, which the certificate represents;
(e) the par value of each share represented by such
certificate, or a statement that the shares are without par value;
(f) that the shares represented by each certificate are
subject to restrictions of federal and state securities laws (unless the
corporation's stock shall have become publicly traded), that such shares are
subject to applicable stock transfer agreements and such other matters as may be
required by the provisions of the General Corporation Law of the State of
Delaware; and
(g) if any shares represented by the certificate are
nonvoting shares, a statement or notation to that effect.
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In case any officer or officers who shall have signed, or
whose facsimile signature or signatures shall have been used on, any such
certificate or certificates shall cease to be such officer or officers of the
corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the corporation, such
certificate or certificates may nevertheless be delivered as though the person
or persons who signed such certificate or certificates or whose facsimile
signatures shall have been used thereon had not ceased to be such officer or
officers.
6.2 Transfer of Shares. Transfers of stock shall be made on the
books of the corporation only by the person named in the certificate, or by
power of attorney lawfully constituted in writing, and upon surrender of the
certificate thereof, or in the case of a certificate alleged to have been lost,
stolen or destroyed, upon compliance with the provisions of Section 6.6 of these
Bylaws.
6.3 Record Dates.
(a) For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed sixty (60) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting.
(b) In lieu of closing the stock transfer books, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than sixty (60) days
and, in case of a meeting of shareholders, not less than ten (10) days, prior to
the date on which the particular action requiring such determination of
shareholders is to be taken.
6.4 Registered Owner. The corporation shall be entitled to treat
the holder of record of any share of stock of the corporation as the person
entitled to vote such share, to receive any dividend or other
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distribution with respect to such share, and for all other purposes and
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
6.5 Transfer Agent and Registrars. The Board of Directors may
appoint one or more transfer agents and one or more registrars and may require
each stock certificate to bear the signature or signatures of a transfer agent
or a registrar or both.
6.6 Lost Certificates. Any person claiming a certificate of stock
to be lost, stolen or destroyed shall make an affidavit or affirmation of the
fact in such manner as the Board of Directors may require and shall, if the
Directors so require, give the corporation a bond of indemnity in form and
amount and with one or more sureties satisfactory to the Board of Directors,
whereupon an appropriate new certificate may be issued in lieu of the
certificate alleged to have been lost, stolen or destroyed.
6.7 Fractional Shares or Scrip. The corporation may, when and if
authorized so to do by its Board of Directors, issue certificates for fractional
shares or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the corporation, including voting
rights, dividend rights or the right to participate in any assets of the
corporation in the event of liquidation. In lieu of issuing fractional shares or
scrip, the corporation may pay in cash the fair value of fractional interest as
determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
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6.8 Regulations. The issue, transfer, conversion and registration
of certificates of stock shall be governed by such other regulations as the
Board of Directors may from time to time establish.
ARTICLE SEVEN
BOOKS AND RECORDS; SEAL; MISCELLANEOUS
7.1 Inspection of Books and Records. Each shareholder shall have
the right to inspect the books and records of the corporation as provided by
law. The corporation may, as a condition to disclosing any books and records,
require the shareholder to execute an agreement of confidentiality before
receiving any confidential information of the corporation.
7.2 Seal. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
corporation.
7.3 Annual Statements. The corporation shall not be required to
mail or otherwise provide annual reports, financial statements or other records
or results of operation of the corporation to the shareholders except to the
extent as may be required by law.
7.4 Facsimile Signature. In addition to the provisions for use of
facsimiles elsewhere specifically authorized in these Bylaws, the facsimile
signature of any officer, director or shareholder of the corporation shall be
given the same effect as an original signature.
7.5 Reliance Upon Books, Reports and Records. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the corporation shall, in the performance of his duties, be fully protected
in relying in good faith upon the books of account or other records of the
corporation and upon such information, opinions, reports or statements presented
to the corporation by any of its officers or employees or committees of the
Board of Directors so designated, or by any other person as to matters which
such director or committee member reasonably believes are within
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such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the corporation.
7.6 Fiscal Year. The fiscal year of the corporation shall be as
fixed by the Board of Directors.
7.7 Time Periods. In applying any provision of these Bylaws which
requires that an act be done or not be done a specified number of days prior to
an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
ARTICLE EIGHT
INDEMNIFICATION
8.1 Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or any officer of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of the
corporation and as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"), whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware, as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the corporation to provide broader indemnification rights than such law
permitted the corporation to provide prior to such amendment), against all
expense, liability and loss (including attorney's fees, judgments, fines,
Employee Retirement Income Security Act excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection
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therewith; provided, however, that, except as provided in Section 8.3 of this
ARTICLE EIGHT with respect to proceedings to enforce rights to indemnification,
the corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
corporation.
8.2 Right to Advancement of Expenses. The right to indemnification
conferred in Section 8.1 shall include the right to be paid by the corporation
the expenses (including attorney's fees) incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the General Corporation Law of the State
of Delaware requires, an advancement of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 8.2 or otherwise. The rights to indemnification and to the advancement
of expenses conferred in Sections 8.1 and 8.2 of this ARTICLE EIGHT shall be
contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
8.3 Right of Indemnitee to Bring Suit. If a claim under Sections
8.1 or 8.2 of this ARTICLE EIGHT is not paid in full by the corporation within
sixty (60) days after a written claim has been received by the corporation,
except in the case of a claim for an advancement of expenses, in which case the
applicable period shall be twenty (20) days, the indemnitee may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim. If successful in whole or in part in any such suit, or in a suit
brought by the corporation to recover an advancement of expenses pursuant to the
terms
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of an undertaking, the indemnitee shall be entitled to be paid also to the
expense of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses it
shall be a defense that, and (ii) in any suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the General Corporation Law of the State of Delaware. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the General Corporation Law of the State of Delaware, nor
an actual determination by the corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this ARTICLE EIGHT or otherwise shall be on the
corporation.
8.4 Non-Exclusivity of Rights. The right to indemnification and to
the advancement of expenses conferred in this ARTICLE EIGHT shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholder or disinterested directors or otherwise.
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8.5 Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such expense,
liability or loss under the General Corporation Law of the State of Delaware.
ARTICLE NINE
NOTICES; WAIVERS OF NOTICE
9.1. Notices. Except as otherwise specifically provided in these
Bylaws or required by law, whenever under the provisions of these Bylaws notice
is required to be given to any shareholder, director or officer, it shall be in
writing but it shall not be construed to mean personal notice. Such notice may
be given by personal notice or by electronic mail, facsimile, or other
electronic communication facility, or by mail by depositing the same in the
mails, postage prepaid and addressed to such shareholder, officer or director at
such address as appears on the books of the corporation, and such notice shall
be deemed to be given at the time when the same shall be thus delivered, sent or
mailed. If notice is provided by electronic mail, facsimile or other electronic
communication facility, it shall be deemed given on the date sent, however, all
such notices shall be followed by mailing the notice on the same day as
aforesaid.
9.2 Waivers of Notice. Except as otherwise provided in these
Bylaws, when any notice whatever is required to be given by law, by the
Certificate of Incorporation or by these Bylaws, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time stated
therein or before, or after the event for which notice is to be given, shall be
deemed equivalent to notice. In the case of a shareholder, such waiver of notice
may be signed by the shareholder's attorney or proxy duly appointed in writing.
Neither the business nor the purpose of any meeting need be specified in such a
waiver. Execution of a written consent in lieu of a meeting of the Board of
Directors or shareholders shall be considered as a waiver of notice.
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ARTICLE TEN
EMERGENCY POWERS
10.1. Bylaws. The Board of Directors may adopt emergency bylaws,
which shall, notwithstanding any provision of law, the Certificate of
Incorporation or these Bylaws, be operative during any emergency in the conduct
of the business of the corporation resulting from an attack on the United States
or on a locality in which the corporation conducts its business or customarily
holds meetings of its Board of Directors or its shareholders, or during any
nuclear or atomic disaster, or during the existence of any catastrophe, or other
similar emergency condition, as a result of which a quorum of the Board of
Directors or a standing committee thereof cannot readily be convened for action.
The emergency bylaws may make any provision that may be practical and necessary
for the circumstances of the emergency.
10.2 Lines of Succession. The Board of Directors, either before or
during any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the corporation shall for any reason be rendered incapable of
discharging their duties.
10.3 Head Office. The Board of Directors, either before or during
any such emergency, may effective in the emergency, change the head office or
designate several alternative head offices or regional offices, or authorize the
officers to do so.
10.4 Period of Effectiveness. To the extent not inconsistent with
any emergency bylaws so adopted, these Bylaws shall remain in effect during any
such emergency and upon its termination the emergency bylaws shall cease to be
operative.
10.5 Notices. Unless otherwise provided in emergency bylaws, notice
of any meeting of the Board of Directors during any such emergency may be given
only to such of the directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
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10.6 Officers as Directors Pro Tempore. To the extent required to
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the corporation who are present shall, unless
otherwise provided in emergency bylaws, be deemed, in order of rank and within
the same rank in order of seniority, directors for such meeting, provided, that
the emergency bylaws may declare that the director or directors in attendance at
a meeting shall constitute a quorum.
10.7 Liability of Officers, Directors and Agents. No officer,
director, agent or employee acting in accordance with any emergency bylaws shall
be liable except for willful misconduct. No officer, director, agent or employee
shall be liable for any action taken by him in good faith in such an emergency
in furtherance of the ordinary business affairs of the corporation even though
not authorized by the Bylaws then in effect.
ARTICLE ELEVEN
CONTRACTS; CHECKS
11.1 Contracts. The Board of Directors may authorize any officer,
employee or agent to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances. Until such designation, only
the Chief Executive Officer or President may sign contracts and instruments not
in the ordinary course of business of the corporation and all purchases outside
of the ordinary course of business must be approved by the Chief Executive
Officer or President. No lease, whether or not in the ordinary course of
business, may be signed except by the Chief Executive Officer or President.
11.2 Checks. Checks, notes, drafts, acceptances, bills of exchange
and other orders or obligations for the payment of money shall be signed by such
officer or officers or person or persons as the Board of Directors by resolution
shall from time to time designate. If there is no designation, the Chief
Executive Officer or President shall be the only officers or persons authorized.
ARTICLE TWELVE
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AMENDMENTS
The Bylaws of the corporation may be altered or amended and new bylaws
may be adopted by the Board of Directors.
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CERTIFICATE
I, the undersigned, hereby certify that I am the Secretary of Nichols
TXEN Corporation, and that the attached Amended and Restated Bylaws of Nichols
TXEN Corporation, were adopted by the Board of Directors on the date hereof, and
are the authentic Amended and Restated Bylaws of Nichols TXEN Corporation.
DATED: November 6, 1998
/s/ Patsy L. Haddox
--------------------
SECRETARY
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EXHIBIT 10.1
NICHOLS TXEN CORPORATION
1998 STOCK OPTION PLAN
1. PURPOSE
The 1998 Stock Option Plan ("Plan") of Nichols TXEN Corporation
("Corporation") is intended as an incentive for key employees which will foster
increased productivity, encourage them to remain in the employ of the
Corporation, and enable them to acquire or increase their proprietary interest
in the Corporation. At the discretion of the Committee, as defined below,
options issued pursuant to this Plan may be either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended ("Incentive Options"), or options which are not Incentive Options
("Non-Statutory Options").
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee")
composed of either the entire Board of Directors or a committee of the Board of
Directors that is composed solely of two or more Non-Employee Directors. For
this purpose, the term "Non-Employee Director" shall mean a person who is a
member of the Company's Board of Directors who (a) is not currently an officer
or employee of the Company or any parent or subsidiary of the Company, (b) does
not directly or indirectly receive compensation for serving as a consultant or
in any other non-director capacity from the Company or any parent or subsidiary
of the Company that exceeds the dollar amount for which disclosure would be
required pursuant to Item 404(a) of Regulation S-K promulgated under the
Securities Act of 1933 and the Securities Exchange Act of 1934 ("Regulation
S-K"), (c) does not possess an interest in any other transaction with the
Company or any parent or subsidiary of the Company for which disclosure would
be required pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged
in a business relationship with the Company or any parent or subsidiary of the
Company which would be disclosable under Item 404(b) of Regulation S-K. In the
event the Committee is a committee composed of two or more Non-Employee
Directors, the Board of Directors may from time to time remove members from,
add members to, and fill vacancies, on the Committee. The Committee shall
select one of its members as Chairman, and shall hold meetings at such times
and places as it may determine. Action taken by a majority of the Committee at
which a quorum is present, or action reduced to writing or approved in writing
by a majority of the members of the Committee, shall be valid acts of the
Committee.
The Committee may, from time to time and at its discretion, grant
options to eligible employees. Subject to the terms of this Plan, the Committee
shall exercise its sole discretion in determining which eligible employees
shall receive options, and the number of shares subject to each option granted.
A member of the Committee shall be eligible to participate in the Plan and
receive options under the Plan.
The Committee's interpretation and construction of any provision of
the Plan, or any option granted under it, shall be final. No member of the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under the Plan.
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3. ELIGIBILITY
Persons eligible to receive options shall be such key employees
(including officers) of the Corporation or any company which is a parent
corporation or a subsidiary corporation of the Corporation and its subsidiaries
as the Committee shall from time to time select. The determination of whether a
company is a subsidiary or parent of the Corporation shall be made in
accordance with Section 425 of the Internal Revenue Code of 1986, as amended.
No person shall be eligible to receive an option for a larger number of shares
than is recommended for him by the Committee. In selecting the individuals to
whom options shall be granted, as well as determining the number of shares
subject to each option, the Committee shall weigh the position and the
responsibility of the individual being considered, the nature of his or her
services, his or her present and potential contributions to the Corporation,
and such other factors as the Committee deems relevant to accomplish the
purposes of the Plan. No Incentive Option shall be granted to an employee who,
immediately after such Incentive Option is granted, owns or has rights to stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Corporation, unless such Incentive Option is
granted at a price which is at least 110% of the fair market value of the stock
subject to the Incentive Option and such Incentive Option by its terms is not
exercisable after the expiration of five (5) years from the date such Incentive
Option is granted.
4. STOCK
The stock subject to options issued under the Plan shall be shares of
the Corporation's authorized but unissued, or reacquired, one cent ($.01) par
value per share common stock (hereafter sometimes called "Capital Stock" or
"Common Stock"). The aggregate number of shares which may be issued pursuant to
option exercises shall not exceed 1,700,000 shares of Capital Stock. In no
event may any employee receive options to purchase more than 100,000 shares of
Common Stock of the Company during any fiscal year of the Corporation. The
limitations established by each of the preceding sentences shall be subject to
adjustment as provided in Article 5(g) of the Plan.
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option under
the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Stock options granted under the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve. Such agreements shall conform with, and be
subject to, the following terms and conditions:
(A) NUMBER OF SHARES AND FORM OF OPTION
Each option agreement shall state the number of shares to which it
pertains and whether the option granted is an Incentive Option or a
Non-Statutory Option.
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(B) EXERCISE PRICE
Each option agreement shall state the exercise price. The per share
exercise price for shares obtainable pursuant to an Incentive Option shall not
be less than 100% of the Fair Market Value, as defined below, of the shares of
Capital Stock of the Corporation on the date the option is granted. The per
share exercise price for shares obtainable pursuant to a Non-Statutory Option
shall not be less than the Fair Market Value of the shares of Capital Stock of
the Corporation on the date the option is granted, except that with respect to
not more than 10% of the shares of the Capital Stock authorized under this
Plan, the Committee composed solely of Non-Employee Directors may establish an
exercise price below Fair Market Value. Subject to the foregoing, the Committee
shall have full authority and discretion, and shall be fully protected, with
respect to the price fixed for shares obtainable pursuant to the exercise of
options.
The aggregate Fair Market Value (determined at the time the Incentive
Option is granted) of the Common Stock with respect to which Incentive Options
are exercisable for the first time by the option recipient during any calendar
year (under all such plans of the Corporation and its subsidiary corporations)
shall not exceed $100,000. If an option recipient is granted an Incentive
Option which exceeds this limitation, the Incentive Option shall be treated as
Non-Statutory Options to the extent such limitation is exceeded.
For all purposes under the Plan, Fair Market Value shall be deemed to
be the closing sale price of the Common Stock as reported on the Nasdaq
National Market (or the mean between the highest and lowest per share sales
price should the Common Stock be listed on an exchange) on a given day, or if
such stock is not traded on that day, then on the next preceding day on which
such stock was traded ("Fair Market Value"). Notwithstanding the foregoing, as
to options granted on the Effective Date (as hereinafter defined), "Fair Market
Value" shall mean the price at which the Common Stock is initially offered for
sale to the public as shown on the cover of the prospectus included in the
registration statement which is declared effective by the Securities and
Exchange Commission.
(C) MEDIUM AND TIME OF PAYMENT
The option recipient may pay the exercise price in cash, by means of
unrestricted shares of the Corporation's Common Stock, or in any combination
thereof. Notwithstanding the foregoing, shares of the Corporation's Common
Stock may be used to exercise an option only if the number of shares for which
the option is then being exercised is at least five hundred (500) shares. The
option recipient must pay for shares received pursuant to an option exercise on
or before the date of such exercise. Payment in currency or by check, bank
draft, cashier's check, or postal money order shall be considered payment in
cash. In the event of payment in the Corporation's Common Stock, the shares
used in payment of the exercise price shall be taken at the Fair Market Value
of such shares on the date they are tendered to the Corporation. The shares
purchased upon exercise of an option with shares of the Corporation's Common
Stock owned by the option recipient may not be sold, exchanged, pledged or
otherwise transferred during the one (1) year period following such purchase
and shall bear the following restrictive legend:
The shares represented by this certificate were acquired with
shares of Nichols TXEN Corporation common stock and,
therefore, pursuant to the terms of Article 5(c) of the
Nichols TXEN Corporation 1998 Stock
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Option Plan, may not be sold, exchanged, pledged or otherwise
transferred during the one (1) year period commencing on the
date shown on the face of this certificate.
(D) TERM AND EXERCISE OF OPTIONS
No Non-Statutory Option shall be exercisable either in whole or in
part prior to the earlier of (a) the date specified in the Non-Statutory
Option, or (b) six (6) months from the date the Non-Statutory Option is
granted. During the option recipient's lifetime, the Non-Statutory Option shall
be exercisable only by the option recipient or the option recipient's guardian
or legal representative if one has been appointed, and shall not be assignable
or transferable other than by will or the laws of descent and distribution. No
Non-Statutory Option shall be exercisable after the earlier of (1) the date
specified in the Non-Statutory Option, or (2) the expiration of ten (10) years
from the date the Non-Statutory Option is granted.
No Incentive Option shall be exercisable either in whole or in part
prior to twenty-four (24) months from the date it is granted. Subject to the
right of accretion provided in the next to last sentence of this Article 5 (d),
each Incentive Option shall be exercisable in three (3) installments as
follows: (1) up to one-third of the total shares covered by the Incentive
Option may be purchased after twenty-four (24) months from the date the
Incentive Option is granted; (2) up to one-third of the total shares covered by
the Incentive Option may be purchased after thirty-six (36) months from the
date the Incentive Option is granted; and (3) up to one-third of the total
shares covered by the Incentive Option may be purchased after forty-eight (48)
months from the date the Incentive Option is granted. The Committee may
provide, however, for the exercise of an Incentive Option after the initial
twenty-four month period, either as an increased percentage of shares per year
or as to all remaining shares, if the option recipient dies, is or becomes
disabled, or, with the permission of the Committee, retires. During the option
recipient's lifetime, the Incentive Option shall be exercisable only by the
option recipient, or the option recipient's guardian or legal representative if
one has been appointed, and shall not be assignable or transferable other than
by will or the laws of descent and distribution. To the extent not exercised,
Incentive Option installments shall accumulate and be exercisable, in whole or
in part, in any subsequent period but not later than five (5) years from the
date the Incentive Option is granted. No Incentive Option shall be exercisable
after the expiration of five (5) years from the date it is granted.
(E) TERMINATION OF EMPLOYMENT EXCEPT DEATH
If an option recipient's employment with the Corporation or its
subsidiaries ceases for any reason other than the option recipient's death,
disability or retirement with the consent of the Committee, all options held by
him pursuant to the Plan and not previously exercised as of the date of such
termination shall terminate immediately and become void and of no effect;
provided, however, that the Committee shall have the right to extend the
exercise period by up to three (3) months from the date the option recipient's
employment is terminated. If termination occurs because of disability or as a
result of the option recipient's retirement with the consent of the Committee,
such disabled or retiring option recipient shall have the right to exercise any
options which were exercisable but unexercised as of the date of such
termination at any time within three (3) months after such termination, subject
to the condition that no Non-Statutory Option shall be exercisable after the
date specified in the Non-Statutory Option and no
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Incentive Option shall be exercisable after the expiration of five (5) years
from the date it is granted. The term "disability" shall mean a mental or
physical condition resulting from an injury or illness (other than substantial
dependence on or addiction to alcohol or any drug) which renders an option
recipient incapable of performing his normal duties as an employee of the
Corporation or its subsidiaries. The option recipient shall not be considered
to be disabled until the Committee shall have been furnished the opinion of two
licensed physicians that the option recipient is prevented from performing his
duties and that his condition is likely to continue for a period in excess of
twelve (12) months or for an indefinite period. Whether termination of
employment is due to disability or is to be considered a retirement with the
consent of the Committee shall be determined by the Committee in its sole and
absolute discretion, and such determination shall be final and conclusive.
Authorized leaves of absence or absence for military service shall not
constitute termination of employment for the purposes of the Plan.
(F) DEATH OF OPTION RECIPIENT AND TRANSFER OF OPTION
If an option recipient dies while employed by the Corporation or its
subsidiaries or within three (3) months after being terminated due to
disability or retirement with the consent of the Committee, and has not fully
exercised all of his exercisable options, such options may be exercised, at any
time within three (3) months after such termination, by the option recipient's
executors or administrators, or by any person or persons who shall have
acquired the option directly from the option recipient by bequest or
inheritance. In no event, however, shall a Non-Statutory Option be exercisable
after the date specified in the Non-Statutory Option and no Incentive Option
shall be exercisable more than five (5) years after the date such Incentive
Option is granted. In the event an option is transferred to an option
recipient's estate, or to a person to whom such right devolves by reason of the
option recipient's death, then the option shall be nontransferable by the
option recipient's executor or administrator or by such person, except that the
option may be distributed by the option recipient's executors or administrators
to the distributees of the option recipient's estate entitled thereto.
(G) RECAPITALIZATION
Subject to any required action by the shareholders, the aggregate
number of shares which may be issued pursuant to option exercises, the number
of shares of Capital Stock covered by each outstanding option, and the exercise
price per share applicable to shares under such option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Capital Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on the
Capital Stock), or any other increase or decrease in the number of such shares
effected without receipt of consideration by the Corporation.
If the Corporation is merged with or consolidated into any other
corporation, or if all or substantially all of the business or property of the
Corporation is sold, or if the Corporation is liquidated or dissolved, or if a
tender or exchange offer is made for all or any part of the Corporation's
voting securities, or if any other actual or threatened change in control of
the Corporation occurs, the Committee, with or without the consent of the
option recipient, may (but shall not be obligated to), either at the time of or
in anticipation of any such transaction, take any of the following actions that
the Committee may deem appropriate in its sole and absolute discretion: (1)
cancel any option by providing for the payment to the option recipient of the
excess of the Fair Market Value of the shares subject to the option over the
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exercise price of the option, (2) substitute a new option of substantially
equivalent value for any option, (3) accelerate the exercise term of any
option, or (4) make such other adjustments in the terms and conditions of any
option as it deems appropriate.
In the event of a change in Capital Stock of the Corporation as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any change shall be deemed to
be the Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Committee,
whose determination in that respect shall be final, provided that each
Incentive Option granted pursuant to this Plan shall not be adjusted in a
manner that causes the Incentive Option to fail to continue to qualify as an
incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
Except as otherwise expressly provided in this Article 5(g), the
option recipient shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, or by reason of any dissolution, liquidation, merger or
consolidation or spin-off of assets or stock of another corporation. Any issue
by the Corporation of shares of stock of any class, or securities convertible
into shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares of
Capital Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations, or changes of its capital or business
structure, or to merge, consolidate, dissolve, liquidate, sell, or transfer all
or any part of its business or assets.
(H) RIGHTS AS A STOCKHOLDER
An option recipient or a transferee of an option shall have no rights
as a stockholder with respect to any shares subject to his option until a stock
certificate is issued to him for such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities, or other
property), distributions, or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Article 5 (g)
of the Plan.
(I) MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS
Subject to the terms of the Plan, the Committee may modify, extend or
renew outstanding options granted under the Plan. The Committee shall not,
however, reprice any outstanding options so as to specify a lower price or
accept the surrender of outstanding options and authorize the granting of new
options in substitution therefore specifying a lower price (a "Repricing"),
except that with respect to not more than 10% of the shares of Capital Stock
authorized under this Plan, the Committee composed solely of Non-Employee
Directors may approve a Repricing of outstanding Non-Statutory Options.
Notwithstanding the foregoing, however, no modification of an option shall,
without the consent of the
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option recipient, alter or impair any rights or obligations under any option
theretofore granted under the Plan.
(J) WITHHOLDING
Whenever the Corporation proposes or is required to issue or transfer
shares of Capital Stock under the Plan, the Corporation shall have the right to
require the option recipient, prior to the issuance or delivery of any
certificates for such shares, to remit to the Corporation, or provide
indemnification satisfactory to the Corporation for, an amount sufficient to
satisfy any federal, state, local, and foreign withholding tax requirements
incurred as a result of an option exercise under the Plan by such option
recipient.
(K) OTHER PROVISIONS
The option agreements authorized under the Plan shall contain such
other provisions, including, without limitation, restrictions upon the exercise
of the option, as the Committee shall deem advisable. Limitations and
restrictions shall be placed upon the exercise of Incentive Options, in the
Incentive Option agreement, so that such option will be an "incentive stock
option" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. The Committee composed solely of Non-Employee Directors is authorized
to grant options containing terms and provisions qualifying such options as
performance-based compensation under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
6. TERM OF PLAN
Incentive Options and Non-Statutory Options may be granted from the
Effective Date through September 30, 2008.
7. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have
as directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorney's fees, actually and necessarily incurred in connection with the
defense of any action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit, or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit, or proceeding that such Committee member is
liable for negligence or misconduct in the performance of his duties; provided,
that within sixty (60) days after institution of any such action, suit, or
proceeding a Committee member shall in writing offer the Corporation the
opportunity, at its own expense, to handle and defend the same.
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8. AMENDMENT OF THE PLAN
The Board of Directors, insofar as permitted by law, shall have the
right from time to time with respect to any shares at the time not subject to
options, to suspend or discontinue the Plan or revise or amend it in any
respect whatsoever, except that without approval of the shareholders of the
Corporation, no such revision or amendment shall: (a) change the number of
shares for which options may be granted under the Plan either in the aggregate
or to any individual employee, (b) change the provisions relating to the
determination of employees to whom options shall be granted, (c) remove the
administration of the Plan from the Committee, or (d) decrease the price at
which Incentive Options may be granted.
9. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Capital
Stock pursuant to the exercise of options will be used for general corporate
purposes.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the option
recipient to exercise such option.
11. NO OBLIGATION TO EMPLOY OPTIONEE
No obligation to retain an option recipient as an employee of the
Corporation or its subsidiaries, or to provide or continue providing the option
recipient with, or to permit the option recipient to retain, any incident
associated with or arising out of employment with the Corporation or its
subsidiaries, including but not limited to tenure, salary, benefits, title, or
position, shall be imposed on the Corporation or its subsidiaries by virtue of
the adoption of the Plan, the grant or acceptance of an option granted pursuant
to the Plan, or the exercise of an option under the Plan.
12. APPROVAL OF STOCKHOLDERS
This Plan shall take effect on the date a registration statement
initially registering the Common Stock under the Securities Act of 1933 is
declared effective by the Securities and Exchange Commission (the "Effective
Date"), subject to approval by the affirmative vote of the holders of a
majority of the outstanding shares of Capital Stock of the Corporation present,
or represented, and entitled to vote at a meeting of the shareholders, which
approval must occur within the period beginning twelve (12) months before and
ending twelve (12) months after the date the Plan is adopted by the Board of
Directors.
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EXHIBIT 10.2
NICHOLS TXEN CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I
PURPOSES
Nichols TXEN Corporation has established the plan set forth herein in
order to encourage ownership of its Common Stock by its employees and employees
of certain Affiliates, by providing them a convenient means for regular and
systematic purchases on an advantageous basis, thereby increasing their interest
in the Company's success.
ARTICLE II
DEFINITIONS
"Affiliate" means a subsidiary of the Company (including corporations
becoming subsidiaries subsequent to the adoption of the Plan) in an unbroken
chain of corporations beginning with the Company if at the time of the granting
of the Option each of such corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.
"Board " means the Company's Board of Directors.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and regulations thereunder.
"Company" means Nichols TXEN Corporation.
"Effective Date" shall mean the later of (1) the date a registration
statement initially registering the Company's common stock under the Securities
Act of 1933 is declared effective by the Securities and Exchange Commission, or
(2) the date the Plan is approved by the shareholders of the Company.
"Employee" means all employees (full-time and part-time) of the
Company.
"Employer" means the Company and its Affiliates which are designated by
the Board as an employer for purposes of this Plan. The Board may from time to
time change the designation of Affiliates who are employers for purposes of this
Plan.
"Option" means a right to purchase Stock granted under Section 4.1.
"Option Period" means a three-month period beginning on the Effective
Date of the Plan and any March 1, June 1, September 1, and December 1
thereafter, and ending on the next February 28, May 31, August 31, or November
30.
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"Plan" means the Nichols TXEN Corporation Employee Stock Purchase Plan
set forth herein, as it may be amended from time to time.
"Stock" means the one cent ($.01) par value per share Common Stock of
Nichols TXEN Corporation.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Participation. On the Effective Date and on each March 1, June 1,
September 1, and December 1 thereafter, an Employee may elect to participate in
the Plan by authorizing payroll deductions. An Employee electing to participate
in the Plan pursuant to this Section 3.1 shall continue as a participant in the
Plan until such time as he discontinues payroll deductions pursuant to Section
5.3. Once participation is discontinued hereunder, an Employee may not again
elect to participate in the Plan until the next succeeding March 1 or, in the
case of an Employee subject to the reporting requirements of Section 16(a) of
the Securities Act of 1934, until the later of (i) the March 1 immediately
following his discontinuance of payroll deductions, or (ii) the March 1 next
occurring after the date which is six (6) months after the date such Employee
discontinued payroll deductions under the Plan.
3.2 Eligibility. An Employee who elects to participate in the Plan
under Section 3.1 shall be eligible for an Option on the first day of an Option
Period if he is an Employee of an Employer.
ARTICLE IV
GRANTING OF OPTIONS
4.1 Option Periods. On each March 1, June 1, September 1, and December
1 beginning with the Effective Date, each Employee who is participating in the
Plan and who is eligible for an Option under Article III shall be granted an
Option to purchase Stock from the Company on the last day of the Option Period
beginning on that date, by authorizing payroll deductions under Article V.
Notwithstanding the foregoing, no Employee shall be eligible for an Option under
Article III if such Employee, immediately after the Option is granted, shall own
5% or more of the voting power or value of all classes of stock of the Company
or of any of its Affiliates, treating the maximum amount of stock available to
him under the Plan for such Option Period and shares subject to any other option
as owned by him and treating as owned by him shares owned by others to the
extent provided in Section 425 (d) of the Code. Any Options granted in an Option
Period which are not exercised on the last day of the Option Period shall expire
as of the end of the Option Period.
4.2 Exercise Price. For any Option Period, the exercise price of each
Option shall be the lesser of (a) 85% of the fair market value of the stock on
the first day of the Option Period, or (b) 85% of the fair market value of the
stock on the last day of the Option Period.
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Fair market value on any day means the closing sale price of the Stock
as reported on the Nasdaq National Market on such day or, if not traded on such
day, on the last preceding day on which the Stock was traded.
4.3 Nontransferability. Options granted to an Employee are not
transferable, and may be exercised during the Employee's lifetime only by him.
Any attempt of assignment, transfer, pledge, hypothecation, or other disposition
of any Option contrary to the provisions of this Plan, and the levy and
attachment or any similar proceedings upon any Option, shall be null and void.
4.4 Stockholder Approval. If the Plan is not approved by the Company's
stockholders on or before the date which is twelve (12) months after the Board
of Directors adopts the Plan, then the Plan shall be null and void.
4.5 Limits on Stock Purchase. Notwithstanding any other provision of
this Plan, no Employee may purchase in an Option Period more than the number of
shares equal to 10% of his annual basic rate of compensation divided by 85% of
the fair market value of Stock, both determined on the last day of the Option
Period. In addition, no Employee may be granted an Option which permits him to
purchase during a calendar year under the Plan and any other employee stock
purchase plan within the meaning of Section 423 of the Code, shares of the
Company and its Affiliates having an aggregate fair market value, determined at
the time such Option is granted, of more than $25,000.
4.6 Amount of Stock Available. An aggregate of 500,000 shares of Stock
shall be available for purchase under the Plan, subject to adjustment under
Section 4.7. To the extent Options expire unexercised, the Stock subject to such
Options shall become available for subsequent grant. Stock available for
purchase under the Plan shall be authorized but unissued shares or reacquired
shares.
4.7 Adjustments of Amount of Stock. In the event of change in the
number of shares of Stock outstanding by reason of a stock dividend, stock split
or other recapitalization, or by reason of a merger or consolidation or
otherwise, the number of shares of stock available under this Plan, and the fair
market value of such shares at the beginning of the Option Period during which
such change occurs, shall be adjusted in such manner as the Board, in its
discretion, deems equitable and appropriate.
ARTICLE V
PAYMENT FOR STOCK
5.1 Payroll Deductions. Each Employee may exercise Options granted to
him under Section 4. 1, exclusively by authorizing payroll deductions on a form
provided by his Employer. The actual exercise of the Options shall occur on the
last day of the Option Period. Deductions may be authorized beginning on the
Effective Date or any March 1, June 1, September 1 or December 1 thereafter, in
any integral percentage, up to ten (10%) percent of an Employee's basic rate of
compensation paid by the Employer. Total deductions may not exceed $25,000 for
any calendar year. A payroll deduction authorization hereunder shall remain in
effect until changed or discontinued pursuant to Section 5.3.
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5.2 Purchase of Stock. As of the last day of each Option Period the
amount of payroll deductions during such Option Period for each person who
remains an Employee on such date shall be used to purchase from the Company
whole shares of Stock under the Employee's Option. Any balance which is
attributable to a fractional share shall be retained by the Employer and treated
as a payroll deduction by the Employee for the next Option Period if he remains
an Employee. Upon the purchase of shares of Stock under an Option, the Company
shall deliver, or cause to be delivered, promptly to the Employee stock
certificates for such shares. Such shares shall be registered in the name of the
Employee or in the Employee's name jointly with a member of the Employee's
family.
5.3 Change; Discontinuance. (a) Any Employee who is not subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934
may decrease (but not below 1% of the basic rate of compensation paid by the
Employer) or increase (within the limits specified in Section 5.1) payroll
deductions authorized under Section 5.1 by signing and filing with the Employer
a form provided for this purpose. Such change in payroll deductions shall be
effective on the March 1, June 1, September 1, or December 1 next occurring
after the Employee's change form is received by the Employer.
An Employee subject to the reporting requirements of Section
16(a) of the Securities Exchange Act of 1934 may not change his payroll
deductions in accordance with this Section 5.3.
(b) An Employee may discontinue payroll deductions authorized
under Section 5.1 at any time, by signing and filing with his Employer, within
the time prescribed in rules and regulations adopted under Article VIII, a form
provided for this purpose. Once discontinued hereunder, payroll deductions may
not be made again until the next succeeding March 1 or, in the case of an
Employee subject to the reporting requirements of Section 16(a) of the
Securities Act of 1934, until the later of (i) the March 1 immediately following
his discontinuance of payroll deductions, or (ii) the March 1 next occurring
after the date which is six (6) months after the date such Employee discontinued
payroll deductions under the Plan.
5.4 Refund of Contributions. If during an Option Period an Employee for
whom contributions are being made under Section 5.1 becomes ineligible to have
Stock purchased for him under Section 5.2, or discontinues his contributions
under Section 5.3, his payroll deductions during such Option Period shall be
returned without interest to him within 30 days of the date on which the Company
first learns of the Employee's ineligibility, or the date on which the Employee
informs the Company that he wishes to discontinue contributions. If the
aggregate amount of payroll deductions under Section 5.1, during any Option
Period exceeds the purchase price of Stock available under the Plan, the
available Stock shall be allocated to Employees in proportion to the respective
maximum number of shares that can be purchased during the Option Period, and
amounts not used to purchase Stock shall be returned without interest to the
respective Employees as soon as practicable. Any payroll deductions in excess of
the limits in Section 4.5 shall be returned without interest to an Employee
within 30 days of the date on which the Company first learns of the existence of
any excess contributions.
5.5 Rights of Employees. An Employee shall have no right, title or
interest in any Stock subject to an Option, including no right to receive
dividends, until such Stock has been purchased for him and issued to him.
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5.6 Requirements of Securities Laws. No shares of Stock may be issued
under any Option until all requirements of Federal, state or other securities
laws, and of any securities exchange upon which Stock may be listed, with
respect to the purchase, sale and issuance of the Stock shall have been
satisfied. If any action must be taken because of such requirements, then the
purchase, sale and issuance of the shares shall be postponed until such action
can reasonably be taken. Upon demand by the Company, an Employee shall deliver
to the Company a representation in writing that the purchase of all shares of
Stock under an Option is being made for investment only and not for resale or
with a view to distribution, and containing such other representations and
provisions with respect thereto as the Company may reasonably require in order
to comply with any registration requirements or exemptions therefrom of
applicable securities laws.
ARTICLE VI
APPLICABLE LAW
Options granted under this Plan shall be construed and shall take
effect in accordance with the laws of the State of Delaware.
ARTICLE VII
AMENDMENT; TERMINATION
7.1 Amendment. The Board of Directors, insofar as permitted by law,
shall have the right from time to time with respect to any shares at the time
not subject to options, to suspend or discontinue the Plan or revise or amend it
in any respect whatsoever, except that without approval of the shareholders of
the Company, no such revision or amendment shall: (a) increase (except as
provided in Section 4.7) the number of shares of stock available for purchase
under the Plan, or (b) remove the administration of the Plan from the Committee.
7.2 Termination. The Plan may be terminated by the Board at any time,
in its entirety or as to any group of Employees. In the event of termination of
the participation of an Employee under this Article VII during an Option Period,
no further payroll deductions shall be made with respect to such Employee's
annual basic rate of compensation under Section 5.1, but Stock shall be
purchased for him under the terms of Section 5.2 as of the last day of the
Option Period. If the Plan is terminated by the Board under this Article VII and
if (a) any reclassification or change of outstanding shares of Stock, (b) any
consolidation or merger of the Company with or into another corporation, or (c)
any sale, lease, exchange or other disposition of all or substantially all the
property and assets of the Company occurs on or prior to the last day of the
Option Period during which the Plan is terminated, then notwithstanding the
foregoing, no Stock shall be purchased as of the last day of such Option Period
and each Optionee's payroll deductions during such Option Period shall be
returned without interest to him within 30 days.
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ARTICLE VIII
ADMINISTRATION
The Plan shall be administered by a committee (the "Committee")
composed of either the entire Board of Directors or a committee of the Board of
Directors that is composed solely of two or more Non-Employee Directors. For
this purpose, the term "Non-Employee Director" shall mean a person who is a
member of the Company's Board of Directors who (a) is not currently an officer
or employee of the Company or any parent or subsidiary of the Company, (b) does
not directly or indirectly receive compensation for serving as a consultant or
in any other non-director capacity from the Company or any parent or subsidiary
of the Company that exceeds the dollar amount for which disclosure would be
required pursuant to Item 404(a) of Regulation S-K promulgated under the
Securities Act of 1933 and the Securities Exchange Act of 1934 ("Regulation
S-K"), (c) does not possess an interest in any other transaction with the
Company or any parent or subsidiary of the Company for which disclosure would be
required pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged in a
business relationship with the Company or any parent or subsidiary of the
Company which would be disclosable under Item 404(b) of Regulation S-K. In the
event the Committee is a committee composed of two or more Non-Employee
Directors, the Board of Directors may from time to time remove members from, add
members to, and fill vacancies, on the Committee. A member of the Committee
shall be eligible to participate in the Plan and receive options under the Plan.
The Board may prescribe, amend and rescind, and the Committee may
recommend to the Board, rules and regulations for administration of the Plan,
and the Committee shall have full power and authority to construe and interpret
the Plan. A majority of the members of the Committee shall constitute a quorum
and the acts of a majority of the members present at a meeting or the consent in
writing signed by all members of the Committee shall be the acts of the
Committee and shall be final, conclusive and binding upon all parties, including
the Company, its Affiliates, the stockholders, the Employees and all persons or
entities claiming by or through the Employees. The Board may correct any defect
or any omission or reconcile any inconsistency in the Plan or in any Option
granted hereunder in the manner and to the extent it shall deem desirable. The
expense of the Plan shall be paid for by the Company.
ARTICLE IX
LIMITATIONS OF SALE OF STOCK PURCHASED UNDER THE PLAN
The Company does not intend to restrict or influence any Employee in
the conduct of his own affairs. An Employee may, therefore, sell Stock purchased
under the Plan at any time he chooses; provided, however, that because of
certain Federal tax requirements, each Employee will agree by entering the Plan,
promptly to give the Company notice of any Stock disposed of within two (2)
years after the date of the last day of the Option Period during which the Stock
was purchased showing the number of such shares disposed of and the date or
dates of disposition. The Employee assumes the risk of any market fluctuations
in the price of such Stock.
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EXHIBIT 10.3
NICHOLS TXEN CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of the Nichols TXEN Corporation Non-Employee Director Stock
Option Plan (the "Plan") is to secure for Nichols TXEN Corporation (the
"Company") and its shareholders the benefits of the long-term
incentives inherent in increased common stock ownership by the members
of the Board of Directors (the "Board") of the Company who are not
employees of the Company or its Affiliates, by strengthening the
identification of Non-Employee Directors with the interests of all
Nichols TXEN Corporation shareholders.
2. DEFINITIONS
The terms defined in this Section 2 shall have the following meanings,
unless the context otherwise requires.
a. "Affiliate" shall mean any corporation, partnership, joint
venture or other entity in which the Company holds an equity,
profit or voting interest of more than fifty percent (50%).
b. "Annual Meeting of Shareholders" shall mean the annual meeting
of shareholders of the Company held each year.
c. "Code" shall mean the Internal Revenue Code of 1986, as
amended to date and as it may be amended from time to time.
d. "Company" shall mean Nichols TXEN Corporation, a Delaware
corporation.
e. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended to date and as it may be amended from time
to time.
f. "Fair Market Value" per share shall mean as of any day
(1) The fair market value of a share of the Company's
common stock is the closing price reported by the
Nasdaq Stock Market on the business day immediately
preceding the date as of which fair market value is
being determined or, if there were no sales of shares
of the Company's common stock reported on such day,
on the most recently preceding day on which there
were sales, or
(2) if the shares of the Company's stock are not listed
on the Nasdaq Stock Market on the day as of which the
determination is made, the amount determined by the
Board or its delegate to be the fair market value of
a share on such day.
Notwithstanding the foregoing, the fair market value
per share of the shares subject to the option grants on the
Effective Date shall be the price at which the common
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stock is initially offered for sale to the public and as shown
on the cover of the prospectus included in the registration
statement which is declared effective by the Securities and
Exchange Commission.
g. "Non-Employee Director" shall mean a member of the Board of
Directors of the Company who is not also an officer or other
employee of the Company or an Affiliate.
h. "Nonstatutory Stock Option" ("NSO") shall mean a stock option,
which does not qualify for special tax treatment under
Sections 421 or 422 of the Internal Revenue Code.
i. "Option" shall mean either a First Option or an Annual Option
granted pursuant to the provisions of Section 4 of this Plan.
j. "Participant" shall mean any person who holds an Option
granted under this Plan.
k. "Plan" shall mean this Nichols TXEN Corporation Non-Employee
Director Stock Option Plan.
3. ADMINISTRATION
a. The Plan shall be administered by the Board. The Board may, by
resolution, delegate part or all of its administrative powers
with respect to the Plan.
b. The Board shall have all of the powers vested in it by the
terms of the Plan, such powers to include the authority,
within the limits prescribed herein, to establish the form of
the agreement embodying grants of Options made under the Plan.
c. The Board shall, subject to the provisions of the Plan, have
the power to construe the Plan, to determine all questions
arising thereunder and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem
desirable, such administrative decisions of the Board to be
final and conclusive.
d. The Board shall have no discretion to select the Non-Employee
Directors to receive Option grants under the Plan, to
determine the number of shares of the Company's common stock
subject to the Plan or to each grant, nor the exercise price
of the Options granted pursuant to the Plan.
e. The Board may authorize any one or more of their number or the
Secretary or any other officer of the Company to execute and
deliver documents on behalf of the Board. The Board hereby
authorizes the Secretary to execute and deliver all documents
to be delivered by the Board pursuant to the Plan.
f. The expenses of the Plan shall be borne by the Company.
4. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS
a. As of the Effective Date, each current Non-Employee Director
shall be granted an option to purchase five thousand (5,000)
shares of the Company's common stock under the Plan (the
"Initial Option Grants"). Thereafter, as of the day upon which
shareholders vote to elect directors at each annual meeting of
the Company, each Non-Employee Director of
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the Board shall be granted an additional option to purchase
one thousand (1,000) shares of the Company's common stock
under the Plan (the "Annual Option"); provided, however, that
a Non-Employee Director who has not previously been elected as
a member of the Board of Directors of the Company shall be
granted an option to purchase One thousand (1,000) shares of
the Company's common stock under the Plan, on the first
business day of the Non-Employee Director's election to the
Board, including election by the Board of Directors to fill a
vacancy on the Board (the "First Option Grants").
b. The automatic grants to Non-Employee Directors shall not be
subject to the discretion of any person.
c. Each Option granted under the Plan shall be evidenced by a
written Agreement. Each Agreement shall be subject to, and
incorporate, by reference or otherwise, the applicable terms
of this Plan.
d. During the lifetime of a Participant, each Option shall be
exercisable only by the Participant. No Option granted under
the Plan shall be assignable or transferable by the
Participant, except by will or by the laws of descent and
distribution.
5. SHARES OF STOCK SUBJECT TO THE PLAN
a. Subject to adjustment as provided in Section 10 of the Plan,
an aggregate of fifty thousand (50,000) shares of the
Company's common stock, $.01 par value per share, shall be
available for issuance to Non-Employee Directors under the
Plan. No fractional shares shall be issued.
b. The Initial Option Grants, First Option Grants and Annual
Option Grants shall reduce the shares available for issuance
under the Plan by the number of shares subject thereto. The
shares deliverable upon exercise of any Initial Option Grant,
First Option Grant or Annual Option Grant may be made
available from authorized but unissued shares or shares
reacquired by the Company, including shares purchased in the
open market or in private transactions. If any unexercised
Initial Option Grant, First Option Grant or Annual Option
Grant shall terminate for any reason, the shares subject to,
but not delivered under, such Initial Option Grant, First
Option Grant or Annual Option Grant shall be available for
other First Option Grants or Annual Option Grants.
6. NONSTATUTORY OPTIONS
All Options granted to Non-Employee Directors pursuant to the Plan
shall be NSOs.
7. EXERCISE PRICE
a. The price per share of the shares of the Company's common
stock which may be purchased upon exercise of an Option
("Exercise Price") shall be one hundred percent (100%) of the
Fair Market Value per share on the date the Option is granted
and shall be payable in full at the time the Option is
exercised as follows:
(1) in cash or by certified check,
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(2) by delivery of shares of common stock to the Company
which shall have been owned by the Non-Employee
Director for at least six (6) months and have a Fair
Market Value per share on the date of surrender equal
to the Exercise Price, or
(3) by delivery to the Company of a properly executed
exercise notice together with irrevocable
instructions to a broker to promptly deliver to the
Company from sale or loan proceeds the amount
required to pay the Exercise Price.
b. Such Exercise Price shall be subject to adjustment as provided
in Section 10 hereof.
8. DURATION AND VESTING OF OPTIONS
a. The term of each Option granted to a Non-Employee Director
shall be for five (5) years from the date of grant, unless
terminated earlier pursuant to the provisions of Section 9
hereof.
b. Each Option shall vest and become exercisable six (6) months
after the date of grant.
9. EFFECT OF TERMINATION OF MEMBERSHIP ON THE BOARD
The right to exercise an Option granted to a Non-Employee Director
shall be limited as follows, provided the actual date of exercise is in
no event after the expiration of the term of the Option:
a. If a Non-Employee Director ceases being a director of the
Company for any reason other than the reasons identified in
subparagraph b. of this Section 9, the Non-Employee Director
shall have the right to exercise the Options as follows,
subject to the condition that no Option shall be exercisable
after the expiration of the term of the Option:
(1) If the Non-Employee Director was a member of the
Board of Directors of the Company for five (5) or
more years, all outstanding Options become
immediately exercisable upon the date the
Non-Employee Director ceases being a director. The
Non-Employee Director may exercise the Options for a
period of thirty-six (36) months from the date the
Non-Employee Director ceased being a director,
provided that if the Non-Employee Director dies
before the thirty-six (36) month period has expired,
the Options may be exercised by the Non-Employee
Director's legal representative or any person who
acquires the right to exercise an Option by reason of
the Non-Employee Director's death for a period of
twelve (12) months from the date of the Non-Employee
Director's death.
(2) If the Non-Employee Director was a member of the
Board of Directors of the Company for less than five
(5) years, the Non-Employee Director may exercise the
Options, to the extent they were exercisable at the
date the Non-Employee Director ceases being a member
of the Board, for a period of thirty (30) days
following the date the Non-Employee Director ceased
being a director, provided that, if the Non-Employee
Director dies before the thirty (30) day period has
expired, the Options may be exercised by the
Non-Employee Director's legal representative, or any
person who acquires the right to exercise an Option
by
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reason of the Non-Employee Director's death, for a
period of twelve (12) months from the date of the
Non-Employee Director's death.
(3) If the Non-Employee Director dies while a member of
the Board, the Options, to the extent exercisable by
the Non-Employee Director at the date of death, may
be exercised by the Non-Employee Director's legal
representative, or any person who acquires the right
to exercise an Option by reason of the Non-Employee
Director's death, for a period of twelve(12) months
from the date of the Non-Employee Director's death.
(4) In the event any Option is exercised by the
executors, administrators, legatees, or distributees
of the estate of a deceased optionee, the Company
shall be under no obligation to issue stock
thereunder unless and until the Company is satisfied
that the person or persons exercising the Option are
the duly appointed legal representatives of the
deceased optionee's estate or the proper legatees or
distributees thereof.
b. If a Non-Employee Director ceases being a director of the
Company due to an act of
(1) fraud or intentional misrepresentation or
(2) embezzlement, misappropriation or conversion of
assets or opportunities of the Company or any
Affiliate of the Company or
(3) any other gross or willful misconduct as determined
by the Board, in its sole and conclusive discretion,
all Options granted to such Non-Employee Director shall
immediately be forfeited as of the date of the misconduct.
10. ADJUSTMENTS AND CHANGES IN THE STOCK
a. If there is any change in the common stock of the Company by
reason of any stock dividend, stock split, spin-off, split-up,
merger, consolidation, recapitalization, reclassification,
combination or exchange of shares, or any other similar
corporate event, the aggregate number of shares available
under the Plan, and the number and the Exercise Price of
shares of common stock subject to outstanding Options shall be
appropriately adjusted automatically.
b. No right to purchase fractional shares shall result from any
adjustment in Options pursuant to this Section 10. In case of
any such adjustment, the shares subject to the Option shall be
rounded down to the nearest whole share.
c. Notice of any adjustment shall be given by the Company to each
holder of any Option which shall have been so adjusted and
such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
-5-
<PAGE> 6
11. EFFECTIVE DATE OF THE PLAN
a. The Plan shall become effective on the later of (1) the date a
registration statement initially registering the Company's
common stock under the Securities Act of 1933 is declared
effective by the Securities and Exchange Commission, or (2)
the date the Plan is approved by the shareholders of the
Company (the "Effective Date").
b. Any amendment to the Plan shall become effective when adopted
by the Board, unless specified otherwise, but no Option
granted under any increase in shares authorized to be issued
under this Plan shall be exercisable until the increase is
approved in the manner prescribed in Section 12 of this Plan.
12. AMENDMENT OF THE PLAN
a. The Board of Directors may amend, suspend or terminate the
Plan at any time, but without shareholder approval, no
amendment shall materially increase the maximum number of
shares which may be issued under the Plan (other than
adjustments pursuant to Section 10 hereof), materially
increase the benefits accruing to Participants under the Plan,
materially modify the requirements as to eligibility for
participation or extend the term of the Plan. Approval of the
shareholders may be obtained, at a meeting of shareholders
duly called and held, by the affirmative vote of a majority of
the holders of the Company's voting stock who are present or
represented by proxy and are entitled to vote on the Plan.
b. It is intended that the Plan meet the requirements of Rule
16b-3 or any successor thereto promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of
1934, as amended, including any applicable requirements
regarding shareholder approval. Amendments to the Plan shall
be subject to approval by the shareholders of the Company to
the extent determined by the Board of Directors to be
necessary to satisfy such requirements as in effect from time
to time.
c. Rights and obligations under any Option granted before any
amendment of this Plan shall not be materially and adversely
affected by amendment of the Plan, except with the consent of
the person who holds the Option, which consent may be obtained
in any manner that the Board or its delegate deems
appropriate.
d. The Board of Directors may not amend the provisions of
Sections 4, 6, 7, 8 and 9 hereof more than once every six (6)
months, other than to comport with changes in the Code, ERISA,
or the rules thereunder.
13. TERMINATION OF THE PLAN
a. The Plan, unless sooner terminated, shall terminate at the end
of ten (10) years from the date the Plan is approved by the
shareholders of the Company. No Option may be granted under
the Plan while the Plan is suspended or after it is
terminated.
b. Rights or obligations under any Option granted while the Plan
is in effect, including the maximum duration and vesting
provisions, shall not be altered or impaired by suspension or
termination of the Plan, except with the consent of the person
who holds the Option,
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<PAGE> 7
which consent may be obtained in any manner that the Board or
its delegate deems appropriate.
14. REGISTRATION, LISTING, QUALIFICATION, APPROVAL OF STOCK AND OPTIONS
If the Board shall determine, in its discretion, that it is necessary
or desirable that the shares of common stock subject to any Option
a. be registered, listed or qualified on any securities exchange
or under any applicable law, or
b. be approved by any governmental regulatory body, or
c. approved by the shareholders of the Company, as a condition
of, or in connection with, the granting of such Option, or the
issuance or purchase of shares upon exercise of the Option,
then the Option may not be exercised in whole or in part unless such
registration, listing, qualification or approval has been obtained free
of any condition not acceptable to the Board of Directors.
15. NO RIGHT TO OPTION OR AS SHAREHOLDER
a. No Non-Employee Director or other person shall have any claim
or right to be granted an Option under the Plan, except as
expressly provided herein. Neither the Plan nor any action
taken hereunder shall be construed as giving any Non-Employee
Director any right to be retained in the service of the
Company.
b. Neither a Non-Employee Director, the Non-Employee Director's
legal representative, nor any person who acquires the right to
exercise an Option by reason of the Non-Employee Director's
death shall be, or have any of the rights or privileges of, a
shareholder of the Company in respect of any shares of common
stock receivable upon the exercise of any Option granted under
this Plan, in whole or in part, unless and until certificates
for such shares shall have been issued.
16. GOVERNING LAW
The validity, construction, interpretation, administration and effect
of this Plan and any rules, regulations and actions relating to this
Plan will be governed by and construed exclusively in accordance with
the laws of the State of Delaware.
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<PAGE> 1
EXHIBIT 10.4
TXEN, INC.
==========================================
EMPLOYMENT AGREEMENT
with
THOMAS L. PATTERSON
==========================================
Dated: December 16, 1994
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 16 day of December, 1994, by and
among Thomas L. Patterson, residing at 1013 Vista Circle, Birmingham, Alabama
(herein called the "Employee"), TXEN, INC. (herein called "TXEN") with a
principal place of business at 10 Inverness Center Parkway, Suite 140,
Birmingham, Alabama 35242, and NICHOLS RESEARCH CORPORATION, with a principal
place of business located at 4040 Memorial Parkway South, Huntsville, Alabama
35802 (herein called "NRC").
W I T N E S S E T H:
WHEREAS, TXEN Company is engaged in the business of managed care
administration and providing information systems and services to managed care
administrators;
WHEREAS, NRC, as purchaser, and TXEN, as seller, entered into and
consummated a Convertible Preferred Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement") whereby NRC acquired one share of
Preferred Stock of TXEN, and the Employee's continued employment with TXEN was a
material inducement to NRC to enter into the Purchase Agreement;
WHEREAS, NRC has also entered into a Stock Purchase Option Agreement of
even date herewith giving NRC the option to purchase all of the capital stock of
TXEN owned by the Employee together with the capital stock owned by the other
shareholders of TXEN provided NRC converts the Preferred Stock into Class B
Common Stock; and
WHEREAS, TXEN and NRC desire to obtain the services of the Employee as
President of TXEN and the Employee is willing to render such services to TXEN
upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Duties and Salary.
(a) TXEN agrees to employ the Employee and the Employee agrees to
accept employment by TXEN on a full-time basis as
<PAGE> 3
President of TXEN at a base salary of $8,000 per month payable during the Term
of Employment, as hereinafter defined. Such salary shall be subject to increases
from time to time as authorized by the Board of Directors of TXEN (the "Board"),
provided any increase in compensation paid to the Employee shall require the
affirmative vote of the director or directors elected to the Board by NRC so
long as NRC owns any capital stock of TXEN.
(b) The Employee hereby agrees to undertake such travel as may be
required in the performance of his duties. The reasonable travel expenses of the
Employee shall be reimbursed in accordance with TXEN's reimbursement policy, in
effect from time to time.
(c) The Employee shall carry out his duties under the general
supervision of the Board or its designee.
(d) The Employee's duties shall include the duties and
responsibilities identified on Schedule I attached hereto. The Employee shall
perform such other tasks and duties as may be assigned by TXEN, from time to
time and TXEN reserves the right to change the office and/or position of the
Employee within TXEN, so long as such change is mutually acceptable. The
Employee shall devote his full time, attention, skill and efforts to the tasks
and duties assigned by TXEN. The Employee shall not provide services, for
compensation, to any other person or business entity while employed by TXEN
without approval of the Board and NRC.
(e) The Employee shall not be required to relocate beyond the
Birmingham, Alabama, metropolitan area without his consent.
2. Term of Employment. This Agreement shall commence as of the date hereof
and shall end four years from the date hereof (the "Term of Employment"), unless
terminated earlier or extended as provided herein. Upon expiration of the
initial Term of Employment unless earlier terminated as provided herein, the
Term of Employment shall continue automatically month-to-month until terminated
by either party with at least thirty (30) days' prior written notice with or
without cause. Notwithstanding the foregoing, if NRC purchases all of the
capital stock of TXEN pursuant to the Stock Purchase Option Agreement, NRC may
elect to (1) immediately terminate the Employee's employment or (2) extend the
Employee's employment for one year after the purchase of all of the capital
stock of TXEN by NRC in which event the Term of Employment shall be extended by
such additional period, unless terminated earlier as provided herein.
<PAGE> 4
3. Termination Before Expiration of Term of Employment. The termination of
the employment of the Employee during the Term of Employment may occur in one of
the following ways:
(a) By TXEN, for Cause. Termination by TXEN shall be deemed to be
for cause only upon:
(i) Employee's conviction of or pleading guilty to a
felony;
(ii) A good faith determination by the Board that the
Employee has breached either this Agreement, the
Purchase Agreement or the Stock Purchase Option
Agreement;
(iii) Refusal or failure by the Employee, without
reasonable excuse or proper authorization, to carry
out any reasonable instructions of the Board
consistent with Employee's rights or duties as set
forth in this Agreement;
(iv) Material breach of this Agreement or any material
breach of any agreement with NRC;
(v) The Employee's demonstration of negligence or willful
misconduct in the execution of his duties, including
without limitation breach of fiduciary duty or the
duty of loyalty owed TXEN.
If TXEN intends to terminate for cause, TXEN shall provide notice to
Employee of intent to terminate this Agreement, stating the termination
provision in this Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provisions so indicated, and shall provide Employee with an opportunity to cure
the alleged default or breach within thirty (30) days of receipt of the notice,
provided that if the matter is not curable within such thirty (30) day period,
the Employee shall not be deemed in default if the Employee commences
immediately to cure the matter and proceeds diligently thereafter to complete
the cure, further provided that the alleged breach or default must be cured
within ninety (90) days of receipt of the notice. TXEN shall not be required to
give more than one notice with respect to the same matter. Notwithstanding the
foregoing, no notice and no cure right shall be required with
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<PAGE> 5
respect to termination for cause under 3(a)(i) or an act involving theft of
information or property of TXEN.
(b) By TXEN, Without Cause. Any termination of Employee by TXEN
for reasons other than as set forth in subsections 3(a)(i) through 3(a)(v)
above shall be a termination without cause. TXEN may terminate the employment of
Employee without cause by thirty (30) days' prior written notice at any time. If
NRC purchases all of the capital stock of TXEN pursuant to the Stock Purchase
Option Agreement, NRC may cause TXEN to terminate the employment of Employee
without cause immediately after the closing of such purchase and without giving
30 days, prior notice.
(c) By the Employee. The Employee may by written notice terminate
his employment at any time during the Term of Employment:
(i) For any reason other than for Good Reason (as
defined below) upon thirty (30) days' prior written
notice at any time.
(ii) For "Good Reason," defined as termination because of
a material breach by TXEN of this Agreement
including, without limitation, making a material
change in the Employee's duties, responsibilities or
authority as set forth in this Agreement, without his
express written consent. In all cases in which
Employee intends to terminate for Good Reason, the
Employee shall provide TXEN with notice of intent to
terminate this Agreement, stating the facts and
circumstances giving rise to a breach of this
Agreement claimed to provide a basis for termination
under the provisions so indicated, and shall provide
TXEN with an opportunity to cure the alleged default
or breach within thirty (30) days of receipt of the
notice, provided that if the matter is not curable
within such thirty (30) day period, TXEN shall not be
deemed in default if it commences immediately to cure
the matter and proceeds diligently thereafter to
complete the cure, further provided that the alleged
breach or default must be cured within ninety (90)
days of receipt of the notice. Employee shall not be
required to give more than one such notice with
respect to the same matter.
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<PAGE> 6
(d) Death of the Employee.
(e) Disability of Employee. If, during the Term of Employment, a
physician selected by TXEN determines that the Employee has
become physically or mentally disabled so as to be unable to
carry out the normal and usual duties of his employment for
three (3) continuous months, and reasonable accommodation
cannot be made to allow the Employee to continue to perform
his duties full-time, his employment hereunder may be
terminated at the election of TXEN or the Employee.
4. Consequences of Termination. The termination of the employment of
Employee will cause the following results:
(a) If the termination is by TXEN for cause, or is by the Employee
for any reason other than for Good Reason, TXEN will pay the Employee within
five (5) days after the date of termination any unpaid salary, the amount of any
accrued annual vacation pay to which he may be entitled under TXEN's vacation
plan, and benefits. All such compensation and benefits (if any) shall be paid
only through the date termination occurs.
(b) If the termination is by TXEN without cause or because of
death or disability, TXEN shall pay to the Employee, in addition to the amounts
set forth in 4(a) above, an amount equal to fifty percent (50%) of the
Employee's monthly base salary then in effect in monthly installments over a
three-month period immediately following the termination.
(c) If the termination is by the Employee for Good Reason, TXEN
shall pay to the Employee, in addition to the amounts set forth in 4(a) above,
an amount equal to fifty percent (50%) of the Employee's monthly base salary
then in effect in monthly installments over a three-month period immediately
following the termination.
(d) In the event of the Employee's death or disability, the
following provisions will apply:
(i) Upon his death, the Employee's estate will be
entitled to receive the amount set forth in Section
4(b) and the benefits set forth in any plans of
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<PAGE> 7
TXEN then in effect and applicable under the
circumstances. The Employee or his estate shall be
entitled to no other compensation or benefits the
event of death.
(ii) Upon termination on account of disability, Employee
will be entitled to receive the amount set forth in
Section 4(b) and the benefits set forth in any plans
of TXEN then in effect and applicable under the
circumstances. The Employee or his personal
representative shall be entitled to no other
compensation or benefits in the event of disability.
(e) The Employee shall not be required to mitigate the amount of
payment provided for in this Section 4 by seeking employment.
(f) The amounts set forth above in this Section 4 shall be paid
and received in complete discharge of any other obligation of TXEN (or NRC) to
Employee resulting from termination of his employment.
5. Fringe Benefits.
The Employee shall participate in any group health insurance, vacation
and sick leave plans, and other benefit plans available to all employees of TXEN
in accordance with their terms and conditions which may be amended or terminated
by TXEN at any time.
6. Non-Disclosure Covenants and Proprietary Matters.
- 6 -
<PAGE> 8
(a) Unless authorized or instructed in writing by TXEN and NRC,
the Employee shall not, except as required in the conduct of TXEN's business,
during or at any time after the Term of Employment, disclose to others, or use,
any of NRC's or TXEN's inventions or discoveries or their respective secret or
confidential information or data (oral, written, or in machine readable form)
which the Employee may obtain during the course of or in connection with the
Employee's employment, including such inventions, discoveries, information,
know-how or data relating to machines, equipment, products, systems, software,
contracts, contract performance, research and/or development, designs,
compositions, formulae, processes, manufacturing procedures or business methods,
whether or not developed by the Employee, by others in NRC or TXEN or obtained
by NRC or TXEN from third parties, and irrespective of whether or not such
inventions, discoveries, information, knowledge or data have been identified by
NRC or TXEN as secret or confidential, unless and until, and then to the extent
and only to the extent that, such inventions, discoveries, information,
knowledge or data become available to the public otherwise than by the
Employee's act or omission.
(b) The Employee shall not, except as required in the conduct of
TXEN's business, disclose to others, or use, any of the information (which, if
disclosed or used, could be harmful to NRC or TXEN) relating to present and
prospective customers of NRC or TXEN, business dealings with such customers,
prospective sales and advertising programs and agreements with representatives
or prospective representatives of NRC or TXEN, present or prospective sources of
supply or any other business arrangements o NRC or TXEN, including but not
limited to customers, customer lists, costs, prices and earnings, whether or not
such information is developed by the Employee, by others in NRC or TXEN or
obtained by NRC OR TXEN from third parties, and irrespective of whether or not
such information has been identified by NRC or TXEN as secret or confidential,
unless and until, and then to the extent and only to the extent that, such
information becomes available to the public otherwise than by the Employee's act
or omission.
(c) The Employee agrees to disclose immediately to TXEN or any
persons designated by it and to assign to TXEN or its successors or assigns, all
inventions made, discovered, or first reduced to practice by the Employee,
solely or jointly with others, during the Term of Employment or within a period
of six months from the date of termination of such employment (either during or
- 7 -
<PAGE> 9
outside of the Employee's working hours and either on or off TXEN's premises),
which inventions are made, discovered or conceived either in the course of such
employment, or with the use of TXEN's time, material, facilities or funds, or
which are directly related to any investigations or obligations undertaken by
TXEN; and the Employee hereby grants and agrees to grant the right to TXEN and
its nominees to obtain, for its own benefit and in its own name (entirely at its
expense) patents and patent applications including original, continuation,
reissue, utility and design patents, and applications, patents of addition,
confirmation patents, registration patents, petty patents, utility models, and
all other types of patents and the like, and all renewals and extensions of any
of them for those inventions in any and all countries; and the Employee shall
assist TXEN, at TXEN's expense, without further charge during the term of the
Employee's employment, and after termination of the Employee's employment at the
same base salary rate (excluding any bonuses, incentive or deferred compensation
or other benefits and based upon a forty hour work week) as during the last year
of the Employee's employment (determined on an hourly basis for this purpose),
through counsel designated by TXEN, to execute, acknowledge, and deliver all
such further papers, including assignments, applications for Letters Patent (of
the United States or of any foreign country), oaths, disclaimers or other
instruments and to perform such further acts, including giving testimony or
furnishing evidence in the prosecution or defense of appeals, interferences,
suits and controversies relating to any aforesaid inventions as may reasonably
be deemed necessary by TXEN or its nominees to effectuate the vesting or
perfecting in TXEN or its nominees of all right, title and interest in and to
said inventions, applications and patents. Notwithstanding the foregoing, the
Employee need not take any action called for under this Section 6(c) which will
cause undue personal hardship to the Employee.
(d) The Employee agrees to disclose immediately to TXEN or any
persons designated by it and to assign to TXEN, at its option, or its successors
or assigns, all works of authorship, including all writings, computer programs,
software, and firmware, written or created by the Employee solely or jointly
with others, during the course of his employment by TXEN (either during or
outside of the Employee's working hours and either on or off TXEN's premises),
which works are made or conceived either in the course of such employment, or
with the use of TXEN's time, material, facilities or funds, or which are
directly related to any investigations or
- 8 -
<PAGE> 10
obligations undertaken by TXEN; and the Employee hereby agrees that all such
works are works made for hire, of which TXEN is the author and the beneficiary
of all rights and protections afforded by the law of copyright in any and all
countries; and the Employee will assist TXEN at TXEN's expense without further
charges during the term of his employment, and after termination of his
employment at the same base salary rate (excluding any bonuses, incentive or
deferred compensation or other benefits) as during the last year of his
employment (determined on an hourly basis for this purpose assuming a forty hour
work week), through counsel designated by TXEN, to execute, acknowledge, and
deliver all such further papers, including assignments, applications for
copyright registration (in the United States or in any foreign country), oaths,
disclaimers or other instruments, and to perform such further acts, including
giving testimony or furnishing evidence in the prosecution or defense of
appeals, interferences, suits and controversies relating to any aforesaid works,
as may be deemed necessary by TXEN or by its nominees to effectuate the vesting
or perfecting in TXEN or its nominees of all rights and interest in and to said
works and copies thereof, including the exclusive rights of copying and
distribution.
(e) The Employee shall keep complete, accurate and authentic
accounts, notes, data and records of all inventions made, discovered or
developed and all works of authorship written or created by the Employee as
aforesaid in the manner and form requested by TXEN.
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples, notes,
records, reports, documents, customer lists, photographs, catalogues and other
writings, whether copyrightable or not, relating to or dealing with TXEN's or
NRC's business and plans, and those of others entrusted to TXEN or NRC, which
are prepared or created by the Employee or which may come into his possession
during or as a result of his employment, are the property of TXEN or NRC, as
applicable, and upon termination of his employment, the Employee agrees to
return all such computer software, computer programs, source codes, object
codes, magnetic tapes, printouts, samples, notes, records, reports, documents,
customer lists, photographs, catalogues and writings and all copies thereof to
TXEN or NRC.
- 9 -
<PAGE> 11
7. Non-Solicitation and Non-Competition. During the Restriction Period (as
hereinafter defined) within the United States of America, the Employee shall not
directly or indirectly:
(a) Solicit the business of TXEN from any customer of TXEN or any
entity controlled by TXEN or solicit any employees of TXEN to leave the employ
of TXEN.
(b) Directly or indirectly, hire any employees or former employees
of TXEN or any entity controlled by TXEN within one year of the date of
termination of his employment with TXEN or cause any entity with which the
Employee is affiliated to hire any such employees or former employees of TXEN.
(c) Engage in, represent in any way or be connected with, as
consultant, officer, director, partner, employee, sales representative,
proprietor, stockholder or otherwise (except for the ownership of a less than 1%
stock interest in a publicly-traded corporation where Employee is not in a
management or control position), any business competing with the business of
TXEN as conducted by TXEN on the date hereof or during the period of Employee's
employment by TXEN.
(d) As used herein, the Restriction Period shall mean the period
while the Employee is employed by TXEN and the following periods:
(i) 36 months after the date the Employee ceases to be
employed by TXEN and/or
(ii) 60 months after NRC purchases all of the capital
stock of TXEN pursuant to the Stock Purchase Option Agreement.
The above periods in sections 7(d)(i) and 7(d)(ii) shall not be
mutually exclusive. For example, if NRC purchases the capital stock of TXEN more
than 36 months after the Employee ceases to be employed by TXEN, the Restriction
Period of 7(d)(ii) shall apply even though the Restriction Period of 7(d)(i)
also applied. Similarly, if the Employee ceases to be employed by TXEN more than
60 months after NRC purchases the capital stock of TXEN, the Restriction Period
of section 7(d)(i) shall apply even though the Restriction Period of 7(d)(ii)
also applied.
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<PAGE> 12
8. No Conflict. Employee represents and warrants that he is not a party to
or otherwise subject to or bound by the terms of any contract, agreement or
understanding which in any manner would limit or otherwise affect his ability to
perform his obligations hereunder, including without limitation any contract,
agreement or understanding containing terms and provisions similar in any manner
to those contained in Sections 6 and 7 hereof. Employee covenants to indemnify
and hold NRC, TXEN and any of their affiliates harmless from any cost or damages
(including attorneys' fees and expenses) resulting from any breach of the
provisions of this Agreement.
9. Survival of Covenants, Effect.
(a) The covenants on the part of the Employee contained or
referred to in Sections 6 and 7 above shall survive termination of this
Agreement, and the existence of any claim or cause of action of the Employee
against TXEN or NRC, whether predicated on this Agreement or otherwise. The
Employee agrees that a remedy at law for any breach of the foregoing covenants
contained or referred to in Sections 6 and 7 would be inadequate, that TXEN and
NRC would suffer irreparable harm as a result and that NRC and/or TXEN shall be
entitled to a temporary and permanent injunction or an order for specific
performance of such covenants without the necessity of proving actual damage to
NRC or TXEN and without the posting of any bond or other security. Any breach of
this Agreement by TXEN or NRC shall not release the Employee from his
obligations under Sections 6 and 7 hereof.
(b) The Employee hereby represents and acknowledges that NRC and
TXEN are relying on the covenants in Sections 6 and 7 in entering into this
Agreement and the Purchase Agreement and other agreements related thereto and
that the restrictions in Sections 6 and 7 are fair and reasonable. The Employee
acknowledges that TXEN does business throughout the United States and that the
geographic scope of the covenants in Section 7 is therefore reasonable and
necessary to protect the interests of TXEN.
(c) It is the intent of the parties that the provisions of
Sections 6 and 7 shall be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is sought. If
any particular provision of Sections 6 and 7 shall be adjudicated to be invalid
or unenforceable, such provision(s) of Sections 6 and 7 shall be
- 11 -
<PAGE> 13
deemed amended to provide restrictions to the fullest extent permissible and
consistent with applicable law and policies, and such amendment shall apply only
with respect to the particular jurisdiction in which such adjudication is made.
If such deemed amendment is not allowed by the adjudicating body, the offending
provision, only, shall be deleted and the remainder of Sections 6 and 7 shall
not be effected.
10. Assignment.
The rights and obligations of TXEN under this Agreement may be assigned
by TXEN to NRC or to any other successors in interest of TXEN and/or NRC of that
part of the business of TXEN or NRC to which this Agreement applies or to their
respective affiliates. This Agreement may not be assigned and any duties of the
Employee may not be delegated by the Employee, but any amounts owing to the
Employee upon his death shall inure to the benefit of his estate.
11. Notices.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified mail,
return receipt requested, postage prepaid, next-day air delivery, or transmitted
by facsimiles or hand delivery. Such notice or other communication shall be
deemed sufficiently given, served, sent or received for all purposes at such
time as it is delivered to the addressee or at such time as delivery is refused
by the addressee upon presentation. Each party may designate by notice in
writing an address to which any notice or communication may thereafter be so
given, served or sent. Any notice or other communication sent by Employee to
TXEN shall also be sent, at the same time, to NRC. Notices hand delivered to
TXEN or NRC must be delivered to an officer of TXEN and NRC and all other
notices shall be sent to the attention of the Board, in the case of TXEN, or to
the President, in the case of NRC.
12. Applicable Law Jurisdiction.
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<PAGE> 14
This Agreement has been negotiated and executed in the State of
Alabama, and it shall be governed by, construed and enforced in accordance with
the internal substantive laws and not the choice of law rules of the State of
Alabama.
13. Effectiveness/Interpretation.
The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been represented
by counsel of its or his own choosing. Accordingly, any rule of law or legal
decision that would require interpretation of any ambiguities in the Agreement
against the party that drafted it is not applicable and is waived.
14. Third Party Beneficiary.
NRC is a third party beneficiary to this entire Agreement but shall
have no liability to pay the compensation due Employee and to perform the other
obligations of TXEN hereunder. NRC is not a guarantor of any of the TXEN
obligations hereunder.
15. Severability.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
16. Entire Agreement.
The foregoing contains the entire agreement between the parties
relating to the subject matter of this Agreement, and may not be altered or
amended except by an instrument in writing approved by TXEN and NRC and signed
by the parties hereto, and this Agreement supersedes all prior understandings
and agreements relating to employment of the Employee by TXEN. The parties
acknowledge that any prior oral or written agreements between NRC and the
Employee, if any, are hereby terminated. The parties acknowledge that the
Employee and NRC have also entered into the Purchase Agreement and Stock
Purchase Option Agreement which shall be in addition to and not in lieu of the
provisions of this Agreement.
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<PAGE> 15
IN WITNESS WHEREOF, TXEN and NRC have caused this Agreement to be
executed by their duly authorized officers and the Employee has hereunto set his
hand as of the date first above written.
TXEN, INC.
By: Thomas L. Patterson
-----------------------------------
Thomas L. Patterson, President
NICHOLS RESEARCH CORPORATION
By:
-----------------------------------
Its:
-------------------------------
Thomas L. Patterson
--------------------------------------
Thomas L. Patterson, Employee
- 14 -
<PAGE> 16
SCHEDULE I
Duties of Employees
THOMAS L. PATTERSON, PRESIDENT
(i) to promote the growth of and manage the business and day to day
operations of TXEN;
(ii) to perform the duties normally associated with the Office of President
or such other office to which Employee may be nominated and appointed
by the Board, subject to control and direction of the Board;
(iii) to train and supervise TXEN's employees and to perform or cause to be
performed quality control for projects and contracts performed by TXEN;
(iv) to manage and/or actually assist in the bidding and performance of
major or material projects and contracts undertaken by TXEN;
(v) to direct and supervise the sale and marketing of TXEN's contracts,
services and products and, if requested, the contracts, services and
products of NRC;
(vi) to perform such other and/or different duties as may be determined or
delegated by the Board, consistent with the duties of the President.
<PAGE> 17
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------------
NICHOLS SELECT CORPORATION
AND
THOMAS L. PATTERSON
---------------------------------------
Dated: August 29, 1997
<PAGE> 18
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO CERTAIN EMPLOYMENT AGREEMENT, dated 16th of December,
1994, is entered into on this the 29th day of August, 1997, by NICHOLS SELECT
CORPORATION, a Delaware corporation and the wholly owned subsidiary of NRC and
Thomas L. Patterson ("Employee"). Unless otherwise defined, capitalized terms
used herein shall have the meaning ascribed to such terms in the Employment
Agreement or Merger Agreement (hereinafter defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), SELECT, a wholly owned
subsidiary of NRC, TXEN, Inc. ("TXEN"), and the holders of all of the $0.002 par
value Class A Common Stock of TXEN (the "Shareholders") have entered into and
consummated an Agreement of Merger dated as of August 27, 1997 (the "Merger
Agreement") whereby TXEN merged with and into SELECT;
WHEREAS, the Employee's continued employment with SELECT was a material
inducement to SELECT and NRC to enter into the Merger Agreement;
WHEREAS, the Employee owned Class A Common Stock of TXEN and received a
portion of the Merger Consideration;
WHEREAS, NRC, pursuant to Section 2 of Employment Agreement has elected
to extend Employee's Term of Employment after the Effective Date of the merger
of TXEN into SELECT; and
WHEREAS, NRC, SELECT, and Employee mutually desire that Employee
continue to be employed by SELECT;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. SELECT agrees to the continued employment of the
Employee, and the Employee agrees to accept continued employment by SELECT on a
full-time basis as President of SELECT with the same Duties and Salary as set
forth in the Employment Agreement, except that Employee shall report to the
Chief Executive Officer of SELECT.
2. Section 2 of said Employment Agreement is amended to
read as follows:
2. Term of Employment. This Agreement shall
commence as of the Effective Date of the Merger
<PAGE> 19
Agreement and shall end two (2) years from
the date hereof (the "Term of Employment"), unless
terminated earlier or extended as provided herein.
3. Unless the context requires otherwise, all references
to TXEN, Inc., in the Employment Agreement shall mean SELECT.
Except as amended. above, the Employment Agreement shall remain in full
force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
to Employment Agreement on the date and year first above written.
NICHOLS SELECT CORPORATION
By: /s/ Michael J, Mruz
-----------------------------------
Michael J. Mruz,
Its: Chief Executive Officer
/s/ Thomas L. Patterson
--------------------------------------
Thomas L. Patterson, Employee
- 2 -
<PAGE> 20
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
=================================================
NICHOLS TXEN CORPORATION
AND
THOMAS L. PATTERSON
=================================================
Dated: June 1, 1998
<PAGE> 21
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT, dated December 16,
1994, as amended August 29, 1997 (the "Employment Agreement"), is entered into
on this the 1st day of June, 1998, by NICHOLS TXEN CORPORATION, formerly known
as NICHOLS SELECT CORPORATION, a Delaware corporation and the wholly owned
subsidiary of NRC ("Nichols TXEN"), and Thomas L. Patterson, ("Employee").
Unless otherwise defined, capitalized terms used herein shall have the meaning
ascribed to such terms in the Employment Agreement or Merger Agreement
(hereinafter defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), NICHOLS SELECT
CORPORATION ("Nichols Select"), a Wholly owned subsidiary of NRC, TXEN, Inc.
("TXEN'), and the holders of all of the $0.002 par value Class A Common Stock of
TXEN (the "Shareholders") entered into and consummated an Agreement of Merger
dated as of August 27, 1997 (the "Merger Agreement") whereby TXEN merged with
and into Nichols Select with Nichols Select as the surviving corporation;
WHEREAS, Nichols Select changed its name to Nichols TXEN after the
merger;
WHEREAS, Employee entered into the Employment Agreement with TXEN which
has been assumed by Nichols TXEN; and
WHEREAS, Nichols TXEN, and Employee mutually desire to amend the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. Section 1(a) is hereby deleted in its entirety and a
new Section 1(a) is hereby substituted as follows:
Nichols TXEN agrees to employ the Employee, and the
Employee agrees to accept employment by Nichols TXEN
on a part-time basis averaging approximately 20 hours
per week beginning June 1, 1998, and ending January
31, 1999, at the hourly rate of Seventy-Five and
60/100 Dollars ($75.60), which shall be the
Employee's base salary. Effective February 1, 1999,
the Employee shall work on a part-time basis
averaging approximately ten (10) hours per week at an
hourly rate of Seventy-Nine and 08/100 Dollars
<PAGE> 22
($79.08), which shall be the Employee's base salary.
2. Section 1(d) is hereby deleted in its entirety and a new
Section l(d) is hereby substituted as follows:
Employee shall be employed in the position of Chairman of the
Board of Directors of Nichols TXEN until such time as he is
removed from that position by death, resignation, or action of
the Nichols TXEN Board of Directors. Employee's duties shall
include the duties and responsibilities identified on Schedule
I-A attached hereto. The Employee shall perform such other
tasks and duties as may be reasonably assigned by Nichols
TXEN, from time to time.
3. Section 5 entitled Fringe Benefits is hereby deleted in its
entirety and a new Section 5 is hereby substituted as follows:
Employee shall participate in any group health insurance,
vacation, and sick leave plans, and other benefits available
to part-time employees of Nichols TXEN in accordance with
their terms and conditions which may be amended or terminated
by Nichols TXEN at any time. In addition, the Employee shall
be allowed to purchase the prevailing Blue Cross/Blue Shield
group coverage offered to full-time employees by directly
reimbursing the Company on a monthly basis for the cost of the
premiums therefor. Employee may continue this purchase of
health care coverage at the applicable monthly insured rate
until the plan terminates or until the Employee attains age
65, whichever occurs first. If the Employee's spouse is
younger than the Employee, then his spouse may continue to
purchase such insurance by paying to Nichols TXEN the premium
cost for individual coverage until age 65 or until the plan
terminates, whichever occurs first. If group health insurance
coverage with Blue Cross/Blue Shield is terminated and group
health insurance coverage is placed with another insurer,
health maintenance organization (HMO), or other provider of
such coverage, the Employee and his
<PAGE> 23
spouse shall be entitled to obtain health insurance coverage
by paying the premium cost therefor in the same manner as
permitted with respect to the Blue Cross/Blue Shield plan,
provided such insurer, HMO, or other provider approves such
participation by Employee and/or his spouse.
Except as amended above, the Employment Agreement shall remain in full
force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
Number Two to Employment Agreement on the date and year first above written.
NICHOLS TXEN CORPORATION
By: /s/ PAUL D. REAVES
-----------------------------------
PAUL D. REAVES
Its: Chief Executive Officer
/S/ THOMAS L. PATTERSON
--------------------------------------
Thomas L. Patterson, Employee
- 3 -
<PAGE> 24
AMENDMENT NUMBER THREE TO EMPLOYMENT AGREEMENT
==========================================================
NICHOLS TXEN CORPORATION
AND
THOMAS L. PATTERSON
==========================================================
DATED: NOVEMBER 6, 1998
<PAGE> 25
AMENDMENT NUMBER THREE
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER THREE TO EMPLOYMENT AGREEMENT, dated December 16,
1994, as amended August 29, 1997, and June 1, 1998 (the "Employment Agreement"),
is entered into on this the 6th day of November, 1998, by NICHOLS TXEN
CORPORATION, formerly known as NICHOLS SELECT CORPORATION, a Delaware
corporation ("Nichols TXEN"), and THOMAS L. PATTERSON, ("Employee"). Unless
otherwise defined, capitalized terms used herein shall have the meaning ascribed
to such terms in the Employment Agreement or Merger Agreement (hereinafter
defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), NICHOLS SELECT
CORPORATION ("Nichols Select"), a wholly owned subsidiary of NRC, TXEN, Inc.
("TXEN"), and the holders of all of the $0.002 par value Class A Common Stock of
TXEN (the "Shareholders") entered into and consummated an Agreement of Merger
dated as of August 27, 1997 (the "Merger Agreement") whereby TXEN merged with
and into Nichols Select with Nichols Select as the surviving corporation (the
"Merger");
WHEREAS, Nichols Select changed its name to Nichols TXEN after the
Merger;
WHEREAS, Employee entered into the Employment Agreement with TXEN which
has been assumed by Nichols TXEN; and
WHEREAS, Nichols TXEN and Employee mutually desire to amend the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. References in the Employment Agreement to TXEN, Nichols Select or
Select shall mean Nichols TXEN wherever the context requires in light of the
Merger and change in name of Nichols Select to Nichols TXEN.
2. Section 2 of the Employment Agreement and Section 2 of the August
29, 1997, Amendment to the Employment Agreement are deleted and there is hereby
substituted a new Section 2 of the Employment Agreement, as follows:
"This Employment Agreement shall commence as of the effective date
of the Merger Agreement and shall end on the later of
<PAGE> 26
(i) August 28, 1999; or
(ii) Two years after the date a registration
statement initially registering the
Company's common stock under the Securities
Act of 1933 is declared effective by the
Securities and Exchange Commission, provided
such registration statement is declared
effective before August 28, 1999.
The period between the commencement date and the
termination date as set forth above shall be the
`Term of Employment,' unless terminated earlier or
extended as provided herein. Upon expiration of the
initial Term of Employment unless earlier terminated
as provided herein, the Term of Employment shall
continue automatically month-to-month until
terminated by either party with at least thirty (30)
days prior written notice with or without cause."
3. This Amendment is effective on the date hereof.
4. Except as amended above, the Employment Agreement shall remain in
full force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
Number Three to Employment Agreement on the date and year first above written.
NICHOLS TXEN CORPORATION
By: /s/ Paul D. Reaves
-------------------------------------
PAUL D. REAVES
Its: Chief Executive Officer
/s/ Thomas L. Patterson
-------------------------------------
Thomas L. Patterson, Employee
<PAGE> 1
EXHIBIT 10.5
TXEN, INC.
================================================================================
EMPLOYMENT AGREEMENT
with
PAUL D. REAVES
================================================================================
Dated: December 16, 1994
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the 16th day of December, 1994, by
and, among Paul D. Reaves, residing at 2533 Clydebank Circle, Birmingham, AL
35242 (herein called the "Employee"), TXEN, INC. (herein called "TXEN")
with a principal place of business at 10 Inverness Center Parkway, Suite 140,
Birmingham, Alabama 35242, and NICHOLS RESEARCH CORPORATION, with a principal
place of business located at 4040 Memorial Parkway South, Huntsville, Alabama
35802 (herein called "NRC").
W I T N E S S E T H:
WHEREAS, TXEN is engaged in the business of managed care administration
and providing information systems and services to managed care administrators;
WHEREAS, NRC, as purchaser, and TXEN, as seller, entered into and
consummated a Convertible Preferred Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement") whereby NRC acquired one share of
Preferred Stock of TXEN, and the Employee's continued employment with TXEN was a
material inducement to NRC to enter into the Purchase Agreement;
WHEREAS, NRC has also entered into a Stock Purchase Option Agreement of
even date herewith giving NRC the option to purchase all of the capital stock of
TXEN owned by the Employee together with the capital stock owned by the other
shareholders of TXEN provided NRC converts the Preferred Stock into Class B
Common Stock; and
WHEREAS, TXEN and NRC desire to obtain the services of the Employee as
Executive Vice President of TXEN and the Employee is willing to render such
services to TXEN upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Duties and Salary.
(a) TXEN agrees to employ the Employee and the Employee agrees to
accept employment by TXEN on a full-time basis as Executive Vice President of
TXEN at a base salary of $5,416.66 per month plus such incentive compensation as
the Board of Directors of TXEN (the "Board") may determine payable during the
Term of Employment, as hereinafter defined. Such salary shall be subject to
increases from time to time as authorized by the Board, provided any increase in
compensation paid to the Employee shall require the
<PAGE> 3
affirmative vote of the director or directors elected to the Board by NRC so
long as NRC owns any capital stock of TXEN.
(b) The Employee hereby agrees to undertake such travel as may be
required in the performance of his duties. The reasonable travel expenses of the
Employee shall be reimbursed in accordance with TXEN's reimbursement policy, in
effect from time to time.
(c) The Employee shall carry out his duties under the general
supervision of the Board or its designee.
(d) The Employee's duties shall include the duties and responsibilities
identified on Schedule I attached hereto. The Employee shall perform such other
tasks and duties as may be assigned by TXEN, from time to time and TXEN reserves
the right to change the office and/or position of the Employee within TXEN, so
long as such change is mutually acceptable. The Employee shall devote his full
time, attention, skill and efforts to the tasks and duties assigned by TXEN. The
Employee shall not provide services, for compensation, to any other person or
business entity while employed by TXEN without approval of the Board and NRC.
(e) The Employee shall not be required to relocate beyond the
Birmingham, Alabama, metropolitan area without his consent.
2. Term of Employment. This Agreement shall commence as of the date
hereof and shall end four years from the date hereof (the "Term of Employment")
unless terminated earlier or extended as provided herein. Upon expiration of
the initial Term of Employment unless earlier terminated as provided herein, the
Term of Employment shall continue automatically month-to-month until terminated
by either party with at least thirty (30) days' prior written notice with or
without cause. Notwithstanding the foregoing, if NRC purchases all of the
capital stock of TXEN pursuant to the Stock Purchase Option Agreement, NRC may
elect to (1) immediately terminate the Employee's employment or (2) extend the
Employee's employment for thirty months after the purchase of all of the capital
stock of TXEN by NRC in which event the Term of Employment shall be extended by
such additional period, unless terminated earlier as provided herein.
3. Termination Before Expiration of Term of Employment. The termination
of the employment of the Employee during the Term of Employment may occur in one
of the following ways:
(a) By TXEN, for cause. Termination by TXEN shall be deemed to be for
cause only upon:
(i) Employee's conviction of or pleading guilty to a felony;
(ii) A good faith determination by the board that the Employee has
breached either this Agreement, the
-2-
<PAGE> 4
Purchase Agreement or the Stock Purchase Option Agreement;
(iii) Refusal or failure by the Employee, without reasonable excuse
or proper authorization, to carry out any reasonable
instructions of the Board consistent with Employee's rights or
duties as set forth in this Agreement;
(iv) Material breach of this Agreement or any material breach of
any agreement with NRC;
(v) The Employee's demonstration of negligence or willful
misconduct in the execution of his duties, including without
limitation breach of fiduciary duty or the duty of loyalty
owed TXEN.
If TXEN intends to terminate for cause, TXEN shall provide notice to
Employee of intent to terminate this Agreement, stating the termination
provision in this Agreement relied upon and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provisions so indicated, and shall provide Employee with an opportunity to cure
the alleged default or breach within thirty (30) days of receipt of the notice,
provided that if the matter is not curable within such thirty (30) day period,
the Employee shall not be deemed in default if the Employee commences
immediately to cure the matter and proceeds diligently thereafter to complete
the cure, further provided that the alleged breach or default must be cured
within ninety (90) days of receipt of the notice. TXEN shall not be required to
give more than one notice with respect to the same matter. Notwithstanding the
foregoing, no notice and no cure right shall be required with respect to
termination for cause under 3(a)(i) or an act involving theft of information or
property of TXEN.
(b) By TXEN, Without Cause. Any termination of Employee by TXEN for
reasons other than as set forth in subsections 3(a)(i) through 3(a)(v) above
shall be a termination without cause. TXEN may terminate the employment of
Employee without cause by thirty (30) days' prior written notice at any time. If
NRC purchases all of the capital stock of TXEN pursuant to the Stock Purchase
Option Agreement, NRC may cause TXEN to terminate the employment of Employee
without cause immediately after the closing of such purchase and without giving
30 days' prior notice.
(c) By the Employee. The Employee may by written notice terminate his
employment at any time during the Term of Employment:
(i) For any reason other than for Good Reason (as defined below)
upon thirty (30) days' prior written notice at any time.
-3-
<PAGE> 5
(ii) For "Good Reason," defined as termination because of a
material breach by TXEN of this Agreement including, without
limitation, making a material change in the Employee's duties,
responsibilities or authority as set forth in this Agreement,
without his express written consent. In all cases in which
Employee intends to terminate for Good Reason, the Employee
shall provide TXEN with notice of intent to terminate this
Agreement, stating the facts and circumstances giving rise to
a breach of this Agreement claimed to provide a basis for
termination under the provisions so indicated, and shall
provide TXEN with an opportunity to cure the alleged default
or breach within thirty (30) days of receipt of the notice,
provided that if the matter is not curable within such thirty
(30) day period, TXEN shall not be deemed in default if it
commences immediately to cure the matter and proceeds
diligently thereafter to complete the cure, further provided
that the alleged breach or default must be cured within ninety
(90) days of receipt of the notice. Employee shall not be
required to give more than one such notice with respect to the
same matter.
(d) Death of the Employee.
(e) Disability of Employee. If, during the Term of Employment, a
physician selected by TXEN determines that the Employee has become physically or
mentally disabled so as to be unable to carry out the normal and usual duties of
his employment for three (3) continuous months, and reasonable accommodation
cannot be made to allow the Employee to continue to perform his duties
full-time, his employment hereunder may be terminated at the election of TXEN or
the Employee.
4. Consequences of Termination. The termination of the employment of Employee
will cause the following results:
(a) If the termination is by TXEN for cause, or is by the Employee
for any reason other than for Good Reason, TXEN will pay the Employee within
five (5) days after the date of termination any unpaid salary, the amount of any
accrued annual vacation pay to which he may be entitled under TXEN's vacation
plan, and benefits. All such compensation and benefits (if any) shall be paid
only through the date termination occurs.
(b) If the termination is by TXEN without cause or because of death
or disability, TXEN shall pay to the Employee, in addition to the amounts set
forth in 4(a) above, an amount equal to fifty percent (50%) of the Employee's
annualized base salary then in
-4-
<PAGE> 6
effect in monthly installments over a six-month period immediately following the
termination.
(c) If the termination is by the Employee for Good Reason, TXEN shall
pay to the Employee, in addition to the amounts set forth in 4(a) above, an
amount equal to fifty percent (50%) of the Employee's annualized base salary
then in effect in monthly installments over a six-month period immediately
following the termination.
(d) In the event of the Employee's death or disability, the following
provisions will apply:
(i) Upon his death, the Employee's estate will be entitled to
receive the amount set forth in Section 4(b) and the benefits
set forth in any plans of TXEN then in effect and applicable
under the circumstances. The Employee or his estate shall be
entitled to no other compensation or benefits in the event of
death.
(ii) Upon termination on account of disability, Employee will be
entitled to receive the amount set forth in Section 4(b) and
the benefits set forth in any plans of TXEN then in effect and
applicable under the circumstances. The Employee or his
personal representative shall be entitled to no other
compensation or benefits in the event of disability.
(e) The Employee shall not be required to mitigate the amount of
payment provided for in this Section 4 by seeking employment.
(f) The amounts set forth above in this Section 4 shall be paid and
received in complete discharge of any other obligation of TXEN (or NRC) to
Employee resulting from termination of his employment.
5. Fringe Benefits.
The Employee shall participate in any group health insurance, vacation
and sick leave plans, and other benefit plans available to all employees of TXEN
in accordance with their terms and conditions which may be amended or terminated
by TXEN at any time.
6. Non-Disclosure Covenants and Proprietary Matters.
(a) Unless authorized or instructed in writing by TXEN and NRC, the
Employee shall not, except as required in the conduct of TXEN's business, during
or at any time after the Term of Employment, disclose to others, or use, any of
NRC's or TXEN's inventions or discoveries or their respective secret or
confidential information or data (oral, written, or in machine
-5-
<PAGE> 7
readable form) which the Employee may obtain during the course of or in
connection with the Employee's employment, including such inventions,
discoveries, information, know-how or data relating to machines, equipment,
products, systems, software, contracts, contract performance, research and/or
development, designs, compositions, formulae, processes, manufacturing
procedures or business methods, whether or not developed by the Employee, by
others in NRC or TXEN or obtained by NRC or TXEN from third parties, and
irrespective of whether or not such inventions, discoveries, information,
knowledge or data have been identified by NRC or TXEN as secret or confidential,
unless and until, and then to the extent and only to the extent that, such
inventions, discoveries, information, knowledge or data become available to the
public otherwise than by the Employee's act or omission.
(b) The Employee shall not, except as required in the conduct of TXEN's
business, disclose to others, or use, any of the information (which, if
disclosed or used, could be harmful to NRC or TXEN) relating to present and
prospective customers of NRC or TXEN, business dealings with such customers,
prospective sales and advertising programs and agreements with representatives
or prospective representatives of NRC or TXEN, present or prospective sources of
supply or any other business arrangements of NRC or TXEN, including but not
limited to customers, customer lists, costs, prices and earnings, whether or not
such information is developed by the Employee, by others in NRC or TXEN or
obtained by NRC or TXEN from third parties, and irrespective of whether or not
such information has been identified by NRC or TXEN as secret or confidential,
unless and until, and then to the extent and only to the extent that, such
information becomes available to the public otherwise than by the Employee's act
or omission
(c) The Employee agrees to disclose immediately to TXEN or any persons
designated by it and to assign to TXEN or its successors or assigns, all
inventions made, discovered, or first reduced to practice by the Employee,
solely or jointly with others, during the Term of Employment or within a period
of six months from the date of termination of such employment (either during or
outside of the Employee's working hours and either on or off TXEN's premises),
which inventions are made, discovered or conceived either in the course of such
employment, or with the use of TXEN's time, material, facilities or funds, or
which are directly related to any investigations or obligations undertaken by
TXEN; and the Employee hereby grants and agrees to grant the right to TXEN and
its nominees to obtain, for its own benefits it and in its own name (entirely at
its expense) patents and patent applications including original, continuation,
reissue, utility and design patents, and applications, patents of addition,
confirmation patents, registration patents, petty patents, utility models, and
all other types of patents and the like, and all renewals and extensions of any
of them for those inventions in any and all countries; and the employee shall
assist TXEN, at TXEN'S expense, without further charge during the term of the
employee's employment, and after
-6-
<PAGE> 8
termination of the Employee's employment at the same base salary rate (excluding
any bonuses, incentive or deferred compensation or other benefits and based upon
a forty hour work week) as during the last year of the Employee's employment
(determined on an hourly basis for this purpose), through counsel designated by
TXEN, to execute, acknowledge, and deliver all such further papers, including
assignments, applications for Letters Patent (of the United States or of any
foreign country), oaths, disclaimers or other instruments and to perform such
further acts, including giving testimony or furnishing evidence in the
prosecution or defense of appeals, interferences, suits and controversies
relating to any aforesaid inventions as may reasonably be deemed necessary by
TXEN or its nominees to effectuate the vesting or perfecting in TXEN or its
nominees of all right, title and interest in and to said inventions,
applications and patents. Notwithstanding the foregoing, the Employee need not
take any action called for under this Section 6(c) which will cause undue
personal hardship to the Employee.
(d) The Employee agrees to disclose immediately to TXEN or any persons
designated by it and to assign to TXEN, at its option, or its successors or
assigns, all works of authorship, including all writings, computer programs,
software, and firmware, written or created by the Employee solely or jointly
with others, during the course of his employment by TXEN (either during or
outside of the Employee's working hours and either on or off TXEN's premises),
which works are made or conceived either in the course of such employment, or
with the use of TXEN's time, material, facilities or funds, or which are
directly related to any investigations or obligations undertaken by TXEN; and
the Employee hereby agrees that all such works are works made for hire, of
which TXEN is the author and the beneficiary of all rights and protections
afforded by the law of copyright in any and all countries; and the Employee will
assist TXEN at TXEN's expense without further charges during the term of his
employment, and after termination of his employment at the same base salary rate
(excluding any bonuses, incentive or deferred compensation or other benefits) as
during the last year of his employment (determined on an hourly basis for this
purpose assuming a forty hour work week), through counsel designated by TXEN, to
execute, acknowledge, and deliver all such further papers, including
assignments, applications for copyright registration (in the United States or in
any foreign country), oaths, disclaimers or other instruments, and to perform
such further acts, including giving testimony or furnishing evidence in the
prosecution or defense of appeals, interferences, suits and controversies
relating to any aforesaid works, as may be deemed necessary by TXEN or by its
nominees to effectuate the vesting or perfecting in TXEN or its nominees of
all rights and interest in and to said works and copies thereof, including the
exclusive rights of copying and distribution.
(e) The employee shall keep complete, accurate and authentic accounts,
notes, data and records of all inventions made,
-7-
<PAGE> 9
discovered or developed and all works of authorship written or created by the
Employee as aforesaid in the manner and form requested by TXEN.
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples, notes,
records, reports, documents, customer lists, photographs, catalogues and other
writings, whether copyrightable or not, relating to or dealing with TXEN's or
NRC's business and plans, and those of others entrusted to TXEN or NRC, which
are prepared or created by the Employee or which may come into his possession
during or as a result of his employment, are the property of TXEN or NRC, as
applicable, and upon termination of his employment, the Employee agrees to
return all such computer software, computer programs, source codes, object
codes, magnetic tapes, printouts, samples, notes, records, reports, documents,
customer lists, photographs, catalogues and writings and all copies thereof to
TXEN or NRC.
7. Non-Solicitation and Non-Competition. During the Restriction Period
(as hereinafter defined) within the United States of America, the Employee shall
not directly or indirectly:
(a) Solicit the business of TXEN from any customer of TXEN or any
entity controlled by TXEN or solicit any employees of TXEN to leave the employ
of TXEN.
(b) Directly or indirectly, hire any employees or former employees of
TXEN or any entity controlled by TXEN within one year of the date of termination
of his employment with TXEN or cause any entity with which the Employee is
affiliated to hire any such employees or former employees of TXEN.
(c) Engage in, represent in any way or be connected with, as
consultant, officer, director, partner, employee, sales representative,
proprietor, stockholder or otherwise (except for the ownership of a less than 1%
stock interest in a publicly-traded corporation where Employee is not in a
management or control position), any business competing with the business of
TXEN as conducted by TXEN on the date hereof or during the period of Employee's
employment by TXEN.
(d) As used herein, the Restriction Period shall mean the period while
the Employee is employed by TXEN and the following periods:
(i) 36 months after the date the Employee ceases to be employed by
TXEN and/or
(ii) 36 months after NRC purchases all of the capital stock of TXEN
pursuant to the Stock Purchase Option Agreement.
-8-
<PAGE> 10
The above periods in sections 7(d)(i) and 7(d)(ii) shall not be
mutually exclusive. For example, if NRC purchases the capital stock of TXEN more
than 36 months after the Employee ceases to be employed by TXEN, the Restriction
Period of 7 (d)(ii) shall apply even though the Restriction Period of 7(d)(i)
also applied. Similarly, if the Employee ceases to be employed by TXEN
more than 36 months after NRC purchases the capital stock of TXEN, the
Restriction Period of section 7(d)(i) shall apply even though the Restriction
Period of 7(d)(ii) also applied.
8. No Conflict. Employee represents and warrants that he is not a party to
or otherwise subject to or bound by the terms of any contract, agreement or
understanding which in any manner would limit or otherwise affect his ability
to perform his obligations hereunder, including without limitation any
contract, agreement or understanding containing terms and provisions similar in
any manner to those contained in Sections 6 and 7 hereof. Employee covenants to
indemnify and hold NRC, TXEN and any of their affiliates harmless from any
cost or damages (including attorneys' fees and expenses) resulting from any
breach of the provisions of this Agreement.
9. Survival of Covenants, Effect.
(a) The covenants on the part of the Employee contained or referred to
in Sections 6 and 7 above shall survive termination of this Agreement, and the
existence of any claim or cause of action of the Employee against TXEN or NRC,
whether predicated on this Agreement or otherwise. The Employee agrees that a
remedy at law for any breach of the foregoing covenants contained or referred to
in Sections 6 and 7 would be inadequate, that TXEN and NRC would suffer
irreparable harm as a result and that NRC and/or TXEN shall be entitled to a
temporary and permanent injunction or an order for specific performance of such
covenants without the necessity of proving actual damage to NRC or TXEN and
without the posting of any bond or other security. Any breach of this Agreement
by TXEN or NRC shall not release the Employee from his obligations under
Sections 6 and 7 hereof.
(b) The Employee hereby represents and acknowledges that NRC and TXEN
are relying on the covenants in Sections 6 and 7 in entering into this Agreement
and the Purchase Agreement and other agreements related thereto and that the
restrictions in Sections 6 and 7 are fair and reasonable. The Employee
acknowledges that TXEN does business throughout the United States and that the
geographic scope of the covenants in Section 7 is therefore reasonable and
necessary to protect the interests of TXEN.
(c) It is the intent of the parties that the provisions of Sections 6
and 7 shall be enforced to the fullest extent permissible under the laws and
public policies of each jurisdiction in which enforcement is sought. If any
particular provision of Sections 6 and 7 shall be adjudicated to be invalid or
-9-
<PAGE> 11
unenforceable, such provision(s) of Sections 6 and 7 shall be deemed amended to
provide restrictions to the fullest extent permissible and consistent with
applicable law and policies, and such amendment shall apply only with respect to
the particular jurisdiction in which such adjudication is made. If such deemed
amendment is not allowed by the adjudicating body, the offending provision,
only, shall be deleted and the remainder of Sections 6 and 7 shall not be
effected.
10. Assignment.
The rights and obligations of TXEN under this Agreement may be assigned
by TXEN to NRC or to any other successors in interest of TXEN and/or NRC of that
part of the business of TXEN or NRC to which this Agreement applies or to their
respective affiliates. This Agreement may not be assigned and any duties of the
Employee may not be delegated by the Employee, but any amounts owing to the
Employee upon his death shall inure to the benefit of his estate.
11. Notices.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified mail,
return receipt requested, postage prepaid, next-day air delivery, or transmitted
by facsimiles or hand delivery. Such notice or other communication shall be
deemed sufficiently given, served, sent or received for all purposes at such
time as it is delivered to the addressee or at such time as delivery is refused
by the addressee upon presentation. Each party may designate by notice in
writing an address to which any notice or communication may thereafter be so
given, served or sent. Any notice or other communication sent by Employee to
TXEN shall also be sent, at the same time, to NRC. Notices hand delivered to
TXEN or NRC must be delivered to an officer of TXEN and NRC and all other
notices shall be sent to the attention of the Board, in the case of TXEN, or to
the President, in the case of NRC.
12. Applicable Law Jurisdiction.
This Agreement has been negotiated and executed in the State of
Alabama, and it shall be governed by, construed and enforced in accordance with
the internal substantive laws and not the choice of law rules of the State of
Alabama.
13. Effectiveness/Interpretation.
The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been represented
by counsel of its or his own choosing.
-10-
<PAGE> 12
Accordingly, any rule of law or legal decision that would require interpretation
of any ambiguities in the Agreement against the party that drafted it is not
applicable and is waived.
14. Third Party Beneficiary.
NRC is a third party beneficiary to this entire Agreement but shall
have no liability to pay the compensation due Employee and to perform the other
obligations of TXEN hereunder. NRC is not a guarantor of any of the TXEN
obligations hereunder.
15. Severability.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
16. Entire Agreement.
The foregoing contains the entire agreement between the parties
relating to the subject matter of this Agreement, and may not be altered or
amended except by an instrument in writing approved by TXEN and NRC and signed
by the parties hereto, and this Agreement supersedes all prior understandings
and agreements relating to employment of the Employee by TXEN. The parties
acknowledge that any prior oral or written agreements between NRC and the
Employee, if any, are hereby terminated. The parties acknowledge that the
Employee and NRC have also entered into the Purchase Agreement and Stock
Purchase Option Agreement which shall be in addition to and not in lieu of the
provisions of this Agreement.
IN WITNESS WHEREOF, TXEN and NRC have caused this Agreement to be
executed by their duly authorized officers and the Employee has hereunto set his
hand as of the date first above written.
TXEN, INC.
By /s/ Thomas L. Patterson
---------------------------------------
Thomas L. Patterson, President
NICHOLS RESEARCH CORPORATION
By: /s/ Louis Rachmeler
---------------------------------------
Its: V.P. Acquisitions
-----------------------------
/s/ Paul D. Reaves
---------------------------------------
Paul D. Reaves, Employee
-11-
<PAGE> 13
SCHEDULE I
Duties of Employee
PAUL D. REAVES, EXECUTIVE VICE PRESIDENT
(i) to perform the duties of managing the sales and marketing staff.
(ii) to develop compensation plans for the sales and marketing staffs of
TXEN.
(iii) to create annual sales and marketing plans to best accomplish the
business goals of TXEN.
(iv) to train new sales and marketing staff in the sales techniques,
products and sales tools of TXEN.
(v) to participate as needed in management, status and other TXEN meetings
to assist with the overall management and operation of TXEN towards
reaching the TXEN business objectives.
(vi) to oversee the preparation of and approve the proposals submitted to
prospective customers by TXEN.
(vii) as required, to participate in or perform demonstrations and other such
presentations by TXEN.
(viii) to negotiate contracts with new customer accounts.
<PAGE> 14
AMENDMENT TO EMPLOYMENT AGREEMENT
================================================================================
NICHOLS SELECT CORPORATION
AND
PAUL D. REAVES
================================================================================
Dated: August 29, 1997
<PAGE> 15
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO CERTAIN EMPLOYMENT AGREEMENT, dated 16th of December,
1994, entered into on this the 29th day of August, 1997, by NICHOLS SELECT
CORPORATION, a Delaware corporation and the wholly owned subsidiary of NRC
("SELECT") and Paul D. Reaves ("Employee"). Unless otherwise defined,
capitalized terms used herein shall have the meaning ascribed to such terms in
the Employment Agreement or the Merger Agreement (hereinafter defined).
WITNESSETH:
WHEREAS, Nichols Research Corporation ("NRC"), SELECT, a wholly owned
subsidiary of NRC, TXEN, Inc. ("TXEN"), and the holders of all of the $0.002 par
value Class A Common Stock of TXEN (the "Shareholders") have entered into and
consummated an Agreement of Merger dated as of August 27, 1997 (the "Merger
Agreement") whereby TXEN merged with and into SELECT;
WHEREAS, the Employee's continued employment with SELECT was a material
inducement to SELECT and NRC to enter into the Merger Agreement;
WHEREAS, the Employee owned Class A Common Stock of TXEN and received a
portion of the Merger Consideration;
WHEREAS, NRC, pursuant to Section 2 of the Employment Agreement, has
elected to extend Employee's Term of Employment after the Effective Date of the
merger of TXEN into SELECT; and
WHEREAS, NRC, SELECT and Employee mutually desire that Employee
continue to be employed by SELECT;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. SELECT agrees to the continued employment of the Employee,
and the Employee agrees to accept continued employment by SELECT on a
full-time basis as Senior Vice President of SELECT with the same Duties
and Salary as set forth in the Employment Agreement, except that
Employee shall report to the Chief Executive Officer of SELECT.
2. Section 2 of said Employment Agreement is amended to read
as follows:
2. Term of Employment. This Agreement shall commence
as of the Effective Date of the
<PAGE> 16
Merger Agreement and shall end thirty (30) months from the
date hereof (the "Term of Employment"), unless terminated
earlier or extended as provided herein.
3. Unless the context requires otherwise, all references to
TXEN, Inc., in the Employment Agreement shall mean SELECT.
Except as amended above, the Employment Agreement shall remain in full
force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
to Employment Agreement on the date and year first above written.
NICHOLS SEARCH CORPORATION
By: /s/ Michael J. Mruz
---------------------------------------
Michael J. Mruz,
Its: Chief Executive Officer
/s/Paul D. Reaves
---------------------------------------
Paul D. Reaves, Employee
-2-
<PAGE> 17
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
=======================================================
NICHOLS TXEN CORPORATION
AND
PAUL D. REAVES
=======================================================
DATED: NOVEMBER 6, 1998
<PAGE> 18
AMENDMENT NUMBER TWO
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT, dated December 16,
1994, as amended August 29, 1997 (the "Employment Agreement"), is entered into
on this the 6th day of November, 1998, by NICHOLS TXEN CORPORATION, formerly
known as NICHOLS SELECT CORPORATION, a Delaware corporation ("Nichols TXEN"),
and PAUL D. REAVES, ("Employee"). Unless otherwise defined, capitalized terms
used herein shall have the meaning ascribed to such terms in the Employment
Agreement or Merger Agreement (hereinafter defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), NICHOLS SELECT
CORPORATION ("Nichols Select"), a wholly owned subsidiary of NRC, TXEN, Inc.
("TXEN"), and the holders of all of the $0.002 par value Class A Common Stock of
TXEN (the "Shareholders") entered into and consummated an Agreement of Merger
dated as of August 27, 1997 (the "Merger Agreement") whereby TXEN merged with
and into Nichols Select with Nichols Select as the surviving corporation (the
"Merger");
WHEREAS, Nichols Select changed its name to Nichols TXEN after the
Merger;
WHEREAS, Employee entered into the Employment Agreement with TXEN which
has been assumed by Nichols TXEN and which was amended concurrent with the
Merger; and
WHEREAS, Nichols TXEN and Employee mutually desire to amend the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. References in the Employment Agreement to TXEN, Nichols Select or
Select shall mean Nichols TXEN wherever the context requires in light of the
Merger and the change in name of Nichols Select to Nichols TXEN.
2. Section 1(a) of the Employment Agreement entitled "Duties and
Salary" and Section 1 of the August 29, 1997, Amendment to the Employment
Agreement are hereby amended to change the Employee's title to Chief Executive
Officer and to increase the base salary to $12,500 per month. Subparagraph 1(d)
of the Employment Agreement is hereby amended to delete the first sentence
thereof and to substitute in its place the following sentence:
"The Employee's duties shall include the duties and
responsibilities identified in the Bylaws of Nichols TXEN, as
amended, for the position of Chief Executive Officer."
3. Section 2 of the Employment Agreement and Section 2 of the August
29, 1997, Amendment to the Employment Agreement are deleted and there is hereby
substituted a new Section 2 of the Employment Agreement, as follows:
<PAGE> 19
"This Employment Agreement shall commence as of the effective
date of the Merger Agreement and shall end on the later of
(i) February 28, 2000; or
(ii) Two years after the date a registration
statement initially registering the
Company's common stock under the Securities
Act of 1933 is declared effective by the
Securities and Exchange Commission, provided
such registration statement is declared
effective before February 28, 2000.
The period between the commencement date and the
termination date as set forth above shall be the
`Term of Employment,' unless terminated earlier or
extended as provided herein. Upon expiration of the
initial Term of Employment unless earlier terminated
as provided herein, the Term of Employment shall
continue automatically month-to-month until
terminated by either party with at least thirty (30)
days prior written notice with or without cause."
4. This Amendment is effective on the date hereof.
5. Except as amended above, the Employment Agreement shall remain in
full force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
Number Two to Employment Agreement on the date and year set forth above.
NICHOLS TXEN CORPORATION
By:
-------------------------------------
Its:
-----------------------------
/s/ PAUL D. REAVES
----------------------------------------
PAUL D. REAVES, Employee
<PAGE> 1
EXHIBIT 10.6
NICHOLS SELECT CORPORATION
======================================
H. GREY WOOD
EMPLOYMENT AGREEMENT
======================================
Dated: August 29, 1997
<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into on the - day of August, 1997, by H. Grey
Wood, residing at 3549 Chippenham, Birmingham, Alabama 35242 (herein called the
"Employee"), and Nichols SELECT Corporation, with a principal place of business
located at 4040 Memorial Parkway South, Huntsville, Alabama 35802 (herein called
"SELECT"). Unless otherwise defined, capitalized terms used herein shall have
the meaning ascribed to such terms in the Merger Agreement as hereinafter
defined.
W I T N E S S E T H
WHEREAS, Nichols Research Corporation ("NRC"), SELECT, a wholly owned
subsidiary of NRC, TXEN, Inc. ("TXEN"), and the holders of all of the $0.002 par
value Class A Common Stock of TXEN (the "Shareholders") have entered into and
consummated an Agreement of Merger dated as of August 27, 1997 (the "Merger
Agreement") whereby TXEN merged with and into SELECT;
WHEREAS, the Employee's continued employment with SELECT was a material
inducement to SELECT and NRC to enter into the Merger Agreement;
WHEREAS, Employee owned Class A Common Stock of TXEN and received a
portion of the Merger Consideration;
WHEREAS, SELECT is engaged in the business of health care
administration and providing information systems and services to health care
providers and administrators throughout the United States; and
WHEREAS, SELECT desires to obtain the services of the Employee as Vice
President and General Manager of SELECT and the Employee is willing to render
such services to SELECT upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. Duties and Salary.
(a) SELECT agrees to employ the Employee and the Employee agrees
to accept employment by SELECT on a full-time basis as Vice President and
General Manager of SELECT at a base salary of $10,416.67 per month plus such
incentive compensation as the Board of Directors of SELECT (the "Board") may
determine payable during the Term of Employment, as
<PAGE> 3
hereinafter defined. Such salary shall be subject to increases from time to time
as authorized by the Board.
(b) The Employee hereby agrees to undertake such travel as may be
required in the performance of his duties. The reasonable travel expenses of the
Employee shall be reimbursed in accordance with SELECT's reimbursement policy,
in effect from time to time.
(c) The Employee shall carry out his duties under the general
supervision of the Board or its designee.
(d) The Employee's duties shall include the duties and
responsibilities identified on Schedule I attached hereto. The Employee shall
perform such other tasks and duties as may be assigned by SELECT, from time to
time and SELECT reserves the right to change the office and/or position of the
Employee within SELECT, so long as such change is mutually acceptable. The
Employee shall devote his full time, attention, skill and efforts to the tasks
and duties assigned by SELECT. The Employee shall not provide services, for
compensation, to any other person or business entity while employed by SELECT
without approval of the Board.
(e) The Employee shall not be required to relocate beyond the
Birmingham, Alabama, metropolitan area without his consent.
2. Term of Employment. This Agreement shall commence as of the effective
date of the Merger Agreement and shall end two years from the date thereof (the
"Term of Employment"), unless terminated earlier or extended as provided herein.
Upon expiration of the initial Term of Employment unless earlier terminated as
provided herein, the Term of Employment shall continue automatically
month-to-month until terminated by either party with at least thirty (30) days'
prior written notice with or without cause.
3. Termination Before Expiration of Term of Employment. The termination of
the employment of the Employee during the Term of Employment may occur in one of
the following ways:
(a) By SELECT, for Cause. Termination by SELECT shall be deemed
to be for cause only upon:
(i) Employee's conviction of or pleading guilty to a
felony;
(ii) A good faith determination by the Board that the
Employee has breached this Agreement or the Merger
Agreement;
(iii) Refusal or failure by the Employee, without
reasonable excuse or proper authorization, to carry
out any reasonable instructions of the Board
consistent with Employee's rights or duties as set
forth in this Agreement;
- 2-
<PAGE> 4
(iv) Material breach of this Agreement or any
material breach of any agreement with SELECT or NRC;
(v) The Employee's demonstration of negligence or
willful misconduct in the execution of his duties,
including without limitation breach of fiduciary duty
or the duty of loyalty owed SELECT.
If SELECT intends to terminate for cause, SELECT shall provide notice
to Employee of intent to terminate this Agreement, stating the termination
provision in this Agreement relied upon, and setting forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provisions so indicated, and shall provide Employee with an opportunity to cure
the alleged default or breach within thirty (30) days of receipt of the notice,
provided that if the matter is not curable within such thirty (30) day period,
the Employee shall not be deemed in default if the Employee commences
immediately to cure the matter and proceeds diligently thereafter to complete
the cure, further provided that the alleged breach or default must be cured
within ninety (90) days of receipt of die notice. SELECT shall not be required
to give more than one notice with respect to the same matter. Notwithstanding
the foregoing, no notice and no cure right shall be required with respect to
termination for cause under 3(a)(i) or an act involving theft of information or
property of SELECT.
(b) By SELECT, Without Cause. Any termination of Employee by
SELECT for reasons other than as set forth in subsections 3(a)(i) through
3(a)(v) above. shall be a termination without cause. SELECT may terminate the
employment of Employee without cause by thirty (30) days prior written notice at
any time.
(c) By the Employee. The Employee may by written notice terminate
his employment at any time during the Term of Employment:
(i) For any reason other than for Good Reason (as defined
below) upon thirty (30) days prior written notice at
any time.
(ii) For "Good Reason," defined as termination because of
a material breach by SELECT of this Agreement
including, without limitation, making a material
change in the Employee's duties, responsibilities, or
authority as set forth in this Agreement, without his
express written consent. In all cases in which
Employee intends to terminate for Good Reason, the
Employee shall provide SELECT with notice of intent
to terminate this Agreement, stating the facts and
circumstances giving rise to a breach of this
Agreement claimed to provide a basis for termination
under the provisions so indicated, and shall provide
SELECT with an opportunity to cure the alleged
default or breach within thirty (30) days of receipt
of the notice, provided that if the matter is not
curable within such thirty (30) day period, SELECT
shall not be deemed in default if it commences
immediately to cure the matter and proceeds
diligently thereafter to
- 3 -
<PAGE> 5
complete the cure, further provided that the alleged
breach or default must be cured within ninety (90)
days of receipt of the notice. Employee shall not be
required to give more than one such notice with
respect to the same matter.
(d) Death of the Employee.
(e) Disability of Employee. If, during the Term of Employment, a
physician selected by SELECT determines that the Employee has
become physically or mentally disabled. so as to be unable to
carry out the normal and usual duties of his employment for
three (3) continuous months, and reasonable accommodation
cannot be made to allow the Employee to continue to perform
his duties full-time, his employment hereunder may be
terminated at the election of SELECT or the Employee.
4. Consequences of Termination. The termination of the employment of
Employee will cause the following results:
(a) If the termination is by SELECT for cause, or is by the
Employee for any reason other than for Good Reason, SELECT will pay the Employee
within five (5) days after the date of termination any unpaid salary, the amount
of any accrued annual vacation pay to which he may be entitled under SELECT's
vacation plan and benefits. All such compensation and benefits (if any) shall be
paid only through the date termination occurs.
(b) If the termination is by SELECT without cause or because of
death or disability, SELECT shall pay to the Employee, in addition to the
amounts set forth in 4(a) above, an amount equal to the Employee's monthly base
salary then in effect over a six-month period immediately following the
termination.
(c) If the termination is by the Employee for Good Reason, SELECT
shall pay to the Employee, in addition to the amounts set forth in 4(a) above,
an amount equal to the Employee's monthly base salary then in effect over a
six-month period immediately following the termination.
(d) In the event of the Employee's death or disability, the
following provisions will apply:
(i) Upon his death, the Employee's estate will be
entitled to receive the amount set forth in Section
4(b) and the benefits set forth in any plans of
SELECT then in effect and applicable under the
circumstances. The Employee or his estate shall be
entitled to no other compensation or benefits in the
event of death.
- 4 -
<PAGE> 6
(ii) Upon termination on account of disability, Employee
will be entitled to receive the amount set forth in
Section 4(b) and the benefits set forth in any plans
of SELECT then in effect and applicable under the
circumstances. The Employee or his personal
representative shall be entitled to no other
compensation or benefits in the event of disability.
(e) The Employee shall not be required to mitigate the amount of
payment provided. for in this Section 4 by seeking employment.
(f) The amounts set forth above in this Section 4 shall be paid
and received in complete discharge of any other obligation of SELECT to Employee
resulting from termination of his employment.
5. Fringe Benefits.
The Employee shall participate in any group health insurance, vacation
and sick leave plans, and other benefit plans available to all employees of
SELECT in accordance with their terms and conditions which may be amended or
terminated by SELECT at any time. Effective on August 31, 1997, Employee shall
receive an incentive stock option grant to purchase 9,000 shares of NRC Common
Stock under the terms and provisions of the Nichols Research Corporation 1991
Incentive Stock Option Plan.
6. Nondisclosure Covenants and Proprietary Matters.
(a) Unless authorized or instructed in writing by SELECT, the
Employee shall not, except as required in the conduct of SELECT's business,
during or at any time after the Term of Employment, disclose to others, or use,
any of SELECT's inventions or discoveries or their respective secret or
confidential information or data (oral, written, or in machine readable form)
which the Employee may obtain during the course of or in connection with the
Employee's employment, including such inventions, discoveries, information,
know-how or data relating to machines, equipment, products, systems, software,
contracts, contract performance, research and/or development, designs,
compositions, formulae, processes, manufacturing procedures or business methods,
whether or not developed by the Employee, by others in SELECT or obtained by
SELECT from third parties, and irrespective of whether or not such inventions,
discoveries, information, knowledge or data have been identified by SELECT as
secret or confidential, unless and until, and then to the extent and only to the
extent that, such inventions, discoveries, information, knowledge or data become
available to the public otherwise than by the Employee's act or omission.
(b) The Employee shall not, except as required in the conduct of
SELECT's business, disclose to others, or use, any of the information (which, if
disclosed or used, could be harmful to SELECT relating to present and
prospective customers of SELECT, business dealings with such customers,
prospective sales and advertising programs and agreements with representatives
or prospective representatives of SELECT, present or prospective sources of
supply or any other
- 5 -
<PAGE> 7
business arrangements of SELECT, including but not limited to customers,
customer lists, costs, prices and earnings, whether or not such information is
developed by the Employee, by others in SELECT or obtained by SELECT from third
parties, and irrespective of whether or not such information has been identified
by SELECT as secret or confidential, unless and until, and then to the extent
and only to the extent that, such information becomes available to the public
otherwise than by the Employee's act or omission.
(c) The Employee agrees to disclose immediately to SELECT or any
persons designated by it and to assign to SELECT or its successors or assigns,
all inventions made, discovered, or first reduced to practice by the Employee,
solely or jointly with others, during the Term of Employment or within a period
of six months from the date of termination of such employment (either during or
outside of the Employee's working hours and either on or off SELECT's premises),
which inventions are made, discovered or conceived either in the course of such
employment, or with the use of SELECT's time, material, facilities or funds, or
which are directly related to any investigations or obligations undertaken by
SELECT; and the Employee hereby grants and agrees to grant the right to SELECT
and its nominees to obtain, for its own benefit and in its own name (entirely at
its expense) patents and patent applications including original, continuation,
reissue, utility and design patents, and applications, patents of addition,
confirmation patents, registration patents, petty patents, utility models, and
all other types of patents and the like, and all renewals and extensions of any
of them for those inventions in any and all countries; and the Employee shall
assist SELECT, at SELECT's expense, without further charge during the term of
the Employee's employment, and after termination of the Employee's employment at
the same base salary rate (excluding any bonuses, incentive or deferred
compensation or other benefits and based upon a forty hour work week) as during
the last year of the Employee's employment (determined on an hourly basis for
this purpose), through counsel designated by SELECT, to execute, acknowledge,
and deliver all such further papers, including assignments, applications for
Letters Patent (of the United States or of any foreign country), oaths,
disclaimers or other instruments and to perform such further acts, including
giving testimony or furnishing evidence in the prosecution or defense of
appeals, interferences, suits and controversies relating to any aforesaid
inventions as may reasonably be deemed necessary by SELECT or its nominees to
effectuate the vesting or perfecting in SELECT or its nominees of all right,
title and interest in and to said inventions, applications and patents.
Notwithstanding the foregoing, the Employee need not take any action called
for under this Section 6(c) which will cause undue personal hardship to the
Employee.
(d) The Employee agrees to disclose immediately to SELECT or any
persons designated by it and to assign to SELECT, at its option, or its
successors or assigns, all works of authorship, including all writings, computer
programs, software, and firmware, written or created by the Employee solely or
jointly with others, during the course of his employment by SELECT (either
during or outside of the Employee's working hours and either on or off SELECT'S
premises), which works are made or conceived either in the course of such
employment or with the use of SELECT's time, material, facilities or funds, or
which are directly related to any investigations or obligations undertaken by
SELECT; and the Employee hereby agrees that all such works are works made for
hire, of which SELECT is the author and the beneficiary of all
- 6 -
<PAGE> 8
rights and protections afforded by the law of copyright in any and all
countries; and the Employee will assist SELECT at SELECT's expense Without
further charges during the term of his employment, and after termination of his
employment at the same base salary rate (excluding any bonuses, incentive or
deferred compensation or other benefits) as during the last year of his
employment (determined on an hourly basis for this purpose assuming a forty hour
work week), through counsel designated by SELECT, to execute, acknowledge, and
deliver all such further papers, including assignments, applications for
copyright registration (in the United States or in any foreign country), oaths,
disclaimers or other instruments, and to perform such further acts, including
giving testimony or furnishing evidence in the prosecution or defense of
appeals, interferences, suits and controversies relating to any aforesaid works,
as may be deemed necessary by SELECT or by its nominees to effectuate the
vesting or perfecting in SELECT or its nominees of all rights and interest in
and to said works and copies thereof, including the exclusive rights of copying
and distribution.
(e) The Employee shall keep complete, accurate and authentic
accounts, notes, data and records of all inventions made, discovered or
developed and all works of authorship written or created by the Employee as
aforesaid in the manner and form requested by SELECT.
(f) All computer or other hardware, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples, notes,
records, reports, documents, customer lists, photographs, catalogues and other
writings, whether copyrightable or not, relating to or dealing with SELECT's
business and plans, and those of others entrusted to SELECT, which are prepared
or created by the Employee or which may come into his possession during or as a
result of his employment, are the property of SELECT, as applicable, and upon
termination of his employment, the Employee agrees to return all such computer
software, computer programs, source codes, object codes, magnetic tapes,
printouts, samples, notes, records, reports, documents, customer lists,
photographs, catalogues and writings and all copies thereof to SELECT.
7. Nonsolicitation and Noncompetition During the Restriction Period (as
hereinafter defined) within the United States of America, the Employee shall not
directly or indirectly:
(a) Solicit the business of SELECT from any customer of SELECT or
any entity Controlled by SELECT or solicit any employees of SELECT to leave the
employ of SELECT.
(b) Hire any employees or former employees of SELECT or any entity
controlled by SELECT within one year of the date of termination of his
employment with SELECT or cause any entity with which the Employee is affiliated
to hire any such employees or former employees of SELECT unless such former
employee has not been employed by SELECT within 180 days of the hire date.
(c) Engage in, represent in any way or be connected with, as
consultant, officer, director, partner, employee, sales representative,
proprietor, stockholder or otherwise (except for the ownership of a less than
one percent (1%) stock interest in a publicly traded corporation where
- 7 -
<PAGE> 9
Employee is not in a management or control position), any business competing
with the business of SELECT as conducted by SELECT oil the date hereof or during
the period of Employee's employment by SELECT.
(d) As used herein, the Restriction Period shall mean the period
while the Employee is employed by SELECT and twelve (12) months after the date
the employee ceases to be employed by SELECT.
8. No Conflict. Employee represents and warrants that he is not a party to
or otherwise subject to or bound by the terms of any contract, agreement or
understanding which in any manner would limit or otherwise affect his ability to
perform his obligations hereunder, including without limitation any contract,
agreement or understanding containing terms and provisions similar in any manner
to those contained in Sections 6 and 7 hereof. Employee covenants to indemnify
and hold SELECT and any of its affiliate harmless from any cost or damages
(including attorneys' fees and expenses) resulting from any breach of the
provisions of this Agreement.
9. Survival of Covenants, Effect.
(a) The covenants on the part of the Employee contained or
referred to in Sections 6 and 7 above shall survive termination of this
Agreement, and the existence of any claim or cause of action of the Employee
against SELECT, whether predicated on this Agreement or otherwise. The Employee
agrees that a remedy at law for any breach of the foregoing covenants contained
or referred to in Sections 6 and 7 would be inadequate, that SELECT would suffer
irreparable harm as a result and that SELECT shall b entitled to a temporary and
permanent injunction or an order for specific performance of such covenants
without the necessity of proving actual damage to SELECT and without the posting
of any bond or other security. Any breach of this Agreement by SELECT shall not
release the Employee from his obligations under Sections 6 and 7 hereof.
(b) The Employee hereby represents and acknowledges that SELECT is
relying on the covenants in Sections 6 and 7 in entering into this Agreement and
the Merger Agreement and other agreements related thereto and that the
restrictions in Sections 6 and 7 are fair and reasonable. The Employee
acknowledges that SELECT does business throughout the United States and that the
geographic scope of the covenants in Section 7 is therefore reasonable and
necessary to protect the interests of SELECT.
(c) It is the intent of the parties that the provisions of
Sections 6 and 7 shall be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is sought. If
any particular provision of Sections 6 and 7 shall be adjudicated to be invalid
or unenforceable, such provisions of Sections 6 and 7 shall be deemed amended to
provide restrictions to the fullest extent permissible and consistent with
applicable law and policies, and such amendment shall apply only with respect to
the particular jurisdiction in which such adjudication is made. If such deemed
amendment is not allowed by the adjudicating body,
- 8 -
<PAGE> 10
the offending provision, only, shall be deleted and the remainder of Sections 6
and 7 shall not be affected.
10. Assignment.
The rights and obligations of SELECT under this Agreement may be
assigned by SELECT to any other successors in interest of SELECT of that part of
the business of SELECT to which this Agreement applies or to their respective
affiliates. This Agreement may not be assigned and any duties of the Employee
may not be delegated by the Employee, but any amounts owing to the Employee upon
his death shall inure to the benefit of his estate.
11. Notices.
All notices or other communications which may be or are required to be
given, served or sent by either party to the other party pursuant to this
Agreement shall be in writing, addressed to its/his residence or place of
business as set forth above, and shall be mailed by first-class certified mail,
return receipt requested, postage prepaid; next-day air delivery; or transmitted
by facsimiles or hand delivery. Such notice or other communication shall be
deemed sufficiently given, served, sent or received for all purposes at such
time as it is delivered to the addressee or at such time as delivery is refused
by the addressee upon presentation. Each party may designate by notice in
writing an address to which any notice or communication may thereafter be so
given, served or sent. Notices hand delivered to SELECT must be delivered to an
officer of SELECT and all other notices shall be sent to the attention of the
Board.
12. Applicable Law Jurisdiction.
This Agreement has been negotiated and executed in the State of
Alabama, and it shall be governed by, construed and enforced in accordance with
the internal substantive laws and not the choice of law rules of the State of
Alabama.
13. Effectiveness/Intepretation.
The parties acknowledge and agree that this Agreement has been
negotiated at arm's length between parties equally sophisticated and
knowledgeable in the matters dealt with herein. Each party has been represented
by counsel of its or his own choosing. Accordingly, any rule of law or legal
decision that would require interpretation of any ambiguities in the Agreement
against the party that drafted it is not applicable and is waived.
14. Severability.
If any of the articles, sections, paragraphs, clauses or provisions of
this Agreement shall be held by a court of last resort to be invalid, the
remainder of this Agreement shall not be affected thereby.
- 9 -
<PAGE> 11
15. Entire Agreement.
The foregoing contains the entire Agreement between the parties
relating to the subject matter of this Agreement, and may not be altered or
amended except by an instrument in writing approved by SELECT and signed by the
parties hereto, and this Agreement supersedes all prior understandings and
agreements relating to employment of the Employee by SELECT. The parties
acknowledge that any prior oral or written agreements between SELECT and the
Employee, if any, are hereby terminated.
IN WITNESS WHEREOF, SELECT has caused this Agreement to be executed by
its duly authorized officers and the Employee has hereunto set his hand as of
the date first above written.
NICHOLS SELECT CORPORATION
By: /s/
-----------------------------------
Its: Chief Executive Officer
-------------------------------
/s/ H. Grey Wood
--------------------------------------
H. Grey Wood, Employee
- 10 -
<PAGE> 12
SCHEDULE I
Duties of Employee
H. Grey Wood, Vice President and General Manager
- - Assists in the establishment and execution of segment long-range
operating plans, budgets, and programs.
- - Develops, interprets, and implements policies as set forth by the
Segment President.
- - Coordinates activities with appropriate counterparts on corporate staff
as necessary.
- - Reports to the President of Nichols SELECT Corporation.
<PAGE> 13
AMENDMENT TO EMPLOYMENT AGREEMENT
=================================================
NICHOLS TXEN CORPORATION
AND
H. GREY WOOD
=================================================
DATED: NOVEMBER 6, 1998
<PAGE> 14
AMENDMENT
TO
EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT, dated August 29, 1997 (the
"Employment Agreement"), is entered into on this the 6th day of November, 1998,
by NICHOLS TXEN CORPORATION, formerly known as NICHOLS SELECT CORPORATION, a
Delaware corporation ("Nichols TXEN"), and H. GREY WOOD, ("Employee"). Unless
otherwise defined, capitalized terms used herein shall have the meaning ascribed
to such terms in the Employment Agreement or Merger Agreement (hereinafter
defined).
W I T N E S S E T H:
WHEREAS, Nichols Research Corporation ("NRC"), NICHOLS SELECT
CORPORATION ("Nichols Select"), a wholly owned subsidiary of NRC, TXEN, Inc.
("TXEN"), and the holders of all of the $0.002 par value Class A Common Stock of
TXEN (the "Shareholders") entered into and consummated an Agreement of Merger
dated as of August 29, 1997 (the "Merger Agreement") whereby TXEN merged with
and into Nichols Select with Nichols Select as the surviving corporation (the
"Merger");
WHEREAS, Nichols Select changed its name to Nichols TXEN after the
Merger;
WHEREAS, Employee entered into the Employment Agreement with Nichols
Select on August 29, 1997, concurrent with the Merger; and
WHEREAS, Nichols TXEN and Employee mutually desire to amend the
Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the undersigned parties do hereby amend the Employment Agreement as
follows:
1. References in the Employment Agreement to Nichols Select or Select
shall mean Nichols TXEN wherever the context requires in light of the change in
name of Nichols Select to Nichols TXEN.
2. Section 1 entitled "Duties and Salary" is hereby amended as follows:
(i) Subparagraph 1(a) is hereby amended to change the
Employee's title to President and Chief Operating Officer and to
increase the base salary to $12,500 per month;
(ii) Subparagraph 1(d) is hereby amended to delete the first
sentence thereof and to substitute in its place the following
sentences:
"The Employee's duties shall include the duties and
responsibilities identified in the Bylaws of Nichols
TXEN, as amended, for the position of President and
Chief Operating Officer."
3. Section 2 of the Employment Agreement is amended by deleting the
first sentence thereof and substituting in its place the following sentences:
"This Employment Agreement shall commence as of the
effective date of the Merger Agreement and shall end
on
<PAGE> 15
the later of
(i) August 28, 1999; or
(ii) Two years after the date a registration
statement initially registering the
Company's common stock under the Securities
Act of 1933 is declared effective by the
Securities and Exchange Commission, provided
such registration statement is declared
effective before August 28, 1999.
The period between the commencement date and the
termination date as set forth above shall be the
`Term of Employment,' unless terminated earlier or
extended as provided herein."
4. This Amendment is effective on the date hereof.
5. Except as amended above, the Employment Agreement shall remain in
full force and effect according to its terms and conditions.
IN WITNESS WHEREOF, the parties have hereunto executed this Amendment
Number Two to Employment Agreement on the date and year set forth above.
NICHOLS TXEN CORPORATION
By: /s/ PAUL D. REAVES
---------------------------------
Its: Chief Executive Officer
----------------------------
/s/ H. GREY WOOD
------------------------------------
H. GREY WOOD, Employee
<PAGE> 1
EXHIBIT 10.7
CORPORATE SERVICES AGREEMENT
THIS CORPORATE SERVICES AGREEMENT (the "Services Agreement") is
executed as of November 6, 1998, by and between Nichols Research Corporation, a
Delaware Corporation ("Nichols Research"), and Nichols TXEN Corporation, a
Delaware Corporation ("TXEN").
RECITALS:
TXEN is presently wholly owned by Nichols Research. TXEN proposes to
file with the Securities and Exchange Commission (the "SEC") a Form S-1
Registration Statement related to an initial public offering of common stock of
TXEN (the "Offering"). After the Offering, Nichols Research will own
approximately 78% of the outstanding Common Stock of TXEN (75% if the
Underwriters' over-allotment option is exercised in full). Nichols Research and
TXEN recognize that it is to their mutual advantage to centralize certain
administrative and financial services, and that such centralized services are
most efficiently administered by Nichols Research. By this Agreement, Nichols
Research and TXEN intend to set forth the agreement of the parties related to
such services.
AGREEMENT:
It is mutually agreed by the parties as follows:
1. COMPENSATION.
1.1 Compensation. For performing the services described in Section 4 of
this Services Agreement, TXEN shall pay Nichols Research an annual fee equal to
2.4% of operating expenses less cost of goods sold defined as direct materials
and purchased labor. Such amount shall be prorated on a daily basis for any
partial year. This fee is intended to compensate Nichols Research for TXEN's pro
rata share of the aggregate costs incurred by Nichols Research in connection
with the provision of such services to other subsidiaries and operating
divisions. The fee may be adjusted at any time by mutual agreement of Nichols
Research and TXEN.
1.2 Additional Services. In addition to the services listed in Section
4, certain other administrative and technical services contemplated under this
Agreement may be rendered by Nichols Research to TXEN if requested by TXEN.
These services may include, but are limited to, services specifically requested
by TXEN or services which, in the judgment of Nichols Research, are not routine
administrative services or create unusual burdens or demands on the resources of
Nichols Research, such as support for litigation, acquisitions, securities
offerings, tax audits, and corporate development. TXEN shall be under no
obligation to contract with Nichols Research for such services and may perform
such services or may contract with a third party for such services. In the event
TXEN contracts with Nichols Research for such additional services, TXEN shall
pay Nichols Research an amount equal to the cost incurred to perform such
services, plus a reasonable fee as agreed to by the parties. The costs incurred
to perform such services shall include out-of-pocket expenses and an allocable
share of overhead and general administrative expenses.
1.3 Payment and Billing Schedule. The charges for services pursuant to
Subsections 1.1 and 1.2 above shall be determined and paid on a quarterly or
more frequent basis. The charges shall be paid no later than 30 days from
billing.
2. TERM. The term of this Services Agreement shall be for a period of one year
commencing on the
<PAGE> 2
effective date of the Offering. This Services Agreement shall automatically
renew at the end of the initial term for successive one-year terms until
terminated in accordance with Section 3.
3. TERMINATION. After the initial one year term, either party may terminate this
Services Agreement on ninety days prior written notice to the other party.
4. SERVICES. Beginning on the date of this Services Agreement, Nichols Research,
through its corporate staff, will provide or otherwise make available to TXEN
certain general corporate services, including, but not limited to the following:
4.1 Management Support. Nichols Research will provide management
support to TXEN, including reasonable access to key management personnel of
Nichols Research for consultation and advice regarding strategic business
planning, corporate development, acquisitions, and technology. Nichols Research
will also provide assistance to develop and implement policies and procedures
related to human resources and employee training.
4.2 Risk Management. Nichols Research will assist TXEN in the
development and implementation of an appropriate risk management program.
Nichols Research shall arrange for and pay the premium cost of liability,
property, casualty, and other normal business insurance coverage, provide a
centralized insurance purchasing service for such insurance coverage, and manage
all insurance claims under TXEN's insurance policies. Nichols Research shall not
be responsible for paying the premium cost of workers' compensation insurance.
Nichols Research shall assist TXEN when necessary to develop and maintain
suitable worker safety and employment-related programs.
4.3 Financial Services. Nichols Research shall provide credit
management services to TXEN, including coordination and management of credit
facilities. The credit facilities may include loans from third party lenders or
Nichols Research. Nichols Research shall be under no obligation to loan funds to
TXEN, and TXEN shall be under no obligation to borrow funds from Nichols
Research, but if any such credit facility is offered from Nichols Research to
TXEN it will be at rates and upon terms experienced by Nichols Research from
third-party lenders. Nichols Research shall serve as a central depository for
cash held by TXEN and shall provide the financial services listed in Exhibit 1
to this Services Agreement.
4.4 Securities Compliance. Nichols Research will provide services and
assistance to enable TXEN to comply with its reporting obligations under the
Securities Exchange Act of 1934 (the "1934 Act"), and the rules and regulations
of the Nasdaq Stock Market. Such assistance will include preparation of Forms
10-K, 10-Q, and 8-K under the 1934 Act. Nichols Research will provide necessary
resources to enable TXEN to make EDGAR filings with the SEC. Nichols Research
shall provide internal audit support services for such filings and reports,
including accounting staff as required. Accounting and financial reporting
policies and procedures will be established by the Chief Financial Officer of
Nichols Research (the "Nichols' CFO"). The parties acknowledge that Nichols
Research is a reporting company under the 1934 Act. Because of TXEN's status as
a majority owned subsidiary of Nichols Research, the parties also acknowledge
that Nichols Research has a material interest in the financial statements and
reports of TXEN to insure that accounting matters are treated consistently
between the parties. Therefore, before financial statements of TXEN are released
publicly or are included in a filing with the SEC or the Nasdaq Stock Market,
such financial statements will be furnished to the Nichols' CFO for review and
comment. All public releases of financial information will be authorized in
advance by the Nichols' CFO. Nichols Research will administer a program to
promote compliance by the officers and directors of TXEN with their reporting
requirements under Sections 13 and 16 of the 1934 Act. Nichols Research shall
prepare documents necessary for officer and director compliance under Section 16
of the 1934 Act, including Forms 3, 4, 5, 13G and 13D. Nichols Research shall
maintain
2
<PAGE> 3
detailed records and SEC receipts of all such filings and shall administer
periodic reminders to Section 16 officers. Nichols Research shall periodically
provide information to officers and directors of TXEN with respect to their
responsibilities under Section 16 of the Act.
4.5 Corporate Record Keeping. Nichols Research shall maintain detailed
records of TXEN's historical and current financial data. In addition, Nichols
Research shall assist in preparing the minutes of meetings of the boards of
directors and shareholders, and shall maintain records pertaining to stock
offerings, acquisition transactions, and annual meetings.
4.6 Annual Shareholders Meetings and Proxy Statement Preparation.
Nichols Research shall provide assistance to conduct the annual meeting of TXEN
shareholders. Nichols Research shall assist in the preparation of the notice of
the annual meeting, proxies and proxy statements related thereto, the
solicitation of proxies, and the filing of any preliminary or definitive proxy
statements with the SEC and the Nasdaq Stock Market. Nichols Research shall
assist TXEN in design, preparation, drafting and distribution of its annual
report to shareholders. Printing and distribution costs related to the proxy
materials for the annual meeting shall be paid by TXEN.
4.7 Stock Plan Administration Services. Subject to the direction of
the administrative committees of TXEN's compensation stock plans, Nichols
Research shall administer TXEN's stock option plans, employee stock purchase
plans and non-employee director stock option plans. Nichols Research shall
maintain records of grant dates, shares covered by option grants, vesting
schedules, expiration dates and other information necessary for proper
administration of the TXEN compensatory stock plans. Nichols Research shall also
prepare stock option grant agreements and stock option exercise notices.
4.8 Investor and Media Relations. Nichols Research shall prepare
quarterly stock reports, track outstanding shares, communicate appropriate
information to transfer agents, provide for missing stock certificates and
perform general services pertaining to the investor relations. Nichols Research
shall upon request, provide stock status reports including stockholder
statistics, earnings estimates, shares held by institutions and any other
reports that can be reasonably created using TXEN data maintained by Nichols
Research. Nichols Research shall assist TXEN to manage investors and media
relations and to prepare press releases. All public releases of information by
TXEN will be authorized in advance by Nichols Research. Investor and Media
Relations polices and procedures will be established by the Chief Administrative
Officer of Nichols Research (the Nichols' CAO"). Nichols Research shall assist
TXEN in its relationship with investment analysts and institutional holders of
TXEN stock; Nichols Research will also assist TXEN regarding presentations at
financial conferences.
4.9 Tax Matters. Nichols Research will assist TXEN to prepare and file
state and federal income tax returns and will consult with TXEN regarding tax
planning matters. The cost of such tax return preparation shall be paid by
Nichols Research.
4.10 Routine Legal Services. Nichols Research shall provide access to
and payment of routine legal services. Routine legal services shall not include
expenses incurred in connection with litigation, arbitration, government and
other audits and acquisitions.
4.11 Other Services. Other routine services in addition to those
enumerated in subsections 4.1 through 4.10, but excluding the services
identified in Section 1.2, shall be provided by Nichols Research as reasonably
requested by TXEN. Such other services shall include human resources support,
publications support, corporate training programs, video teleconferencing, data
and voice communications, and trade show support.
5. COOPERATION. TXEN shall corporate with Nichols Research in providing
information
3
<PAGE> 4
and data reasonably requested by Nichols Research to perform its services
hereunder. The parties shall exert best efforts to coordinate with each other in
such a manner to enable Nichols Research to furnish the services required
hereunder.
6. TXEN'S DIRECTORS AND OFFICERS. Nothing contained herein will be construed to
relieve the directors or officers of TXEN from the performance of their
respective duties or to limit the exercise of their powers in accordance with
the charter or by-laws of TXEN or in accordance with any applicable statute or
regulation.
7. LIABILITIES. In furnishing TXEN with management advice and other services as
herein provided, neither Nichols Research nor any of its officers, directors or
agents shall be liable to TXEN or its creditors or shareholders for errors of
judgment or for anything except willful malfeasance, bad faith or gross
negligence in the performance of their duties or reckless disregard of their
obligations and duties under the terms of this Services Agreement. The
provisions of this Services Agreement are for the sole benefit of Nichols
Research and TXEN and will not, except to the extent otherwise expressly stated
herein, inure to the benefit of any third party.
8. POST-TERMINATION SERVICES. Following a termination of this Services
Agreement, corporate administrative services of the kind provided under the
services Agreement may continue to be provided to TXEN on an as-requested basis
by TXEN or as required in the event it is not practicable for TXEN to provide
such services or it is otherwise unable to identify another source to provide
such services (as would be the case of administration of employee benefit plans
and insurance programs sponsored by Nichols Research and in which TXEN's
employees participate) or as otherwise required by Nichols Research acting in is
capacity as majority stockholder of TXEN. In the event such services are
provided by Nichols Research to TXEN, TXEN shall be charged by Nichols Research
a fee equal to the market rate for comparable services charged by third-party
vendors. Such fee will be charged monthly and payable by TXEN within thirty
days. The obligations of TXEN set forth in this Section 8 shall survive the
termination of this Services Agreement.
9. ELECTION OF SECRETARY AND TREASURER. During the term of this Services
Agreement, the Board of Directors of TXEN shall elect as Secretary of TXEN the
Secretary of Nichols Research and shall elect as Treasurer of TXEN the Chief
Financial Officer of Nichols Research. The parties acknowledge that by electing
such officers, Nichols Research may provide the services under this Services
Agreement more efficiently. The Secretary and Treasurer of TXEN shall serve in
such capacities during the term of this Services Agreement without compensation
from TXEN.
10. REIMBURSEMENT OF AMOUNTS ADVANCED. TXEN shall promptly reimburse Nichols
Research for any amounts paid by Nichols Research to third parties on behalf of
TXEN, including advancement of expenses, fees and other charges and any payment
to a third party with respect to a guaranty of any debt or obligation of TXEN by
Nichols Research. Nichols Research shall pay the travel expenses of its
employees while on travel for TXEN.
11. STATUS. Nichols Research shall be deemed to be an independent contractor,
and except as expressly provided or authorized in this Services Agreement, shall
have no authority to act for or represent TXEN.
12. OTHER ACTIVITIES OF NICHOLS RESEARCH. TXEN recognizes that Nichols
4
<PAGE> 5
Research now renders and may continue to render management and other services to
other companies that may or may not have policies and conduct activities similar
to those of TXEN. Nichols Research shall be free to render such advice and other
services, and TXEN hereby consents thereto. Nichols Research shall not be
required to devote full time and attention to the performance of its duties
under this Services Agreement, but shall devote only so much of its time and
attention as it deems reasonable or necessary to perform the services required
hereunder.
13. NOTICES. All notices, billings, requests, demands, approvals, consents, and
other communications which are required or may be given under this Services
Agreement shall be in writing and will be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth below:
IF TO TXEN: IF TO NICHOLS RESEARCH:
Mr. H. Grey Wood Ms. Patsy L. Hattox
Nichols TXEN Corporation Nichols Research Corporation
10 Inverness Center Parkway, Suite 500 4090 South Memorial Parkway
Birmingham, AL 35242 Huntsville, AL 35202-1326
14. NO ASSIGNMENT. This Services Agreement shall not be assignable except with
the prior written consent of the other party to this Services Agreement.
15. APPLICABLE LAW. This Services Agreement shall be governed by and construed
under the laws of the State of Alabama applicable to contracts made and to be
performed therein.
16. PARAGRAPH TITLES. The paragraph titles used in this Services Agreement are
for convenience of reference only and will not be considered in the
interpretation or construction of any of the provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Services Agreement to
be executed as a sealed instrument by their duly authorized officers as of the
date first above written.
Nichols TXEN Corporation
By: /s/ H. Grey Wood
---------------------------------
H. Grey Wood
President
Nichols Research Corporation
By: /s/ Michael J. Mruz
---------------------------------
Its Chief Executive Officer
-----------------------
5
<PAGE> 6
EXHIBIT 1
FINANCIAL SERVICES PROVIDED TO TXEN
Banking Services Administration
Select banks and establish accounts
Administer cash balances
Administer outstanding indebtedness
Administer any debt covenant compliance issues
Maintain a cash collections and disbursement system
Arrange letters of credit and cash transfers
Manage any foreign currency exchange needs.
Financial Management and Information
Cash management
Pension fund management
Leasing management services
Customer financing
Information on financial markets and products
Information on foreign currency, risk assessment and hedge strategies
Arrange Credit Support
Insurance performance and bid bonds
Letters of credit
Corporate guarantees
Investment Banking Services
Advice and support for equity and debt financing
Manage relationships with debt rating agencies
Analysis, negotiations, advice and support for mergers and acquisitions
6
<PAGE> 1
EXHIBIT 10.8
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT ("Agreement") is made and entered into as of the
6th day of November, 1998 by and between NICHOLS RESEARCH CORPORATION, a
Delaware corporation ("Nichols Research"), and NICHOLS TXEN CORPORATION, a
Delaware corporation ("TXEN").
RECITALS:
The parties desire to set forth certain agreements they have reached with
respect to certain federal, state and local tax liabilities. Nichols Research is
the parent of an affiliated group of corporations, including TXEN, within the
meaning of Section 1504(a) of the Internal Revenue Code (the "Code") (the
"Nichols Research Group"). TXEN became a member of such affiliated group for the
year beginning September 1, 1997. Prior to such date, TXEN was not a member of
any affiliated group within the meaning of Code Section 1504(a). TXEN will cease
to be a member of the Nichols Research Group as the result of an initial public
offering of common stock of TXEN. On the date that TXEN consummates the sale of
its common stock in the initial public offering ("Closing Date"), TXEN and its
subsidiaries (hereinafter referred to as the "TXEN Group") will not continue to
be included in the consolidated income tax returns of Nichols Research.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
provided for herein, the parties hereto hereby agree as follows:
1. MANNER OF PREPARING RETURNS.
All tax returns to be filed after the Closing Date shall, in the
absence of a change in law or other authority, be prepared on a basis consistent
with the elections, accounting methods, conventions and principals of taxation
used for the most recent taxable periods for which tax returns involving that
precise item have been filed; provided, however, that (i) either party may take
an inconsistent position with that previously taken to the extent that such
position does not create an increase in tax to the other party and (ii) either
party may take an inconsistent position which increases the tax of the other
party if at the time of taking such inconsistent position it pays to the other
party the increase in tax (without interest) which will result to the other
party as a result of the inconsistent position.
2. UNFILED TAX RETURNS.
(a) In filing all income tax returns for the taxable year beginning
September 1, 1998, each party will file all such returns in a manner which is
consistent with the position that the last day on which any member of the TXEN
Group is included in the Nichols Research Group was the day immediately
preceding the Closing Date.
(b) All consolidated federal income tax returns which are required to
be filed for periods beginning before the Closing Date shall be prepared and
filed by Nichols Research.
(c) TXEN shall supply Nichols Research on or before February 15, 1999,
with true and correct
-1-
<PAGE> 2
federal income tax returns of each member of the TXEN Group for the taxable year
ended August 31, 1998, computed as though a consolidated income tax return was
not filed for such period. Such federal income tax returns shall be made solely
by reference to TXEN and each of its subsidiary's items of income, deduction and
credit for the taxable year then ended, notwithstanding that any such item may
require a different treatment or limitation on a consolidated federal income tax
return. Within 60 days of receipt of the federal income tax returns for such
taxable year referred to above, Nichols Research shall advise TXEN, in writing,
of any changes, modifications, additions or deletions which Nichols Research
believes appropriate in order to properly reflect the separate income tax
liability of any member of the TXEN Group in accordance with the provisions of
this Section 2(c). In the event that TXEN does not agree with any of the
changes, modifications, additions or deletions made by Nichols Research, and
Nichols Research and TXEN are unable to resolve their differences, then the
issue shall be submitted to the firm of certified public accountants then
regularly serving Nichols Research whose decision shall be final, binding and
conclusive upon the parties.
(d) TXEN shall supply Nichols Research on or before August 15, 1999
with true and correct federal income tax returns of each member of the TXEN
Group for the period beginning on September 1, 1998 and ending on the day
immediately preceding the Closing Date ("Stub Period"), computed in the same
manner as provided in Section 2(c) with respect to the income tax returns for
the taxable year ended August 31, 1999. The balance of the provisions of Section
2(c) shall apply equally to the tax returns TXEN is required to deliver to
Nichols Research with respect to the Stub Period.
(e) At the time that TXEN delivers to Nichols Research the federal
income tax returns referred to in Sections 2(c) and 2(d), TXEN shall pay to
Nichols Research an amount equal to the excess, if any, (i) the net federal
income tax which the TXEN Group would have had to pay to the Internal Revenue
Service based upon such federal income tax returns, over (ii) the amount of all
payments or intercompany charges previously made by, or charged to, the TXEN
Group with respect to federal
income tax for the applicable period. If Nichols Research disagrees with the
federal income tax returns provided to it by TXEN in accordance with the
provisions of Sections 2(c) and 2(d) and (i) the adjustment made by Nichols
Research increases the federal income tax liability which should have been
reflected on such federal income tax returns, then within ten days after any
such adjustment (or portion thereof) is agreed to by the parties or determined
by Nichols Research's firm of certified public accountants, as applicable, TXEN
shall pay such additional tax to Nichols Research, or (ii) the adjustment made
by Nichols Research decreases the federal income tax liability which should have
been reflected on such federal income tax returns, then within ten days after
any such adjustment (or portion thereof) is agreed to by the parties or
determined by Nichols Research's firm of certified public accountants, as
applicable, Nichols Research shall pay to TXEN an amount equal to the reduced
tax liability. If the amount referred to in (ii) above exceeds the amount
referred to in (i) above, then within ten days following the date on which the
federal income tax liability of the TXEN Group for the applicable period is
agreed to by Nichols Research and TXEN (or determined by Nichols Research's
certified public accountants, if applicable), Nichols Research shall pay to TXEN
such excess.
(f) If the federal income tax returns delivered by TXEN to Nichols
Research pursuant to the provisions of Sections 2(c) or 2(d) indicate a net
loss, Nichols Research shall pay to TXEN, within 60 days of the receipt of such
tax returns, an amount equal to the excess, if any, of (i) the refund which
Nichols Research and its affiliated group will be entitled to receive based upon
such federal income tax returns over (ii) the amount of all payments or
intercompany credits previously made to, or credited to, the TXEN Group with
respect to federal income tax for the applicable period; plus the amount, if
any, of all payments or intercompany charges previously made by, or charged to,
the TXEN Group with respect to federal
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<PAGE> 3
income tax for the applicable period. If Nichols Research disagrees with the
federal income tax returns provided to it by TXEN in accordance with the
provisions of Sections 2(c) or 2(d) and the adjustment made by Nichols Research
reduces the refund or creates a federal income tax liability which should have
been reflected on such federal income tax returns, then within ten days after
such adjustment (or portion thereof) is agreed to by the parties or determined
by Nichols Research's firm of certified public accountants, as applicable, the
appropriate party shall make payment to the other. If the amount referred to in
(ii) above exceeds the amount referred to in (i) above, then within ten days
following the date on which the federal income tax liability of the TXEN Group
for the applicable period is agreed to by Nichols Research and TXEN (or
determined by Nichols Research's certified public accountants, if applicable),
TXEN shall pay to Nichols Research such excess.
(g) All state and local income tax returns which include both a member
of the Nichols Research Group and a member of the TXEN Group that are required
to be filed for any period beginning before the Closing Date shall be prepared
and filed by Nichols Research. The provisions of Sections 2(c) through 2(f),
inclusive, shall apply with respect to all such state and local income tax
returns.
(h) All federal, state and local tax returns with respect to taxes
which are not measured by income which are due after the Closing Date shall be
prepared, filed and paid by the member of the Nichols Research Group or TXEN
Group which would be responsible for the payment of the taxes if such companies
were at all times unrelated to each other.
(i) All federal income tax returns for periods beginning subsequent to
the Closing Date shall be prepared by Nichols Research with respect to the
Nichols Research Group and by TXEN with respect to the TXEN Group.
3. AUDIT ADJUSTMENTS.
(a) If as a result of an audit of an income tax return of the Nichols
Research Group or any member thereof an adjustment is made by a tax regulatory
authority which results in additional tax payable by the Nichols Research Group
and results in a Temporary Difference (as hereinafter defined) in Nichols
Research's opinion, Nichols Research shall give prompt notice thereof to TXEN
setting forth in detail the adjustment and whether Nichols Research intends to
challenge the adjustment. Upon the adjustment becoming final (within the meaning
of Section 5(d)), if the adjustment results in a Temporary Difference, TXEN
shall be required to pay to Nichols Research the additional tax (without
interest) which Nichols Research is required to pay as a result of the
adjustment. Such payment shall be made within ten days of the later of (i) the
date the adjustment becomes final or (ii) a determination that the adjustment
results in a Temporary Difference.
(b) If as a result of an audit of an income tax return of the Nichols
Research Group or any member thereof an adjustment is made by a tax regulatory
authority or pursuant to an amended return or refund claim which results in a
decrease in the tax payable by the Nichols Research Group and might conceivably
result in a Temporary Difference, Nichols Research shall give prompt notice
thereof to TXEN setting forth in detail the adjustment and its opinion as to
whether the adjustment results in a Permanent Difference (as hereinafter
defined) or a Temporary Difference. Upon the adjustment becoming final, or the
amended return or refund claim being accepted, as applicable, (i) if the
adjustment results in a Permanent Difference, no payment shall be made to TXEN
and (ii) if the adjustment results in a Temporary Difference, Nichols Research
shall be required to pay to TXEN an amount equal to the decrease in tax (without
interest) resulting from the adjustment. Such payment shall be made within ten
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<PAGE> 4
days of the later of (i) the date the adjustment becomes final or the amended
return or refund claim is accepted, as applicable, or (ii) a determination that
the adjustment results in a Temporary Difference.
(c) If as a result of an audit of an income tax return of the TXEN
Group or any member thereof an adjustment is made by a tax regulatory authority
which results in additional tax payable by the TXEN Group and which results in a
Temporary Difference in TXEN's opinion, TXEN shall give prompt notice thereof to
Nichols Research setting forth in detail the adjustment and whether TXEN intends
to challenge the adjustment. Upon the adjustment becoming final, Nichols
Research shall be required to pay to TXEN the additional tax (without interest)
which TXEN is required to pay as a result of the adjustment. Such payment shall
be made within ten days of the later of (i) the date the adjustment becomes
final or (ii) a determination that the adjustment results in a Temporary
Difference.
(d) If as a result of an audit of an income tax return of the TXEN
Group or any member thereof an adjustment is made by a tax regulatory authority
or pursuant to an amended return or refund claim which results in a decrease in
the tax payable by the TXEN Group and which might conceivably result in a
Temporary Difference, TXEN shall give prompt notice thereof to Nichols Research
setting forth in detail the adjustment and its opinion as to whether the
adjustment results in a Permanent Difference or a Temporary Difference. Upon the
adjustment becoming final, or the amended return or refund claim being accepted,
as applicable, (i) if the adjustment results in a Permanent Difference, no
payment shall be made to Nichols Research and (ii) if the adjustment results in
a Temporary Difference, TXEN shall be required to pay to Nichols Research an
amount equal to the decrease in tax (without interest) resulting from the
adjustment. Such payment shall be made within ten days of the later of (i) the
date the adjustment becomes final or the amended return or refund claim is
accepted, as applicable, or (ii) a determination that the adjustment results in
a Temporary Difference.
(e) In the case of an adjustment to a tax return or liability not
measured by income, TXEN shall have the sole right to contest such adjustment
(at its own cost and expense) and shall be responsible for, or receive the
benefit of, any change in tax, interest or penalty that may result therefrom.
(f) For purposes of this Agreement, the following shall apply:
(i) The term Temporary Difference" shall mean a tax detriment
or tax benefit to the TXEN Group or Nichols Research Group relating to a tax
item in one taxable period which creates or results in a corresponding tax
benefit or tax detriment to the Nichols Research Group or TXEN Group,
respectively, in a different tax period for which the statute of limitations has
not expired (or for which mitigation provisions are applicable), and for which
no valuation allowance is required to be established, interpreted in accordance
with generally accepted accounting principles.
(ii) The term "Permanent Difference" means a tax detriment or
tax benefit to the TXEN Group or Nichols Research Group which does not create or
result in a corresponding tax benefit or tax detriment to the Nichols Research
Group or TXEN Group, respectively, in a different tax period for which the
statute of limitations has not expired (or for which mitigation provisions are
applicable), and for which a valuation allowance is required to be established,
interpreted in accordance with generally accepted accounting principles.
If Nichols Research and TXEN disagree as to whether there is a Temporary
Difference or Permanent Difference, then the party which would be required to
make a payment to the other if there were a Temporary Difference shall refer the
issue to the firm of certified public accountants then regularly serving
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<PAGE> 5
that party. Each party shall be entitled to submit oral and written comments to
such firm of certified public accountants setting forth its position. The
determination by such firm of certified public accountants shall be final,
binding and conclusive upon the parties.
4. CARRYBACKS.
If the consolidated income taxes of the Nichols Research Group are
reduced for a taxable period beginning prior to the Closing Date by reason of a
loss or other tax attribute of the TXEN Group arising on or after the Closing
Date ("TXEN Carryback"), Nichols Research shall pay to TXEN an amount equal to
such reduction in taxes (without interest). The Nichols Research Group shall
take all steps reasonably necessary to receive the maximum reduction in taxes
attributable to an TXEN Carryback and TXEN shall have the right to review and
comment on any tax return in which any such TXEN Carryback may be claimed.
Nothing herein shall require, however, that the TXEN Group Carryback any loss or
other tax attribute which it generates. The payment required to be made by
Nichols Research to TXEN pursuant to the provisions of this Section 4 shall be
made no later than ten days after the tax benefit is actually received, credited
or otherwise utilized by Nichols Research.
5. CONTESTING TAX ADJUSTMENTS.
(a) If an adjustment (i) results in an increase in the Nichols
Research Group's or any member thereof's tax liability, (ii) affects a taxable
year of Nichols Research beginning prior to the Closing Date, and (iii) results
in a Temporary Difference, TXEN shall have the right, in its sole discretion,
and at its cost, to contest such adjustment.
(b) If an adjustment (i) results in an increase in the Nichols
Research Group's or any member thereof's liability for a taxable year beginning
prior to the Closing Date and (ii) involves a Temporary Difference, Nichols
Research shall only be required to contest such adjustment if Nichols Research's
tax counsel determines that it is more likely than not that Nichols Research
will prevail with respect to the issue, and then only at the first
administrative level provided for by the applicable tax regulatory authority.
(c) If an adjustment results in an increase in the TXEN Group's or
member thereof's tax liability and results in a Temporary Difference, TXEN shall
only be required to contest such adjustment if TXEN's tax counsel determines
that it is more likely than not that TXEN will prevail with respect to the
issue, and then only at the first administrative level provided for by the
applicable tax regulatory authority.
(d) If Nichols Research or TXEN contests an adjustment pursuant to the
provisions of Sections 5(b) or 5(c), respectively, the cost of contesting such
adjustment through the first administrative level shall be borne by the
contesting party. If the party which would be obligated to make a payment
hereunder as a result of such adjustment is not satisfied with the result
obtained at the first administrative level, and desires that the adjustment be
contested beyond the first administrative level, such party may do so at its own
cost and expense. Such party shall notify the other party of its decision to
further contest the adjustment and the other party shall have the right to
consult with the contesting party if it so desires. No payment shall be required
pursuant to Section 3 until an adjustment has been finally determined. For
purposes of this Agreement, an adjustment is finally determined on the date on
which it may no longer be further contested by administrative or judicial
procedure.
(e) If an adjustment results in a Permanent Difference, only the party
whose income was adjusted shall have the right to contest such adjustment and
shall do so at its own cost and expense.
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<PAGE> 6
6. COOPERATION.
Each of the parties hereto agrees to cooperate with the other in
connection with the preparation and filing of, and any inquiry, audit,
examination, investigation, dispute or litigation involving, any tax return
filed or required to be filed by or for any member of the Nichols Research Group
or the TXEN Group for any taxable period beginning before the Closing Date or
for which any party may have a liability to the other hereunder. Such
cooperation shall include the execution and delivery of any power of attorney or
other necessary document to allow a party and its counsel to participate on
behalf of any member of the other group and making available, during normal
business hours, all books, records and information and the assistance of all
employees reasonably necessary or useful in connection with contesting any
adjustment made by any tax regulatory authority. If a party desires to copy any
books, records and information in the possession of the other party, the party
desiring such copies shall bear the expense of making such copies. The
assistance of employees shall be without charge.
7. RETENTION OF BOOKS AND RECORDS.
Nichols Research and TXEN each agree to retain all tax returns, related
schedules, work papers and all material records and other documents with respect
to all taxable periods ending on or before the Closing Date until the expiration
of the statute of limitations (including extensions thereof) of the taxable
period to which such tax returns and other documents relate.
8. RESOLUTION OF DISPUTES.
If any dispute arises between the parties for which no specific
resolution is provided for herein, then such dispute shall be settled pursuant
to arbitration in accordance with the rules of the American Arbitration
Association.
9. INDEMNIFICATION BY NICHOLS RESEARCH.
Nichols Research hereby agrees to indemnify each member of the TXEN
Group for, and hold each member of the TXEN Group harmless from, any taxes,
interest or penalties which such member of the TXEN Group incurs by reason of
having been included in Nichols Research's Group for any period beginning before
the Closing Date, other than any liability which such member of the TXEN Group
has to Nichols Research under the terms of this Agreement.
10. EXPENSES.
Unless otherwise expressly provided in this Agreement, each party shall
bear its own expenses which arise as a result of its rights and obligations
under this Agreement.
11. ENTIRE AGREEMENT; TERMINATION OF PRIOR AGREEMENTS.
This Agreement contains the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all other agreements,
whether or not written, in respect of any tax between or among any member of the
Nichols Research Group and the TXEN Group.
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<PAGE> 7
12. AMENDMENT.
This Agreement may be amended from time to time only by a written
agreement executed by each of the parties hereto.
13. NOTICES.
All notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and be personally delivered
against a written receipt, delivered to a reputable messenger service (such as
Federal Express, DHL Courier, United Parcel Service, etc.) for overnight
delivery, transmitted by confirmed telephonic facsimile (fax) or transmitted by
mail, registered, express or certified, return receipt requested, postage
prepaid, addressed as follows:
If to Nichols Research:
Nichols Research Corporation
Attention: Chief Financial Officer
4040 South Memorial Parkway
Huntsville, Alabama 35802
If to TXEN:
Nichols TXEN Corporation
Attention: Chief Financial Officer
10 Inverness Center Parkway
Suite 500
Birmingham, Alabama 35242
All notices, demands and requests shall be effective upon being properly
personally delivered, upon being delivered to a reputable messenger service,
upon transmission of a confirmed fax, or upon being deposited in the United
States mail in the manner provided in this Section 13. However, the time period
in which a response to any such notice, demand or request must be given shall
commence to run from the date of personal delivery, the date of delivery by a
reputable messenger service, the date on the confirmation of a fax, or the date
on the return receipt, as applicable. If any party refuses delivery, the notice,
demand or request shall be deemed received two days after the notice, demand or
request was delivered to a reputable messenger service or deposited in the
United States mail.
14. CAPTIONS; SECTION REFERENCES.
Section titles or captions contained in this Agreement are inserted
only as a matter of convenience and reference, and in no way define, limit,
extend or describe the scope of this Agreement, or the intent of any provision
hereof. All references herein to Sections shall refer to Sections of this
Agreement unless the context clearly requires otherwise.
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<PAGE> 8
15. BINDING AGREEMENT.
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and assigns.
16. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Alabama without regard to its conflict of laws rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
NICHOLS RESEARCH CORPORATION
By: Michael J. Mruz
--------------------------------
Its: Chief Executive Officer
-------------------------------
NICHOLS TXEN CORPORATION
By: Paul D. Reaves
--------------------------------
Its: Chief Executive Officer
-------------------------------
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<PAGE> 1
EXHIBIT 10.9
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is executed as of
November 6, by and between Nichols TXEN Corporation, a Delaware Corporation
("TXEN") and _______, a director, officer or representative (as hereinafter
defined) of TXEN (the "Indemnitee").
RECITALS:
TXEN and the Indemnitee are each aware of the exposure to litigation
of officers, directors and representatives of TXEN as such persons exercise
their duties to TXEN. TXEN and the Indemnitee are also aware of conditions in
the insurance industry that have affected and may continue to affect TXEN's
ability to obtain appropriate directors' and officers' liability insurance on
an economically acceptable basis. TXEN desires to continue to benefit from the
services of highly qualified, experienced and otherwise competent persons such
as the Indemnitee; the Indemnitee desires to serve or to continue to serve TXEN
as a director or an officer, or as a director, officer or trustee of another
corporation, joint venture, trust or other enterprise in which TXEN has a
direct or indirect ownership interest, for so long as TXEN continues to provide
on an acceptable basis adequate and reliable indemnification against certain
liabilities and expenses that may be incurred by the Indemnitee.
AGREEMENT:
In consideration of the foregoing premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. INDEMNIFICATION. Subject to the terms of this Agreement, TXEN shall
indemnify the Indemnitee with respect to his activities as a director or
officer of TXEN and/or as a person who is serving or has served on behalf of
TXEN ("representative") as a director, officer, or trustee of another
corporation, joint venture, trust or other enterprise, domestic or foreign, in
which TXEN has a direct or indirect ownership interest (an "affiliated entity")
against expenses (including, without limitation, attorneys' fees, judgments,
fines, and amounts paid in settlement) actually and reasonably incurred by him
or her ("Expenses") in connection with any claim against Indemnitee which is
the subject of any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, investigative or otherwise
and whether formal or informal (a "Proceeding"), to which Indemnitee was, is,
or is threatened to be made a party by reason of facts which include
Indemnitee's being or having been such a director, officer or representative,
to the extent of the highest and most advantageous to the Indemnitee, as
determined by the Indemnitee, of one or any combination of the following:
(a) The benefits provided by the Certificate of Incorporation, or
Bylaws or their equivalent of TXEN in effect at the time
Expenses are incurred by Indemnitee;
(b) The benefits allowable under Delaware law in effect at the
date hereof;
(c) The benefits allowable under the law of the jurisdiction
under which TXEN exists at the time Expenses are incurred by
the Indemnitee;
(d) The benefits available under liability insurance obtained by
TXEN;
<PAGE> 2
(e) Such other benefits as are or may be otherwise available to
Indemnitee.
Combination of two or more of the benefits provided by (a) through (e) shall be
available to the extent that the Applicable Document, as hereafter defined,
does not require that the benefits provided therein be exclusive of other
benefits. The document or law providing for the benefits listed in items (a)
through (e) is defined as the "Applicable Document". TXEN hereby undertakes to
use its best efforts to assist Indemnitee, in all proper and legal ways, to
obtain the benefits selected by Indemnitee under items (a) through (g) above.
For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans for employees of TXEN or of any affiliated
entity without regard to ownership of such plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any
employee benefit plan. References to "serving on behalf of TXEN" shall include
any service as a director, officer, employee or agent of TXEN which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries. References to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa. If the Indemnitee acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, he shall be deemed to have acted in a manner
consistent with the standards required for indemnification by TXEN under the
Applicable Documents.
2. INSURANCE. TXEN shall maintain directors' and officers' liability
insurance for so long as Indemnitee's services are covered hereunder, provided
and only to the extent that such insurance is available in amounts and on terms
and conditions determined by TXEN to be acceptable. However, TXEN agrees that
the provisions of this agreement shall remain in effect regardless of whether
liability or other insurance coverage is at any time obtained or retained by
TXEN, except that any payments in fact made to Indemnitee under an insurance
policy obtained or retained by TXEN shall reduce the obligation of TXEN to make
payments hereunder by the amount of the payments made under any such insurance
policy.
3. PAYMENT OF EXPENSES. At Indemnitee's request, TXEN shall pay the
Expenses as and when incurred by Indemnitee, but only after receipt of written
notice pursuant to Section 5 of this agreement and an undertaking by or on
behalf of Indemnitee to repay such amounts so paid on Indemnitee's behalf if it
shall ultimately be determined under the Applicable Document that Indemnitee is
not entitled to be indemnified by TXEN for such Expenses. The portion of
Expenses that represents attorneys' fees and other costs incurred in defending
any Proceeding shall be paid by TXEN within thirty (30) days of TXEN's receipt
of such request, together with reasonable documentation (consistent, in the
case of attorneys' fees, with TXEN's practice in payment of legal fees for
outside counsel generally) evidencing the amount and nature of such Expenses,
subject to its having received such a notice and undertaking.
4. ADDITIONAL RIGHTS. The indemnification provided in this Agreement shall
not be exclusive of any other indemnification or right to which Indemnitee may
be entitled and shall continue after Indemnitee has ceased to occupy a position
as an officer, director or representative as described in Section 1 above with
respect to Proceedings relating to or arising out of Indemnitee's acts or
omissions during his service in such position.
5. NOTICE TO TXEN. Indemnitee shall provide to TXEN prompt written notice
of any Proceeding brought, threatened, asserted or commenced against Indemnitee
with respect to which
<PAGE> 3
Indemnitee may assert a right to indemnification hereunder, provided that
failure to provide such notice shall not in any way limit Indemnitee's rights
under this Agreement.
6. COOPERATION IN DEFENSE AND SETTLEMENT. Indemnitee shall not make any
admission or effect any settlement of any Proceeding without TXEN's written
consent unless Indemnitee shall have determined to undertake his own defense in
such matter and has waived the benefits of this Agreement. TXEN shall not
settle any Proceeding to which Indemnitee is a party in any manner which would
impose any Expense on Indemnitee without his written consent. Neither
Indemnitee nor TXEN will unreasonably withhold consent to any proposed
settlement. Indemnitee and TXEN shall cooperate to the extent reasonably
possible with each other and with TXEN's insurers, in attempts to defend or
settle such Proceeding.
7. ASSUMPTION OF DEFENSE. Except as otherwise provided below, to the
extent that it may wish, TXEN jointly with any other indemnifying party
similarly notified will be entitled to assume Indemnitee's defense in any
Proceeding, with counsel mutually satisfactory to Indemnitee and TXEN. After
notice from TXEN to Indemnitee of TXEN's election to assume such defense, TXEN
will not be liable to Indemnitee under this Agreement for Expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ counsel in such Proceeding, but the fees and
expenses of such counsel incurred after notice from TXEN of its assumption of
the defense thereof shall be at Indemnitee's expense unless:
(a) The employment of counsel by Indemnitee has been authorized by
TXEN;
(b) Counsel employed by TXEN initially is unacceptable or later
becomes unacceptable to Indemnitee and such unacceptability
is reasonable under then existing circumstances;
(c) Indemnitee shall have reasonably concluded that there may be
a conflict of interest between Indemnitee and TXEN in the
conduct of the defense of such Proceeding; or
(d) TXEN shall not have employed counsel promptly to assume the
defense of such Proceeding.
In each of these cases the fees and expenses of counsel shall be at the expense
of TXEN and subject to payment pursuant to this Agreement. TXEN shall not be
entitled to assume the defense of Indemnitee in any Proceeding brought by or on
behalf of TXEN or as to which Indemnitee shall have made either of the
conclusions provided for in clauses (b) or (c) above.
8. ENFORCEMENT. In the event that any dispute or controversy shall arise
under this Agreement between Indemnitee and TXEN with respect to whether the
Indemnitee is entitled to indemnification in connection with any Proceeding or
with respect to the amount of Expenses incurred, then with respect to each such
dispute or controversy Indemnitee may seek to enforce the Agreement through
legal action or, at Indemnitee's sole option and written request, through
arbitration. If arbitration is requested, such dispute or controversy shall be
submitted by the parties to binding arbitration in the City of Birmingham,
Alabama, before a single arbitrator agreeable to both parties. If the parties
cannot agree on a designated arbitrator within 15 days after arbitration is
requested in writing by Indemnitee, the arbitration shall proceed in the City of
Birmingham, Alabama, before an arbitrator appointed by the American Arbitration
Association. In either case, the
3
<PAGE> 4
arbitration proceeding shall commence promptly under the rules then in effect of
that Association. The arbitrator agreed to by the parties or appointed by that
Association shall be an attorney other than an attorney who has been or is
associated with a firm having associated with it an attorney who has been
retained by or performed services for TXEN or Indemnitee at any time during the
five years preceding the commencement of arbitration. The award shall be
rendered in such form that judgment may be entered thereon in any court having
jurisdiction thereof. The prevailing party shall be entitled to prompt
reimbursement of any costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred in connection with such legal action or
arbitration; provided that Indemnitee shall not be obligated to reimburse TXEN
unless the arbitrator or court which resolves the dispute determines that
Indemnitee acted in bad faith in bringing such action or arbitration.
9. EXCLUSIONS. Notwithstanding the scope of indemnification which may be
available to Indemnitee from time to time under any Applicable Document, no
indemnification, reimbursement or payment shall be required of TXEN hereunder
with respect to:
(a) Any claim or any part thereof as to which Indemnitee shall
have been adjudged by a court of competent jurisdiction from
which no appeal is or can be taken to have acted in willful
misfeasance, or willful disregard of his duties, except to
the extent that such court shall determine upon application
that, despite the adjudication of liability, but in view of
all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such expenses as the
court shall deem proper;
(b) Any claim or any part thereof arising under Section 16(b) of
the Securities Exchange Act of 1934 pursuant to which
Indemnitee shall be obligated to pay any penalty, fine,
settlement or judgment;
(c) Any obligation of Indemnitee based upon or attributable to
the Indemnitee gaining in fact any personal gain, profit or
advantage to which he was not entitled; or
(d) Any Proceeding initiated by Indemnitee without the consent or
authorization of the Board of Directors of TXEN, provided
that this exclusion shall not apply with respect to any
claims brought by Indemnitee to enforce his rights under this
Agreement or in any Proceeding initiated by another person or
entity whether or not such claims were brought by Indemnitee
against a person or entity who was otherwise a party to such
Proceeding.
Nothing in this Section 9 shall eliminate or diminish TXEN's obligations to
advance that portion of Indemnitee's Expenses which represent attorneys' fees
and other costs incurred in defending any Proceeding pursuant to Section 3 of
this Agreement.
10. EXTRAORDINARY TRANSACTIONS. TXEN covenants and agrees that, in the
event of any merger, consolidation or reorganization in which TXEN is not the
surviving entity, any sale of all or substantially all of the assets of TXEN or
any liquidation of TXEN (each such event is hereinafter referred to as an
"Extraordinary Transaction"), TXEN shall:
(a) Have the obligations of TXEN under this Agreement expressly
assumed by the survivor, purchaser or successor, as the case
may be, in such Extraordinary Transaction; or
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<PAGE> 5
(b) Otherwise adequately provide for the satisfaction of the
Company's obligations under this Agreement, in a manner
acceptable to Indemnitee.
11. NO PERSONAL LIABILITY. Indemnitee agrees that neither the directors nor
any officer, employee, representative or agent of TXEN shall be personally
liable for the satisfaction of TXEN's obligations under this Agreement, and
Indemnitee shall look solely to the assets of TXEN for satisfaction of any
claims hereunder.
12. SEVERABILITY. If any provision, phrase, or other portion of this
Agreement should be determined by any court of competent jurisdiction to be
invalid, illegal or unenforceable, in whole or in part, and such determination
should become final, such provision, phrase or other portion shall be deemed to
be severed or limited, but only to the extent required to render the remaining
provisions and portions of the Agreement enforceable, and the Agreement as thus
amended shall be enforced to give effect to the intention of the parties
insofar as that is possible.
13. SUBROGATION. In the event of any payment under this Agreement, TXEN
shall be subrogated to the extent thereof to all rights to indemnification or
reimbursement against any insurer or other entity or person vested in the
Indemnitee, who shall execute all instruments and take all other actions as
shall be reasonably necessary for TXEN to enforce such rights.
14. GOVERNING LAW. The parties hereto agree that this Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Alabama.
15. NOTICES. All notices, billings, requests, demands, approvals, consents,
and other communications which are required or may be given under this
Agreement shall be in writing and will be deemed to have been duly given if
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth below:
IF TO TXEN: IF TO INDEMNITEE:
Mr. H. Grey Wood
Nichols TXEN Corporation
10 Inverness Center Parkway, Suite 500
Birmingham, AL 35242
or to such other or further address as shall be designated from time to time by
the Indemnitee or TXEN to the other.
16. TERMINATION. This Agreement may be terminated by either party upon not
less than ninety (90) days prior written notice delivered to the other party,
but termination shall not in any way diminish the obligations of TXEN hereunder
with respect to Indemnitee's activities prior to the effective date of
termination.
17. AMENDMENTS AND BINDING EFFECT. This Agreement and the rights and duties
of Indemnitee and TXEN hereunder may not be amended, modified or terminated
except by written instrument signed and delivered by the parties hereto. This
Agreement is and shall be binding upon and shall inure to the benefits of the
parties thereto and their respective heirs, executors, administrators,
successors and assigns.
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<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Agreement in
triplicate as of the date first above written.
Nichols TXEN Corporation
By:
----------------------------
Paul D. Reaves
Chief Executive Officer
Indemnitee
--------------------------------
6
<PAGE> 1
EXHIBIT 10.10
SOFTWARE LICENSING AGREEMENT
This Licensing, Agreement ("the Agreement") is made and entered into
by and between CSC Healthcare Systems, Inc., a California corporation
("CSCHS"), with its principal place of business at 34505 W. Twelve Mile Road,
Suite 300, Farmington Hills, MI 48331, and TXEN, Inc., an Alabama corporation
("TXEN"), with its principal place of business at 10 Inverness Center Parkway,
Suite 140, Birmingham, AL 35242.
WITNESSETH
WHEREAS, CSCHS is the owner of the Licensed Property as defined
herein; and
WHEREAS, TXEN has invested substantial effort in developing the
Licensed Property for the healthcare market; and
WHEREAS, CSCHS desires to grant TXEN three (3) end user licenses for
the Licensed Property, on the terms and conditions herein.
NOW, THEREFORE, in consideration of the above and mutual covenants
contained herein and other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
1.1 "Marks" shall mean the trademarks and service marks owned by CSCHS.
1.2 "Licensed Property" shall mean the Marks and certain proprietary
computer software products developed by the former Seako, Inc. and known or
formerly known as MHS Version 1, UMS Version 1, CMS and PMS. The Licensed
Property is now owned by CSCHS and is or may be referred to as MHS-TXEN,
including all Modifications and supporting documentation made by TXEN.
1.3 "Modifications' shall mean changes, enhancements, improvements,
modifications, additions, deletions, error corrections and/or revisions to the
Licensed Property, whether created prior to or subsequent to the date of this
Agreement.
1.4 "CSCHS' Customers" shall mean organizations which currently license
CSCHS' Software.
2. Grant of End User Licenses.
2.1 Termination of Prior Licenses. All licenses previously granted to TXEN
or its predecessors by CSCHS or its predecessors are hereby terminated.
<PAGE> 2
2.2 Grant of Licenses. TXEN is hereby granted, at no cost to TXEN, three
(3) perpetual, (except as terminated in accordance with this Section 2.3 H of
this Agreement for a material breach of TXEN's obligations) non-transferrable,
non-marketable source code and object code end user licenses for the Licensed
Property, without the right of sublicense unless expressly approved in writing
by an authorized officer of CSCHS, for TXEN's internal business use on IBM
AS400 model and subsequent compatible model CPUs. Provided that, TXEN's
internal business use may include the provision of timesharing, service bureau
and/or facilities management services to entities provided that the entity is
not a CSCHS Customer. TXEN shall obtain written approval from CSCHS before
contacting or servicing a CSCHS Customer. TXEN shall identify on Exhibit A the
make, model, serial number and location of each CPU (not to exceed 3) on which
the Licensed Property will be run. TXEN shall be entitled to relocate the
Licensed Property, at no cost to TXEN, to upgraded or replacement CPUs by
providing CSCHS advance written notice of the make, model, serial number and
location of the upgraded or replaced CPU.
2.3 Terms and Conditions of License. The licenses granted herein are
subject to the following terms and conditions:
A. Title to and Ownership of the Programs, Modification - TXEN
acknowledges that the Programs are the commercially valuable, proprietary
products and property of CSCHS. TXEN further acknowledges that the Licensed
Property represents a substantial economic resource to CSCHS. TXEN further
acknowledges that CSCHS treats the Licensed Property as confidential and that
the Licensed Property constitute trade secrets of CSCHS, regardless of whether
the Licensed Property is or may be copyrighted or patented. Title, full
ownership and all proprietary rights in the Licensed Property, including
Modifications made by TXEN and/or its customers shall remain with CSCHS. TXEN
shall neither receive nor retain any interest in the Licensed Property (other
than the right to use the Licensed Property in accordance with the provisions
of the Accruement) nor will any right be vested in TXEN to transfer use of the
Licensed Property to any other entity.
TXEN agrees that Modifications, customizations and enhancements of the Licensed
Property whether made by TXEN, CSCHS, or a third party shall belong solely and
exclusively to CSCHS. Any such Modifications, customizations, and enhancements
made by TXEN shall be licensed to TXEN under the same terms and conditions of
this Agreement as are applicable to the Licensed Property. Notwithstanding the
foregoing, TXEN retains ownership of its intellectual rights, market knowledge
and experience in developing new products, and is not precluded from future
development, without using CSCHS' proprietary products, of products for the
health care, insurance or self-funded markets that may be proprietary to TXEN.
In the development of future proprietary TXEN products, TXEN shall not have the
right to physically incorporate MHS Version 1, MHS-TXEN, or Modifications, as
defined by their source code, file structures, and documentation. However, in
conjunction with its future development of proprietary TXEN products, TXEN
shall have the right to incorporate technical and healthcare market concepts
embodied in MHS-TXEN and the Modifications.
B. TXEN agrees to assign to CSCHS and to cause its employees,
subcontractors and agents to assign to CSCHS, all right, title and interest in
all Modifications made by or for TXEN or CSCHS under this Agreement. The
assignments do and shall expressly include all copyright rights and all
author's rights, including, without limitation, moral rights. TXEN shall
effectuate such assignments by executing and forwarding an assignment in the
form attached hereto as Exhibit B, covering any period during which this
Agreement is or was in effect. In addition, TXEN shall require all employees
and subcontractors to execute an assignment in the form of Exhibit C before
granting an employee or subcontractor access to the Licensed Property.
C. TXEN hereby absolutely and unconditionally agrees to indemnify and
defend and to hold harmless CSCHS from and against any and all claims,
liabilities, cost, and damages arising, made, incurred, or suffered, directly
or indirectly, by any person from or in connection with TXEN's use of any of
the Licensed Property to determine: (a) whether, and under what circumstances,
any person is or is not entitled to be reimbursed or compensated for medical
treatment or care proposed to be administered or received; or (b) whether, and
under
2
<PAGE> 3
what circumstances, any person is or is not entitled to be admitted to a
hospital or to other medical facility (whether impatient or otherwise).
D. TXEN shall maintain magnetic media copies of program Modifications and
associated documentation made to the Licensed Property by TXEN in a form and
format which can be reduced to hardcopy by CSCHS without assistance from TXEN.
E. Non-disclosure - TXEN agrees not to transfer, distribute or disclose
the Licensed Property, or any part thereof, to any other person, firm or
corporation except as specifically authorized by this Agreement. TXEN shall use
all reasonable efforts to confine knowledge and use of the Licensed Property
solely to its employees, consultants and contracted staff who require such
knowledge and use thereof in the ordinary course and scope of their employment
or contract with TXEN.
F. TXEN further agrees that, except for ordinary and necessary backup
purposes, it will not use, or have made, any copies of the Licensed Property or
part thereof. The Provisions of this Section shall apply to any material or
information related to the Licensed Property provided to TXEN prior to, and
during the term of this Agreement and shall survive the termination of this
Agreement.
Unauthorized use, disclosure, or transfer of copies of the Licensed Property,
or information contained therein, will diminish substantially the value of the
Licensed Property to CSCHS. Accordingly, if TXEN breaches any of its
obligations set forth in the Agreement, CSCHS will be entitled to equitable
relief, including orders for specific performance and injunction, as well as
monetary damages.
Notwithstanding the foregoing, TXEN retains ownership of its intellectual
rights, market knowledge and experience in developing new products, and a
transfer of TXEN's intellectual rights, knowledge and experience in future
development, without using CSCHS' proprietary products, of products that may be
proprietary to TXEN for the health care, insurance or self-funded market shall
not be deemed to be a breach of this Agreement. In the development of future
proprietary TXEN products, TXEN shall not have the right to physically
incorporate MHS Version 1, MHS-TXEN, or Modifications, as defined by their
source code, file structures, and documentation. However, in conjunction with
its future development of proprietary TXEN products, TXEN shall have the right
to incorporate technical and healthcare market concepts embodied in MHS-TXEN
and the Modifications.
G. Limitation of Liability - Except as specifically set forth in this
Agreement, TXEN agrees that CSCHS's liability to TXEN for any loss, injury,
damage, or expense arising directly or indirectly from the Licensed Property or
additional products or services rendered hereunder shall not exceed the license
fees paid by TXEN for use of the Licensed Property under this Agreement. Under
no circumstances shall CSCHS be liable for procurement of substitute products
or services or for any indirect, special, or consequential damages, whether
based upon contract, tort, or any other legal theory, including but not limited
to, any lost profits or third party claims against TXEN arising from CSCHS's
performance or non-performance under this Agreement.
H. Termination - In the event that TXEN materially breaches or fails to
perform any of its material obligations under Sections 2.2, 2.3, 3.2, 4, or 5.1
CSCHS may, in addition to any other remedy available at law or under this
Agreement, terminate this Agreement and Licenses hereunder to use the Licensed
Property, by giving TXEN sixty (60) days prior written notice, specifying the
nature of the default. If TXEN cures such default during the sixty (60) day
notice period, or commences corrective action reasonably acceptable to CSCHS
and proceeds with due diligence to complete the corrective action, the notice
of termination shall be null and void.
I. In the event that this Agreement is terminated due to the default or
bankruptcy of TXEN, CSCHS shall be provided a copy of the source code of the
Licensed Property by TXEN. TXEN shall, within ten (10) days after termination
of this Agreement and TXEN's license to the Licensed Property, return to CSCHS
the original
3
<PAGE> 4
and all existing copies of the Licensed Property, together with all related
material in TXEN's possession or control. In the event of TXEN's default, CSCHS
shall be entitled, at CSCHS' sole option, to provide or sell licenses to the
source code to TXEN's customers for the sole purpose of supporting the
customer's licensed version of the Licensed Property.
3. Warranties and Title.
3.1 NO WARRANTY BY CSCHS. THE LICENSED PROPERTY IS LICENSED TO TXEN
"AS IS." CSCHS DOES NOT WARRANT THAT THE LICENSED PROPERTY WILL MEET TXEN'S
REQUIREMENTS OR THAT IT WILL OPERATE IN COMBINATION WITH SOFTWARE OR EQUIPMENT
OBTAINED BY TXEN FROM ANOTHER SOURCE, OR THAT OPERATION OF THE LICENSED
PROPERTY WILL BE ERROR FREE. CSCHS HEREBY DISCLAIMS ALL WARRANTIES , EXPRESS OR
IMPLIED, WITH RESPECT TO THE LICENSED PROPERTY, INCLUDING WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
3.2 Ownership of Licensed Property. TXEN acknowledges that the Licensed
Property and all Modifications made to the Licensed Property hereafter are the
commercially valuable proprietary property of CSCHS. Title, full ownership, and
all proprietary rights to the Licensed Property, including Modifications made
by TXEN or its customers, shall remain with CSCHS; provided that, during the
term of this Agreement, CSCHS shall not be entitled to receive or maintain
copies of Modifications made by TXEN.
3.3 LIMITATION OF LIABILITY. TXEN agrees that CSCHS shall not be liable for
any lost profits, or special or consequential damages arising out of breach of
this Agreement or arising from licensing the Licensed Property, or for any
claim or demand against TXEN or its Sublicensees. IN NO EVENT WILL CSCHS BE
LIABLE FOR CONSEQUENTIAL DAMAGES EVEN IF CSCHS HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
4. Non-Disclosure of Confidential Information.
CSCHS and TXEN each hereby acknowledges that during the term of this Agreement
they will provide each other from time to time with information, whether
written or oral, that is of a confidential nature and that comprises their
respective proprietary trade secrets or, in certain instances, the proprietary
trade secrets of third parties in the disclosing party's possession pursuant to
contract. Each of the parties hereto shall protect, and shall cause its
respective employees, agents, and independent contractors to protect, the
confidentiality of such information, shall use such information solely for the
purposes of this Agreement, and shall not disclose, or permit or suffer the
disclosure, of such information to any third party, except:
(i) with the prior written authorization of the lawful owner of such
information; or
(ii) as required to carry out the purposes of this Agreement; or
(iii) where the information (a) was previously known to the receiving party
free of any obligation to keep it confidential; (b) is or becomes publicly
available, by other than unauthorized disclosure; (c) is independently
developed by the receiving party without knowledge of the proprietary or
confidential information; (d) is lawfully received by the receiving party from
a third party whose disclosure would not violate any confidentiality or other
legal obligation; or (e) is required by law; provided, however, that in the
event disclosure is required of the disclosing party under the provisions of
any law or court order, the receiving party will notify the other of the
obligation to make such disclosure sufficiently in advance of the disclosure
that the disclosing party may assert the confidentiality of such information.
The provisions of this Section 4 shall survive the termination of this
Agreement, and any violation of this Section 4 shall entitle the party whose
trade secrets have been misappropriated or disclosed to injunctive relief,
4
<PAGE> 5
in addition to and not in lieu of any other and further relief that such party
is or may be entitled to at law or in equity. Upon termination of this
Agreement each party shall return to the other party all-confidential
information belonging to such other party, or shall provide such other party
with satisfactory evidence that such information has been destroyed.
5. Use and Inspection.
5.1 Advertising or Publicity. TXEN may use the Marks in sales literature,
catalogues, mailings and other such materials, subject to CSCHS' approval of
such use, which shall not be unreasonably withheld. CSCHS and TXEN shall have
the right to publicize their relationship in any advertising or publicity
releases with the prior written approval of the other, which shall not be
unreasonably withheld.
6. Liability. The surrender, cancellation or termination of this Agreement
shall not affect the liability of either party for obligations accruing prior
to termination.
7. Remedies.
7.1 Injunctive Relief. Remedies at law may be inadequate to preserve the
parties rights hereunder. Therefore, the parties shall be entitled to equitable
relief, including without limitation, injunctive relief, specific performance
or other equitable remedies in addition to all other remedies provided
hereunder or available to the parties at law.
7.2 Costs. If any legal action or other proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, each party, if it is the successful or prevailing party, shall be
entitled to recover reasonable attorneys' fees and other costs incurred in that
action or proceeding, in addition to any other relief to which it may be
entitled.
8. Miscellaneous Provisions.
8.1 Notices. All notices shall be in writing personally delivered or sent
by confirmed facsimile or mailed by certified mail, return receipt requested,
addressed to the parties at the address specified below:
TXEN, Inc. CSC Healthcare Systems, Inc.
c/o President c/o V.P. Finance and Administration
10 Inverness Parkway 34505 W. Twelve Mile Road
Suite 140 Suite 300
Birmingham, AL 35242 Farmington Hills, MI 48331
8.2 Independent Contractors. Each party, its officers, agents, and
employees are at all times independent contractors. Nothing in this Agreement
shall be construed to make either party or any of its officers, agents or
employees an agent, servant, employee, or joint venturer of the other.
8.3 Entire Agreement. This Agreement, including all Exhibits, which are
hereby expressly incorporated herein, represents the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and all prior agreements, understandings, representations and warranties with
respect to such subject matter, whether written or oral, are merged into and
superseded by this Agreement. This Agreement may be amended only in a writing
executed by a duly authorized officer of both parties.
8.4 Waiver. No term or provision hereof shall be deemed waived and no
breach excused, unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. Any consent
5
<PAGE> 6
by any party to, or waiver of, a breach by the other, whether express or
implied, shall not constitute a consent, waiver of, or excuse for any other
different or subsequent breach.
8.5 Severability. The invalidity or unenforceability of any provisions of
this Agreement as declared by a court of competent jurisdiction shall not
effect the validity or enforceability of any other provision.
8.6 Governing Law. This Agreement shall be interpreted and enforced in
accordance with the internal, substantive laws of the State of California,
including, without limitation, Articles 1 and 2 of the UCC as in effect in the
State of California. Any disputes that arise hereunder shall be resolved in a
California or Federal Court sitting in the State of California, provided that
either party may submit any dispute under this Agreement to binding
arbitration, which shall be conducted under the then-prevailing rules of the
American Arbitration Association in the jurisdiction in which the submitting
party's principal place of business is located.
8.7 Force Majeure. Neither party shall be liable to the other for its
failure to perform any of its obligations under this Agreement, provided that
such failure is due to causes beyond the reasonable control of such party,
including, without limitation, work stoppages, strikes, shortages, or
unavailability of materials, delays in transportation, war, civil disturbances,
acts of God, or such other occurrences ordinarily included within the concept
of force majeure.
8.8 Assignment. This Agreement may not be assigned in whole or in part, by
TXEN without the prior written consent of an authorized officer of CSC
Healthcare Systems, including any assignment by operation of law, or
acquisition in whole or in part of TXEN or its business by other persons or
entities. CSCHS' consent to assignment shall not be unreasonably withheld.
8.9 Effective Date. The effective date of this Agreement shall be July 20,
1992.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the latest
date of execution written below.
CSC Healthcare Systems, Inc. TXEN, Inc.
By: /s/ George S. Huntzinger By: /s/ Thomas L. Patterson
------------------------ -----------------------
George S. Huntzinger Thomas L. Patterson
Its: President Its: President
Date: June 1, 1993 Date: 5/6/93
---------------------- ---------------------
7
<PAGE> 8
EXHIBIT A
MHS/UMS LICENSE NUMBER ONE
<TABLE>
<CAPTION>
LOCATION MODEL SERIAL NUMBER
- -------- ----- -------------
<S> <C> <C>
TXEN, INC IBM-E70 00A8584
10 INVERNESS CTR PKWY
SUITE 140
BIRMINGHAM, AL 35242
</TABLE>
MHS/UMS LICENSE NUMBER TWO
RESERVED FOR FUTURE USE
MHS/UMS LICENSE NUMBER THREE
RESERVED FOR FUTURE USE
8
<PAGE> 9
EXHIBIT B
TXEN, Inc., for itself, its employees, agents and assigns hereby grants and
assigns to CSC Healthcare Systems, Inc. all right, title and interest,
including, without limitation, all copyrights, authors' rights and moral
rights, in and to all Modifications, as defined herein, and made during the
term of the "Software Licensing Agreement. "
TXEN, Inc.
By: /s/ Thomas L. Patterson
-----------------------
Thomas Patterson
Its: President
Date: 5/6/93
------------------
9
<PAGE> 10
EXHIBIT C
I, for myself, my heirs, successors and assigns hereby grant and assign to CSC
Healthcare Systems, Inc. all right, title and interest, including, without
limitation, all copyrights, authors' rights and moral rights, in and to all
Modifications to the Licensed Property, as those terms are defined in TXEN,
Inc.'s Software Licensing Agreement with CSC Healthcare Systems, Inc., and made
during the term of my contract or employment with TXEN, Inc. I further agree to
keep strictly confidential any and all information I receive regarding the
Licensed Property.
By:
--------------------------
Date:
------------------------
10
<PAGE> 11
CONTRACT CHECK LIST
Contract Authorization Approval Form
---------------------------
UCC-1 Form
---------------------------
Job Cost Numbers:
Created
---------------------------
Work Began On
---------------------------
Purchase Requisition:
Order Placed
---------------------------
If so, When
---------------------------
Order Shipped
---------------------------
Invoicing Information:
Deposit Check Received
Sales Assignment Form
---------------------------
When To Be Invoiced
---------------------------
REVIEWED BY:
Jeanne Dunk /s/ JMD
---------------------------
Dennis Dooley /s/ DD
---------------------------
George Huntzinger /s/ / GH
---------------------------
11
<PAGE> 1
EXHIBIT 10.11
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of
this 6th day of November, 1998, by and between NICHOLS TXEN CORPORATION, a
Delaware corporation ("TXEN"), and NICHOLS RESEARCH CORPORATION, a Delaware
corporation ("Nichols Research").
R E C I T A L S
TXEN has filed with the Securities Exchange Commission a Form S-1
Registration Statement (the "Offering"). Following completion of the Offering,
Nichols Research will own 78% of the outstanding Common Stock, par value $0.01
per share, of TXEN (75% if the Underwriters' over-allotment option is exercised
in full). In connection with the Offering, Nichols Research and TXEN have
agreed to enter into this Agreement with respect to the election of at least
two independent directors of TXEN.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. After the completion of the Offering, Nichols Research agrees
that it will vote all of its shares of Common Stock at any meeting at which
directors are elected in favor of that number of independent directors who are
not affiliates of Nichols Research or employees of Nichols Research
("Independent Directors") so that if such directors were elected there would be
at least two Independent Directors who are members of the Board of Directors of
TXEN.
2. This Agreement will automatically terminate upon the earlier
of (i) that date upon which Nichols Research beneficially owns 50% or less of
the Common Stock of TXEN or (ii) five years from the date of this Agreement.
3. Miscellaneous:
a. This Agreement may be modified or amended from time
to time only by a written instrument executed by the parties hereto.
b. This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto and their respective successors and assigns.
c. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Alabama, without regard to its
conflicts of law rule.
d. This Agreement embodies the entire understanding
between the parties hereto with respect to subject matters covered hereby and
supersedes any prior agreement or understanding between the parties with
respect to such matters.
e. This Agreement may be executed in multiple
counterpart copies, each of which shall be considered an original and all of
which shall constitute one and the same instrument.
-1-
<PAGE> 2
f. This Agreement is not assignable.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
NICHOLS TXEN CORPORATION, a Delaware
corporation
By: Paul D. Reaves
--------------------------------
Its: Chief Executive Officer
-------------------------------
NICHOLS RESEARCH CORPORATION, a Delaware
corporation
By: Michael J. Mruz
--------------------------------
Its: Chief Executive Officer
-------------------------------
-2-
<PAGE> 1
EXHIBIT 10.12
COMMERCIAL LEASE
This is a legally binding contract. If not understood, seek competent advice.
APPROVED BY BIRMINGHAM AREA BOARD OF REALTORS LEASE FORM
AMENDED OCTOBER, 1976 150-ZSSCO
STATE OF ALABAMA )
Jefferson County )
This lease made this 1st day of September 1996 by and between
Birmingham S.S.P., Inc. hereinafter called "Lessor", by N/A as
agent for the Lessor and by Computer Services Corporation
hereinafter called "Lessee";
WITNESSETH: That the Lessor does hereby demise and let unto
the Lessee the following described premises in the City of
Birmingham, Alabama, to-wit:
Approximately 2,501 square feet of building space (the
"Premises") located in the Midtown Center (the "Building"), 1801
First Avenue South, Birmingham, Alabama 35233, said Premises
being the Southeast corner of the rentable area on the East half
of the fourth floor.
Use Subject to existing easements, if any, and the regulatory laws
and ordinances of the political subdivision in which the property
is situated, for use and occupation by the Lessee as Office Space
Term and for no other or different use of purpose, for and during the
term of 108 Months beginning on First day of September 1996 and
ending on the 31st day of October 2005
Rent In consideration whereof, the Lessee agrees to pay the
Lessors agent at office of said agent, to the Lessor, at the
address set forth in Addendum A hereto, (see Addendum A) on the
first day of each month of said term, in advance, as rent for
said premises, the sum of (see Addendum A)
DOLLARS ($_________) per month,
being at the rate of DOLLARS ($_________) per annum.
Lessee agrees that a Service and Bookkeeping charge of N/A
shall become due and payable each and every month that the rent
has not been received in the office of N/A by the 10th of the
month.
Should premises by completed and turned over to Lessee
either prior to, or after N/A then in that event rent for such
fractional month shall be pro-rated, and this lease term shall
commence on the first day of the next calendar month.
Quiet This lease is made upon the following terms, conditions,
Enjoyment and covenants: The Lessor covenants to keep the Lessee in
possession of said premises during said term, but shall not be
Condition of liable for the loss of use by eminent domain nor the failure or
Premises inability of the Lessee to obtain possession thereof provided
the Lessor shall exercise due diligence and effort to place the
Lessee in possession. Nothing herein contained shall be construed
as a warranty that said premises are in good condition or are fit
or suitable for the use or purpose for which they are let. The
Lessor or Lessor's agent have made no representations or promises
with respect to said building or the demised premises except as
herein expressly set forth. The Lessee has examined the leased
premises and accepts the same.
Roof Should the roof of the building leak at any time during
said term, due to no fault on the part of the Lessee, the Lessor
will repair the same within a reasonable time after being
requested in writing by the Lessee so to do, but in no event
shall the Lessor be liable for damages or injuries arising from
such defect or the failure to make said repairs after being so
notified, except to the extent of the reasonable cost of
repairing said roof; nor shall the Lessor be liable for damages
or injuries arising from defective workmanship or materials, the
Lessee hereby expressly waiving the same. Lessor and its agents,
shall not be liable for any deaths, injury, loss or damage
resulting from any repair or improvement and undertaken,
voluntarily or involuntarily, by or on behalf of, the Lessor,
other than willfully wrongful acts of Lessor.
Air In the event air conditioning equipment or a part of any air
Conditioning conditioning equipment is installed on the roof of any building
and Signs hereby leased, or in the event that the Lessee installs a sign
on the roof, then Lessee shall be responsible for repairing any
roof leaks, attributable to such installation, during the term of
this lease at Lessee's sole cost and expense, but no such air
conditioning equipment or sign may be installed until the consent
in writing of the Lessor is first had and obtained thereto.
Repairs Lessor shall not be obligated or required to make any other
repairs or do any other work on or about said premises or any
part thereof, or the elevators therein, if any, or on or about
any premises connected therewith, but not hereby leased, unless
and only to the extent herein agree. All other portions of any
building hereby leased shall be kept in good repair by Lessee and
at the end of the term hereof, the Lessee shall deliver the
demised premises to Lessor in good repair and condition,
reasonable, wear and tear excepted.
Inspection However, Lessor reserves the right to enter upon said
and Showing premises and to make such repairs and to do, such work on or
about said premises as Lessor may deem necessary or proper, or
that lessor may be lawfully required to make. Lessor reserves the
right to visit and inspect said premises at all reasonable times
and the right to show said premises to prospective tenants and
purchasers, and the right to display "For Sale" and "For Rent"
signs on said premises.
<PAGE> 2
FAILURE OF Should the Lessee fail to make repairs agreed to by him
LESSEE TO under this lease, the Lessor may enter the premises and make such
REPAIR repairs and collect the cost thereof from the Lessee as
additional rent. Except as herein specifically provided, the
SIGNS Lessee will not make or permit to be made any alterations,
additions, improvements or changes in the premises, nor will the
Lessee paint the outside of the building or permit the same to be
painted without the written consent of the Lessor before work is
contracted or let. No signs of any character shall be erected on
the roof until the consent thereof in writing is first had and
obtained from the Lessor. The consent to a particular alteration,
addition, improvement or change shall not be deemed a consent to,
nor a waiver of, a restriction against alterations, additions,
improvements or changes for the future.
ALTERATIONS Lessee will replace all plate and other glass, if and when
AND IMPROVE- broken, and failing so to do the Lessee may replace the same and
MENTS BY the Lessee will pay the Lessor the cost and expense thereof upon
LESSEE demand. Lessee will replace all keys lost or broken, and will
pay all bills for utilities and services used on said premises.
UPKEEP Lessee will keep all air conditioning equipment, electric
wiring, water pipes, water closets, drains, sewer lines and other
COMPLIANCE plumbing on said premises in such good order and repair and will
WITH LAW do all repairs, modifications and replacements which may be
required by the applicable laws or ordinances. Lessor shall not
be liable for any damages caused by, or growing out of, any
breakage, leakage, getting out of order or defective conditions
of said air conditioning equipment, electric wiring, pipes,
water closets, drains, and sewer lines or plumbing, or any of
them. Lessee will comply, at all times and in all respects with
all the applicable laws and ordinances relating to nuisance,
insofar as the building and premises hereby let, and the
streets and highways bounding the same, are concerned, and the
Lessee will not by any act, or omission render the Lessor
liable for any violation thereof. Lessee will not commit any
waste of property, or permit the same to be done, and will take
good care of said building and said premises at all times.
PUBLIC
LIABILITY
INSURANCE
AND
INDEMNITY
DEFECTS IN Lessor shall not be liable for any injury or damage caused
PREMISES by, or growing out of, any defect in said building, or its
equipment, drains, plumbing, wiring, electric equipment or
appurtenances, or in said premises, or caused by, or growing
out of fire, rain, wind, leaks, seepage or other cause.
SNOW, ICE, If the leased premises, or any part thereof, consist of
TRASH first floor space, adjacent upon the street, or ground adjacent
to the street, the Lessee will keep the sidewalk, curb and
gutter in front thereof or adjacent thereto clean and free from
snow, ice, debris and obstructions and will hold the Lessor
harmless from all damages or claims arising out of the Lessee's
failure to so do.
EVENTS OF Upon the happening of any one or more of the events as
DEFAULT expressed in this paragraph, the Lessor shall have the right, at
the option of the Lessor, to either annul and terminate this
lease upon two days written notice to Lessee and thereupon
re-enter and take possession of the premises; or the right upon
two days written notice to the Lessee to re-enter and re-let
said premises, from time to time, as agents of the Lessee, and
such re-entry or re-letting or both, shall not discharge the
Lessee from any liability or obligation hereunder, except that
rents (That is, gross rents less the expense of collecting and
handling, and less commission) collected as a result of such
re-letting shall be credited on the Lessee's liability up to the
amount due under the terms of this lease and the balance, if
any, credited to the Lessor. Nothing herein, however, shall be
construed to require the Lessor to re-enter and re-let, nor
shall anything herein be construed to postpone the right of the
Lessor to sue for rents, whether matured by acceleration or
otherwise, but on the contrary, the Lessor is hereby given the
right to sue therefor at any time after default. The events or
default referred to herein are: failure of the Lessee to pay any
one or more of the installments of rent, or any other sum,
provided for in this lease as and when the same become due, the
removal, attempt to remove or permitting to be removed from said
premises, except in the usual course of trade, the goods,
furniture, effects or other property of the Lessee or any
assignee, or sub-tenant of the Lessee; the levy of an execution
or other legal process upon the goods, furniture, effects or
other property of the Lessee brought on the leased premises or
upon the interest of the Lessee in this lease; the filing of a
Petition in Bankruptcy, a Petition for an Arraignment or
reorganization by or against the Lessee; the appointment of a
receiver or trustee, or other court officer, for the assets of
the Lessee; the execution of an assignment for the benefit of
creditors of the Lessee; the vacation or abandonment by the
Lessee of the leased premises or the use thereof for any purpose
other than the purpose for which the same are hereby let or (if
the rental herein is based in whole or in part on the percentage
of Lessee's sales) failure of the Lessee to exercise diligent
effort to product the maximum volume of sales; the assignment by
Lessee of this lease or the re-letting or sub-letting by the
Lessee of the leased premises or any part thereof without the
written consent of the Lessor first had and obtained; the
violation by the Lessee of any other of the terms, conditions or
covenants not set out in this paragraph on the part of the
Lessee herein contained and failure of the Lessee to remedy such
violation within ten (10) days after written notice thereof is
given by the Lessor to the Lessee.
REMOVAL The Lessee shall not remove any of the goods, wares or
OF GOODS merchandise of the Lessee from said premises other than in the
regular course of Lessee's trade or business without having
first paid all rent due or to become due under the terms of this
lease.
ACCELERA- Upon termination or breach of this lease or re-entry upon
TION OF said premises for any one or more of the causes set forth above,
RENT or upon termination of this lease or re-entry of said premises,
the rents provided for in this lease for the balance of the
DEFAULT-- original rental term, or any renewal term or other extended
ATTORNEY term, and all other indebtedness to the Lessor owed by the
FEE AND Lessee, shall be and become immediately due and payable at the
COST option of the Lessor and without regard to whether or not
possession of the premises shall have been surrendered to or
WAIVER OF taken by the Lessor. The Lessee agrees to pay Lessor, or on
EXEMPTIONS Lessor's behalf, a reasonable attorney's fee in the event
Lessor employs an attorney to collect any rents due hereunder
by Lessee, or to protect the interest of Lessor in the event the
Lessee is adjudged a bankrupt, or legal process is levied upon
the goods, furniture, effects or personal property of the Lessee
upon the said premises, or upon the interest of the Lessee in
this lease or in said premises, or in the event the Lessee
violates any of the terms, conditions, or convenants on the part
of the Lessee herein contained. In order to further secure the
prompt payments of said rents, as and when the same mature, and
the faithful performance by the Lessee of all and singular the
terms, conditions and covenants on the part of the Lessee herein
contained, and all damages, and costs that the Lessor may
sustain by reason of the violation of said terms, conditions and
covenants, or any of them, the Lessee hereby waives any and all
rights to claim personal property as exempt from levy and sale,
under the laws of any State or the United States.
ABANDON- In the event the Lessee abandons the leased premises before
MENT the expiration of the term, whether voluntarily or
involuntarily, or violates any of the terms, conditions, or
RE-LETTING covenants hereof, the Lessor shall have the privilege at
Lessor's option of re-entering and taking possession of said
premises and leasing all or any portion of said premises for
such term and for such use deemed satisfactory to the Lessor,
applying each month the net proceeds obtained from said leasing
to the credit of the Lessee herein, up to the amount due under
the terms of this lease and the balance to the Lessor and, said
leasing shall not release the Lessee from liability hereunder
for the rents reserved for the residue of the term hereof, but
Lessee shall be responsible each month for the difference, if
any, between the net rents obtained from such leasing and the
monthly rent reserved hereunder, and said difference shall be
payable to the Lessor on the first day of each month for the
residue of the term hereof.
RE-ENTRY, No re-entry hereunder shall bar the recovery of rent or
ETC., NO BAR damages for the breach of any of the terms, conditions, or
covenants on the part of the Lessee herein contained. The
receipt of rent after breach or condition broken, or delay on
the part of Lessor to enforce any right hereunder, shall not be
deemed a waiver of forfeiture, or a waiver of the right of the
Lessor to annul the lease or to re-enter said premises or to
re-let the same, or to accelerate the maturity of the rents
hereunder.
<PAGE> 3
Reinstate- If this lease is terminated by the Lessor for any reason,
ment including non-payment or rent, and the Lessee pays the rent,
attorneys' fees and other charges and thus makes himself
current, and/or remains or continues to be in possession of the
leased premises or any part thereof, with the Lessor's consent,
this lease will be considered reinstated, and will continue in
effect as though it had not been terminated.
Improve- All improvements and additions to the leased premises shall
ments and adhere to the leased premises, and become the property of the
Additions Lessor, with the exception of such additions as are usually
Property of classed as furniture and trade fixtures; said furniture and
Lessor trade fixtures are to remain the property of the Lessee, and may
be removed by the Lessee two (2) weeks prior to the expiration
of this lease, provided all terms, conditions and covenants of
within contract have been complied with by Lessee and provided
said Lessee restores the building and premises to its original
condition, normal wear and tear excepted, except as may
otherwise be provided in Addendum A.
Fire & In the event of the total destruction of, or partial damage
Other to, the buildings upon the demised premises by fire or other
Casualty casualty, Lessor shall proceed with due diligence and dispatch to
repair and restore the buildings to the conditions to which they
existed immediately prior to the occurrence of such casualty, at
Lessor's cost and expense, provided such cost does not exceed the
proceeds of insurance collected on the buildings, by reason of
such casualty, the application of which insurance proceeds are
not prohibited, by reason of any mortgage provision, from being
used toward the cost of restoration and repairing the same;
provided, further, that if the unexpired portion of the term or
any extension thereof shall be two (2) years or less on the date
of such casualty and the cost of such repair or restoration
exceeds twenty percent (20%) of the then replacement value of
said damaged leased premises, as estimated by two or more
reputable contractors, Lessors may by written notice to the
Lessee, within thirty (30) days after the occurrence of such
casualty, terminate this lease. If Lessor exercises the above
right to terminate this lease and Lessee elects to exercise an
option of renewal privilege which Lessee may have under this
lease, which if exercised, would extend the unexpired term beyond
two (2) years. Lessee may void such above notice of Lessor's
right to terminate this lease by exercising such option renewal
privilege within such thirty (30) day period. If the insurance
proceeds are insufficient to effect such restoration or repairs,
Lessor at its option may cancel this lease by written notice to
Lessee within thirty (30) days after the occurrence of such
casualty.
In the event the repairing and restoring of the buildings
can not be completed within four (4) months after the date of
occurrence of such casualty, as estimated by two or more
reputable contractors, the Lessee shall have the right to
terminate this lease upon giving written notice to Lessor within
thirty (30) days from the date of occurrence of said casualty.
From the date of such damage or destruction until said building
has been substantially repaired or restored, an equitable
abatement of rent shall be allowed the Lessee.
Transfer or Each and every transfer or assignment of this lease, or any
Assignment, interest therein, and each and every sub-letting of said
Conditions premises, or any part thereof, or any interest therein, shall be
null and void, unless the written consent of the Lessor be first
Lease obtained thereto. As a condition precedent to the obtaining of
Assignment such consent, the assignee or sub-lessee must assume, in
Fee Clause writing, all the obligations of the Lessee hereunder, but such
assumption shall not operate to release the Lessee from any
agreement or understanding on the part of the Lessee expressed
or implied in this lease.
Notices and All notices and demands authorized or required to be given
Demands to the Lessee under any provision hereof must be in writing, and
may be delivered to the Lessee in person or left on or in the
leased premises or shall be conclusively deemed to have been
delivered to the Lessee if the same be deposited in the United
States mail addressed to the Lessee at the leased premises, with
the proper postage affixed thereto. All notices herein
authorized are required to be given to the Lessor may be given
by certified mail, addressed to the Lessor at the address of the
Lessor shown on page 1 of this lease, or in care of the Lessor's
rental agent at that time authorized by the Lessor to service
this lease, and said notices must be in writing.
Agents
Commission
Agreement
Agents
Repair and
Improve-
ment
Lessee Will Lessee will indemnify and hold Lessor and Lessor's agent
Hold free and harmless from all demands, claims and suits or expenses
Harmless caused by any default committed hereunder on the part of the
Lessee. Lessee will further indemnify and save harmless Lessor
and Lessor's agent from any loss, cost, damage and/or expenses
caused by injuries to persons or property while in, on or about
the demised premises, not attributable to the willfully wrongful
act of the Lessor or Lessor's agent. Any property stored in the
demised premises shall be at the sole risk of Lessee.
Waiver of Neither Lessor nor Lessee shall be liable to the other for
Subrogation any loss or damage from risks ordinarily insured against under
Rights fire insurance policies with extended-coverage endorsements,
irrespective of whether such loss or damage results from their
negligence or that of any of their agents, servants, employees,
licensees or contractors to the extent that such losses are
covered by valid and collectable insurance on the property at
the time of the loss.
Holdover Should the Lessee continue to occupy the premises after the
expiration of the said term or after a forfeiture incurred,
whether with or against the consent of the Lessor, such tenancy
shall be a tenancy at sufferance and in no event a tenancy from
month to month, or from year to year.
Non- The failure of the Lessor to insist, in any one or more
Waiver instances, upon a strict performance of any of the covenants of
this lease, or to exercise any option herein contained, shall
not be construed as a waiver, or a relinquishment for the
future, of such covenant or option, but the same shall continue
and remain in full force and effect. The receipt by the Lessor
of rent, with knowledge of the breach of any covenant hereof,
shall not be deemed a waiver of such breach, and no waiver by
the Lessor of any provision hereof shall be deemed to have been
made unless expressed in writing, and signed by the Lessor.
<PAGE> 4
Non-Waiver If all or any part of the demised premises is taken by
Eminent eminent domain ("eminent domain" shall include the exercise of
Domain and any similar power of taking, and any purchase or acquisition in
Condem- lieu of condemnation), or in the event the improvements are
nation ordered torn down or removed by lawful authority,
then the term of this lease shall cease as of the date possession
shall be taken by the condemning authority, or as of the date
improvements are ordered torn down or removed, whichever may be
applicable, with the rent to be apportioned as of the date of
such taking or of such order, as the case may be; provided,
however, if as a result of a partial taking of the demised
premises by eminent domain, the ground floor area of the building
forming a part of the demised premises is reduced by not more
than twenty-five percent (25%), the Lessor may elect to continue
the term of this lease and to restore, at Lessor's expense, the
remaining premises to a complete architectural unit with
storefront, signs and interior of equal appearance and utility as
they had previous to the taking, but there will be prorata
reduction of the rent payable each month. The Lessor shall be
deemed to have exercised its said option to restore the premises
unless, within 30 days after the date of taking, the Lessor shall
notify the Lessee in writing of its election to terminate this
lease. The Lessor shall be entitled to receive all of the
proceeds of any total or partial taking of the demised premises
by eminent domain, including any part of such award as may be
attributable to the unexpired leasehold interest or other rights
of the Lessee in the premises, and the Lessee hereby assigns, and
transfers to the Lessor all of the Lessee's right to receive any
part of such proceeds.
Clean The Lessee hereby agrees that upon the expiration or prior
Premises termination of this lease, the Lessee will promptly remove from
Upon the leased premises all signs, trash, debris and property of the
Termina- Lessee, and the Lessee will leave the floors, stairs,
tion, etc. passageways, elevator and shafts as clean as it is possible to
clean them by means of the use of broom and shovel.
Taxes and
Insurance
Addendum This lease consists of Four (4) pages together with an
Clause Addendum of Four (4) pages which is attached hereto, initialed by
the parties and incorporated in this lease by reference. In case
of conflict between the printed portion of this lease and the
Addendum, the terms of the Addendum shall prevail.
It is understood and agreed by the parties hereto that this
lease shall be binding upon the Lessee, its executor,
administrator, heirs, assigns or successor.
FURTHER TERMS AND CONDITIONS MADE A PART HEREOF
SEE ADDENDUM A
IN WITNESS WHEREOF, the Lessor and the Lessee have
respectively executed these presents this day of OCTOBER 1, 1996
Agent Birmingham S.S.P., Inc.
/s/ James Milton Johnson
-------------------------- (Lessor)
James Milton Johnson
President
Witness for Lessor:
/s/
- -------------------------
/s/ (L.S.)
------------------------------
Computer Services Corp. Lessee
CFO
Witness for Lessee:
- -------------------------
(L.S.)
----------------------------
Lessee
<PAGE> 5
ADDENDUM A T0 SUBLEASE
Dated as of September 1, 1996, by and between BIRMINGHAM S.S.P., INC.
AND COMPUTER SERVICES CORPORATION.
1. Parties and Factual Background. It is specifically recognized
and understood that Birmingham S.S.P., Inc. does not own fee simple title to
the demised premises, but, instead, leases such property by virtue of a Lease
Agreement between HRT of Alabama, Inc. and Birmingham S.S.P., Inc., dated as of
June 1, 1993 (the "Lease Agreement"). In entering into this Commercial Lease,
Birmingham S.S.P., Inc. is doing so as sublessor and Computer Services
Corporation is doing so as sublessee, even though they are referred to in this
document as the Lessor and Lessee, respectively.
2. Rental Rate. Lessee agrees to pay to Lessor on the first day
of each month of the Term, in advance, as rent for said premises the following:
(a) for the period beginning on September 1,
1996, through October 31, 2005, the following amounts ("Monthly Base Rent"):
Two Thousand Five Hundred Forty-Eight and 94/100 Dollars ($2,548.94).
(b) Effective on each Adjustment Date (as
defined below), Monthly Base Rent (excluding Operating Expenses, as defined
below) shall be increased by the lessor of (I) four percent (4%) or (ii) the
percentage increase in the latest Consumer Price Index on the Adjustment Date
over the Consumer Price Index twelve months earlier.
3. Additional Rent. During any Adjustment Year (as defined
below) in which Operating Expenses exceed $1.98 per square foot in the
aggregate ("Aggregate Operating Expenses") for that Adjustment Year, Lessee
shall pay, as additional rent, Lessee's Pro Rata share (amortized on a monthly
basis) of the Operating Expenses for the Adjustment Year which exceed $1.98 per
square foot. Attached as Exhibit B are the elements and amounts of current
Operating Expenses.
4. Definitions. The following words and phrases shall have the
following meanings:
(a) "Adjustment Date" shall mean
September 1, 1997 and each anniversary date of said day during the term.
(b) "Adjustment Year" shall mean the
twelve months consisting of the calendar month in which an Adjustment Date
occurs plus the next eleven months.
(c) "Operating Expenses" shall mean
all costs, expenses and disbursements of every kind and nature which Lessor
shall pay or become obligated to pay in connection with the management,
operation, maintenance, replacement and repair of the Building, all
improvements and land on which the Building is situated, all ad valorem taxes,
special assessments and rental taxes, and the personal property, fixtures,
machinery, equipment, systems and apparatus located in or used in connection
with the Common Areas (as defined below). Operating Expenses shall not include
the following: costs of improvement of the premises and the premises of other
tenants of the Building; charges for depreciation of the buildings and
improvements; interest and principal payments on mortgages; ground rental
payments, real estate brokerage and leasing commissions; expenses incurred in
enforcing obligations of other tenants of the Building; any expenditures for
which Lessor has been reimbursed (other than pursuant to rent adjustment and
escalation provisions provided in leases); and capital improvements.
(d) "Lessee's Pro Rata Share" shall
mean a ratio equal to Lessee's percentage share of the total square footage of
the building leased during the Adjustment Year.
(e) "Common Areas" shall mean all
areas, improvements, space, equipment and special services in, at, or
contiguous to the Building provided by Lessor for the common or joint use and
benefit of tenants, and invitees, including without limitation all parking
areas, driveways, entrances and exits.
<PAGE> 6
(f) "Consumer Price Index" shall mean
the Consumer Price Index for All Urban Consumers, All Items (1967-100),
published by the United States Department of Labor, Bureau of Labor Statistics.
If said Consumer Price Index is discontinued or is unavailable, Lessor will
substitute a comparable index reflecting changes in the cost of living or
purchasing power of the consumer dollar published by any other governmental
agency, bank or other financial institution, or any recognized authority.
5. Projections. For purposes of calculating Operating Expenses
for any Adjustment Year, Lessor may make reasonable estimates, forecasts or
projections (collectively, the "Projections") of Operating Expenses for such
Adjustment Year. Lessor shall deliver to Lessee a written statement setting
forth the Projections of Operating Expenses for the Adjustment Year in which
such Adjustment Date occurs and providing a calculation of the increase in
installments of Additional Rent to become effective as of said Adjustment Date;
provided, however, that the failure of Lessor to provide any such statement
shall not relieve Lessee from its obligation to continue to pay Additional Rent
at the rate then in effect under this Lease, and if and when Lessee receives
such statement from Lessor, Lessee shall pay any increases in Additional Rent
reflected thereby effective retroactively to the most recently preceding
Adjustment Date.
6. Fixtures and Interior Alterations. Lessee, at its own expense
and with the prior written approval of Lessor, may from time to time during the
term of this lease make interior alterations, additions, improvements and
modifications in and to the demised premises which do not adversely affect the
structural integrity thereof; provided, however, that all such alterations,
additions, improvements and modifications shall be made in a good, workmanlike
manner and in accordance with all valid requirements of municipal or other
governmental authorities and no additions, alterations, improvements or
modifications will be made that change the character of the demised premises to
such extent that it no longer constitutes "property" listed in the National
Register of Historic Places within the meaning of the statute codified in Code
of Alabama 1975, Title 41 Chapter 10, Article 5, as amended and supplemented
and at the time in force and effect (the "Act"). All permanent improvements
shall belong to Lessor and become a part of the premises upon termination or
expiration of this lease.
7. Mechanics' Liens. Lessor will not be liable for any labor or
materials furnished to Lessee on credit, and no mechanics' or other liens for
any such labor or materials shall attach to or affect the reversion or other
estate or interest of Lessor in and to the premises. Lessee shall indemnify and
save Lessor and/or its agents harmless from and against any liability, damages,
claims or costs arising from the imposition of any such lien.
8. Subordinate. Lessee agrees that this lease shall at all times
be subject and subordinate to the Permitted Encumbrances as that term is
defined in the Mortgage and the Lease Agreement, including, without limitation,
the Mortgage, the Lease Agreement and the Conservation Easement, and Lessee
agrees to execute any instrument as may be required to effectuate such
subordination.
9. Preparation for Occupancy. Prior to the commencement of the
term, the Lessee, at its own expense and cost, shall alter and fix up the
premises for occupancy.
10. Public Liability Insurance and Indemnity. Lessee shall during
the entire term of this Lease, at Lessee's own expense, keep in force by
advance payment of premiums comprehensive general liability insurance against
liability for personal or bodily injury to or death of persons and for damage
or loss of property occurring on or about the demised premises in the minimum
amount of One Million Dollars ($1,000,000) for injury to or death of one person
or as the result of one occurrence, and not less than Two Million Five Hundred
Thousand Dollars ($2,500,000) for injury to or death of more than one person as
the result of one occurrence, and for damage to property in the amount of One
Million Dollars ($1,000,000) or single limit of Two Million Five Hundred
Thousand Dollars ($2,500,000) insuring Lessee, Lessor, Lessor's agents,
servants and employees (as an additional assured), and the Authority against
any liability that may accrue against them or any of them on account of any
occurrence in or about the demised premises during the term or in consequence
of Lessee's occupancy thereof and resulting in personal injury or death or
property damage. All policies evidencing the insurance required by the terms of
this paragraph shall be taken out and maintained in generally recognized
responsible insurance companies, qualified under the laws of the State of
Alabama to assume the respective risk undertaken, shall contain an agreement on
the part of the insurer issuing such policy that the same shall not be
canceled, terminated or permitted to lapse by such insurer unless thirty (30)
days prior written notice of such cancellation, termination or lapse in
coverage shall have been given to
<PAGE> 7
the Lessor and Mortgagee, and may be written with co-insurance provisions and
deductible amounts comparable to those applicable to similar policies carried
by persons engaged in businesses of like size and type as the Lessee.
11. Condition of Premises. No agreement of Lessor to alter,
remodel, decorate, clean or improve the Premises, the Building, or the Common
Areas and no representation regarding the condition of the Premises, the
Building, or the Common Areas has been made by or on behalf of Lessor to
Lessee, except as stated in this Commercial Lease.
12. Services Provided by Lessor. Lessor shall provide the
following services:
(1) city water from the regular Building
fixtures for drinking, lavatory and toilet
purposes only;
(2) customary cleaning, snow removal, and trash
removal in the Common Areas;
(3) window washing of windows in the Premises,
inside and outside at reasonable intervals
as determined by Lessor; and
(4) adequate passenger elevator service in
common with other tenants of the Building;
(5) pest control and extermination services;
(6) elevator maintenance and maintenance for the
elevator emergency telephones;
(7) city sewer services; and
(8) electricity for the common areas.
13. Maintenance by Lessor. Lessor, at its expense, shall maintain
and make necessary repairs to the structural and mechanical elements and
exterior windows of the Building and the Common Areas. Lessor shall not be
responsible for the maintenance, repair or replacement of any systems which are
located within the Premises and are supplemental or special to the Building's
standard systems, whether installed by Lessor at Lessee's request or by Lessee
with Lessor's permission. The cost of performing any of said maintenance or
repairs caused by the negligence of Lessee, its employees, agents, servants,
licensees, contractors or invitees, or the failure of lessee to perform its
obligations under this Commercial Lease, shall be paid by Lessee, except to the
extent of insurance proceeds, if any, actually collected by Lessor with regard
to the damage necessitating such repairs.
14. Maintenance by Lessee. Lessee, at its expense and at all
times, shall provide all cleaning, plumbing and electrical service and
maintenance, garbage and trash removal, repairs and preventive maintenance
(including repairs and maintenance of heating, ventilation and air conditioning
system servicing the Premises) necessary to keep and maintain the Premises in
good order, condition and repair and in accordance with all applicable legal,
governmental and quasi-governmental requirements, ordinances and rules
(including the Board of Fire Underwriters and Public Health Department or
similar bodies). All utilities except water and sewer will be metered
separately and will be the responsibility of the Lessee. Lessee shall pay all
utility bills promptly.
15. Maintenance of Common Area. The Common Areas shall at all
times be subject to the exclusive control, management, operation and
maintenance of Lessor. Lessor shall have the right from time to time to
establish, modify and enforce rules and regulations with respect to the Common
Areas. Lessee agrees to comply with such rules and regulations, to cause its
agents, contractors and employees to so comply and to use its best efforts to
cause its customers, invitees, suppliers and licensees to so comply. Lessor
shall have the right to construct, maintain and operate lighting and facilities
in and on the Common Areas; to policy the same; to close temporarily all or any
part of the parking areas or parking facilities; and to do and perform such
other
<PAGE> 8
acts in and to the Common Areas as, in the exercise of good business judgement,
Lessor shall determine to be advisable.
16. Parking. Lessee shall not be assigned on-site parking spaces
under this Lease.
17. Lessee Hazardous Substance Identification and Warranty. The
Lessee (together with his successor and assigns) warrants and represents that
no pollutants, hazardous wastes or other toxic or hazardous substances, as
defined under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), the Resource and Conservation and Recovery Act
("RCRA"), or any other federal, state, or local statute, ordinance, or
regulation relating to protection of the environment that has been or shall be
discharged, dispersed, released, disposed of, or allowed to escape (whether
intentional, accidentally, or unintentionally and whether suddenly or
otherwise), stored, treated or generated on, in, or around the premises.
The Lessee's operations are in compliance with all applicable
federal, state, and local statutes, laws, and regulations. Copies of any notice
served on the Lessee by any entity, governmental body, or individual claiming
any violation of any laws, regulations, or ordinances regarding environmental
damage will be forwarded to the Lessor within three days of their receipt.
The Lessee agrees to defend, indemnify, and hold harmless the
Lessor, its Partners, Officers, Employees, Licensees, Successors, and assigns
from and against any and all claims, demands, judgments, demands for
contributions, settlements, damages, actions, cause of actions, injury,
administrative orders, consent agreement and orders, liabilities, penalties,
costs, including without limitation, expenses of any cleanup, removal, or
remedial action, and all expenses of any kind whatsoever, including claims
arising out of loss of life, injury to persons, property or business or damage
to natural resources, in connection to the premises or any activities related
to the Lessee. The Lessee shall bear, pay, and discharge when as the same shall
become due and payable, any and all such judgments or claims for damages,
penalties, or otherwise against the Lessor described in this paragraph. In
addition, the Lessee shall hold the Lessor harmless for those judgments or
claims and shall assume the burden and expense of defending all suits,
administrative proceedings, and negotiations of any description.
<PAGE> 9
EXHIBIT B TO SUBLEASE
Operating Budget (8-1-96 to 7-31-97) $249,110.00
Square Footage Leased 125,509
Operating Expenses Per Square Foot $1.98
<PAGE> 10
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Lessee or used for any purpose other than ingress and egress to and from the
demised premises.
2. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of the Lessor. (No curtains,
blinds, shades or screens shall be attached to or hung in, or used in connection
with, any window or door of the demised premises, without the prior written
consent of the Lessor. Such awnings, projections, curtains, blinds, shades,
screens, or other fixtures must be of a quality type, design and color, and
attached in the manner approved by the Lessor).
3. No sign, advertisement, notice, or other lettering shall be exhibited,
inscribed, painted or affixed by any Lessee on any part of the outside or inside
of the demised premises or building without the prior written consent of the
Lessor. In the event of the violation of the foregoing by any Lessee. Lessor may
remove same without any liability, and may charge the expense incurred by such
removal to the Lessee or Lessees violating this rule. Interior signs on doors
and directory tables shall be inscribed, painted or affixed for each Lessee by
the Lessor at the expense of such Lessee, and shall be of a size, color and
style acceptable to the Lessor.
4. The sashes, sash doors, skylights, windows, and doors that reflect or
admit light and air into the halls, passageways, or other public places in the
building shall not be covered or obstructed by any Lessee, nor shall any
bottles, parcels or other articles be placed on the windowsills.
5. No showcases or other articles shall be put in front of or affixed to
any part of the exterior of the building, nor placed in the halls, corridors,
or vestibules without the prior written consent of the Lessor.
6. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweeping, rubbish, rugs, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Lessee
who, or whose servants, employees, agents, visitors, or licensees shall have
caused the same.
7. No lessee shall mark, paint, drill into or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with prior written
consent of the Lessor, and as it may direct. No Lessee shall lay linoleum, or
other similar floor coverings, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar
floor covering is desired to be used, an interlining of builder's deadening felt
shall be first affixed to the floor, by a paste or other material, soluble in
water, the use of cement or other similar adhesive material being expressly
prohibited.
8. No bicycles, vehicles, or animals of any kind shall be brought into or
kept in or about the premises, and no cooking shall be done or permitted by any
Lessee on said premises. No Lessee shall cause or permit any unusual or
objectionable odors to be produced upon or permeate from the demised premises.
9. No space in the building shall be used for manufacturing, for the
storage of merchandise or for the sale of merchandise, goods, or property of
any kind at auction without written consent of Lessor.
10. No Lessee shall make or permit to be made, any unseemly or disturbing
noises or disturb or interfere with occupants of this, or neighboring buildings
or premises or those having business with them, whether by the use of any
musical instrument, radio, talking machine, unmusical noise, whistling,
singing, or in any other way. No Lessee throw anything out of the doors,
windows, or skylights, or down the passageways.
11. No Lessee, nor any of the Lessee's servants, employees, agents,
visitors, or licensees shall at any time bring or keep upon the demised premises
any inflammable, combustible, or explosive fluid, chemical, or substance.
12. No additional locks or bolts, of any kind, shall be placed upon any
of the doors or windows by any Lessee, nor shall any changes be made in
existing locks or the mechanism thereof. Tenants shall not have any duplicate
keys made. The Lessor will furnish to the Lessee, free of charge, two keys to
each corridor door entering space rented under this lease. All additional keys
required must be ordered through the agents of the Lessor, for which the Lessee
shall pay to the said agents One Dollar ($1.00) each on delivery. If Lessee
vacates the space covered by this lease, or any additional space rented in
connection herewith, all keys, whether furnished free by the Lessor or said
agents, or paid for by the Lessee, shall be the property of the Lessor, and
shall be returned to said agents, and in case all keys are not so returned, the
Lessee shall pay to the said agents One Dollar ($1.00) each for all such keys.
13. All removals, or the carrying in or out of any safes, freight,
furniture, or bulky matter of any description must take place during the hours
which the Lessor or its agents may determine from time to time. The Lessor
reserves the right to prescribe the weight and position of all safes, and
files, which must be placed upon strips to distribute the weight. The moving
of safes or other fixtures or bulky matter of any kind must be made upon
previous notice to the Superintendent of the building and under his supervision.
14. No Lessee shall occupy or permit any portion of the premises demised
to him to be occupied for the possession, storage, manufacture, or sale of
liquor, narcotics, dope, or tobacco in any form.
15. Any person employed by any Lessee, with the Lessor's consent, to do
janitor work, shall, while in said building and outside demised premises, be
subject to, and under the control and direction of, the Superintendent of said
building (but not as agent or servant of said Superintendent or of the Lessor).
16. Landlord shall maintain a directory board in the lobby of the
Building and shall list thereon the names that Tenant may request from time to
time during the term of this lease, provided that Tenant's listing does not
exceed ____ lines. Landlord shall have the right to impose a reasonable charge
for any initial or additional directory listings.
17. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
18. The request of Lessees for services will be considered only upon
application at the office of the building. Employees shall not perform work or
do anything outside of their regular duties, unless under special instructions
from the office of the Lessor.
19. Canvassing, soliciting, and peddling in the building is prohibited
and each Lessee shall cooperate to prevent the same.
<PAGE> 1
EXHIBIT 10.13
COMMERCIAL LEASE
This is a legally binding contract. If not understood, seek competent advice.
APPROVED BY BIRMINGHAM AREA BOARD OF REALTORS LEASE FORM
AMENDED OCTOBER, 1976 150-ZSSCO
STATE OF ALABAMA )
Jefferson County )
This lease made as of the 31st day of October 1985 by and between
Wimberly & Thomas Building Restoration Partnership hereinafter
called "Lessor", by N/A as agent for the Lessor and by Computer
Services Corporation hereinafter called "Lessee";
WITNESSETH: That the Lessor does hereby demise and let unto
the Lessee the following described premises in the City of
Birmingham, Alabama, to-wit:
Approximately 22,547 square feet of building space (the
"Premises") located in the Wimberly & Thomas Building (the
"Building"), 1809 First Avenue, South, Birmingham, Alabama 35233,
said Premises being those outlined in red on the floor plans
attached as Exhibit A.
Use Subject to existing easements, if any, and the regulatory laws
and ordinances of the political subdivision in which the property
is situated, for use and occupation by the Lessee as office and
computer facilities
Term and for no other or different use of purpose, for and during the
term of nineteen (19) years and three (3) months beginning on the
first day of August, 1986 and ending on the thirty-first day of
October, 2005 (the "Term").
Rent In consideration whereof, the Lessee agrees to pay to the
Lessor, at the address set forth in Addendum A hereto, on the
first day of each month of said term, in advance, as rent for
said premises, the sum of (See "Further Terms and Conditions
Made A Part Hereof") DOLLARS ($_________) per month,
being at the rate of DOLLARS ($_________) per annum.
Lessee agrees that a Service and Bookkeeping charge of 5%
of monthly lease rate shall become due and payable each and every
month that the rent has not been received in the office of
Lessor by the 10th of the month.
Should premises by completed and turned over to Lessee
either prior to August 1, 1986 then in that event rent for such
fractional month shall be pro-rated, and this lease term shall
commence on the first day of the next calendar month. (See
"Further Terms and Conditions Made a Part Hereof")
Quiet This lease is made upon the following terms, conditions,
Enjoyment and covenants: The Lessor covenants to keep the Lessee in
possession of said premises during said term, but shall not be
Condition of liable for the loss of use by eminent domain nor the failure or
Premises inability of the Lessee to obtain possession thereof provided
the Lessor shall exercise due diligence and effort to place the
Lessee in possession. Nothing herein contained shall be construed
as a warranty that said premises are in good condition or are fit
or suitable for the use or purpose for which they are let. The
Lessor or Lessor's agent have made no representations or promises
with respect to said building or the demised premises except as
herein expressly set forth. The Lessee has examined the leased
premises and accepts the same subject to plans for renovation as
herein specified in Paragraph 9 of Addendum A.
Roof Should the roof of the building leak at any time during
said term, due to no fault on the part of the Lessee, the Lessor
will repair the same within a reasonable time after being
requested in writing by the Lessee so to do, but in no event
shall the Lessor be liable for damages or injuries arising from
such defect or the failure to make said repairs after being so
notified, except to the extent of the reasonable cost of
repairing said roof; nor shall the Lessor be liable for damages
or injuries arising from defective workmanship or materials, the
Lessee hereby expressly waiving the same. Lessor and its agents,
shall not be liable for any deaths, injury, loss or damage
resulting from any repair or improvement and undertaken,
voluntarily or involuntarily, by or on behalf of, the Lessor,
other than willfully wrongful acts of Lessor.
Air In the event air conditioning equipment or a part of any air
Conditioning conditioning equipment is installed on the roof of any building
and Signs hereby leased, or in the event that the Lessee installs a sign
on the roof, then Lessee shall be responsible for repairing any
roof leaks, attributable to such installation, during the term of
this lease at Lessee's sole cost and expense, but no such air
conditioning equipment or sign may be installed until the consent
in writing of the Lessor is first had and obtained thereto.
Roof and
Drains, etc.,
Debris On
Repairs Lessor shall not be obligated or required to make any other
repairs or do any other work on or about said premises or any
part thereof, or the elevators therein, if any, or on or about
any premises connected therewith, but not hereby leased, unless
and only to the extent herein agree. All other portions of any
building hereby leased shall be kept in good repair by Lessee and
at the end of the term hereof, the Lessee shall deliver the
demised premises to Lessor in good repair and condition,
reasonable, wear and tear excepted.
Inspection However, Lessor reserves the right to enter upon said
and Showing premises and to make such repairs and to do, such work on or
about said premises as Lessor may deem necessary or proper, or
that lessor may be lawfully required to make. Lessor reserves the
right to visit and inspect said premises at all reasonable times
and the right to show said premises to prospective tenants and
purchasers, and the right to display "For Sale" and "For Rent"
signs on said premises.
<PAGE> 2
FAILURE OF Should the Lessee fail to make repairs agreed to by him
LESSEE TO under this lease, the Lessor may enter the premises and make such
REPAIR repairs and collect the cost thereof from the Lessee as
additional rent. Except as herein specifically provided, the
SIGNS Lessee will not make or permit to be made any alterations,
additions, improvements or changes in the premises, nor will the
Lessee paint the outside of the building or permit the same to be
painted without the written consent of the Lessor before work is
contracted or let. No signs of any character shall be erected on
the roof until the consent thereof in writing is first had and
obtained from the Lessor. The consent to a particular alteration,
addition, improvement or change shall not be deemed a consent to,
nor a waiver of, a restriction against alterations, additions,
improvements or changes for the future.
ALTERATIONS Lessee will replace all plate and other glass, if and when
AND IMPROVE- broken, and failing so to do the Lessor may replace the same and
MENTS BY the Lessee will pay the Lessor the cost and expense thereof upon
LESSEE demand. Lessee will replace all keys lost or broken,
UPKEEP See Addendum A hereto for modifications for this paragraph.
COMPLIANCE
WITH LAW
Lessor shall not be liable for any damages caused by, or
growing out of, any breakage, leakage, getting out of order or
defective conditions of said elevators, air conditioning
equipment, electric wiring, pipes, water closets, drains, and
sewer lines or plumbing, or any of them. Lessee will comply, at
all times and in all respects with all the applicable laws and
ordinances relating to nuisance, insofar as the building and
premises hereby let, and the streets and highways bounding the
same, are concerned, and the Lessee will not by any act, or
omission render the Lessor liable for any violation thereof.
Lessee will not commit any waste of property, or permit the same
to be done, and will take good care of said building and said
premises at all times.
PUBLIC
LIABILITY SEE ADDENDUM A hereto
INSURANCE
AND
INDEMNITY
DEFECTS IN Lessor shall not be liable for any injury or damage caused
PREMISES by, or growing out of, any defect in said building, or its
equipment, drains, plumbing, wiring, electric equipment or
appurtenances, or in said premises, or caused by, or growing
out of fire, rain, wind, leaks, seepage or other cause.
SNOW, ICE, If the leased premises, or any part thereof, consist of
TRASH first floor space, adjacent upon the street, or ground adjacent
to the street, the Lessee will keep the sidewalk, curb and
gutter in front thereof or adjacent thereto clean and free from
snow, ice, debris and obstructions and will hold the Lessor
harmless from all damages or claims arising out of the Lessee's
failure to so do.
EVENTS OF Upon the happening of any one or more of the events as
DEFAULT expressed in this paragraph, the Lessor shall have the right, at
the option of the Lessor, to either annul and terminate this
lease upon two days written notice to Lessee and thereupon
re-enter and take possession of the premises; or the right upon
two days written notice to the Lessee to re-enter and re-let
said premises, from time to time, as agents of the Lessee, and
such re-entry or re-letting or both, shall not discharge the
Lessee from any liability or obligation hereunder, except that
rents (That is, gross rents less the expense of collecting and
handling, and less commission) collected as a result of such
re-letting shall be credited on the Lessee's liability up to the
amount due under the terms of this lease and the balance, if
any, credited to the Lessor. Nothing herein, however, shall be
construed to require the Lessor to re-enter and re-let, nor
shall anything herein be construed to postpone the right of the
Lessor to sue for rents, whether matured by acceleration or
otherwise, but on the contrary, the Lessor is hereby given the
right to sue therefor at any time after default. The events or
default referred to herein are: failure of the Lessee to pay any
one or more of the installments of rent, or any other sum,
provided for in this lease as and when the same become due, the
removal, attempt to remove or permitting to be removed from said
premises, except in the usual course of trade, the goods,
furniture, effects or other property of the Lessee or any
assignee, or sub-tenant of the Lessee; the levy of an execution
or other legal process upon the goods, furniture, effects or
other property of the Lessee brought on the leased premises or
upon the interest of the Lessee in this lease; the filing of a
Petition in Bankruptcy, a Petition for an Arraignment or
reorganization by or against the Lessee; the appointment of a
receiver or trustee, or other court officer, for the assets of
the Lessee; the execution of an assignment for the benefit of
creditors of the Lessee; the vacation or abandonment by the
Lessee of the leased premises or the use thereof for any purpose
other than the purpose for which the same are hereby let or (if
the rental herein is based in whole or in part on the percentage
of Lessee's sales) failure of the Lessee to exercise diligent
effort to product the maximum volume of sales; the assignment by
Lessee of this lease or the re-letting or sub-letting by the
Lessee of the leased premises or any part thereof without the
written consent of the Lessor first had and obtained; the
violation by the Lessee of any other of the terms, conditions or
covenants not set out in this paragraph on the part of the
Lessee herein contained and failure of the Lessee to remedy such
violation within ten (10) days after written notice thereof is
given by the Lessor to the Lessee.
REMOVAL The Lessee shall not remove any of the goods, wares or
OF GOODS merchandise of the Lessee from said premises other than in the
regular course of Lessee's trade or business without having
first paid all rent due or to become due under the terms of this
lease.
ACCELERA- Upon termination or breach of this lease or re-entry upon
TION OF said premises for any one or more of the causes set forth above,
RENT or upon termination of this lease or re-entry of said premises,
the rents provided for in this lease for the balance of the
DEFAULT-- original rental term, or any renewal term or other extended
ATTORNEY term, and all other indebtedness to the Lessor owed by the
FEE AND Lessee, shall be and become immediately due and payable at the
COST option of the Lessor and without regard to whether or not
possession of the premises shall have been surrendered to or
WAIVER OF taken by the Lessor. The Lessee agrees to pay Lessor, or on
EXEMPTIONS Lessor's behalf, a reasonable attorney's fee in the event
Lessor employs an attorney to collect any rents due hereunder
by Lessee, or to protect the interest of Lessor in the event the
Lessee is adjudged a bankrupt, or legal process is levied upon
the goods, furniture, effects or personal property of the Lessee
upon the said premises, or upon the interest of the Lessee in
this lease or in said premises, or in the event the Lessee
violates any of the terms, conditions, or convenants on the part
of the Lessee herein contained. In order to further secure the
prompt payments of said rents, as and when the same mature, and
the faithful performance by the Lessee of all and singular the
terms, conditions and covenants on the part of the Lessee herein
contained, and all damages, and costs that the Lessor may
sustain by reason of the violation of said terms, conditions and
covenants, or any of them, the Lessee hereby waives any and all
rights to claim personal property as exempt from levy and sale,
under the laws of any State or the United States.
ABANDON- In the event the Lessee abandons the leased premises before
MENT the expiration of the term, whether voluntarily or
involuntarily, or violates any of the terms, conditions, or
RE-LETTING covenants hereof, the Lessor shall have the privilege at
Lessor's option of re-entering and taking possession of said
premises and leasing all or any portion of said premises for
such term and for such use deemed satisfactory to the Lessor,
applying each month the net proceeds obtained from said leasing
to the credit of the Lessee herein, up to the amount due under
the terms of this lease and the balance to the Lessor and, said
leasing shall not release the Lessee from liability hereunder
for the rents reserved for the residue of the term hereof, but
Lessee shall be responsible each month for the difference, if
any, between the net rents obtained from such leasing and the
monthly rent reserved hereunder, and said difference shall be
payable to the Lessor on the first day of each month for the
residue of the term hereof.
RE-ENTRY, No re-entry hereunder shall bar the recovery of rent or
ETC., NO BAR damages for the breach of any of the terms, conditions, or
covenants on the part of the Lessee herein contained. The
receipt of rent after breach or condition broken, or delay on
the part of Lessor to enforce any right hereunder, shall not be
deemed a waiver of forfeiture, or a waiver of the right of the
Lessor to annul the lease or to re-enter said premises or to
re-let the same, or to accelerate the maturity of the rents
hereunder.
<PAGE> 3
REINSTATE- If this lease is terminated by the Lessor for any reason,
MENT including non-payment or rent, and the Lessee pays the rent,
attorneys' fees and other charges and thus makes himself
current, and/or remains or continues to be in possession of the
leased premises or any part thereof, with the Lessor's consent,
this lease will be considered reinstated, and will continue in
effect as though it had not been terminated.
IMPROVE- All improvements and additions to the leased premises shall
MENTS AND adhere to the leased premises, and become the property of the
ADDITIONS Lessor, with the exception of such additions as are usually
PROPERTY OF classed as furniture and trade fixtures; said furniture and
LESSOR trade fixtures are to remain the property of the Lessee, and may
be removed by the Lessee two (2) weeks prior to the expiration
of this lease, provided all terms, conditions and covenants of
within contract have been complied with by Lessee and provided
said Lessee restores the building and premises to its original
condition, normal wear and tear excepted, except as may
otherwise be provided in Addendum A hereto.
FIRE & In the event of the total destruction of, or partial damage
OTHER to, the buildings upon the demised premises by fire or other
CASUALTY casualty, Lessor shall proceed with due diligence and dispatch to
repair and restore the buildings to the conditions to which they
existed immediately prior to the occurrence of such casualty, at
Lessor's cost and expense, provided such cost does not exceed the
proceeds of insurance collected on the buildings, by reason of
such casualty, the application of which insurance proceeds are
not prohibited, by reason of any mortgage provision, from being
used toward the cost of restoration and repairing the same;
provided, further, that if the unexpired portion of the term or
any extension thereof shall be two (2) years or less on the date
of such casualty and the cost of such repair or restoration
exceeds twenty percent (20%) of the then replacement value of
said damaged leased premises, as estimated by two or more
reputable contractors, Lessors may by written notice to the
Lessee, within thirty (30) days after the occurrence of such
casualty, terminate this lease. If Lessor exercises the above
right to terminate this lease and Lessee elects to exercise an
option of renewal privilege which Lessee may have under this
lease, which if exercised, would extend the unexpired term beyond
two (2) years. Lessee may void such above notice of Lessor's
right to terminate this lease by exercising such option renewal
privilege within such thirty (30) day period. If the insurance
proceeds are insufficient to effect such restoration or repairs,
Lessor at its option may cancel this lease by written notice to
Lessee within thirty (30) days after the occurrence of such
casualty.
In the event the repairing and restoring of the buildings
can not be completed within four (4) months after the date of
occurrence of such casualty, as estimated by two or more
reputable contractors, the Lessee shall have the right to
terminate this lease upon giving written notice to Lessor within
thirty (30) days from the date of occurrence of said casualty.
From the date of such damage or destruction until said building
has been substantially repaired or restored, an equitable
abatement of rent shall be allowed the Lessee.
TRANSFER OR Each and every transfer or assignment of this lease, or any
ASSIGNMENT, interest therein, and each and every sub-letting of said
CONDITIONS premises, or any part thereof, or any interest therein, shall be
null and void, unless the written consent of the Lessor be first
LEASE obtained thereto. As a condition precedent to the obtaining of
ASSIGNMENT such consent, the assignee or sub-lessee must assume, in
FEE CLAUSE writing, all the obligations of the Lessee hereunder, but such
assumption shall not operate to release the Lessee from any
agreement or understanding on the part of the Lessee expressed
or implied in this lease.
NOTICES AND All notices and demands authorized or required to be given
DEMANDS to the Lessee under any provision hereof must be in writing, and
may be delivered to the Lessee in person or left on or in the
leased premises or shall be conclusively deemed to have been
delivered to the Lessee if the same be deposited in the United
States mail addressed to the Lessee at the leased premises, with
the proper postage affixed thereto. All notices herein
authorized are required to be given to the Lessor may be given
by certified mail, addressed to the Lessor at the address of the
Lessor shown on page 1 of this lease, or in care of the Lessor's
rental agent at that time authorized by the Lessor to service
this lease, and said notices must be in writing.
AGENTS
COMMISSION
AGREEMENT
AGENTS
REPAIR AND
IMPROVE-
MENT
LESSEE WILL Lessee will indemnify and hold Lessor and Lessor's agent
HOLD free and harmless from all demands, claims and suits or expenses
HARMLESS caused by any default committed hereunder on the part of the
Lessee. Lessee will further indemnify and save harmless Lessor
and Lessor's agent from any loss, cost, damage and/or expenses
caused by injuries to persons or property while in, on or about
the demised premises, not attributable to the willfully wrongful
act of the Lessor or Lessor's agent. Any property stored in the
demised premises shall be at the sole risk of Lessee.
WAIVER OF Neither Lessor nor Lessee shall be liable to the other for
SUBROGATION any loss or damage from risks ordinarily insured against under
RIGHTS fire insurance policies with extended-coverage endorsements,
irrespective of whether such loss or damage results from their
negligence or that of any of their agents, servants, employees,
licensees or contractors to the extent that such losses are
covered by valid and collectable insurance on the property at
the time of the loss.
HOLDOVER Should the Lessee continue to occupy the premises after the
expiration of the said term or after a forfeiture incurred,
whether with or against the consent of the Lessor, such tenancy
shall be a tenancy at sufferance and in no event a tenancy from
month to month, or from year to year.
NON- The failure of the Lessor to insist, in any one or more
WAIVER instances, upon a strict performance of any of the covenants of
this lease, or to exercise any option herein contained, shall
not be construed as a waiver, or a relinquishment for the
future, of such covenant or option, but the same shall continue
and remain in full force and effect. The receipt by the Lessor
of rent, with knowledge of the breach of any covenant hereof,
shall not be deemed a waiver of such breach, and no waiver by
the Lessor of any provision hereof shall be deemed to have been
made unless expressed in writing, and signed by the Lessor.
<PAGE> 4
NON-WAIVER If all or any part of the demised premises is taken by
EMINENT eminent domain ("eminent domain" shall include the exercise of
DOMAIN AND any similar power of taking, and any purchase or acquisition in
CONDEM- lieu of condemnation), or in the event the improvements are
NATION ordered torn down or removed by lawful authority, then the term
of this lease shall cease as of the date possession shall be
taken by the condemning authority, or as of the date improvements
are ordered torn down or removed, whichever may be applicable,
with the rent to be apportioned as of the date of such taking or
of such order, as the case may be; provided, however, if as a
result of a partial taking of the demised premises by eminent
domain, the ground floor area of the building forming a part of
the demised premises is reduced by not more than twenty-five
percent (25%), the Lessor may elect to continue the term of this
lease and to restore, at Lessor's expense, the remaining premises
to a complete architectural unit with storefront, signs and
interior of equal appearance and utility as they had previous to
the taking, but there will be prorata reduction of the rent
payable each month. The Lessor shall be deemed to have exercised
its said option to restore the premises unless, within 30 days
after the date of taking, the Lessor shall notify the Lessee in
writing of its election to terminate this lease. The Lessor shall
be entitled to receive all of the proceeds of any total or
partial taking of the demised premises by eminent domain,
including any part of such award as may be attributable to the
unexpired leasehold interest or other rights of the Lessee in the
premises, and the Lessee hereby assigns, and transfers to the
Lessor all of the Lessee's right to receive any part of such
proceeds.
CLEAN The Lessee hereby agrees that upon the expiration or prior
PREMISES termination of this lease, the Lessee will promptly remove from
UPON the leased premises all signs, trash, debris and property of the
TERMINA- Lessee, and the Lessee will leave the floors, stairs,
TION, ETC. passageways, elevator and shafts as clean as it is possible to
clean them by means of the use of broom and shovel.
TAXES AND
INSURANCE See Addendum A hereto
ADDENDUM This lease consists of 4 pages together with an Addendum of
CLAUSE pages which is attached hereto, and Exhibit A initialed by
the parties and incorporated in this lease by reference. In case
of conflict between the printed portion of this lease and the
Addendum, the terms of the Addendum shall prevail.
It is understood and agreed by the parties hereto that this
lease shall be binding upon the Lessee, its executor,
administrator, heirs, assigns or successor.
FURTHER TERMS AND CONDITIONS MADE A PART HEREOF
SEE ADDENDUM A
IN WITNESS WHEREOF, the Lessor and the Lessee have
respectively executed these presents this 4th day of November
1985
Agent WIMBERLY & THOMAS BUILDING RESTORATION
PARTNERSHIP
By: /s/ James Milton Johnson
-------------------------- (Lessor)
James Milton Johnson
Its Managing General Partner
Witness for Lessor:
- ---------------------------------- COMPUTER SERVICES CORPORATION
By: (L.S.)
------------------------------
Its Lessee
---------------------------
Witness for Lessee:
- ------------------------------
(L.S.)
---------------------------
Lessee
<PAGE> 5
Addendum A to Sublease
dated as of October 31, 1985, by and between Wimberly & Thomas
Building Preservation Partnership and Computer Services Corporation
1. PARTIES AND FACTUAL BACKGROUND. It is specifically recognized and
understood that Wimberly & Thomas Building Preservation Partnership does not
own fee simple title to the demised premises, but, instead, leases such
property by virtue of a Lease Agreement between The Historical Preservation
Authority of the City of Birmingham (the "Authority") and Wimberly & Thomas
Building Preservation Partnership, dated as of October 31, 1985 (the "Lease
Agreement"). In entering into this Commercial Lease, Wimberly & Thomas Building
Preservation Partnership is doing so as sublessor and Computer Services
Corporation is doing so as sublessee, even though they are referred to in this
document as the Lessor and Lessee, respectively. It is further recognized and
understood that the demised premises is owned by the Authority and that the
Authority has entered into a Mortgage Indenture dated as of October 31, 1985
(the "Mortgage") with SouthTrust Bank of Alabama, N.A. (the "Mortgagee"). As
set forth hereinafter, certain terms and conditions of the Mortgage and Lease
Agreement are incorporated herein by reference.
2. RENTAL RATE. Lessee agrees to pay to Lessor on the first day of
each month of the Term, in advance, as rent for said premises the following:
(a) for the period beginning on the date of Occupancy but in no
event later than August 1, 1986, the aggregate of the following amounts
("Monthly Base Rent"):
(i) Sixteen Thousand Nine Hundred Five and 57/100 Dollars
($16,905.57); and
(ii) Lessee's Pro Rata Share (as defined below) of any adjustments
to Lessor's rent pursuant to Section 7.03(g) of the Lease Agreement.
(b) Effective on each Adjustment Date (as defined below), Monthly
Base Rent (excluding Operating Expenses, as defined below) shall be increased by
the lesser of (i) four percent (4%) or (ii) the percentage increase in the
latest Consumer Price Index on the Adjustment Date over the Consumer Price Index
twelve months earlier, of the Monthly Base Rent of the preceding twelve months.
3. ADDITIONAL RENT. During any Adjustment Year (as defined below) in
which Operating Expenses exceed $138,200 in the aggregate ("Aggregate Operating
Expenses") for that Adjustment Year, Lessee shall pay, as additional rent,
Lessee's Pro Rata share (amortized on a monthly basis) of the Operating
Expenses for the Adjustment Year which exceed $138,200.
4. DEFINITIONS. The following words and phrases shall have the
following meanings:
(a) "Adjustment Date" shall mean the first day of the thirteenth
calendar month of the Term and each anniversary date of said day during the
term.
(b) "Adjustment Year" shall mean the twelve months consisting of
the calendar month in which an Adjustment Date occurs plus the next eleven
months.
(c) "Operating Expenses" shall mean all costs, expenses and
disbursements of every kind and nature which Lessor shall pay or become
obligated to pay in connection with the management, operation, maintenance,
replacement and repair of the Building, all improvements and
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<PAGE> 6
land on which the Building is situated, all ad valorem taxes and special
assessments, and the personal property, fixtures, machinery, equipment, systems
and apparatus located in or used in connection with the Common Areas (as
defined below). Operating Expenses shall not include the following: costs of
improvement of the premises and the premises of other tenants of the Building;
charges for depreciation of the buildings and improvements; interest and
principal payments on mortgages; ground rental payments; real estate brokerage
and leasing commissions; expenses incurred in enforcing obligations of other
tenants of the Building; any expenditures for which Lessor has been reimbursed
(other than pursuant to rent adjustment and escalation provisions provided in
leases); and capital improvements.
(d) "Lessee's Pro Rata Share" shall mean a ratio equal to
Lessee's percentage share of the total square footage of the building leased
during the Adjustment Year.
(e) "Common Areas" shall mean all areas, improvements, space,
equipment and special services in, at, or contiguous to the Building provided
by Lessor for the common or joint use and benefit of tenants, and invitees,
including without limitation all parking areas, driveways, entrances and exits.
(f) "Consumer Price Index" shall mean the Consumer Price Index
for All Urban Consumers, All Items (1967-100), published by the United States
Department of Labor, Bureau of Labor Statistics. If said Consumer Price Index is
discontinued or is unavailable, Lessor will substitute a comparable index
reflecting changes in the cost of living or purchasing power of the consumer
dollar published by any other governmental agency, bank or other financial
institution, or any recognized authority.
5. Projections. For purposes of calculating Operating Expenses for
any Adjustment Year, Lessor may make reasonable estimates, forecasts or
projections (collectively, the "Projections") of Operating Expenses for such
Adjustment Year. Not less than 10 days prior to each Adjustment Date, Lessor
shall deliver to Lessee a written statement setting forth the Projections of
Operating Expenses for the Adjustment Year in which such Adjustment Date occurs
and providing a calculation of the increase in installments of Additional Rent
to become effective as of said Adjustment Date; provided, however, that the
failure of Lessor to provide any such statement shall not relieve Lessee from
its obligation to continue to pay Additional Rent at the rate then in effect
under this Lease, and if and when Lessee receives such statement from Lessor,
Lessee shall pay any increases in Additional Rent reflected thereby effective
retroactively to the most recently preceding Adjustment Date.
6. Fixtures and Interior Alterations. Lessee, at its own expense and
with the prior written approval of Lessor, may from time to time during the term
of this lease make interior alterations, additions, improvements and
modifications in and to the demised premises which do not adversely affect the
structural integrity thereof; provided, however, that all such alterations,
additions, improvements and modifications shall be made in a good, workmanlike
manner and in accordance with all valid requirements of municipal or other
governmental authorities and no additions, alterations, improvements or
modifications will be made that change the character of the demised premises to
such extent that it no longer constitutes "property" listed in the National
Register of Historic Places within the meaning of the statute codified in Code
of Alabama 1975, Title 41, Chapter 10, Article 5, as amended and supplemented
and at the time in force and effect (the "Act"). All permanent improvements
shall belong to Lessor and become a part of the premises upon termination or
expiration of this lease.
7. Mechanics' Liens. Lessor will not be liable for any labor or
materials furnished to Lessee on credit, and no mechanics' or other liens for
any such labor or materials shall attach to or affect the reversion
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<PAGE> 7
or other estate or interest of Lessor in and to the premises. Lessee shall
indemnify and save Lessor and/or its agents harmless from and against any
liability, damages, claims or costs arising from the imposition of any such
lien.
8. Subordinate. Lessee agrees that this lease shall at all times be
subject and subordinate to the Permitted Encumbrances as that term is defined
in the Mortgage and the Lease Agreement, including, without limitation, the
Mortgage, the Lease Agreement and the Conservation Easement, and Lessee agrees
to execute any instrument as may be required to effectuate such subordination.
9. Preparation for Occupancy. Prior to the commencement of the term,
the Lessor, at its own expense and cost and to the Lessee's reasonable
satisfaction, shall, unless otherwise agreed to, alter and fix up the premises
for occupancy by the Lessee; provided that the cost of said alterations and fix
up shall not exceed $560,000 plus an allowance for extras of $300,000. The
Lessor shall notify the Lessee when the Lessor's alteration and construction
work in the premises has advanced sufficiently to permit Lessee to install its
equipment and furnishings and to commence such other work therein which Lessee
desires. The Lessee's obligation to pay rent shall not commence until the
earlier of (i) substantially all work to be done by Lessor as set forth in the
aforesaid plans is substantially completed, or (ii) August 1, 1986.
10. Delays in Delivery of Possession. If Lessor, for any reason
whatsoever, cannot deliver possession of the Premises to Lessee by August 1,
1986, the Lessor shall not be liable in damages to the Lessee therefor. No such
delay in delivery of possession by Lessor shall change the beginning or ending
dates, or the duration of, the term of this Commercial Lease.
11. Public Liability Insurance and Indemnity. Lessee shall during the
entire term of this Lease, at Lessee's own expense, keep in force by advance
payment of premiums comprehensive general liability insurance against liability
for personal or bodily injury to or death of persons and for damage or loss of
property occurring on or about the demised premises or in any way related to
the use, occupancy or operation of the demised premises in the minimum amount
of One Million Dollars ($1,000,000) for injury to or death of one person or as
the result of one occurrence, and not less than Two Million Five Hundred
Thousand Dollars ($2,500,000) for injury to or death of more than one person as
the result of one occurrence, and for damage to property in the amount of One
Million Dollars ($1,000,000) or single limit of Two Million Five Hundred
Thousand Dollars ($2,500,000) insuring Lessee, Lessor, Lessor's agents,
servants and employees (as an additional assured), and the Authority against
any liability that may accrue against them or any of them on account of any
occurrence in or about the demised premises during the term or in consequence
of Lessee's occupancy thereof and resulting in personal injury or death or
property damage. All policies evidencing the insurance required by the terms of
this paragraph shall be taken out and maintained in generally recognized
responsible insurance companies, qualified under the laws of the State of
Alabama to assume the respective risk undertaken, shall contain an agreement on
the part of the insurer issuing such policy that the same shall not be
cancelled, terminated or permitted to lapse by such insurer unless thirty (30)
days' prior written notice of such cancellation, termination or lapse in
coverage shall have been given to the Lessor and Mortgagee, and may be written
with co-insurance provisions and deductible amounts comparable to those
applicable to similar policies carried by persons engaged in businesses of like
size and type as the Lessee.
12. Condition of Premises. Lessee shall notify Lessor in writing
within 30 days after Lessee takes possession of the Premises of any defects in
the Premises claimed by Lessee. Except for defects stated in such notice and
latent defects, Lessee shall be conclusively presumed to
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<PAGE> 8
have accepted the Premises in the condition existing on the date Lessee first
takes possession, and to have waived all claims relating to the condition of
the Premises. No agreement of Lessor to alter, remodel, decorate, clean or
improve the Premises, the Building, or the Common Areas and no representation
regarding the condition of the Premises, the Building, or the Common Areas has
been made by or on behalf of Lessor to Lessee, except as stated in this
Commercial Lease.
13. Services Provided by Lessor. Lessor shall provide the following
services:
(1) city water from the regular Building fixtures for drinking,
lavatory and toilet purposes only;
(2) customary cleaning, snow removal, and trash removal in the
Common Areas;
(3) window washing of windows in the Premises, inside and outside
at reasonable intervals as determined by Lessor; and
(4) adequate passenger elevator service in common with other
tenants of the Building;
(5) pest control and extermination services;
(6) a security guard seven (7) days a week during non-business
hours;
(7) elevator maintenance and maintenance for the elevator
emergency telephones;
(8) city sewer services; and
(9) electricity for the common areas.
14. Maintenance by Lessor. Lessor, at its expense, shall maintain and
make necessary repairs to the structural and mechanical elements and exterior
windows of the Building and the Common Areas. Lessor shall not be responsible
for the maintenance, repair or replacement of any systems which are located
within the Premises and are supplemental or special to the Building's standard
systems, whether installed by Lessor at Lessee's request or by Lessee with
Lessor's permission. The cost of performing any of said maintenance or repairs
caused by the negligence of Lessee, its employees, agents, servants, licensees,
contractors or invitees, or the failure of Lessee to perform its obligations
under this Commercial Lease, shall be paid by Lessee, except to the extent of
insurance proceeds, if any, actually collected by Lessor with regard to the
damage necessitating such repairs.
15. Maintenance by Lessee. Lessee, at its expense and at all times,
shall provide all cleaning, repairs and preventive maintenance (including
repairs and maintenance of heating, ventilation and air conditioning systems
servicing the Premises) necessary to keep and maintain the Premises in good
order, condition and repair and in accordance with all applicable legal,
governmental and quasi-governmental requirements, ordinances and rules
(including the Board of Fire Underwriters or similar body). All utilities except
water and sewer will be metered separately and will be the responsibility of the
lessee. Lessee shall pay all utility bills promptly.
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<PAGE> 9
16. Maintenance of Common Area. The Common Areas shall at all times
be subject to the exclusive control, management, operation and maintenance of
Lessor. Lessor shall have the right from time to time to establish, modify and
enforce rules and regulations with respect to the Common Areas. Lessee agrees
to comply with such rules and regulations, to cause its agents, contractors and
employees to so comply and to use its best efforts to cause its customers,
invitees, suppliers and licensees to so comply. Lessor shall have the right to
construct, maintain and operate lighting facilities in and on the Common Areas;
to police the same; to close temporarily all or any part of the parking areas
or parking facilities; and to do and perform such other acts in and to the
Common Areas as, in the exercise of good business judgment, Lessor shall
determine to be advisable.
17. Option to Lease Additional Space. Lessor hereby grants to Lessee
an option to lease additional space, not to exceed 3,300 square feet, in the
Wimberly & Thomas Building, on the following terms:
(a) Said space will be leased to Lessee in an unimproved
condition;
(b) The initial base rent for any such additional space taken
pursuant to this option shall be at an annual rate of $2.50 per square foot
(exclusive of Operating Expense) payable in equal monthly installments. This
initial base rent for any such additional space leased to Lessee pursuant to
this option shall thereafter be adjusted pursuant to Paragraph 2, and said
adjustments shall be made on the same date as that for the base rent set forth
in Paragraph 2 hereof.
(c) This option shall expire October 31, 1990.
18. Allocation of Investment Tax Credit. It is understood and agreed
that $111,515.00 from investment tax credit with respect to the rehabilitation
of the Project and the other improvements made to, and the equipment purchased
for, the Project by the Lessor will be assigned to Lessee. The Lessor agrees to
execute any and all documents which may be necessary to effect the assignment
of such Investment Tax Credit under the applicable provisions of the Internal
Revenue Code of 1954, as amended, and the regulations promulgated thereunder.
19. In the event the class x partners identified as such under Section
7.1 of the General Partnership Agreement of the Lessor as Amended and Restated
executed as of this date though effective as of September 9, 1985 (the
"Partnership Agreement") elect to purchase the partnership interest of the
other classes of partners pursuant to clause (a) of Section 8.8 of the
Partnership Agreement, this Commercial Lease shall terminate thirty (30) days
after such purchase unless the Lessor and Lessee otherwise agree.
20. If Lessor assigns the Lease Agreement or purchases the Project
from the Authority during the Term of this Commercial Lease, and subsequently
sells the Project, Lessee shall have the right and option to terminate this
Commercial Lease sixty days after written notice to Lessor, which notice shall
be provided to Lessor no later than the later of thirty days after the sale or
assignment or receipt of written notice from Lessor of the sale or proposed
sale.
21. Lessee shall be assigned 27.5% of on site parking spaces. It is
presently estimated that there will be 145 total spaces on site.
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<PAGE> 1
EXHIBIT 10.14
[JOHNSON DEVELOPMENT LOGO]
August 25, 1997
Mr. Robert Bradley
Nichols SELECT Corporation
1801 1st Avenue South
Suite 400
Birmingham, AL 35233
RE: THIRD FLOOR STORAGE SPACE
Dear Mr. Bradley:
The following will act as our understanding regarding Nichols SELECT
Corporation's occupancy of approximately 3,496 square feet located in the
southeast portion of the third floor of the Wimberly Thomas Building also known
as Midtown Center (the "Premises").
We recognize and agree that the Premises described above were originally
desired by another tenant within the building. However, in accommodations to
Nichols SELECT Corporation and cognizant of potential future expansion needs,
it was agreed that Nichols SELECT Corporation would lease this space for
storage. This space will be used only for storage and any change in use or
application will required a new lease reflecting rental rates more in keeping
with other space within the building.
The lease is for a twenty-four month period beginning in October 1, 1997
and ending September 30, 1999. The lease may be terminated with a 60-day notice
by either party. The rental rate will be at $3.30 per square foot and equal the
sum of $961.40 per month or an annual total of $11,536.80. Rents are due on the
1st day of the month and should be paid to Birmingham SSP, 1900 International
Park Drive, Suite 100, Birmingham, Alabama 35243.
This lease is entered into with the understanding that no services will be
rendered for the Premises, specifically excluding electrical service, cleaning
service, maintenance service or any repair and upkeep. Nichols SELECT
Corporation will be responsible for maintaining the facility and no
modifications will be made in the space without first receiving written
consent. The space may not be sublet by Nichols SELECT Corporation under any
circumstances nor may Nichols SELECT Corporation transfer or assign its
interest in the lease. Insurance will be maintained in accordance with other
leases now outstanding.
<PAGE> 2
[JOHNSON DEVELOPMENT LOGO]
Mr. Robert Bradley
August 25, 1997
Page 2
Space is leased "as is". Square footage described in this lease will not
be included in the prorata square footage calculation used to determine
operating and maintenance expenses under other leases to Nichols SELECT
Corporation and other tenants within Midtown Center.
If this letter accurately represents your understanding of our agreement,
please so confirm by executing below and returning one copy.
Very truly yours,
/s/ James Milton Johnson
----------------------------------
James Milton Johnson
Accepted this 27th day of
October , 1997.
/s/
- -------------------------
Signature
- -------------------------
Print name and title
<PAGE> 3
MAXINE WADE 6925
FLOOR PLAN
<PAGE> 4
THIRD FLOOR
FLOOR PLAN
<PAGE> 5
EXPANSION UNFINISHED AREA
165 SQ. FT.
FLOOR PLAN
<PAGE> 1
EXHIBIT 10.15
OFFICE SPACE LEASE
This lease, made and entered into as of this 6th day of May, 1998, by and
between Raytheon Engineers & Constructors, Inc. ("Landlord"), and Nichols TXEN
Corporation ("Tenant").
Witnesseth:
For and in consideration of the mutual promises and covenants hereinafter set
forth, Landlord and Tenant hereby agree as follows:
ARTICLE I --DEFINITIONS
In addition to other definitions set forth herein, the following terms shall
have the following meanings as used throughout this lease:
1.01 ADDITIONAL RENT. The amounts specified in Sections 3.02 (increases in
base rent) and 3.03 (the monthly estimate and annual payment) payable
by Tenant to Landlord.
1.02 ADJUSTMENT DATE. Intentionally omitted.
1.03 AGENT. Daniel Realty Services, L.L.C. and its successors and assigns.
1.04 AGENT'S MAILING ADDRESS. P.O. Box 385001, Birmingham, AL 35238-5001.
1.05 APPLICABLE RATE. The per annum rate of interest equal to the lesser of
(i) five percent (5%) above the prime or "base" rate of interest
announced or published from time to time by Citibank of New York or
(ii) the maximum interest rate permitted to be charged by law.
1.06 BASE RENT. $343,245.40 per year, being at the rate of $16.30 per
Rentable Square Foot of space in the Premises.
1.07 BASE YEAR. The calendar year 1998.
1.08 BUILDING. Meadow Brook 300 Landlord reserves the right to change the
name of the Building from time to time.
1.09 CASUALTY. Any damage or destruction to the Building or the Premises or
any part thereof (other than to Tenant's Personal Property) caused by
or resulting from any fire, windstorm, tornado, earthquake, or other
casualty.
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<PAGE> 2
1.10 COMMENCEMENT DATE. Subject to the provisions of Section 2.02 hereof,
the first to occur of the following: (a) July 1, 1998, or (b) the date
on which the Tenant occupies the Premises to conduct normal business
operations.
1.11 COMMON AREAS. All areas, improvements, equipment and amenities which,
from time to time may be designated by Landlord for use, in common, by
all tenants of the Building, including, without limitation, all
Building entrances and exits, lobbies, hallways, corridors, elevators,
stairs, restrooms, janitor's closets, parking areas, garage access
roads, driveways, walkways, retaining walls, courtyards, landscaped
areas, loading docks and facilities, service drives, tunnels, ramps,
atriums, signs and trash receptacles.
1.12 EXPIRATION DATE. Nine (9) months following the Commencement Date,
unless otherwise sooner terminated in accordance with the provisions of
this Lease.
1.13 INDEX. Intentionally left blank
1.14 LANDLORD. Raytheon Engineers & Constructors, Inc.
1.15 LANDLORD'S MAILING ADDRESS. 1200 Corporate Drive, Hoover, AL 35242.
1.16 LEASE YEAR. The period of time from January 1 through December 31 of
each calendar year during the Term hereof.
1.17 PREMISES. That portion of the Building containing, for the purposes of
this Lease, 21,058 Rentable Square Feet. The Premises is shown as
outlined on the floor plan attached hereto as Exhibit A and is located
on the third floor of the Building.
1.18 REAL PROPERTY. That certain real property situated at 300 Corporate
Parkway, Hoover, Alabama 35242.
1.19 RENT. Base Rent, Additional Rent and all other sums, charges, and
expenses payable hereunder by Tenant.
1.20 RENTABLE SQUARE FEET (OR FOOT). The area of the Premises or the
Building, as the case may be measured by the national standard adopted
by the Building Owners and Managers Association International for
rentable area.
1.21 RULES AND REGULATIONS. The Rules and Regulations attached hereto as
Exhibit C and all modifications and amendments made from time to time
thereto by Landlord.
1.22 SECURITY DEPOSIT. Intentionally omitted.
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<PAGE> 3
1.23 TAKING. A taking of all or any portion of the Building or the Premises
as a result of, in lieu of or in anticipation of the exercise of the
right of eminent domain, condemnation, nationalization, seizure,
confiscation, or requisition pursuant to any law, general or special,
or by reason of the requisition of the Building, the Premises or any
portion thereof by any governmental authority, civil, military or other
person legally possessing the power of eminent domain or by private
purchase in lieu thereof.
1.24 TENANT. Nichols TXEN Corporation.
1.25 TENANT IMPROVEMENT ALLOWANCE. Intentionally omitted.
1.26 TENANT IMPROVEMENTS. Those leasehold improvements to be made to the
Premises pursuant to Section 4.03.
1.27 TENANT'S MAILING ADDRESS. Nichols TXEN Corporation, 10 Inverness Center
Parkway, Suite 500, Birmingham, AL 35242. On and after the Commencement
Date, Tenant's Mailing Address shall be the address of the Premises.
1.28 TENANT'S PERSONAL PROPERTY. All furniture, furnishings, fixtures,
equipment, machinery and other personal property (other than the Tenant
Improvements) owned or used by Tenant in or about the Premises.
1.29 TENANT'S SHARE. The percentage obtained by dividing the Rentable Square
Feet of space in the Premises by the total Rentable Square Feet of
space in the Building.
1.30 TERM. Nine (9) months, commencing on the Commencement Date and expiring
on the Expiration Date.
1.31 WORK LETTER. Intentionally Omitted.
ARTICLE II -- LEASE AND USE OF PREMISES
2.01 LEASE OF PREMISES. Landlord does hereby lease to Tenant and Tenant does
hereby hire and accept from Landlord the Premises for and during the
Term, subject to the terms and conditions set forth in this Lease.
Subject to the terms and conditions set forth in this Lease, Tenant is
hereby granted the nonexclusive right to use during the Term, in common
with Landlord, other tenants of the Building and their respective
employees, agents, independent contractors, licensees and invitees, all
of the Common Areas. Notwithstanding anything provided in this Lease to
the contrary, no easement for light, air or view is granted to
Tenant hereunder.
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<PAGE> 4
2.02 DELIVERY OF POSSESSION. In the event Landlord is unable for any reason
to deliver possession of the Premises to Tenant on or prior to the
Commencement Date, then:
A. This Lease shall not be voidable or void and Landlord shall
have no liability hereunder for any loss or damages (including
loss of profits) suffered, paid, or incurred by Tenant as a
result thereof.
B. The Commencement Date shall be postponed until such time as
Landlord can deliver to Tenant possession of the Premises and
the Expiration Date shall be extended for an equal period.
Landlord and Tenant agree to execute an amendment to this
Lease on or before the Commencement Date setting forth, if
applicable:
(i) The Commencement Date and Expiration Date.
(ii) The total Rentable Square Feet in the Premises,
including floor plans of the location of the same.
(iii) The actual amount of Base Rent.
(iv) The actual amount of the Tenant Improvement
Allowance.
(v) Such other matters as may be mutually agreed upon.
2.03 USE OF THE PREMISES.
A. Tenant shall use the Premises solely for general office
purposes and for no other purpose. Tenant shall not use or
occupy or permit anything to be done in the Premises in
violation of the Rules and Regulation or any law, covenant,
condition or restriction affecting the Building or the Real
Property or which will invalidate or increase the cost of any
fire, extended coverage or other insurance policy covering the
Building or personal property of Landlord located therein.
Tenant shall, on demand, reimburse Landlord for any penalties,
costs or expenses, including any additional premium charged
under any insurance policy, by reason of Tenant's failure to
comply with the provisions of this Section 2.03. Tenant shall
not do or permit anything to be done in or about the Premises,
the Common Areas or the Building which will in any way injure,
annoy, obstruct or interfere with the rights of other tenants
or occupants of the Building. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises or
the Common Areas.
B. Tenant shall, at Tenant's sole expense, promptly abide by and
comply with the Rules and Regulations (and all amendments
thereto) and all present and future laws, ordinances,
regulations and rules of any local, county, state, federal and
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other governmental authority and any agency, bureau or
department thereof, and of any board of fire underwriters or
any other body exercising similar functions which may be
applicable to the Premises.
2.04 QUIET ENJOYMENT. Subject to the terms of this Lease, Tenant shall have
the peaceable and quiet enjoyment and possession of the Premises
without any manner of hindrance or interference by Landlord.
2.05 ENTRY. Landlord or Agent may enter the Premises at reasonable hours to
show the Premises to lenders, prospective purchasers or tenants, to
inspect the Premises or to make repairs required to be made by the
Landlord under the terms hereof or repairs to adjoining space within
the Building. Such entry by Landlord or Agent shall not entitle Tenant
to any abatement of Rent.
2.06 PARKING. Tenant is granted the nonexclusive right, in common with
Landlord, other tenants of the Building and their respective employees,
agents, independent contractors, licensees and invitees, to use the
parking facilities situated on the Real Property; provided, however,
that, (i) Tenant, its agents, employees, independent contractors,
invitees and licensees shall not utilize more than four (4) parking
spaces per 1,000 Rentable Square Feet of space within the Premises,
(ii) Tenant shall cause its agents, employees, independent contractors,
invitees and licensees to park only in those areas designated from time
to time by Landlord and (iii) Tenant, its agents, employees,
contractors, invitees and licensees shall abide by all parking rules
and regulations adopted from time to time by Landlord.
ARTICLE III -- RENT
3.01 BASE RENT. Tenant shall pay the Base Rent in twelve (12) equal monthly
installments in advance on the first day of each month throughout the
Term hereof. Base Rent shall be increased on each Adjustment Date as
provided in Section 3.02 below.
3.02 INCREASES IN BASE RENT. On each Adjustment Date throughout the Term,
Base Rent shall be adjusted based on increases in the Index by
multiplying the Base Rent paid by Tenant immediately prior to such
Adjustment Date by a fraction, the numerator of which shall be the
Index for the month and year of the then applicable Adjustment Date and
the denominator of which shall be the Index for the month and year in
which the Commencement Date occurs. Notwithstanding anything provided
herein to the contrary, in no event shall the Base Rent payable by
Tenant as a result of such adjustment be less than the Base Rent paid
by Tenant immediately prior to the then applicable Adjustment Date.
3.03 INCREASES IN OPERATING EXPENSES.
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A. As used in this Section 3.03, the following terms shall have
the following meanings:
(i) ANNUAL PAYMENT. Tenant's Share of the difference
between the Operating Expenses paid or incurred
during the immediately preceding Lease Year and the
Operating Expenses paid or incurred during the Base
Year, reduced by the amount, if any, paid by Tenant
as the Monthly Estimate during the immediately
preceding Lease Year.
(ii) MONTHLY ESTIMATE. Tenant's Share of the amount
determined by Landlord and payable by Tenant as the
estimated increase in Operating Expenses for the
ensuing Lease Year over the Operating Expenses for
the Base Year which amount is payable in advance in
twelve (12) monthly installments as provided in
Sections 3.03 B (i) and (ii) below.
(iii) OPERATING EXPENSES. All costs and expenses paid or
incurred by Landlord or Agent each Lease Year in the
management, operation, repair and maintenance of the
Premises, the Building and the Real Property
(hereinafter collectively referred to as the
"Project"), including, without limitation:
(1) All wages, salaries and compensation
(including fringe benefits) paid or incurred
for employees of Landlord or Agent
performing any services in connection with
the Project;
(2) The costs of all materials, supplies,
equipment and tools (whether purchased or
leased) utilized with respect to the
Project;
(3) The costs of all services rendered by third
parties with respect to the Project,
including all costs paid or incurred by
Landlord in providing any of the services to
be provided by Landlord pursuant to the
terms of the Lease;
(4) Utility costs and services paid or incurred
with respect to the Project, including,
without limitation, costs for electricity,
gas, telephone, sewage, refuse or garbage
collection and fire protection for the
Project;
(5) All insurance premiums and policy
deductibles paid with respect to the
Project, including, without limitation, fire
and extended coverage insurance, rent loss
and public liability insurance coverage;
(6) Management fees and expenses for the
Project;
(7) Taxes, hereinafter defined;
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(8) Accounting, legal and advertising costs
relating to the Project;
(9) Common area maintenance charges and ground
rents, if any, levied or assessed against or
payable with respect to the Project; and
(10) Costs of all capital improvements to the
Project which are either required under any
governmental law or regulation or which
reduce Operating Expenses; provided,
however, that the costs of any such capital
improvements shall be amortized over the
useful life of such improvements, as
determined by Landlord, with interest
thereon at the Applicable Rate in effect at
the time such capital improvements were
made.
(11) ALL COSTS, CHARGES, AND EXPENSES INCURRED BY
LANDLORD IN CONNECTION WITH ANY CHANGE OF
ANY COMPANY PROVIDING ELECTRICITY SERVICE,
INCLUDING, WITHOUT LIMITATION, MAINTENANCE,
REPAIR, INSTALLATION, AND SERVICE COSTS
ASSOCIATED THEREWITH.
Operating Expenses shall not include depreciation or
amortization (except as otherwise provided above),
debt service or interest paid or accrued or leasing
commissions or brokerage fees. Operating Expenses for
the first and last Lease Year of the Term shall be
prorated by Landlord to reflect what the Operating
Expenses would have been had the Commencement Date
been January 1 and the Expiration Date December 31.
If, in determining the Operating Expenses in the Base
Year or any subsequent Lease Year thereafter, less
than ninety-five percent (95%) of the Building is
fully occupied during such year, then Landlord shall
adjust the Operating Expenses for such Lease Year to
reflect what the Operating Expenses would have been
had the Building been ninety-five percent (95%)
occupied at all times during such Lease Year.
(iv) TAXES. All real estate taxes, drainage assessments
(whether for drainage, sewage or public
improvements), taxes on rent or the occupancy or use
of the Project and similar governmental impositions,
whether general or special, levied, assessed, charged
or imposed by federal, state, county or local
governmental authorities against the Project or any
part thereof or the rents therefrom (excluding,
however, any income, franchise or similar tax imposed
directly on Landlord or the income derived by
Landlord from the Project unless the same are levied
or assessed in lieu of any of the foregoing),
including all increases in such taxes whether
resulting by special levy, annexation or otherwise,
together with all costs incurred by Landlord in
contesting the same. If, in determining the Taxes in
the Base Year or any subsequent Lease Year, the
Building and Real Property are not fully assessed
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as a completed and fully occupied structure, then
Landlord shall adjust the Taxes for such Lease Year
to reflect what the Taxes would have been for such
calendar year and had the Building and Real Property
been fully assessed as a completed, fully occupied
structure.
B. In addition to the payment of Base Rent, Tenant shall also pay
throughout the Term the Monthly Estimate and the Annual
Payment, which amounts shall be payable as follows:
(i) During December of each Lease Year, including the
Base Year, or as soon as possible thereafter,
Landlord shall provide Tenant with written notice of
Landlord's estimate of Operating Expenses for the
ensuing Lease Year and the amount to be paid by
Tenant as the Monthly Estimate. In the event such
estimate indicates that Operating Expenses for the
ensuing Lease Year shall exceed the Operating
Expenses for the Base Year, then Tenant shall pay to
Landlord the Monthly Estimate in advance on the first
day of each month during the ensuing Lease Year;
provided, however, that if such estimate is not given
on or prior to January I of the ensuing Lease Year,
then (1) Tenant shall continue paying the Monthly
Estimate paid during the prior Lease Year until such
time as Landlord provides Tenant with such notice for
the ten current Lease Year and (2) at such time as
Tenant is given notice of the Monthly Estimate for
the then current Lease Year, Tenant shall pay any
amounts then owing as provided in such notice. If at
any time during a Lease Year, Landlord determines
that the Monthly Estimate then being paid by Tenant
will not be sufficient to pay the Annual Payment due
from Tenant for such Lease Year, then Landlord shall
have the right to increase the amount of the Monthly
Estimate payable by Tenant and Tenant agrees to pay
the increased amount of the Monthly Estimate;
(ii) Within ninety (90) days after the end of each Lease
Year or as soon as possible thereafter, Landlord
shall deliver to Tenant a statement setting forth (1)
the amount of Operating Expenses paid or incurred in
the immediately preceding Lease Year in excess of the
Operating Expenses for the Base Year, (2) the amount
paid by Tenant as the Monthly Estimate during the
immediately preceding Lease Year and (3) the amount,
if any, owing by Tenant as the Annual Payment. If the
statement indicates that an Annual Payment is due
from Tenant, then Tenant shall pay such amount in
full within thirty (30) days after such statement is
given to Tenant. If the statement indicates that the
amount paid by Tenant during the preceding Lease Year
as the Monthly Estimate is in excess of Tenant's
Share of increases in Operating Expenses for the then
applicable Lease Year, then the excess shall be
applied as a credit to the Monthly Estimate due from
Tenant for the then current Lease Year and/or the
Annual Payment due from Tenant in any future Lease
Year.
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Notwithstanding anything provided herein to the
contrary, in no event shall the amount of Rent
payable by Tenant in any Lease Year be less than the
Base Rent.
C. Tenant may review Landlord's books pertaining to the
determination of the Monthly Estimate and the Annual Payment
during regular business hours in Landlord's or Agent's office
on or before 90 days after Landlord delivers its statement of
amounts due from Tenant; provided, however, that all
reasonable expenses incurred by Landlord or Agent in
connection with such review shall be paid by Tenant and such
review by Tenant shall not postpone or alter the liability and
obligation of Tenant to pay the Monthly Estimate or Annual
Payment.
D. If, for any reason, the Expiration Date of this Lease shall be
on a day other than December 31, then the Monthly Estimate
shall continue to be paid by Tenant through the Expiration
Date, and upon determination of the actual Operating Expenses
for the Lease Year in which the Expiration Date occurs, as
provided in Section 3.03 B (ii) above, Tenant shall pay to
Landlord the Annual Payment or Landlord shall refund to Tenant
any excess amounts paid by Tenant as the Monthly Estimate, as
the case may be.
3.04 PERSONAL PROPERTY, RENTAL AND OTHER TAXES. Tenant shall be solely
responsible for the payment of all taxes, income, ad valorem or
otherwise, levied upon, measured by or reasonably attributable to
Tenant's business, all Rent payable hereunder or the cost or value of
Tenant's Personal Property in the Premises. In the event Landlord is
assessed or charged with any such tax which is attributable to
Tenant's business, the Rent payable hereunder or Tenant's Personal
Property, then Tenant shall reimburse Landlord upon demand for any and
all such taxes by Landlord. The provisions of this Section 3.04 shall
specifically include the obligation of Tenant to pay to Landlord (or to
whomsoever Landlord directs that payment should be made) all rent or
sales taxes assessed upon any Rent paid hereunder at such times
required by the governmental authority levying the same.
3.05 PAYMENT OF RENT, LATE FEES AND LANDLORD CURE RIGHTS.
A. All Rent shall be due and payable by Tenant in all events and
Tenant agrees to pay said Rent without notice, demand, offset
or deduction to Agent at Agent's Mailing Address or at such
other address or to such other person as Landlord may from
time to time provide in writing to Tenant. All unpaid Rent
shall bear interest at the Applicable Rate from and after the
tenth day that said Rent was payable until the same has been
paid in full.
B. In addition to interest at the Applicable Rate, Tenant shall
pay to Landlord a late charge of five percent (5%) of the
amount of any Rent not paid within ten (10) days of its due
date. Landlord and Tenant agree that such charge is a
reasonable
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<PAGE> 10
estimate of the administrative costs and expenses to be
incurred by Landlord in the event any Rent is not paid within
ten (10) days of its due date.
C. If Tenant fails or refuses to perform any of its obligations
under this Lease, then Landlord shall have the right, but not
the obligation, to perform such obligations of Tenant without
waiving or releasing any other rights or remedies of Landlord
provided herein or otherwise affecting Tenant's obligations
hereunder. Any amounts paid or incurred by Landlord in
performing any of the obligations of Tenant shall constitute
Rent and shall be due and payable by Tenant on demand with
interest thereon at the Applicable Rate from the date Landlord
incurred such costs or expenses.
D. If the Term of this Lease commences on a date other than the
first day of a month or terminates on a date other than the
last day of a month, then in either event, Rent for such month
shall be prorated on the basis of a thirty (30) day calendar
month.
ARTICLE IV -- SERVICES, REPAIRS, ALTERATIONS, TENANT'S PERSONAL PROPERTY AND
UTILITIES
4.01 SERVICES.
A. Landlord shall furnish electric current to the Premises for
lighting and for small business machinery only,(e.g.,
typewriters, word processing equipment, small personal
computers and other small office equipment) during the days
and hours specified in Section 4.01 B below. Tenant shall not,
without Landlord's prior written consent, (i) use any
equipment or machinery in the Premises which, in Landlord's
opinion, will over load the wiring installations or the
electrical distribution system for the Premises or the
Building or interfere with the reasonable use thereof by other
tenants of the Building or (ii) connect any additional items
to the electrical distribution system for the Premises or the
Building or make any alteration or addition to such system.
Any such consent granted by Landlord may be conditioned upon
(1) Landlord's approval of all plans and specifications for
such use and Landlord's determination that such proposed use
will not materially or adversely affect the operation or use
of the Building, (2) separate meters being installed at
Tenant's expense (or Tenant paying the excess costs for such
electrical usage as may be established by an engineer hired by
Landlord at Tenant's expense), and (3) Tenant reimbursing
Landlord for all costs incurred by Landlord in connection
therewith.
B. Landlord shall also furnish heating, ventilation and air
conditioning ("HVAC") service to the Premises during the hours
from 8:00 a.m. until 6:00 p.m. (except for
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<PAGE> 11
recognized holidays Monday through Friday and from 8:00 a.m.
until 12:00 p.m. on Saturdays, as required in Landlord's
judgment for the comfortable used and occupancy of the
Premises. If Tenant desires HVAC or electrical service at any
other time, Landlord shall use reasonable efforts to provide
such services provided that Tenant shall pay all costs
incurred by Landlord as a result thereof.
C. If, in the opinion of Landlord's electrical engineer or
consultant, Tenant's use of business machines in or on the
Premises (including, without limitation, the use of computers,
including main-frame or personal computers, copy machines and
word processing equipment) results in the consumption of more
electric current than is usually furnished or supplied
(without additional charge) to other tenants in the Building
or affects the temperature in the Premises otherwise
maintained by the HVAC system for the Building, then Landlord
shall have the right, at its option, to install (i) separate
electric meters in the Premises to measure the excessive
electric current usage by Tenant and/or (ii) supplemental air
conditioning systems in the Premises. In the event separate
metering and/or supplemental air conditioning systems are
installed by Landlord, then all costs incurred by Landlord in
installing, servicing, operating, maintaining and repairing
the same, including utility usage fees and charges and the
fees and expenses of Landlord's electrical engineer or
consultant, shall be payable by Tenant to Landlord on demand.
If separate metering or the installation of supplemental air
conditioning is not undertaken, then the costs of excessive
electric current usage, as determined by Landlord's electrical
engineer or consultant, shall be payable by Tenant to Landlord
on demand. Landlord shall have no liability for and Tenant
hereby releases Landlord from any liability of any nature
arising from Landlord's election not to install supplemental
air conditioning in the Premises and Tenants excessive use of
electric current in the Premises.
D. Landlord shall also furnish elevator service, restroom
supplies water for toilet, lavatory facilities and public
drinking fountains and janitorial services with such companies
and in such manner as are customarily furnished in comparable
office buildings in the area as Landlord shall, in its
discretion, determine; provided, however, that (i) Landlord
shall not have and Tenant hereby releases Landlord from any
liability for damage, injury, loss or theft to Tenant,
Tenant's employees or to any of Tenant's Personal Property or
the personal property of any of Tenants employees resulting
from the performance of such services and (ii) such services
shall be limited to the services customarily provided to all
other tenants in the Building. Any additional services
required by Tenant shall be paid solely by Tenant.
E. Landlord shall not be in default hereunder or liable for the
quality, interruption, cessation or any failure to provide any
of the above services nor for any injury or
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<PAGE> 12
damage to person (including death) or property (including loss
of profits) caused by or resulting therefrom.
4.02 REPAIRS.
A. By entry upon the Premises either for commencement of the
construction of the Tenant Improvements (if Tenant is
constructing the same) or on the Commencement Date (if
Landlord is constructing the Tenant Improvements), Tenant
shall be deemed to have accepted the Premises in their then
current condition, "as is". No representations or warranties
concerning the condition of the Premises or the Building or
the title to the same have been made to Tenant by Landlord or
Agent except as specifically set forth in this Lease.
B. Tenant shall, throughout the Term, at Tenant's sole expense,
keep and maintain the Premises and every part thereof and all
of Tenant's Personal Property in good order, condition and
repair. Tenant shall be responsible and pay for all repairs
and alterations in and to the Premises, the Tenant
Improvements, the Common Areas, the Building and the
facilities and systems thereof arising out of (i) the
installation, removal, use or operation or Tenant' s Personal
Property in or upon the Premises or the Building and (ii) any
act, omission, misuse or negligence of Tenant, its agents,
employees, contractors, invitees and licensees.
C. Landlord shall, subject to the provisions of this Section
4.02, maintain all of the Common Areas and the structural
portions of the Premises and the Building. Except as
specifically provided herein, Landlord shall not be
responsible for any maintenance, repairs, services or the
making of any alteration of any kind for or upon the Premises,
the Common Area, the Building or the Real Property. Landlord
shall have no liability to Tenant nor shall Tenant's
obligations under this Lease be reduced or abated in any
manner whatsoever by reason of any inconvenience, annoyance,
interruption or injury to business arising from any repairs or
alterations which Landlord is required or permitted to make
under this Lease, any other tenant lease or as may be required
by applicable law for any portion of the Building or the
Premises. Landlord shall nevertheless use reasonable efforts
to minimize any interference with Tenant's business in the
Premises.
D. Tenant expressly waives the benefits of any statute now or
hereafter in effect which would otherwise afford Tenant the
right to withhold the payment of Rent, make repairs at
Landlord's expense or terminate this Lease as a result of
Landlord's failure to keep the Real Property, the Building or
the Premises in good order, condition and repair.
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<PAGE> 13
4.03 ALTERATIONS AND IMPROVEMENTS. Tenant shall not, without Landlord's
prior written consent, make any alterations, additions or improvements
in or about the Premises. The Tenant Improvements and all alterations,
additions or improvements made or installed by Tenant in or to the
Premises shall, when installed, immediately become the property of
Landlord. Landlord reserves the right to require Tenant to remove any
improvements or additions made to the Premises by Tenant and Tenant
agrees to do so on or prior to the Expiration Date. Tenant shall keep
the Premises and this Lease free from any liens and does hereby
indemnify Landlord against and from any and all claims or liens against
Landlord, the Building, the Real Property and the Premises arising out
of any work performed, materials furnished or obligations incurred by
Tenant.
4.04 TENANT'S PERSONAL PROPERTY. All of Tenant's Personal Property brought
into the Building or Premises shall be at the sole risk of Tenant and
Landlord shall not be liable to Tenant, its employees, agents,
contractors, licensees and invitees for any theft or damage thereto. No
later than the Expiration Date, Tenant shall remove all of Tenant's
Personal Property from the Premises and repair all injury or damage
resulting from such removal and surrender the Premises (together with
all keys to Premises) in as good a condition as they were at the
Commencement Date, reasonable wear and tear excepted. All of Tenants
Personal Property remaining on or in the Premises after the Expiration
Date shall be deemed conclusively abandoned, may be removed by Landlord
and Tenant shall reimburse Landlord for the cost of removing the same.
4.05 UTILITIES. Notwithstanding anything provided in this Lease to the
contrary, Landlord shall have the right, at any time, to require Tenant
to meter all water, gas, electricity and other utilities serving the
Premises in which event:
A. Tenant shall pay all such utility costs directly to the
appropriate utility company providing such services.
B. Tenant shall continue to be obligated to pay the Monthly
Estimate and the Annual Payment without reduction, abatement
or apportionment of the same.
4.06 UTILITY DEREGULATION.
A. LANDLORD HAS ADVISED TENANT THAT PRESENTLY ALABAMA POWER
COMPANY ("ELECTRIC SERVICE PROVIDER") IS THE UTILITY COMPANY
SELECTED BY LANDLORD TO PROVIDE ELECTRICITY SERVICE FOR THE
BUILDING. NOTWITHSTANDING THE FOREGOING, IF PERMITTED BY LAW,
LANDLORD SHALL HAVE THE RIGHT AT ANY TIME AND FROM TIME TO
TIME DURING THE LEASE TERM TO EITHER CONTRACT FOR SERVICE FROM
A DIFFERENT COMPANY OR COMPANIES PROVIDING ELECTRICITY SERVICE
(EACH SUCH COMPANY
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<PAGE> 14
SHALL HEREINAFTER BE REFERRED TO AS AN "ALTERNATE SERVICE
PROVIDER") OR CONTINUE TO CONTRACT FOR SERVICE FROM THE
ELECTRIC SERVICE PROVIDER.
B. TENANT SHALL COOPERATE WITH LANDLORD, THE ELECTRIC SERVICE
PROVIDER, AND ANY ALTERNATE SERVICE PROVIDER AT ALL TIMES AND,
AS REASONABLY NECESSARY, SHALL ALLOW LANDLORD, ELECTRIC
SERVICE PROVIDER, AND ANY ALTERNATE SERVICE PROVIDER
REASONABLE access TO THE BUILDING'S ELECTRIC LINES, FEEDERS,
RISERS, wiring, AND ANY OTHER MACHINERY WITHIN THE PREMISES.
C. LANDLORD SHALL IN NO WAY BE LIABLE OR RESPONSIBLE FOR ANY
LOSS, DAMAGE, OR EXPENSE THAT TENANT MAY SUSTAIN OR INCUR BY
REASON OF ANY CHANGE, FAILURE, INTERFERENCE, DISRUPTION, OR
DEFECT IN THE SUPPLY OR CHARACTER OF THE ELECTRIC ENERGY
FURNISHED TO THE PREMISES, OR IF THE QUANTITY OR CHARACTER OF
THE ELECTRIC ENERGY SUPPLIED BY THE ELECTRIC SERVICE PROVIDER
OR ANY ALTERNATE SERVICE PROVIDER IS NO LONGER AVAILABLE OR
SUITABLE FOR TENANT'S REQUIREMENTS, AND NO SUCH CHANGE,
FAILURE, DEFECT, UNAVAILABILITY, OR UNSUITABILITY SHALL
CONSTITUTE AN ACTUAL OR CONSTRUCTIVE EVICTION, IN WHOLE OR IN
PART, OR ENTITLE TENANT TO ANY ABATEMENT OR DIMINUTION OF
RENT, OR RELIEVE TENANT FROM ANY OF ITS OBLIGATIONS UNDER THE
LEASE.
ARTICLE V -- INDEMNITY AND INSURANCE
5.01 INDEMNITY. Tenant hereby waives and releases any and all claims against
Landlord and Agent for damages to person or property occurring in, on,
about or upon the Premises, the Building or the Real Property. Tenant
does hereby indemnify and hold Landlord and Agent harmless from and
against any and all claims, demands, liabilities, losses, damages,
costs and expenses (including reasonable attorney's fees) of any nature
arising out of or in connection with:
A. Any penalty, damages or charges imposed or levied against
Landlord, Agent, the Premises, the Building or the Real
Property by any governmental authority as a result of Tenant's
failure to comply with all applicable governmental
requirements.
B. Any injury or damage to person or property occurring in, on or
about the Premises, the Building or the Real Property caused
by or resulting from any negligent act or omission or any
willful act or omission of Tenant, its agents, employees,
contractors, licensees and invitees.
Tenant shall, at Tenant's expense, and by counsel satisfactory
to Landlord, defend Landlord in any action or proceeding
arising from any such claim and shall indemnify Landlord
against any and all costs and expenses, including attorneys'
fees, suffered,
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<PAGE> 15
paid or incurred by Landlord in any such action or proceeding. The
provisions of this Section 5.01 shall survive the Expiration Date of
this Lease.
5.02 INSURANCE.
A. Tenant shall, at Tenant's sole expense, obtain and maintain in
full force and effect throughout the Term fire and extended
coverage insurance insuring all of Tenant's Personal Property
and any improvements to the Premises (including the
replacement cost of all Tenant Improvements made to the
Premises in excess of the Tenant Improvement Allowance) in
such amounts determined by Tenant to be necessary. Said
insurance coverage shall also insure against damages
attributable to water damage, utility interruption, vandalism,
theft, and malicious mischief.
B. Tenant shall, at Tenant! s expense, obtain and maintain
throughout the Term, comprehensive public liability and
property damage insurance, providing personal injury and broad
form property damage insurance coverage for not less than $
1,000,000 combined single limit for bodily injury, death and
property damage.
C. All insurance required to be maintained hereunder by Tenant
shall:
(i) Be issued by insurance companies reasonably
acceptable to Landlord.
(ii) Name Landlord and, if required by Landlord,
Landlord's lender, if any, as additional insureds.
(iii) Contain a provision that such insurance coverage will
not be terminated or canceled without ten (10) days
prior written notice to Landlord.
(iv) Provide that no claims affecting Landlord or to which
Landlord is a party may be settled without the prior
written approval of Landlord.
All insurance policies or certificates thereof evidencing the
insurance to be maintained hereunder by Tenant shall be
deposited with Landlord prior to Tenants access to the
Premises. At least fifteen (15) days prior to the expiration
date of any such policies renewal policies or certificates
thereof shall be deposited with Landlord. Tenant shall have
the right to provide the insurance coverage required hereunder
pursuant to blanket policies acceptable to Landlord.
D. Tenant does hereby waive and release Landlord and Agent from
any and all liabilities or responsibilities or for any other
claim by or through Tenant, by way of subrogation or
otherwise, for any loss or damage covered by (or which should
be covered by) the insurance policies required to be
maintained hereunder by Tenant, even if the loss or damage
shall have been caused by the fault or
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<PAGE> 16
negligence of Landlord or Agent. Tenant agrees to obtain from
its respective insurance carriers waiver of subrogation
endorsements to all such policies in form reasonably
acceptable to Landlord.
ARTICLE VI -- CASUALTY AND EMINENT DOMAIN
6.01 DAMAGE OR DESTRUCTION.
A. In the event of any Casualty, Landlord shall, subject to the
provisions of this Section 6.01, promptly repair such damage;
provided, however, that if (i) such Casualty results in all or
substantially all of the Building being destroyed, then this
Lease shall automatically terminate as of the date of such
Casualty or (ii) such Casualty results in damage to the
Building or the Premises which cannot be repaired within one
hundred eighty (180) days from the date of such Casualty,
Landlord shall notify Tenant of the same and Landlord or
Tenant shall have the right, at their option, to terminate
this Lease upon notice to the other given at any time on or
before forty-five (45) days following the date of such
Casualty.
B. In the event the amount of insurance proceeds received by
Landlord from any such Casualty (less the costs of collecting
the same) is insufficient to rebuild or restore the Building
or the Premises to their respective conditions as existed
immediately prior to such Casualty, then Landlord shall have
the option to terminate this Lease upon notice to Tenant given
at any time on or before forty-five (45) days following the
date of such Casualty. Landlord's obligation to restore the
Tenant Improvements shall be limited to the amount of the
Tenant Improvement Allowance. Tenant shall restore, at its
sole cost and expense, all Tenant Improvements to the
Premises, the costs of which exceed the Tenant Improvement
Allowance, and all of Tenant's Personal Property.
C. In the event this Lease is terminated in the manner provided
in this Section 6.01, all Rent shall be apportioned to the
date of such Casualty and Tenant shall have no right or claim
against Landlord or the insurance proceeds received by
Landlord as a result of such Casualty. In the event this Lease
is not terminated and Landlord elects to repair and restore,
then all Rent shall be equitably abated for that portion of
the Premises rendered untenantable by such Casualty until such
time as the Landlord reasonably determines that the Premises
have been restored.
6.02 EMINENT DOMAIN.
A. In the event of a Taking of all or substantially all of the
Premises, the Building or the Real Property, then this Lease
shall terminate on the date that title to the Building or the
Real Property has vested in the condemning or purchasing
party.
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<PAGE> 17
B. In the event of a Taking of only a portion of the Premises,
the Building or the Real Property, then, subject to the
provisions of this Section 6.02, Landlord shall rebuild and
restore the remaining structural portions of the Premises, the
Building and the Real Property as nearly as possible to their
respective conditions as existed immediately prior to such
Taking; provided, however, that (i) Landlords obligation to
restore the Tenant Improvements in the Premises shall be
limited to the amount of the Tenant Improvement Allowance
prorated on the basis that the Rentable Square Feet in the
Premises subject to such Taking bears to the Rentable Square
Feet in the Premises immediately prior to such Taking and (ii)
Tenant shall restore, at its sole cost and expense, all
tenants Improvements made to the Premises, the costs of which
exceed the Tenant Improvement Allowance, and all of Tenant's
Personal Property.
C. In the event the condemnation award received by Landlord from
any such Taking (less expenses incurred in collecting the
same), is insufficient to rebuild or restore the Premises, the
Building or the Real Property to their respective conditions
as existed immediately prior to such Taking, then Landlord
shall have the option to terminate this Lease upon notice to
Tenant given at any time on or before one hundred eighty (180)
days following the date of such Taking.
D. In the event this Lease is terminated in the manner set forth
in this Section 6.02, all Rent shall be apportioned to the
time that title to the Building or the Real Property has
vested in the condemning or purchasing party. In the event
this Lease is not terminated and Landlord elects to repair and
restore, then, to the extent any portion of the Premises is
subject to the Taking, all Rent shall be equitably abated (on
the basis of the Rentable Square Feet in the Premises
remaining after such Taking) as of the date that title to that
portion of the Premises has vested in the condemning authority
or purchasing party.
E. All compensation awarded or paid upon any total or partial
Taking shall belong to and be the property of Landlord. Tenant
shall have no right or claim to any part of any condemnation
award made to or received by Landlord; provided, however, that
Tenant shall have the right, to the extent Landlord's award is
not reduced or prejudiced thereof, to seek and obtain from the
condemning authority such compensation as may be recoverable
by Tenant for the costs of Tenant Improvements made by Tenant
to the Premises in excess of the Tenant Improvement Allowance,
relocation expenses and for the Taking of any Tenant's
Personal Property. In no event shall Tenant have any right to
claim or receive any portion of the condemnation award
attributable to Tenant's leasehold interest in this Lease,
Tenant Improvements to the Premises paid for by Landlord or
the value of the unexpired Term of this Lease.
ARTICLE VII -- DEFAULT AND REMEDIES
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<PAGE> 18
7.01 DEFAULT. The occurrence of any one or more of the following events
shall constitute a default ("Default") by Tenant:
A. If Tenant fails to pay when due Rent or any other charges or
sums required to be paid hereunder by Tenant and such failure
continues for ten (10) days after written notice is given to
Tenant by Landlord;
B. If Tenant fails to promptly and fully perform any other
covenant, condition or agreement contained herein and such
failure to perform continues for thirty (30) days after
written notice is given to Tenant by Landlord;
C. If Tenant vacates or abandons the Premises;
D. If Tenant is adjudicated a bankrupt or files or consents to
the filing of a voluntary or involuntary petition in
bankruptcy or a petition for relief, reorganization or
arrangement in any proceeding under the federal bankruptcy
laws, which petition is not withdrawn or dismissed within
sixty (60) days thereafter; or
E. If Tenant (i) seeks, consents to, or acquiesces in the
appointment of a receiver of all or substantially all of the
Tenant's property or of Tenant's interest in this Lease, (ii)
makes an assignment for the benefit of its creditors, (iii)
fails to lift promptly any execution, garnishment or
attachment which impair its ability to carry on its operations
in the Premises or (iv) is dissolved, ceases the active
conduct of business or makes a bulk sale of all or
substantially all of its assets.
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<PAGE> 19
B. If at any time during the Term, Tenant desires to assign this
Lease or sublet all or any part of the Premises, then Tenant
shall notify Landlord (the "Tenant's Notice") of the terms of
the proposed assignment or subletting, the location of the
space and all other terms of the proposed assignment or
subletting, together with such information concerning the
proposed use and creditworthiness of such proposed assignee or
subtenant as Landlord may request. Landlord shall have the
option, exercisable by notice given to Tenant within thirty
(30) days after receipt of Tenant's Notice, to enter into a
new lease with the proposed assignee or subtenant in
accordance with the terms set forth in Tenant's Notice, in
which event this Lease shall be deemed terminated for the term
and that portion of the Premises subject to such new lease and
all rent and other sums payable pursuant to such new lease
shall belong to Landlord, without further claim or interest
therein by Tenant. If Landlord does not exercise the option
set forth above, then the provisions of
Section 8.01 A above shall then be applicable. If Landlord
consents to such proposed assignment or subletting, then
Tenant shall be entitled to assign this Lease or sublet the
Premises in accordance with the terms set forth in Tenant's
Notice; provided, however, that (i) such assignment or
subletting shall not alter any of the terms and conditions of
this Lease, (ii) Tenant shall remain primarily liable for the
payment and performance of all obligations of Tenant hereunder
and (iii) all sums or other economic consideration of any
nature received by Tenant from such assignment or subletting
which exceed, in the aggregate, the Rent payable by Tenant
hereunder (prorated to reflect only that portion of the
Premises covered by such assignment or subletting), shall be
payable to Landlord as Rent under this Lease.
8.02 SUBSTITUTION OF SPACE. In the event the Premises constitute
less than four thousand (4,000) Rentable Square Feet of floor
space, Landlord reserves the right, at its option, upon thirty
(30) days prior written notice to Tenant, to transfer and
remove Tenant from the Premises to any other available space
of substantially equal size and area in the Building. Landlord
shall bear the expense of said removal as well as the expense
of any renovations or alterations necessary to make the new
space substantially conform in layout and appointment with the
original Premises.
8.03 SUBORDINATION. This Lease is and shall be subject and
subordinate to all ground leases, mortgages and other matters
of title which may now or hereafter affect or encumber the
Building, the Real Property or any portion thereof. Landlord
reserves the right to place additional liens, encumbrances and
mortgages on the Building, the Real Property or any part
thereof which shall in all cases be superior to this Lease and
Tenant's interest herein. The subordination of this Lease as
provided herein shall be self-operative without the necessity
of the execution and delivery of any further instruments on
the part of Tenant to effect such subordination.
Notwithstanding the
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<PAGE> 20
foregoing, Tenant covenants and agrees to execute, without charge or
expense, any and all further instruments or certificates in such form
as Landlord may request from time to time to confirm this
subordination. Tenant's failure to execute and deliver any instruments
or certificates confirming such subordination within ten (10) days
after request therefor by Landlord shall constitute a Default
hereunder.
8.04 ESTOPPEL CERTIFICATES. Tenant agrees to execute and deliver to Landlord
estoppel certificates in such form as Landlord may request certifying,
among other things (i) whether there exist any defaults by Landlord or
Tenant hereunder, (ii) the amount and dates through which all Rent and
other sums due hereunder have been paid (iii) whether this Lease has
been modified or amended, (iv) that no rights of offset or termination
exist unto Tenant hereunder and (v) as to any such other matters as
Landlord (or Landlord's purchasers or lenders) may request. Tenants
failure to execute and deliver any such certificate within ten (10)
days after request therefor by Landlord shall constitute a Default
hereunder. All estoppel certificates shall be in such form and content
as Landlord may require.
ARTICLE IX -- MISCELLANEOUS
9.01 HOLDING OVER. If after the Expiration Date, Tenant remains in
possession of the Premises without Landlord's express written
permission, Tenant shall become a tenant at sufferance subject to and
upon all the provisions of this Lease (except as to Term and Rent), but
the Rent payable by Tenant shall be increased to two hundred percent
(200%) of the Rent payable by Tenant immediately prior to the
Expiration Date.
9.02 ASSIGNMENT BY LANDLORD; SUCCESSORS. The provisions of this Lease shall
bind and inure to the benefit of Landlord and Tenant, and their
respective successors, heirs, legal representatives, and where
permitted, assigns or subtenants. In the event of any sale or transfer
of the Building and Real Property, the Landlord named herein shall be
entirely freed and relieved of all covenants and obligations of
Landlord hereunder accruing after the date of such sale or transfer and
Tenant agrees to look solely to the new owner of the Building and Real
Property for the performance of all covenants and obligations to be
performed by Landlord herein from and after the date of such transfer
or sale. Tenant shall be bound to any succeeding party of Landlord for
the performance of all the terms, covenants and conditions hereof and
shall execute any attornment agreement not in conflict herewith at the
request of any succeeding party of Landlord.
9.03 SECURITY DEPOSIT. Intentionally left blank.
9.04 LIMITATION OF LIABILITY. Notwithstanding anything to the contrary
provided in this Lease or by law, it is specifically agreed and
understood between the parties hereto that there shall be absolutely no
personal liability on the part of the Landlord, Agent
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<PAGE> 21
or any successors in interest or designees thereof, with respect to any
of the terms, covenants and conditions of this Lease and Tenant or any
other party claiming by, through or under the Tenant:
A. Agrees to look solely to the interest of the Landlord in the
Building and Real Property, as its interest may appear, for
the collection of any claim, demand, cost, expense, judgement
or any judicial process requiring the payment of money for any
default or breach by Landlord or Agent of any of their
obligations under this Lease.
B. Waives all rights of recovery for any special, indirect,
incidental, consequential, or punitive damages against (i) the
stockholders, officers, and directors of Landlord and Agent if
Landlord or Agent is a corporation or if a corporation serves
as a general or limited partner of Landlord or Agent and, (ii)
the partners, both general and limited, of Landlord and Agent,
if Landlord or Agent is a general or limited partnership. No
other assets of Landlord or Agent shall be subject to levy,
execution, or other judicial process for the satisfaction of
any claim of Tenant.
9.05 NOTICES. Any notice by either party to the other shall be valid only if
in writing and shall be deemed to have been given only if delivered
personally, sent by registered or certified mail, return receipt
requested, or by guaranteed overnight courier delivery service (e.g.,
Federal Express), postage or delivery charges prepaid, addressed to
Landlord (with a copy to Agent) or Tenant, as the case may be, at the
respective addresses specified in Article I of this Lease or at such
other address as any such party may designate by notice to the other.
Notices shall be deemed to have been given (i) upon personal delivery
of the same or (ii) upon deposit of such notice in the U.S. mail or
with the guaranteed overnight courier delivery service.
9.06 CAPTIONS. Captions and headings in this Lease are included for
convenience of reference only and shall not be taken into consideration
in any construction or interpretation of this Lease or any of its
provisions.
9.07 ENTIRE AGREEMENT AND ENFORCEABILITY. This Lease contains the entire
agreement between Landlord and Tenant and no representations,
inducements, promises or agreements, oral or otherwise, between
Landlord (or Agent) and Tenant not embodied herein shall be of any
force or effect. This Lease may be amended only in a writing duly
executed by both Landlord and Tenant. No oral agreements between
Landlord or Agent and Tenant, whether made prior or subsequent to the
execution of this Lease, shall be binding on any of the parties hereto.
If any term or provision of this Lease or the application thereof to
any person or circumstance shall to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term or provision to persons or circumstances other than those as to
which it is held invalid or
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<PAGE> 22
unenforceable, shall not be affected thereby, and each term and
provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
9.08 GENDER. Words of any neuter gender used in this Lease shall include
both the masculine and feminine gender and words in the singular tense
shall include the plural, and vice versa.
9.09 BROKERS. Landlord and Tenant each warrant and represent to the other
that no broker, finder, real estate agent or other person is entitled
to a commission, fee or other compensation in connection with or as a
result of this Lease or the transactions contemplated hereby or
hereunder except such compensation might be due to Agent, which shall
be the sole obligation of Landlord. Landlord and Tenant each indemnify
and hold the other harmless from any and all claims, loss, costs and
damages (including reasonable attorneys' fees) arising in connection
with any claims against the other for broker fees. In the event Tenant
leases additional space in the Building or exercise any expansion right
granted herein, then Landlord agrees to pay to Agent an amount equal to
four percent (4%) of the gross rents payable during the term of the
lease for such additional space or expansion space, cashed out and
payable upon execution of such lease agreement or at the time notice of
the exercise of such expansion rights is given. In the event this Lease
is renewed or extended, Landlord agrees to pay to Agent an amount equal
to two percent (2%) of the gross rents payable during the extended
term(s), cashed out and payable upon execution of any renewal or
extension agreement. The provisions of this Section 9.09 shall be
binding on any successor in interest to Landlord.
9.10 NO PARTNERSHIP CREATED. The parties hereto have not and do not intend
to create by this Lease a joint venture or partnership relation between
them.
9.11 TIME OF ESSENCE. Time is of the essence in the performance of each and
every covenant and obligation set forth in this Agreement.
9.12 GOVERNING LAW. This Lease and the rights and obligations of Landlord
and Tenant hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Alabama.
9.13 EXHIBITS. The following exhibits attached to this Lease are hereby
incorporated herein by reference as if fully set forth herein:
(i) Exhibit A: Floor Plan
(ii) Exhibit B: Rules and Regulations
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<PAGE> 23
9.14 SPECIAL STIPULATIONS.
9.14(A) Landlord agrees to provide the following prior to the Commencement
Date.
(i) Remove the demountable partitions in the Premises as directed
by Tenant.
(ii) Reconfigure the open office partitions in the Premises as
directed by Tenant.
(iii) Landlord agrees to leave substantially all of the existing
furniture (or substantially comparable furniture) in the
Premises.
In Witness Whereof, the parties have executed this Lease as of the day
and year first above written.
LANDLORD: Raytheon Engineers & Constructors, Inc.
/s/
- ----------------------------------
By: /s/
---------------------------
Its: Vice President
--------------------------
TENANT: Nichols TXEN Corporation
/s/
- ----------------------------------
By: /s/
---------------------------
Its: President
--------------------------
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<PAGE> 24
EXHIBIT "A"
[Floor Plan]
<PAGE> 25
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall keep the Premises and all Common Areas utilized by Tenant,
its agents, employees, independent contractors, licensees and invitees,
clean and shall not allow debris from the Premises to collect in any of
the corridors, halls, stairs, ventilators, elevators, lobbies or other
areas of the Building. All trash, refuse and debris shall be placed in
appropriate containers designated for trash collection by Landlord from
time to time. Tenant shall not place in any trash receptacle any
material which cannot be disposed of in the ordinary and customary
manner of trash and garbage disposal. Tenant shall use its best efforts
to require its agents, employees, independent contractors, invitees and
licensees to deposit cigarettes and all tobacco products only in ash
trays within the Building or Premises and to refrain from littering any
portion of the Building or the Real Property with trash or other
debris. Tenant shall comply with and enforce all governmental rules and
regulations concerning smoking policies which affect any portion of the
Premises or the Building.
2. Hallway doors to the Premises opening into Common Areas or public
corridors shall have no signs, door hardware, kickplates or other
fixtures attached thereto unless approved in writing by Landlord and
shall be kept closed at all times except for those limited periods when
actually used for entry to and exit from the Premises. No signs
(including name plates or signage identifying the Tenant as the tenant
of the Premises), banners, flags, placards, pictures, advertisements or
notices shall be installed or displayed upon the interior or exterior
portions of the Building or within those portions of the Premises which
are visible from the exterior of the Building or any of the Common Area
without Landlord's prior written approval. Informational signage
identifying Tenant's office space and lobby area building directories
shall be of a standard and uniform size and of color and style approved
by Landlord.
3. No birds, pets or animals of any kind shall be permitted in the
Premises, the Building or on the Real Property.
4. Toilets, sinks, urinals, or other apparatus in the Building shall not
be used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other foreign
substance of any kind shall be deposited therein. Any damage resulting
from misuse of any toilets, sinks, urinals or other apparatus in the
Building shall be repaired and paid for by the tenant whose employees,
subtenants, assignees or any of their servants, employees, agents,
visitors, licensees, or invitees may have caused such damage.
5. Tenant shall furnish Landlord or its agent with keys to all locked
offices, washrooms, and
<PAGE> 26
other rooms within the Premises and shall promptly furnish Landlord
with new keys if those locks are supplemented or changed. In the event
Landlord elects to provide a card access entry system for the Building
and Premises, Tenant shall be furnished with the standard allotment of
such access cards and all additional access cards required by Tenant
shall be made available at Tenant's cost. Tenant shall assume full
responsibility for protecting the Premises and the contents thereof
from theft, robbery, pilferage, vandalism, and other loss, except to
the extent caused by the gross negligence or willful and deliberate
acts of Landlord. Tenant shall, upon the termination of the Lease,
return to Landlord all keys (or access cards) to the Premises and the
Building and all offices, washrooms, storage rooms and other locked
areas within the Premises. Tenant shall pay to Landlord the cost of
replacing any lost keys or access cards or of changing the lock or
locks as a result of the loss of such keys or access cards.
6. The parking garage (or parking lots), elevators, lobbies, restrooms,
courts, vestibules, paths, walkways, sidewalks, entrances, stairways,
landings, corridors, and halls of the Premises, the Building and the
Real Property (a) shall not be obstructed or used for any purpose other
than ingress and egress and (b) are not for the use of the general
public. Landlord shall in all cases retain the right to control and
prevent access to the Premises, the Building and the Real Property by
all persons whose presence, in the judgment of Landlord, shall be
prejudicial to the safety, character, reputation and interests of the
Building; provided, however, that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally
deals in the conduct of its business within the Premises (such as
clients, customers, office suppliers and equipment vendors, and the
like) unless such persons are engaged in illegal activities. Neither
Tenant nor any employee of Tenant shall go upon the roof of the
Building without the prior written consent of Landlord.
7. Tenant assumes the risk and responsibility of moving its property in
and out of the Building and the Premises. Landlord shall not be
responsible for loss or damage of any nature or from whatever cause to
any of Tenant's Personal Property.
8. Supplies, goods and packages of any kind shall be delivered only
through designated service areas or through the loading dock areas of
the Building. All deliveries (including the moving of Tenant's
Personal Property in and out of the Building and the Premises) shall be
made through freight elevators designated by Landlord and only during
such hours as designated from time to time by Landlord. No deliveries
shall be made through the main lobbies of the Building or which impede
or interfere with the use of the Building by other tenants, the
operation of the Building or which may in any way damage any of the
Common Areas.
9. Landlord may take all reasonable measures it deems necessary for the
safety and security of the Building or Real Property, including,
without limitation, evacuation for cause, suspected cause, or temporary
denial of Building access. There shall be no abatement of
<PAGE> 27
Rent and Landlord shall not be responsible for any damages resulting to
Tenant from such action. Landlord reserves the right to exclude or
expel from the Building any person who, in the Landlord's judgment, is
intoxicated, under the influence of alcohol or drugs, commits any act
in violation of these Rules and Regulations or constitutes a security
risk to the Premises, the Building or the Real Property.
10. Except with the prior written approval of Landlord, Tenant's employees
and invitees shall not gather in any of the Common Areas of the
Building or Real Property.
11. No cooking shall be permitted within the Building, except that the
preparation of coffee, tea, hot chocolate, and similar items for Tenant
and its employees and the use of microwave ovens by Tenant or its
employees within the Premises shall be permitted provided that electric
current for such use shall not exceed that amount which can be provided
by a 30 amp circuit. The Premises shall not be used for manufacturing
or for the storage of merchandise except as such storage may be
incidental to the permitted use of the Premises. Tenant shall not
occupy or permit any portion of the Premises to be occupied or used in
violation of any applicable governmental law or the restrictions set
forth in the Lease, for the manufacture, sale, storage or use of
alcohol, narcotics or tobacco or as a medical office, barber or
manicure shop or as an employment bureau without the express written
consent of Landlord. Tenant shall not engage or pay any employees on
the Premises except those actually working for Tenant on the Premises
nor advertise for laborers giving an address at the Premises. The
Premises shall not be used for lodging or sleeping or for any improper,
objectionable, immoral or illegal purposes, as determined in Landlord's
sole discretion.
12. Tenant shall not permit or keep in the Premises any flammable,
combustible, or explosive material, chemical or substance nor shall
Tenant allow any smoke, dust, fumes, odors, gases, vapors or heat to be
emitted from the Premises. Tenant shall not allow or permit any
materials or chemicals to be produced, manufactured, generated,
refined, transported, used, stored or disposed on or from the Premises
which could or would be deemed hazardous or toxic waste or which would
result in the violation of any applicable federal, state or local
environmental or other law, statute, ordinance, rule or regulation,
including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42
U.S.C.ss.ss.6901, et seq), the Hazardous Materials Transportation Act,
as amended (49 U.S.C.ss.ss.1801, et.seq.) and the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C.ss.ss.6901, et.seq).
13. No vehicle (including bicycles and motorcycles) belonging to Tenant or
to Tenant's agents, employees, or invitees shall be parked so as to
impede or prevent ready access to any loading dock or any entrance to
or exit from the Building, the Real Property or the parking garage (or
parking lots) for the Building. Except as otherwise specifically
provided in the Lease Agreement, all parking for the Building is
provided on a nonexclusive basis. All vehicles of any nature shall be
parked only in areas within the
<PAGE> 28
parking garage (or parking lots) designated by Landlord. No vehicles of
any nature shall be parked or left unattended for more than seven (7)
consecutive days, unless in the ordinary course of Tenant's business
and approved in writing by Landlord. The parking of motor homes,
trailers, boats or delivery trucks in the garage (or parking lots) for
the Building is prohibited. No bicycles or motorcycles shall be
permitted inside the Building or the Premises nor shall bicycles or
motorcycles be parked in a manner which would interfere with access to
the Building or obstruct sidewalks or walkways on the Real Property.
14. No vending machine or machines of any kind shall be installed,
maintained, or operated upon the Premises or Common Areas without
Landlord's prior written consent, which may be given or withheld in
Landlord's reasonable discretion. Tenant shall not purchase or contract
to be furnished to the Premises spring water, ice, towels, janitorial,
security, maintenance or other services without Landlord's prior
written consent.
15. Canvassing, soliciting, peddling and distribution of handbills or any
other written material in the Building or on the Real Property are
prohibited.
16. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition, or wall of the Premises which
may, in Landlord's opinion, appear unsightly from outside the Building.
All drywall and wall partitions abutting the exterior portions of the
Building shall be installed in such a manner that said drywall and wall
partitions shall abut the mullions of the Building and not the glass
windows of the Building. No electric or other outlets or switches shall
be installed on any of the window walls of the Building or on any of
the vertical penetrations of the Building. Tenant shall not mark, drive
nails, screw or drill into the partitions, doors, woodwork or plaster
or in any way deface the Premises of the Building, or any part thereof,
except in accordance with the provisions of the Lease pertaining to
alterations and except for usual and customary interior decorating and
the installation of furniture, fixtures and telephones and electrical
equipment. Landlord reserves the right to direct electricians as to
where and how telephone and telegraph wires are to be introduced to the
Premises. Tenant shall not cut or bore holes in the floors, ceilings or
walls for wiring. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except as approved by Landlord.
17. Tenant shall not install any sunscreening, curtains, blinds, shades,
screens, or other objects on any window or door of the Premises without
Landlord's prior written consent, which may be given or withheld in
Landlord's reasonable discretion. All electric ceiling fixtures hung in
offices or spaces along the perimeter of the Building must be
fluorescent and of a quality, type, design, and bulb color approved by
Landlord.
18. Tenant shall (i) not waste electricity, water, or air conditioning and
agrees to cooperate fully with Landlord to assure the most effective
operation of heating and air conditioning services for the Building,
(ii) comply with any governmental energy saving rules, laws
<PAGE> 29
or regulations, (iii) refrain from tampering with or changing the
setting of any thermostats, temperature control valves, or other
controls affecting the heating and air conditioning system for the
Building, (iv) not permit anything to be done or brought onto the
Premises which would impair or interfere with the utility or other
services to be provided by Landlord, (v) not utilize any other form or
type of heating or cooling source within the Premises other than that
provided by Landlord (e.g., space heaters, fans, window air
conditioners) and (vi) promptly notify Landlord of any accidents,
defects or malfunction in any of the utility services provided to the
Premises. All lights and all of Tenant's office equipment in the
Premises shall be turned off at night when such areas are not in use.
19. Tenant shall not install or attach any radio or television antenna,
loudspeaker, or other devices or projections on the roof or exterior
walls of the Building or to any part of the Premises which would, in
Landlord's opinion, interfere with the communication facilities
utilized by other tenants of the Building or be unsightly.
20. Landlord shall have the right to prohibit advertising by Tenant which,
in Landlord's discretion, tends to impair the reputation of the
Building or its desirability as an office location.
21. Landlord reserves the right to exclude from the Building between the
hours of 6:00 p.m. and 7:30 a.m. and at all hours on Saturday, Sunday,
and legal holidays all persons who are not known to the Building
watchman, if any, and who do not present a pass to the Building
approved by the Landlord. In the event a card access system is
installed for the Building, only authorized employees of Tenant shall
be provided with access cards. Tenant shall be solely responsible for
the acts and omissions of all persons for whom it requests passes and
all persons utilizing access cards provided by Landlord to Tenant.
Landlord shall in no case be liable for damages for any error with
regard to the admission to or the exclusion from the Building or the
Premises of any person, including any malfunction or defect in any card
access system for the Building.
22. Only hand trucks equipped with rubber tires and rubber side guards
shall be used by Tenant in the Building.
23. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, Tenant shall first obtain, and comply with, Landlord's
instructions regarding their installation.
24. Tenant's use and occupancy of the Premises are subject and subordinate
to all applicable governmental laws and regulations.
25. Should Tenant desire to place any unusually heavy equipment, including,
but not limited to, large files, safes and electronic data processing
equipment on the Premises, it shall first obtain written approval of
the Landlord to place such items within the Premises, for the
<PAGE> 30
use of elevators within the Building, and for the proposed location for
the installation of the same. Landlord shall have the right to
prescribe the weight and position of any equipment that may exceed the
weight load limits for the Building, and may further require, at
Tenant's expense, the reinforcement of any flooring on which such
equipment may be placed, and/or to have an engineering study performed
to determine such weight and position of equipment, to determine added
reinforcement required and/or determine whether or not such equipment
can be safely placed within the Building.
26. Tenant shall cooperate fully with the life safety plans for the
Building as established and administered by the Landlord, including
participation by Tenant and employees of Tenant in exit drills, fire
inspections, life safety orientations and other programs relating to
fire safety required or directed by Landlord.
27. These Rules and Regulations are in addition to, and shall not be
construed in any way to modify or amend, in whole or in part, the
terms, covenants, agreements and conditions of the Lease.
28. Landlord reserves the right to rescind, alter or waive any of the
provisions of these Rules and Regulations or add thereto when, in its
judgment, the same is necessary or desirable for the reputation,
safety, care or appearance of the Building, the operation and
maintenance of the Building or the comfort of tenants of the Building.
<PAGE> 31
7.02 REMEDIES.
A. In the event of any Default by Tenant, then in addition to all other
rights and remedies of Landlord as may now or hereafter be provided
at law or in equity, Landlord may, at its option, either:
(i) Annul and terminate this Lease and thereupon re-enter and take
possession of the Premises;
(ii) Without terminating this Lease, re-enter and re-let the
Premises from time to time as agent of Tenant, it being agreed
by Tenant that such re-entry and/or reletting shall not
constitute an election by Landlord to terminate this Lease
(unless Landlord provides Tenant with written notice of such
termination) or discharge Tenant from any liability or
obligation hereunder (nothing herein, however, shall be
construed to require Landlord to re-enter and re-let in such
event); or
(iii) Declare all Rent for the remainder of the Term to be
immediately due and payable.
B. If Landlord re-enters the Premises under the provisions of Section
7.02 A (ii) above, Landlord shall not be deemed to have terminated
this Lease or the obligation of Tenant to pay any Rent or other
charges thereafter accruing, unless Landlord notifies Tenant in
writing of Landlord's election to terminate this Lease. In the event
of any re-entry or retaking of possession by Landlord, Landlord
shall have the right, but not the obligation, to remove all or any
part of Tenant's Personal Property and to place the same in storage
at a public warehouse at the expense and risk of Tenant. If Landlord
elects to relet the Premises for the account of Tenant, the rent
received by Landlord from such reletting shall be applied as
follows: first, to the payment of any indebtedness other than Rent
due hereunder from Tenant to Landlord; second, to the payment of
reasonable costs of such reletting, including rent concessions,
moving allowances and brokerage fees, if any; third, to the payment
of the costs of any alterations, repairs or leasehold improvements
to the Premises; fourth to the payment of Rent due and unpaid
hereunder; and the balance, if any, shall be held by Landlord and
applied in payment of future Rent as it becomes due. If that portion
of rent received from the reletting is insufficient to pay the Rent
due hereunder, then Tenant shall pay the deficiency to Landlord
promptly upon demand by Landlord. Such deficiency shall be
calculated and paid monthly. Tenant shall also pay to Landlord, as
soon as determined, costs and expenses incurred by Landlord in
connection with such reletting or in making alterations, repairs or
leasehold improvements to the Premises which are not covered by the
rent received from the reletting.
-19-
<PAGE> 32
C. IF TENANT IS IN DEFAULT UNDER THIS LEASE MORE THAN TWO (2) TIMES
WITHIN ANY TWELVE-MONTH PERIOD, IRRESPECTIVE OF WHETHER OR NOT SUCH
DEFAULT IS CURED, THEN, WITHOUT LIMITING LANDLORD'S OTHER RIGHTS AND
REMEDIES PROVIDED FOR IN THIS LEASE OR AT LAW OR EQUITY, THE
SECURITY DEPOSIT SHALL AUTOMATICALLY BE INCREASED BY AN AMOUNT EQUAL
TO THE GREATER OF.
(I) THREE (3) TIMES THE ORIGINAL SECURITY DEPOSIT, OR
(II) THREE (3) MONTHS' MINIMUM RENT, WHICH SHALL BE PAID BY TENANT
TO LANDLORD FORTHWITH ON DEMAND.
7.03 WAIVER. The failure by Landlord to insist in any instance on strict
performance of any covenant or condition hereof or to exercise any option
herein contained shall not be construed as a waiver of such covenant,
condition or option in any other instance.
7.04 ATTORNEY'S FEES AND HOMESTEAD. In any action or proceeding brought by
Landlord as a result of any Default hereunder by Tenant or if any Rent
owing under this Lease is collected by or through an attorney at law
(regardless of whether any action or proceeding is commenced by Landlord),
Tenant agrees to pay all costs and expenses, including court costs and
reasonable attorneys' fees, incurred by Landlord in connection therewith.
Tenant waives all homestead rights and exemptions which it may have under
applicable state or federal law with respect to any obligation owing under
this Lease.
ARTICLE VIII - ASSIGNMENT AND SUBLETTING, SUBSTITUTION OF SPACE SUBORDINATION
AND ESTOPPEL CERTIFICATES
8.01 ASSIGNMENT AND SUBLETTING.
A. Tenant shall not, without the prior written consent of Landlord,
which consent may be withheld for any reason, assign, transfer,
mortgage, pledge or hypothecate this Lease or sublet the Premises or
any portion thereof. As used herein, the term "transfer" shall also
mean and include the transfer of fifty-one percent (51%) or more
of the beneficial interest in or the control of Tenant, regardless
of whether such transfer is made in one (1) single transaction or in
a series of transactions during the Term of this Lease. Each and
every transfer or assignment by Tenant of this Lease or any interest
therein and each and every subletting by Tenant of the Premises
shall be null and void unless expressly consented to in writing by
Landlord. Any assignment, transfer or subletting by Tenant which is
consented to by Landlord shall not relieve or release Tenant from
any liability hereunder, whether such assignment, transfer or
subletting be called an assignment or sublease.
-20-
<PAGE> 1
EXHIBIT 10.16
OFFICE LEASE
at
INVERNESS CENTER
Between
METROPOLITAN LIFE INSURANCE COMPANY
(LANDLORD)
and
NICHOLS TXEN CORPORATION
(TENANT)
DATE: April 13, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ONE..................................................................................... 1
1.01 BASIC LEASE PROVISIONS............................................................... 1
1.02 ENUMERATION OF EXHIBITS............................................................... 1
1.03 DEFINITIONS........................................................................... 2
ARTICLE TWO..................................................................................... 4
2.01 LEASE OF PREMISES..................................................................... 4
2.02 TERM.................................................................................. 4
2.03 FAILURE TO GIVE POSSESSION............................................................ 4
2.04 AREA OF PREMISES...................................................................... 4
2.05 CONDITION OF PREMISES................................................................. 4
ARTICLE THREE................................................................................... 4
ARTICLE FOUR.................................................................................... 4
4.01 RENT ADJUSTMENTS...................................................................... 4
4.02 STATEMENT OF LANDLORD................................................................. 5
4.03 BOOKS AND RECORDS..................................................................... 5
4.04 PARTIAL OCCUPANCY..................................................................... 5
ARTICLE FIVE.................................................................................... 5
ARTICLE SIX..................................................................................... 5
6.01 LANDLORD'S GENERAL SERVICES........................................................... 5
6.02 ELECTRICAL SERVICES................................................................... 6
6.03 ADDITIONAL AND AFTER-HOUR SERVICES.................................................... 6
6.04 TELEPHONE SERVICES.................................................................... 6
6.05 DELAYS IN FURNISHING SERVICES......................................................... 7
6.06 CHOICE OF SERVICE PROVIDED............................................................ 7
ARTICLE SEVEN................................................................................... 7
7.01 POSSESSION AND USE OF PREMISES........................................................ 7
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS................................................ 7
7.03 QUIET ENJOYMENT....................................................................... 8
ARTICLE EIGHT................................................................................... 8
8.01 LANDLORD'S MAINTENANCE................................................................ 8
8.02 TENANTS MAINTENANCE................................................................... 8
ARTICLE NINE.................................................................................... 8
9.01 TENANTS ALTERATIONS................................................................... 8
9.02 LIENS................................................................................. 9
ARTICLE TEN..................................................................................... 9
10.01 ASSIGNMENT AND SUBLETTING............................................................ 9
10.02 RECAPTURE............................................................................ 10
10.03 EXCESS RENT.......................................................................... 10
10.04 TENANT LIABILITY..................................................................... 10
10.05 ASSUMPTION AND ATTORNMENT............................................................ 10
ARTICLE ELEVEN.................................................................................. 11
11.01 EVENTS OF DEFAULT.................................................................... 11
11.02 LANDLORD'S REMEDIES.................................................................. 11
11.03 ATTORNEY'S FEES...................................................................... 11
11.03 BANKRUPTCY........................................................................... 12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE TWELVE.................................................................................. 12
12.01 IN GENERAL........................................................................... 12
12.02 LANDLORD'S RIGHTS.................................................................... 12
ARTICLE THIRTEEN................................................................................ 13
ARTICLE FOURTEEN................................................................................ 13
14.01 SUBSTANTIAL UNTENANTABILITY.......................................................... 13
14.02 INSUBSTANTIAL UNTENANTABILITY........................................................ 13
14.03 RENT ABATEMENT....................................................................... 13
ARTICLE FIFTEEN................................................................................. 13
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART.................................................. 13
15.02 TAKING OF PART....................................................................... 14
15.03 COMPENSATION......................................................................... 14
ARTICLE SIXTEEN................................................................................. 14
16.01 TENANT'S INSURANCE................................................................... 14
16.02 FORM OF POLICIES..................................................................... 14
16.03 LANDLORD'S INSURANCE................................................................. 14
16.04 WAIVER OF SUBROGATION................................................................ 14
16.05 NOTICE OF CASUALTY................................................................... 15
ARTICLE SEVENTEEN............................................................................... 15
17.01 WAIVER OF CLAIMS..................................................................... 15
17.02 INDEMNITY BY TENANT.................................................................. 15
ARTICLE EIGHTEEN................................................................................ 15
18.01 RULES................................................................................ 15
18.02 ENFORCEMENT.......................................................................... 15
ARTICLE NINETEEN................................................................................ 16
ARTICLE TWENTY.................................................................................. 16
20.01 IN GENERAL........................................................................... 16
20.02 ENFORCEMENT.......................................................................... 16
ARTICLE TWENTY-ONE.............................................................................. 16
ARTICLE TWENTY-TWO.............................................................................. 16
ARTICLE TWENTY-THREE............................................................................ 16
23.01 SUBORDINATION AND ATTORNMENT......................................................... 16
23.02 MORTGAGEE PROTECTION................................................................. 17
ARTICLE TWENTY-FOUR............................................................................. 17
ARTICLE TWENTY-FIVE............................................................................. 18
25.01 IN GENERAL........................................................................... 18
25.02 STORAGE SPACE RENT................................................................... 18
25.03 RELOCATION........................................................................... 18
ARTICLE TWENTY-SIX.............................................................................. 18
26.01 LATE CHARGES......................................................................... 18
26.02 WAIVER OF JURY TRIAL................................................................. 18
26.03 DEFAULT UNDER OTHER LEASE............................................................ 18
26.04 OPTION............................................................................... 18
26.05 TENANT AUTHORITY..................................................................... 18
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
26.06 ENTIRE AGREEMENT..................................................................... 18
26.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE....................................... 18
26.08 EXCULPATION.......................................................................... 18
26.09 ACCORD AND SATISFACTION.............................................................. 19
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING........................................... 19
26.11 BINDING EFFECT....................................................................... 19
26.12 CAPTIONS............................................................................. 19
26.13 APPLICABLE LAW....................................................................... 19
26.14 ABANDONMENT.......................................................................... 19
26.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES.......................................... 19
26.16 RIDERS............................................................................... 19
</TABLE>
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<PAGE> 5
OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS
In the event of any conflict between these Basic Lease Provisions and any other
Lease provision, such other Lease provision shall control.
(1) BUILDING AND ADDRESS: 10 Inverness Center Parkway
Birmingham, Alabama 35242
(2) LANDLORD AND ADDRESS: Metropolitan Life Insurance Company,
a New York corporation
c/o Taylor & Mathis, Inc.
22 Inverness Center Parkway, Suite 110
Birmingham, Alabama 35242
(3) TENANT AND CURRENT ADDRESS:
(a) Name: Nichols TXEN Corporation
10 Inverness Center Parkway, Suite 500
Birmingham, Alabama 35242
(b) State of [incorporation] or [partnership]: Delaware
(4) DATE OF LEASE: April 13, 1998
(5) LEASE TERM: October 1, 1998-March 31, 1999 (6 Months)
(6) PROJECTED COMMENCEMENT DATE: October 1, 1998
(7) PROJECTED EXPIRATION DATE: 6 months after the Commencement Date
(8) MONTHLY BASE RENT:
<TABLE>
<CAPTION>
Period from/to Monthly Annually Rate/SF of Rentable Area
<S> <C> <C> <C>
10/1/98 - 3/31/99 $36,920.00 $443,040.00 $20.00
----------------- ---------- ----------- ------------------------
----------------- ---------- ----------- ------------------------
----------------- ---------- ----------- ------------------------
----------------- ---------- ----------- ------------------------
----------------- ---------- ----------- ------------------------
</TABLE>
(9) RENTABLE AREA OF THE BUILDING: 128,501 square feet
(10) RENTABLE ARES OF THE PREMISES: 22,152 square feet
(11) SECURITY DEPOSIT: None ($)
(12) SUITE NUMBER OF PREMISES: 500
(13) TENANTS SHARE: % 17.24%
(14) OPERATING EXPENSE STOP: 1998 Actual Operating Expenses
(15) TENANTS USE OF PREMISES: General office use.
1.02 ENUMERATION OF EXHIBITS
The exhibits set forth below and attached to this Lease are incorporated in
this Lease by this reference:
EXHIBIT A. Plan of Premises
EXHIBIT D. Rules and Regulations
RIDER 1. Commencement Date Agreement
1.03 DEFINITION
For purposes hereof, the following terms shall have the following meanings:
1
<PAGE> 6
AFFILIATE: Any corporation or other business entity which is currently owned or
controlled by, owns or controls, or is under common ownership or control with
Tenant.
ADJUSTMENT YEAR. The calendar year or any portion thereof after the Commencement
Date of this Lease for which a Rent Adjustment computation is being made.
BUILDING: The office building located at
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Projected
Commencement Date, unless changed by operation of Article Two.
COMMON AREAS: All areas of the Real Property made available by Landlord from
time to time for the general common use or benefit of the tenants of the
Building, and their employees and invitees, or the public, as such areas
currently exist and as they may be changed from time to time.
DECORATION: Tenant Alterations which do not require a building permit and which
do not involve any of the structural elements of the Building, or any of the
Buildings system, including, without limitation, its electrical, mechanical,
plumbing and security and life/safety systems.
DEFAULT RATE: Two percent (2%) above the rate then most recently announced by
[Regional Money Center Bank] as its corporate base lending rate, from time to
time announced, but in no event higher that the maximum rate permitted by law.
ENVIRONMENTAL LAWS: Any Law governing the use, storage, disposal or generation
of any Hazardous Material, including without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended and
the Resource Conservation and Recovery Act of 1976, as amended.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including, but not limited to, energy shortages or governmental
preemption in connection with a national emergency, or by reason of government
laws or any rule, order or regulation of any department or subdivision thereof
any governmental agency, or by reason of the conditions of supply and demand
which have been or are affected by war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law, or which are classified as hazardous or
toxic under any Environmental Law, and explosives and firearms, radioactive
material, asbestos, and polychlorinated biphenlys.
INDEMNITIES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager, the leasing manager and the Manager for the
Property and their respective directors, officers, agents and employees.
LAND: The parcels of real estate on which the Building is located.
LANDLORD WORK: The construction or installation of improvements to the Premises,
to be furnished by Landlord, specifically described in the Workletter or
exhibits attached hereto.
LAWS: All laws, ordinances, rules, regulations, other requirements, orders,
rulings or decisions adopted or made by any governmental body, agency,
department or judicial authority having jurisdiction over the Property, the
Premises or Tenant's activities at the Premises and any covenants, conditions or
restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR. The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which cam beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MANAGER: Taylor & Mathis, Inc., a Georgia corporation
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and other holidays organized by the Landlord
and the janitorial mid other unions servicing the Building in accordance with
their contracts.
OPERATING EXPENSES: All costs, expenses and disbursements of every kind and
nature which Landlord shall pay or become obligated to pay in connection with
the ownership, management, operation, maintenance, replacement and repair of the
Property (including, without limitation, the amortized portion of any capital
expenditure or improvement, together with interest thereon, and the costs of
changing utility service providers). Operating Expenses shall not include, (i)
costs of alterations of the premises of tenants of the Building, (ii) costs of
capital improvements to the Building (except for amortized portion of capital
improvements installed for the purpose of reducing or controlling Operating
Expenses or complying with applicable Laws), (iii) depreciation charges, (iv)
interest and principal payments on loans (except for loans for capital
improvements which Landlord is allowed to include in Operating Expenses as
provided above), (v) ground rental payments, (vi) real estate brokerage and
leasing commissions, (vii) advertising and marketing expenses, (viii) costs of
Landlord reimbursed by insurance proceeds, (ix) expenses incurred in negotiating
leases of other tenants in the Building or enforcing lease obligations of other
tenants in the Building and (x) Landlord's or Landlord's property manager's
corporate general overhead or corporate general administrative expenses. If any
Operating Expense though paid in one year, relates to more than one calendar
year, at option of Landlord such expense may be proportionately allocated among
such related calendar years.
OPERATING EXPENSE STOP: The amount set forth in Section 1.01 (14).
PARK: The office complex known as Inverness Center.
PREMISES: The space located in the Building described in Section 1.01(10) and
depicted on Exhibit A attached hereto.
2
<PAGE> 7
[Note: PROJECT: (in multi-building projects, insert appropriate
definition of Project).]
PROPERTY: The Building, the Land, any other improvements located on the Land,
including, without limitation, any parking structures and the personal property,
fixtures, machinery, equipment, systems and apparatus located in or used in
conjunction with any of the foregoing.
REAL PROPERTY The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Storage Space Rent, Rent Adjustments and
Rent Adjustment Deposits, and all other charges, payments, late fees or other
amounts required to be paid by Tenant under this Lease.
RENTABLE AREA OF THE BUILDING: 128,501 square feet, which represents the sum of
the rentable area of all office space in Building.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in
1.01(10).
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses or
Taxes. The Rent Adjustments shall be determined and paid as provided in Article
Four.
RENT ADJUSTMENT DEPOSIT: An amount equal to the Rent Adjustments attributable to
each month within the latest Adjustment Year for which the Rent Adjustments has
been determined. Landlord shall estimate the Rent Adjustment Deposit for the
remainder of the first calendar year of this Lease based on the Taxes and
Operating Expenses of the Property.
SECURITY DEPOSIT: The funds specified in Section 1.01(l1), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
STANDARD OPERATING HOURS: Monday through Friday from 8.00 A.M. to 6:00 P.M.,
Saturday from 8:00 A.M. to 1:00 P.M., excluding National Holidays.
SUBSTANTIALLY COMPLETE: The completion of the Landlord Work or Tenant Work, as
the case may be, except for minor insubstantial details of construction,
decoration or mechanical adjustments which remain to be done.
TAXES: All federal, state and local governmental taxes, assessments and charges
of every kind or nature, whether general, special, ordinary or extraordinary,
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership, leasing, management control or operation of the Property or
any of its components, or any personal property used in connection therewith,
which shall also include any rental or similar taxes levied in lieu of or in
addition to general real and/or personal property taxes. For purposes hereof,
Taxes for any year shall be Taxes which we assessed or become a lien during such
year, whether or not such taxes are billed and payable in a subsequent calendar
year. There shall be included in Taxes for any year the amount of all fees,
costs and expenses (including reasonable attorneys' fees) paid by Landlord
during such year in seeking or obtaining any refund or reduction of Taxes. Taxes
for any year shall be reduced by the net amount of any tax refund received by
Landlord attributable to such year. If a special assessment payable in
installments is levied against any part of the Property, Taxes for any year
shall include only the installment of such assessment and any interest payable
or paid during such year. Taxes shall not include any federal or state
inheritance, general income, gift or estate taxes, except that if a change
occurs in the method of taxation resulting in whole or in part in the
substitution of any such taxes, or any other assessment, for any Taxes as above
defined, such substituted taxes or assessments shall be included in the Taxes.
TENANT ADDITIONS: Collectively, Tenant Work and Tenant Alterations.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations or
construction in or to the Premises or any Real Property systems serving the
Premises (whether done as part of Landlord Work or Tenant Work) and any
supplementary air-conditioning system installed by Landlord or by Tenant at
Landlord's request pursuant to Section 6.01(b).
TENANT DELAY: Any event or occurrence which delays the completion of the
Landlord Work which is caused by or is described as follows:
(i) special work, changes, alterations or additions requested or
made by Tenant in the design or finish in any part of the
Premises after approval of the plans and specifications (as
described in the Workletter);
(ii) Tenant's delay in submitting plan, supplying information,
approving plans, specifications or estimates, giving
authorizations or otherwise;
(iii) failure to approve and pay for such Tenant Work as Landlord
undertakes to complete at Tenant's expense; or
(iv) the performance or completion by Tenant or any person engaged
by Tenant of any work in or about the Premises.
TENANT WORK: All work installed or furnished to the Premises by Tenant pursuant
to the Workletter.
TENANT'S SHARE: The percentage specified in Section 1.01(13) which represents
the ratio of the Rentable Area of the Premises to the Rentable Area of the
Building
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: The Agreement regarding the manner of completion of Landlord Work
and Tenant Work attached as Exhibit B attached hereto.
3
<PAGE> 8
ARTICLE TWO
PREMISES, TERM AND FAILURE TO GIVE POSSESSION
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the terms, covenants and conditions provided in
this Lease. In the event Landlord delivers possession of the Premises to Tenant
prior to the Commencement Date, Tenant shall be subject to all of the terms,
covenants and conditions of this Lease (except with respect to the payment of
Rent) as of the date of such possession.
2.02 TERM
(a) The Commencement Date shall be the date determined as follows:
(1) If the Landlord Work is Substantially Complete on or
before the Projected Commencement Date then on the
date which is the earlier to occur of
(i) the Projected Commencement Date, or
(ii) the date Tenant first occupies all or part
of the Premises for the conduct of business;
or
(2) If the Landlord Work is not Substantially Complete by
the Projected Commencement Date, then on the date on
which the Landlord Work is Substantially Complete.
(b) Within thirty (30) days following the occurrence of the
Commencement Date, Landlord and Tenant shall enter into an
agreement (which is attached hereto as Rider 1) confirming the
Commencement Date and the Expiration Date. If Tenant fails to
enter into such agreement, then the Commencement Date and the
Expiration Date shall be the dates designated by Landlord in
such agreement.
2.03 FAILURE TO GIVE POSSESSION
If the Landlord shall be unable to give possession of the Premises on the
Projected Commencement Date by reason of the following: (i) the Building has not
been sufficiently completed to make the Premises ready for occupancy, (ii) the
Landlord Work is not Substantially Complete, (iii) the holding over or retention
of possession of any tenant, tenants or occupants, or (iv) for any other reason,
then Landlord shall not be subject to any liability for the failure to give
possession on said date. Under such circumstances the rent reserved and
covenanted to be paid herein shall not commence until the Premises are made
available to Tenant by Landlord, and no such failure to give possession on the
Projected Commencement Date shall affect the validity of this Lease or the
obligations of the Tenant hereunder. At the option of Landlord to be exercised
within thirty (30) days of the delayed delivery of possession to Tenant, the
Lease shall be amended so that the term shall be extended by the period of time
possession is delayed. The said Premises shall be deemed to be ready for
Tenant's occupancy in the event Landlord's Work is Substantially Complete, or if
the delay in the availability of the Premises for occupancy shall be due to any
Tenant Delay and/or default on the part of Tenant and/or its subtenant or
subtenants. In the event of any dispute as to whether either of the Landlord
Work or Tenant Work is Substantially Complete, the decision of Landlord's
architect shall be final and binding on the parties.
2.04 AREA OF PREMISES
Landlord and Tenant agree that for all purposes of this Lease the Rentable Area
of the Premises and the Rentable Area of the Building as set forth in Article
One are controlling, and are not subject to revision after the date of this
Lease.
2.05 CONDITION OF PREMISES
Tenant shall notify Landlord in writing within thirty (30) days after the later
of Substantial Completion of the Landlord Work or when Tenant takes possession
of the Premises of any defects in the Premises claimed by Tenant or in the
materials or workmanship furnished by Landlord in completing the Landlord Work.
Except for defects stated in such notice, Tenant shall be conclusively deemed to
have accepted the Premises "AS IS" in the condition existing on the date Tenant
first takes possession, and to have waived all claims relating to the condition
of the Premises. Landlord shall proceed diligently to correct the defects stated
in such notice unless Landlord disputes the existence of any such defects. In
the event of any dispute as to the existence of any such defects, the decision
of Landlord's architect shall be final and binding on the parties. No agreement
of Landlord to alter, remodel, decorate, clean or improve the Premises or the
Real Property and no representation regarding the condition of the Premises or
the Real Property has been made by or on behalf of Landlord to Tenant, except as
may be specifically stated in this Lease or in the Workletter.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the office specified in Section 1.01(2), or
to such other persons, or at such other places designated by Landlord, without
any prior demand therefor in immediately available funds and without any
deduction or offset whatsoever, Rent, including, without limitation, Monthly
Base Rent and Rent Adjustments in accordance with Article Four, during the Term.
Monthly Base Rent shall be paid monthly in advance on the first day of each
month of the Term, except that the first installment of Monthly Base Rent shall
be paid by Tenant to Landlord on the Commencement Date. Monthly Base Rent shall
be prorated for partial months within the Term. Unpaid Rent shall bear interest
at the Default Rate from the date due until paid. Tenants covenant to pay Rent
shall be independent of every other covenant in this Lease.
ARTICLE FOUR
RENT ADJUSTMENTS AND PAYMENTS
4.01 RENT ADJUSTMENTS
Tenant shall pay to Landlord Rent Adjustments during the Term as follows:
(i) The Rent Adjustment Deposit representing Tenant's Share of
Operating Expenses and Taxes attributable to any calendar year
(or portion thereof) monthly during the Term with the payment
of Monthly Base Rent except the first installment which shall
be paid by Tenant to Landlord on the Commencement Date; and
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(ii) Any Rent Adjustments due in excess of the Rent Adjustment
Deposits in accordance with Section 4.02. Rent Adjustments due
horn Tenant to Landlord for any calendar year (or portion
thereof) during the term shall be Tenant's Share of Operating
Expenses for such year in excess of the operating Expense
Stop.
4.02 STATEMENT OF LANDLORD
As soon as feasible after the expiration of each calendar year of this Lease,
Landlord will furnish Tenant a statement ("Landlords Statement") showing the
following:
(i) Operating Expenses; and Tam for the Adjustment Year,
(ii) The amount of Rent Adjustments due Landlord for the Adjustment
Year, less credit for Rent Adjustment Deposits paid, if any,
mid
(iii) The Rent Adjustment Deposit due monthly in the calendar year
next following the Adjustment Year including the amount or
revised amount due for months prior to the rendition of the
statement.
Tenant shall pay to Landlord within ten (10) days after receipt of such
statement any amounts for Rent Adjustments then due in accordance with Landlords
Statement. Any amounts due from Landlord to Tenant pursuant to this Section
shall be credited to the Rent Adjustment Deposit next coming due, or refunded to
Tenant if the Term has already expired provided Tenant is not in default
thereunder. No interest or penalties shall accrue on any amounts which Landlord
is obligated to credit to Tenant by reason of this Section 4.02. Landlord's
failure to deliver Landlord's Statement or in computing the amount of the Rent
Adjustments shall not constitute a waiver by Landlord of its right to deliver
such items nor constitute a release of Tenant's obligations to pay such amounts.
The Rent Adjustment Deposit shall be credited against Rent Adjustments due for
the applicable Adjustment Year. During the last complete calendar year or during
any partial calendar year in which the Lease terminates, Landlord may include in
the Rent Adjustment Deposit its estimate of Rent Adjustments which may not be
finally determined until after the termination of the Lease. Tenant's obligation
to pay Rent Adjustments survives the expiration or termination of the Lease.
Notwithstanding the foregoing, in no event shall the sum of Monthly Base Rent
and the Rent Adjustments be less than the Monthly Base Rent payable.
4.03 INTENTIONALLY OMITTED
4.04 PARTIAL OCCUPANCY
For purposes of determining Rent Adjustments for any Adjustment Year if the
Building is not fully rented during all or a portion of any year, Landlord may
make appropriate adjustments to the Operating Expenses for such Adjustment Year
employing sound accounting and management principles consistently applied, to
determine the amount of Operating Expenses that would have been paid or incurred
by Landlord had the Building been 95% occupied, and the amount so determined
shall be deemed to have been the amount of Operating Expenses for such
Adjustment Year. In the event that the Real Property is not fully assessed for
any year, then Taxes shall be adjusted to an mount which would have been payable
in such year if the Real Property had been fully assessed. In the event any
other tenant in the building provides itself with a service which Landlord would
supply under the Lease without an additional or separate charge to Tenant, then
Operating Expenses shall be deemed to include the cost Landlord would have
incurred had Landlord provided such service to such other tenant.
ARTICLE FIVE
SECURITY DEPOSIT
ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
(a) So long as the Lease is in full force and effect and Tenant
has paid all Rent then due, Landlord shall furnish the
following services:
(1) heat, ventilation and air-conditioning in the
Premises during Standard Operating Hours, as
necessary in Landlord's reasonable judgment for the
comfortable occupancy of the Premises under normal
business operations, subject to compliance with all
applicable voluntary and mandatory regulations and
Laws;
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(2) tempered and cold water for use in lavatories in
common with other tenants from the regular supply of
the Building;
(3) customary cleaning and janitorial services in the
Premises five (5) days per week (Monday through
Friday) excluding National Holidays;
(4) washing of the outside windows in the Premises
weather permitting at intervals determined by
Landlord;
(5) automatic passenger elevator service in common with
other tenants of the Building and freight elevator
service subject to reasonable scheduling by Landlord
and payment of Landlord's standard charges;
(b) Wherever heat generating machines or equipment are used by
Tenant in the Premises, the following additional provisions
shall apply:
(1) If the use of such machinery exceeds the limits
established in Exhibit C thereby affecting the
temperature otherwise maintained by the air-cooling
system or whenever the occupancy or electrical load
exceeds the standards set forth in Exhibit C,
Landlord reserves the right to install or to require
Tenant to install supplementary air-conditioning
units in the Premises. Tenant shall bear all costs
and expenses related to the installation, maintenance
and operation of such units.
(2) Tenant shall pay Landlord within thirty (30) days at
rates fixed by Landlord for all tenants in the
Building, charges for all water furnished to the
Premises for other purposes, including the expenses
of installation of a water line, meter and fixtures.
6.02 ELECTRICAL SERVICES
(a) The electricity used during the performance of janitorial
service or the making of alterations or repairs in the
Premises by Landlord shall be paid by Tenant. Tenant also
agrees to purchase from Landlord or its agents at competitive
prices fixed by Landlord for all tenants in the Building all
lamps, ballasts and starters used in the Premises, and to
pay a reasonable installation charge for any such item
installed by Landlord at Tenant's request. Landlord reserves
the right to provide electricity to Tenant and in such event
Tenant agrees to purchase electricity from Landlord at
Landlord's then current charges. Tenant shall make no
alterations or additions to the electric equipment or systems
without the prior written consent of the Landlord in each
instance.
(b) If Premises are separately metered, Tenant shall make all
necessary arrangements with the utility provider chosen by
Landlord for furnishing, metering and paying for electricity
furnished by it to Tenant and consumed on the Premises.
Landlord shall permit Landlord's wire and conduits, to the
extent available and safely capable, to be used for such
purposes.
(c) If the Premises are not separately metered for any reason,
Tenant shall pay Landlord as additional Rent, in monthly
installments at the time prescribed for monthly installments
of Monthly Base Rent, an amount, reasonably estimated by
Landlord from time to time, which Tenant would pay for such
electricity if the same were separately metered to the
Premises by the utility provider chosen by Landlord and
billed to Tenant at such utility provider's then current
rates.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenant's request, Landlord shall furnish additional quantities of any of the
services or utilities specified in Section 6.01, if Landlord can reasonably do
so, on the terms set forth herein. Tenant shall deliver to Landlord a written
request for such additional services or utilities prior to 2:00 P.M. on Monday
through Friday (except National Holidays) for service on those days, and prior
to 2:00 P.M. on the last business day prior to Saturday, Sunday or a National
Holiday. For services or utilities requested by Tenant and furnished by
Landlord, Tenant shall pay to Landlord as a charge therefor Landlord's
prevailing rates for such services and utilities. If Tenant shall fail to make
any such payment, Landlord may, upon notice to Tenant and in addition to
Landlord's other remedies under this Lease, discontinue any or all of such
additional services.
6.04 TELEPHONE SERVICES
All telegraph, telephone, and electric connections which Tenant may desire shall
be first approved by Landlord in writing, before the same are installed, and the
location of all wires and the work in connection therewith shall be performed by
contractors approved by Landlord and shall be subject to the direction of
Landlord. Landlord reserves the right to designate and control the entity or
entities providing telephone or other communication cable installation, repair
and maintenance in the Building and to restrict and control access to telephone
cabinets. In the event Landlord designates a particular vendor or vendors to
provide such cable installation, repair and maintenance for the Building, Tenant
agrees to abide by and participate in such program. Tenant shall be responsible
for and shall pay all costs incurred in connection with the installation of
telephone cables and related wiring in the Premises, including, without
limitation, any hook-up, access and maintenance fees related to the installation
of such wires and cables in the Premises and the commencement of service
therein, and the maintenance thereafter of such wire and cables; and there shall
be included in Operating Expenses for the Building all installation, hook-up or
maintenance costs incurred by Landlord in connection with telephone cables and
related wiring in the Building which are not allocable to any individual users
of such service but are allocable to the Building generally. If Tenant fails to
maintain all telephone cables and related wiring in the Premises and such
failure affects or interferes with the operation or maintenance of any other
telephone cables or related wiring in the Building, landlord or any vendor hired
by Landlord may enter into and upon the Premises forthwith and perform such
repairs, restorations or alterations as Landlord deems necessary in order to
eliminate any such interference (and Landlord may recover from Tenant all of
Landlord's costs in connection therewith). Upon the Termination Date, Tenant
agrees to remove all telephone cables and related wiring installed by Tenant for
and during Tenant's occupancy, which Landlord shall request Tenant to remove.
Tenant agrees that neither Landlord nor any of its agents or employees shall be
liable to Tenant, or any of Tenant's employees, agents, customers or invitees or
anyone claiming through, by or under Tenant, for any damages, injuries, losses,
expenses, claims or causes of action because of any interruption, diminution,
delay or discontinuance at any time for any reason in the furnishing of any
telephone service to the Premises and the Building.
6.05 DELAYS IN FURNISHING SERVICES
Tenant agrees that landlord shall not be in breach of this Lease nor be liable
to Tenant for damages or otherwise, for any failure to furnish, or a delay in
furnishing, or a change in the quantity or character of any service when such
failure, delay or change is occasioned, in whole or in part, by
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repairs, improvements or mechanical breakdowns by the act or default of Tenant
or other parties or by an event of Force Majeure. No such failure, delay or
change shall be deemed to be an eviction or disturbance of Tenant's use and
possession of the Premises, or relieve Tenant from paying Rent or from
performing any other obligations of Tenant under this Lease, without any
deduction or offset. Failure to any extent to make available, or any slowdown,
stoppage, or interruption of, the specified utility services resulting from any
cause, including, without limitation, changes in service provider or Landlord's
compliance with any voluntary or similar governmental or business guidelines now
or hereafter published or any requirements now or hereafter established by any
governmental agency, board, or bureau having jurisdiction over the operation of
the Building shall not render Landlord liable in any respect for damages to
either persons, property, or business, nor be construed as an eviction of Tenant
or work an abatement of Rent, nor relieve Tenant of Tenant's obligations for
fulfillment of any covenant or agreement hereof. Should any equipment or
machinery furnished, by Landlord break down or for any cause cease to function
properly, landlord shall use reasonable diligence to repair same promptly, but
Tenant shall have no claim for abatement of Rent or damages on account of any
interruption of service occasioned thereby or resulting therefrom.
6.06 CHOICE OF SERVICE PROVIDER
Tenant acknowledges that Landlord may, at Landlord's sole option, to the extent
permitted by applicable law, elect to change, from time to time, the company or
companies which provide services (including, without limitation, electrical
service, gas service, water and technical services) to the Building, the
Premises and/or its occupants. Landlord shall endeavor to give Tenant not less
than thirty (30) days notice of any scheduled change. Notwithstanding anything
to the contrary set forth in this Lease, Tenant acknowledges that Landlord has
not and does not make any representations or warranties concerning the identity
or identities of the company or companies which provide services to the Building
and the Premises or its occupants and Tenant acknowledges that the choice of
service providers and matters concerning the engagement and termination thereof
shall be solely that of Landlord. The foregoing provision is not intended to
modify, amend, change or otherwise derogate any provision of this Lease
concerning the nature or type of service to be provided or any specific
information concerning the amount thereof to be provided. Tenant agrees to
cooperate with Landlord and each of its service providers in connection with any
change in service or provider.
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
7.01 POSSESSION AND USE OF PREMISES
(a) Tenant shall be entitled to possession of the Premises
when the Landlord Work is Substantially Complete. Tenant shall
occupy and use the Premises only for the uses specified in
Section 1.01(14) to conduct Tenant's business. Tenant shall
not occupy or use the Premises (or permit the use or occupancy
of the Premises) for any purpose or in any manner which: (1)
is unlawful or in violation of any Law or Environmental law,
(2) may be dangerous to persons or property or which may
increase the cost of, or invalidate, any policy of insurance
carried on the Building or covering its operations; (3) is
contrary to or prohibited by the terms and conditions of this
Lease or the rules of the Building set forth in Article
Eighteen; or (4) would tend to create or continue a nuisance.
(b) Tenant and Landlord shall each comply with all Environmental
Laws concerning the proper storage, handling and disposal of
any Hazardous Material with respect to the Property. Tenant
shall not generate, store, handle or dispose of any Hazardous
Material in, on, or about the Property without the prior
written consent of Landlord. In the event that Tenant is
notified of any investigation or violation of any
Environmental Law arising from Tenant's activities at the
Premises, Tenant shall immediately deliver to Landlord a copy
of such notice. In such event or in the event Landlord
reasonably believes that a violation of Environmental Law
exists, Landlord may conduct such tests and studies relating
to compliance by Tenant with Environmental Laws or the alleged
presence of Hazardous Materials upon the Premises as Landlord
deems desirable, all of which shall be completed at Tenant's
expense. Landlord's inspection and testing rights are for
Landlord's own protection only, and Landlord has not, and
shall not be deemed to have assumed any responsibility to
Tenant or any other party for compliance with Environmental
Laws, as a result of the exercise, or non-exercise of such
rights. Tenant shall indemnify, defend, protect and hold
harmless the Indemnitees from any and all loss, claim,
expense, liability and cost (including attorney's fees)
arising out of or in any way related to the presence of any
Hazardous Material introduced to the Premises during the Lease
Term by any party other than Landlord. If any Hazardous
Material is released, discharged or disposed of on or about
the Property and such release, discharge or disposal is not
caused by Tenant or other occupants of the Premises, or their
employees, agents or contractors, such release, discharge or
disposal shall be deemed casualty damage under Article
Fourteen to the extent that the Premises are affected thereby;
in such case, Landlord and Tenant shall have the obligations
and rights respecting such casualty damage provided under such
Article.
(c) Landlord and Tenant acknowledge that the Americans With
Disabilities Act of 1990 (42 U.S.C ss.12101 et seq.) and
regulations and guidelines promulgated thereunder, as all of
the same may be amended and supplemented from time to time
(collectively referred to herein as the "ADA") establish
requirements for business operations, accessibility and
barrier removal, and that such requirements may or may not
apply to the Premises and the Property depending on, among
other things: (1) whether Tenant's business is deemed a
"public accommodation" or "commercial facility", (2) whether
such requirements are "readily achievable", and (3) whether a
given alteration affects a "primary function area" or triggers
"path of travel" requirements. The parties hereby agree that:
(a) Landlord shall be responsible for ADA Title III compliance
in the Common Areas, except as provided below, (b) Tenant
shall be responsible for ADA Title III compliance in the
Premises, including any leasehold improvements or other work
to be performed in the Premises under or in connection with
this Lease, (c) Landlord may perform, or require that Tenant
perform, and Tenant shall be responsible for the cost of, ADA
Title III "path of travel" requirements triggered by
alterations in the Premises, and (d) Landlord may perform, or
require Tenant to perform, and Tenant shall be responsible
for the cost of, ADA Title III compliance in the Common Areas
necessitated by the Building being deemed to be a "public
accommodation" instead of a "commercial facility" as a result
of Tenant's use of the Premises. Tenant shall be solely
responsible for requirements under Title I of the ADA relating
to Tenant's employees.
7.02 LANDLORD ACCESS TO PREMISES; APPROVALS
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so
long as Tenant's use, layout or design of the Premises is not
materially affected or altered. Landlord or Landlord's agents
shall have the right to enter upon the Premises in the event
of an emergency, or to inspect the Premises, to perform
janitorial and other services, to conduct safety and other
testing in the Premises and to make such repairs, alterations,
improvements or additions to the Premises or the Building or
other parts of the Property as Landlord may deem necessary or
desirable (including, without limitation, all alterations,
improvements and additions in connection with a change in
service provider or providers). Janitorial and cleaning
services shall be performed after normal business hours. Any
entry or work by Landlord may be during normal
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business hours and Landlord may use reasonable efforts to
ensure that any entry or work shall I not materially interfere
with Tenant's occupancy of the Premises.
(b) If Tenant shall not be personally present to permit an entry
into the Premises when for any reason an entry therein shall
be necessary or permissible, Landlord (or Landlord's agents),
after attempting to notify Tenant (unless Landlord believes an
emergency situation exists), may enter the Premises without
rendering Landlord or its agents liable therefor (if during
such entry Landlord or Landlord's agent shall accord
reasonable care to Tenant's property), and without relieving
Tenant of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting
such inspections, tests and studies as Landlord may deem
desirable or necessary to confirm Tenant's compliance with all
Laws and Environmental Laws or for other purposes necessary in
Landlord's reasonable judgment to ensure the sound condition
of the Property and the systems serving the Property.
Landlord's rights under this Section 7.02(c) are for
Landlord's own protection only, and Landlord has not, and
shall not be deemed to have assumed any responsibility to
Tenant or any other party as a result of the exercise or
non-exercise of such rights, for compliance with Laws or
Environmental Laws.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs
without such action constituting an actual or constructive
eviction of Tenant, in whole or in part, or giving rise to an
abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
7.03 QUIET ENJOYMENT
Landlord covenants that so long as Tenant is in compliance with the covenants
and conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the rights of any Mortgagee or
ground lessor.
ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Article Fourteen, Landlord shall maintain and make
necessary repairs to the foundations, roofs, exterior walls, and the structural
elements of the Building, the electrical, plumbing, heating, ventilating, and
air-conditioning, mechanical, communication, security and the fire and life
safety systems of the Building and those corridors, washrooms and lobbies which
are Common Areas of the Building, except that: (a) Landlord shall not be
responsible for the maintenance or repair of any floor or wall coverings in the
Premises or any of such systems which are located within the Premises and are
supplemental or special to the Building's standard systems; and (b) the cost of
performing any of said maintenance or repairs whether to the Premises or to the
Building caused by the negligence of Tenant, its employees' agents, servants,
licensees, subtenants, contractors or invitees, shall be paid by Tenant, subject
to the waivers set forth in Section 16.04. Landlord shall not be liable to
Tenant for any expense, injury, loss or damage resulting from work done in or
upon, or in connection with the use of, any adjacent or nearby building, land,
street or alley.
8.02 TENANT'S MAINTENANCE
Subject to the provisions of Article Fourteen, Tenant, at its expense, shall
keep and maintain the Premises and all Tenant Additions in good order, condition
and repair and in accordance with all Laws and Environmental Laws. Tenant shall
not permit waste and shall promptly and adequately repair all damages to the
Premises and replace or repair all damaged or broken glass in the interior of
the Premises, fixtures or appurtenances. Any repairs or maintenance shall be
completed with materials of similar quality to the original materials, all such
work to be completed under the supervision of Landlord. Any such repairs or
maintenance shall be performed only by contractors or mechanics approved by
Landlord, which approval shall not be unreasonably withheld, and whose work will
not cause or threaten to cause disharmony or interference with Landlord or other
tenants in the Building and their respective agents and contractors performing
work in or about the Building. If Tenant fails to perform any of its obligations
set forth in this Section 8.02, Landlord may, in its sole discretion and upon 24
hours prior notice to Tenant (except without notice in the case of emergencies),
perform the same, and Tenant shall pay to Landlord any costs or expenses
incurred by Landlord upon demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT'S ALTERATIONS
(a) Except for completion of Tenant Work undertaken by Tenant
pursuant to the Workletter, the following provisions shall
apply to the completion of any Tenant Alterations:
(1) Tenant shall not, except as provided herein, without
the prior written consent of Landlord, which consent
shall not be unreasonably withheld, make or cause to
be made any Tenant Alterations in or to the Premises
or any Property systems serving the Premises. Prior
to making any Tenant Alterations, Tenant shall give
Landlord ten (10) days prior written notice (or such
earlier notice as would be necessary pursuant to
applicable Law) to permit Landlord sufficient time to
post appropriate notices of non-responsibility.
Subject to all other requirements of this Article
Nine, Tenant may undertake Decoration work without
Landlord's prior written consent. Tenant shall
furnish Landlord with the names and addresses of all
contractors and subcontractors and copies of all
contracts. All Tenant Alterations shall be completed
at such time and in such manner as Landlord may from
time to time designate, and only by contractors or
mechanics approved by Landlord, which approval shall
not be unreasonably withheld, and whose work will not
cause or threaten to cause disharmony or interference
with Landlord or other tenants in the Building and
their respective agents and contractors performing
work in or about the Building. Landlord may further
condition its consent upon Tenant furnishing to
Landlord and Landlord approving prior to the
commencement of any work or delivery of materials to
the Premises related to the Tenant Alterations such
of the following as specified by Landlord:
architectural plans and specifications, opinions from
engineers reasonably acceptable to Landlord stating
that the Tenant Alterations will not in any way
adversely affect the Building's systems, including,
without limitation, the
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mechanical, heating, plumbing, security, ventilating,
air-conditioning, electrical, and the fire and life
safety systems in the Building, necessary permits
arid licenses, certificates of insurance, and such
other documents in such form reasonably requested by
Landlord. Landlord may, in the exercise of reasonable
judgment, request that Tenant provide Landlord with
appropriate evidence of Tenant's ability to complete
and pay for the completion of the Tenant Alterations
such as a performance bond or letter of credit. Upon
completion of the Tenant Alterations, Tenant shall
deliver to Landlord an as-built mylar and digitized
(if available) set of plans and specifications for
the Tenant Alterations.
(2) Tenant shall pay the cost of all Tenant Alterations
and the cost of decorating the Premises and any work
to the Property occasioned thereby. In connection
with completion of any Tenant Alterations, Tenant
shall pay Landlord a construction fee and all
elevator and hoisting charges at Landlord's then
standard rate. Upon completion of Tenant Alterations,
Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and
receipted bills covering all labor and materials
expended and used in connection therewith and such
other documentation reasonably requested by Landlord
or Mortgagee.
(3) Tenant agrees to complete all Tenant Alterations (i)
in accordance with all Laws, Environmental Laws, all
requirements of applicable insurance companies and in
accordance with Landlord's standard construction
rules and regulations, and (ii) in a good and
workmanlike manner with the use of good grades of
materials. Tenant shall notify Landlord immediately
if Tenant receives any notice of violation of any Law
in connection with completion of any Tenant
Alterations and shall immediately take such steps as
are necessary to remedy such violation. In no event
shall such supervision or right to supervise by
Landlord nor shall any approvals given by Landlord
under this Lease constitute any warranty by Landlord
to Tenant of the adequacy of the design, workmanship
or quality of such work or materials for Tenant's
intended use or of compliance with the requirements
of Section 9.01(a)(3)(i) and (ii) above or impose any
liability upon Landlord in connection with the
performance of such work.
(b) All Tenant Additions whether installed by Landlord or Tenant,
shall without compensation or credit to Tenant, become part of
the Premises and the property of Landlord at the time of their
installation and shall remain in the Premises, unless pursuant
to Article Twelve, Tenant may remove them or is required to
remove them at Landlord's request.
9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any other part of the Property arising out of work performed, or
alleged to have been performed by, or at the direction of, or on behalf of
Tenant. If any such lien or claim for lien is filed, Tenant shall within ten
(10) days of receiving notice of such lien or claim (a) have such lien or
claim for lien released of record or (b) deliver to Landlord a bond in form,
content, amount, and issued by surety, satisfactory to Landlord, indemnifying,
protecting, defending and holding harmless the Indemnitees against all costs and
liabilities resulting from such lien or claim for lien and the foreclosure or
attempted foreclosure thereof If Tenant fails to take any of the above actions,
Landlord, in addition to its rights and remedies under Article Eleven, without
investigating the validity of such lien or claim for lien, may pay or discharge
the same and Tenant shall, as payment of additional Rent hereunder, reimburse
Landlord upon demand for the amount so paid by Landlord, including Landlord's
expenses and attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord, Tenant may not
sublease, assign, mortgage, pledge, hypothecate or otherwise
transfer or permit the transfer of this Lease or the
encumbering of Tenant's interest therein in whole or in part,
by operation of law or otherwise or permit the use or
occupancy of the Premises, or any part thereof, by anyone
other than Tenant. If Tenant desires to enter into any
sublease of the Premises or assignment of this Lease, Tenant
shall deliver written notice thereof to Landlord ("Tenant's
Notice"), together with the identity of the proposed subtenant
or assignee and the proposed principal terms thereof and
financial and other information sufficient for Landlord to
make an informed judgment with respect to such proposed
subtenant or assignee at least sixty (60) days prior to the
commencement date of the term of the proposed sublease or
assignment. If Tenant proposes to sublease less than all of
the Rentable Area of the Premises, the space proposed to be
sublet and the space retained by Tenant must each be a
marketable unit as reasonably determined by Landlord and
otherwise in compliance with all Laws. Landlord shall notify
Tenant in writing of its approval or disapproval of the
proposed sublease or assignment or its decision to exercise
its rights under Section 10.02 within thirty (30) days after
receipt of Tenant's Notice (and all required information). In
no event may Tenant sublease any portion of the Premises or
assign the Lease to any other tenant of the Building. Tenant
shall submit for Landlord's approval (which approval shall not
be unreasonably withheld) any advertising which Tenant or its
agents intend to use with respect to the space proposed to be
sublet.
(b) With respect to Landlord's consent to an assignment or
sublease, Landlord may take into consideration any factors
which Landlord may deem relevant, and the reasons for which
Landlord's denial shall be deemed to be reasonable shall
include, without limitation, the following:
(i) the business reputation or creditworthiness of any
proposed assignee is not acceptable to Landlord; or
(ii) in Landlord's reasonable judgment the proposed
assignee or sublessee would diminish the value or
reputation of the Building or Landlord; or
(iii) any proposed assignee's or sublessee's use of the
Premises would violate Section 7.01 of the Lease or
would violate the provisions of any other leases of
tenants in the Building;
(iv) the proposed assignee or sublessee is either a
governments agency, a school or similar operation,
or a medical related practice; or
(v) the proposed sublessee or assignee is a bona fide
prospective tenant of Landlord in the Building as
demonstrated by a written proposal dated within
ninety (90) days prior to the date of Tenant's
request; or
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(vi) the proposed sublessee or assignee would materially
increase the estimated pedestrian and vehicular
traffic to and from the Premises and the Building.
In no event shall Landlord be obligated to consider a consent
to any proposed (i) sublease of the Premises or assignment of
the Lease if a Default then exists under the Lease, or a fact
or condition exists, which but for the giving of notice or the
passage of time would constitute a Default, or (ii) assignment
of the Lease which would assign less than the entire Premises.
In the event Landlord wrongfully withholds its consent to any
proposed sublease of the Premises or assignment of the Lease,
Tenant's sole and exclusive remedy therefor shall be to seek
specific performance of Landlord's obligations to consent to
such sublease or assignment.
(c) If Landlord chooses not to recapture the space proposed to be
subleased or assigned as provided in Section 10.02, Landlord
shall not unreasonably withhold its consent to a subletting or
assignment under this Section 10.01. Any approved sublease or
assignment shall be expressly subject to the terms and
conditions of this Lease. Any such subtenant or assignee shall
execute such documents as Landlord may reasonably require to
evidence such subtenant or assignee's assumption of such
obligations and liabilities. Tenant shall deliver to Landlord
a copy of all agreements executed by Tenant and the proposed
subtenant and assignee with respect to the Premises.
Landlord's approval of a sublease or assignment shall not
constitute a waiver of Tenant's obligation to obtain
Landlord's consent to further assignments or subleases.
(d) For purposes of this Article Ten, an assignment shall be
deemed to include a change in the majority control of Tenant,
resulting from any transfer, sale or assignment of shares of
stock of Tenant occurring by operation of law or otherwise if
Tenant is a corporation whose shares of stock are not traded
publicly. If Tenant is a partnership, any change in the
partners of Tenant shall be deemed to be an assignment.
(e) Notwithstanding anything to the contrary contained in this
Article Ten, Tenant shall have the right, without the prior
written consent of Landlord, to sublease the Premises to an
Affiliate or to assign this Lease to an Affiliate, but (i) no
later than fifteen (15) days prior to the effective date of
the assignment or sublease, the assignee or sublessee shall
execute documents satisfactory to Landlord to evidence such
subtenant or assignee's assumption of the obligations and
liabilities of Tenant under this Lease, except in the case of
any assignment which occurs by operation of law (and without a
written assignment) as a consequence of merger, consolidation
or non-bankruptcy reorganization; (ii) within ten (10) days
after the effective date of such assignee or sublease, give
notice to Landlord which notice shall include the full name
and address of the assignee or subtenant, and a copy of all
agreements executed between Tenant and the assignee or
subtenant with respect to the Premises; and (iii) within
fifteen (15) days after Landlord's request, such documents or
information which Landlord reasonably requests for the purpose
of substantiating whether or not the assignment or sublease is
to an Affiliate.
10.02 RECAPTURE
Except as provided in Section 10.01(e) Landlord shall have the option to exclude
from the Premises covered by this Lease ("recapture"), the space proposed to be
sublet or subject to the assignment, effective as of the proposed commencement
date of such sublease or assignment. If Landlord elects to recapture, Tenant
shall surrender possession of the space proposed to be subleased or subject to
the assignment to Landlord on the effective date of recapture of such space from
the Premises such date being the Termination Date for such space. Effective as
of the date of recapture of any portion of the Premises pursuant to this
section, the Monthly Base Rent, Rentable Area of the Premises and Tenant's Share
shall be adjusted accordingly.
10.03 EXCESS RENT
Tenant shall pay Landlord on the first day of each month during the term of the
sublease or assignment, one hundred (100%) of the amount by which the sum of
all rent and other consideration (direct or indirect) due from the subtenant or
assignee for such month exceeds: (i) that portion of the Monthly Base Rent and
Rent Adjustments due under this Lease for said month which is allocable to the
space sublet or assigned.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
past, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent expressly
permitted by Landlord. Tenant's liability shall remain primary, and in the event
of default by any subtenant, assignee or successor of Tenant in performance or
observance of any of the covenants or conditions of this Lease, Landlord may
proceed directly against Tenant without the necessity of exhausting remedies
against said subtenant, assignee or successor. If Landlord grants consent to
such sublease or assignment, Tenant shall pay all reasonable attorneys' fees and
expenses incurred by Landlord with respect to such assignment or sublease. In
addition, if Tenant has any options to extend the term of this Lease or to add
other space to the Premises, such options shall not be available to any
subtenant or assignee, directly or indirectly without Landlord's express written
consent, which may be withheld in Landlord's sole discretion.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assume all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord not later than
fifteen (15) days prior to the effective date of the assignment. If Tenant shall
sublease the Premises as permitted herein, Tenant shall, at Landlord's option,
within fifteen (15) days following any request by Landlord, obtain and furnish
to Landlord the written agreement of such subtenant to the effect that the
subtenant will attorn to Landlord and will pay all subrent directly to Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(i) Tenant fails to pay any installment or other payment of Rent
including Rent Adjustment Deposits or Rent Adjustments within
three (3) days after the date when due,
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(ii) Tenant fails to observe or perform any of the other covenants,
conditions or provisions of this Lease or the Workletter and
fails to cure such default within fifteen (15) days after
written notice thereof to Tenant (unless the default involves
a hazardous condition, which shall be cured forthwith, or
unless the failure to perform is a Default for which this
Lease specifies there is no cure or grace period);
(iii) the interest of Tenant in this Lease is levied upon under
execution or other legal process;
(iv) a petition is filed by or against Tenant to declare Tenant
bankrupt or seeking a plan of reorganization or arrangement
under any Chapter of the Bankruptcy Act, or any amendment,
replacement or substitution therefor, or to delay payment of,
reduce or modify Tenant's debts, which in the case of an
involuntary action is not discharged within thirty (30) days;
(v) Tenant is declared insolvent by law or any assignment of
Tenant's property is made for the benefit of creditors;
(vi) a receiver is appointed for Tenant or Tenant's property, which
appointment is not discharged within thirty (30) days;
(vii) any action taken by or against Tenant to reorganize or modify
Tenant's capital structure in a materially adverse way which
in the case of an involuntary action is not discharged within
thirty (30) days;
(viii) upon the dissolution of Tenant; or
(ix) upon the third occurrence within any Lease Year that Tenant
fails to pay Rent when due or has breached a particular
covenant of this Lease (whether or not such failure or breach
is thereafter cured within any stated cure or grace period or
statutory period).
11.02 LANDLORD'S REMEDIES
(a) If a Default occurs, Landlord shall have the rights and
remedies hereinafter set forth, which shall be distinct and
cumulative: (i) Landlord may terminate this Lease by giving
Tenant notice of Landlord's election to do so, in which event,
the term of this Lease shall end and all of Tenants rights and
interests shall expire on the date stated in such notice; (ii)
Landlord may terminate Tenant's right of possession of the
Premises without terminating this Lease by giving notice to
Tenant that Tenant's right of possession shall end on the date
specified in such notice; or (iii) Landlord may enforce the
provisions of this Lease and may enforce and protect the
rights of the Landlord hereunder by a suit or suits in equity
or at law for the specific performance of any covenant or
agreement contained herein, or for the enforcement of any
other appropriate legal or equitable remedy, including
recovery of all monies due or to become due for the balance of
the Term from Tenant under any of the provisions of this
Lease.
(b) In the event that Landlord terminates the Lease, Landlord
shall be entitled to recover as damages for loss of the
bargain and not as a penalty, Rent for the balance of the
Term, plus all Landlord's expenses of reletting, including
without limitation, repairs, alterations, improvements,
additions, decorations, legal fees and brokerage commissions
(collectively, the "Reletting Expenses").
(c) In the event Landlord proceeds pursuant to subparagraph (a)
(ii) above, Landlord may, but shall not be obligated to
(except as may be required by law), relet the Premises, or any
part thereof for the account, of Tenant, for such rent and
term and upon such terms and conditions as are reasonably
acceptable to Landlord. For purposes of such reletting,
Landlord is authorized to decorate, repair, alter and improve
the Premises to the extent reasonably necessary or desirable.
If the Premises are relet and the consideration realized
therefrom after payment of all Landlord's Reletting Expenses,
is insufficient to satisfy the payment when due of Rent
reserved under this Lease for any monthly period, then Tenant
shall pay Landlord upon demand any such deficiency monthly. If
such consideration is greater than the amount necessary to pay
the full amount of the Rent, the full amount of such excess
shall be retained by Landlord and shall in no event be payable
to Tenant. Tenant agrees that Landlord may file suit to
recover any sums due to Landlord hereunder from time to time
and that such suit or recovery of any amount due Landlord
hereunder shall not be any defense to any subsequent action
brought for any amount not therefore reduced to judgment in
favor of Landlord.
(d) In the event a Default occurs, Landlord may, at Landlord's
option, enter into the Premises, remove Tenants property,
fixtures, furnishings, signs and other evidences of tenancy,
and take and hold such property, provided, however, that such
entry and possession shall not terminate this Lease or release
Tenant, in whole or in part, from Tenant's obligation to pay
the Rent reserved hereunder for the full Term or from any
other obligation of Tenant under this Lease. Any and all
property which may be removed from the Premises by Landlord
pursuant to the authority of the Lease or law, to which Tenant
is or may be entitled, may be handled, removed or stored by
Landlord at the risk, cost and expense of Tenant, and Landlord
shall in no event be responsible for the value, preservation
or safekeeping thereof. Tenant shall pay Landlord, upon
demand, any and all expenses incurred in such removal and all
storage charges against such property so long as the same
shall be in the Landlord's possession or under the Landlord's
control. Any such property of Tenant not retaken from storage
by Tenant within thirty (30) days after the Termination Date,
shall be conclusively presumed to have been conveyed by Tenant
to Landlord under this Lease as a bill of sale without farther
payment or credit by Landlord to Tenant.
11.03 ATTORNEY'S FEES
Tenant shall pay upon demand, all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord in enforcing the Tenant's performance of
its obligations under this Lease, or resulting from Tenant's Default, or
incurred by Landlord in any litigation, negotiation or transaction in which
Tenant causes Landlord, without Landlord's fault, to become involved or
concerned.
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the
Bankruptcy Code where the trustee of Tenant elects to assume
this Lease for the purposes of assigning it, such election or
assignment, may only be made upon compliance with the
provisions of (b) and (c) below, which conditions Landlord and
Tenant acknowledge to be commercially reasonable. In the event
the trustee elects to reject this Lease then Landlord shall
immediately be entitled to possession of the Premises without
further obligation to Tenant or the trustee.
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(b) Any election to assume this Lease under Chapter 11 or 13 of
the Bankruptcy Code by Tenant as debtor-in-possession or by
Tenant's trustee (the "Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate
assurance that it will cure all monetary defaults under this
Lease within fifteen (15) days from the date of assumption and
it will cure all nonmonetary defaults under this Lease
within thirty (30) days from the date of assumption. Landlord
and Tenant acknowledges such condition to be commercially
reasonable.
(c) If the Electing Party has assumed this Lease or elects to
assign Tenant's interest under this Lease to any other person,
such interest may be assigned only if the intended assignee
has provided adequate assurance of future performance (as
herein defined), of all of the obligations imposed on Tenant
under this Lease.
For the purposes hereof, "adequate assurance of future
performance" means that Landlord has ascertained that each of
the following conditions has been satisfied:
(i) The assignee has submitted a current financial
statement, certified by its chief financial officer,
which shows a net worth and working capital in
amounts sufficient to assure the future performance
by the assignee of Tenant's obligations under this
Lease; and
(ii) Landlord has obtained consents or waivers from any
third parties which may be required under a Lease,
mortgage, financing arrangement, or other agreement
by which Landlord is bound, to enable Landlord to
permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not
be deemed to have waived, or waive, the requirement of
Landlord's consent, Landlord's right to terminate this Lease
for any transfer of Tenant's interest under this Lease without
such consent, or Landlord's claim for any amount of Rent due
from Tenant.
11.05 LANDLORD'S DEFAULT
Landlord shall be in default hereunder in the event Landlord has not begun and
pursued with reasonable diligence the cure of any failure of Landlord to meet
its obligations hereunder within thirty (30) days of the receipt by Landlord of
written notice from Tenant of the alleged failure to perform. In no event shall
Tenant have the right to terminate or rescind this Lease as a result of
Landlord's default as to any covenant or agreement contained in this Lease.
Tenant hereby waives such remedies of termination and rescission and hereby
agrees that Tenant's remedies for default hereunder and for breach of any
promise or inducement shall be limited to a suit for damages and/or injunction.
In addition, Tenant hereby covenants that, prior to the exercise of any such
remedies, it will give the mortgagees holding mortgages on the Building notice
and a reasonable time to cure any default by Landlord.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and damage caused by Landlord
excepted. Tenant shall deliver to Landlord all keys to the Premises. Tenant
shall remove from the Premises all movable personal property of Tenant and
Tenant's trade fixtures, including, subject to Section 6.04, cabling for any of
the foregoing. Tenant shall be entitled to remove such Tenant Additions which at
the time of their installation Landlord and Tenant agreed may be removed by
Tenant. Tenant shall also remove such other Tenant Additions as required by
Landlord, including, any Tenant Additions containing Hazardous Materials.
Tenant immediately shall repair all damage resulting from removal of any of
Tenant's property, furnishings or Tenant Additions, shall close all floor,
ceiling and roof openings and shall restore the Premises to a tenantable
condition as reasonably determined by Landlord. If any of the Tenant Additions
which were installed by Tenant involved the lowering of ceilings, raising of
floors or the installation of specialized wall or floor coverings or lights,
then Tenant shall also be obligated to return such surfaces to their condition
prior to the commencement of this Lease. Tenant shall also be required to close
any staircases or other openings between floors. In the event possession of the
Premises is not delivered to Landlord when required hereunder, or if Tenant
shall fail to remove those items described above, Landlord may, (but shall not
be obligated to), at Tenant's expense, remove any of such property and store,
sell or otherwise deal with such property as provided in Section 11.02(b),
including the waiver and indemnity obligations provided in that Section, and
undertake, at Tenant's expense, such restoration work as Landlord deems
necessary or advisable.
12.02 LANDLORD'S RIGHTS
All property which may be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided in Section 11.02(d). Tenant shall also reimburse
Landlord for all costs and expenses incurred by Landlord in removing any of
Tenant Additions and in restoring the Premises to the condition required by this
Lease at the Termination Date.
ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (i) double the monthly Rent payable for
the month immediately preceding the holding over (including increases for Rent
Adjustments which Landlord may reasonably estimate) or, (ii) double the fair
market rental value of the Premises as reasonably determined by Landlord for
each month or portion thereof that Tenant retains possession of the Premises, or
any portion thereof, after the Termination Date (without reduction for any
partial month that Tenant retains possession). Tenant shall also pay all damages
sustained by Landlord by reason of such retention of possession. The provisions
of this Article shall not constitute a waiver by Landlord of any re-entry rights
of Landlord and Tenant's continued occupancy of the Premises shall be as a
tenancy in sufferance. If Tenant retains possession of the Premises, or any part
thereof for thirty (30) days after the Termination Date then at the sole option
of Landlord expressed by written notice to Tenant, but not otherwise, such
holding over shall constitute a renewal of this Lease for a period of one (1)
year on the same terms and conditions (including those with respect to the
payment of Rent) as provided in this Lease, except that the Monthly Base Rent
for such period shall be equal to the greater of(i) 200% of the
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Monthly Base Rent payable during the month preceding the Termination Date, or
(ii) 200% of the monthly base rent then being quoted by Landlord for similar
space in the Building.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENABILITY
(a) If any fire or other casualty (whether insured or uninsured))
renders all or a substantial portion of the Premises or the
Building untenantable, Landlord shall, with reasonable
promptness after the occurrence of such damage, estimate the
length of time that will be required to Substantially Complete
the repair and restoration and shall by notice advise Tenant
of such estimate ("Landlords Notice"), If Landlord estimates
that the amount of time required to Substantially Complete
such repair and restoration will exceed one hundred eighty
(180) days from the date such damage occurred, then Landlord,
or Tenant if all or a substantial portion of the Premises is
rendered untenantable, shall have the right to terminate the
Lease as of the date of such damage upon giving written notice
to the other at any time within twenty (20) days after
delivery of Landlord's Notice, provided that if Landlord so
chooses, Landlord's Notice may also constitute such notice of
termination.
(b) Unless this Lease is terminated as provided in the preceding
subparagraph, Landlord shall proceed with reasonable
promptness to repair and restore the Premises to its condition
as existed prior to such casualty, subject to reasonable
delays for insurance, adjustments and Force Majeure delays,
and also subject to zoning laws and building codes then in
effect. Landlord shall have no liability to Tenant, and Tenant
shall not be entitled to terminate this Lease if such repairs
and restoration are not in fact completed with the time period
estimated by Landlord so long as Landlord shall proceed with
reasonable diligence to complete such repairs and restoration.
(c) Tenant acknowledges that Landlord shall be entitled to the
full proceeds of any insurance coverage, whether carried by
Landlord or Tenant for damages to the Premises, except for
those proceeds of Tenant's insurance of its own personal
property and equipment which would be removable by Tenant at
the Termination Date. All such insurance proceeds shall be
payable to Landlord whether or not the Premises are to be
repaired and restored.
(d) Notwithstanding anything to the contrary herein set forth: (i)
Landlord shall have no duty pursuant to this Section to repair
or restore any portion of any Tenant Additions or to expend
for any repair or restoration of the Premises or Building
amounts in excess of insurance proceeds paid to Landlord and
available for repair or restoration; and (ii) Tenant shall not
have the right to terminate this Lease pursuant to this
Section if any damage or destruction was caused by die act or
neglect of Tenant, its agent or employees.
(e) Any repair or restoration of the Premises performed by Tenant
shall be in accordance with the provisions of Article Nine
hereof
14.02 INSUBSTANTIAL UNTENABILITY
If the Premises or the Budding is damaged by a casualty but neither is rendered
substantially untenantable and Landlord estimates that the time to Substantially
Complete the repair or restoration will not exceed one hundred eighty (180) days
from the date such damage occurred, then Landlord shall proceed to repair and
restore the Building or the Premises other than Tenant Additions, with
reasonable promptness, unless such damage is to the Premises and occurs during
the last six (6) months of the Term, in which event either Tenant or Landlord
shall have the right to terminate this Lease as of the date of such casualty by
giving written notice thereof to the other within twenty (20) days after the
date of such casualty. [Notwithstanding the aforesaid, Landlord's obligation to
repair shall be limited in accordance with the provisions of Section. 14.01
(d)(i) above.]
14.03 RENT ABATEMENT
Except for the negligence or willful act of Tenant or its agents, employees,
contractors or invitees, if all or any part of the Premises are rendered
untenantable by fire or other casualty and this Lease is not terminated, Monthly
Base Rent and Rent Adjustments shall abate for that part of the Premises which
is untenantable on a per diem basis from the date of the casualty until Landlord
has Substantially Completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such casualty,
Tenant does not occupy the portion of the Premises which is untenantable during
such period.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and is thereby rendered
untenantable, this Lease shall terminate as of the date title vests in such
authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of
the Termination Date. Notwithstanding anything to the contrary herein set forth,
in the event the taking is temporary (for less than the remaining term of the
Lease), Landlord may elect either (i) to terminate this Lease or (ii) permit
Tenant to receive the entire award attributable to the Premises in which case
Tenant shall continue to pay Rent and this Lease shall not terminate.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce or increase, as
the case may be, the Monthly Base Rent and Tenants Proportionate Share to
reflect the Rentable Area of the Premises or Building, as the case may be,
remaining after any such taking or condemnation. Landlord, upon receipt and to
the extent of the award in condemnation (or proceeds of sale) shall make
necessary repairs and restorations to the Premises (exclusive of Tenant
Additions) and to the Building to the extent necessary to constitute the portion
of the Building not so taken or condemned as a complete architectural and
economically efficient unit. Notwithstanding the foregoing, if as a result of
any taking, or a governmental order that the grade of any street or alley
adjacent to the Building is to be changed and such taking or change of grade
makes it necessary or desirable to substantially remodel or restore the Building
or prevents the economical operation of the Building, Landlord shall have the
right to terminate this Lease upon ninety (90) days prior written notice to
Tenant.
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15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sale proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Additions
paid for by Tenant without any credit or allowance from Landlord so long as
there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies acceptable to Landlord, during the Term: (a) Commercial General
Liability Insurance on a primary basis and without any right of contribution
from any insurance carried by Landlord covering the Premises on an occurrence
basis against all claims for personal injury, bodily injury, death and property
damage, including contractual liability covering the indemnification provisions
in this Lease. Such insurance shall be for such limits that are reasonably
required by Landlord from time to time but not less than a combined single limit
of Five Million and No/100 Dollars ($5,000,000.00); (b) Worker's Compensation
and Employers' Liability Insurance for an amount of not less than One Million
and No/100 Dollars ($1,000,000.00), both in accordance with the laws of the
State of Alabama; (c) "All Risks" property insurance in an amount adequate to
cover the full replacement cost of all equipment, installations, fixtures and
contents of the Premises in the event of loss and any such policy shall contain
a provision requiring the insurance carriers to waive their rights of
subrogation against Landlord; (d) In the event a motor vehicle is to be used by
Tenant in connection with its business operation from the Premises,
Comprehensive Automobile Liability Insurance coverage with limits of not less
than Three Million and No/100 Dollars ($3,000,000.00) M) combined single limit
coverage against bodily injury liability and property damage liability arising
out of the use by or on behalf of Tenant, its agents and employees in connection
with this Lease, of any owned, non-owned or hired motor vehicles; and (e) such
other insurance or coverages as Landlord reasonably requires.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (i) name Landlord and the Indemnitees as additional insureds
(except Workers' Compensation and Employers' Liability Insurance), (ii) be
issued by one or more responsible insurance companies licensed to do business in
the State of Alabama reasonably satisfactory to Landlord, (iii) where
applicable, provide for deductible amounts satisfactory to Landlord and not
permit co-insurance, (iv) shall provide that such insurance may not be canceled
or amended without thirty (30) days' prior written notice to the Landlord, and
(v) shall provide that the policy shall not be invalidated should the insured
waive in writing prior to a loss, any or all rights of recovery against any
other party for losses covered by such policies. Tenant shall deliver to
Landlord, certificates of insurance and at Landlord's request, copies of all
policies and renewals thereof to be maintained by Tenant hereunder, not less
than ten (10) days prior to the Commencement Date and not less than ten (10)
days prior to the expiration date of each policy.
16.03 LANDLORD'S INSURANCE
Landlord a to purchase and keep in full force and effect during the Term hereof,
including any extensions or renewals thereof, insurance under policies issued
by insurers of recognized responsibility, qualified to do business in the State
of Alabama on the Building in amounts not less than the greater of eighty (80%)
percent of the then full replacement cost (without depreciation) of the Building
(above foundations) or an amount sufficient to prevent Landlord from becoming a
co-insurer under the terms of the applicable policies, against fire and such
other risks as may be included in standard forms of all risk coverage insurance
reasonably available from time to time. Landlord agrees to maintain in force
during the Term, Commercial General Liability Insurance covering the Building on
an occurrence basis against all claims for personal injury, bodily injury, death
and property damage. Such insurance shall be for a combined single limit of Five
Million and No/100 Dollars ($5,000,000.00). Neither Landlord's obligation to
carry such insurance nor the carrying of such insurance shall be deemed to be an
indemnity by Landlord with respect to any claim, liability, loss, cost or
expense due, in whole or in part, to Tenant's negligent acts or omissions or
willful misconduct.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under
the laws of the State of Alabama, it will include in its "All
Risks" policies appropriate clauses pursuant to which the
insurance companies (i) waive all right of subrogation against
Tenant with respect to losses payable under such policies
and/or (ii) agree that such policies shall not be invalidated
should the insured waive in writing prior to a loss any or all
right of recovery against any party for losses covered by such
policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under
the laws of the State of Alabama in its "All Risks" insurance
policy or policies on its furniture, furnishings, fixtures and
other property removable by Tenant under the provisions of
this Lease appropriate clauses pursuant to which the insurance
company or companies (i) waive the right of subrogation
against Landlord and/or any tenant of space in the Building
with respect to losses payable under such policy or policies
and/or (ii) agree that such policy or policies shall not be
invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses
covered by such policy or policies. If Tenant is unable to
obtain in such policy or policies either of the clauses
described in the preceding sentence, Tenant shall, if legally
possible and without necessitating a change in insurance
carriers, have Landlord named in such policy or policies as an
additional insured. If Landlord shall be named as an
additional insured in accordance with the foregoing, Landlord
agrees to endorse promptly to the order of Tenant, without
recourse, any check, draft, or order for the payment of money
representing the proceeds of any such policy or representing
any other payment growing out of or connected with said
policies, and Landlord does hereby irrevocably waive any and
all rights in and to such proceeds and payments.
(c) Provided that Landlord's right of fill recovery under its
policy or policies aforesaid is not adversely affected or
prejudiced thereby, Landlord hereby waives any and all right
of recovery which it might otherwise have against Tenant, its
servants, agents and employees, for loss or damage occurring
to the Building and the fixtures, appurtenances and equipment
therein, to the extent the same is covered by Landlord's
insurance, notwithstanding that such loss or damage may result
from the negligence or fault of Tenant, its servants, agents
or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely
affected or prejudiced thereby, Tenant hereby waives any and
all right of recovery which it might otherwise have against
Landlord, its servants, and employees and against every other
tenant in the Building who shall have executed a similar
waiver as set forth in this Section 16.04 (c) for loss or
damage to Tenant's furniture, furnishings, fixtures and other
property removable by Tenant under the provisions hereof to
the extent that same is covered or coverable by Tenant's
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<PAGE> 19
insurance required under this Lease, notwithstanding that such
loss or damage may result from the negligence or fault of
Landlord, its servants, agents or employees, or such other
tenant and the servants, agents or employees thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly
if the clauses to be included in their respective insurance
policies pursuant to subparagraphs (a) and (b) above cannot be
obtained on the terms hereinbefore provided and thereafter to
furnish the other with a certificate of insurance or copy of
such policies showing the naming of the other as an additional
insured, as aforesaid. Landlord and Tenant hereby also agree
to notify the other promptly of any cancellation or change of
the terms of any such policy which would affect such clauses
or naming. All such policies which name both Landlord and
Tenant as additional insureds shall, to the extent obtainable,
contain agreements by the insurers to the effect that no act
or omission of any additional insured will invalidate the
policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or accident in the Premises
promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by Law, Tenant releases the Indemnitees from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Premises or the Property resulting directly or indirectly from
any existing or future condition, defect, matter or thing in and about the
Premises or the Property or any part of either or any equipment or appurtenance
therein, or resulting from any accident in or about the Premises or the
Property, or resulting directly or indirectly from any act or neglect of any
tenant or occupant of the Property or of any other person, including Landlord's
agents and servants, except to the extent caused by the willful and wrongful act
of any of the Indemnitees. To the extent permitted by Law, Tenant hereby waives
any consequential damages, compensation or claims for inconvenience or loss of
business, rents, or profits as a result of such injury or damage, whether or not
caused by the willful or wrongful act of any of the Indemnitees. If any such
damage, whether to the Premises or the Property or any part of either, or
whether to Landlord or to other tenants in the Property, results from any act or
neglect of Tenant, its employees, servants, agents, contractors, invitees or
customers, Tenant shall be liable therefor and Landlord may, at Landlord's
option, repair such damage and Tenant shall, upon demand by Landlord, as payment
of additional Rent hereunder, reimburse Landlord within ten (10) days of demand
for the total cost of such repairs, in excess of amounts, if any, paid to
Landlord under insurance covering such damages. Tenant shall not be liable for
any such damage caused by its acts or neglect if Landlord or a tenant has
recovered the full amount of the damage from proceeds of insurance policies and
the insurance company has waived its right of subrogation against Tenant.
17.02 INDEMNITY BY TENANT
To the extent permitted by law, Tenant agrees to indemnify, protect, defend and
hold the Indemnitees harmless against any and all actions, claims, demands,
costs and expenses, including reasonable attorney's fees and expenses for the
defense thereof, arising from Tenant's occupancy of the Premises, from the
undertaking of any Tenant Additions or repairs to the Premises, from the conduct
of Tenant's business on the Premises, or from any breach or default on the part
of Tenant in the performance of any covenant or agreement on the part of Tenant
to be performed pursuant to the terms of this Lease, or from any willful or
negligent act of Tenant, its agents, contractors, servants, employees, customers
or invitees, in or about the Premises, but only to the extent of Landlord's
liability, if any, in excess of amounts, if any, paid to Landlord under
insurance covering such claims or liabilities. In case of any action or
proceeding brought against the Indemnitees by reason of any such claim, upon
notice from Landlord, Tenant covenants to defend such action or proceeding by
counsel reasonably satisfactory to Landlord.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to comply with the rules mid regulations listed on Exhibit D attached hereto and
with all reasonable modifications and additions thereto which Landlord may make
from time to time.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on Exhibit D or as
hereafter adopted, or the terms, covenants or conditions of any other lease as
against any other tenant, and the Landlord shall not be liable to the Tenant for
violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner. Tenant shall pay to Landlord all damages caused by Tenant's failure to
comply with the provisions of this Article Eighteen and shall also pay to
Landlord as additional Rent an amount equal to any increase in insurance
premiums caused by such failure to comply.
ARTICLE NINETEEN
LANDLORDS RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for offset or abatement
of Rent: (1) to change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) to install, affix and maintain all
signs on the exterior and/or interior of the Building; (3) to designate and/or
approve prior to installation, all types of signs, window shades, blinds,
drapes, awnings or other similar items, and all internal lighting that may be
visible from the exterior of the Premises; (4) upon reasonable notice to Tenant,
to display the Premises to prospective purchasers at reasonable hours at any
time during the Term and to prospective tenants at reasonable hours during the
last twelve (12) months of the Term; (5) to grant to any party the exclusive
right to conduct any business or render any service in or to the Building,
provided such exclusive right shall not operate to prohibit Tenant from using
the Premises for the purpose permitted hereunder, (6) to change the arrangement
and/or location of entrances or passageways, doors and doorways, corridors,
elevators, stairs, washrooms or public portions of the Building, and to close
entrances, doors, corridors, elevators or other facilities, provided that such
action shall not materially and adversely interfere with Tenants' access to the
Premises or the Building; (7) to have access for Landlord and other tenants of
the Building to any mail chutes and boxes located in or on the Premises as
required by any applicable rules of the United States
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Post office, and (8) to close the Building after Standard Operating Hours except
that Tenant and its employees and invitees shall be entitled to admission at all
times, under such regulations as Landlord prescribes for security purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within fifteen (15) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (i) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect); (ii) the dates to which Rent has
been paid; (iii) that Tenant is in the possession of the Premises if that is the
case; (iv) that Landlord is not in default under this Lease, or, if Tenant
believes Landlord is in default, the nature thereof in detail; (v) that Tenant
has no off-sets or defenses to the performance of its obligations under this
Lease (or if Tenant believes there are any off-sets or defenses, a full and
complete explanation thereof); (vi) that the Premises have been completed in
accordance with the terms and provisions hereof or the Workletter, that Tenant
has accepted the Premises and the condition thereof and of all improvements
thereto and has no claims against Landlord or any other party with respect
thereto; (vii) that if an assignment of rents or leases has been served upon the
Tenant by a Mortgagee, Tenant will acknowledge receipt thereof and agree to be
bound by the provisions thereof; (viii) that Tenant will give to the Mortgagee
copies of all notices required or permitted to be given by Tenant to Landlord;
and (ix) to any other information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate, then such
failure shall be a Default for which there shall be no cure or grace period. In
addition to any other remedy available to Landlord, Landlord may impose a
penalty equal to $500.00 for each day that Tenant fails to deliver an Estoppel
Certificate and Tenant shall be deemed to have irrevocably appointed Landlord as
Tenants attorney-in-fact to execute and deliver such Estoppel Certificate.
ARTICLE TWENTY-ONE
RELOCATION OF TENANT
Landlord reserves the right, upon thirty (30) days written notice, to transfer
and remove Tenant from the Premises to any other space of substantially
equivalent size and area in the Park. Landlord shall bear the reasonable expense
of said removal as well as the expense of any renovations or alterations
necessary to make the new space conform in arrangement and layout with the
original space covered by this Lease.
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that, except for Zachary T. Hutto, II, Tenant has not dealt
with any real estate broker, sales person, or finder in connection with this
Lease, and no such person initiated or participated in the negotiation of this
Lease, or showed the Premises to Tenant. Tenant hereby agrees to indemnify,
protect, defend and hold Landlord and the Indemnitees, harmless from and against
any and all liabilities and claims for commissions and fees arising out of a
breach of the foregoing representation. Landlord shall be responsible for the
payment of all commissions to the broker, if any, specified in this Article.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
This Lease is and shall be expressly subject and subordinate at all times to (i)
any ground or underlying lease of the Real Property, now or hereafter existing,
and all amendments, extensions, renewals and modifications to any such lease,
and (ii) the lien of any mortgage or trust deed now or hereafter encumbering fee
title to the Real Property and/or the leasehold estate under any such lease, and
all amendments, extensions, renewals, replacements and modifications of such
mortgage or trust deed and/or the obligation secured thereby, unless such ground
lease or ground lessor, or mortgage, trust deed or Mortgagee, expressly provides
or elects that the Lease shall be superior to such lease or mortgage or trust
deed. If any such mortgage or trust deed is foreclosed (including any sale of
the Real Property pursuant to a power of sale), or if any such lease is
terminated, upon request of the Mortgagee or ground lessor, as the case may be,
Tenant shall attorn to the purchaser at the foreclosure sale or to the ground
lessor under such lease, as the case may be, provided, however, that such
purchaser or ground lessor shall not be (i) bound by any payment of Rent for
more than one month in advance except payments in the nature of security for the
performance by Tenant of its obligations under this Lease; (ii) subject to any
offset, defense or damages arising out of a default of any obligations of any
preceding Landlord; or (iii) bound by any amendment or modification of this
Lease made without the written consent of the Mortgagee or ground lessor; or
(iv) liable for any security deposits not actually received in cash by such
purchaser or ground lessor. This subordination shall be self-operative and no
further certificate or instrument of subordination need be required by any such
Mortgagee or ground lessor. In confirmation of such subordination, however,
Tenant shall execute promptly any reasonable certificate or instrument that
Landlord, Mortgagee or ground lessor may request. Tenant hereby constitutes
Landlord as Tenant's attorney-in-fact to execute such certificate or instrument
for and on behalf of Tenant upon Tenant's failure to do so within fifteen (15)
days of a request to do so. Upon request by such successor in interest, Tenant
shall execute and deliver reasonable instruments confirming the attornment
provided for herein.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice (by way of service
on Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as may be necessary, if, within such thirty (30) days any Mortgagee or
ground lessor has commenced and is diligently pursuing the, remedies necessary
to cure such default (including
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<PAGE> 21
but not limited to commencement of foreclosure proceedings or other proceedings
to acquire possession of the Real Property, if necessary to effect such cure).
Such period of time shall be extended by any period within which such Mortgagee
or ground lessor is prevented from commencing or pursuing such foreclosure
proceedings or other proceedings to acquire possession of the Real Property by
reason of Landlord's bankruptcy. Until the time allowed as aforesaid for
Mortgagee or ground lessor to cure such defaults has expired without cure,
Tenant shall have no right to, and shall not, terminate this Lease on account of
default. This Lease may not be modified or amended so as to reduce the rent or
shorten the term, or so as to adversely affect in any other respect to any
material extent the rights of the Landlord, nor shall this Lease be canceled or
surrendered, without the prior written consent, in each instance, of the ground
lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be given
pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other overnight courier service,
or mailed by first class, registered or certified mail, return receipt
requested, postage prepaid.
(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or
sending the same in accordance with this Section, addressed to the
parties hereto at their respective addresses listed below:
(1) Notices to Landlord shall be addressed:
<TABLE>
<S> <C>
Taylor & Mathis, Inc. CC: Metropolitan Life Insurance Company
Post Office Box 43248 ATTN: Regional Manager
Birmingham, Alabama 35243 47 Perimeter Center East, Suite 350
Atlanta, Georgia 30346
</TABLE>
(2) Payment shall be addressed:
Taylor & Mathis
Post Office Box 88185
Atlanta, Georgia 30356-8185
ATTN: Accounts Receivable - Inverness
(3) Notices to Tenant shall be addressed:
Nicholas TXEN Corporation
10 Inverness Center Parkway, Suite 500
Birmingham, Alabama 35242
(c) If notices, demands or requests are sent by registered or certified
mail, said notices, demands or requests shall be effective upon being
deposited in the United States mail. However, the time period in which
a response to any such notice, demand or request must be given shall
commence to run from the date of receipt on the return receipt of the
notice, demand or request by the addressee thereof. Rejection or other
refusal to accept or the inability to deliver because of changed
address of which no notice was given shall be deemed to be receipt of
notice, demand or request sent.
Notices may also be served by personal service upon any officer,
director or partner of Landlord or Tenant or in the case of delivery by
Federal Express or other overnight courier service, notices shall be
effective upon acceptance of delivery by an employee, officer, director
or partner of Landlord or Tenant.
(d) By giving to the other party at least thirty (30) days written notice
thereof, either party shall have the right from time to time during the
term of this Lease to change their respective addresses for notices,
statements, demands and requests, provided such new address shall be
within the United States of America.
ARTICLE TWENTY-FIVE
STORAGE SPACE
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<PAGE> 22
25.03 RELOCATION
Landlord may from time to time upon thirty (30) days prior notice Tenant
relocate any or all of the Storage Space to other storage areas in the Building
("New Storage Space") in which event the New Storage Space shall be deemed to be
the Storage Space hereunder. Landlord shall pay the actual and reasonable
expenses of physically moving Tenant's property to the New Storage Space.
ARTICLE TWENTY-SIX
MISCELLANEOUS
26.01 LATE CHARGES
All payments required hereunder (other than the Monthly Base Rent, Rent
Adjustments, and Rent Adjustment Deposits, which shall be due as hereinbefore
provided) to Landlord shall be paid within ten (10) days after Landlord's demand
therefor. All such amounts (including, without limitation Monthly Base Rent,
Rent Adjustments, and Rent Adjustment Deposits) not paid when due shall bear
interest from the date due until the date paid at the Default Rate in effect or
the date such payment was due.
26.02 WAIVER OF JURY TRIAL
As a material inducement to Landlord to enter into this Lease, Tenant hereby
waives its right to a trial by jury of any issues relating to or arising out of
its obligations under this Lease or its occupancy of the Premises. Tenant
acknowledges that it has read and understood the foregoing provision.
26.03 DEFAULT UNDER OTHER LEASE
It shall be a Default under this Lease if Tenant or any Affiliate holding any
other lease with Landlord for premises in the Building defaults under such lease
and as a result thereof such lease is terminated or terminable.
26.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant. The submission of the Lease to Tenant
does not constitute a reservation of or option for the Premises, except that it
shall constitute an irrevocable offer on the part of Tenant in effect for
fifteen (15) days to lease the Premises on the terms and conditions herein
contained.
26.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
26.06 ENTIRE AGREEMENT
This Lease, the Exhibits attached hereto and the Workletter contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written, and no other representations or
statements, either oral or written, on which Tenant has relied. This Lease shall
not be modified except by a writing executed by Landlord and Tenant.
26.0 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not
result in any increased cost or expense to Tenant or in any other substantial
and adverse change in the rights and obligations of Tenant hereunder, then
Tenant agrees that the Lease may be so modified.
26.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation under this Lease shall only be enforced against
Landlord's equity interest in the Property up to a maximum of three million
dollars & no/100 ($3,000,000.00), and in no event against any other assets of
the Landlord, or Landlord's officers or directors.
26.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount than any
installment or payment of Rent due shall be deemed to be other than on account
of the amount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term.
26.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
provided that all of Landlord's obligations hereunder am specifically assumed by
the buyer or transferee.
26.11 BINDING EFFECT
This Lease shall be binding upon and inure to the benefit of Landlord and Tenant
and their respective heirs, legal representatives, successors and permitted
assigns.
26.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as a matter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
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<PAGE> 23
26.13 APPLICABLE LAW
This Lease shall be construed in accordance with the laws of the State of
Alabama. If any term, covenant or condition of this Lease or the application
thereof to any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby and each
item, covenant or condition of this Lease shall be valid and be enforced to the
fullest extent permitted by law.
26.14 ABANDONMENT
In the event Tenant vacates or abandons the Premises but is otherwise in
compliance with all the terms, covenants and conditions of this Lease,
Landlord shall (i) have the right to enter into the Premises in order to show
the space to prospective tenants, (ii) have the right to reduce the services
provided to Tenant pursuant to the terms of this Lease to such levels as
Landlord reasonably determines to be adequate services for an unoccupied
premises and (iii) during the last six (6) months of the Term, have the right
to prepare the Premises for occupancy by another tenant upon the end of the
Term. Tenant expressly acknowledges that in the absence of written notice
pursuant to Section 11.02)a), hereof, [Note: (if applicable) or pursuant to
Alabama Civil Code Section_____, terminating Tenant's right to possession,]
none of the foregoing acts of Landlord or any other act of Landlord shall
constitute a termination of Tenant's right to possession or an acceptance of
Tenant's surrender of the Premises, and the Lease shall continue in effect.
26.15 LANDLORD'S RIGHT TO PERFORM TENANTS DUTIES
If Tenant fails timely to perform any of its duties under this Lease or the
Workletter, Landlord shall have the right (but not the obligation), to perform
such duty on behalf and at the expense of Tenant without prior notice to
tenant, and all sums expended or expenses incurred by Landlord in performing
such duty shall be deemed to be additional Rent under this Lease and shall be
due and payable upon demand by Landlord.
26.16 RIDERS
All Riders attached hereto and executed both by Landlord and Tenant shall be
deemed to be a part hereof and hereby incorporated herein.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
Signed sealed and delivered by Landlord LANDLORD: METROPOLITAN LIFE INSURANCE
this 24th day of April, 1998, in the COMPANY, a New York corporation
presence of:
/s/ By:/s/ J. Samuel O'Briant
- -------------------------------- -----------------------------------
Witness J. Samuel O'Briant
EIM Manager
/s/ N. Schenelle Trim
- --------------------------------
Notary Public (SEAL)
NOTARY PUBLIC, DEKALB COUNTY, GEORGIA
MY COMMISSION EXPIRES OCT 7, 2000
(NOTARIAL SEAL)
Signed, sealed and delivered by Tenant TENANT: Nichols TXEN Corporation
this 23rd day of April, 1998, in the
presence of:
- --------------------------------- By:/s/ H. Greg Wood
Witness -----------------------------------
Name H. Greg Wood
----------------------------------
Title President
---------------------------------
/s/ Teresa Lynn Blackmon
- ---------------------------------
Notary Public Attest:/s/
-------------------------------
MY COMMISSION EXPIRES APRIL 9, 2001
(NOTARIAL SEAL) (CORPORATE SEAL)
19
<PAGE> 24
Signed, sealed and delivered by Agent MANAGER: TAYLOR & MATHIS, INC.,
this 22nd day of April, 1998, in the a Georgia corporation
presence of:
Cindy T. Ban
- ----------------------------------- By: E. H. Avery
Witness ------------------------------
E. H. Avery
Betty A. Swann Executive Vice President
- -----------------------------------
Notary Public
My Commission Expires: 10/31/99
-------------
(NOTARIAL SEAL)
20
<PAGE> 25
10 INVERNESS CENTER
FIFTH FLOOR PLAN
<PAGE> 26
EXHIBIT D
RULES AND REGULATIONS
(1) No sign, lettering, picture, notice or advertisement shall be placed on
any outside window or in a position to be visible from outside the
Premises and if visible from the outside or public corridors within the
Building shall be installed in such manner and be of such character and
style as Landlord shall approve in writing.
(2) Tenant shall not use the name of the Building for any purpose other
than Tenant's business address; Tenant shall not use the name of the
Building for Tenant's business address after Tenant vacates the
Premises; nor shall Tenant use any picture or likeness of the Building
in any circulars, notices, advertisements or correspondence.
(3) No article which is explosive or inherently dangerous is allowed in the
Building.
(4) Tenant shall not represent itself as being associated with any company
or corporation by which the Building may be known or names.
(5) Sidewalks, entrances, passages, courts, corridors, halls, elevators and
stairways in and about the Premises shall not be obstructed.
(6) No animals (except for dogs in the company of a blind person), pets,
bicycles or other vehicles shall be brought or permitted to be in the
Building or the Premises.
(7) Room-to-room canvasses to solicit business from other tenants of the
Building are not permitted, Tenant shall not advertise the business,
profession or activities of Tenant conducted in the Building in any
manner which violates any code of ethics by any recognized association
or organization pertaining to such business, profession or activities.
(8) Tenant shall not waste electricity, water or air-conditioning and shall
cooperate fully with Landlord to assure the most effective and
efficient operation of the Building's heating and air-conditioning
systems.
(9) No locks or similar devices shall be attached to any door except by
Landlord and Landlord shall have the right to retain a key to all such
locks. Tenant may not install any locks without Landlord's prior
approval.
(10) Tenant assumes full responsibility of protecting the Premises from
theft, robbery and pilferage; the Indemnitees shall not be liable for
damage thereto or theft or misappropriation thereof. Except during
Tenant's normal business hours, Tenant shall all doors to the Premises
locked and other means of entry to the Premises closed and secured. All
corridor doors shall remain closed at all times. If Tenant desires
telegraphic, telephones, burglar alarms or other electronic mechanical
devices, the Landlord will, upon request direct where and how
connections and all wiring for such services shall be installed and no
boring, cutting or installing of wires or cables is permitted without
Landlord's approval.
(11) Except with the prior approval of Landlord, all cleaning, repairing,
janitorial, decorating, painting or other services and work in and
about the Premises shall be done only by authorized Building personnel.
(12) The weight, size and location of safes, furniture, equipment, machines
and other large or bulky articles shall be subject to Landlord's
approval and shall be brought to the Building and into and out of the
Premises at such times and in such manner as the Landlord shall direct
and at Tenant's sole risk and cost. Prior to Tenant's removal of any of
such articles from the Building, Tenant shall obtain written
authorization of the Office of the Building and shall present such
authorization to a designated employee of Landlord.
(13) Tenant shall not overload the safe capacity of the electrical wiring of
the Building and the Premises or exceed the capacity of the feeders to
the Building or risers.
(14) To the extent permitted by law, Tenant shall not cause or permit
picketing or other activity which would interfere with the business of
Landlord or any other tenant or occupant of the Building, or
distribution of written materials involving its employees in or about
the Building, except in those locations and subject to time and other
limitations as to which Landlord may give prior written consent.
(15) Tenant shall not cook, otherwise prepare or sell any food or beverages
in or from the Premises or use the Premises for housing accommodations
or lodging or sleeping purposes except that Tenant may install and
maintain vending machines, coffee/beverage stations and food warming
equipment and eating facilities for the benefit of its employees or
guests, provide the same are maintained in compliance with applicable
laws and regulations and do not disturb other tenants in the Building
with odor, refuse or pests.
(16) Tenant shall not permit the use of any apparatus for sound production
or transmission in such manner that the sound so transmitted or
produced shall be audible or vibrations therefrom shall be detectable
beyond the Premises; nor permit objectionable odors or vapors to
emanate from the Premises.
(17) No floor covering shall be affixed to any floor in the Premises by
means of glue or other adhesive without Landlord's prior
written-consent.
(18) Tenant shall at all time maintain the window blinds in the lowered
position, though Tenant may keep the louvers open.
(19) Tenant shall only use the freight elevator for mail carts, dollies and
other similar devices for delivering material between floors that
Tenant may occupy.
(20) No smoking, eating, drinking, loitering or laying is permitted in the
Common Area except in designated areas. Smoking is prohibited in all
areas of the Premises, including common areas and all grounds and the
parking lot, except in areas, if any,
Exhibit D - I
<PAGE> 27
outside the Building (and outside any other Building in the Park) that
are designated by Landlord as "Designated Smoking Areas".
(21) Landlord may require that all persons who enter or leave the Building
identify themselves to security guards, by registration or otherwise.
Landlord, however, shall have no responsibility or liability for any
theft, robbery or other crime in the Building. Tenant shall assume full
responsibility for protecting the Premises, including keeping all doors
to the Premises locked after the close of business.
(22) Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency and shall cooperate and participate in all reasonable security
and safety programs affecting the Building.
Exhibit D - 2
<PAGE> 1
EXHIBIT 10.17
FIRST AMENDMENT TO SUBLEASE AGREEMENT
IT IS HEREBY MUTUALLY AGREED, between the undersigned Sub-Lessor and
Sub-Lessee, that the Lease dated May 5, 1997, by and Between ABB Environmental
Systems, Inc., a division of ABB Flakt, Inc., a Delaware Corporation as
Sub-Lessor and TXEN Inc., as Sub-Lessee, leasing the premises as described in
the master lease and all lease amendments between Metropolitan Life Insurance
Company and the Sub-Lessor as Suite 600, 31 Inverness Center Parkway,
Birmingham, Alabama is hereby amended under the following terms and conditions:
1. ADDITIONAL SPACE: The total square footage now covered by the
attached Sub-lease shall be amended to include 3500 square feet, on
the third floor of 31 Inverness Parkway and part of the entire
leased premises addressed in the above mentioned master lease.
2. TERM: The initial term of this amendment shall be concurrent with
the term of the attached sub-lease beginning February 1, 1998 and
expiring July 1, 1998.
3. RENTAL RATE: The rental rate for the initial term of this amendment
will be $3000.00 per month. Rental payment beginning on February
1, 1998
4. POSSESSION: Sub-lessee shall take possession of the additional
leased space immediately upon execution of this agreement to begin
improvements to the additional leased space.
5. RIGHT TO RENEW: Sub-lessee shall have the right to renew this
portion of space as allowed in the attached sub-lease. Upon
renewal, Sub-lessee will be assessed the rental rate, per square
foot, stated in the above-mentioned master lease, for the entire
3500 square feet added by this amendment.
This amendment to lease is granted under the same terms and conditions
as in the lease herein above described, which Lease by reference is expressly
made a part hereof. Nothing herein contained shall operate to release or alter
any of the terms and conditions of said lease except as above set forth.
IN WITNESS WHEREOF, the parties hereto have respectively executed this
document on this the day of December 1997.
ABB Flakt, Inc., a Delaware Corporation
By: /s/
------------------------------------
TXEN Inc.
By: /s/
-----------------------------------
<PAGE> 2
FIRST AMENDMENT TO SUBLEASE AGREEMENT
IT IS HEREBY MUTUALLY AGREED, between the undersigned Sub-Lessor and
Sub-Lessee, that the Lease dated May 5, 1997, by and Between ABB Environmental
Systems, Inc., a division of ABB Flakt, Inc., a Delaware Corporation as
Sub-Lessor and TXEN Inc., as Sub-Lessee, leasing the premises as described in
the master lease and all lease amendments between Metropolitan Life Insurance
Company and the Sub-Lessor as Suite 600, 31 Inverness Center Parkway,
Birmingham, Alabama is hereby amended under the following terms and conditions:
1. ADDITIONAL SPACE: The total square footage now covered by the
attached Sub-lease shall be amended to include 3500 square feet, on
the third floor of 31 Inverness Parkway and part of the entire
leased premises addressed in the above mentioned master lease.
2. TERM: The initial term of this amendment shall be concurrent with
the term of the attached sub-lease beginning February 1, 1998 and
expiring July 1, 1998.
3. RENTAL RATE: The rental rate for the initial term of this amendment
will be $3000.00 per month. Rental payment beginning on February
1, 1998
4. POSSESSION: Sub-lessee shall take possession of the additional
leased space immediately upon execution of this agreement to begin
improvements to the additional leased space.
5. RIGHT TO RENEW: Sub-lessee shall have the right to renew this
portion of space as allowed in the attached sub-lease. Upon
renewal, Sub-lessee will be assessed the rental rate, per square
foot, stated in the above-mentioned master lease, for the entire
3500 square feet added by this amendment.
This amendment to lease is granted under the same terms and conditions
as in the lease herein above described, which Lease by reference is expressly
made a part hereof. Nothing herein contained shall operate to release or alter
any of the terms and conditions of said lease except as above set forth.
IN WITNESS WHEREOF, the parties hereto have respectively executed this
document on this the 31st day of December 1997.
ABB Flakt, Inc., a Delaware Corporation
By: /s/
------------------------------------
TXEN Inc.
By: /s/
-----------------------------------
<PAGE> 3
8/5/98
TXEN RENT CALCULATION
<TABLE>
<CAPTION>
(1)
INVOICED AMT. OF CORRECTED CORRECTED AMT. OF
RATE PER RENT RATE PER RENT RENT
SQ FT. SQ FT. PAID SQ FT. DUE DUE
------ -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Oct-97 15,872 12.85 17,000.00 14.24 18,838.51 1,838.51
Nov-97 15,872 12.85 17,000.00 14.24 18,838.51 1,838.51
Dec-97 15,872 12.85 17,000.00 14.24 18,838.51 1,838.51
Jan-98 15,872 12.85 17,000.00 14.24 18,838.51 1,838.51
Feb-98 18,672 12.85 20,000.00 14.24 22,162.84 2,162.84
Mar-98 18,672 12.85 20,000.00 14.24 22,162.84 2,162.84
Apr-98 18,672 12.85 20,000.00 14.24 22,162.84 2,162.84
May-98 18,672 12.85 20,000.00 14.24 22,162.84 2,162.84
Jun-98 18,672 12.85 20,000.00 14.24 22,162.84 2,162.84
Jul-98 15,872 12.85 20,000.00 14.24 18,838.51 1,838.51
Aug-98 15,872 12.85 14,000.00 14.24 18,838.51 1,838.51
------ -------- ---------- --------- ---------- ---------
202,000.00 230,493.92 21,845.26
</TABLE>
- ---------------
(1) Per article 4 of the master lease, section E, Sublessee shall pay to ABB
Environmental Systems additional operating expenses at the Subleased
Premises.
Effective 10/1/97, the Master Lessor increased estimated operating expenses
by $1.39 per square foot for the year beginning 10/1/97 and ending 9/30/98.
Effective with the September lease payment, rent is due at $22,162.84 per
month until the end of the lease or until adjusted by the Master Lessor for
additional operating expenses.
<PAGE> 4
SUBLEASE
THIS SUBLEASE is made on May 5, 1997, by ABB Environmental Systems,
Inc., a Division of ABB Flakt, Inc., a Delaware Corporation ("sublandlord"),
whose address is 1400 Centerpoint Boulevard, Knoxville, Tennessee and TXEN, Inc.
("subtenant"), whose address is Suite 500, 10 Inverness Center Parkway,
Birmingham, Alabama, 35243.
RECITALS
Whereas, Metropolitan Life Insurance Company, as landlord ("landlord"),
and sublandlord, as tenant, entered into a lease dated July 31, 1980, (the
"master lease"), with regard to Suite 600, 31 Inverness Center Parkway,
Birmingham, Alabama (the "premises"). A copy of the master lease and all lease
amendments are attached to this sublease as Exhibit A. Sublandlord wishes to
sublease to subtenant, and subtenant wishes to sublease from sublandlord, a part
of the premises encompassing the entire 5th floor containing approximately
15,872 square feet, 31 Inverness Center Parkway, Birmingham, Alabama (the
"subleased premises"). The subleased premises are depicted on Exhibit B to this
sublease. Accordingly, sublandlord and subtenant agree:
1. Agreement. Sublandlord subleases the subleased premises to
subtenant, and subtenant subleases premises from sublandlord, according to this
sublease. All provisions of the master lease are incorporated into, and make a
part of, this sublease as the agreement of sublandlord and subtenant as though
sublandlord was landlord under the master lease and subtenant was tenant under
the master lease.
2. Term. The term of this sublease will begin on July 1, 1997, and
will end on June 30, 1998, inclusive.
3. Rent. Subtenant will pay sublandlord as rent for the subleased
premises $17,000.00 per month, in advance, without notice, demand, offset, or
counterclaim, on the first day of each month. If the term of this sublease
begins on other than the first day of a month or ends on other than the
last day of a month, rent will be prorated on a per diem basis.
<PAGE> 5
4. Acceptance of Premises. Subtenant accepts the subleased premises
in their present condition. Sublandlord will not be obligated to make any
alterations or improvements to the subleased premises on account of this
sublease.
5. Other Charges. During the term of this sublease, subtenant will
pay to sublandlord any increase in sublandlord's rent pursuant to Article 4 of
the master lease.
6. Services. Sublandlord will not be obligated to provide any
services to subtenant. Subtenant's sole source of such services is landlord,
pursuant to the master lease. Sublandlord makes no representation about the
availability or adequacy of such services.
7. The Master Lease. This sublease is subject to the master lease.
The provisions of the master lease are applicable to this sublease as though
landlord under the master lease were the sublandlord under this sublease and
tenant under the master lease were subtenant under this sublease. Subtenant has
received a copy of the master lease. Subtenant will not cause or allow to be
caused any default under the master lease. Subtenant will indemnify sublandlord
against any loss, liability, and expenses (including reasonable attorney's fees
and costs) arising out of any default under the master lease caused by
subtenant, and sublandlord will indemnify subtenant against any loss,
liability, and expenses (including reasonable attorney's fees and costs)
arising out of any default under the master lease caused by sublandlord.
8. Subtenant shall have the right to renew this sublease on a year to
year basis at the same rental rate stated in paragraph three, provided that
Subtenant gives Sublandlord one hundred twenty 120 days notice prior to the
expiration of this sublease.
Sublandlord and subtenant have executed this sublease on the date
first written above.
SUBLANDLORD: ABB ENVIRONMENTAL SYSTEMS, INC.
By: /s/
-----------------------------------------
Date: May 5, 1997
SUBTENANT: TXEN, INC.
By: /s/
-----------------------------------------
Date: April 24, 1997
<PAGE> 6
EXHIBIT A
LEASE AGREEMENT
COMBUSTION ENGINEERING, INC.
and
METROPOLITAN LIFE INSURANCE COMPANY
BUILDING 31
INVERNESS CENTER
BIRMINGHAM, ALABAMA
<PAGE> 7
TABLE OF CONTENTS
LEASE AGREEMENT BETWEEN
COMBUSTION ENGINEERING, INC. AND METROPOLITAN LIFE INSURANCE COMPANY
BUILDING 31, INVERNESS CENTER,
BIRMINGHAM, ALABAMA
<TABLE>
<CAPTION>
ARTICLE PAGE
NO. NO.
- ------- ----
<S> <C> <C>
1. PREMISES......................................................... 1
2. TERM............................................................. 2
3. BASE RENTAL...................................................... 3
4. RENT ADJUSTMENTS DUE TO CHANGES IN REAL ESTATE TAXES
AND OPERATING EXPENSES........................................... 4
5. ASSIGNMENT AND SUBLETTING........................................ 10
6. ALTERATIONS...................................................... 11
7. TENANT'S USE OF PREMISES......................................... 12
8. MAINTENANCE AND REPAIRS.......................................... 13
9. SECURITY......................................................... 13
10. INSURANCE AND INDEMNIFICATION.................................... 14
11. DEFAULT OF TENANT................................................ 14
12. RIGHT OF ENTRY................................................... 16
13. TENANT'S HOLDOVER................................................ 17
14. RIGHTS OF RENEW.................................................. 17
15. LANDLORD'S COVENANTS............................................. 18
16. ADDITIONAL SERVICES.............................................. 22
17. DEFAULT OF LANDLORD.............................................. 24
18. COMPLIANCE WITH LAW.............................................. 24
19. CONDEMNATION..................................................... 25
20. RULES AND REGULATIONS............................................ 26
21. ENTIRE AGREEMENT................................................. 26
22. NOTICES.......................................................... 27
23. MEMORANDUM OF LEASE.............................................. 27
24. GOVERNING LAW.................................................... 28
25. DAMAGE AND DESTRUCTION........................................... 28
26. BUILDING SIGNAGE................................................. 28
27. RIGHTS OF SALE AND FIRST REFUSAL................................. 29
28. PARKING.......................................................... 31
29. EATING FACILITY.................................................. 31
30. ADDITIONAL CONSTRUCTION.......................................... 31
</TABLE>
<PAGE> 8
TABLE OF CONTENTS (con't)
<TABLE>
<CAPTION>
ARTICLE PAGE
NO. NO.
- ------- ----
<S> <C> <C>
31. FIRE ALARM SYSTEM................................................ 31
32. MEASUREMENT OF PREMISES.......................................... 32
33. PREPARATION OF PREMISES.......................................... 34
34. INVERNESS COUNTRY CLUB........................................... 38
35. OPTION FOR ADDITIONAL SPACE...................................... 38
36. BUILDING RECEPTION AREA.......................................... 41
37. AGENT'S COMMISSION............................................... 41
38. USUFRUCT ONLY.................................................... 42
39. STATUS REPORTS................................................... 42
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
A-1 .................... Plan of Inverness Center Office Park
A-2 .................... Site Plan-Building 31
A-3 .................... Floor Plan-Premises on 3rd Floor
A-4 .................... Floor Plan-Premises on 4th Floor
A-5 .................... Floor Plan-Premises on 5th Floor
A-6 .................... Floor Plan-Premises on 6th Floor
A-7 .................... Floor Plan-Premises in Basement
B .................... Rules and Regulations
C .................... Unit Price Schedule
</TABLE>
<PAGE> 9
L E A S E
THIS AGREEMENT made this 3rd day of July, 1980, by and between
METROPOLITAN LIFE INSURANCE COMPANY, a New York Corporation, with a principal
place of business at One Madison Avenue, New York, New York 10010, (hereinafter
referred to as "Landlord") and COMBUSTION ENGINEERING, INC., a corporation of
the State of Delaware, with a principal place of business at 1000 Prospect Hill
Road, Windsor, Connecticut, (hereinafter referred to as "Tenant"), and Taylor &
Mathis of Alabama, Inc., a Georgia Corporation (hereinafter referred to as
"Agent".)
W I T N E S S E T H:
WHEREAS, Landlord desires to lease space in a building located in
Inverness Center, Birmingham, Alabama, (hereinafter referred to as "Park")
known as Building 31, (hereinafter referred to as "Building"); situated on Site
7, (hereinafter referred to as "Real Property") and more particularly described
as shown in red on the plans appended hereto as Exhibits A-1 through A-7; and,
WHEREAS, Tenant descries to occupy all or a portion of that space and
use it as general office space as stated in Article 7.
NOW THEREFORE, in consideration of the mutual obligations and
covenants hereinafter set forth, the Landlord does hereby demise and lease unto
the Tenant the premises described below and the parties further agree that:
1. PREMISES
Landlord demises and leases to Tenant the space located at Building
31, Inverness Center, Birmingham, Alabama, and all the appurtenances and
easements thereto consisting of FIFTY-THREE THOUSAND AND FORTY-SIX (53,046) net
rentable square feet of office space on floors 3,4,5, and 6 and THREE THOUSAND
(3,000) usable square feet of basement space as more particularly described and
shown in red on the plans appended hereto as Exhibits A-3, A-4, A-5, A-6 and
A-7 (hereinafter referred to as the "Premises").
Page 1
<PAGE> 10
2. TERM
The term of this lease shall be for five (5) years and shall commence on
the later of July 1, 1980, or the date upon which Building 31 and the Premises
are entirely complete and ready for Tenant's occupancy, including the Building's
paved parking areas, Tenant's improvements, installation of Tenant's telephone
system, and the issuance of all required governmental approvals and permits.
Upon actual completion of the Premises, as herein above defined in no less than
whole floor increments except for the third floor space, Tenant shall
immediately begin to occupy such entirely completed portion of the Premises, and
Tenant shall be obligated to pay rent based on the number of square feet
occupied at the time such space is occupied. Notwithstanding the above, Tenant
shall begin paying the full Base Rental as set forth in Article 3 hereof within
30 days after the completion of the entire Premises. Landlord shall notify
Tenant in writing of the projected completion date of the Premises at least
thirty (30) days prior to Landlord's anticipated completion of any portion of
the Premises. In no event will Tenant be required to take occupancy of the
Premises prior to July 1, 1980. Landlord and Tenant shall execute an amendment
to the lease setting forth the actual commencement and termination dates of this
lease within sixty (60) days after Tenant's full occupancy of the said Premises,
said commencement date shall be the first day of the month following the month
in which Tenant fully occupies the Premises. Landlord shall use its best efforts
to prepare the Premises for occupancy by July 1, 1980, in accordance with the
plans and specifications appended hereto as Exhibits A-3, A-4, A-5, A-6 and A-7.
In the event the Premises are not ready for occupancy by September 30, 1980, due
to circumstances within the reasonable control of the Landlord, Landlord shall
be obligated to pay within thirty (30) days after invoice from Tenant any added
expenses and penalties incurred by Tenant at 200 and 400 Office Park Drive and
One Office Park Circle (herein referred to as the "Existing Leases") as a result
of Tenant being
Page 2
<PAGE> 11
required to holdover at its present locations after September 30, 1980, which
is the expiration date for the Existing Leases (including any rent over and
above the rent payable during the last year of the term of the existing
leases). If Tenant must vacate its office space at 200 Office Park Drive and/or
One Office Park Circle, then Landlord shall pay for all expenses incurred in
moving Tenant to a temporary location and the installation cost of a temporary
telephone system in addition to any rental cost over and above the rent payable
during the last year of the term for the Existing Leases. If the Premises are
not ready for Tenant's occupancy by January 1, 1981, and the delay is not due
to the fault of the Tenant, this lease shall terminate anytime thereafter upon
five (5) days written notice from Tenant to Landlord; or Tenant shall have the
right to complete the Premises and charge the expense thereof, subject to
Section A&B of Article 33, to Landlord or offset a compensating amount from
monthly rents after occupancy.
3. BASE RENTAL.
Tenant shall pay to landlord as Base-Rental in accordance with Article 2
hereof the sum of NINE AND TWENTY FIVE ONE HUNDREDTHS ($9.25) DOLLARS per square
foot per annum for each square foot of the _____ building area which constitutes
the Premises on floors 3, 4, 5 and 6, and shall pay FOUR AND NO ONE HUNDREDTHS
($4.00) DOLLARS per square foot per annum for each square foot leased in the
basement. The Base Rental during each year of the term of this lease shall be
FIVE HUNDRED AND TWO THOUSAND SIX HUNDRED SEVENTY-FIVE AND 50/100 ($502,675.50)
DOLLARS. Tenant shall pay the said Base Rent in twelve (12) equal monthly
installments of FORTY-ONE THOUSAND EIGHT HUNDRED EIGHTY-NINE AND 63/100
($41,889.63) dollars payable monthly in advance. Tenant is obligated to pay rent
based on the number of square feet occupied, at the said rate of $9.25 per
square foot per annum on floors 3, 4, 5 and 6, and $4.00 per square foot per
annum for the basement area. Full rent shall commence on the earlier of the date
that
Page 3
<PAGE> 12
tenant fully occupies the Premises, or thirty days after the Premises are
completed pursuant to Article 2 hereof. The aforesaid rental payments shall be
prorated to the first day of the next succeeding month. Provided however, that
in the event this lease commences prior to October 1, 1980, Landlord agrees
that the monthly rental payment from the date the lease commences through
September 30, 1980, shall be reduced by FIVE THOUSAND SIX HUNDRED THIRTY-SIX
AND THIRTY-SIX ONE HUNDREDTHS ($5,636.36) DOLLARS (which is one-half (1/2) the
monthly rental Tenant is obligated to pay for the remainder of its original
lease term for space at 200 Office Park Drive, Birmingham, Alabama). The square
footage of the Premises and the Building shall be certified to the Tenant in
writing, at the Landlord's expense, by Sidney R. Barrett and Associates,
Landlord's architects, in accordance with Article 32 within thirty (30) days
after completion of the premises.
Tenant shall make payments to Landlord, at Landlord's office or to such
other persons and addresses as directed by notice to Tenant by Landlord in
lawful money of the United States which shall be legal tender for debts public
or private at the time of payment.
4. RENT ADJUSTMENTS DUE TO THE CHANGES IN REAL ESTATE TAXES AND OPERATING
EXPENSES.
(A) Base Year means the twelve (12) month period commencing the first day
of the first month immediately following the date Tenant takes occupancy of the
Premises as set forth in Article 2 hereof and ending twelve (12) months
thereafter.
(B) Operating Year means each twelve-month period succeeding the Base
Year.
(C) Tenant's Prorata Share means the ratio, expressed as a percentage, of
the area of the Premises as set forth in Article 1 to the total net rentable
area of the Building (excluding rentable basement storage space), which is
91,803 square feet. Tenant's Prorata Share is 57.78 percent initially. Such
Prorata Share
Page 4
<PAGE> 13
shall be adjusted as the area of the Premises is adjusted over the term of the
Lease and all renewal periods.
(D) Real Estate Taxes means the amount (in dollars) of real property
taxes levied or assessed against the Building and the land Upon which it stands,
in any tax year or fractional part thereof. Excluded are all estate, sales,
gift, transfer, succession, income, franchise or similar tax.
(E) Operating Expense means the actual and reasonable expense incurred
and paid by the Landlord for the operation and maintenance of the Building,
Premises, Real Property, and Park in accordance with accepted principals of
sound management and accounting practices as consistently applied to
first-class office buildings, including, but not limited to: (i) Wages of
employees, other than employees above the grade of General Manager of Inverness
Center, to the extent of time spent in connection with operation of Inverness
Center, including salaries, payroll taxes, social security and unemployment
insurance, workmen's compensation insurance, disability insurance, fringe
benefits including vacations, holidays and other proper allowances,
hospitalization, medical, surgical, welfare, retirement, pension and profit
sharing plans; (ii) Cleaning, vermin extermination and janitorial services and
supplies; (iii) High quality rest room supplies and supplies used in the
maintenance of common areas of the Building; (iv) Removal of snow, trash,
garbage and other refuse; (v) Electrical cost and expenses; (vi) Plumbing
repairs; (viii) Fuel, water, sewer charges and other utilities; (ix) Elevator
maintenance; (x) grounds maintenance for the Real Property; (xi) Building
maintenance and repairs (including, but not limited to, painting and
redecoration); (xii) Insurance; (xiii) Security services; (xiv) Supervision of
work performed on behalf of the Building, Premises, Real Property, and Park;
and (xv) Premises prorata share of parkwide common area maintenance subject
to Article 4-G(iii) hereof. Provided, however, that for the purposes of
establishing Base Year expenses, Landlord shall include the cost of expenses
which would have reasonably been incurred in the operation of the Building and
Real Property, but were not actually
Page 5
<PAGE> 14
incurred due to warranties in existence the first year of operation. The
initial cost of these items, such as service and outside labor contracts, if
any, related to elevator maintenance and HVAC maintenance shall be added to
Base Year Operating Expense and escalated thereafter. No further adjustments to
the Base Year Operating Expense shall be made.
(F) Notwithstanding anything to the contrary, the following expenses are
excluded from Operating Expenses: (i) All executives' salaries and fringe
benefits above the grade of General Manager of Inverness Center; (ii)
Expenditures for capital improvements made to the Real Property, Building or
Park; (iii) Expenses for painting, redecorating or other work which Landlord
performs for any other tenant of the Building; (iv) Expenses incurred in
leasing or procuring new tenants (including broker commissions and finder's
fees); (v) Legal costs other than those reasonable legal expenses incurred in
connection with protesting Real Estate Taxes when Landlord decides in good
faith that such protest is warranted and informs Tenant in advance of its
intention to protest; (vi) Interest or amortization payments on any mortgage;
(vii) Depreciation and any ground rent; (viii) The cost of correcting defects,
both structural and non-structural, in the Building, Premises or parking area
caused by faulty design, poor workmanship or deficient materials for a period
of two (2) years or the length of any warranty covering the cost of repairing
the defect, whichever is longer; (xi) All costs associated with the initial
construction of the Building; (x) Any structural repair to the roof,
foundation, floors or exterior walls; (xi) Franchise, income or other taxes
based on income or rent or on personal property not used directly in the
operation of the Building, Real Property or Park; (xii) The cost of painting
the Premises in accordance with Article 15 of this Lease; (xiii) The cost of
any repair made by Landlord pursuant to Article 19 and Article 25 of this Lease.
(G) Tenant acknowledges that some Operating Expenses may be incurred by
Landlord directly for the benefit of the Premises and shall, therefore, be
charged directly thereto, whereas certain other Operating
Page 6
<PAGE> 15
Expenses may be incurred by Landlord either directly for the Building and Real
Property, or either of them, or for the Park as a whole. In computing Operating
Expenses applicable to the Premises, there shall be three methods of charging
or allocating Landlord's Operating Expenses as follows:
(i) "Direct Charge", which shall include those Operating Expenses
paid only and solely for the benefit of the Premises, or upon Tenant's express
written request;
(ii) "Building and Real Property Allocation", which shall include
those Operating Expenses paid only and solely in and upon the Building and the
Real Property and not with respect to the Park and not at the request of any
other tenant or user of the Building or Real Property. Tenant shall pay its
prorata share of the increase in these expenses.
(iii) "Common Area Allocation for the Park", which shall include
those Operating Expenses incurred only and solely in and upon common areas of
the Park (as shown on Exhibit A-1, attached hereto and made a part hereof),
outside other buildings or building sites and for the benefit of all tenants and
users of the Park and not at the specific request of any other tenant or user
thereof. The amount of such Common Area Operating Expenses for the Park
allocated to the Building shall be determined by multiplying the Common Area
Operating Expenses by a percentage, which percentage is a fraction having as its
numerator the number of acres comprising the Real Property (6.5), and as its
denominator the total number of acres comprising the Park on each anniversary
date of the Lease (81.353). The Premises will be charged with its Prorata Share
of such amount allocated to the Building. Provided, however, that the amount of
any such increase over the previous year allocable to the Building shall not
exceed ONE THOUSAND TWO HUNDRED DOLLARS ($1,200.00) in any one Operating Year.
Landlord agrees that the Common Area Expenses for the Park shall be a minimum of
$25,000.00 in the Base Year.
(H) Landlord agrees to keep accurate records in accordance with sound
accounting principals, consistently applied, of all Operating Expenses and to
submit to Tenant, within one hundred twenty (120) days
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subsequent to the expiration of the Base Year and any Operating Year, a
statement in reasonable detail certified by any officer, or agent of Landlord
setting forth the Operating Expenses.
(I) In the event the actual Operating Expenses applicable to the Premises
for any Operating Year exceed the Operating Expenses applicable to the Premises
for the Base year, Tenant shall pay such difference as adjusted for payments
received by Landlord applicable to such year pursuant to Paragraph L of this
Article 4, within sixty (60) days after receipt of a statement from Landlord.
Provided, however, such payment shall not bar Tenant from disputing and
recovering the payment of such amounts as hereinafter provided.
(J) In the event the actual Operating Expenses applicable to the Premises
for any Operating Year, are less than Operating Expenses applicable to the
Premises for the Base Year, as adjusted for any payments made or received by
Landlord pursuant to Paragraph L of this Article 4, Landlord shall pay the
difference to tenant within sixty (60) days of forwarding the statement to
Tenant.
(K) Within eighteen (18) months after receipt of a statement from Landlord
setting forth the Operating Expenses applicable to the Premises for the Base
year and within six (6) months after receipt of a statement from Landlord
setting forth the Operating Expense applicable to the Premises for any Operating
Year, Tenant shall have the right, upon ten (10) days written notice to
Landlord, to inspect and audit Landlord's records which shall be maintained at
Inverness Center or in Atlanta, Georgia. Tenant shall notify Landlord within
said eighteen (18) months or six (6) months, as the case may be, if it disputes
the inclusion of any item or items in such statements and tenant will be
promptly reimbursed by Landlord for any items improperly charged for which
tenant paid. If Landlord and Tenant cannot agree as to the inclusion of any item
or items within thirty (30 days after notice has been delivered to Landlord, by
Tenant, then Tenant may submit the dispute to arbitration and such dispute shall
be settled in accordance with the rules and regulations of the American
Arbitration Association. Any such arbitration shall be held in Shelby County,
Alabama, unless the parties otherwise mutually agree. The determination of any
such matter by the Arbitrators shall be final and binding upon both Landlord
and Tenant, and the expenses involved in such determination shall be borne by
the party against whom a decision is rendered by the Arbitrators, provided that
if more than one item is
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disputed and the decision shall be against each party in respect of any item or
items so disputed, the expense shall be apportioned according to the dollar
value of the items decided against each party.
(L) Landlord shall furnish to Tenant no later than 30 days before the end
of each Operating Year, a statement certified by an authorized agent of the
Landlord setting forth in reasonable detail the projected Operating Expenses
for the next succeeding Operating Year. Tenant shall pay monthly beginning with
the first month of the next succeeding Operating Year for which the expenses
were projected, one twelfth (1/12) of said projected increase in Operating
Expenses applicable to the Premises. Landlord agrees that for the purpose of
Tenant making payments pursuant to Paragraph L of this Article 4, Tenant's
share of any projected increases for the next succeeding Operating Year shall
not be greater than twelve (12%) percent of the total Operating Expenses
applicable to the Premises in the immediately preceding Operating Year.
(M) The Base Year's Real Estate Taxes shall be determined by applying the
millage rate and the percentage used in computing assessed value applicable for
the 1980 tax year to an estimated valuation certified by the Shelby County
Tax Assessor's office obtained in October of 1980, but based on a completed
building being substantially occupied. In the event this estimate is not
available in 1980, the final assessed building value determined in October 1981
shall be used in computing base year taxes provided, however, that millage and
assessment rates in effect in October of 1980 shall be applied. If the taxes
payable by Landlord during any tax year subsequent to the base tax year exceed
the Base Year taxes, Tenant shall pay to Landlord Tenant's prorata share of
such excess. Payment of such increase shall be made within thirty (30) days
after the rendition of a statement in reasonable detail from Landlord setting
forth the amount due. Such statement shall specify the Real Estate Taxes paid
by Landlord for the base tax year and for the current tax year and shall be
accompanied by copies of receipted tax bills indicating the payment of
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such taxes. If Landlord shall receive a refund for any tax year for which
payment has been made by Tenant, Landlord shall promptly pay Tenant its prorata
share of such refund.
(N) Landlord will notify Tenant promptly of any discriminatory or
unreasonable increase in Real Estate Taxes resulting from other than a general
increase in the tax rate. Landlord will take all reasonable steps to contest
any such increase, and shall keep Tenant informed, with timely advice, of the
steps being taken. If Landlord elects not to contest such increase, Tenant may
after advising Landlord, contest in good faith and by appropriate proceedings
at its own expense any such tax increase or assessment. Any such contest or
legal proceedings shall be begun by Tenant as soon as reasonably possible after
the decision by Landlord not to contest which shall be made and notice given to
Tenant no later than thirty (30) days in advance of the expiration date for the
filing of any such contest. Tenant may in its discretion consolidate any
proceeding to obtain a reduction in assessed valuation of the Premises for tax
purposes relating to any tax year with any similar proceeding or proceedings
relating to one or more other tax years. Anything to the contrary herein
notwithstanding, Landlord shall pay all such contested items before the time
when the Premises or any part thereof might be forfeited as a result of
nonpayment. Landlord agrees to cooperate with Tenant in such contest and in the
event Tenant is successful in such contest, Tenant will be reimbursed by
Landlord from the recovered proceeds for any overpayment of Taxes by Tenant as
well as Landlord's proportionate share of Tenant's cost for such recovery.
5. ASSIGNMENT AND SUBLETTING
Tenant may assign, sublet, transfer or dispose of all or any portion of
the Premises only with consent of Landlord, which consent shall not be
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unreasonably withheld or delayed. Landlord shall give verbal response to Tenant
within a reasonable time after Tenant's request to assign or sublet any part of
the Premises, and written response within twenty (20) days of Tenant's request.
Any such disposition of this Lease shall in no way terminate the liability of
the Tenant for the performance of and compliance with all the covenants and
provisions of this lease on the part of the Tenant, except as may be otherwise
agreed, and Tenant shall remain fully liable hereunder.
Tenant's assignee or sublessee shall use the Premises for purposes in
keeping with the use provision stated in Article 7. Further, Tenant may, in all
instances, assign or sublet the Tenant's obligations under this lease to any
business entity that it controls, is controlled by or is under common control
with Tenant. Such an assignment or subletting shall not require Landlord's
consent.
There shall promptly be delivered to Landlord the original or a duplicate
original of the instrument or instruments containing such assignment.
6. ALTERATIONS
The Tenant make at its own expense, and of quality equal to or better than
Landlord's Tenant Finish Standards, alterations, decorations, additions, or
improvements in or to the demised Premises without Landlord's consent provided
that such alterations, decorations, additions or modifications do not materially
affect any building system (electrical, plumbing, mechanical, elevator, HVAC).
However, if any building system will be materially affected, Landlord's consent
to such work must be obtained. All such decorations, alterations, additions, or
improvements shall be done in a workmanlike manner, in accordance with all state
and federal and municipal regulations, and in a manner that will not impair the
structural integrity of the Building. Before making any alterations, additions,
improvements, decorations or other changes in or to the
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Premises, whether or not Landlord's approval is required, Tenant shall first
give Landlord the opportunity to do such work, and Landlord shall submit an
estimate for the cost of said work. In the event Tenant feels that Landlord's
cost estimate for the job is too high, Tenant may seek outside bids from two
other contractors. In the event either of the two bids are lower, Landlord
shall then have the opportunity to do the work for the lower of the cost
submitted on such outside bids. In the event Landlord does not agree to meet
the outside contractor's cost, Tenant may then contract with the outside
contractor to do the work; provided, however, that Tenant shall use, at
Tenant's expense, Sidney R. Barrett and Associates, Architects, or such other
architectural firm as is the then Architect for Landlord, to prepare the
working drawings for all such alterations, decorations, additions or
modifications as well as for preparing as-built drawings of such work and
making the appropriate changes on the Building record drawings. All such
alterations, decorations, modifications and improvements, as well as Tenant's
trade fixtures and personal property (including moveable partition with
associated doors), shall remain the property of Tenant and may be removed by
Tenant. Upon the termination of this Lease, if Tenant fails to promptly remove
said alterations, decorations, modifications and improvements, they shall from
that time forward be the sole and exclusive property of Landlord, and Tenant
shall have no rights in or to the alterations, decorations, modifications and
improvements. If the Tenant elects to remove any of the said alterations,
decorations, improvements, Tenant shall do so in a timely manner and shall be
responsible for repairing the Premises and placing them as nearly as possible
in their original condition prior to the addition of Tenant's improvements,
normal wear and tear excepted.
7. TENANT'S USE OF PREMISES
Tenant shall use and occupy the Premises as general office space and for
such related activities as are in concert with Tenant's business and for any
lawful purposes incidental to the use of the Premises as general office space.
Landlord warrants that Tenant's use of the Premises also includes the
installation of vending machines and appropriate lunchroom
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facilities, as required by Tenant. Any subtenant, assignee, subsidiary, parent
or controlled corporation of the Tenant or any successor to it by merger,
consolidation or other corporate action may similarly use the Premises.
Landlord warrants and represents that the use of the Premises set forth
herein is permitted under current laws, ordinances and regulations. Landlord
further warrants that if, at any time during the term of this lease, Tenant's
use of Premises shall become prohibited by reason of any change in the
applicable laws, ordinances and regulations, this lease shall at the option of
Tenant terminate and neither party shall have any further liability to the
other.
8. MAINTENANCE AND REPAIRS
Landlord shall at its expense, subject to Article 4, make all repairs and
replacements structural and otherwise, necessary or desirable in order to keep
in good order and repair the interior and exterior of the Building, all building
systems (electric, plumbing, mechanical and HVAC), the parking area and the
public portions of the Building. Landlord shall make all necessary repairs and
replacements to the Premises, subject to Article 4 hereof, unless the repairs or
replacements are caused by the negligence of Tenant, its servants, agents or
employees. Tenant and Landlord agree that each party shall notify the other of
the need or necessity of such repairs within the Premises and that all such
repairs and replacements shall be in quality and class equal to the original
work or installations and done in a workmanlike manner.
9. SECURITY
Landlord agrees to provide and maintain at Landlord's cost subject to
Article 4 hereof, an electronic surveillance system for the Building and
surrounding area which shall be operable and monitored during all
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non-business hours. In addition, after each day's janitorial cleaning services
are performed, Landlord will turn off all lights and lock all access doors to
the Building and the Premises.
10. INSURANCE AND INDEMNIFICATION
During the term of this lease, Tenant shall defend and hold harmless
Landlord from and against any loss, claim, expense, damage or liability
sustained by Landlord in connection with the Premises resulting from any
negligent act or omission on the part of the Tenant, its agents, employees, or
invitees. Likewise, during the term of this lease, Landlord shall defend and
hold harmless Tenant from and against any loss, claims, expense, damages or
liability sustained by Tenant in connection with the Premises resulting from
any negligent act or omission on the part of Landlord, its agents, employees or
invitees. Tenant shall, at its expense, cause to be placed in effect upon the
commencement of the term hereof and cause to remain in effect comprehensive
general liability insurance in the amount of $5,000,000.
11. DEFAULT OF TENANT
If any one or more of the following happen (hereinafter referred to as
"Event or Events of Default"):
(a) If default shall be made in the due and punctual payment of the base
rent and all other charges payable under this lease when and as the same shall
become due and payable, and such default shall continue for a period of ten
(10) days after written notice from Landlord to Tenant without being cured by
Tenant; or
(b) If default shall be made by Tenant in the performance of or
compliance with any of the covenants, agreements, terms or conditions contained
in this lease, other than that contained in subsection (a) hereof, and such
default shall continue for a period of thirty (30) days after written notice of
said defaults received by Tenant, and Tenant shall
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not have cured said default in that time or within such period as may
reasonably be required to remedy the default (if the default cannot be cured
within said thirty (30) day period) if Tenant has not begun and is not
proceeding with all due diligence to cure said default; or
(c) If Tenant shall file a voluntary petition in bankruptcy or shall be
adjudicated a bankrupt or insolvent or shall file any petition or answer seeking
any arrangement, liquidation, dissolution or similar relief under present or
future federal bankruptcy law or any other applicable state or federal law or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of Tenant or of any or all of its properties or of the
Premises, and, if within seventy-five (75) days after the commencement of any
proceeding against Tenant as enumerated in this subsection, said proceeding has
not been dismissed or if within seventy-five (75) days after the appointment of
any trustee, receiver or liquidator of Tenant for all or any portion of Tenant's
properties, including the Premises, such appointment shall not be vacated or
otherwise stayed; then and in any such event Landlord, at any time thereafter,
as long as such default continues, may give notice to Tenant specifying such
event of default or events of default and stating that this lease and the term
hereby demised shall expire and terminate on the date specified in such notice,
which shall be at least ten (10) days after giving such notice, and upon the
date specified in said notice this lease shall terminate and expire. Upon such
termination Tenant shall remain liable as hereinafter provided unless before
said termination date Tenant has paid all arrearages of rent, all other amounts
payable by Tenant under this lease and all costs or expenses incurred by
Landlord as a result of said default, including reasonable attorneys' fees and
all other defaults existing at that time under this lease have been fully cured
or satisfied by Tenant in which event the consequences of such default shall be
nullified.
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Upon any such expiration or termination of this lease Tenant shall quit and
peacefully surrender the Premises to the Landlord without any payment therefor
by Landlord, and Landlord, upon or at any time after said expiration or
termination, may re-enter the Premises and possess itself thereof by use of
legal process; and, the Tenant shall continue to pay at the same time as the
rent becomes due and payable under the terms hereof, the base rent, as adjusted
in accordance with Article 4 herein, until such time as Landlord shall re-rent
the Premises. At such time as the Premises are re-rented, Tenant shall remain
liable until the amounts due and owing to Landlord as default amounts have been
paid in full. No receipt of monies by Landlord from Tenant after the
termination in any way of this lease, shall re-instate, continue or extend the
term of this lease or affect any notice given to Tenant prior to receipt of
such money but may so operate only upon the specific written agreement of
Landlord. Landlord and Tenant, and each of them, shall have, upon any default
under the terms and conditions of this Lease Agreement, such remedies available
to them as are provided herein together with such other remedies as may be
available to the parties at law or in equity, none to the exclusion of the
other. The waiver of any default or breach hereunder shall not prevent a
subsequent act, which would have originally constituted a default or breach,
from having all the force and effect of an original default or breach. The
receipt and acceptance by Landlord or Agent of rent shall not constitute a
waiver of any default or breach hereof by Tenant of which Landlord then has
knowledge except where said default or breach by Tenant is non-payment of the
rent so received or accepted.
12. RIGHT OF ENTRY
Tenant agrees that Landlord, its agents or employees will be permitted
access to the Premises at all reasonable times upon reasonable notice to the
Tenant to examine, inspect or to protect the Premises from damage or injury.
Nothing herein shall be construed as prohibiting Landlord, its agents, or
employees from entering the Premises without
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notice in case of emergency to prevent damage or injury to the Premises.
Landlord shall further have the right to enter the Premises upon reasonable
notice to Tenant during the last six (6) months of the term hereof to exhibit
the Premises to prospective tenants.
13. TENANT'S HOLDOVER
On the termination or expiration of this Lease, the Premises shall be
surrendered to Landlord in the condition in which Tenant is required to
maintain same, reasonable wear and tear and damage by fire or other action
beyond Tenant's control excepted.
Upon notice to Landlord, at least 30 days prior to expiration of the
lease, of Tenant's inability to vacate Premises due to reasons beyond Tenant's
control, Landlord shall grant Tenant the right to remain in the Premises for a
period of sixty (60) days beyond the normal lease expiration date at the
monthly rental rate then in effect; provided, however, that Tenant shall be a
tenant at will during said period and there shall be no renewal of this Lease
by operation of law. Upon the expiration of this additional sixty day period,
Tenant shall surrender the Premises to Landlord.
14. RIGHTS TO RENEW
Tenant shall have the right to renew this lease for three (3) successive
periods of five (5) years each. In order to exercise any of these three (3)
options, Tenant must provide written notice to Landlord at least six (6) months
prior to the expiration date of the initial lease term or any renewal term. Each
and every renewal option shall be effective for all space under lease by Tenant
in Building 31 at the time the option is exercised. Each renewal period shall be
governed by the same terms and conditions of this lease excepting Base Rental,
as defined in Article 3 hereof, which shall be governed by the following
schedule:
A. First Option Period: 5% increase over the Base Rental at the time the
option is exercised for that space under lease.
B. Second Option Period: 5% increase over first option period Base Rental
at the time the option is exercised for that space under lease.
C. Third Option Period: 5% increase over second option period Base Rental
at the time the option is exercised for that space under lease.
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In addition, the parties intend that the phrase "governed by the same terms and
conditions" shall be applicable as to each successive Renewal Period, but shall
not apply to provide additional renewal options beyond the Third Option Period.
In each instance the Base Year for the calculation of property tax and
operating expense adjustments remains the same as defined in Article 4 hereof.
15. LANDLORD'S COVENANTS
Without limiting the generality and effect of any other provision of this
lease, Landlord covenants that:
(A)(i) Landlord has the right and authority to execute this lease; (ii)
that Tenant, on paying the rent herein reserved and upon performance of all the
terms and conditions of this lease on its part to be performed, shall at all
times during the term hereof peacefully and quietly have, hold and enjoy the
leased Premises; (iii) Landlord further covenants and agrees that Tenant's
employees, agents, invitees and visitors shall have the right at all times to
unhindered access to and egress from the Building, the Premises and parking lot.
(B) To the extent permitted by the laws and insurance regulations of
Alabama, without penalty or extra premium charge therefor, the respective
parties hereto hereby waive and release any and all claims, demands and causes
of action which each might have against the other party, either for damage to or
loss of any part of the leased Premises, the Building, or of any adjoining
premises belonging to Landlord, or for damage to or loss of any of the contents
and/or leasehold improvements belonging to Tenant, arising from perils
ordinarily insured against under a standard fire and extended coverage
insurance policy whether or not such damage or loss is occasioned by the
negligence of the respective parties, or either of them, their agents, servants
or employees to the extent of said coverage against perils ordinarily insured
against under a standard fire and extended coverage insurance policy. The
provisions of this Paragraph B shall prevail over the provisions of Article 10
of this lease.
(C) Landlord will furnish the following facilities, maintenance and
services, at its expense subject to Article 4 and Article 16, and in a
first-rate manner commensurate with the usual standard of a first class office
building:
(i) Electricity for ordinary office uses including normal lighting,
and normal business machines.
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(ii) Elevator service at all times.
(iii) The painting of all portions of walls, columns, and
partitions, other than moveable partitions, as is necessary
to maintain the leased Premises in a first-class condition.
Provided, however, Landlord shall completely repaint the
Premises during the third year of the initial lease term and
during the third year of any renewal term in all space leased
by Tenant, at Landlord's sole expense. Said repainting(s)
shall be done in colors selected by Tenant from Landlord's
Tenant Finish Standards, but in the manner and at times
mutually convenient to Landlord and Tenant. Such repainting
of the entire Premises shall not be subject to Article 4, of
this lease.
(iv) Heating, ventilating and refrigerated air conditioning, in
season, in accordance with ASHRAE standards during the hours
from 7:30 a.m. to 5:30 P.M., Monday through Friday, and 7:30
A.M. to 12:30 P.M. Saturday (hereinafter referred to as
"Building's Regular Business Hours"), except holidays
observed jointly by Landlord and Tenant. Provided however,
Landlord agrees, at Landlord's cost subject to Article 4 and
Article 16 hereof, to provide all Building services and
utilities for Tenant on those holidays where the Building is
considered closed but Tenant's offices are open for business.
(v) Building access and all services and utilities necessary to
permit use of the leased Premises by Tenant at any time after
Building's Regular Business Hours, subject to the provisions
of Article 16.
(vi) Toilet facilities as indicated on Exhibit A-3, A-4, A-5 and
A-6, attached hereto, together with necessary toilet
supplies, hot and cold water, and sewage disposal.
(vii) Repair and replacement of Building Standard window draperies
and rods, if any, and/or blinds, as necessary.
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(viii) Refrigerated drinking water.
(ix) Janitorial services on a five (5) day per week basis, which
janitorial services shall include:
Daily-Five days per week (Monday through Friday, after
Tenant's business hours, except Holidays).
CLEANING SCHEDULE
(a) General Cleaning-Nightly
1. Clean entrance doors
2. Dust, sweep or vacuum all flooring and carpeting and insure dust free
flooring.
3. Empty and clean all waste baskets, ash trays, etc., damp dust as
necessary.
4. Clean cigarette urns and replace sand or water as necessary.
5. Remove wastepaper and waste materials to a designated area.
6. Dust and wipe furniture, fixtures, desks, equipment, displays,
telephones and window sills.
7. Dust or damp dust counters, work tables, shop windows and metal trim.
8. Wipe fingerprints, smudges, ink stains from all surfaces.
9. Brush upholstered furniture.
10. Dust baseboards, chair rails, trim, louvres, etc. (within reach)
11. Wash drinking fountains.
12. Wash counter tops.
13. Wash floor mats.
14. Wipe name plates.
15. Leave locker and service closet in a clean and orderly manner.
16. After each day's cleaning, Landlord will turn off the lights in the
Premises and lock all access doors to the Building and Premises.
(b) Lavatory Cleaning-Nightly
1. Sweep and wash flooring with a germicidal solution.
2. Wash and polish mirrors, powder shelves, brightwork, etc.
3. Wash both sides of toilet seats and urinals including piping, hinges,
bowls, basins, etc. with a germicidal detergent solution.
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4. Dust partitions, tile walls, dispensers and receptacles.
5. Empty and clean towel and sanitary disposal receptacles.
6. Remove wastepaper and refuse to a designated area.
7. Refill toilet tissue holders, soap and towel dispenses with high
quality supplies furnished by Landlord.
(c) Recurrently as Necessary
1. Dust door louvres and other ventilating louvres within reach when
necessary.
2. Remove fingerprints from metal partitions and other similar surfaces
when necessary.
3. Wash and polish glass or glass topped furniture as required.
4. Machine or hand scrub lavatory floor with germicidal solution
when necessary.
5. Machine or hand scrub entrance flooring as necessary.
6. Clean lights, globes and lighting fixtures as required.
7. Rub down entrance way metal and other high level brightwork as
necessary.
8. Keep Premises free from rodents, insects and pests.
9. Replace flourescent tubes and ballasts as necessary.
10. Spot clean carpet as necessary.
(d) Weekly Cleaning
1. Damp mop and touch up vinyl asbestos tile areas in traffic areas and
pivot points, buff if necessary.
(e) Monthly Cleaning
1. Wash lavatory partitions, tile walls and enamel surfaces with
germicidal detergent solutions.
2. Dust exterior of lighting fixtures.
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3. Dust down entrance walls.
4. Dust pictures, frames, etc. not reached in nightly cleaning.
5. Dust exterior of lighting fixtures, overhead pipes, sprinklers.
6. Dust blinds/window hangings and window frames.
7. Dust all vertical surfaces such as partitions, etc. not reached in
nightly cleaning.
8. Wash and apply coating of slip prevention finish to all resilient
floor areas once each month. (Strip finish periodically and apply
two coats.)
(f) Window Washing
1. Wash interior and partition glass as required.
2. Wash exterior windows inside and out as required.
(g) Entrance Lobby
1. Clean entrance doors nightly.
2. Wash and scrub clean lobby floor as required.
3. Wash lobby windows inside and out once a month.
(h) Tenant shall have the right, upon occupying one hundred percent of the
Building, to assume the obligations of Landlord for cleaning Tenant's
Premises, if Tenant should become dissatisfied with the quality of these
cleaning services provided by Landlord. The cost of said cleaning services
will then be borne by the Tenant rather than the Landlord.
16. ADDITIONAL SERVICES
(1) Landlord shall provide heating, ventilation and air-conditioning at
times other than during Building's Regular Business Hours subject to the
following provisions:
(a) Tenant shall notify Landlord of the necessity for after-hours
heating and air conditioning services no later than 2:00 P.M. on the
day such services are required; provided however, that notification
for services required on Saturday or Sunday must be given by 2:00 P.M.
on the preceding Friday. Said notification may be verbal, but shall be
reduced to writing within two (2) business days thereafter.
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(b) Tenant shall pay a charge of $20.00 per hour floor for the first
floor required by Tenant and a charge of $15.00 per hour per floor
for each additional floor required by Tenant for said service
after-hours. Said charge will be billed monthly by Landlord and Tenant
shall pay Landlord within fifteen (15) days of receipt of such bill.
(c) The said charges of $20.00 and $15.00 per hour per floor, as set
forth above, shall be subject to increases from time to time due to
increases in the cost of electricity as charged by Alabama Power
Company, or successor thereto, over the cost of electricity as charged
by Alabama Power Company for the month of July 1980.
(2) Landlord and Tenant recognize that electricity consumed by Tenant may
be in excess of electricity consumed in comparable office buildings for
ordinary lighting levels and normal business machine usage during normal
operating hours; and agree that at the end of the Base Year, Tenant and
Landlord will attempt, in good faith, to quantify such excess use of
electricity, if any. Tenant further agrees to pay to Landlord the cost of
such excess electricity used during the Base Year and agrees that the Base
Year Operating Expenses shall be reduced by the amount of such excess.
(3) Tenant shall pay for all electricity required to operate
data-processing computer machine installation(s) and ancillary key-punch or
other data-input operations contained in separate data-operations rooms.
Such operations shall be separately metered and billed, at the rate then in
effect with Alabama Power Company, monthly, directly to Tenant by Landlord.
Tenant shall pay Landlord such additional charges within fifteen (15) days
or receipt of said bill. Furthermore, Tenant shall be solely responsible
for the cost of furnishing, operating, maintaining, and repairing the
heating, ventilating and air conditioning system required for
data-processing and data-input rooms installations.
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17. DEFAULT BY LANDLORD
If Landlord shall default in fulfilling any of the covenants or provisions
of this Lease on its part to be performed and shall fail to remedy the default
within thirty (30) days (except that any default consisting or amounting to
dispossession of the Tenant shall be immediately actionable) after Tenant shall
have given Landlord written notice of such default, then Tenant shall have the
rights, powers or remedies permitted to it by law and shall have, without
limiting the generality of the foregoing, the right to (a) remedy Landlord's
default and charge Landlord for the cost of remedying the default by withholding
rent or otherwise, or (b) allow the default to continue and reduce the payment
of rent by reason of the default. If Landlord does not remedy such default
within one hundred eighty (180) days after Tenant's written notice of default,
then Tenant, while such default shall continue, shall have the further right to
give Landlord written notice of its intention to terminate this Lease on the
date of such notice or on any later date; and on the date specified in such
notice, Tenant's obligation to pay rent shall cease and this Lease shall
terminate. Provided, however, that Tenant shall not have the right to terminate
this Lease as aforesaid if Landlord is using his best efforts to cure said
default.
18. COMPLIANCE WITH LAW
Landlord shall at its own expense promptly observe and comply with all
present and future laws, ordinances, requirements, orders directions, rules and
regulations of the federal, state, county and city governments and of all other
governmental authorities having or claiming jurisdiction, directly or
indirectly, over the Premises, Building or appurtenances or any part thereof
(including, but not limited to, such regulations or standards as are or may be
promulgated under the Federal Occupational Safety & Health Act of 1970 as
amended or similar federal, state or local requirements pertaining to the
Tenant's use of the Premises and the Building), whether the same are in force at
the commencement of the term or may in the future be passed, enacted or
directed. Without
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limiting the generality of the foregoing, the Landlord shall also procure each
and every permit, license, certificate or other authorization required in
connection with the lawful and proper use of the Premises, Building, or
appurtenances or any part thereof, as now or hereafter constituted.
19. CONDEMNATION
In the event the entire Premises shall be appropriated or taken under the
power of eminent domain by any public or quasi-public authority this lease shall
terminate and expire as of the date of taking and each party shall be released
from liability to the other except to the extent that any rents paid for periods
subsequent to the date of taking shall be refunded to Tenant.
In the event that a portion of the Premises or a portion of the Building
of which the Premises are a part is condemned or taken by eminent domain so as
to render the Premises substantially unusable, Tenant shall have the right to
cancel and terminate this lease effective as of the date of taking by giving
notice to Landlord of that intention within forty-five (45) days after receipt
from Landlord of notice of such appropriation or taking. Any taking or
appropriation by eminent domain proceedings or condemnation shall be deemed to
render the Premises substantially unusable hereunder if such appropriation or
taking will result in Tenant's ability to use any portion of the Premises in
the manner in which and for the purposes for which it has been or may be used
under this lease. In the event of such termination each party shall be released
from liability to the other except to the extent that any rents paid for
periods subsequent to the date of taking shall be refunded to Tenant.
Eminent domain proceeds shall be paid to Landlord, but the Landlord shall,
and hereby does, assign to Tenant an amount out of such award equal to the sum
of (a) the amount attributable to Tenant's trade fixtures and personalty in the
Premises so taken, which fixtures and personalty Tenant elects not to remove;
(b) the cost incurred by Tenant in moving from the condemned Premises in the
event the lease is terminated.
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In the event that less than the whole of the Premises are so appropriated
or taken and Tenant elects not to terminate this lease but shall remain in the
portion of the Premises not so appropriated or taken, then the Base Rent to be
paid hereunder to Landlord shall abate and Tenant shall pay only the portion of
the Base Rent that is in proportion to the space remaining.
20. RULES AND REGULATIONS
Tenant covenants that the rules and regulations appended hereto as Exhibit
B, unless in conflict with the terms and provisions of this lease, and such
other further rules and regulations as the Landlord may make and which are, in
Landlord's judgment, necessary and appropriate for the general well being,
safety, care and cleanliness of the Premises and the Building of which they are
a part, shall be faithfully kept, observed and performed by Tenant, its agents,
servants and employees, but only to the extent that such rules and regulations
are reasonable and uniformly applied to all tenants in the Building and not in
conflict with the terms of this lease.
21. ENTIRE AGREEMENT
It is expressly understood and agreed by and between the parties hereto
that this lease and the exhibits appended hereto set out all the promises,
agreements, conditions, inducements and understandings between Landlord and
Tenant relative to the Premises and that there are not promises, agreements,
conditions, understandings, inducements, warranties or representations, oral
or written, express or implied between them except as herein set forth. This
lease shall not be modified or amended in any manner except by an instrument in
writing executed by the parties.
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22. NOTICES
Any notice to be given by either party to the other pursuant to this lease
or to the provisions of any law, present or future, shall be given by
registered or certified mail, return receipt requested, addressed to the party
for whom it is intended at the address stated below or any other address
designated.
If to Landlord: Vice President Vice President
Metropolitan Life & Metropolitan Life
Insurance Company Insurance Company
One Madison Avenue 47 Perimeter Center East,
New York, New York, 10010 Suite 650
Atlanta, Georgia, 30346
If to Tenant: Vice President-Finance and Administration
Combustion Engineering, Inc.
Inverness Center, Building 31
Birmingham, Alabama 35243
with a copy to: Combustion Engineering, Inc., Corporate Real Estate Department,
1000 Prospect Hill Road, Windsor, Connecticut 06095.
23. MEMORANDUM OF LEASE
The parties agree that concurrently with the execution of this lease they
shall execute a memorandum of lease, in recordable form, to be recorded in the
land records of Shelby County setting forth:
(a) names of the parties hereto
(b) addresses of the parties hereto
(c) the existence of any renewal options
(d) any other terms required by statute or deemed appropriate
by the parties; provided, however, that Tenant's rights to
expand the Premises shall not be included in such a
memorandum.
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24. GOVERNING LAW
This lease shall be construed in accordance with the laws of the State of
Alabama.
25. DAMAGE AND DESTRUCTION
If the Premises or any part thereof shall be damaged by fire or other
casualty, Tenant shall give immediate notice thereof to Landlord and this Lease
shall continue in full force and effect except as hereinafter set forth. If the
Premises or any part thereof or any portion of the Building are partially
damaged or rendered partially unusable by fire or other casualty, such damages
shall be repaired by and at the expense of Landlord and this Lease shall not
terminate, and the Base Rent, until such repair shall be completed, shall be
apportioned from the day following the casualty according to the part of the
Premises which is unusable. If said repairs are not completed within one hundred
eighty (180) days from the date of said damage or if said repairs have not
commenced within thirty (30) days from the date of said damage, or Landlord is
not proceeding diligently after commencing with said repairs, then this Lease
shall be immediately terminable at the option of the Tenant.
Landlord shall give Tenant written notice within ten (10) days after the
date of any casualty as to whether said repairs can be completed within one
hundred eighty (180) days; if said repairs cannot be completed within one
hundred eighty (180) days or if Landlord fails to give proper notice within ten
(10) days, then Tenant shall have the right, at Tenant's option, to terminate
this Lease anytime after receipt of Landlord's notice or said ten (10) day
period.
If the Premises are totally destroyed by fire or other casualty, then the
Base Rent and all other charges due from Tenant pursuant to this Lease shall be
paid up to the time of the casualty and at either party's option this Lease
shall terminate, provided written notice is given the other party within 30
days of such destruction.
26. BUILDING SIGNAGE
At the request of Tenant, Landlord shall design, install and maintain an
exterior, free-standing sign to be located at the street entrance to Building
31 and/or adjacent to Building 31. The cost of the sign and installation at the
street entrance and adjacent to the Building shall be
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paid by Tenant. Such signs shall conform to municipal and other applicable laws
and regulations and shall be subject to Tenant's approval as to their design,
size and location.
Tenant may design, install and maintain at its expense signs containing
Tenant's corporate identification and lettering and other appropriate
information on, above or beside all doors leading into the Premises, in
accordance with Combustion Engineering, Inc.'s corporate standards and
Landlord's signage standards and subject to Landlord's approval as to their
design, size and location, which approval shall not be unreasonably withheld or
delayed.
Landlord shall maintain at its expense in the Building lobby a suitable
directory for the tenants in the Building and Tenant shall be allotted, without
charge therefor, Tenant's prorata share of the spaces on such directory, as
determined by Article 4 (C). Landlord agrees that such directory shall list, as
Tenant shall determine, Tenant's name and the name of any affiliate or
subtenants.
27. RIGHTS OF SALE AND FIRST REFUSAL.
If Landlord shall desire to sell the Building and the Real Property, apart
from the rest of Inverness Center, Landlord may consummate such sale only if
(a) such sale is to a corporation affiliated with Landlord, or (b) compliance
has been made with the provisions and conditions of Subsections (i) through
(v) of this Article 27.
(i) Landlord shall deliver to Tenant a written statement reflecting the
price for which, and the terms upon which, Landlord would be willing to sell
the Building and the Real Property.
(ii) Tenant shall have the right to purchase the Building and the Real
Property at the price and on the terms contained in such statement.
(iii) Tenant shall have a period of thirty (30) days after the service of
such statement to serve upon Landlord a notice which shall specify whether
Tenant shall purchase the Building and the Real Property. If Tenant fails to
respond within the allocated time, Tenant shall be deemed to have elected and
agreed not to purchase. If Tenant shall have served upon Landlord a notice
specifying that Tenant shall purchase the Building and the Real Property, and
if Tenant shall thereafter fail or refuse to
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close such purchase as required by Subsection (iv) of this Article 27, Landlord
may bring (1) any proceeding in the nature of injunction or other equitable
remedy, it being acknowledged by Tenant that damages at law may be an
inadequate remedy for such failure or refusal of Tenant to close such purchase,
and (2) any action at law against Tenant in order to recover damages.
(iv) Any closing in respect to the sale of the Building and the Real
Property to Tenant shall be held within thirty (30) days after the notice sent
by Tenant as provided in Subsection (iii) of this Article 27.
(v) If Tenant elects not to purchase the Building and the Real Property,
Landlord will have the right for a period of one year from its delivery of the
statement described in Subsection (i) of this Article 27, to sell the Building
and the Real Property at a price and on terms no less favorable to Landlord
than those specified in such statement. For the purposes of this Section 27,
the price for which and the terms upon which Landlord shall sell the Building
and the Real Property shall be deemed "less favorable to Landlord" than those
reflected in such statement if (a) the total price is lower than that set forth
in such statement, (b) a lesser portion of the price is paid in cash at the time
of the sale than that set forth in such statement, or (c) the portion of the
price not paid in cash at the time of the sale is payable over a longer period
of time, at a lower interest rate or with lower periodic payments than those
set forth in such statement. If Landlord does not sell the Building within one
year from delivery of the statement described in Subsection (i) above then
Tenant's rights as described in Subsections (i) through (iv) shall reapply
after said one year period.
If Landlord decides, after notice to Tenant as described in
Subsection (i) above, to sell the Building on terms "less favorable to
Landlord" as described in Subsection (v) above; then Landlord must notify
Tenant of said less favorable terms and Subsection (ii) through (iv) shall
reapply.
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28. PARKING
Landlord shall provide, at no expense to Tenant, one parking space for each
240 square feet of office space leased in Building 31 by Tenant during the
initial lease term or any extension thereof. This ratio shall remain constant
and shall apply equally to any expansion space, other than basement space,
leased by Tenant. Said parking spaces shall be located in the paved and lighted
parking lot adjacent to the Building as shown in red on Exhibit A-2 attached
hereto. Landlord shall provide, as part of the agreed upon parking, five parking
spaces for each floor Tenant occupies completely as reserved parking. These
spaces shall be appropriately marked by Landlord and located as outlined in blue
on the attached Exhibit A-2.
29. EATING FACILITY
As part consideration for Tenant entering into this lease, Landlord
agrees, covenants and warrants that it shall provide a sandwich eating
facility in the basement of Building 31 for the common use of Tenant's
employees, invitees and others within thirty (30) days after Tenant takes
occupancy. Thereafter, Landlord shall use its best efforts to provide such a
facility. Said facility shall be adequate to provide sit down service for
approximately sixty (60) persons, and shall provide facilities for the warming
of food but not for the cooking of food.
30. ADDITIONAL CONSTRUCTION
Landlord hereby covenants and agrees that all other buildings to be built
in Inverness Center will be comparable in quality to Building 31. Landlord will
take reasonable measures to protect Tenants's property and personnel from loss
and injury and to avoid disrupting Tenant's regular business routine during any
construction.
31. FIRE ALARM SYSTEM
Landlord agrees to install and maintain internal fire alarm system,
including emergency lighting in fire stairs and fire extinguishers and fire
hose cabinets adjacent to the fire stairs on each floor, at no cost to Tenant.
Said alarm system shall comply with all present and future requirements of
federal, state, county and city governments and of all other governmental
authorities having jurisdiction.
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32. MEASUREMENT OF PREMISES
The rent stated in Article 3 is calculated on the basis of $9.25 per square
foot per year for the net rentable floor space occupied on floors 1 through 6 by
Tenant. The net rentable floor space was calculated by using the following basis
of measurement:
(1) The net area of a single tenant office floor, other than the
first floor, is computed as follows:
(a) Measure from the inside surfaces of the glass in the outer
Building walls to the inside surfaces of the glass in the
opposite outer Building walls and calculate the resulting
square foot area;
(b) Measure the following excluded area: Building stairs, fire
towers, elevator shafts and elevator machine rooms with
their enclosing walls, tank rooms, flues, vents, stacks,
ducts, and pipe shafts with their enclosing walls, except
those in columns and projections necessary to the Building
and calculate the resulting square foot area. The square
foot area resulting from subtracting (b) from (a) is the net
rentable area.
(2) The net rentable area of a multi-tenant office floor, other than
the first floor, is computed as follows:
(a) Measure from the inside surfaces of the glass in the outer
Building walls to the inside surfaces of the glass in
opposite outer Building walls and calculate the resulting
square foot area;
(b) Measure the Premises from the inside surfaces of the glass
in the outer Building walls to the inside surfaces of the
glass in the opposite Building walls or to the middle of any
demising walls or corridor walls or to the outside surface
of any core walls wherever applicable and calculate the
resulting square foot area;
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(c) Measure the following excluded areas: Building stairs, fire towers,
elevator shafts, elevator machine rooms with their enclosing walls,
tank rooms, flues, vents, stacks, ducts and pipe shafts with their
enclosing walls, except those in columns and projections necessary to
the Building and calculate the resulting square foot area;
(d) Measure the following common areas: passenger and service elevator
lobbies, men's and women's rest rooms, telephone, electric and janitor
closets, and common corridors and calculate the resulting square foot
area.
Tenant's square foot area is developed by applying the
results of (a) (b) (c) and (d) above in the following
formula:
(1) a-(c+d)=e (Net usable floor area)
(2) b/e = f% (Tenant's share of net usable floor area)
(3) f% x d=g (Tenant's share of common area)
(4) b+g = Tenant's net rentable area on a multi-tenant
floor.
The square foot area for basement space is calculated by
measuring the distance between the inside surface of two
opposite perpendicular walls and the distance between the
two adjacent opposite perpendicular walls. The two numbers
derived should be multiplied to arrive at a square foot
area. The square foot area resulting is multiplied by $4.00
and the result is the annual rent for basement space.
(3) The net rentable area for space occupied on the first floor of
the building is computed as follows:
(a) In the event the first floor is occupied by tenants other
than Tenant, the formula for computing the area of
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a multi-tenant office floor is used, as described
hereinabove in Section (2) of this Article 32, except that
the area of the Building entrance lobby is included in the
common areas set forth in subsection (d) of said section
(2);
(b) In the event the first floor is occupied completely by
Tenant, the formula for computing the area of a single tenant
office floor is used, as described hereinabove in Section (1) of
this Article 32, except that the area of the Building entrance
lobby is included in the Tenant's space as set forth in
subsection (a) of said Section (1).
33. PREPARATION OF PREMISES
(A) Prior to the commencement date of this lease Landlord will, at
Landlord's sole cost, complete the following improvements to the Building and
Premises in a first class and workmanlike manner:
(1) Finished, insulated and soundproofed perimeter walls, core
walls, corridor walls and demising wall on the third floor and basement of the
Building.
(2) Two (2) building standard, solid core, tenant entrance doors on
third floor and one (1) in the basement of Building with building standard
hardware and locksets;
(3) Building standard finished elevators, stairwells, core walls,
building entrance, first floor elevator lobby and building standard restrooms
on all floors; and elevator lobby on the multi-tenant floor.
(4) Suspended 2' X 2' lay-in-grid accoustical tile ceiling
throughout the Premises, excluding basement space, and factory finished panels.
(5) Recessed lighting fixtures, installed as specified on lighting
plans to be approved by Tenant prior to installation, sufficient to maintain a
minimum of 80 foot candles of illumination at desk level uniformly distributed
throughout the Premises, excluding basement space, complete with acrylic
lenses, lamps and ballasts on floors one through 6 of the Building; and a
minimum of 50 foot candles of illumination in the basement supplied by hanging
strip lighting.
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(6) Building standard Levelor blinds with all necessary hardware at
all windows. Building standard drapery pockets at all windows on the second
through sixth floors of the Building.
(7) Finished and operational distributed HVAC system for standard
office space designed and operable in accordance with ASHRAE standards and
Tenant's final floor plans, excluding basement space. This shall include all
mechanical equipment, duct work distribution and thermostatic controls. Any HVAC
equipment required in addition to the standard HVAC system serving the Building
shall be at Tenant's sole expense. The HVAC system will be controlled by a
thermostat covering each of the eight (8) separately zoned areas on each floor.
The thermostats will be located in close proximity to that building area which
the thermostat controls.
(8) Emergency lighting in fire stairs, hand fire extinguishers and
fire hose cabinets adjacent to the fire stairs on each floor and any other fire
and emergency equipment required by local, state and federal authorities
applicable to standard office space.
(B) In addition to performing the above stated work, Landlord shall
provide Tenant with an allowance of $6.00 per net rentable square foot leased,
excluding any basement areas, which will be a total of $318,276. Said lump sum
amount can be used by Tenant in any manner it so chooses, including the
purchase of movable partitions and furniture. Tenant and Landlord hereby agree
that Landlord will control such funds, and will make disbursements therefrom
upon written request by Tenant.
(C) All such work performed by Landlord on Tenant's behalf shall be done
as shown on and to the extent required by Tenant's interior layout plans
attached hereto as Exhibits A-3, A-4, A-5, A-6 and A-7.
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Landlord will certify that the Building structural design recognizes and
accommodates the weight of Tenant's furniture and equipment as shown on
Tenant's floor plans.
Within fifteen (15) business days after execution of this lease, Tenant
shall notify Landlord of Tenant's approval for Landlord to proceed with
Tenant's Work or notify Landlord of any changes Tenant desires to make.
Landlord shall perform the rest of Tenant's Work in accordance with the terms
of this lease. If Tenant shall have failed to respond to Landlord's price
within said period, Tenant shall be deemed to have approved same.
Any changes in Tenant's Work proposed by Tenant subsequent to the
submission and approval of Tenant's plans shall, to the extent possible, be
priced based upon the unit price schedule attached hereto as Exhibit C and made
a part hereof and be subject to Landlord's approval, which approval Landlord
agrees not to unreasonably withhold or delay. It is understood between the
parties that the unit prices shown on Exhibit C are valid through August 1,
1980. If, subsequent to the submission and approval of Tenant's plans and the
determination of Landlord's price, Tenant requests a change in Tenant's Work,
and such change, in Landlord's opinion, shall increase the overall cost to
Landlord of performing Tenant's Work, and if Landlord shall so notify Tenant
prior to taking action with respect to any such change, Landlord may predicate
its making of such change upon the adjustment of Landlord's price to reflect
any increased cost to Landlord of such change. If Tenant requests a change in
Tenant's Work after such submission, approval and determination, which change
shall decrease the overall cost to Landlord of performing Tenant's Work, Tenant
may request an adjustment of Landlord's overall price to reflect any such
decrease.
(E) If Landlord's price shall exceed Tenant's allowance as determined by
Subparagraph (B) above, Tenant shall pay to Landlord the amount of such excess
within twenty (20) days after Tenant occupies the Premises upon receipt of
Landlord's invoice itemizing any excesses. Any amounts not paid within said
twenty (20) days shall bear interest at the rate of 1 1/2% percent per month.
If Landlord's prices shall be less than Tenant's allowance as determined by
Subparagraph (B) above, Tenant shall receive a rent credit equal to the amount
of any difference between Landlord's overall price and Tenant's allowance as a
reduction in Tenant's first and succeeding monthly rent payment until the
credit has been exhausted.
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(F) During the construction of the Building and the performance of
Tenant's Work in the Premises, Tenant, its agents and employees shall be
afforded reasonable access and entry to the Building and Premises at all
reasonable hours for the purpose of inspecting and verifying construction of the
Building and Premises as herein provided and the performance of Tenant's Work
and all other work in the Premises required by Exhibits A-3, A-4, A-5, A-6 and
A-7, provided, however, that such access and entry does not unreasonably
interfere with the performance of such construction or other work.
(G) Landlord at its expense shall obtain all necessary governmental
permits and certificates for the commencement and prosecution of Tenant's Work
and for final approval thereof upon completion, and shall cause Tenant's Work to
be performed in compliance therewith and with all applicable laws and
requirements of state and local public authorities, and in good and workmanlike
manner; provided, however, that Landlord and Tenant shall cooperate reasonably
and expeditiously in making reasonable changes in Tenant's plans necessary to
obtain such permits, certificates and approval.
(H) Landlord hereby warrants the work performed by its contractors and
subcontractors for a period of one (1) year from the date of the occupancy of
the Premises by Tenant against defects in workmanship and materials in the
construction of the Building and Premises. During the period of this warranty,
the Landlord agrees to promptly repair or make good, without cost to Tenant,
any and all such defects in workmanship and materials upon receipt of notice
thereof from Tenant. Further, Landlord hereby agrees to name Tenant as its
joint beneficiary, as their interest may appear, on any warranty in excess of
said one (1) year period, received by it from its contractor or subcontractors
with respect to individual trade bonds, warranties, or guarantees specified
under the various trade sections of the specifications. The foregoing covenant
shall in no wise affect or limit Landlord's obligations to make repairs as
elsewhere provided in this Lease to Tenant.
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34. INVERNESS COUNTRY CLUB
Landlord agrees to provide Tenant, at no cost to Tenant, fifteen (15)
individual dining privileges at the Inverness Country Club for the purpose of
utilizing the club's dining facilities. Said dining privileges shall be
provided by Landlord from the date of Tenant's occupancy of the Premises to the
expiration date of the initial term of this Lease. Tenant shall furnish to
Landlord continuously updated lists of the 15 individuals and their positions
with Combustion Engineering to whom these privileges pertain.
If Landlord continues to own the Inverness Country Club after the initial
term of this Lease, and if, in Tenant's reasonable judgment there are no eating
facilities comparable to the Inverness Country Club within two (2) miles of the
Building, then Landlord will continue to provide Tenant with fifteen (15)
dining privileges at the Inverness Country Club, at no cost to Tenant. The
fifteen (15) dining privileges will continue to be provided until Landlord
sells the Country Club or until comparable dining facilities are opened within
(2) miles of the Building in Tenant's reasonable judgment.
In the event that comparable eating facilities are available within two
miles of the Building, after the initial five year term of this Lease, then
Tenant may, at Tenant's option and expense, continue the use of fifteen (15)
dining privileges at the Inverness Country Club for any extended lease term.
35. OPTION FOR ADDITIONAL SPACE
(A) Landlord hereby grants Tenant the option to acquire additional office
space on Floors 1, 2, and 3 of the Building, in accordance with the following
schedule:
(1) Landlord agrees to limit all leases on the third floor and
approximately one-half of the contiguous space on the second floor of
the Building to a maximum lease term of three (3) years. Tenant will
have the option to acquire all the office space on the third floor and
approximately one-half of the second floor as the initial lease(s)
expire. In any event all space on the third floor and approximately
one-half of
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the second floor will be made available no later than January 1, 1984.
(2) Landlord agrees to limit all leases on the first floor and
approximately one-half of the second floor of the Building to a
maximum lease term of five (5) years. Tenant will have the option to
acquire all the office space on the first and approximately one-half
of the second floor of the Building as the initial leases expire. In
any event all space on the first and second floors will be made
available to Tenant no later than January 1, 1986.
Landlord will furnish Tenant a continuously updated list, as
leases are made for space on the first, second and third floors of
the Building. The list shall include the amount of the square feet
under lease, the location of the space drawn on a 1/8" scale typical
Building floor plan, the lease expiration date and the space
presently vacant in the Building. Tenant shall advise Landlord in
writing no later than six (6) months in advance of each lease
expiration date of its intent to acquire any space or within ten (10)
days of the date space becomes vacant for any other reason. Any space
so acquired by Tenant shall be subject to all the same terms and
conditions of this lease including termination date except as
provided herein.
(B) In addition to the options for additional space granted to
Tenant, as stated herein, Tenant shall have the right to lease any unleased
space in the Building and to lease any leased space that becomes vacant for any
reason from time to time on the same terms and conditions as contained in
sections (D) and (E) of this Article 35. Landlord shall inform Tenant monthly of
the status of any negotiations concerning unleased or vacant space and Tenant
shall inform Landlord within a reasonable time thereafter of Tenant's desire to
acquire any of said vacant or unleased space. At the request of Tenant, Landlord
shall lease to Tenant any vacant space available
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unless Landlord has made a binding commitment to lease the requested space to a
third party.
(C) If Tenant does not acquire all the space in the Building as provided
for herein, Landlord may re-lease any space not acquired for a maximum term of
five (5) years. Tenant shall have the option to acquire any remaining space in
the building at the expiration of the said five (5) year lease term in the same
manner as provided herein.
(D) The rental schedule for all expansion space acquired in accordance
with this Article 35 shall be as follows:
(1) The rental rate for all space acquired on the third floor will
be at $9.25 per net rentable square foot per year plus
accumulated escalations as determined by Article 4.
(2) The rental rate for all space acquired on the first floor and
second floor prior to the end of the initial lease term of five
(5) years and the First Option period, years 6 through 10, will
be at the lower of the ten current market rate for said space
based on the rental rates for comparable space in Inverness
Center, (hereinafter referred to as "Market Rate"), or an
increase of 10% over the base rental rate then in effect for
Tenant's fourth, fifth, and sixth floor space, plus accumulated
escalation as determined by Article 4. The rental rate for said
space acquired during the Second Option Period, or lease years
11-15, shall be at the lower of the Market Rate or 20% over the
base rental rate then in effect for Tenant's fourth, fifth and
sixth floor office space, plus accumulated escalation. The
rental rate for space acquired during the Third Option Period or
lease years 16-20, shall be at the lower of the Market Rate or
30% over the base rental then in effect for Tenant's fourth,
fifth and sixth floor office space, plus accumulated escalation.
Page 40
<PAGE> 49
(E) All expansion space acquired in accordance with this Article 35 shall
be prepared for Tenant's occupance by Landlord in accordance with the following
schedule:
(1) If the expansion space acquired by Tenant had not been previously
occupied by tenants, agent or Landlord, then Landlord shall prepare
the space for Tenant's occupancy in accordance with Article 33.
(2) If the expansion space acquired by Tenant had been previously
occupied by tenants, agent or Landlord, then Landlord shall, at
Landlord's expense, perform any demolition work required by Tenant for
its use of the space, and Tenant shall, at Tenant's expense, perform
any construction work relating to interior leasehold improvements
notwithstanding the provision of Article 33 hereof.
36. BUILDING RECEPTION AREA
Landlord agrees that Tenant shall have the right to establish a reception
area in the Building entrance lobby area when Tenant occupies 100 percent of
the Building. Landlord also agrees that no other tenant shall have the right to
use the Building entrance lobby as a reception area at any time.
37. AGENT'S COMMISSION
Landlord and Tenant agree that Taylor & Mathis of Alabama, Inc., acted as
sole Agent for the purpose of this lease. It is understood that any fee due
Agent is the responsibility of Landlord and the same shall be paid by
Landlord. Landlord agrees to pay Agent as compensation for Agent's services
rendered in procuring this Lease, the first full month's rent paid hereunder
and thereafter 5 percent (5%) of all rental paid to Lessor as rent for the
Premises or any part thereof, whether paid under this Lease or otherwise, and
Landlord with consent of Tenant, hereby assigns to Agent that portion of such
rental payment constituting the aforesaid commission. If the term
Page 41
<PAGE> 50
of this Lease is extended or renewed, or if this Lease is amended to cover
any other premises as an expansion of, renewal of, or substitute for, the
Premises herein leased or any part thereof, or if a new lease is entered
into between Landlord and Tenant covering the Premises, or any part
thereof, or covering any other premises as an expansion of, renewal of, or
substitute for the Premises herein leased or any part thereof, then in any
such said events, Landlord, in consideration of Agent having procured
Tenant hereunder, agrees to pay Agent 5 percent (5%) of all rental paid to
Landlord under such extensions, renewals, amendments or such new lease.
Agent agrees in the event Landlord sells Premises that upon Landlord's
furnishing Agent with an agreement signed by Purchaser, assuming Landlord's
obligations to Agent under this Lease, that Agent will release original
Landlord from any further obligations to Agent hereunder. Agent is a party
to this Lease solely for the purpose of enforcing its rights under this
Lease, and it is understood by all parties hereto that Agent is acting
solely in the capacity as Agent for Landlord, to whom Tenant may look as
regards all covenants, agreements and warranties herein contained.
38. USUFRUCT ONLY
This contract shall create the relationship of landlord and tenant; no
estate shall pass out of Landlord; Tenant has only a usufruct, not subject
to levy and sale.
39. STATUS REPORTS
Recognizing that Landlord may find it necessary from time to time to
establish to third parties such as accountants, banks, mortgagees or the
like, the then current status of performance hereunder, Tenant agrees
Page 42
<PAGE> 51
upon the written request of Landlord, made from time to time by notice, to
furnish promptly a written statement (in recordable form, if requested) on the
status of any matter pertaining to this Lease to the best of the knowledge and
belief of the Tenant making such statement. This lease and all the agreements,
covenants and conditions contained herein shall be binding on the Landlord and
Tenant and upon their respective successors and assigns.
IN WITNESS WHEREOF the parties hereto have set their hands and seals on the
date and year first above written.
LANDLORD
METROPOLITAN LIFE INSURANCE COMPANY
/s/ /s/
- ------------------------------------ ----------------------------------------
By: Vice President
/s/ Judith J. Ross
- ------------------------------------
ATTEST: /s/
--------------------------------
By: Assistant Secretary
TENANT:
COMBUSTION ENGINEERING, INC.
/s/ /s/ R. J. Hallinan
- ------------------------------------ ----------------------------------------
By: Vice President
/s/ Patricia J. Sawyer
- ------------------------------------
/s/
----------------------------------------
ATTEST: Assistant Secretary
AGENT:
TAYLOR & MATHIS OF ALABAMA, INC.
/s/ Carroll M. Battey /s/
- ------------------------------------ ---------------------------------------
By: Chairman of the Board
/s/
- ------------------------------------
ATTEST:
/s/
----------------------------------------
By: Secretary
Page 43
<PAGE> 52
STATE OF CONNECTICUT )
) S.S.
COUNTY OF FAIRFIELD )
BE IT REMEMBERED THAT on this 19th day of May 1980, before me, a
Notary Public in and for said State, personally appeared R. J. Hallinan, who
is personally known to me and known to me to be the identical person described
in and who executed the foregoing instrument, and such person duly acknowledged
to me the execution of the same as a free and voluntary act and deed for the
uses and purposes and consideration therein set forth.
WITNESS MY HAND AND OFFICIAL SEAL OF THIS OFFICE this day and year
above written.
/s/
Notary Public in and for
Fairfield County,
NOTARY PUBLIC
My Commission Expires March 31, 1985 (SEAL)
STATE OF GEORGIA )
)S.S.
COUNTY OF DEKALB )
BE IT REMEMBERED THAT on this 3rd day of July 1980, before me, a
Notary Public in for said State, personally appeared ____________________,
who is personally known to me and known to me to be the identical person
described in and who executed the foregoing instrument, and such person duly
acknowledged to me the execution of the same as a free and voluntary act and
deed for the uses and purposes and consideration therein set forth.
WITNESS MY HAND AND OFFICIAL SEAL OF THIS OFFICE this day and year
above written.
/s/
Notary Public in and for
DeKalb County,
Notary Public Georgia State at Large
My Commission Expires: 9-26-82 (SEAL)
Page 44
<PAGE> 53
STATE OF )
) S.S.
COUNTY OF )
BE IT REMEMBERED THAT on this 30th day of June 1980, before me, a
Notary Public in and for said State, personally appeared C.M. Taylor, who is
personally known to me and known to me to be the identical person described in
and who executed the foregoing instrument, and such person duly acknowledged to
me the execution of the same as a free and voluntary act and deed for the uses
and purposes and consideration therein set forth.
WITNESS MY HAND AND OFFICIAL SEAL OF THIS OFFICE this day and year
above written.
/s/ Renee H. Williams
---------------------
Notary Public in and for
------------------------ County,
Notary Public, Georgia State at Large
My Commission Expires July 29, 1983 (SEAL)
Page 45
<PAGE> 54
MEMORANDUM OF LEASE
This is a Memorandum of that certain unrecorded Lease dated July 3,
1980 between METROPOLITAN LIFE INSURANCE COMPANY, a New York Corporation,
Landlord, whose address is 47 Perimeter Center East, Suite 650, Atlanta,
Georgia 30346, and COMBUSTION ENGINEERING, INC., a Delaware Corporation,
Tenant, whose address is Inverness Center, Building 31, Birmingham, Alabama
35243, concerning the premises described in Exhibit A attached hereto and made
a part and made a part hereof by reference.
For good and valuable consideration, Landlord leases the premises,
together with all appurtenances and easements thereto to Tenant, for the term
and under the provisions contained in the above-mentioned unrecorded Lease,
which unrecorded Lease is incorporated in this Memorandum by this reference.
Tenant is also entitled to the use of parking areas and common eating facility
area in the basement of the leased premises, all as described in said
unrecorded Lease, for the term of the Lease.
The term of the Lease is to commence when the demised premises are
completed constructed and ready for occupancy, according to the terms of the
unrecorded Lease, but no later than January 1, 1981, and will run for a term of
five (5) years; ending no later than January 1, 1986.
Tenant has an option and right to renew this lease for three (3)
successive periods of five (5) years each, subject to the terms and conditions
of the Lease.
This Memorandum is not a complete summary of the above-mentioned
unrecorded Lease. Provisions in this Memorandum shall not be used in
interpreting the lease provisions. In the event of conflict between
Page 46
<PAGE> 55
the Memorandum and the recorded Lease, the unrecorded Lease shall control.
IN WITNESS WHEREOF the parties hereto have set their hands and seals
on the date and year first above written.
LANDLORD:
METROPOLITAN LIFE INSURANCE COMPANY
/s/ By: /s/
------------------------ ------------------------
Vice President
/s/ Judith J. Ross
------------------------
TENANT: COMBUSTION ENGINEERING, INC.
/s/ By: /s/ R.J. Hallinan
------------------------ ------------------------
/s/ Patricia J. Sawyer
------------------------
Page 47
<PAGE> 56
STATE OF GEORGIA )
)
COUNTY OF DEKALB )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that C.E. Sayres, whose name as Vice President of Metropolitan
Life Insurance Company, corporation, is signed to the foregoing conveyance, and
who is known to me, acknowledged before me on this day that, being informed of
the contents of this Memorandum of Lease, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
GIVEN UNDER MY HAND AND OFFICIAL SEAL, this the 3rd day of July, 1980.
/s/ Judith J. Ross
----------------------------------------
Notary Public
Notary Public Georgia State at Large
My Commission Expires: 9-26-82
(SEAL)
STATE OF CONNECTICUT )
)
COUNTY OF FAIRFIELD )
I, the undersigned, a Notary Public in and for said County in said State,
hereby certify that R.J. Hallinan, whose name as Vice President of COMBUSTION
ENGINEERING, INC., a corporation, is signed to the foregoing conveyance, and
who is known to me, acknowledged before me on this day that, being informed of
the contents of this Memorandum of Lease, he, as such officer and with full
authority, executed the same voluntarily for and as the act of said corporation.
GIVEN UNDER MY HAND AND OFFICIAL SEAL, this the 19th day of May, 1980.
/s/ Ruth M. Storch
----------------------------------------
Notary Public
NOTARY PUBLIC
My Commission Expires: March 31, 1985
(SEAL)
<PAGE> 57
EXHIBIT A
The demised premises are a part of a six-story office building, being known as
31 Inverness Center, and being located on Site 7, Inverness Office Park, which
has a legal description as follows:
A part of the Northwest Quarter of the Southwest Quarter of Section
36, Township 18 South, Range 2 West, and the Northeast Quarter of the
Southeast Quarter of Section 35, Township 18 South, Range 2 West,
being more particularly described as follows: Commence at the
Southwest Corner of the Northwest Quarter of the Southwest Quarter and
sighting North along the West line of said Quarter-Quarter Section
turn an angle left of 44 degrees 12 feet and run Northwesterly 354.20
feet; thence, turn an angle right of 78 degrees 37 feet and run
Northeasterly 638.56 feet; thence, turn right 30 degrees 46 feet 30
inches and run Northeasterly 225.67 feet; thence, turn right 90
degrees 42 feet and run Southeasterly 372.33 feet to the Point of
Beginning of the tract herein described, said point being on the 496
foot contour of Lake Heather; thence, an angle right of 180 degrees
and run Northwesterly 290.25 feet to the right-of-way of Inverness
Center Arterial Road; thence backsighting on last course turn an
interior angle right of 87 degrees 18 feet and run Southwesterly 80.69
feet to a point of curve to the left; running thence along said curve,
having a chord measuring 398.34 feet that forms an interior angle of
164 degrees 42 feet 30 inches, an arc distance of 403.11 feet (said
curve having a radius of 755.19 feet and central angle of 30 degrees
35 feet); thence, backsighting on last course turn an interior angle
right of 164 degrees 42 feet 30 inches to chord of said curve and run
along said southerly right-of-way in a Southwesterly direction 150.86
feet; thence, backsighting on last course turn an interior angle right
of 102 degrees 03 feet 30 inches and run Southeasterly 269.97 feet;
thence, backsighting on last course, turn an interior angle right of
141 degrees 30 feet and run Southeasterly 107.44 feet to the 496 foot
contour of Lake Heather; thence following the meanderings of 496 foot
contour to the Point of Beginning.
<PAGE> 58
PAGE TWO
8. If tenants require wiring for bell or buzz system, such wiring shall
be done by the electrician of the building only, and no outside wiring men will
be allowed to do work of this kind unless by the written permission of Landlord,
or its representatives. If telegraphic or telephonic service is desired, the
wiring for same shall be done as directed by the electrician of the building or
by some other employee of Landlord who may be instructed by the Superintendent
of the Building to supervise same, and no boring or cutting for wiring shall be
done unless approved by Landlord or its representatives, as stated. The electric
current shall be used for customary office purposes only, unless written
permission to do otherwise shall first have been obtained from Landlord, or its
representative, and at an agreed cost to tenants.
9. The Landlord, and its agents, shall have the right to enter the Premises at
all reasonable hours for the purpose of making any repairs, alterations, or
additions which it shall deem necessary for the safety, preservation, or
improvement of said building, and the Landlord shall be allowed to take all
material into and upon said Premises that may be required to make such repairs,
improvements, and additions, or any alterations for the benefit of the Tenant
without in any way being deemed or held guilty of an eviction of the Tenant; and
the rent reserved shall in no wise abate while said repairs, alterations, or
additions are being made; and the Tenant shall not be entitled to maintain a
set-off or counterclaim for damages against the Landlord by reason of loss or
interruption to the business of the Tenant because of the prosecution of any
such work. All such repairs, decorations, additions, and improvements shall be
done during ordinary business hours, or, if any such work is at the request of
the Tenant to be done during any other hours, the Tenant shall pay for all
overtime costs.
10. Landlord reserves all vending rights. Requests for such service will be
made to Landlord.
11. The Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Premises, and for the preservation of good
other therein.
<PAGE> 59
LEASEHOLD IMPROVEMENTS
UNIT PRICES FOR COMBUSTION ENGINEERING
<TABLE>
<S> <C> <C>
1. Supply and install Lessor's standard interior 9'0"
drywall partitions (1/2" gypsum wallboard both side
of 3 5/8" metal studs), painted both sides. $ 20.63/LFT*
2. Supply and install Lessor's standard interior
3'0" X 7'0" high pressure laminate faced solid core
doors in painted metal frames, complete with latch
set hardward (no closer). $ 353.63/ea.
3. Supply and install Lessor's standard wall-mounted
duplex grounded type receptacles completely circuited
to 120 volt panel in drywall. $ 39.20/ea.
4. Supply and install Lessor's standard wall-mounted
telephone outlets in drywall. $ 11.20/ea.
$ 1.74/LFT for
1" conduit.
5. Supply and install Lessor's standard single pole
wall-mounted silent electric switches in drywall. $ 39.20/ea.
6. Supply and install Lessor's standard 2' X 4' four
lamp recessed fluorescent lighting fixtures. $ 73.74/ea.
7. Supply and install Lessor's standard J.J. Industries
2600-Z 26 ounce carpet (direct glue-down) throughout
the leased area. $ 9.25/sq.yd.
8. Supply and install Lessor's standard entrance door,
3'0" X 8'9 1/4" complete with closer and hardware. $ 548.51/ea.
9. Supply and install building standard 4" covered vinyl
base (with tab corners). $ .55/LFT
10. Supply and install paid of Lessor's standard tenant
entrance doors, 3'0" X 8'9 1/4", high pressure laminate
faced (both sides), edge bound, solid core doors in
welded metal frames complete with closer and hardware. $ 841.27/ea.
</TABLE>
*Price of $20.63 per lineal foot is applicable only to work completed
by August 1, 1980.
EXHIBIT "C"
<PAGE> 60
[TAYLOR&MATHIS LOGO]
INVERNESS
Post Office Box 43248
Birmingham, Alabama 35243-0248
(205) 991-8600
(205) 980-5266 Fax
Real Estate Development, Management and Brokerage
Atlanta - Birmingham - Miami
May 24, 1995
VIA U.S. MAIL
Mr. Thomas H. Ogiba
Director of Project Services
Asea Brown Boveri
31 Inverness Center
Fourth Floor
Birmingham, Alabama 35242
RE: Second Agreement Amending Lease by and between Metropolitan Life Insurance
Company, Inc., a New York Corporation ("Landlord") and Taylor & Mathis,
Inc. ("Leasing Agent") and ABB Environmental Systems, Inc., successor in
interest to Combustion Engineering, Inc., ("Tenant").
Dear Tom:
Enclosed please find one (1) fully executed original of the above referenced
Second Amending Lease Agreement for ABB's space at 31 Inverness Center.
Tom, if you have any questions or need any additional information, please do
not hesitate to call me.
Very truly yours,
/s/ R. William Pradat, Jr.
- ------------------------------------
R. William Pradat, Jr.
Vice President - Marketing
RWP:kn
Enclosure
<PAGE> 61
SECOND AGREEMENT AMENDING LEASE
STATE OF ALABAMA
COUNTY OF SHELBY
THIS AGREEMENT, entered into this 28th day of April, 1995, by and
between METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation
(hereinafter called "Landlord"); and ABB ENVIRONMENTAL SYSTEMS, INC., successor
in interest to COMBUSTION ENGINEERING, INC. (hereinafter called "Tenant"); and
TAYLOR & MATHIS IV, a Georgia general partnership (hereinafter called "Leasing
Agent"):
W I T N E S S E T H
WHEREAS, by Lease dated July 3, 1980, and First Agreement Amending
Lease dated January 22, 1982, Landlord leased to Tenant certain premises
located in Birmingham, Alabama, and more particularly known as 31 Inverness
Center, Suite 600, Birmingham, Alabama 35242 (hereinafter called the
"Premises"), commencing September 1, 1980, and ending September 30, 1995;
WHEREAS, Landlord and Tenant mutually agree to modify the Lease as
described below; and
WHEREAS, Landlord and Tenant mutually agree to extend the Lease term;
and
WHEREAS, Landlord agrees to leasehold improve the Premises; and
WHEREAS, Landlord and Tenant mutually agree to document said amendment;
NOW THEREFORE, in consideration of the mutual promises, obligations,
and covenants contained in said Lease, as hereby amended, the parties hereto,
intending to be legally bound, do hereby agree as follows:
1. The Lease Term as stated in Article 2 of the Lease is hereby
extended, such that the Lease shall now expire on September 30,
2000.
2. Effective October 1, 1995, the upper floor monthly base rental as
stated in Paragraph 4 of the Lease shall be $49,849.12, which is
$598,189.44 per annum.
<PAGE> 62
3. Landlord shall provide a leasehold improvement allowance of
$2000,000.00 to leasehold improve the Premises. Any cost of
construction and design in excess of said allowance shall be paid by
Tenant to Landlord in one (1) payment which shall be due within thirty
(30) days of receipt of Landlord's invoice.
4. Provided (1) Tenant is not then in default, and provided that Tenant
has paid all sums due in a timely manner in strict accordance with the
terms and provisions of this Lease, and provided Tenant has not
assigned or sublet all or any portion of the Premises, and provided
that it is in the interest of Landlord at the time to negotiate with
Tenant for an extension of the Term, then, Tenant shall have the right
to extend this Lease (hereinafter the "Extension Right"), commencing
immediately upon the expiration of the initial Term of the Lease. Said
Extension Right shall be subject further to the following conditions.
(i) Tenant shall notify Landlord no earlier than nine (9)
months prior to the expiration of the initial Lease Term that
it desires to negotiate a rental rate for the Extension Term.
(ii) The rental rate for the Extension Term shall be the
mutually acceptable rental rate to be negotiated between the
parties at that time, which rate shall be determined prior to
the exercise of the Extension Right pursuant to (iii) below.
If the parties are unable to agree upon the rate prior to the
date by which the Extension Right must be exercised, the
Extension Right shall thereby be declared null and void and of
no further force or effect.
(iii) Tenant shall have exercised its Extension Right by
providing Landlord with written notice at least one hundred
eighty (180) days prior to the expiration of the Term.
(iv) All other terms, covenants and provisions of the Lease
shall continue in full force and effect during the Extension
Term of the Lease.
This Lease is hereby amended, ratified, confirmed and continued in all respects
except for those items stated above and all such covenants, terms and conditions
of the Lease are hereby incorporated by this reference.
<PAGE> 63
IN WITNESS WHEREOF, this agreement is executed as of the date above
written.
Signed, sealed and delivered in LANDLORD: METROPOLITAN LIFE INSURANCE
the presence of: COMPANY, a New York corporation
/s/ By: /s/
- ------------------------------- ------------------------
Witness Assistant Vice President
/s/
- -------------------------------
Notary Public
Notary Public, Cobb County,
Georgia. My Commission Expires
May 19, 1998.
Signed, sealed and delivered in TENANT: ABB ENVIRONMENTAL SYSTEMS, INC.,
the presence of: DIV. OF ABB FLAKT, successor in
interest to COMBUSTION
ENGINEERING, INC.
/s/ By: /s/ James H. Miller
- ------------------------------- ------------------------
Witness Name: James H. Miller
Title: President
/s/ By: /s/ Thomas E. Liggett
- ------------------------------- ------------------------
Notary Public Name: Thomas E. Liggett
Title: Secretary
MY COMMISSION EXPIRES AUGUST 9, 1997
LEASING
Signed, sealed and delivered in AGENT: TAYLOR & MATHIS IV, a Georgia
the presence of: general partnership
/s/ By: /s/
- ------------------------------- ------------------------
Witness
/s/
- -------------------------------
Notary Public
Notary Public, Dekalb County, Georgia
My Commission Expires September 28, 1996
<PAGE> 64
THIRD AGREEMENT AMENDING LEASE
STATE OF ALABAMA
COUNTY OF SHELBY
THIS AGREEMENT, entered into this 26th day of June, 1996, by and
between METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation
(hereinafter called "Landlord"); and ABB ENVIRONMENTAL SYSTEMS, INC., successor
in interest to COMBUSTION ENGINEERING, INC. (hereinafter called "Tenant"); and
TAYLOR & MATHIS IV, L.P., a Georgia limited partnership (hereinafter called
"Leasing Agent"):
W I T N E S S E T H
WHEREAS, by Lease dated July 3, 1980, and First Agreement Amending
Lease dated January 22, 1982, and Second Agreement Amending Lease dated April
28, 1995, Landlord leased to Tenant certain premises located in Birmingham,
Alabama, and more particularly known as 31 Inverness Center, Suite 600,
Birmingham, Alabama 35242 (hereinafter called the "Premises"), commencing
September 1, 1980, and ending September 30, 2000;
WHEREAS, the parties hereto have mutually agreed to a reduction in the
Premises in accordance with the terms, conditions and agreements hereinafter
set forth; and
WHEREAS, all parties wish to document said reduction.
NOW, THEREFORE, in consideration of the covenants contained herein,
the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Provided Tenant has performed strictly in accordance with all terms
hereof, and is in full compliance with all provisions contained in this
Agreement, then, effective June 1, 1996, which date shall be referred to as the
"Termination Date", the Premises shall be reduced by the entire area on the
Sixth Floor of 31 Inverness Center (15,770 square feet) hereinafter referred to
as the "Relinquished Area".
2. Tenant agrees that on or before the Termination Date, Tenant shall
have (i) paid the Termination Fee in accordance with Paragraph 4 below and as
defined therein, and all rents due under the Lease through the Termination
Date, (ii) satisfied all of its other obligations under the Lease through the
Termination Date, and (iii) vacated and returned possession of the Relinquished
Area to the Landlord in "broom clean" condition on or before the Termination
Date.
3. Effective June 1, 1996, the upper floor monthly base rental as stated
in Paragraph 4 of the Lease shall be reduced by $14,068.52 which is $168,822.24
per annum.
4. In consideration of this reduction of the Premises as of the
Termination Date, upon execution of this Third Agreement Amending Lease, Tenant
agrees to pay Two Hundred Twenty Thousand and No/100 Dollars ($220,000.00) to
Metropolitan Life Insurance Company, which amount shall hereinafter be referred
to as the "Termination Fee". Tenant hereby acknowledges that Landlord has
incurred expenses associated with its obligations under the Lease, including
but not limited to, space planning and design fees, construction expenses,
brokerage fees, opportunity costs with respect to the marketing of the
Premises, and administrative expenses in connection with all of the foregoing,
and Tenant hereby acknowledges that the Landlord will suffer damages as a
result of this reduction in the Premises, consequently, the Termination Fee
shall be deemed to be
<PAGE> 65
as a result of this reduction in the Premises, consequently, the Termination Fee
shall be deemed to be compensation to Landlord for the damages incurred as a
result of said reduction, and the Termination Fee shall not be deemed to be a
penalty. Receipt of the Termination Fee shall be Landlord's exclusive remedy for
Tenant's reduction of the Premises.
5. Upon Tenant's full compliance with all provisions contained herein on or
before the Termination Date, then, as of the Termination Date, Landlord, Tenant
and Leasing Agent mutually release and discharge one another from, and
acknowledge full accord, satisfaction and final settlement of any and all
claims, demands, causes of action, liabilities, indebtedness or obligations of
any kind or nature, whether known or unknown, whether contingent or
speculative, which one may have against either or both of the others arising
out of or in any way related to the Lease for the Relinquished Area, including
without limitations, claims for future rent charges and other amounts under the
Lease. As of the Termination Date, Landlord, Leasing Agent and Tenant shall
have no further rights or obligations under the Lease and all obligations and
rights thereunder shall cease and are extinguished, however, it is expressively
agreed that Landlord and Tenant obligations under the Lease with respect to
operating expenses of the Relinquished Area shall be reconciled and settled in
accordance with Landlord's annual accounting of operating expenses.
<PAGE> 66
LEASE AMENDMENT
THIS LEASE AMENDMENT made as of this 4th day of February , 1981,
between METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation with a
principal place of business at One Madison Avenue, New York, New York 10010
(hereinafter referred to as "Landlord"), COMBUSTION ENGINEERING, INC., a
corporation of the State of Delaware, with a principal place of business at
1000 Prospect Hill Road, Windsor, Connecticut 06095 (hereinafter referred to as
"Tenant"), and TAYLOR & MATHIS OF ALABAMA, INC., a Georgia corporation
(hereinafter referred to as "Agent").
NOW THEREFORE, in accordance with Article 2 of the lease agreement
made as of July 3, 1980, between the parties and in consideration of the
premises and the mutual and dependent promises hereinafter set forth, the
parties hereto do hereby agree as follows:
1. The date of full occupancy and rental commencement under the lease
is September 2, 1980.
2. The "Commencement Date" of the lease agreement between the parties
as defined in Article 2 of the lease shall for all purposes mean and be October
1, 1980.
3. The "Termination Date" of the initial term of the lease agreement
between the parties as defined in Article 2 of the lease shall for all purposes
mean and be September 30, 1985.
4. Upon execution and delivery of this amendment it shall be deemed
to be and shall become a part of the lease agreement as if such agreement had
been set forth in the lease in its entirety at
<PAGE> 67
the time of the original execution and delivery thereof.
IN WITNESS WHEREOF the parties hereto have executed this instrument the
day and year first above written.
LANDLORD
METROPOLITAN LIFE INSURANCE COMPANY
/s/ /s/
- ---------------------------------- ----------------------------------------
By Assistant Vice President
/s/ JUDITH J. ROSS ATTEST: /s/
- ---------------------------------- ---------------------------------
By Assistant Secretary
TENANT
COMBUSTION ENGINEERING, INC.
/s/ P. J. SAWYER By: /s/ R. J. HALLINAN
- ---------------------------------- --------------------------------------
/s/ V. R. COLLINS ATTEST: /s/
- ---------------------------------- ----------------------------------
By
AGENT
TAYLOR & MATHIS OF ALABAMA, INC.
/s/
- ---------------------------------- ----------------------------------------
By
ATTEST: /S/ E. H. AVERY
- ---------------------------------- ---------------------------------
By: E. H. Avery, Secretary
-2-
<PAGE> 68
IN WITNESS WHEREOF, the parties hereto have herein set their hands and
seals, effective as of the date first above written.
Signed, sealed and delivered LANDLORD: METROPOLITAN LIFE INSURANCE
by Landlord in the presence of: COMPANY, a New York corporation
/s/
- ------------------------------ By: ------------------------------
Witness J. Samuel O'Briant
Equity Investment Manager
/s/ Heather Jarvis
- ------------------------------
Notary Public
NOTARY PUBLIC, GWINNETT COUNTY, GEORGIA
MY COMMISSION EXPIRES SEPT. 20, 1998
(NOTARIAL SEAL)
Signed, sealed and delivered by TENANT: ABB ENVIRONMENTAL SYSTEMS, INC.
Tenant in the presence of: successor in interest to
COMBUSTION ENGINEERING, INC.
/s/ By: /s/
- ------------------------------ --------------------------------------
Witness Title Senior Vice President & General Mgr.
------------------------------------
/s/
- ------------------------------
Notary Public
My Commission Expires: 5/28/97
STATE OF TENNESSEE AT LARGE
(NOTARIAL SEAL) (CORPORATE SEAL)
Signed, sealed and delivered by LEASING AGENT: TAYLOR & MATHIS IV, L.P.,
Agent in the presence of: a Georgia limited partnership
/s/ By: /s/
- ----------------------------- --------------------------------------
Witness E. H. Avery
Executive Vice President - Operations
/s/
- -----------------------------
Notary Public
NOTARY PUBLIC, DEKALB COUNTY, GEORGIA
MY COMMISSION EXPIRES SEPTEMBER 28, 1998
My Commission Expires:
(NOTARIAL SEAL)
<PAGE> 69
EXHIBIT "B"
RULES AND REGULATIONS
(Which are referred to in the within Lease and made a part thereof.)
1. The sidewalks, entry passages, corridors, halls, elevators and stairways
shall not be obstructed by tenants, or used by them for any purpose other than
those of ingress and egress. The floors, skylights and windows that reflect or
admit light into any place in said building, shall not be covered or obstructed
by tenants. The water closets and other water apparatus shall not be used for
any other purpose than those for which they were constructed, and no sweepings,
rubbish, or other obstructing substances shall be thrown therein.
2. No advertisement, sign or other notice, shall be inscribed, painted or
affixed on any part of the outside or inside of said building, except upon the
interior door and windows permitted by Landlord, which signs, etc., shall be of
such order, size and style, and at such places as shall be designated by
Landlord. Interior signs on doors will be provided for tenants by Landlord, the
cost of the signs to be paid by tenants.
3. Nothing shall be thrown by tenants, their clerks or servants out of the
windows or doors, or down the passages or skylights of the building. No
rooms shall be occupied or used as sleeping or lodging apartments at any time.
4. Tenants shall not employ any persons other than the janitors of Landlord
(who will be provided with pass-keys into the offices) for the purpose of
cleaning or taking charge of said premises. It is understood and agreed that
the Landlord shall not be responsible to any tenant for any loss of property
from rented premises, however occurring, or for any damage done to the
furniture or other effects of any tenant by the janitor or any of its employees,
unless through negligence of Landlord.
5. No animals, birds, bicycles or other vehicles shall be allowed in the
offices, halls, corridors, elevators or elsewhere in the building.
6. All tenants and occupants shall observe strict care not to leave their
windows or doors open when it rains or snows, or while air-conditioning or
heating systems are in operation, and, for any fault or carelessness in any of
these respects, shall make good any injury sustained by other tenants, and to
Landlord for damage to paint, plastering or other parts of the building
resulting from such default or carelessness. No painting shall be done, nor
shall that be any nailing, boring or screwing into the woodwork or plastering,
nor shall any connection be made to the electric wires or electric fixtures,
without the consent in writing on each occasion of Landlord or its Agent. All
glass, locks and trimmings in or upon the doors and windows of the building
shall be kept whole and, when any part thereof shall be broken, the same shall
be immediately replaced or repaired and put in order under the direction and to
the satisfaction of Landlord, or its Agent, and shall be left whole and in good
repair. Tenants shall not injure, overload, or deface the building, the
woodwork or the walls of the Premises, nor carry on upon the Premises any
noisesome, noxious, noisy, or offensive business.
7. The tenant shall not (without the Landlord's written consent) put up or
operate any steam engine, boiler, machinery or stove upon the Premises, or
carry on any mechanical business thereon, or use or allow to be used upon the
Premises oil, burning fluids, camphene, gasoline, or kerosene for heating,
warming, or lighting. No article deemed extra hazardous on account of fire and
no explosives shall be brought into said premises. No offensive gases or
liquids shall be permitted.
<PAGE> 70
COUNTY OF SHELBY
THIS AGREEMENT, dated this 22nd day of January, 1982 between METROPOLITAN
LIFE INSURANCE COMPANY, a New York Corporation, with a principal place of
business at One Madison Avenue; New York, New York 10010, (hereinafter referred
to as "Landlord") and COMBUSTION ENGINEERING, INC., a corporation of the State
of Delaware, with a principal place of business at 1000 Prospect Hill Road;
Windsor, Connecticut, (hereinafter referred to as "Tenant"), and TAYLOR &
MATHIS OF ALABAMA, INC., a Georgia corporation, (Hereinafter referred to as
"Agent").
W I T N E S S E T H:
WHEREAS, by Lease dated July 3, 1980, Landlord leased to Tenant certain
space in an office building located at 31 Inverness Center, Birmingham,
Alabama, (hereinafter referred to as the "Lease"); and
WHEREAS, the parties hereto wish to amend said Lease as hereby amended;
NOW, THEREFORE, in consideration of the mutual promises, obligations, and
covenants contained in said Lease, the parties hereto, intending to be legally
bound, do hereby agree as follows:
(1)
The square footage under Article 1 is increased 2,832 square feet on the
third floor, as shown on Exhibit "A" attached, making the total area FIFTY-FIVE
THOUSAND EIGHT HUNDRED SEVENTY-EIGHT (55,878) net rentable square feet of
office space on floors three, four, five, and six; and THREE THOUSAND (3,000)
usable square feet of basement space.
(2)
Tenant agrees to pay Landlord an additional base monthly rental of TWO
THOUSAND ONE HUNDRED EIGHTY-THREE DOLLARS ($2,183.00) plus accumulated
escalations as determined by Article 4 of the Lease effective upon completion
of the Tenant's work necessary to prepare the space of occupancy as indicated
on Exhibit A attached hereto and made a part hereof. The total amended base
rental during each year of the term of this Lease shall be FIVE HUNDRED
TWENTY-EIGHT THOUSAND EIGHT HUNDRED SEVENTY-ONE
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS(1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED NOVEMBER 30,
AUGUST 31, -------------------
1998 1997 1998
---------- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 7,500 7,500 7,500
Net income $3,252 $ 709 $ 867
Per share amount $ 0.43 $ 0.09 $ 0.12
Fully Diluted
Average shares outstanding 7,500 7,500 7,500
Net income $3,252 $ 709 $ 867
Per share amount $ 0.43 $ 0.09 $ 0.12
</TABLE>
- ----------
(1) Assumes shares outstanding for periods presented.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated January 7, 1999, in the Registration Statement
(Form S-1 No. 333-00000) and related Prospectus of Nichols TXEN Corporation for
the registration of 2,500,000 shares of its common stock.
Ernst & Young LLP
Birmingham, Alabama
January 22, 1999
<PAGE> 1
EXHIBIT 23.2
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 1, 1997, with respect to the financial
statements of TXEN, Inc. included in the Registration Statement (Form S-1 No.
333-00000) and related Prospectus of Nichols TXEN Corporation for the
registration of 2,500,000 shares of its common stock.
/s/ Ernst & Young LLP
--------------------------------
Birmingham, Alabama
January 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR 3-MOS 3-MOS
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1997 AUG-31-1998 NOV-30-1997 NOV-30-1998
<PERIOD-START> SEP-01-1995 SEP-01-1996 SEP-01-1997 SEP-01-1997 SEP-01-1998
<PERIOD-END> AUG-31-1996 AUG-31-1997 AUG-31-1998 NOV-30-1997 NOV-30-1998
<CASH> 0 237 1,804 384 859
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 6,946 9,919 8,755 11,563
<ALLOWANCES> 0 150 500 0 0
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 7,914 13,614 10,415 14,304
<PP&E> 0 5,290 8,717 6,139 10,451
<DEPRECIATION> 0 507 2,190 780 2,583
<TOTAL-ASSETS> 0 52,052 57,715 54,896 59,068
<CURRENT-LIABILITIES> 0 5,691 7,834 7,826 8,220
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 1 1 1 75
<OTHER-SE> 0 45,828 49,081 46,538 49,948
<TOTAL-LIABILITY-AND-EQUITY> 0 52,052 57,715 54,896 59,068
<SALES> 10,370 12,438 43,480 8,958 12,236
<TOTAL-REVENUES> 10,370 12,438 43,480 8,958 12,236
<CGS> 6,438 7,769 23,256 4,792 6,634
<TOTAL-COSTS> 6,438 7,769 23,256 4,792 6,634
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 512 0 0
<INTEREST-EXPENSE> 0 0 4 1 0
<INCOME-PRETAX> 437 (7,566) 5,535 1,208 1,445
<INCOME-TAX> 117 107 2,283 499 578
<INCOME-CONTINUING> 320 (7,673) 3,252 709 867
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 320 (7,673) 3,252 709 867
<EPS-PRIMARY> 0 0 0.43 0.09 0.12
<EPS-DILUTED> 0 0 0.43 0.09 0.12
</TABLE>
