<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ALLIANCE DATA SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7374 31-1429215
(State or Other Jurisdiction of (Primary standard (I.R.S. Employer
Incorporation or Organization) industrial classification Identification Number)
code number)
</TABLE>
--------------------------
17655 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
TELEPHONE: (972) 348-5100
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
J. MICHAEL PARKS
CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT
17655 WATERVIEW PARKWAY
DALLAS, TEXAS 75252
TELEPHONE: (972) 348-5100
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
WITH A COPY TO:
<TABLE>
<S> <C>
TERRY M. SCHPOK, P.C. KENNETH M. DORAN, ESQ.
Akin, Gump, Strauss, Hauer & Feld, L.L.P. Gibson, Dunn & Crutcher LLP
1700 Pacific Avenue, Suite 4100 333 South Grand Avenue
Dallas, Texas 75201 Los Angeles, California 90071
Telephone: (214) 969-2800 Telephone: (213) 229-7000
Facsimile: (214) 969-4343 Facsimile: (213) 229-7520
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE ON OR AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / _________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM AGGREGATE
TITLE OF SHARES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share................... $300,000,000 $79,200
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 13, 2000
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 IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
-------- SHARES
[LOGO]
COMMON STOCK
------------------
This is an initial public offering of shares of our common stock. We
anticipate the initial public offering price will be between $ and
$ per share. We are selling all the shares offered under this prospectus.
There is currently no public market for our shares. We intend to apply to have
our common stock listed on the New York Stock Exchange under the symbol "ADD".
SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT RISKS THAT YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY 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.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------- -------------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
The underwriters may purchase up to an additional shares of our
common stock from us at the initial public offering price less the underwriting
discounts, solely to cover over-allotments.
The underwriters are severally underwriting the shares being offered. Bear,
Stearns & Co. Inc. expects to deliver the shares against payment in New York,
New York on , 2000.
------------------------
BEAR, STEARNS & CO. INC. MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND THE OFFERING. BECAUSE
IT IS A SUMMARY, IT DOES NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
INCLUDING THE RISK FACTORS AND OUR FINANCIAL STATEMENTS AND THE RELATED NOTES TO
THOSE STATEMENTS INCLUDED IN THIS PROSPECTUS. EXCEPT AS OTHERWISE REQUIRED BY
THE CONTEXT, REFERENCES IN THIS PROSPECTUS TO "WE," "OUR" AND "US" REFER TO
ALLIANCE DATA SYSTEMS CORPORATION AND ITS WHOLLY OWNED SUBSIDIARIES.
OUR COMPANY
We are a leading provider of integrated information-based loyalty and
marketing solutions primarily focused on business-to-consumer commerce. We
develop and execute programs designed to help our clients target, acquire and
retain loyal, profitable customers. We create value for our clients through
effective customer relationship management, which we refer to as CRM, by:
- facilitating transactions between our clients and their customers across
multiple distribution channels;
- assisting our clients in identifying and acquiring new customers; and
- increasing the loyalty and profitability of our clients' existing
customers.
While applicable to the full spectrum of business-to-consumer commerce
opportunities, we currently target our integrated service offerings to a select
number of market sectors including specialty retailers, petroleum retailers,
supermarkets and financial services providers, as well as companies in market
sectors with rapidly evolving electronic payment and CRM needs such as mass
transit, tollways, parking and gas, and electric utilities. Our client base of
over 300 companies includes some of the most recognizable names in North
America. These clients include the retail affiliates of The Limited, including
Victoria's Secret, Express, Lane Bryant and Structure, Equiva Services, LLC,
which is the service provider to Shell branded locations in the U.S., Canada
Safeway, Brylane and CITGO. On a pro forma basis for our 1998 and 1999
acquisitions, our revenue for the nine months ended September 30, 1999 was
$489.6 million, representing a 9.1% increase over the nine months ended
September 30, 1998, and our earnings from continuing operations before interest
expense, taxes, depreciation and amortization was $83.2 million, representing a
10.0% increase over the same period for 1998.
Our products and services are centered around three core
capabilities--Loyalty and Database Marketing Services, Transaction Services and
Credit Services.
<TABLE>
<CAPTION>
LOYALTY AND DATABASE
MARKETING SERVICES TRANSACTION SERVICES CREDIT SERVICES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
- - Loyalty Programs - Transaction Processing - Underwriting
- Private Label Cards - Network Services - Risk Management
- Coalition Loyalty (Air - Bankcard Settlement
Miles-TM- reward program) - Card Processing and
Servicing
- One-to-One Loyalty - Account Processing
- - Database Marketing Services - Billing and Payment
- - Enhancement Services Processing
- Customer Care
</TABLE>
We market and sell our service offerings independently or as fully
integrated CRM solutions. By providing services that span our three core
offerings, we believe we can become a key element in our clients' success. For
example, we provide database marketing services, transaction services and credit
services to assist the Victoria's Secret business in facilitating transactions
and communicating with its
1
<PAGE>
customers--whether in its stores, through its catalogs or through its Web site.
The Victoria's Secret credit card that we issue allows us to capture customer
name, address and transaction data in any channel the consumer chooses to shop.
The information is fed to our marketing database, which is augmented with
additional data from Victoria's Secret as well as from external sources. This
gives us a detail-rich database that we, together with Victoria's Secret, use in
developing customer acquisition strategies and managing customer relationships.
We also utilize the information we collect and manage for the credit card
program to enhance the transaction services we provide to Victoria's Secret,
which include billing, payment processing and customer care.
LOYALTY AND DATABASE MARKETING SERVICES
Our clients are focused on targeting, acquiring and retaining loyal and
profitable customers. Since 1992 we have created and managed loyalty programs
that have successfully resulted in securing more frequent and sustained customer
purchasing. For example,
- We have demonstrated to many of our existing clients that a private label
credit card is one of the most effective loyalty and marketing tools
available. We manage 49 distinct programs for specialty and petroleum
retailers, representing 74.9 million cardholders with annual proprietary
credit sales in excess of $4.5 billion. An added benefit of our private
label programs is our ability to also provide database marketing services,
which enables us to capture unique and proprietary SKU-level transaction
data and use it to create CRM strategies.
- In Canada, we have developed and operate the Air Miles reward program,
which we believe to be the largest coalition loyalty program in Canada.
More than 150 program sponsors and more than 55% of all households in
Canada participate in the Air Miles reward program. Approximately six
billion Air Miles reward miles have been issued since the program's
inception in 1992.
- We have also developed an on-line, real time, electronic loyalty program
that recognizes, acknowledges and rewards customers at the point of sale.
Using the retailer's existing point-of-sale terminal or cash register and
our network services, we can capture points, communicate program status
and issue awards at the point of sale.
Our loyalty programs provide our clients with tools to help drive customer
acquisitions and reward customer loyalty while providing us with the ability to
better understand the purchasing behavior of our clients' customers. As a result
of these programs and our marketing database programs, we have captured purchase
information on approximately 60 million U.S. consumers and 5.8 million Canadian
households. By combining massive amounts of detailed data with our proprietary
data mining algorithms and our experience in developing and executing marketing
campaigns, we provide our clients with highly successful and sophisticated
targeted marketing solutions.
TRANSACTION SERVICES
Providing flexible, convenient, rapid customer payment options is
fundamental to customer satisfaction and retention. Through our predecessor
company, we have provided these services since 1983. We facilitate and manage
transactions between our clients and their customers through multiple
distribution channels, including in-store, catalog and the Internet, through our
state-of-the-art, highly scalable processing systems. Our services include
instantaneous authorizations, effective customer care, payment processing and
billing services.
There were approximately 22 billion electronic payment transactions in 1997
in the U.S., and it is expected that the number of transactions will grow to
nearly 63 billion by 2005. We are a leading provider of electronic transaction
services. On a pro forma basis, we processed more than 1.8 billion transactions
through 135,000 point of sale terminals during calendar year 1998. Additionally,
in 1998 we
2
<PAGE>
handled nearly 100 million customer inquiries in our customer care centers and
generated over 130 million statements. By fully integrating our transaction
services with our loyalty and database marketing services, we are able to
execute more powerful CRM strategies for our clients.
CREDIT SERVICES
We offer our clients the experience and flexibility to provide a funding
vehicle for private label credit card receivables. Through our predecessor
company, we have owned and managed private label receivables since 1986. This
service appeals to those clients that choose to focus their financial and
operational resources on their core operations and prefer a single-source
integrated solution. As part of this service, we currently provide underwriting
and risk management services to 44 of our 49 private label card clients,
representing approximately 51.1 million cardholders and $2.0 billion of
receivables as of September 30, 1999. We finance substantially all our credit
card receivables through asset securitization transactions.
OUR STRATEGY
Our strategy is to become a critical component in our clients' success by
helping them build loyal customer relationships. We will do this by continuing
to build and enhance our consumer databases, our marketing capabilities and our
processing efficiencies to help improve our clients' relationships with their
customers. To execute this strategy we intend to:
- increase the penetration of products and services we provide to our
existing client base;
- expand our client base in our existing market sectors, including potential
geographic expansion;
- continue to expand our CRM capabilities to help our clients succeed in
multi-channel commerce--in-store, catalog and Internet; and
- consider focused, strategic acquisitions and alliances to enhance our core
capabilities or increase our scale.
CORPORATE INFORMATION
Our corporate headquarters are located at 17655 Waterview Parkway, Dallas,
Texas 75252, and our telephone number is 972-348-5100.
------------------------
Unless otherwise indicated, all information in this prospectus:
- gives effect to an anticipated 1-for-7 reverse stock split of our common
stock to be effected prior to consummation of this offering;
- reflects the conversion of all outstanding shares of our Series A
cumulative convertible preferred stock into an aggregate of 11,750,641
shares of common stock as of December 31, 1999;
- reflects the exercise of all outstanding warrants for an aggregate of
214,822 shares of common stock; and
- assumes no exercise of the underwriters' option to purchase additional
shares of common stock.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... shares
Common stock to be outstanding after the
offering................................... shares
Use of proceeds.............................. We intend to use approximately
$150.0 million of the net proceeds from the
offering to retire outstanding debt, and the
remaining net proceeds for other general
corporate purposes, including working
capital. In the event that we identify
suitable acquisition candidates or investment
opportunities, we may also use a portion of
the net proceeds to acquire or invest in
complementary businesses, services or
products. We currently have no commitments or
agreements with respect to any acquisition or
investment transactions.
Proposed New York Stock Exchange symbol...... "ADD"
</TABLE>
The number of shares of common stock described as being outstanding after
this offering gives effect to the conversion of all outstanding shares of
Series A preferred stock into common stock and the exercise of all outstanding
warrants for common stock, but excludes the following:
- 3,017,428 shares that we may issue upon the exercise of stock options
outstanding at a weighted average exercise price of $7.38 per share;
- 657,616 additional stock options and shares that we may grant or issue
under our stock option and restricted stock purchase plan; and
- up to additional shares that we may issue upon exercise of the
underwriters' over-allotment option.
4
<PAGE>
SUMMARY UNAUDITED CALENDAR YEAR AND PRO FORMA CONSOLIDATED FINANCIAL AND
OPERATING INFORMATION
Prior to December 31, 1998, our fiscal year was based on a 52/53-week fiscal
year ending on the Saturday closest to January 31. We have since changed our
fiscal year end to December 31. In order to provide a better basis of
comparison, we have recast our historical operating results to a calendar year
basis for the two years ended December 31, 1998 and for the nine months ended
September 30, 1998 and 1999. In our opinion, these historical recast and interim
financial statements reflect all normal recurring adjustments necessary for a
fair presentation of such financial statements.
In addition to the historical recast financial information, we have included
the following unaudited pro forma information, which we derived from our
unaudited pro forma consolidated financial information included in this
prospectus. The data contained in the pro forma columns give effect to the
following completed acquisitions as if those acquisitions had been consummated
on January 1, 1998 in the case of the income statement and other financial data
and on September 30, 1999 with respect to the balance sheet data:
- the acquisition of Loyalty Management Group Canada Inc., referred to as
Loyalty, on July 24, 1998;
- the acquisition of Harmonic Systems Incorporated, referred to as Harmonic
Systems, on September 15, 1998; and
- the acquisition of the network transaction processing business of SPS
Payment Systems, Inc., a wholly-owned subsidiary of Associates First
Capital Corp., referred to as SPS, on July 1, 1999.
The unaudited pro forma data do not purport to present what our results of
operations or financial position would actually have been, or to project our
results of operations or financial position for any future period. You should
read the following pro forma information along with the information contained
throughout this prospectus, including the financial statements and the related
notes that are included in this prospectus.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL RECAST PRO FORMA
------------------------------------------------- --------------------------------------
FOR THE NINE MONTHS FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED FOR THE YEAR ENDED
DECEMBER 31, SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------- ----------------------- DECEMBER 31, -----------------------
1997 1998 1998 1999 1998 1998 1999
---------- ---------- ---------- ---------- ------------ ---------- ----------
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue...................... $ 339,824 $ 474,933 $ 330,210 $ 465,265 $ 606,462 $ 448,653 $ 489,607
Operating expenses
Processing and servicing......... 164,968 226,525 147,845 244,034 325,401 238,734 258,809
Salaries and employee benefits... 113,752 169,799 121,229 141,995 184,493 134,343 147,630
Depreciation and other
amortization................... 8,904 8,782 6,201 10,219 10,035 7,454 10,219
Amortization of purchased
intangibles.................... 16,974 36,408 21,875 35,152 66,919 50,311 39,302
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses....... 304,598 441,514 297,150 431,400 586,848 430,842 455,960
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income................... 35,226 33,419 33,060 33,865 19,614 17,811 33,647
Interest expense................... 15,713 29,295 19,165 33,018 38,519 28,389 33,018
Income tax expense................. 6,021 9,970 7,939 15,686 9,046 7,307 14,915
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from continuing
operations....................... 13,492 (5,846) 5,956 (14,839) (27,951) (17,885) (14,286)
Income (loss) from discontinued
operations, net of taxes......... (5,635) (3,948) (4,483) 7,688 (3,948) (4,483) 7,688
Loss on disposal of discontinued
operations, net of taxes......... -- -- -- (3,737) -- -- (3,737)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................. $ 7,857 $ (9,794) $ 1,473 $ (10,888) $ (31,899) $ (22,368) $ (10,335)
========== ========== ========== ========== ========== ========== ==========
Earnings (loss) from continuing
operations--basic and diluted.... $ 0.29 $ (0.11) $ 0.12 $ (0.27) $ (0.58) $ (0.39) $ (0.32)
Earnings (loss) per share--basic
and diluted...................... $ 0.17 $ (0.18) $ 0.03 $ (0.20) $ (0.65) $ (0.46) $ (0.26)
Shares used in computing per share
amounts--
Basic............................ 47,072 53,110 50,423 61,061 60,389 60,163 61,061
Diluted.......................... 47,072 53,110 50,470 61,061 60,389 60,163 61,061
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PRO FORMA
-------------------------
HISTORICAL RECAST FOR THE
------------------------------------------------------------------- NINE
MONTHS
FOR THE YEARS FOR THE NINE ENDED
ENDED MONTHS ENDED FOR THE YEAR SEPTEMBER
DECEMBER 31, SEPTEMBER 30, ENDED 30,
----------------------------------------- ----------------------- DECEMBER 31, ----------
1997 1998 1998 1999 1998 1998
---------------------------- ---------- ---------- ---------- ------------ ----------
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
OTHER FINANCIAL DATA
EBITDA(1).............. $ 61,104 $ 78,609
EBITDA as a percentage
of revenue........... 18.0% 16.6%
Cash earnings(2)....... $ 30,466 $ 30,562
SEGMENT OPERATING DATA
Air Miles reward miles
issued............... -- 647,357
Transactions
processed............ 922,678 1,134,902
Statements
generated(3)......... 113,940 130,895
Securitized
portfolio(4)......... $ 1,821,016 $2,135,340
Number of
cardholders(5)....... 40,509 46,174
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
----------
----------
1999
----------
OTHER FINANCIAL DATA
EBITDA(1).............. $ 61,136 $ 79,236 $ 96,568 $ 75,576
EBITDA as a percentage
of revenue........... 18.5% 17.0% 15.9% 16.8%
Cash earnings(2)....... $ 27,831 $ 20,313 $ 38,968 $ 32,426
SEGMENT OPERATING DATA
Air Miles reward miles
issued............... 233,314 1,128,724 1,399,077 985,034
Transactions
processed............ 783,132 1,231,844 1,814,271 1,319,191
Statements
generated(3)......... 97,726 99,436 130,895 97,726
Securitized
portfolio(4)......... $1,855,545 $2,011,628 $ 2,135,340 $1,855,545
Number of
cardholders(5)....... 44,859 51,094 46,174 44,859
<CAPTION>
<S>
OTHER FINANCIAL DATA
EBITDA(1).............. $ 83,168
EBITDA as a percentage
of revenue........... 17.0%
Cash earnings(2)....... $ 25,016
SEGMENT OPERATING DATA
Air Miles reward miles
issued............... 1,128,724
Transactions
processed............ 1,496,541
Statements
generated(3)......... 99,436
Securitized
portfolio(4)......... $2,011,628
Number of
cardholders(5)....... 51,094
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
HISTORICAL RECAST
------------------------------------- PRO FORMA
AS
AS OF AS OF PRO FORMA ADJUSTED(6)
---------- -------------
DECEMBER 31, AS OF
--------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
-------- ---------- ------------- --------------------------
<CAPTION>
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents...................... $ 29,304 $ 47,036 $ 88,498 $ 88,498 $
Credit card receivables and seller's
interest..................................... 170,938 139,458 143,093 143,093
Intangibles and goodwill....................... 93,763 305,365 457,709 457,709
Total assets................................... 596,277 1,010,119 1,201,630 1,201,630
Certificates of deposit........................ 40,300 49,500 115,500 115,500
Short-term debt................................ 148,000 98,484 31,441 31,441
Long-term and subordinated debt................ 117,673 332,000 305,043 305,043
Total liabilities.............................. 386,104 701,980 784,846 784,846
Series A preferred stock....................... -- -- 120,000 120,000
Total stockholders' equity..................... 210,173 308,139 296,784 296,784
</TABLE>
- ------------------------------
(1) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is presented because management believes it is a widely accepted
financial indicator of a company's ability to incur and service debt. We
believe that EBITDA is not intended to be a performance measure that should
be regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or to the
statement of cash flows as a measure of liquidity. In addition, EBITDA is
not intended to represent funds available for dividends, reinvestment or
other discretionary uses, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles. The EBITDA measures presented in this
document may not be comparable to similarly titled measures presented by
other companies.
(2) Cash earnings is defined as income (loss) from continuing operations plus
amortization of purchased intangibles. Cash earnings is presented because
management believes it provides a good indicator of the earnings of our
operations. Cash earnings is not intended to be a performance measure that
should be regarded as an alternative to, or more meaningful than, either
operating income or net income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. Our cash earnings measure may not be comparable to similarly
titled measures presented by other companies.
(3) Statements generated represents the number of billing statements generated
for both securitized cardholders and cardholders and customers serviced on
behalf of other clients. The number of statements listed as generated for
the year ended December 31, 1997 represents those generated for the fiscal
year ended January 31, 1998.
(4) Securitized portfolio represents outstanding credit card receivables at the
end of the period that we have originated or purchased and have been
securitized.
(5) Number of cardholders represents cardholders related to the securitized
portfolios, both securitized and on-balance sheet.
(6) Pro forma as adjusted gives effect to the sale of shares of our common
stock in the offering at an assumed initial public offering price of
per share.
6
<PAGE>
RISK FACTORS
BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISKS. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES THAT WE FACE.
ANY OF THE FOLLOWING RISKS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS,
FINANCIAL CONDITION AND OPERATING RESULTS. ADDITIONAL RISKS AND UNCERTAINTIES OF
WHICH WE ARE UNAWARE OR CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO IMPAIR OUR
BUSINESS OPERATIONS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO
ANY OF THESE RISKS, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT IN OUR
COMMON STOCK. BEFORE MAKING AN INVESTMENT DECISION, YOU SHOULD ALSO READ THE
OTHER INFORMATION INCLUDED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL
STATEMENTS AND THE RELATED NOTES.
RISKS RELATED TO OUR BUSINESS
THE FAILURE TO EFFECTIVELY INTEGRATE RECENT ACQUISITIONS COULD ADVERSELY AFFECT
OUR BUSINESS.
We are the result of the August 1996 merger of two entities acquired by our
largest stockholder, which involved J.C. Penney's transaction services business,
BSI Business Services, Inc., and The Limited's credit card bank operation, World
Financial Network National Bank. Since the August 1996 merger, we have made
several acquisitions, principally of Loyalty Management Group Canada Inc.,
Harmonic Systems Incorporated and the network transaction processing business of
SPS Payment Systems, Inc. We are currently in the process of integrating the
operations of the network transaction processing business of SPS Payment
Systems, Inc., acquired in July 1999. We expect this integration process to
continue until mid to late 2000. If we are unable to successfully integrate the
SPS operations or any other acquired businesses, we may incur substantial costs
and delays or other operational, technical or financial problems, any of which
could harm our business and impact the trading price of our common stock. In
addition, the failure to successfully integrate acquisitions may divert
management's attention from our existing business and could damage our
relationships with key clients and employees.
OUR BUSINESS IS DEPENDENT ON A SMALL NUMBER OF LARGE CLIENTS.
Our 10 largest clients were responsible for approximately 64% of our
consolidated revenues during 1999, with The Limited and its affiliates
representing approximately 25% of 1999 consolidated revenues. A large number of
our clients are affiliates of The Limited, which beneficially owned
approximately 25.9% of our common stock as of December 31, 1999 and maintains
two designees on our board of directors.
LOYALTY AND DATABASE MARKETING SERVICES. Our 10 largest clients in this
segment were responsible for approximately 68% of our Loyalty and Database
Marketing Services revenue in 1999. Bank of Montreal and Canada Safeway were the
two largest Loyalty and Database Marketing Services clients in 1999, each
representing in excess of 10% of this segment's 1999 revenue. Our contracts with
these 10 clients, or as we refer to them, sponsors, expire between one and three
years from now. We can give no assurance that these contracts will be renewed on
similar terms or at all.
TRANSACTION SERVICES. Our 10 largest clients in this segment were
responsible for approximately 72% of our Transaction Services revenue in 1999.
The Limited and its retail affiliates were the largest Transaction Services
client in 1999, representing in excess of 10% of this segment's 1999 revenue.
Our contracts with The Limited and its retail affiliates expire in 2006. We can
give no assurance that these contracts will be renewed on similar terms or at
all.
CREDIT SERVICES. Our 10 largest clients in this segment were responsible
for 76% of our Credit Services revenue in 1999. The Limited and its retail
affiliates and Brylane were the largest Credit Services clients in 1999,
representing approximately 65% of this segment's revenue. Our contracts with
these clients expire in 2006. We can give no assurance that these contracts will
be renewed on similar terms or at all.
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A significant decrease in revenues attributable to any of our significant
clients could have a material adverse effect on our business, financial
condition and operating results in general, and those of the affected operating
segment, in particular. In addition, if any of our significant clients were
acquired and the client's new management team elected to phase-out or
discontinue the client's business relationship with us, we could suffer a
material adverse effect. This risk is particularly germane as many of our
significant clients are in market sectors such as petroleum, specialty retail,
supermarkets and financial services, which have recently experienced, and are
experiencing, fairly considerable consolidation.
INDUSTRY CONSOLIDATION COULD IMPACT OUR REWARD SUPPLIER OF AIRLINE TICKETS.
Canadian Airlines, a major vendor and supplier of airline tickets related to
the Air Miles reward program, announced that it has accepted a conditional
acquisition offer from Air Canada. While we currently have a long term contract
with Canadian Airlines as a supplier in our Air Miles reward program, we are not
sure what, if any, effect an acquisition of Canadian Airlines by Air Canada will
have on our Air Miles business.
WE ARE SUBJECT TO INTENSE COMPETITION, AND WE EXPECT TO FACE INCREASED
COMPETITION IN THE FUTURE.
GENERAL. The markets for our products and services are highly competitive.
We compete with traditional and online marketing companies, credit card issuers
and data processing companies, as well as with current and potential in-house
operations of our clients. Many of our current and potential competitors have
greater resources than we do, which may impair our ability to compete. Many of
our current and potential competitors have longer operating histories, stronger
brand names and greater financial, technical, marketing and other resources than
we do. In addition, these companies may have existing relationships with our
potential clients and may be able to respond to changes in market dynamics and
technology faster than we can. We cannot assure you that we will be able to
compete successfully against our current and potential competitors. If we are
unable to compete successfully against our competitors, our business will
suffer.
LOYALTY AND DATABASE MARKETING SERVICES. As a provider of loyalty and
database marketing products and services, we generally compete with advertising
and other promotional and loyalty programs, both traditional and online, for a
portion of a client's total marketing budget. In addition, we compete against
internally developed products and services created by our existing and potential
clients. For each of our loyalty and database products and services, we expect
competition to intensify as more competitors enter our market. In addition, new
competitors with our Air Miles reward program may target our sponsors and reward
miles collectors as well as draw rewards from our rewards suppliers. Over the
past year, the top 15% of our Air Miles reward collectors accounted for
approximately 50% of Air Miles reward program revenues. The loss of these
collectors could impact our ability to generate significant revenue from
sponsors and loyalty partners. The continued attractiveness of our loyalty and
rewards programs will depend in large part on our ability to remain affiliated
with sponsors that are desirable to consumers and to offer rewards that are both
attainable and attractive to consumers. For our database marketing services, our
ability to continue collecting detailed transaction data on consumers is
critical in providing effective CRM strategies for our clients.
TRANSACTION SERVICES. The payment processing industry is highly
competitive, especially among the five largest payment processors in the U.S.,
which processed approximately 14 billion transactions during 1998. On a pro
forma basis, we would have been the fourth largest payment processor in the
U.S., processing 1.8 billion transactions during 1998. Such competition requires
that we continue to invest resources in technological developments and restricts
the prices we can charge for certain services. The market requires that payment
processors provide advanced and efficient technology, causing some financial
institutions and other payment processors to either leave the business or merge
with other providers, resulting in significant consolidation in the payment
processing industry. Industry
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consolidation has enabled a few of our competitors to gain access to significant
capital, management, marketing and technological resources that are equal to or
greater than ours. We cannot assure you that we will continue to be able to
compete successfully with such payment processors.
CREDIT SERVICES. We also face intense and increasing competition from
numerous financial services providers, some of which have greater resources than
we do. We compete against third party private label credit card issuers who may
offer lower discount fees and greater incentives to secure new business.
Additionally, our private label cards compete with other card payment types,
primarily general-purpose credit cards like Visa, MasterCard and American
Express, as well as cash, checks and debit cards.
LOSS OF DATA CENTER CAPACITY OR INTERRUPTION OF TELECOMMUNICATION LINKS COULD
ADVERSELY AFFECT OUR BUSINESS.
Our ability to protect our data centers against damage from fire, power
loss, telecommunications failure and other disasters is critical to our future.
Our services are dependent on links to telecommunication providers. Any damage
to our data centers or any failure of our telecommunication links that causes
interruptions in our operations could have a material adverse effect on our
ability to meet our clients' requirements, which could adversely effect our
business, financial condition and operating results.
In order to provide many of our services, we must be able to store,
retrieve, process and manage large databases and periodically expand and upgrade
our capabilities. Any interruption or loss of these capabilities from a computer
malfunction or other reasons could have a material adverse effect on our
business, financial condition and operating results.
We are dependent on a major supplier for transport services to our
transaction processing business. Should there be disruption of the services it
provides to us, we would be required to redirect service to another provider. To
do so would require manual intervention to all locations that are impacted.
FAILURE TO SAFEGUARD OUR DATABASE AND CONSUMER PRIVACY COULD AFFECT OUR
REPUTATION AMONG OUR CLIENTS AND THEIR CUSTOMERS.
An important feature of our loyalty and marketing database programs and
credit services is our ability to develop and maintain individual consumer
profiles. As part of our reward miles redemption and credit services, we
maintain a marketing database containing information on consumers' account
balances. Although we have extensive security procedures, our databases may be
subject to unauthorized access. If we experience a security breach, the
integrity of our marketing databases could be affected. With respect to our
loyalty and database programs, security and privacy concerns may cause consumers
to resist providing the personal data necessary to support this profiling
capability. The use of our loyalty and database programs or credit services
could decline if any well-publicized compromise of security occurred. We could
also be subject to legal claims from consumers. Any public perception that we
released consumer information without authorization would adversely affect our
ability to attract and retain consumers.
THE FAILURE TO ACCURATELY ESTIMATE THE REDEMPTION OBLIGATION FOR OUR AIR MILES
REWARD PROGRAM COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL
CONDITION AND OPERATING RESULTS.
Our historical financial statements reflect our estimates of the future
payments to purchase rewards for free travel and other rewards relating to our
Air Miles reward program. Several components are used to estimate this future
obligation, which is recorded as a redemption obligation on our balance sheet.
The most significant component is our estimate of the number of Air Miles reward
miles that will ultimately be redeemed. The percentage of unredeemed reward
miles is known
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as "breakage" in the loyalty industry. While our Air Miles reward miles
currently do not expire, reward miles are not redeemed by collectors for a
number of reasons, including:
- loss of interest in the program or sponsors;
- collectors moving out of the program area; and
- death of a collector.
A second component relates to the reward cost, which is based on the mix of
rewards anticipated to be provided.
Although we believe that our estimation process is reasonable in light of
our analysis and our seven years of operating experience with the Air Miles
reward program, we cannot assure you that our actual breakage rates or reward
cost estimates will approximate our current assumptions. If actual redemptions
or reward costs are greater than our estimates, our redemption obligation may be
understated which could have a material adverse effect on our business,
financial condition and operating results.
In addition, we cannot control the timing of a collector's decision to
redeem reward miles or the quantity of reward miles redeemed. We could
experience a need for increased working capital to fund redemptions if
collectors redeem Air Miles reward miles at a rate that is more rapid than we
anticipated, which could have a material adverse effect on our business,
financial condition and operating results. We currently maintain cash and cash
equivalents in a separate reserve account, which we believe are adequate to fund
this obligation. Some of these reserves are currently invested in equity
securities and a loss of principal from the investment of these reserves could
affect our ability to fund redemptions.
LITIGATION RELATING TO INTELLECTUAL PROPERTY RIGHTS COULD HARM OUR BUSINESS.
Third parties may infringe or misappropriate our trademarks or other
intellectual property rights, which could have a material adverse effect on our
business, financial condition or operating results. The actions we take to
protect our trademarks and other proprietary rights may not be adequate.
Litigation may be necessary to enforce our intellectual property rights, protect
our trade secrets or determine the validity and scope of the proprietary rights
of others. We cannot assure you that we will be able to prevent misappropriation
or infringement of our proprietary information. Any infringement or
misappropriation could harm any competitive advantage we currently derive or may
derive from our proprietary rights.
Third parties may assert infringement claims against us. Any claims and any
resulting litigation could subject us to significant liability for damages. An
adverse determination in any litigation of this type could require us to design
around a third party's patent or to license alternative technology from another
party. In addition, litigation is time-consuming and expensive to defend and
could result in the diversion of our time and attention. Any claims from third
parties may also result in limitations on our ability to use the intellectual
property subject to these claims.
DEFAULTS AND BANKRUPTCIES RELATED TO OUR CONSUMER UNSECURED LENDING COULD
ADVERSELY AFFECT US.
The primary risk associated with unsecured lending is the risk of default or
bankruptcy of consumers, resulting in accounts being charged-off as
uncollectible. In addition, general economic factors, such as the rate of
inflation, unemployment levels and interest rates, may result in greater
delinquencies and credit losses among consumers. We may not be able to
successfully identify and evaluate the creditworthiness of cardholders to
minimize delinquencies and losses. Also, we cannot assure you that our pricing
strategy can offset the negative impact on profitability caused by
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delinquencies and losses. Increases in writeoffs could have a material adverse
effect on our business, financial condition and operating results.
CHARGEBACKS AND FRAUD IN TRANSACTIONS INVOLVING ELECTRONIC PAYMENT CARDS SUCH AS
CREDIT CARDS, DEBIT CARDS OR STORED VALUE CARDS PRESENT RISKS TO OUR
PROFITABILITY.
In our bank card processing business, when a billing dispute between a
cardholder and a merchant is resolved in favor of the cardholder, or, when a
card issuer detects fraudulent transactions submitted by a merchant, the
transaction is charged back to the merchant. The amount of the transaction is
then credited to the cardholder's account. These billing disputes or chargebacks
include, among others:
- nonreceipt of merchandise or services;
- unauthorized use of a credit card; and
- general disputes between a customer and a merchant as to the quality of
the goods purchased or the services rendered by the merchant.
If we or our clearing banks are unable to collect chargeback amounts from a
merchant's account, and if the merchant refuses or is unable due to bankruptcy
or other reasons to reimburse us for the chargeback, we bear the loss for the
amount of the refund paid to the cardholder. Our contingent liability is greater
in certain industries, such as the direct response marketing industry, where the
cardholder is not present to provide a signature. We attempt to reduce our
exposure to such losses by performing initial and periodic credit reviews of our
merchant clients, by adjusting our rates based, in part, on the merchant's
credit risk, business and industry, and by requiring merchant escrow accounts.
We face chargeback risks with respect to the private label credit card programs
we fund that are similar to the risks we face in our bankcard processing
programs. We cannot assure you that we will not experience significant losses
from chargebacks in the future. Increases in chargebacks not paid by merchants
could have a material adverse effect on our business, financial condition and
operating results.
INTEREST ONLY STRIPS ARE ILLIQUID AND MAY BE OVERSTATED.
INTEREST ONLY STRIPS ARE ILLIQUID. We finance substantially all our credit
card receivables through asset securitization transactions. In our
securitization transactions, credit card receivables are sold to a master trust
which holds the receivables as trustee for third-party investors. We retain the
right to service the securitized receivables. We maintain a residual interest in
the credit card receivables and retain interest only strips, or I/O strips,
representing the present value of the right to the excess cash flows generated
by the securitized receivables. The value of the I/O strip to us equals the
difference between (1) interest and other fees paid by borrowers and (2) the sum
of the following:
- pass-through interest paid to third-party investors;
- trustee fees;
- servicing fees (which we receive from the trust); and
- estimated loan portfolio losses.
We cannot assure you that the I/O strips could in fact be sold at their stated
value on the balance sheet, if at all.
In addition, we recognize a gain on sale in the period during which
receivables are sold, while we recognize the cash payments we receive from our
pooling and servicing agreements and servicing fees from the trusts over the
lives of the securitized receivables. This difference in the timing of cash
flows could cause a cash shortfall, which could have a material adverse effect
on our financial condition.
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INTEREST ONLY STRIPS MAY BE OVERSTATED. We calculate gain on sale and the
value of the I/O strips based on the present value of the anticipated cash flow
stream at the time each securitization transaction closes, using valuation
assumptions we deem appropriate for each particular transaction. The significant
valuation assumptions are related to the anticipated average lives of the credit
card receivables sold, the anticipated dilution rate, the anticipated credit
losses and a discount rate we believe is appropriate for the risks involved in
the I/O strips.
We utilize a model that takes into account the most relevant valuation
factors as of the date of the related securitization and the current balance
sheet date. We make estimates and assumptions regarding the value of the I/O
strips at the time of the securitization and at each balance sheet date. We
cannot assure you that the estimates we use to determine gain on sale and I/O
strips valuations will remain appropriate for the life of each securitization.
If actual loan dilution, resulting from prepayments from cardholders, or
defaults exceed our estimates, the carrying value of I/O strips may be decreased
through a charge against earnings during the period management recognizes the
disparity. Dilution rates and default rates may be affected by a variety of
economic and other factors, including prevailing interest rates and the
availability of alternative financing, most of which are not within our control.
A decrease in prevailing interest rates could cause prepayments to increase,
thereby requiring a write down of the I/O strips. Other factors also may result
in a write down of I/O strips in subsequent periods. Any such write down could
have a material adverse effect on our business, financial condition and
operating results.
WE DEPEND ON SECURITIZATIONS TO FUND OUR CREDIT CARD RECEIVABLES.
Since January 1996, we have utilized a securitization program that involves
the sale of our credit card receivables. We currently utilize our securitization
program as our primary funding vehicle for credit card receivables.
Securitization transactions may be affected by a number of factors, some of
which are beyond our control, including:
- conditions in the securities markets in general;
- conditions in the asset-backed securitization market;
- conformity of credit card receivables to rating agency requirements and
changes in these requirements; and
- availability of credit enhancement.
These factors could adversely affect our ability to effect securitization
transactions, or the value of certain benefits to us of those transactions,
including the value of our I/O strips or our ability to sell
I/O strips or portions of our interest in the receivables.
In addition, we have overcollateralized and maintained an interest in our
securitizations in order to achieve better credit ratings. Failure to obtain
acceptable credit ratings or more stringent credit enhancement requirements
could decrease the efficiency of or have an adverse effect on the timing of, or
our ability to effect, future securitizations. As part of our securitization
structure, we are subject to certain covenants such as receivables performance
and the continued solvency of private label program participants. If such
covenants are not met, an early amortization event could occur. In an early
amortization event, our interest in the related receivables and excess interest
income would be held by the trustee until such time as the securization
investors are fully repaid, and our ability to securitize additional receivables
would be significantly limited.
All receivables held by the World Financial Network Credit Card Master Trust
III relate to Service Merchandise, which is in voluntary Chapter 11 bankruptcy.
This bankruptcy triggered an early amortization event. As of September 30, 1999,
this trust had a balance of $149.3 million in credit card receivables related to
this account, which together with excess interest income, is being held in the
trust until such time as the other holders of interests in the trust are fully
repaid.
We intend to continue public securitizations of our credit card receivables.
The inability to securitize credit card receivables due to changes in the
market, the unavailability of credit
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enhancements, an early amortization event, or any other circumstance or event
would have a material adverse effect on our business, financial condition and
operating results.
THE TRUST MAY TERMINATE OUR SERVICING RIGHTS.
Our pooling and servicing agreements related to our securitizations provide
that the trustee of the related trust may terminate our servicing rights if we
fail to perform our servicing obligations to the certificate holders, such as
the failure to make payments to certificate holders. As of the date of this
prospectus, no servicing rights had been terminated. However, we cannot assure
you that we will be able to perform our servicing obligations and, if we are
unable to perform servicing obligations, that servicing rights will not be
terminated. A termination of our servicing rights would have a material adverse
effect on our business, financial conditions and operating results.
WE EXPECT GROWTH IN OUR CREDIT SERVICES SEGMENT RESULTING FROM NEW AND ACQUIRED
PRIVATE LABEL CARD PROGRAMS, WHOSE CREDIT CARD RECEIVABLE PERFORMANCE MAY NOT
BE CONSISTENT WITH THAT OF OUR EXISTING PROGRAMS.
An important source of growth in our private card operations is expected to
come from the acquisition of existing private label programs and from initiating
new private label programs at retailers that previously did not operate a
program. Although we believe our pricing and risk assessment decision models are
designed to evaluate the credit risk of existing and start-up programs, and we
have demonstrated our ability to integrate and operate private label programs,
there can be no assurance that the loss experience on newly acquired and
start-up plans will be consistent with our more established programs. The
failure to successfully underwrite these private label programs may result in
increased portfolio losses and reduce our profitability and could have a
material adverse effect on our business, financial condition and operating
results.
INTEREST RATE FLUCTUATIONS IMPACT THE YIELD ON OUR ASSETS AND FUNDING EXPENSE.
An increase or decrease in market interest rates could have a negative
impact on the amount we realize from net interest spread between the yield on
our assets and our cost of funding. A rise in market interest rates may
indirectly impact the payment performance of consumers or the value of, or
amount we could realize from sale of, I/O strips. We try to minimize the impact
of changes in market interest rates on our cash flow, asset value and net income
primarily by funding fixed rate assets with fixed rate funding sources and by
using interest-rate derivatives to match asset and liability repricings.
Nonetheless, changes in market interest rates may have a negative impact on us.
OUR HEDGING ACTIVITY SUBJECTS US TO OFF-BALANCE SHEET RISK.
We are subject to off-balance sheet risk through the interest rate swap and
treasury lock agreements that we use to reduce our exposure to fluctuations in
interest rates. These off-balance sheet financial instruments involve elements
of credit and interest rate risk in excess of the amount recognized on our
balance sheet. Our hedging policy subjects us to risks relating to the
creditworthiness of the commercial banks that we contract with in our hedging
transactions. If one of these banks cannot honor its obligations, we may suffer
a loss. The purpose of our hedging policy is to reduce the effect of interest
rate fluctuations on our results of operations. Therefore, while our hedging
policy reduces our exposure to losses resulting from unfavorable changes in
interest rates, it also reduces or eliminates our ability to profit from
favorable changes in interest rates.
POSTAL RATE INCREASES COULD LEAD TO REDUCED VOLUME OF BUSINESS.
The direct marketing industry has been negatively impacted from time to time
during the past years by postal rate increases. Any future increases may force
us and our clients that are direct mailers to mail fewer pieces and to target
our and their prospects more carefully. This response by direct mailers could
decrease the amount of processing services purchased from us, which could have a
material adverse effect on our business, financial condition and operating
results.
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FLUCTUATIONS IN THE EXCHANGE RATES BETWEEN THE U.S. DOLLAR AND CANADIAN DOLLAR
MAY AFFECT OUR OPERATING RESULTS.
A large portion of our Loyalty and Database Marketing services revenue
relates to the Air Miles reward program and is in Canadian dollars. We are
exposed to fluctuations in the exchange rate between the U.S. dollar and the
Canadian dollar through our operations in Canada. Although we have entered into
cross-currency hedge transactions to fix the exchange rate on any Canadian debt
repayment due to a U.S. counter party, we do not hedge our U.S./Canadian
accounting translations. Significant changes in the exchange rate could have a
material adverse effect on our business, financial condition and operating
results.
IF OUR BANK SUBSIDIARY FAILS TO MEET CREDIT CARD BANK CRITERIA, WE MAY BECOME
SUBJECT TO REGULATION UNDER THE BANK HOLDING COMPANY ACT.
Our subsidiary, World Financial Network National Bank, or WFNNB, is a
limited purpose credit card bank chartered as a national banking association and
a member of the Federal Reserve System. Its deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation, or FDIC. WFNNB is subject to comprehensive regulation and periodic
examination by the Office of the Comptroller of the Currency, or the OCC, its
primary regulator, and is also subject to regulation by the Board of Governors
of the Federal Reserve System and the FDIC, as back-up regulators. WFNNB is not
a "bank" as defined under the Bank Holding Company Act because it is in
compliance with the following requirements:
- it engages only in credit card operations;
- it does not accept demand deposits or deposits that the depositor may
withdraw by check or similar means for payment to third parties or others;
- it does not accept any savings or time deposits of less than $100,000,
except for deposits pledged as collateral for extensions of credit;
- it maintains only one office that accepts deposits; and
- it does not engage in the business of making commercial loans.
If WFNNB failed to meet the credit card bank criteria described above, its
status as an insured bank would make us subject to the provisions of the Bank
Holding Company Act. We believe that becoming a bank holding company would
significantly harm us, as we could be required to either divest any activities
deemed to be non-banking activities or cease any activities not permissible for
a bank holding company and its affiliates.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO RETAIN KEY PERSONNEL.
Our future success is substantially dependent upon the continued services of
our senior management team. The loss of the services of any of our executive
officers could have a material adverse effect on our business. Many of our
executive officers have only been employed by us for a short time. We do not
currently have "key person" life insurance policies on any of our employees, and
we generally do not enter into employment agreements with our employees. Our
future success also depends on our ability to attract and retain highly
qualified personnel. The competition for qualified personnel in our markets is
intense, and we may be unable to attract or retain highly qualified personnel in
the future.
SOME OF OUR STOCKHOLDERS OWN A SIGNIFICANT AMOUNT OF OUR COMMON STOCK.
As of December 31, 1999, Limited Commerce Corp., a wholly owned subsidiary
of The Limited, and the affiliated entities of Welsh, Carson, Anderson & Stowe,
in the aggregate beneficially owned approximately 99.5% of our outstanding
common stock and would have owned % of our common stock as of that date
after giving pro forma effect to this offering. As a result, these stockholders
are able to exercise significant influence over, and in most cases control,
matters requiring
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stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying, preventing or deterring a change in control that
may otherwise be beneficial to you.
DELAWARE LAW AND OUR CHARTER DOCUMENTS COULD PREVENT A TAKEOVER THAT MIGHT BE
BENEFICIAL TO YOU.
Delaware law, as well as provisions of our certificate of incorporation and
bylaws, could discourage unsolicited proposals to acquire us, even though such
proposals may be beneficial to you. These provisions include:
- a board of directors classified into three classes of directors with the
directors of each class having staggered, three-year terms;
- our board's authority to issue shares of preferred stock without
stockholder approval; and
- provisions of Delaware law that restrict many business combinations and
provide that directors serving on staggered boards of directors, such as
ours, may be removed only for cause.
These provisions of our certificate of incorporation, bylaws and Delaware law
could discourage tender offers or other transactions that might otherwise result
in our stockholders receiving a premium over the market price for our common
stock.
THE FAILURE TO FAVORABLY NEGOTIATE AND INTEGRATE FUTURE ACQUISITIONS COULD
ADVERSELY AFFECT OUR BUSINESS.
We have made several acquisitions since August 1996, and we intend to
acquire additional complementary businesses as part of our growth strategy.
Although we may acquire additional businesses, we may not be able to
successfully integrate them in a timely manner. If we are not able 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 key clients and
employees.
To finance future acquisitions, we may issue equity securities that could be
dilutive to our stockholders. We may also incur debt and additional amortization
expenses related to goodwill and other intangible assets in future acquisitions.
The interest expense related to this debt and additional amortization expense
may significantly reduce our profitability and could have a material adverse
effect on our business, financial condition and operating results.
RISKS RELATED TO OUR INDUSTRY
THE MARKETS FOR THE SERVICES THAT WE OFFER MAY FAIL TO EXPAND OR MAY CONTRACT.
Our growth and continued profitability relies on acceptance of the services
that we offer. If demand for loyalty and database marketing, transaction or
credit services were to decrease, the price of our common stock could fall and
you could lose value in your investment. The use of loyalty and database
marketing by retailers is in its early stages and we cannot guarantee that
merchants will continue to use these types of marketing strategies. Changes in
technology may enable merchants and retail companies to directly process
transactions in a cost efficient manner without the use of our services, which
could have a material adverse effect on our business, financial condition and
operating results.
INDUSTRY RISKS RELATED TO CONSUMER CREDIT PRODUCTS COULD NEGATIVELY IMPACT US.
We face a number of risks associated with unsecured lending, including the
following:
- the risk that delinquencies and credit losses will increase because of
future economic downturns;
- the risk that an increasing number of consumers will default on the
payment of their outstanding balances or seek protection under bankruptcy
laws;
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- the risk that fraud by cardholders and third parties will increase;
- the risk that increased criticism from consumer advocates and the media
could hurt consumer acceptance of our products; and
- the risk of litigation, including class action litigation, challenging our
product terms, rates, disclosures, collections or other practices, under
state and Federal consumer protection statutes and other laws.
Our business, financial condition and operating results could be materially
adversely affected if any of these risks come to fruition.
LEGISLATION RELATING TO CONSUMER PRIVACY MAY AFFECT OUR ABILITY TO COLLECT DATA.
The enactment of legislation or industry regulations arising from public
concern over consumer privacy issues could have a material adverse impact on our
loyalty and database marketing services. Restrictions could be placed upon the
collection and use of information that is currently legally available, in which
case our cost of collecting some data might be materially increased. Legislation
or industry regulation could also prohibit us from collecting or disseminating
certain types of data, which could adversely affect our ability to meet our
clients' requirements.
In November 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act, which requires financial institutions to comply with various notice
procedures in order to disclose nonpublic personal information about their
consumers to nonaffiliated third parties and restricts their ability to share
account numbers. The requirements of this law also apply to the disclosure of
any list, description or other grouping of consumers derived from nonpublic
personal information. This law makes it more difficult to collect and use
information that has been legally available and may increase our costs of
collecting some data. This law could have a material adverse effect on our
business, financial condition and operating results.
The Clinton Administration is investigating further administrative action in
the area of privacy. In addition, Congress and a number of states are
considering further privacy legislation. It is possible that new privacy
protections will not be limited to financial institutions but could broadly
apply to the activities of all companies.
The Canadian federal government and Minister of Industry of Canada are
sponsoring comprehensive private sector privacy legislation that would apply to
organizations engaged in any commercial activities in Canada. Because the
legislation has government support, it will likely be enacted in the near term.
If enacted as currently proposed, it would enact into law 10 privacy principles
from the Canadian Standards Association's Model Privacy Code. The bill would
also require organizations to obtain consent to the collection, use or
disclosure of personal information. The nature of the required consent will
depend on the sensitivity of the personal information and will permit personal
information to be used only for the purposes for which it was collected. The
Province of Quebec has had similar privacy legislation applicable to the private
sector in that province since 1994, and other provinces are considering further
privacy legislation.
CURRENT AND PROPOSED REGULATION AND LEGISLATION RELATING TO OUR CREDIT SERVICES
COULD LIMIT OUR BUSINESS ACTIVITIES, PRODUCT OFFERINGS AND FEES CHARGED.
Various Federal and state laws and regulations significantly limit the
credit services activities in which we are permitted to engage. Such laws and
regulations, among other things, limit the fees and other charges that we can
impose on customers, limit or prescribe certain other terms of our products and
services, require specified disclosures to consumers, or require that we
maintain certain licenses, qualifications and capital requirements. In some
cases, the precise application of these statutes and regulations is not clear.
In addition, numerous legislative and regulatory proposals are advanced each
year which, if adopted, could have a material adverse effect on our
profitability or further restrict the
16
<PAGE>
manner in which we conduct our activities. The failure to comply with, or
adverse changes in, the laws or regulations to which our business is subject, or
adverse changes in their interpretation, could have a material adverse effect on
our ability to collect our receivables and generate fees on the receivables,
thereby adversely affecting our business, financial condition and operating
results.
STATE TAX ISSUES COULD HAVE A NEGATIVE EFFECT ON OUR BUSINESS.
Transaction processing companies may be subject to state taxation of certain
portions of their fees charged to merchants for their services. If we are
required to pay such taxes and are unable to pass this tax expense through to
our merchant clients, our business, financial condition and operating results
could be adversely affected.
LAWS AND REGULATIONS PERTAINING TO THE INTERNET MAY ADVERSELY AFFECT OUR
BUSINESS.
An increasing number of laws and regulations pertain to the Internet. These
laws and regulations relate to liability for information retrieved from or
transmitted over the Internet, online content regulation, user privacy, taxation
and the quality of products and services. Moreover, the applicability to the
Internet of existing laws governing intellectual property ownership and
infringement, copyright, trademark, trade secret, obscenity, libel, employment,
personal privacy and other issues is uncertain and developing. Any new law or
regulation pertaining to the Internet, or the application or interpretation of
existing laws, could decrease the demand for our promotional services, increase
our cost of doing business or otherwise have a material adverse effect on our
business, results of operations and financial condition.
RISKS RELATED TO THIS OFFERING
IF THE PRICE OF OUR COMMON STOCK FLUCTUATES SIGNIFICANTLY, YOUR INVESTMENT COULD
LOSE VALUE.
Prior to this offering, there has been no public market for our common
stock. Although we intend to apply to have our common stock listed on the New
York Stock Exchange, we cannot assure you that an active public market will
develop for our common stock or that our common stock will trade in the public
market subsequent to this offering at or above the initial public offering
price. If an active public market for our common stock does not develop, the
trading price and liquidity of our common stock will be materially and adversely
affected. The initial public offering price will be determined by negotiations
between us and the underwriters and may not be indicative of the trading price
for our common stock after this offering. In addition, the stock market is
subject to significant price and volume fluctuations, and the price of our
common stock could fluctuate widely in response to several factors, including:
- our quarterly operating results;
- changes in our earnings estimates;
- additions or departures of key personnel;
- changes in the business, earnings estimates or market perceptions of our
competitors;
- changes in general market or economic conditions; and
- announcements of legislative or regulatory change.
WE HAVE A LARGE NUMBER OF SHARES THAT ARE ELIGIBLE FOR FUTURE SALE AND, IF THESE
SHARES ARE SOLD IN THE FUTURE, YOUR INVESTMENT WILL BE DILUTED.
If a large number of shares of our common stock are sold in the open market
after this offering, or the market perceives that such sales could occur, the
trading price of our common stock could decrease. After this offering, we will
have an aggregate of shares of our common stock authorized but
unissued and not reserved for specific purposes. In general, all of these shares
may be
17
<PAGE>
issued without any action or approval by our stockholders. We may pursue
acquisitions of competitors and related businesses and may issue shares of our
common stock in connection with these acquisitions.
Upon consummation of the offering, we will have shares of our common
stock outstanding. Of these shares, all shares sold in the offering, other than
shares, if any, purchased by our affiliates, will be freely tradable. Of the
remaining shares, shares will be freely transferable and
shares will be "restricted securities" as that term is defined in Rule 144 under
the Securities Act. Our executive officers, directors and our principal
stockholders have agreed that, subject to various limitations, for a period of
180 days following the date of this prospectus, they will not, without the prior
written consent of Bear, Stearns & Co. Inc., offer, sell, or grant any option to
purchase or otherwise dispose of our common stock or any securities convertible
into or exchangeable for our common stock.
We have also reserved 3,821,428 shares of our common stock for issuance
under our stock option and restricted stock purchase plan, of which 3,017,428
are issuable upon exercise of options granted as of December 31, 1999, including
options to purchase 898,832 shares exercisable as of December 31, 1999 or that
will become exercisable within 60 days after such date. Any shares issued in
connection with the exercise of currently outstanding stock options or otherwise
would further dilute your investment in our common stock.
OUR MANAGEMENT'S BROAD DISCRETION IN THE USE OF THE PROCEEDS OF THIS OFFERING
MAY ADVERSELY AFFECT YOUR INVESTMENT.
Our management can spend a significant portion of the proceeds from this
offering in ways with which our stockholders may not agree. We intend to use
approximately $150.0 million of the net proceeds from the offering to retire
outstanding debt. We expect that the remaining net proceeds will be available
for general corporate purposes, including working capital. We may, however, also
use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, products or services, although we currently have no
commitments or agreements with respect to transactions of that type.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents included or incorporated by reference in
this prospectus may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Such statements may use words such as "anticipate,"
"believe," "estimate," "expect," "intend," "predict," "project" and similar
expressions as they relate to us or our management. When we make forward-looking
statements, we are basing them on our management's beliefs and assumptions,
using information currently available to us. These forward-looking statements
are subject to risks, uncertainties and assumptions, including but not limited
to, risks, uncertainties and assumptions discussed under the section "Risk
Factors" and elsewhere in this prospectus.
If one or more of these or other risks or uncertainties materialize, or if
our underlying assumptions prove to be incorrect, actual results may vary
materially from what we projected. Any forward-looking statements you read in
this prospectus reflect our current views with respect to future events and are
subject to these and other risks, uncertainties and assumptions relating to our
operations, results of operations, growth strategy and liquidity. All subsequent
written and oral forward-looking statements attributable to us or individuals
acting on our behalf are expressly qualified in their entirety by this
paragraph. You should specifically consider the factors identified under the
section "Risk Factors" and elsewhere in this prospectus which could cause actual
results to differ before making an investment decision.
18
<PAGE>
USE OF PROCEEDS
The net proceeds from this offering will be approximately $ million, or
$ million if the underwriters exercise their over-allotment option in full,
after deducting estimated underwriting discounts and commissions and estimated
offering expenses.
We intend to use approximately $150.0 million of the net proceeds from this
offering to repay outstanding debt, in full or in part, as described below. We
expect to use the balance of the net proceeds for working capital and general
corporate purposes. A portion of the net proceeds may be used to acquire or
invest in complementary businesses, technologies, products or services or to
invest in geographic expansion. Although we are not contemplating any specific
acquisitions at this time and no portion of the net proceeds has been allocated
for any acquisition, we evaluate acquisition opportunities on an ongoing basis.
Our management will have broad discretion in the application of the net
proceeds. Pending use, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of government agencies of the United States.
The following is a tabular summary of the intended uses of proceeds from
this offering:
<TABLE>
<S> <C>
Prepayment of 10% Subordinated Note due October 25, 2005
issued to WCAS Capital Partners II, L.P................... $30,000,000
Prepayment of 10% Subordinated Note due October 25, 2005
issued to Limited Commerce Corp........................... $20,000,000
Prepayment of 10% Subordinated Note due September 15, 2008
issued to WCAS Capital Partners III, L.P.................. $52,000,000
Reduction of the outstanding balance under our credit
agreement (term loans and the revolver)................... $48,000,000
Working capital.............................................
-----------
Estimated fees, commissions, underwriting discounts and
expenses related to this offering.........................
-----------
Total proceeds............................................
===========
</TABLE>
The obligations intended to be repaid, in full or in part, are more fully
described as follows:
- a 10% subordinated note issued to WCAS Capital Partners II, L.P., in the
principal amount of $30.0 million, and a 10% subordinated note issued to
the Limited Commerce Corp., in the principal amount of $20.0 million.
Principal on the notes is due on October 25, 2005 and interest is payable
semi-annually in arrears on each January 1 and July 1. The notes were
originally issued in January 1996 to finance, in part, the acquisition of
BSI Business Services, Inc., now known as ADS Alliance Data Systems, Inc.
- a 10% subordinated note issued to WCAS Capital Partners III, L.P. in the
principal amount of $52.0 million. Principal is due in two equal
installments on September 15, 2007 and September 15, 2008. Interest is
payable semi-annually in arrears on each March 15 and September 15. The
note was originally issued in September 1998 to finance, in part, the
acquisition of Harmonic Systems Incorporated.
- a $330.0 million credit agreement entered into in July 1998 consisting of
a $130.0 million U.S. Term Loan, a $50.0 million Canadian A Term Loan and
a $50.0 million Canadian B Term Loan, and a $100.0 million revolving loan
commitment. The term loans and the revolving loan commitment are at a
daily floating rate equal to the sum of the Euro-dollar margin plus the
London Interbank Offered Rate applicable to the period for each
Euro-dollar loan. Principal is payable annually. Interest is payable
quarterly for the base rate loans and payable on the last day of the
Euro-dollar loan period for each Euro-dollar loan. The U.S. Term Loan, the
Canadian A Term Loan, and the revolving loan commitment mature on
July 25, 2003 and the Canadian B Term Loan matures on July 25, 2005. Since
July 1998 we have used approximately $230.0 million of the term loans for
general corporate purposes, including working capital. We use drawings
under the revolving loan commitment throughout the year for general
corporate purposes, including working capital.
19
<PAGE>
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock. We do not
anticipate paying any cash dividends in the foreseeable future. We currently
intend to retain future earnings, if any, to finance operations and the
expansion of our business. Any future determination to pay cash dividends will
be at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and other factors
that the board of directors deems relevant. In addition, under the terms of our
credit agreement, we cannot declare or pay dividends or return capital to our
stockholders, nor can we authorize or make any other distribution, payment or
delivery of property or cash to our stockholders.
20
<PAGE>
DILUTION
Our pro forma net deficit in tangible book value as of September 30, 1999
was approximately $40.9 million, or approximately $0.52 per share of common
stock, after giving effect to the conversion of all our outstanding shares of
Series A preferred stock into common stock and the exercise of all outstanding
warrants for common stock. Pro forma net deficit in tangible book value per
share represents the amount of tangible assets, less intangibles and goodwill
and total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the conversion of all our outstanding shares
of Series A preferred stock into common stock and the exercise of all
outstanding warrants for common stock.
Dilution in net deficit in tangible book value per share represents the
difference between the amount per share paid by purchasers of our common stock
in this offering and the pro forma net tangible book value per share of our
common stock immediately after the offering. After giving effect to our sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share and after deduction of the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us, our pro forma net tangible book value as of September 30, 1999 would have
been approximately $ million, or $ per share. This represents an
immediate increase in pro forma net tangible book value to existing stockholders
attibutable to new investors of $ per share and the immediate dilution of
$ per share to new investors.
<TABLE>
<S> <C> <C>
Initial public offering price per share.....................
Pro forma net deficit in tangible book value per share
before offering.........................................
Increase per share attributable to new investors..........
Pro forma net tangible book value per share after the
offering..................................................
Net tangible book value dilution per share to new
investors.................................................
</TABLE>
The following table sets forth as of September 30, 1999, after giving effect
to the conversion of all our outstanding shares of Series A preferred stock into
common stock and the exercise of all outstanding warrants for common stock, the
total consideration paid and the average price per share paid by our existing
stockholders and by new investors, before deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by us at an
assumed initial public offering price of $ per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......................... % $ % $
New investors..................................
------ ----- ------- -----
Total........................................ 100.0% $ 100.0% $
====== ===== ======= =====
</TABLE>
This table assumes no options were exercised after September 30, 1999. As of
September 30, 1999, there were outstanding options to purchase a total of
2,955,286 shares of common stock at a weighted average exercise price of $7.35
per share and 3,821,428 shares of common stock reserved for issuance under our
stock option and restricted stock purchase plan. If all of the outstanding
options had been exercised on September 30, 1999, our net tangible book value on
that date would have been $ million or $ per share, the increase in
net tangible book value per share attributable to new investors would have been
$ per share, and the dilution in net tangible book value to new investors
would have been $ per share.
21
<PAGE>
CAPITALIZATION
Capitalization is the amount invested in a company and is a common
measurement of a company's size. The table below shows our capitalization as of
September 30, 1999 as follows:
- on an actual basis;
- on a pro forma basis to reflect the conversion of all of our Series A
preferred stock into common stock and the exercise of all outstanding
warrants for common stock; and
- on a pro forma as adjusted basis to give effect to the sale of the
shares of our common stock offered by this prospectus at an
assumed initial public offering price of $ per share and the
application of the net proceeds from the sale, having deducted estimated
underwriting discounts and commissions and estimated offering expenses.
You should read this table in conjunction with the consolidated financial
statements and related notes that are included or incorporated by reference in
this prospectus.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 88,498 $ $
======== ====== ======
Certificates of deposit..................................... $ 85,600
Short-term debt............................................. 31,441 $ $
-------- ------ ------
Total short-term debt..................................... $117,041
======== ====== ======
Long-term debt, excluding current portion:
Certificates of deposit................................... 29,900
Senior credit facility.................................... 203,043
Subordinated notes........................................ 102,000
Series A cumulative convertible preferred stock, $0.01 par
value; 120 shares authorized, issued and outstanding,
actual; none issued or outstanding, as adjusted........... 120,000
Stockholders' equity:
Common stock, $0.01 par value; 85,714 shares authorized,
actual; 85,714 shares authorized, as adjusted; 61,070
shares issued and outstanding, actual; shares
issued and outstanding, as adjusted..................... 4,275
Additional paid-in capital................................ 221,504
Retained earnings......................................... 71,005
-------- ------ ------
Total stockholders' equity.............................. 296,784
-------- ------ ------
Total capitalization.................................. $751,727 $ $
======== ====== ======
</TABLE>
We expect there to be shares of common stock outstanding after this
offering. In addition to the shares of common stock to be outstanding after this
offering, we may issue additional shares of common stock.
22
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information is
based on the unaudited financial statements of Alliance Data Systems
Corporation, Loyalty Management Group Canada Inc., Harmonic Systems
Incorporated, and the network transaction processing business of SPS Payment
Systems, Inc. included elsewhere in this prospectus. The unaudited pro forma
adjustments are based upon certain assumptions that we believe are reasonable.
The unaudited pro forma consolidated financial information and accompanying
notes should be read in conjunction with the historical financial statements of
Alliance Data Systems Corporation, Loyalty Management Group Canada Inc.,
Harmonic Systems Incorporated and the network transaction processing business of
SPS Payment Systems, Inc., and the respective notes to those statements, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus.
The data contained in the pro forma columns give effect to the following
completed acquisitions, each accounted for under the purchase method of
accounting, as if those acquisitions had been consummated on January 1, 1998,
with respect to the income statement:
- the acquisition of Loyalty Management Group Canada Inc., effective
July 24, 1998;
- the acquisition of Harmonic Systems Incorporated, effective September 15,
1998; and
- the acquisition of the network transaction processing business of SPS
Payment Systems, Inc., effective July 1, 1999.
No pro forma balance sheet as of September 30, 1999 has been presented as
there is no difference between the historical and pro forma information as of
that date. The unaudited pro forma consolidated financial information does not
purport to be indicative of the results that would have been obtained had the
transactions been completed as of the assumed dates and for the periods
presented or that may be obtained in the future. The unaudited pro forma
consolidated financial information is included in this prospectus for
informational purposes, and while we believe that it may be helpful in
understanding our combined operations for the periods indicated, you should not
unduly rely on the information.
23
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CALENDAR YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------------------------
HARMONIC PRO
ADSC LOYALTY(1) SYSTEMS(1) SPS(1) SUBTOTAL ADJUSTMENTS FORMA
-------- ---------- ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue...................... $474,933 $71,765 $12,090 $47,674 $606,462 $ -- $606,462
Operating expenses
Processing and servicing......... 226,525 51,288 16,328 31,260 325,401 -- 325,401
Salaries and employee benefits... 169,799 8,363 -- 6,331 184,493 -- 184,493
Depreciation and other
amortization................... 8,782 805 448 -- 10,035 -- 10,035
Amortization of purchased
intangibles.................... 36,408 2,020 -- -- 38,428 28,491 (2) 66,919
-------- ------- ------- ------- -------- -------- --------
Total operating expenses....... 441,514 62,476 16,776 37,591 558,357 28,491 586,848
-------- ------- ------- ------- -------- -------- --------
Operating income (loss)............ 33,419 9,289 (4,686) 10,083 48,105 (28,491) 19,614
Interest expense................... 29,295 203 221 -- 29,719 8,800 (3) 38,519
Income tax expense................. 9,970 4,878 -- 3,710 18,558 (9,512)(4) 9,046
-------- ------- ------- ------- -------- -------- --------
Income (loss) from continuing
operations....................... $ (5,846) $ 4,208 $(4,907) $ 6,373 $ (172) $(27,779) $(27,951)
======== ======= ======= ======= ======== ======== ========
Earnings (loss) per share from
continuing operations -- basic
and diluted...................... $ (0.11) $ (0.58)
======== ========
Shares used in computing per share
amounts -- basic and diluted..... 53,110 7,279 60,389
======== ======== ========
</TABLE>
See accompanying notes on page 27.
24
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------------------
HARMONIC PRO
ADSC LOYALTY(1) SYSTEMS(1) SPS(1) SUBTOTAL ADJUSTMENTS FORMA
-------- ---------- ---------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenue....................... $330,210 $71,765 $12,090 $34,588 $448,653 $ -- $448,653
Operating expenses
Processing and servicing.......... 147,845 51,288 16,328 23,273 238,734 -- 238,734
Salaries and employee benefits.... 121,229 8,363 -- 4,751 134,343 -- 134,343
Depreciation and other
amortization.................... 6,201 805 448 -- 7,454 -- 7,454
Amortization of purchased
intangibles..................... 21,875 2,020 -- -- 23,895 26,416 (2) 50,311
-------- ------- ------- ------- -------- --------- --------
Total operating expenses........ 297,150 62,476 16,776 28,024 404,426 26,416 430,842
-------- ------- ------- ------- -------- --------- --------
Operating income (loss)............. 33,060 9,289 (4,686) 6,564 44,227 (26,416) 17,811
Interest expense.................... 19,165 203 221 -- 19,589 8,800 (3) 28,389
Income tax expense.................. 7,939 4,878 -- -- 12,817 (5,510)(4) 7,307
-------- ------- ------- ------- -------- --------- --------
Income (loss) from continuing
operations........................ $ 5,956 $ 4,208 $(4,907) $ 6,564 $ 11,821 $ (29,706) $(17,885)
======== ======= ======= ======= ======== ========= ========
Earnings (loss) per share from
continuing operations -- basic and
diluted........................... $ 0.12 $ (0.39)
======== ========
Shares used in computing per share
amounts -- basic.................. 50,423 9,740 60,163
======== ========= ========
-- diluted................. 50,470 9,693 60,163
======== ========= ========
</TABLE>
See accompanying notes on page 27.
25
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
-------------------------------------------------------
PRO
ADSC SPS(1) SUBTOTAL ADJUSTMENTS FORMA
-------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Total revenue..................................... $465,265 $24,342 $489,607 $ -- $489,607
Operating expenses
Processing and servicing........................ 244,034 14,775 258,809 -- 258,809
Salaries and employee benefits.................. 141,995 5,635 147,630 -- 147,630
Depreciation and other amortization............. 10,219 -- 10,219 -- 10,219
Amortization of purchased intangibles........... 35,152 -- 35,152 4,150 (2) 39,302
-------- ------- -------- ------- --------
Total operating expenses........................ 431,400 20,410 451,810 4,150 455,960
-------- ------- -------- ------- --------
Operating income (loss)........................... 33,865 3,932 37,797 (4,150) 33,647
Interest expense.................................. 33,018 -- 33,018 -- 33,018
Income tax expense................................ 15,686 -- 15,686 (771)(4) 14,915
-------- ------- -------- ------- --------
Income (loss) from continuing operations.......... $(14,839) $ 3,932 $(10,907) $(3,379) $(14,286)
======== ======= ======== ======= ========
Earnings (loss) per share from continuing
operations -- basic and diluted................. $ (0.27) $ (0.32)
======== ========
Shares used in computing per share amounts
-- basic and diluted............................ 61,061 61,061
======== ========
</TABLE>
See accompanying notes on page 27.
26
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1998 and the nine months ended September 30, 1998 and 1999
reflect the pro forma adjustments for the acquisitions previously mentioned.
These statements are prepared on a calendar-year basis so as to provide a better
basis of comparison.
(1) Represents operating activity for each of the respective acquired businesses
for the periods set forth below:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30,
----------------- ---------------------------
1998 1999
--------- ---------
<S> <C> <C> <C>
Loyalty............................. 7 months 7 months --
Harmonic Systems.................... 9 months 9 months --
SPS................................. 12 months 9 months 6 months
</TABLE>
(2) Represents pro forma adjustments to goodwill and other purchased intangibles
amortization in connection with the acquisitions as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30,
----------------- -------------------
1998 1999
-------- --------
<S> <C> <C> <C>
Loyalty.................................... $15,522 $15,522 $ --
Harmonic Systems........................... 4,669 4,669 --
SPS........................................ 8,300 6,225 4,150
------- ------- ------
$28,491 $26,416 $4,150
======= ======= ======
</TABLE>
We amortize goodwill over a 20 to 25 year life. We amortize other purchased
intangibles over a three to five year period.
(3) Represents pro forma adjustments to interest expense related to debt
incurred in connection with the Loyalty and Harmonic Systems acquisitions.
The interest expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1998 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Loyalty..................................... $4,900 $4,900
Harmonic Systems............................ 3,900 3,900
------ ------
$8,800 $8,800
====== ======
</TABLE>
(4) Represents the:
- tax effect of pro forma adjustments including amortization expense related
to the SPS acquisition but excluding amortization expense related to the
Loyalty and Harmonic Systems acquisitions; and
- recognition of tax expense for the acquired businesses which had not
recorded tax expense.
27
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
We are the result of a 1996 merger of two entities acquired by Welsh,
Carson, Anderson & Stowe, which involved J.C. Penney's transaction services
business, BSI Business Services, Inc., and The Limited's credit card bank
operation, WFNNB. Prior to December 31, 1998, our fiscal year was based on a
52/53 week fiscal year ending on the Saturday closest to January 31. We have
since changed our fiscal year end to December 31. The following table sets forth
our summary historical financial information for the periods ended and as of the
dates indicated. Fiscal 1996, fiscal 1997 and fiscal 1998 financial statements
were audited by Deloitte & Touche LLP. Fiscal 1994 and fiscal 1995 were audited
by other auditors. We derived the summary historical financial information below
as of and for the nine months ended September 30, 1998 and 1999 from our
unaudited financial statements which, in our opinion, reflect all normal
recurring adjustments for a fair presentation of such financial statements. The
results of operations for the nine months ended September 30, 1999 presented
below are not necessarily indicative of our future results of operations. You
should read the following historical financial information along with the
information contained throughout this prospectus, including the financial
statements and related notes that are included in this prospectus.
<TABLE>
<CAPTION>
UNAUDITED NINE
MONTHS ENDED
FISCAL SEPTEMBER 30,
---------------------------------------------------- -------------------
1994(1) 1995(2) 1996(3) 1997(4) 1998(5) 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue................................. $154,211 $178,385 $297,338 $353,399 $434,309 $330,210 $465,265
Operating expenses
Processing and servicing.................. 57,434 84,883 144,038 161,360 209,013 147,845 244,034
Salaries and employee benefits............ 40,765 45,035 109,582 127,087 156,464 121,229 141,995
Depreciation and other amortization....... 4,161 3,629 6,860 7,402 8,270 6,201 10,219
Amortization of purchased intangibles..... -- -- 15,603 19,061 34,321 21,875 35,152
-------- -------- -------- -------- -------- -------- --------
Total operating expenses................ 102,360 133,547 276,083 314,910 408,068 297,150 431,400
-------- -------- -------- -------- -------- -------- --------
Operating income.............................. 51,851 44,838 21,255 38,489 26,241 33,060 33,865
Interest expense.............................. -- -- 5,649 15,459 27,884 19,165 33,018
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes......................... 51,851 44,838 15,606 23,030 (1,643) 13,895 847
Income tax expense............................ 17,629 15,624 4,612 8,420 6,653 7,939 15,686
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations...... 34,222 29,214 10,994 14,610 (8,296) 5,956 (14,839)
Income (loss) from discontinued operations,
net of taxes................................ -- -- -- (8,247) (300) (4,483) 7,688
Loss on disposal of discontinued operations,
net of taxes................................ -- -- -- -- -- -- (3,737)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............................. $ 34,222 $ 29,214 $ 10,994 $ 6,363 $ (8,596) $ 1,473 $(10,888)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) from continuing operations--
basic and diluted........................... $ 0.23 $ 0.31 $ (0.15) $ 0.12 $ (0.27)
======== ======== ======== ======== ========
Earnings (loss) per share--basic and
diluted..................................... $ 0.23 $ 0.14 $ (0.16) $ 0.03 $ (0.20)
======== ======== ======== ======== ========
Shares used in computing per share amounts--
Basic....................................... 46,955 47,073 53,652 50,423 61,061
======== ======== ======== ======== ========
Diluted..................................... 46,955 47,073 53,652 50,470 61,061
======== ======== ======== ======== ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1994(1) 1995(2) 1996(3) 1997(4) 1998(5) 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA
EBITDA(6).............. $ 56,012 $ 48,467 $ 43,718 $ 64,952 $ 68,832 $ 61,136 $ 79,236
EBITDA as a percentage
of revenue........... 36.3% 27.2% 14.7% 18.4% 15.8% 18.5% 17.0%
Cash earnings(7)....... $ 34,222 $ 29,214 $ 26,597 $ 33,671 $ 26,025 $ 27,831 $ 20,313
Cash flows from
operating
activities........... 109,861 121,399 56,608 (30.7) 4,469 64,276 188,422
Cash flows from
investing
activities........... (308,634) 1,030,528 (137,633) (103.7) (140,534) (172,910) (235,138)
Cash flows from
financing
activities........... 201,908 (1,122,425) 82,011 104,870 163,282 145,121 92,000
SEGMENT OPERATING DATA
Air Miles reward miles
issued............... -- -- -- -- 647,357 233,314 1,128,724
Transactions
processed............ -- -- 881,316 929,274 1,073,040 783,132 1,231,844
Statements
generated(8)......... 85,587 100,240 126,114 113,940 117,672 97,726 99,436
Securitized
portfolio(9)......... $1,253,914 $1,290,581 $1,685,622 $2,021,599 $2,135,340 $1,855,545 $2,011,628
Number of
cardholders(10)...... 23,410 28,627 35,654 40,509 46,174 44,859 51,094
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------------------
JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31, DECEMBER 31, SEPTEMBER 30,
1995 1996(11) 1997 1998 1998 1999
----------- ----------- ----------- ----------- ------------ -------------
(AMOUNTS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents........... $ 17,416 $ 46,918 $ 50,149 $ 20,595 $ 47,036 $ 88,498
Credit card receivables and seller's
interest.......................... 1,209,372 90,789 161,686 144,440 139,458 143,093
Intangibles and goodwill............ -- -- 104,790 104,536 305,365 457,709
Total assets........................ 1,281,960 225,272 499,349 626,809 1,010,119 1,201,630
Certificates of deposit............. 375,100 67,200 68,400 50,900 49,500 115,500
Short-term debt..................... 531,024 -- 80,811 82,800 98,484 31,441
Long-term and subordinated debt..... 215,000 -- 50,000 180,000 332,000 305,043
Total liabilities................... 1,185,579 114,677 294,144 415,145 701,980 784,846
Series A preferred stock............ -- -- -- -- -- 120,000
Total stockholders' equity.......... 96,381 110,595 205,205 211,664 308,139 296,784
</TABLE>
- ------------------------------
(1) Fiscal 1994 represents the operating results of World Financial Network
Holding Corporation for the 52 weeks ended January 28, 1995.
(2) Fiscal 1995 represents the operating results of World Financial Network
Holding Corporation for the 52 weeks ended February 3, 1996.
(3) Fiscal 1996 represents the operating results of World Financial Network
Holding Corporation and BSI Business Services, Inc. for the 52 weeks ended
February 1, 1997.
(4) Fiscal 1997 represents the operating results of the merged entities under
current management for the 53 weeks ended January 1, 1998 and Financial
Automation Limited for two months.
(5) Fiscal 1998 represents the operating results of the merged entities under
current management for the 11 months ended December 31, 1998, Loyalty for
five months, and Harmonic Systems for three months.
(6) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is presented because management believes it is a widely accepted
financial indicator of a company's ability to incur and service debt. We
believe that EBITDA is not intended to be a performance measure that should
be regarded as an alternative to, or more meaningful than, either operating
income or net income as an indicator of operating performance or to the
statement of cash flows as a measure of liquidity. In addition, EBITDA is
not intended to represent funds available
29
<PAGE>
for dividends, reinvestment or other discretionary uses, and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. EBITDA
measures presented may not be comparable to similarly titled measures
presented by other companies.
(7) Cash earnings is defined as income (loss) from continuing operations plus
amortization of purchased intangibles. Cash earnings is presented because
management believes it provides a good indicator of the earnings of our
operations. Cash earnings is not intended to be a performance measure that
should be regarded as an alternative to, or more meaningful than, either
operating income or net income as an indicator of operating performance and
should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. Our cash earnings measure may not be comparable to similarly
titled measures presented by other companies.
(8) Statements generated represents the number of billing statements generated
for both securitized cardholders and cardholders and customers serviced on
behalf of other clients.
(9) Securitized portfolio represents outstanding credit card receivables at the
end of the period that we have originated or purchased, and have been
securitized.
(10) Number of cardholders represents cardholders related to the securitized
portfolios, both securitized and on-balance sheet.
(11) Reduction of credit card receivables in fiscal 1995 is a result of
securitizing most of the credit card receivables off-balance sheet.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORMATION OF ALLIANCE DATA SYSTEMS CORPORATION
Although our predecessor companies have long operating histories, we have
largely been built by acquisition and therefore have a relatively short
operating history as a combined entity. We are the result of the 1996 merger of
two entities acquired by Welsh, Carson, Anderson and Stowe, which involved J.C.
Penney's transaction services business, BSI Business Services, Inc., and The
Limited's credit card bank operation, WFNNB. Since then, we have made the
following acquisitions, each accounted for as a purchase, with the results of
operations of these acquisitions included from the respective closing dates:
- In November 1996, WFNNB acquired the private label portfolio of National
City Bank of Columbus, which consisted of approximately $370.0 million in
receivables and represented over 25 retailers in a broad range of
industries including soft goods, building materials, furniture and
electronics.
- In July 1998, we acquired Loyalty Management Group Canada Inc.
- In September 1998, we acquired Harmonic Systems Incorporated.
- In July 1999, we acquired the network services business of SPS Payment
Systems, Inc., a wholly-owned subsidiary of Associates First Capital
Corporation.
FISCAL YEAR
In order to have more consistent reporting periods, we changed our year end
to a calendar year end basis during 1998. Prior to December 31, 1998, we
operated on a 52/53 week fiscal year that ended on the Saturday nearest
January 31. Accordingly, fiscal 1996 represents the 52 weeks ended February 1,
1997, fiscal 1997 represents the 53 weeks ended January 31, 1998 and fiscal 1998
represents the 11 months ended December 31, 1998. In addition to discussing the
results of operations on a historical basis, we are also providing a discussion
of our results of operations on a pro forma recast basis for the nine months
ended September 30, 1998 and 1999.
REVENUE AND EXPENSES
Our three reportable segments derive substantially all of their revenue from
two principal sources. We receive fees for providing information and transaction
processing services and earn income from our private label credit card
receivables portfolio and securitization program.
LOYALTY AND DATABASE MARKETING SERVICES. Our Loyalty and Database Marketing
Services segment generates the majority of its revenue from our Canadian Loyalty
program. Loyalty charges sponsors a transaction fee for managing each sponsor's
membership rewards or loyalty program under the Air Miles reward program in
Canada. Database marketing generates revenue from building and maintaining
marketing databases, as well as based on the number of campaigns or projects it
performs for its clients. Operating costs include salaries and employee benefits
and processing and servicing expense such as the estimated cost of fulfilling
future redemption costs of the Air Miles reward program, marketing, data
processing and postage.
TRANSACTION SERVICES. Our Transaction Services segment generates revenue
based on the number of transactions processed, statements mailed and customer
calls handled. Operating costs include salaries and employee benefits and
processing and servicing expense such as data processing, postage,
telecommunications and equipment lease expense.
31
<PAGE>
CREDIT SERVICES. We securitize substantially all of our credit card
receivables that we underwrite. As a result, our Credit Services segment derives
its revenue from the servicing fees and net financing income it receives from
the securitization trusts and merchant fees from the processing of private label
credit cards for our private label clients. We record gains or losses on the
securitization of credit card receivables on the date of sale based on the
estimated fair value of assets retained and liabilities incurred in the sale.
Gains represent the present value of estimated future cash flows we have
retained over the estimated outstanding period of the receivables. This excess
cash flow essentially represents an interest only strip, or I/O strip,
consisting of the excess of finance charges and past-due fees net of the sum of
the return paid to certificateholders, estimated contractual servicing fees and
credit losses. The I/O strip is carried at fair value, with changes in the fair
value reported as a component of cumulative other comprehensive loss. Certain
estimates inherent in the determination of fair value of the I/O strip are
influenced by factors outside our control, and as a result, such estimates could
materially change in the near term. The gains on securitizations and other
income from securitizations are included in net financing charges. Operating
expenses for this segment include salaries and employee benefits and processing
and servicing expense, which includes credit bureau, postage, telephone and data
processing expense and a portion of interest expense. A portion of our interest
expense relates to the funding of our seller's interest in credit card
receivables and other securitization assets.
INTER-SEGMENT SALES. Our Transaction Services segment performs servicing
activities related to our Credit Services segment. For this, Transaction
Services receives a fee equal to its direct costs before corporate overhead plus
a margin that it would charge an unrelated third party for similar functions.
This fee represents an expense to our Credit Services segment and a
corresponding revenue for Transaction Services.
32
<PAGE>
RESULTS OF OPERATIONS
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) COMPARED TO PRO FORMA
NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
The following is a comparison based on pro forma results as shown elsewhere
in this prospectus. The results are presented as if the Loyalty, Harmonic
Systems and SPS acquisitions had been consummated on January 1, 1998.
Information is presented below in both dollars and as a percentage of total
revenue.
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1999 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Loyalty and Database Marketing
Services............................. $ 115,635 25.8 % $ 138,032 28.2 % $22,397 19.4%
Transaction Services................... 277,599 61.9 291,100 59.5 13,501 4.9
Credit Services........................ 176,953 39.4 185,060 37.8 8,107 4.6
Other and eliminations................. (121,534) (27.1) (124,585) (25.5) (3,051) 2.5
--------- ----- --------- ----- -------
Total revenue........................ $ 448,653 100.0 % $ 489,607 100.0 % $40,954 9.1
========= ===== ========= ===== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
-----------------------------------------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1999 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA
Loyalty and Database Marketing
Services............................. $ 24,911 33.0 % $ 23,401 28.1 % $(1,510) (6.1)%
Transaction Services................... 15,279 20.2 25,761 31.0 10,482 68.6
Credit Services........................ 35,386 46.8 34,006 40.9 (1,380) (3.9)
--------- ----- --------- ----- -------
Total EBITDA......................... $ 75,576 100.0 % $ 83,168 100.0 % $ 7,592 10.0
========= ===== ========= ===== =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1999
-------- --------
<S> <C> <C> <C>
EBITDA MARGIN
Loyalty and Database Marketing Services............ 21.5% 17.0%
Transaction Services............................... 5.5 8.8
Credit Services.................................... 20.0 18.4
Total EBITDA margin.............................. 16.8 17.0
</TABLE>
33
<PAGE>
REVENUE. Total revenue increased $41.0 million, or 9.1%, to $489.6 million
for the nine months ended September 30, 1999 from $448.6 million for the
comparable period in 1998. The increase was principally due to a 19.4% increase
in Loyalty and Database Marketing Services revenue, a 4.9% increase in
Transaction Services revenue and a 4.6% increase in Credit Services revenue as
follows:
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services revenue increased $22.4 million, or 19.4%, mainly due to an
increase of approximately $20.2 million in Air Miles reward program
revenue, which was principally due to a 14.6% increase in the issuance of
Air Miles reward miles. We issued 1.1 billion Air Miles reward miles
during the nine months ended September 30, 1999 compared to 985 million
Air Miles reward miles during the comparable period in 1998. The increase
in Air Miles activity is due to an increase in the number of active
collectors, partially offset by the loss of a significant sponsor at the
end of 1998. Other increases are related to higher direct marketing fees
during the nine months ended September 30, 1999 over the comparable period
in 1998 as a result of an increased number of campaigns for clients,
mostly related to Loyalty clients.
- TRANSACTION SERVICES. Transaction Services revenue increased
$13.5 million, or 4.9%, due to an increase in the number of transactions
processed and statements mailed, partially offset by a decrease in the
average price per transaction. The volume of transactions processed
increased 13.4%, mostly from internal growth, with an approximate 9.4%
decrease in price per transaction. The revenue for Transaction Services is
affected by a mix of transaction processing and card processing and
servicing. During the nine months ended September 30, 1999, the revenue
related to card processing and servicing increased to 73% of total
Transaction Services revenue from 68% in the comparable period in 1998,
which improved the overall margin for Transaction Services. Fees related
to servicing of private label credit card statements increased
$12.0 million during the nine months ended September 30, 1999 over the
comparable period in 1998 from servicing 87.0 million statements during
the nine months ended September 30, 1999 compared to 83.5 million
statements during the comparable period in 1998. The increase in the
number of private label credit card statements processed was due primarily
to the addition of new client programs and internal growth.
- CREDIT SERVICES. Credit Services revenue increased $8.1 million, or 4.6%,
due to increased merchant and servicing fee income. Merchant fee income
increased $8.6 million, or 22.6%, due to a 2.1% increase in charge volume
on our private label credit cards and a 3.9% increase in merchant fee
rates. Additionally, servicing fee income increased by $1.7 million, or
7.6%, due to an increase in outstanding credit card receivables in the
securitization trust. Net financing contribution decreased by
approximately $400,000 during the nine months ended September 30, 1999
over the comparable period in 1998. We recognized a $9.0 million gain on
sale of receivables during the nine months ended September 30, 1998
related to the timing of a securitization transaction with no comparable
securitization transaction in the same period in 1999. Excess spread
income increased during the nine months ended September 30, 1999 as a
result of a 10.0% higher outstanding credit card portfolio at
September 30, 1999 compared to the same period in 1998.
OPERATING EXPENSES. Total operating expenses, excluding depreciation and
amortization, increased $33.3 million, or 8.9%, to $406.4 million for the nine
months ended September 30, 1999 from $373.1 million for the comparable period in
1998. Total EBITDA margin increased 0.2% to 17.0% for the nine months ended
September 30, 1999 from 16.8% for the comparable period in 1998. The increase in
EBITDA margin is due to an increase in Transaction Services margin, partially
offset by decreases in Loyalty and Database Marketing Services and Credit
Services margins.
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services operating expenses, excluding depreciation and amortization,
increased $23.9 million, or 26.4%, to $114.6 million for the nine months
ended September 30, 1999 from $90.7 million for the comparable
34
<PAGE>
period in 1998, and EBITDA margin decreased to 17.0% for the nine months
ended September 30, 1999 from 21.5% for the comparable period in 1998 due
primarily to $3.3 million of marketing and payroll costs associated with
the start-up of a new type of Loyalty business-to-business coalition
program during 1999 and increased payroll expenses in the core businesses.
- TRANSACTION SERVICES. Transaction Services operating expenses, excluding
depreciation and amortization, increased $3.0 million, or 1.1%, to
$265.3 million for the nine months ended September 30, 1999 from
$262.3 million for the comparable period in 1998, and EBITDA margin
increased to 8.8% for the nine months ended September 30, 1999 from 5.5%
during the comparable period in 1998 due to the shift in the mix of
business to the higher margin card processing and servicing products.
- CREDIT SERVICES. Credit Services operating expenses, excluding
depreciation and amortization, increased $9.5 million, or 6.7%, to
$151.1 million for the nine months ended September 30, 1999 from
$141.6 million for the comparable period in 1998, and EBITDA margin
decreased to 18.4% for the nine months ended September 30, 1999 from 20.0%
for the comparable period in 1998 due to the timing of the $9.0 million
gain on sale of receivables in 1998 offset by the increase in average
credit card receivable balance.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
$8.3 million, or 14.3%, to $49.5 million for the nine months ended
September 30, 1999 from $57.8 million for the comparable period in 1998 due to
the expiration of intangibles related to the former J.C. Penney business which
were fully amortized.
INTEREST EXPENSE. Interest expense increased $4.6 million, or 16.2%, to
$33.0 million for the nine months ended September 30, 1999 from $28.4 million
for the comparable period in 1998 due to increased borrowings for acquisitions
and operations.
TAXES. Our effective tax rate before non-deductible goodwill amortization
for the nine months ended September 30, 1998 and 1999 was 42.4%.
DISCONTINUED OPERATIONS. During September 1999, we discontinued our
subscriber services business when a major customer was acquired by a third
party. As a result of discontinuing our subscriber services, we recognized a
loss of $3.7 million, net of income tax, on disposal of discontinued operations.
For the nine months ended September 30, 1999, discontinued operations had income
of $7.7 million, net of income tax, compared to a loss of $4.5 million during
the prior period. The difference is due to additional fees we received in
connection with services performed for the customer upon termination of its
contract.
35
<PAGE>
HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1998 (UNAUDITED) COMPARED TO
HISTORICAL NINE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED)
Information is presented below both in dollars and as a percentage of total
revenue.
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1999 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Loyalty and Database Marketing
Services.............................. $ 43,870 13.3% $ 138,032 29.7% $ 94,162 214.6%
Transaction Services.................... 230,921 69.9 266,758 57.3 35,837 15.5
Credit Services......................... 176,953 53.6 185,060 39.8 8,107 4.6
Other and eliminations.................. (121,534) (36.8) (124,585) (26.8) (3,051) 2.5
--------- ----- --------- ----- --------
Total revenue......................... $ 330,210 100.0% $ 465,265 100.0% $135,055 40.9
========= ===== ========= ===== ========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------
1998 1999 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA
Loyalty and Database Marketing
Services............................... $ 12,797 20.9% $ 23,401 29.5% $ 10,604 82.9%
Transaction Services..................... 12,953 21.2 21,829 27.6 8,876 68.5
Credit Services.......................... 35,386 57.9 34,006 42.9 (1,380) (3.9)
--------- ----- --------- ----- --------
Total EBITDA........................... $ 61,136 100.0% $ 79,236 100.0% $ 18,100 29.6
========= ===== ========= ===== ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1998 1999
-------- --------
<S> <C> <C> <C>
EBITDA MARGIN
Loyalty and Database Marketing
Services.............................. 29.2% 17.0%
Transaction Services.................... 5.6 8.2
Credit Services......................... 20.0 18.4
Total EBITDA margin................... 18.5 17.0
</TABLE>
REVENUE. Total revenue increased $135.1 million, or 40.9%, to
$465.3 million for the nine months ended September 30, 1999 from $330.2 million
during the comparable period in 1998. The increase was principally due to a
214.6% increase in Loyalty and Database Marketing Services revenue, a 15.5%
increase in Transaction Services revenue and a 4.6% increase in Credit Services
revenue as follows:
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services revenue increased $94.2 million, or 214.6%, due to the
acquisition of Loyalty Management Group Canada Inc. in July 1998 for
approximately $72.0 million. The remaining increase is primarily related
to an increase in Air Miles reward miles activity. During August and
September of 1998, we issued 233.3 million Air Miles reward miles, or
116.7 million reward miles per month, compared to 125.4 million Air Miles
reward miles per month during the nine months ended September 30, 1999.
The increase in Air Miles activity is related to an increase in more
active reward miles collectors.
- TRANSACTION SERVICES. Transaction Services revenue increased
$35.8 million, or 15.5%, due to the acquisitions of Harmonic Systems in
1998 and SPS in 1999 along with an increase in the number
36
<PAGE>
of transactions processed and statements mailed, partially offset by a
decrease in the average price per transaction. The revenue for Transaction
Services is affected by a mix of transaction processing and card
processing and servicing. Fees related to servicing of private label
credit card statements increased $12.0 million during the nine months
ended September 30, 1999 due to a 3.5 million increase in the number of
statements processed during the nine months ended September 30, 1999. The
increase in private label credit card statements processed was driven
primarily by the addition of new client programs in addition to internal
growth.
- CREDIT SERVICES. Credit Services revenue increased $8.1 million, or 4.6%,
due to increased merchant and servicing fee income. Merchant fee income
increased $8.6 million, or 22.6%, due to a 2.1% increase in charge volume
on our private label credit cards and a 3.9% increase in the rate for
merchant fees. Additionally, servicing fee income increased by
$1.7 million, or 7.6%, due to an increase in outstanding credit card
receivables in the securitization trust. Net financing contribution
decreased approximately $400,000 during the nine months ended
September 30, 1999 over the comparable period in 1998. We recognized a
$9.0 million gain on sale of receivables during the nine months ended
September 30, 1998 related to the timing of a securitization transaction
with no comparable securitization transaction in the same period in 1999.
Excess spread income increased during the nine months ended September 30,
1999 as a result of a 10.0% higher outstanding credit card portfolio at
September 30, 1999 compared to the same period in 1998.
OPERATING EXPENSES. Total operating expenses, excluding depreciation and
amortization, increased $116.9 million, or 43.4%, to $386.0 million during the
nine months ended September 30, 1999 from $269.1 million during the comparable
period in 1998. Total EBITDA margin decreased 1.5% to 17.0% for the nine months
ended September 30, 1999 from 18.5% for the comparable period in 1998. The
decrease in EBITDA margin is due to decreases in Loyalty and Database Marketing
Services and Credit Services margins, partially offset by an increase in
Transaction Services margin.
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services operating expenses, excluding depreciation and amortization,
increased $83.5 million, or 268.5%, to $114.6 million for the nine months
ended September 30, 1999 from $31.1 million for the comparable period in
1998, and EBITDA margin decreased to 17.0% for the nine months ended
September 30, 1999 from 29.2% for the comparable period in 1998 due
primarily to $3.3 million of marketing and payroll costs associated with
the start-up of a new type of Loyalty business-to-business coalition
program during the nine months ended September 30, 1999 and increased
payroll expenses in the core businesses.
- TRANSACTION SERVICES. Transaction Services operating expenses, excluding
depreciation and amortization, increased $26.9 million, or 12.4%, to
$244.9 million for the nine months ended September 30, 1999 from
$218.0 million for the comparable period in 1998, and EBITDA margin
increased to 8.2% for the nine months ended September 30, 1999 from 5.6%
during the comparable period in 1998 due to a shift in the mix of business
to higher margin card processing and servicing products.
- CREDIT SERVICES. Credit Services operating expenses, excluding
depreciation and amortization, increased $9.5 million, or 6.7%, to
$151.1 million for the nine months ended September 30, 1999 from
$141.6 million for the comparable period in 1998, and EBITDA margin
decreased to 18.4% for the nine months ended September 30, 1999 from 20.0%
during the comparable period in 1998 due to the timing of the
$9.0 million gain on sale of receivables in 1998 offset by the increase in
average credit card receivable balance.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$17.3 million, or 61.6%, to $45.4 million for the nine months ended
September 30, 1999 from $28.1 million for the comparable period in 1998 due to
increased amortization of purchased intangibles from recent acquisitions,
partially
37
<PAGE>
offset by a decrease in amortization expense for some of the intangibles related
to the acquisition of the former J.C. Penney business which were fully
amortized.
INTEREST EXPENSE. Interest expense increased $13.8 million, or 71.9%, to
$33.0 million for the nine months ended September 30, 1999 from $19.2 million
for the comparable period in 1998 due to an increase in the level of debt
associated with acquisitions and increased rates on our variable rate debt.
TAXES. Our effective tax rate for the nine months ended September 30, 1999
was 53.6%, an increase of 40.5% over the comparable period in 1998. The increase
in the rate is the result of higher taxes in Canada which represented a larger
portion of pre-tax income in the nine months ended September 30, 1999.
DISCONTINUED OPERATIONS. During September 1999, we discontinued our
subscriber services business when a major customer was acquired by a third
party. As a result of discontinuing our subscriber services, we recognized a
loss of $3.7 million, net of income tax, on disposal of discontinued operations.
For the nine months ended September 30, 1999, discontinued operations had income
of $7.7 million, net of income tax, compared to a loss of $4.5 million during
the prior period. The difference is largely related to additional fees we
received in connection with services performed for the customer upon termination
of its contract.
HISTORICAL ELEVEN MONTHS ENDED DECEMBER 31, 1998 (FISCAL 1998) COMPARED TO
HISTORICAL 52 WEEKS ENDED JANUARY 31, 1998 (FISCAL 1997)
Due to the change in our fiscal year, fiscal 1998 is one month shorter than
fiscal 1997. Information is presented below in both dollars and as a percentage
of total revenue.
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
FISCAL 1997 FISCAL 1998 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Loyalty and Database Marketing........ $ 23,348 6.6% $ 84,288 19.4% $ 60,940 261.0%
Transaction Services.................. 256,730 72.6 286,605 66.0 29,875 11.6
Credit Services....................... 211,921 60.0 212,663 49.0 742 0.4
Other and eliminations................ (138,600) (39.2) (149,247) (34.4) (10,647) (7.7)
--------- ----- --------- ----- --------
Total revenue....................... $ 353,399 100.0% $ 434,309 100.0% $ 80,910 22.9
========= ===== ========= ===== ========
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL
----------------------------------------------
FISCAL 1997 FISCAL 1998 VARIANCE
-------------------- -------------------- -------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA
Loyalty and Database Marketing........ $ 8,457 13.0% $ 15,815 23.0% $ 7,358 87.0%
Transaction Services.................. 27,146 41.8 13,621 19.8 (13,525) (49.8)
Credit Services....................... 29,349 45.2 39,396 57.2 10,047 34.2
--------- ----- --------- ----- --------
Total EBITDA........................ $ 64,952 100.0% $ 68,832 100.0% $ 3,880 6.0
========= ===== ========= ===== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL
----------------------
1997 1998
-------- --------
<S> <C> <C> <C>
EBITDA MARGIN
Loyalty and Database Marketing............... 36.2% 18.8%
Transaction Services......................... 10.6 4.8
Credit Services.............................. 13.8 18.5
Total EBITDA margin........................ 18.4 15.8
</TABLE>
38
<PAGE>
REVENUE. Total revenue increased $80.9 million, or 22.9%, to
$434.3 million for fiscal 1998 from $353.4 million in fiscal 1997. The increase
was principally due to a 261.0% increase in Loyalty and Database Marketing
Services revenue, a 11.6% increase in Transaction Services revenue and a 0.4%
increase in Credit Services revenue.
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services revenue increased $60.9 million, or 261.0%, mainly due to the
acquisition of Loyalty in July 1998. Loyalty contributed approximately
$60.0 million in revenue for fiscal 1998. Growth in database marketing
fees of approximately $3.0 million during fiscal 1998 was offset by
decreases in enhancement services due to the shorter period in fiscal
1998.
- TRANSACTION SERVICES. Transaction Services revenue increased
$29.9 million, or 11.6%, due partially to the effect of the acquisition of
Harmonic Systems in 1998. Revenue increased in fiscal 1998 relating to
servicing of private label credit card statements and network servicing by
$11.1 million due to a 15.5% increase in items processed, offset partially
by a reduction of transaction fee rates, and a 4.9% increase in statements
processed. Additionally, growth was provided by a $12.4 million increase
in servicing and processing of our private label credit card portfolio.
- CREDIT SERVICES. Credit Services revenue increased $742,000, or 0.4%, due
to increased merchant fee income, partially offset by a decrease in
finance charge income. Merchant fee income increased in fiscal 1998 due to
a 14.0% increase in cardholders and a 10% increase in merchant fee rates.
Finance charge income decreased due to the shorter period in fiscal 1998
and a $2.0 million decrease in gain on sale of receivables, offset in part
by an increase in card balances.
OPERATING EXPENSES. Total operating expenses, excluding depreciation and
amortization, increased $77.1 million, or 26.7%, to $365.5 million during fiscal
1998 from $288.4 million in fiscal 1997. Total EBITDA margin decreased 2.6% to
15.8% for fiscal 1998 from 18.4% for fiscal 1997. The decrease in EBITDA margin
is due to decreases in Loyalty and Database Marketing Services and Transaction
Services margins, partially offset by an increase in Credit Services margin.
- LOYALTY AND DATABASE MARKETING SERVICES. Loyalty and Database Marketing
Services operating expenses, excluding depreciation and amortization,
increased $53.6 million, or 359.8%, to $68.5 million in fiscal 1998 from
$14.9 million in fiscal 1997, and EBITDA margin decreased to 18.8% for
fiscal 1998 from 36.2% for fiscal 1997 due to the acquisition of Loyalty.
The largest component of the increased expense is related to the estimated
redemption cost of the Air Miles reward program and payroll costs
associated with Loyalty.
- TRANSACTION SERVICES. Transaction Services operating expenses, excluding
depreciation and amortization, increased $43.4 million, or 18.9%, to
$273.0 million in fiscal 1998 from $229.6 million in fiscal 1997, and
EBITDA margin decreased to 4.8% for fiscal 1998 from 10.6% for fiscal 1997
due to the acquisition of Harmonic Systems, which incurred an operating
loss in fiscal 1998.
- CREDIT SERVICES. Credit Services operating expenses, excluding
depreciation and amortization, decreased $9.3 million, or 5.1%, to
$173.3 million in fiscal 1998 from $182.6 million in fiscal 1997 due
primarily to fiscal 1998 being a shorter period. EBITDA margin increased
to 18.5% from 13.8% for fiscal 1997 due to a decrease in processing
expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$16.1 million, or 60.9%, to $42.6 million for fiscal 1998 from $26.5 million for
fiscal 1997 due to increased amortization of purchased intangibles from the
recent acquisitions in fiscal 1998 offset in part by a shorter period in fiscal
1998.
39
<PAGE>
INTEREST. Interest expense increased $12.4 million, or 80.0%, to
$27.9 million for fiscal 1998 from $15.5 million for fiscal 1997 due to an
increased debt balance associated with fiscal 1998 acquisitions.
TAXES. Our effective tax rate, before non-deductible goodwill, for fiscal
1998 was 43.4%, an increase of 36.6% compared to fiscal 1997.
HISTORICAL 53 WEEKS ENDED JANUARY 31, 1998 (FISCAL 1997) COMPARED TO THE
HISTORICAL 52 WEEKS ENDED FEBRUARY 1, 1997 (FISCAL 1996)
No segment information for fiscal 1996 is presented as management did not
review the business on a segment basis during that period. Fiscal 1996 primarily
consists of Credit Services, as the Transaction Services segment was not created
until the purchase of the former network processing business of J.C. Penney.
REVENUE. Total revenue increased $56.1 million, or 18.9%, to
$353.4 million in fiscal 1997 from $297.3 million in fiscal 1996 due to the
inclusion of a full year of results of the former J.C. Penney network processing
business.
PROCESSING AND SERVICING FEES. Processing and servicing fees increased
$26.1 million, or 13.1%, to $225.5 million in fiscal 1997 from $199.4 million in
fiscal 1996 due to acquisitions.
FINANCE CHARGE. Finance charge, net increased $40.3 million, or 46.5%, to
$127.0 million in fiscal 1997 from $86.7 million in fiscal 1996 due to an
increase in average receivable balances.
OPERATING EXPENSES. Consolidated operating expenses increased
$38.8 million, or 14.1%, to $314.9 million in fiscal 1997 from $276.1 million in
fiscal 1996. Salaries and employee benefits increased 16.0% to $127.1 million in
fiscal 1997 compared to $109.6 in fiscal 1996 due to the increase in the number
of employees. Processing and servicing expenses increased 12.0% to
$161.3 million in fiscal 1997 compared to $144.0 in fiscal 1996 due to the
increase in the number of transactions processed for network services and
private label cards.
INTEREST. Interest expense increased $9.9 million, or 176.8%, to
$15.5 million in fiscal 1997 from $5.6 million in fiscal 1996 due primarily to
increased debt balances.
TAXES. Our effective tax rate, before non-deductible goodwill, for fiscal
1997 was 43.4%, an increase of 29.6% compared to fiscal 1996.
ECONOMIC FLUCTUATIONS
Although we cannot precisely determine the impact of inflation on our
operations, we do not believe that we have been significantly affected by
inflation. For the most part, we have looked to operating efficiencies from
scale and technology, as well as decreases in technology and communication
costs, to offset increased costs of employee compensation and other operating
expenses.
Portions of our business are seasonal. Our revenues and earnings are
favorably affected by increased transaction volume and credit card balances
during the holiday shopping period in the fourth quarter and, to a lesser
extent, during the first quarter as credit card balances are paid down.
Similarly, our petroleum related businesses are favorably affected by increased
volume in the latter part of the second quarter and the first part of the third
quarter.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES. We generated cash flow from operating activities of
$188.4 million during the nine months ended September 30, 1999, compared to
$64.3 million for the comparable period in 1998, and $4.5 million during fiscal
1998, compared to $46.8 million during fiscal 1997. Operating cash flow
40
<PAGE>
in fiscal 1998 decreased due to the increase in the amount of interest expense
paid as a result of higher debt related to acquisitions and an increase in trade
receivables offset by an increase in the amount of depreciation and amortization
recorded. Our operating cash flow is seasonal with cash utilization peaking at
the end of December due to increased activity related to the holidays. We
utilize our operating cash flow for ongoing business operations and to pay
interest expense.
INVESTING ACTIVITIES. We used cash in investing activities of $235.1
million during the nine months ended September 30, 1999 compared to $172.9
million for the comparable period in 1998 and $140.5 million during fiscal 1998
compared to $179.2 million during fiscal 1997. Two significant components of
investing activities have been acquisitions and receivables funding.
- ACQUISITIONS. Net cash outlays for acquisitions in the nine months ended
September 30, 1999 totaled $170.0 million for the SPS acquisition compared
to $160.6 million for the Loyalty and Harmonic Systems acquisitions for
the comparable period in 1998. Net cash outlays for acquisitions in fiscal
1998 totaled $134.0 million as compared to $716,000 for fiscal 1997.
- RECEIVABLES FUNDING. Another significant component of investing activity
is the funding and securitizing of our private label credit card
receivables. We generally fund all private label credit card receivables
through a securitization program that provides us with both liquidity and
lower borrowing costs. As of September 30, 1999, we had over $2.0 billion
of credit card receivables outstanding under securitizations.
Securitizations require credit enhancements in the form of cash, spread
accounts and additional receivables. We intend to utilize our
securitization program for the foreseeable future. We used net cash of
$11.9 million during the nine months ended September 30, 1999, compared to
$3.2 million during the comparable period in 1998, and received
$22.6 million during fiscal 1998, compared to $289.5 million during fiscal
1997, to fund private label credit card receivables.
FINANCING ACTIVITIES. Net cash provided from borrowings was $90.4 million
in the nine months ended September 30, 1999, compared to $145.1 million for the
comparable period in 1998, and $163.3 million in fiscal 1998, compared to
$104.9 million in fiscal 1997. Our financing activities include primarily net
borrowings used to fund acquisitions and working capital. We issued
approximately $100.0 million of common stock to fund a portion of the Loyalty
acquisition during fiscal 1998.
We issue certificates of deposit, or CDs, through our credit card bank
subsidiary, WFNNB, which issues CDs in various maturities ranging between three
months and two years and with effective annual fixed rates ranging from 5.30% to
6.80%. We utilize CDs to finance WFNNB's operating activities and to fund credit
enhancement activity. WFNNB is limited in the amounts that it can dividend.
We also have a $100.0 million revolving loan commitment that we use for
general corporate purposes. From mid-November to late January, we experience
increased needs for working capital due to the increased card usage during the
holiday season. For additional credit enhancement during this period, our
securitization program requires us to maintain a higher percentage of
securitized assets through increased seller's interest or excess funding
deposits. During fiscal 1998, the highest outstanding balance on the revolving
loan commitment was $50.0 million. As of September 30, 1999, there was no amount
outstanding under the revolving loan commitment.
We have used debt to finance our acquisitions. We have $102.0 million of
subordinated notes outstanding related to the merger in August 1996 and our
acquisition of Harmonic Systems. These subordinated notes were issued to
affiliates of our stockholders, bear interest at 10% and are due between 2005
and 2008. We also have a $50.0 million term loan outstanding related to the
Loyalty acquisition, which has an effective fixed interest rate of 8.99%. There
are an additional $180.0 million in term loans, $50.0 million of which relates
to Loyalty, which have been used for general corporate purposes that have
floating rates of either LIBOR plus the Euro-dollar margin or the Base Rate plus
a Base Rate Margin.
41
<PAGE>
To fund the SPS acquisition, we used $50.0 million in working capital and
$120.0 million from the issuance of Series A preferred stock. The Series A
preferred stock has a 6% dividend rate payable at the discretion of our board of
directors or upon conversion.
Restricted cash and cash equivalents and securities available-for-sale on
our balance sheet at September 30, 1999 relate to a reserve fund we have
established in connection with the Air Miles reward program. The reserve fund is
maintained to fund redemptions of Air Miles reward miles from collectors. We
believe the reserve fund is sufficient to meet redemption obligations for the
foreseeable future. We currently intend to set aside a portion of future
transaction fees received to fund future redemption obligations. Based on
various factors, we may reduce the amount of the reserve fund and utilize future
cash flows and excess cash for general corporate purposes.
We believe that our current level of cash and financing capacity, along with
future cash flows from operations, are sufficient to meet the needs of our
existing businesses. However, we may from time to time seek longer term
financing to support additional cash needs, reduce short-term borrowings, or
raise funds for acquisitions.
YEAR 2000
We expense our costs related to the year 2000 compliance efforts as
incurred. Our costs related to year 2000 compliance efforts totalled
approximately $7.0 million in each of fiscal 1998 and fiscal 1999. As of
December 31, 1999, our estimated aggregate costs to date for year 2000
compliance efforts totalled approximately $14.0 million. We do not anticipate
incurring additional costs related to year 2000 compliance.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. Our primary market risks include interest rate risk, credit risk and
foreign currency exchange rate risk.
OFF-BALANCE SHEET RISK.
We are subject to off-balance sheet risk in the normal course of business
including commitments to extend credit and through financial instruments used to
reduce the interest rate sensitivity of our securitization transactions. We
enter into interest rate swap and treasury lock agreements in the management of
interest rate exposure. These off-balance sheet financial instruments involve
elements of credit and interest rate risk in excess of the amount recognized on
our balance sheet. These instruments also result in certain credit, market,
legal and operational risks. We have established credit policies for off-balance
sheet instruments consistent with those established for on-balance sheet
instruments.
INTEREST RATE RISK
Interest rate risk affects us directly in our lending and borrowing
activities. For the nine months ended September 30, 1999, our total interest
expense was approximately $108.4 million, $33.0 million of which was
attributable to on-balance sheet indebtedness and the remainder of which was
attributable to our securitized credit card receivables which are financed
off-balance sheet. To manage our direct risk from market interest rates, we
actively monitor the interest rates and the interest-sensitive components both
on and off-balance sheet to minimize the impact that changes in interest rates
have on the fair value of assets, net income and cash flow. To achieve this
objective, we manage our exposure to fluctuations in market interest rates by
matching asset and liability repricings and through the use of fixed-rate debt
instruments to the extent that reasonably favorable rates are obtainable with
such arrangements. In addition, we may enter into derivative financial
instruments such as interest rate swaps, caps and treasury locks to mitigate our
interest rate risk on a related financial instrument or to
42
<PAGE>
effectively lock the interest rate on a portion of our variable debt. We do not
enter into derivative or interest rate transactions for trading or other
speculative purposes. Approximately 11.4% of our outstanding debt was subject to
fixed rates with a weighted average interest rate of 7.47% at September 30,
1999. An additional 78.7% of our outstanding debt at September 30, 1999 was
effectively locked at an interest rate of 6.71% through interest rate swap
agreements and treasury locks with notional amounts totalling $1.8 billion. We
regularly review our interest rate exposure on outstanding borrowings in an
effort to minimize the risk of interest rate fluctuations. We do not have any
other significant market-sensitive financial instruments.
The approach we use to quantify interest rate risk is a sensitivity analysis
which we believe best reflects the risk inherent in our business. This approach
calculates the impact on pretax income from an instantaneous and sustained
increase in interest rates of 10 basis points. Assuming we do not take any
counteractive measures, a 10 basis point increase in interest rates would result
in a decrease to pretax income of approximately $400,000. Conversely, a
corresponding decrease in interest rates would result in a comparable
improvement to pretax earnings. Our use of this methodology to quantify the
market risk of financial instruments should not be construed as an endorsement
of its accuracy or the accuracy of the related assumptions.
CREDIT RISK
We are exposed to credit risk relating to the credit card loans we make to
consumers who shop in our client's stores or through their catalogs or Web
sites. Our credit risk relates to the risk that a consumer using the private
label credit cards that we issue will not repay their revolving credit card loan
balance. We have developed credit risk models designed to identify qualified
consumers who fit our risk parameters. To minimize our risk of loan write-off,
we control approval rates of new accounts and related credit limits and follow
strict collection practices. We monitor the buying limits as well as set pricing
regarding fees and interest rates charged.
FOREIGN CURRENCY EXCHANGE RATE RISK
We are exposed to fluctuations in the exchange rate between the U.S. dollar
and the Canadian dollar through our operations in Canada. Although we have
entered into cross currency hedges to fix the exchange rate on any Canadian debt
repayment due to a U.S. counter party, we do not hedge our net investment
exposure in our Canadian subsidiary.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments and
for hedging activities, and requires companies to recognize all derivatives as
either assets or liabilities in the balance sheet and measure such instruments
at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133", which deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. Adoption of SFAS No. 137 is not
anticipated to materially impact our consolidated results of operations or
financial condition but may require recognition of derivative instruments on the
consolidated balance sheet and will require revised disclosures in the notes to
the consolidated financial statements.
43
<PAGE>
DESCRIPTION OF OUR BUSINESS
GENERAL
We are a leading provider of integrated information-based loyalty and
marketing solutions primarily focused on business-to-consumer commerce. We
develop and execute programs designed to help our clients target, acquire and
retain loyal, profitable customers. We create value for our clients through
effective customer relationship management, which we refer to as CRM, by:
- facilitating transactions between our clients and their customers through
multiple distribution channels;
- assisting our clients in identifying and acquiring new customers; and
- increasing the loyalty and profitability of our clients' existing
customers.
We target organizations that view customer information and data as a
strategic competitive advantage and an integral component of business strategy.
While applicable to the full spectrum of business-to-consumer commerce
opportunities, we currently target our integrated service offerings to a select
number of market sectors including specialty retailers, petroleum retailers,
supermarkets and financial services providers, as well as companies in market
sectors with rapidly evolving electronic payment and CRM needs such as mass
transit, tollways, parking and gas, and electric utilities. Our client base of
over 300 companies includes some of the most recognizable names in North
America. These clients include the retail affiliates of The Limited, including
Victoria's Secret, Express, Lane Bryant and Structure, Equiva Services, LLC,
which is the service provider to Shell branded locations in the U.S., Canada
Safeway, Brylane and CITGO.
We market and sell our service offerings independently or as fully
integrated CRM solutions. Our products and services are centered around three
core offerings--Loyalty and Database Marketing Services, Transaction Services
and Credit Services.
<TABLE>
<CAPTION>
LOYALTY AND DATABASE
MARKETING SERVICES TRANSACTION SERVICES CREDIT SERVICES
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
- - Loyalty Programs - Transaction Processing - Underwriting
- Private Label Cards - Network Services - Risk Management
- Coalition Loyalty (Air - Bankcard Settlement
Miles reward program) - Card Processing and
- One-to-One Loyalty Servicing
- - Database Marketing Services - Account Processing
- - Enhancement Services - Billing and Payment
Processing
- Customer Care
</TABLE>
INDUSTRY DYNAMICS
The growing demand for integrated business-to-consumer marketing solutions
has been fueled by intensifying competition for customers and by an erosion of
consumer brand loyalty. The Internet has accelerated both of these trends by
providing consumers with almost instant access to a multitude of competing
products and services without traveling to an actual store location. As a
result, businesses are looking for tools aimed at retaining existing customers
as well as identifying and targeting new groups of potential customers through
any or all distribution channels.
Businesses have increasingly sought services that compile and analyze
customer purchasing behavior, enabling businesses to more effectively target
their marketing programs. The continuing shift to electronic payment systems,
namely credit and debit cards, has generated highly valuable information on
individual consumers and their purchasing preferences, while the dramatic
proliferation of computer
44
<PAGE>
technology has enabled companies to access this information easily and almost
instantaneously. However, compiling and managing such information is generally
outside the core competency of most retailers and is too costly for most
businesses to maintain. In addition, traditional retailers typically lack the
economies of scale and core competencies necessary to handle the logistics of
their database and direct marketing programs. Thus, companies that provide the
infrastructure to create, manage and facilitate electronic payment systems can
create a database of valuable information on the purchasing behavior of
consumers that is critical for developing more targeted and effective marketing
programs. For example, the use of private label credit cards creates an
opportunity for retailers to strengthen consumer brand loyalty by encouraging
repeat purchases through discounts and other special promotions.
We believe that in today's competitive economy, retailers will find an
increasing need to differentiate their products and services from those of their
competitors through comprehensive, innovative marketing strategies. These
strategies will likely use technology to analyze and predict consumer behavior
and to provide the information necessary to execute direct marketing and
promotional campaigns more effectively to existing and potential customers.
STRATEGY AND OPPORTUNITIES FOR GROWTH
Our strategy is to become a critical component in our clients' success by
helping them build loyal customer relationships. We will do this by continuing
to build and enhance our consumer databases, marketing capabilities and
processing efficiencies to help improve our clients' relationships with their
customers. To execute this strategy we intend to:
INCREASE THE PENETRATION OF PRODUCTS AND SERVICES WE PROVIDE TO OUR EXISTING
CLIENT BASE. We plan to further increase the number and types of products and
services we provide to our existing client base with a focus on loyalty and
database services.
EXPAND OUR CLIENT BASE IN EXISTING MARKET SECTORS, INCLUDING POTENTIAL
GEOGRAPHIC EXPANSION. We plan to acquire new clients in our traditional markets
by continuing to distinguish ourselves as an integrated provider of CRM
solutions. We will further benefit by what we believe will be a continued trend
toward outsourcing as our existing clients and potential new clients have
increasing needs for new technology and new skill sets. As business-to-consumer
retailers continue to search for the tools to increase loyal, profitable
customer relationships, we believe that our integrated and comprehensive
offering of loyalty and database marketing services and transaction processing
services will appeal to retailers, including e-commerce businesses, faced with
increasing competition and decreasing profit margins.
CONTINUE TO EXPAND OUR CRM CAPABILITIES TO HELP OUR CLIENTS SUCCEED IN
MULTI-CHANNEL COMMERCE. We plan to help our clients be successful in all
channels they choose for distribution--whether in-store, catalog or the
Internet. Our current client base is predominantly traditional store front and
catalog-based retailers. However, our clients recognize the importance of using
the Internet as an additional distribution channel. The systems and marketing
programs we have built to support our store and catalog clients can be applied
to clients using the Internet. As an added benefit we believe our private label
credit card system provides additional protection against fraud. Our vision is
to provide our clients with a comprehensive view of each customer across all
distribution channels and to utilize this information to execute direct
marketing programs through multiple distribution channels.
CONSIDER FOCUSED, STRATEGIC ACQUISITIONS AND ALLIANCES TO ENHANCE OUR CORE
CAPABILITIES OR INCREASE OUR SCALE. As we identify new opportunities or product
gaps, we may consider focused acquisitions and alliances to enhance our
competencies or increase our scale.
45
<PAGE>
PROGRAMS AND PRODUCTS
Our program and product offerings are centered around three core
offerings--Loyalty and Database Marketing Services, Transaction Services and
Credit Services.
LOYALTY AND DATABASE MARKETING SERVICES
Our clients are focused on targeting, acquiring and retaining loyal and
profitable customers. We create and manage loyalty programs that have
successfully resulted in securing more frequent and sustained customer
purchasing. Our loyalty programs include private label cards, coalition loyalty
(Air Miles reward program) and one-to-one loyalty. We utilize the information
and knowledge gathered through our loyalty programs to help our clients design
and implement effective marketing programs.
PRIVATE LABEL CARDS. We have demonstrated to our clients that a private
label credit card can be one of the most effective loyalty and marketing tools
available. By providing a program that has meaningful benefits to the customer,
we can assist the retailer in strengthening its relationship with the customer.
Our experience indicates that long-term, retail card customers typically remain
more loyal to the retailer than general purpose users, both in the number of
visits to the retail establishment and the amount spent per visit. With our
integrated marketing tools, we can quantify the value of the retail card
customer for our clients. Additionally, our private label programs are further
enhanced by our database marketing services that enable us to capture
transaction-level data that is used to enhance communications with customers and
create successful CRM strategies, such as targeted promotions and cross-selling
opportunities.
COALITION LOYALTY (AIR MILES REWARD PROGRAM). In Canada, we operate what we
believe to be Canada's largest coalition loyalty program, marketed under the Air
Miles brand name. This program enables consumers to earn Air Miles reward miles
as they shop across a range of retailers and other world-class sponsors of the
coalition. The program has more than 150 program sponsors, including some of the
most recognizable companies, such as Shell Canada, Canada Safeway, Amex Bank
Canada (American Express), Bank of Montreal, Goodyear Canada and A&P Canada. Air
Miles reward miles collectors can redeem reward miles for products and services
such as plane tickets, gift certificates for groceries, movie and theater
tickets, and free long distance phone calls, among others. We make these rewards
opportunities available through over 130 rewards suppliers, including the
Toronto Blue Jays, Marine Land, A&P Canada and Canadian Airlines. The Air Miles
reward program has enabled sponsors to use this tool to effectively increase
revenues by bringing new customers to the sponsor, retaining existing customers
and increasing the amount spent by all customers. Today, over 55% of all
households in Canada participate in this program annually, and over
approximately six billion Air Miles reward miles have been issued since the
program's inception in 1992.
We have evaluated a similar coalition loyalty program in the U.S. Because of
the significant funding obligation to establish such a program, we have elected
not to pursue the program. Our existing stockholders may decide to pursue the
program through a separate company that they will fund to the extent that they
choose to participate. In the event our existing stockholders choose to pursue
the program, we anticipate providing the intellectual property and expertise
necessary for the program through a service agreement, which will be negotiated
on an arms-length basis.
ONE-TO-ONE LOYALTY. We have developed a number of one-to-one real time,
electronic loyalty programs that enable our clients to increase the frequency of
customer purchasing. Through our programs, our clients can recognize,
acknowledge and reward good customers with instant reward programs that can be
implemented at the point of sale. Using the retailer's existing point-of-sale
terminal or cash register and our network services, we can capture points,
communicate program status and issue awards to the consumer at the point of
sale. Our stored value product, electronic gifts and
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prepaid cards can also encourage consumer loyalty, especially among cash
customers. The retailer issues the card which prominently displays their brand
and can only be used at their locations.
DATABASE MARKETING SERVICES. We have built and manage a massive database
containing information on approximately 60 million U.S. consumers and
5.8 million Canadian households. Through this database we have developed a suite
of data mining and profiling products that enable our clients to better
understand their customers and aim their marketing dollars toward the optimum
opportunities for developing customer relationships. We use marketing databases
to assist our clients in predicting, analyzing and targeting their customers'
buying patterns. Our database contains nearly four years of purchase information
on approximately 30% of the U.S. adult population, as well as details and
results of marketing programs conducted over the last four years.
We develop and execute programs designed to acquire and retain customers. We
provide total program management using direct mail, telemarketing, in-store and
on-line marketing strategies. Our services include strategy development,
creative services, production and mailshop coordination. Selected programs
include:
- QUICK CREDIT. The cornerstone of our ability to cost effectively acquire
customers for our clients is our "Quick Credit" product that allows us to
quickly process new applications at point-of-sale terminals or cash
register devices. We view this product as a competitive advantage to our
private label card processing and servicing.
- SMART STATEMENTS. Through our Smart Statement capabilities, we have
transformed the traditional billing statement into a powerful marketing
tool by targeting individual customers with billing statements that
contain personalized messages. Additionally, we can promote to small,
specially defined groups of the customer base to cross-sell specific
products and services. Additionally, our "smart insert" function allows us
to insert for each group a specific incentive or coupon into the
statement.
- ON-LINE PRE-SCREEN. For catalog clients we can offer a pre-approved card
by soliciting customers when they place an order over the phone. The
product, which works similarly to Quick Credit, enables us to extend a
credit offer to a catalog customer at the completion of the order process.
ENHANCEMENT SERVICES. We develop programs designed to maintain active
customers while generating new revenue streams for our clients by cross selling
products and services to their existing customers. Services include sourcing,
promoting and fulfillment of products. These products are non-competitive with
the clients' merchandise offering and include merchandise, travel clubs and
credit life insurance programs.
TRANSACTION SERVICES
Effectively managing critical interactions with customers is required to
conduct everyday business--whether the business involves store, catalog or
Internet commerce. Our services include instantaneous authorizations, effective
customer care, payment processing and billing services. By fully integrating our
transaction services with our loyalty and database marketing services, we are
able to execute more powerful CRM strategies for our clients.
TRANSACTION PROCESSING. We are a leading provider of electronic transaction
processing, with over 1.8 billion transactions through 135,000 point of sale
terminals in calendar year 1998 on a pro forma basis. We believe we are the
largest transaction processor to the retail petroleum industry and we have a
significant presence in the specialty retail and transportation industries.
NETWORK SERVICES. We have built a fast and highly reliable network that
enables us to process all electronic payment types including credit card, debit
card, prepaid card, electronic benefits and fleet
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and check transactions. Our recent acquisition of the network transaction
processing business of SPS, has enabled us to offer our existing products to new
market segments as well as provide additional products to existing clients. The
network services we provide include authorization, data capture and financial
settlement of transactions. We also provide merchants with on-line, two-way mail
messaging that allows our clients to improve communications with their
individual locations by broadcasting and receiving messages through their
terminal devices. We support our clients with a comprehensive help desk,
operating 24 hours per day and seven days per week, as well as terminal
deployment and servicing.
We are one of the leaders in delivering new applications at the
point-of-sale, including video and audio electronic frequency and loyalty
programs, instant credit applications, and transponder and radio frequency
payment devices. We are active participants in establishing industry
point-of-sale standards.
MERCHANT BANKING SERVICES. Our merchant banking services include fast and
accurate financial settlement of MasterCard, Visa, Discover, American Express
and other electronic card transactions, including credit, debit and stored value
cards. By providing merchant banking services, we offer our clients the
flexibility to maintain their current settlement provider or to streamline their
end-to-end transaction processing with one provider. The merchant banking
services we provide also include daily deposit verification and accounting
reports.
CARDHOLDER PROCESSING AND SERVICING. As reported in the Nilson Report, in
1998 we were the second largest outsourcer of retail private label card programs
in the U.S., with 57 million accounts on file. We assist clients in issuing
credit cards branded with the retailer's name or logo that can be used by
customers at the client's store locations. We also provide service and
maintenance to our clients' private label card programs and can assist our
clients in acquiring, retaining and managing valuable repeat customers. Our
commercial card processing and servicing capabilities are specifically designed
to handle the unique requirements associated with providing a credit card
program to businesses. Our services include new account processing, risk
management, card embossing, credit authorization, statement and invoice printing
and mailing, and customer service.
ACCOUNT PROCESSING. We have developed a proprietary credit card system
designed specifically for retailers that offers significant flexibility in
processing accounts. We are able to make changes to accommodate our clients'
specific needs easily and quickly. We have also built into the system marketing
tools to assist our clients in increasing sales. Customer service screens have
prompts that, based on information from our client and the proprietary program,
directs the customer service representative to extend a promotional message. We
also provide credit card production services in a secured environment, embossing
9.7 million new cards in 1998.
CUSTOMER CARE. Our retail heritage lies at the core of our culture and is
evident in our customer care operations. We answer calls in an average of eight
seconds, approximately 12 seconds faster than the industry average. We focus our
training programs in all areas on achieving the highest possible standards. We
monitor our performance by conducting cardholder and store employee surveys. We
have over 5,000 call center seats in 12 locations, handling nearly 100 million
customer inquiries in 1998. Our call centers are equipped to handle phone, mail,
fax and Internet inquiries. We also provide collection activities to support our
retail private label programs, where we demonstrate our merchant mentality in
our approach to maintaining the customer relationship, within reasonable
parameters, even when charge privileges have been suspended.
BILLING AND PAYMENT PROCESSING. We use highly automated technology for bill
preparation, printing and mailing. Comingling statements, presorting and bar
coding allow us to take advantage of postal discounts. In 1998, we generated
over 130 million statements on behalf of our clients. In addition, we also
process cardholder remittances using state-of-the-art technology to maximize
efficiency. By doing
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so, we can improve the funds availability for both our clients and for those
private label receivables that we own or securitize.
CREDIT SERVICES
Through WFNNB, we offer our clients the experience and flexibility to
provide a funding vehicle for credit card receivables. This service appeals to
those clients that choose to focus their financial and operational resources on
their core operations and prefer a single-source integrated solution. As part of
this service, we currently provide underwriting and risk management services to
44 of our 49 private label credit card clients, representing 51.1 million
cardholders and $2.0 billion of receivables as of September 30, 1999. Tracing
back to our predecessor company, we have gained significant experience and
expertise in successfully managing private label portfolios since 1986. Our
Credit Services segment provides underwriting, risk management and fraud
prevention services.
ACCOUNT UNDERWRITING AND CREDIT GUIDELINES. Our underwriting process
involves the purchase of credit bureau information for each credit applicant. We
obtain a credit report from one of the major credit bureaus based on the
applicant's mailing address and the perceived strength of each credit bureau in
that geographic region. The initial credit evaluation process uses one of our
six proprietary scorecards that have been refined to reflect performance of the
various retail programs. The scorecards are continuously validated, monitored
and maintained and the resulting data is used to ensure optimal risk
performance.
RISK MANAGEMENT. We monitor and control the quality of our portfolio by
using behavioral scoring models to score each active account on its monthly
cycle date. The behavioral scoring models dynamically evaluate credit limit
assignments to determine whether or not credit limits should be increased,
decreased or maintained and to establish pricing on fees based on the credit
worthiness of the individual cardholder. Our proprietary scoring models consider
such factors as how long the account has been on file, credit utilization,
shopping patterns and trends, payment history and account delinquency.
DELINQUENCY AND COLLECTIONS PROCEDURES. We consider an account delinquent
if the minimum payment due is not received by the billing due date. At that
time, we give the account a status of 30 days delinquent. Under current
policies, we print a message requesting payment on a consumer cardholder's
billing statement after a scheduled payment has been missed. After an account
becomes 30 days past due, a proprietary collection scoring algorithm system
automatically scores the risk of the account rolling to a more delinquent
status. The collection system then assigns a collection strategy to the account
based on the collection score and account balance. The strategy dictates the
contact schedule and collections priority for the account. Using these
procedures helps us improve our collection efforts. If we are unable to make a
collection after exhausting all in-house efforts, we engage collection agencies
and outside attorneys to continue those efforts.
ASSET QUALITY
Our delinquency and net credit card receivable charge-off rates at any point
in time reflect, among other factors, the credit risk of credit card
receivables, the average age of our various credit card account portfolios, the
success of our collection and recovery efforts, and general economic conditions.
The average age of our credit card portfolio affects the stability of
delinquency and loss rates of the portfolio. We continue to focus our resources
on refining our credit underwriting standards for new accounts, and on
collections and post charge-off recovery efforts to minimize net losses. At
September 30, 1999, 21.1% of securitized accounts and 37.4% of securitized loans
were less than 24 months old. Accordingly, we believe that our loan portfolio
will experience increasing or fluctuating levels of delinquency and loan losses
as the average age of our accounts increases.
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This trend is reflected in the change in our net charge-off ratio. For the
nine months ended September 30, 1999, our securitized net charge-off ratio on a
annualized basis was 6.7% compared to 6.7% for the nine months ended
September 30, 1998. For fiscal 1998, our net charge-off ratio was 7.7%, compared
to 7.0% for fiscal 1996 and 8.3% for fiscal 1997. We believe, consistent with
our statistical models and other credit analyses, that this rate will continue
to fluctuate but generally rise over the next year.
Our strategy for managing credit card receivable losses consists of credit
line management and customer purchase authorizations. Credit card receivable
losses are further managed through the offering of credit lines which are
generally lower than is currently standard in the industry. Individual accounts
and their related credit lines are also continually managed using various
marketing, credit and other management processes in order to continue to
maximize the profitability of accounts.
DELINQUENCIES. Delinquencies not only have the potential to affect earnings
in the form of net loan losses, but are also costly in terms of the personnel
and other resources dedicated to their resolution. A credit card account is
contractually delinquent if the minimum payment is not received by the specified
due date on the cardholder's statement. It is our policy to continue to accrue
interest and fee income on all credit card accounts, except in limited
circumstances, until the account and all related loans, interest and other fees
are charged off. The following table presents the delinquency trends of our
credit card loan portfolio on a securitized basis:
<TABLE>
<CAPTION>
FEBRUARY 1, % OF JANUARY 31, % OF DECEMBER 31, % OF SEPTEMBER 30, % OF
1997 TOTAL 1998 TOTAL 1998 TOTAL 1998 TOTAL
----------- -------- ----------- -------- ------------ -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Receivables
outstanding........ $1,685,622 100.0% $2,020,599 100.0% $2,135,340 100.0% $1,855,544 100.0%
Loans contractually
delinquent:
31 to 60 days...... 54,904 3.3% 62,663 3.1% 52,581 2.5 53,048 2.9
61 to 90 days...... 28,133 1.7% 33,010 1.6% 29,925 1.4 32,266 1.7
91 or more days.... 42,777 2.5% 50,312 2.5% 53,885 2.5 55,385 3.0
---------- ----- ---------- ----- ---------- ----- ---------- -----
Total............ $ 125,814 7.5% $ 145,984 7.2% $ 136,391 6.4% $ 140,699 7.6%
========== ===== ========== ===== ========== ===== ========== =====
<CAPTION>
SEPTEMBER 30, % OF
1999 TOTAL
------------- --------
<S> <C> <C>
Receivables
outstanding........ $2,011,628 100.0%
Loans contractually
delinquent:
31 to 60 days...... 54,860 2.7
61 to 90 days...... 32,897 1.6
91 or more days.... 54,824 2.7
---------- -----
Total............ $ 142,581 7.0%
========== =====
</TABLE>
The above numbers reflect the continued seasoning of our securitized loan
portfolio. We intend to continue to focus our resources on our collection
efforts to minimize the negative impact to net loan losses that results from
increased delinquency levels.
NET CHARGE-OFFS. Net charge-offs include the principal amount of losses
from cardholders unwilling or unable to pay their credit card balances, as well
as bankrupt and deceased cardholders, less current period recoveries. Net
charge-offs exclude accrued finance charges and fees. The following table
presents our net charge-offs for the periods indicated on a securitized basis:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL SEPTEMBER 30,
----------------------------------- -----------------------
1996 1997 1998 1998 1999
---------- --------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Average loans outstanding(1)........ $1,261,833 1,615,196 $1,914,107 $1,905,927 $2,013,308
Net charge-offs..................... 88,425 133,515 135,478 95,960 101,850
Net charge-offs as a percentage of
average loans outstanding(2)...... 7.0% 8.3% 7.7% 6.7% 6.7%
</TABLE>
- ------------------------
(1) Average loans outstanding is the average of the securitized receivables at
the beginning of each month in the period indicated.
(2) Annualized.
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AGE OF PORTFOLIO. The following table sets forth, as of September 30, 1999,
the number of total accounts and amount of outstanding loans, based upon the age
of the securitized accounts:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF PERCENTAGE OF LOANS OF LOANS
AGE SINCE ORIGINATION ACCOUNTS ACCOUNTS OUTSTANDING OUTSTANDING
- --------------------- --------- ------------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
0-5 Months...................................... 3,161 5.4% $218,851 10.9%
6-11 Months..................................... 3,127 5.4 200,981 10.0
12-17 Months.................................... 3,099 5.3 180,381 9.0
18-23 Months.................................... 2,944 5.0 151,663 7.5
24-35 Months.................................... 5,856 10.1 252,602 12.6
36+ Months...................................... 40,144 68.8 1,007,150 50.0
------ ------ ------- ------
Total....................................... 58,331 100.0% 2,$011,628 100.0%
====== ====== ======= ======
</TABLE>
SAFEGUARDS TO OUR BUSINESS
DISASTER AND CONTINGENCY PLANNING. We have a number of safeguards to
protect us from the risks we face as a business and as an industry. Given the
significant amount of data that we manage, much of which is real-time data to
support our clients' commerce initiatives, we have established redundant
facilities for our data centers. We operate two data processing centers. In the
event we experience an outage in one of our two data centers, we can move all
processing to the other data center. Additionally, we have contracted with a
third party to provide disaster and contingency planning in the event that both
data centers experience an outage.
PROTECTION OF INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS. We rely
on a combination of copyright, trade secret and trademark laws, confidentiality
procedures, contractual provisions and other similar measures to protect our
proprietary information and technology. We do not currently hold any patents nor
do we have any patent applications pending.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners, and generally control access to
and distribution of our technology, documentation and other proprietary
information. Despite the efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain the use of our products or
technology that we consider proprietary and third parties may attempt to develop
similar technology independently. We pursue registration and protection of our
trademarks primarily in the U.S. and Canada, although we do seek protection
elsewhere in selected key markets. Effective protection of intellectual property
rights may be unavailable or limited in some countries. The laws of some
countries do not protect our proprietary rights to the same extent as in the
U.S. and Canada.
COMPETITION
The markets for our products and services are highly competitive. We compete
with traditional and online marketing companies, credit card issuers and data
processing companies, as well as with the in-house staffs of our current and
potential clients.
LOYALTY AND DATABASE MARKETING SERVICES. As a provider of loyalty and
database marketing products and services, we generally compete with advertising
and other promotional and loyalty programs, both traditional and online, for a
portion of a client's total marketing budget. In addition, we compete against
internally developed products and services created by our existing and potential
clients. For each of our loyalty and database products and services, we expect
competition to intensify as more competitors enter our market. In addition, new
competitors with our Air Miles reward program may target our sponsors and reward
miles collectors as well as draw rewards from our rewards suppliers. Our ability
to generate significant revenue from clients and loyalty partners will depend on
our ability
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to differentiate ourselves through the products and services we provide and the
attractiveness of our loyalty and rewards programs to consumers. The continued
attractiveness of our loyalty and rewards programs will depend in large part on
our ability to remain affiliated with sponsors that are desirable to consumers
and to offer rewards that are both attainable and attractive to consumers.
Intensifying competition will make it more difficult for us to do this. For our
database marketing services, our ability to continue to capture detailed
transaction data on consumers is critical in providing effective CRM strategies
for our clients.
TRANSACTION SERVICES. The payment processing industry is highly
competitive, especially among the five largest payment processors in the U.S.,
which processed approximately 14 billion transactions during 1998. On a pro
forma basis, we would have been the fourth largest payment processor in the
U.S., processing 1.8 billion transactions during 1998. Our top three competitors
have built their businesses by focusing on merchant banking relationships, while
our focus has been on industry segments characterized by companies with large
customer bases, customer rich data and high transaction volumes. Our focus on
specific market sectors allows us to develop and deliver solutions targeted to
the needs of these sectors. This focus is consistent with our marketing strategy
for all products and services. Additionally, we believe we effectively
distinguish ourselves from other payment processors by providing solutions that
help our clients leverage investments they have made in their payment systems by
using these systems for electronic marketing programs.
CREDIT SERVICES. Within our Credit Services business, our competition
consists primarily of financial institutions whose marketing focus has been on
developing credit card programs with large revolving balances. Our competition
further drives their businesses by cross selling their other financial products
to their cardholders. Our focus has been on targeting retailers that understand
the competitive advantage of developing loyal customers. Typically these
retailers have customers that make more frequent and smaller transactions. This
results in the effective capture of detail-rich data within our database
marketing services, allowing us to mine and analyze this data to develop
successful CRM strategies for our clients.
As an issuer of private label credit cards, we compete with other card
payment types, primarily general-purpose credit cards like Visa, MasterCard and
American Express, as well as cash, checks and debit cards.
REGULATION
PRIVACY LEGISLATION. The enactment of legislation or industry regulations
arising from public concern over consumer privacy issues could have a material
adverse impact on our loyalty and database marketing services. Restrictions
could be placed upon the collection and use of information, in which case our
cost of collecting some kinds of data might be materially increased. Legislation
or industry regulation could also prohibit us from collecting or disseminating
certain types of data, which could adversely affect our ability to meet our
clients' expectations.
In November 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act, which requires financial institutions to comply with various notice
procedures in order to disclose nonpublic personal information about their
consumers to nonaffiliated third parties and restricts their ability to share
account numbers. The requirements of this law also apply to the disclosure of
any list, description or other grouping of consumers derived from nonpublic
personal information. This law makes it more difficult to collect and use
information that has been legally available and may increase our costs of
collecting some data. This law could have a material adverse effect on our
business, financial condition and operating results.
The Clinton Administration is investigating further administrative action in
the area of privacy. In addition, Congress and a number of states are
considering further privacy legislation. It is possible that
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new privacy protections will not be limited to financial institutions but could
broadly apply to the activities of all companies.
The Canadian federal government and Minister of Industry of Canada are
sponsoring comprehensive private sector privacy legislation that would apply to
organizations engaged in any commercial activities in Canada. Because the
legislation has government support, it will likely be enacted in the near term.
If enacted as currently proposed, it would enact into law 10 privacy principles
from the Canadian Standards Association's Model Privacy Code. The bill would
also require organizations to obtain consent to the collection, use or
disclosure of personal information. The nature of the required consent will
depend on the sensitivity of the personal information and will permit personal
information to be used only for the purposes for which it was collected. The
Province of Quebec has had similar privacy legislation applicable to the private
sector in that province since 1994 and other provinces are considering further
privacy legislation.
FAIR CREDIT REPORTING ACT. The Fair Credit Reporting Act regulates consumer
reporting agencies. Under this Act, an entity risks becoming a consumer
reporting agency if it furnishes consumer reports to third parties. A consumer
report is a communication of information which bears on a consumer's
creditworthiness, credit capacity, credit standing or certain other
characteristics and which is collected or used or expected to be used to
determine the consumer's eligibility for credit, insurance, employment or
certain other purposes. The Fair Credit Reporting Act explicitly excludes from
the definition of consumer report a report containing information solely as to
transactions or experiences between the consumer and the entity making the
report. An entity may share consumer reports with any of its affiliates so long
as that entity provides consumers with an appropriate disclosure and an
opportunity to opt out of this affiliate sharing.
Our objective is to conduct our operations in a manner that would fall
outside the definition of consumer reporting agency under the Fair Credit
Reporting Act. If we were deemed to be a consumer reporting agency, however, we
would be subject to a number of complex and burdensome regulatory requirements
and restrictions. These restrictions could have a significant adverse economic
impact on us.
INTERSTATE TAXATION. Several states have passed legislation that attempts
to tax the income from interstate financial activities, including credit cards,
derived from accounts held by local state residents. We believe that this
legislation will not materially affect us. Our belief is based upon current
interpretations of the enforceability of such legislation, prior court decisions
and the volume of business we conduct in states that have passed legislation.
REGULATION OF THE BANK. WFNNB is a credit card bank chartered as a national
banking association and a member of the Federal Reserve System. Its deposits are
insured by the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation. WFNNB is subject to comprehensive regulation and periodic
examination by the Office of the Comptroller of the Currency, or the OCC, its
primary regulator, and is also subject to regulation by the Board of Governors
of the Federal Reserve System and the FDIC, as back-up regulators. WFNNB is not
a "bank" as defined under the Bank Holding Company Act; instead, it is a credit
card bank because it is in compliance with the following requirements:
- it engages only in credit card operations;
- it does not accept demand deposits or deposits that the depositor may
withdraw by check or similar means for payment to third parties or others;
- it does not accept any savings or time deposits of less than $100,000,
except for deposits pledged as collateral for extensions of credit;
- it maintains only one office that accepts deposits; and
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- it does not engage in the business of making commercial loans.
If WFNNB failed to meet the credit card bank criteria described above,
WFNNB's status as an insured bank would make us subject to the provisions of the
Bank Holding Company Act. We believe that becoming a bank holding company would
significantly harm us, as we would be required to either divest our non-banking
activities or cease all activities that are not permissible for a bank holding
company and its affiliates.
INVESTMENT IN OUR COMPANY AND WORLD FINANCIAL NETWORK NATIONAL
BANK. Because of our ownership of WFNNB, certain acquisitions of our common
stock may be subject to regulatory approval or notice under Federal law.
Investors are responsible for insuring that they do not directly or indirectly
acquire our common stock in excess of the amount that can be acquired without
regulatory approval.
EXPORTATION OF INTEREST RATES AND FEES. National banks such as WFNNB may
charge interest at the rate allowed by the laws of the state where the bank is
located, and may "export" those interest rates on loans to borrowers in other
states, without regard to the laws of such other states. In 1996, the United
States Supreme Court ruled that national banks may also impose fees material to
a determination of the interest rate allowed by the laws of the state where the
national bank is located on borrowers in other states, without regard to the
laws of such other states. The Supreme Court based its opinion largely on its
deference to a regulation adopted by the OCC that includes certain fees,
including late fees, over limit fees, annual fees, cash advance fees and
membership fees, within the term "interest" under the provision of the National
Bank Act that has been interpreted to permit national banks to export interest
rates. As a result, national banks such as WFNNB may export such fees.
DIVIDENDS AND TRANSFERS OF FUNDS. Federal law limits the extent to which
WFNNB can finance or otherwise supply funds to us and our affiliates through
dividends, loans or otherwise. These limitations include:
- minimum regulatory capital requirements; and
- restrictions concerning the payment of dividends out of net profits or
surplus and Sections 23A and 23B of the Federal Reserve Act governing
transactions between a bank and its affiliates.
In general, Federal law prohibits a national bank such as WFNNB from making
dividend distributions on common stock if the dividend would exceed currently
available undistributed profits. In addition, WFNNB must get OCC prior approval
for a dividend if the distribution would exceed current year net income combined
with retained earnings from the prior two years less dividends paid in the
current fiscal year. WFNNB cannot make a dividend payment if the distribution
would cause it to fail to meet applicable capital adequacy standards.
COMPTROLLER OF THE CURRENCY
SAFETY AND SOUNDNESS. The Federal Deposit Insurance Corporation Improvement
Act of 1991 requires banking agencies to prescribe certain non-capital standards
for safety and soundness relating generally to operations and management, asset
quality and executive compensation. The Improvement Act also provides that
regulatory action may be taken against a bank that does not meet such standards.
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CAPITAL ADEQUACY. The OCC has adopted regulations that define the five
capital categories for banks: (1) well capitalized, (2) adequately capitalized,
(3) undercapitalized, (4) significantly undercapitalized and (5) critically
undercapitalized. These categories are identified by the Improvement Act, using
the total risk-based capital, Tier 1 risk-based capital and leveraged capital
ratios as the relevant capital measures. Such regulations establish various
degrees of corrective action to be taken when an institution is considered
undercapitalized. Under the regulations, a "well capitalized" institution must
have a Tier 1 capital ratio of at least six percent, a total capital ratio of at
least 10 percent and a leverage ratio of at least five percent and not be
subject to a capital directive order. An "adequately capitalized" institution
must have a Tier 1 capital ratio of at least four percent, a total capital ratio
of at least eight percent and a leverage ratio of at least four percent, but
three percent is allowed in some cases. Under these guidelines, WFNNB is
considered well capitalized. As of September 30, 1999, WFNNB's Tier 1 capital
ratio was 52.1, total capital ratio was 53.3 and leverage ratio was 54.2.
The OCC's risk-based capital standards explicitly consider a bank's exposure
to declines in the economic value of its capital due to changes in interest
rates when evaluating a bank's capital adequacy. Interest rate risk is the
exposure of a bank's current and future earnings and equity capital arising from
adverse movements in interest rates. The evaluation will be made as a part of
the institution's regular safety and soundness examination.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The
Improvement Act requires the FDIC to implement a system of risk-based premiums
for deposit insurance. Pursuant to this system, the premiums paid by a
depository institution will be based on the probability that the FDIC will incur
a loss in respect of that institution. The FDIC has adopted a system that
imposes insurance premiums based upon a matrix that takes into account a bank's
capital level and supervisory rating. Due to its capital level and supervisory
rating, WFNNB currently pays the lowest rate on deposit insurance premiums.
Under the Improvement Act, only "well capitalized" and "adequately
capitalized" banks may accept brokered deposits. "Adequately capitalized" banks,
however, must first obtain a waiver from the FDIC before accepting brokered
deposits and these deposits may not pay rates that significantly exceed the
rates paid on deposits of similar size and maturity accepted from the bank's
normal market area or the national rate on deposits of comparable maturity, as
determined by the FDIC, for deposits from outside the bank's normal market area.
WFNNB issues certificates of deposit in amounts of $100,000 or greater.
LENDING ACTIVITIES. WFNNB's activities as a credit card lender are also
subject to regulation under various Federal consumer protection laws including
the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit
Reporting Act, the Community Reinvestment Act, the Soldiers' and Sailors' Civil
Relief Act, and under state consumer protection laws. Regulators are authorized
to impose penalties for violations of these statutes and, in certain cases, to
order banks such as WFNNB to pay restitution to injured cardholders. Cardholders
may also bring actions of certain alleged violations of such regulations.
Federal and state bankruptcy and debtor relief laws also affect WFNNB's ability
to collect outstanding balances owed by cardholders who seek relief under these
laws.
For the purposes of the OCC's Community Reinvestment Act Regulations, WFNNB
has applied for and received a limited purpose designation. The regulations
subject banks receiving such a designation to a community development test for
evaluating required Community Reinvestment Act compliance. The community
development performance of a limited purpose bank is evaluated pursuant to
various criteria involving qualified investments and community development
services. As of September 30, 1999, WFNNB had met its minimum responsibilities
under the Act.
55
<PAGE>
CONSUMER AND DEBTOR PROTECTION LAWS. From time to time legislation has been
proposed in Congress to limit interest rates and fees that could be charged on
credit card accounts or otherwise restrict practices of credit card issuers. If
this or similar legislation is proposed and adopted, our ability to collect on
account balances or maintain previous levels of finance charges and other fees
could be adversely affected. Additionally, changes have been proposed to the
Federal bankruptcy laws. Changes in Federal bankruptcy laws and any changes to
state debtor relief and collection laws could adversely affect us if these
changes result in, among other things, accounts being charged off as
uncollectible and additional administrative expenses. It is unclear at this time
whether and in what form any legislation will be adopted or, if adopted, what
its impact on us would be. Congress may in the future consider other legislation
that would materially affect the credit card and related fee-based services
industries.
Existing laws and regulations may permit class action lawsuits on behalf of
customers in the event of violations of applicable laws, and these lawsuits can
be very expensive to defend, even without any violation. If a class action were
determined adversely, it might have a material adverse effect on us.
EMPLOYEES
As of December 31, 1999, we employed approximately 5,200 people in the U.S.,
Canada and New Zealand.
LEGAL PROCEEDINGS
From time to time, we are involved in various claims and lawsuits incidental
to our business, including claims and lawsuits alleging breaches of contractual
obligations. A breach of contract claim was filed against us in July 1999 by
Service Merchandise, Inc. in U.S. Bankruptcy Court for the Middle District of
Tennessee. Service Merchandise is in voluntary Chapter 11 bankruptcy and alleges
that WFNNB breached its contractual obligation by changing its underwriting
standards for newly created credit card accounts, causing Service Merchandise to
suspend performance under the agreement and subsequently to terminate it.
Alleged damages have not been specified. As of September 30, 1999, we had a
balance of $149.3 million in credit card receivables related to the Service
Merchandise agreement. We believe this suit is without merit and we intend to
defend it vigorously. Although the outcome of this matter is undetermined, we do
not believe that this will have a material adverse effect on our business,
financial condition or operating results.
56
<PAGE>
PROPERTIES
The following table sets forth information with respect to our principal
facilities.
<TABLE>
<CAPTION>
CURRENT APPROXIMATE
MONTHLY SQUARE
LOCATION SEGMENT LEASE RATE FOOTAGE
- -------- ---------------------------- -------------------------- -----------
<S> <C> <C> <C>
Northglenn, Colorado........ Transaction Services $ 37,104 65,000
Buffalo Grove, Illinois..... Transaction Services $ 35,399 24,136
Lenexa, Kansas.............. Transaction Services $ 45,244 65,000
Mission, Kansas............. Transaction Services $ 14,107 40,019
Minneapolis, Minnesota...... Loyalty and Database $ 4,386 3,105
Marketing Services and
Transaction Services
Minneapolis, Minnesota...... Loyalty and Database $ 31,997 28,442
Marketing Services and
Transaction Services
Voorhees, New Jersey........ Transaction Services $ 75, 431 67,050
Columbus, Ohio.............. Transaction Services $ 36,536 103,161
Columbus, Ohio.............. Transaction Services and $ 69,407 100,800
Credit Services
Columbus, Ohio.............. Transaction Services $ 14,400 57,600
Columbus, Ohio.............. Loyalty and Database $ 40,733 54,615
Marketing Services,
Transaction Services and
Credit Services
Columbus, Ohio.............. Transaction Services and $ 25,535 32,255
Credit Services
Columbus, Ohio.............. Loyalty and Database $ 10,820 39,951
Marketing Services,
Transaction Services and
Credit Services
Marietta, Ohio.............. Credit Services $ 5,200 6,240
Gray, Tennessee............. Transaction Services $ 2,500 1,930
Dallas, Texas............... Loyalty and Database $ 114,228 114,419
Marketing Services and
Transaction Services
Dallas, Texas............... Loyalty and Database $ 57,479 61,750
Marketing Services,
Transaction Services and
Credit Services
Dallas, Texas............... Transaction Services $ 18,224 72,897
San Antonio, Texas.......... Transaction Services $ 47,692 67,540
Mississauga, Ontario, $ 42,500 40,000
Canada.................... Loyalty and Database
Marketing Services
Toronto, Ontario, Canada.... Loyalty and Database $ 81,492 91,534
Marketing Services
Montreal, Quebec, $ 3,125 5,000
Canada.................... Loyalty and Database
Marketing Services
Calgary, Alberta, Canada.... Loyalty and Database $ 9,066 8,059
Marketing Services
Auckland, New Zealand....... Transaction Services $ 12,041 11,700
-------------------------- ----------
Total..................... $ 834,646 1,162,203
========================== ==========
<CAPTION>
LEASE
EXPIRATION
LOCATION DATE
- -------- ------------------------------------
<S> <C>
Northglenn, Colorado........ August 31, 2007
Buffalo Grove, Illinois..... February 29, 2010
Lenexa, Kansas.............. January 31, 2008
Mission, Kansas............. June 30, 2000
Minneapolis, Minnesota...... August 31, 2004
Minneapolis, Minnesota...... August 31, 2004
Voorhees, New Jersey........ January 1, 2005
Columbus, Ohio.............. January 31, 2008
Columbus, Ohio.............. January 25, 2001
Columbus, Ohio.............. August 31, 2004
Columbus, Ohio.............. August 31, 2007
Columbus, Ohio.............. August 31, 2007
Columbus, Ohio.............. August 31, 2002
Marietta, Ohio.............. April 30, 2000
Gray, Tennessee............. November 14, 2000
Dallas, Texas............... November 30, 2009
Dallas, Texas............... July 31, 2007
Dallas, Texas............... April 30, 2006
San Antonio, Texas.......... January 31, 2002
Mississauga, Ontario, August 31, 2009
Canada....................
Toronto, Ontario, Canada.... September 16, 2007
Montreal, Quebec,
Canada.................... June 30, 2009
Calgary, Alberta, Canada.... December 31, 2004
Auckland, New Zealand....... September 13, 2005
Total.....................
</TABLE>
We recently signed an amendment to the lease for one of our properties in
Dallas, Texas. The amendment provides for the construction and lease of an
expansion building adjacent to one of our existing buildings. We expect the
expansion building to be completed by October 11, 2000. We believe our current
and proposed facilities are suitable to our businesses and that we will be able
to lease, purchase or newly construct additional facilities as needed.
57
<PAGE>
MANAGEMENT
The following table sets forth the name, age and positions of each of our
executive officers, business unit presidents and directors as of September 30,
1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
J. Michael Parks.......................... 48 Chairman of the Board of Directors, Chief
Executive Officer and President
Ivan Szeftel.............................. 46 Executive Vice President and President,
Retail Credit Services
John Scullion............................. 42 President and Chief Executive Officer, The
Loyalty Group
Ronald G. Carter.......................... 48 Executive Vice President and President,
Network Services
James E. Anderson......................... 45 Executive Vice President and President,
Utilities Services
Michael A. Beltz.......................... 43 Executive Vice President and President,
Business Development and Planning
Edward K. Mims............................ 49 Executive Vice President and Chief
Financial Officer
Dwayne H. Tucker.......................... 43 Senior Vice President, Human Resources and
Administration
Steven T. Walensky........................ 42 Senior Vice President, Chief Information
Officer
Robert P. Armiak.......................... 38 Vice President and Treasurer
Michael D. Kubic.......................... 44 Vice President, Corporate Controller and
Chief Accounting Officer
Carolyn S. Melvin......................... 46 Vice President, Secretary and General
Counsel
Richard E. Schumacher, Jr................. 32 Vice President, Tax
Bruce K. Anderson......................... 59 Director
Anthony J. deNicola....................... 35 Director
Daniel P. Finkelman....................... 43 Director
Robert A. Minicucci....................... 47 Director
Bruce A. Soll............................. 42 Director
</TABLE>
J. MICHAEL PARKS, chairman of the board of directors, chief executive
officer and president, joined us in March 1997. Before joining us, Mr. Parks was
president of First Data Resources, the credit card processing and billing
division of First Data Corporation, from December 1993 to July 1994. Mr. Parks
joined First Data Corporation in July 1976 where he gained increased
responsibility for sales, service, operations and profit and loss management
during his 18 years of service. Mr. Parks holds a Bachelor's degree from the
University of Kansas.
IVAN SZEFTEL, executive vice president and president of our Retail Services
business unit, joined us in May 1998. Before joining us, he served as chief
operating officer of Forman Mills, Inc. from November 1996 to April 1998. Prior
to that, he served as executive vice president and chief financial officer of
Charming Shoppes, Inc. from November 1981 to February 1996. Mr. Szeftel holds
Bachelor's and post graduate degrees from the University of Cape Town and is a
Certified Public Accountant in the State of Pennsylvania.
JOHN SCULLION, president and chief executive officer of Loyalty Management
Group Canada Inc., joined The Loyalty Group in October 1993. Prior to becoming
president, he served as chief operating officer for The Loyalty Group. Prior to
that, he served as chief financial officer of The Rider Group from
September 1988 to October 1993. Mr. Scullion holds a Bachelor's degree from the
University of Toronto.
58
<PAGE>
RONALD G. CARTER, executive vice president and president of our Network
Services business unit, joined us in February 1998. Before joining us, he served
as president of BuyPass Corporation, the network services division of Concord
EFS, Inc., from June 1995 to February 1998. Prior to BuyPass Corporation, he
held positions at First Data Corporation from August 1992 to January 1995.
Mr. Carter holds a Bachelor's degree from the University of Tulsa.
JAMES E. ANDERSON, executive vice president and president of our Utilities
Services business unit, joined us in May 1997. Before joining us, he served as
executive vice president of Bank Card Services, a business unit of First Data
Corporation, from December 1994 to March 1997, where he was responsible for
acquisition integration and various processing units. He holds a Bachelor's
degree from the University of Iowa and a Master's degree from National
University.
MICHAEL A. BELTZ, executive vice president and president of business
development and planning, joined us in May 1997. He is responsible for database
marketing services, new market identification, corporate product development and
marketing, acquisitions and strategic planning. Before joining us, he served as
executive vice president of sales and acquisitions of First Data Corporation
from July 1983 to April 1997. Mr. Beltz holds a Bachelor's degree from the
University of Nebraska.
EDWARD K. MIMS, executive vice president and chief financial officer, joined
us in February 1998. Before joining us, he had served as executive vice
president and chief financial officer of Vidpro International Inc. from
May 1997 to February 1998. Prior to that, he had served as executive vice
president and chief financial officer of Comerica Bank--Texas from October 1983
to March 1997. He holds a Bachelor's degree from Southern Methodist University
and is a Certified Public Accountant in the State of Texas.
DWAYNE H. TUCKER, senior vice president of human resources and
administration, joined us in June 1999. He is responsible for recruitment,
organization development, training, facilities and corporate communications.
Before joining us, he served as vice president of human resources for Northwest
Airlines from February 1998 to February 1999 and as senior vice president of
human resources for First Data Corporation from March 1990 to February 1998.
Mr. Tucker holds a Bachelor's degree from Tennessee State University.
STEVEN T. WALENSKY, senior vice president and chief information officer,
joined us in July 1998. He is responsible for the management of the corporate
information services organization. Before joining us, he served as senior vice
president of data center services for First Data Corporation from October 1995
to June 1998. Prior to that, he held management positions with Visa
International and Sprint. Mr. Walensky holds a Bachelor's degree from Rockhurst
College located in Kansas City, Missouri.
ROBERT P. ARMIAK, vice president and treasurer, joined us in February 1996.
He is responsible for cash management, hedging strategy, risk management and
capital structure. Before joining us, he held several positions, including most
recently, treasurer, at FTD Inc. from August 1990 to February 1996. He holds a
Bachelor's degree from Michigan State University and an MBA from Wayne State
University.
MICHAEL D. KUBIC, vice president, corporate controller and chief accounting
officer, joined us in October 1999. Before joining us, he served as vice
president of finance for Kevco, Inc. from March 1999 to October 1999. Prior to
that he served as vice president and corporate controller for BancTec, Inc. from
September 1993 to February 1998. Mr. Kubic holds a Bachelor's degree from the
University of Massachusetts and is a Certified Public Accountant in the State of
Texas.
CAROLYN S. MELVIN, vice president of Legal Services, general counsel and
secretary, joined us in September 1995 as vice president, general counsel and
secretary of WFNNB. She is responsible for legal, audit and compliance. Before
joining us, she served as vice president and counsel for National City
Corporation from December 1982 until September 1995. Ms. Melvin holds a B.A.
degree from Dickinson College and a J.D. from Ohio State University College of
Law.
59
<PAGE>
RICHARD E. SCHUMACHER, JR., vice president of tax, joined us in
October 1999. He is responsible for corporate tax affairs. Before joining us, he
served as tax senior manager for Deloitte & Touche, LLP from 1989 to
October 1999 where he was responsible for client tax services, practice
management and was in the national tax practice serving the banking and
financial services industry. Mr. Schumacher holds a Bachelor's degree from Ohio
State University and a Master's from Capital University Law and Graduate School
and is a Certified Public Accountant in the State of Ohio.
BRUCE K. ANDERSON has served as a director since our merger in August 1996.
Since March 1979, he has been a partner and co-founder of the investment firm,
Welsh, Carson, Anderson and Stowe. Prior to that, he spent nine years with ADP
where as executive vice president and a member of the board of directors, he was
active in corporate development and general management. Before joining ADP,
Mr. Anderson spent four years in computer marketing with IBM and two years in
consulting. Mr. Anderson is currently a director of Amdocs Limited. He holds a
Bachelor's degree from the University of Minnesota.
ANTHONY J. DENICOLA has served as a director since our merger in
August 1996. Mr. deNicola is a partner with Welsh, Carson, Anderson and Stowe,
joining the firm in April 1994. Prior to that, he spent four years with William
Blair & Company, financing middle market buy-outs from July 1990 to February
1994. Mr. deNicola is currently a director of Centennial Cellular Corporation.
He holds a Bachelor's degree from DePauw University and an MBA from Harvard
Business School.
DANIEL P. FINKELMAN has served as a director since January 1998.
Mr. Finkelman is senior vice president of The Limited, Inc. and is responsible
for all brand and business planning for that specialty retailer. He has been
employed with The Limited since August 1996. Before joining The Limited, he was
self-employed as a consultant from February 1996 to August 1996 and he served as
executive vice president of marketing for Cardinal Health, Inc. from May 1994 to
February 1996. Prior to that, he was a partner with McKinsey & Company where he
was co-leader of the firm's marketing practice, focusing on loyalty and customer
relationship management. Mr. Finkelman holds a Bachelor's degree from Grinnell
College and graduated as a Baker Scholar at Harvard Business School.
ROBERT A. MINICUCCI has served as a director since our merger in
August 1996. Mr. Minicucci is a partner with Welsh, Carson, Anderson and Stowe,
joining the firm in August 1993. Before joining Welsh, Carson, Anderson and
Stowe, he served as senior vice president and chief financial officer of First
Data Corporation from December 1991 to August 1993. Mr. Minicucci is currently a
director of Amdocs Limited. Mr. Minicucci holds a Bachelor's degree from Amherst
College and an MBA from Harvard Business School.
BRUCE A. SOLL has served as a director since February 1996. Mr. Soll is
senior vice president and counsel of The Limited, where he has been employed
since September 1991. Before joining The Limited, he served as the Counsellor to
the Secretary of Commerce in the Bush Administration from February 1989 to
September 1991 where he was a senior policy official, focusing on international
trade, telecommunications and technology. Mr. Soll holds a Bachelor's degree
from Claremont McKenna College and a J.D. from the University of Southern
California Law School.
60
<PAGE>
CLASSES OF BOARD OF DIRECTORS
Our certificate of incorporation authorizes there to be between six and 12
directors. Our board of directors currently consists of six members and we
intend to designate three additional independent directors before consummation
of this offering. Our board is divided into three classes that serve staggered
three-year terms, as follows:
<TABLE>
<CAPTION>
CLASS EXPIRATION OF TERM MEMBERS
- ----- ------------------ --------
<S> <C> <C>
Class I............................................ 2000 --
Class II........................................... 2001 --
Class III.......................................... 2002 --
</TABLE>
Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. There are no
family relationships among any of our directors, executive officers or division
presidents.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the consummation of this offering, our board of directors will
establish an audit committee, which will consist of Messrs. ,
and , a compensation committee, which will consist of
Messrs. and , and an executive committee, which will
consist of Messrs. , , and .
The audit committee will review the scope and approach of the annual audit,
our annual financial statements and related auditors' report and the auditors'
comments relative to the adequacy of our system of internal controls and
accounting systems. The audit committee will also recommend to our board of
directors the appointment of independent public accountants for the following
year. The audit committee will consist of at least three members, all of whom
will be financially literate and will be independent directors. has
significant experience in the [ACCOUNTING/FINANCE] industry. Our audit committee
will adopt and periodically review a written charter that will specify the scope
of its responsibilities.
The compensation committee will review management compensation levels and
provide recommendations to our board of directors regarding salaries and other
compensation for our executive officers, including bonuses and incentive plans,
and will administer our stock option plan.
The executive committee will have the power and authority of our board of
directors to manage our affairs between meetings. The executive committee will
also regularly review significant corporate matters and recommend action as
appropriate to our board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, our board of directors as a whole made decisions
relating to the compensation of Michael Parks and the executive officers
reporting directly to him. During this time, Mr. Parks participated in all
discussions concerning compensation of the executive officers reporting directly
to him, except that Mr. Parks was excluded from discussions regarding his own
compensation. None of our executive officers served as a member of the board of
directors or the compensation committee of any entity that has one or more
executive officers serving on our board of directors or on the compensation
committee of our board of directors.
61
<PAGE>
DIRECTOR COMPENSATION
Our directors do not currently receive compensation for their services as
members of the board of directors. All directors are reimbursed for their
reasonable out-of-pocket expenses in serving on the board of directors and any
committee of the board of directors.
Non-employee directors currently participate in our stock option and
restricted stock purchase plan. We anticipate compensating non-employee board
members at a rate competitive with the market and industry peers in some
combination of cash compensation and stock options. These plans have not been
finalized as of this filing. Directors are reimbursed for reasonable
out-of-pocket expenses incurred while serving on the board of directors and any
committee of the board of directors.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation for
each of the last three fiscal years for our chief executive officer and our four
other most highly compensated executive officers during 1999. These five
individuals are referred to as the named executive officers.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- -----------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS(1) OPTIONS, SARS (#) COMPENSATION
- --------------------------- -------- ---------- --------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
J. Michael Parks(2)........................... 1999
Chairman of the Board, 1998 $ 475,000 $ 440,000 -- $ 18,773
Chief Executive Officer and President 1997 $ 395,833 $ 160,000 428,571 $ 61,474
Ivan Szeftel(3)............................... 1999
President, Retail Credit Services 1998 $ 192,115 $ 155,833 142,857 $ 29,430
Michael A. Beltz(4)........................... 1999
Executive Vice President and President, 1998 $ 250,000 $ 220,000 85,714 $ 6,448
Business Development and Planning 1997 $ 163,141 $ 125,000 57,143 $ 64,112
Edward K. Mims(5)............................. 1999
Executive Vice President 1998 $ 189,231 $ 123,750 71,429 $ 4,294
and Chief Financial Officer
James E. Anderson(6).......................... 1999
Executive Vice President and 1998 $ 202,500 $ 112,063 35,715 $ 5,770
President, Utilities Services 1997 $ 126,667 $ 70,000 35,714 $ 47,315
</TABLE>
- --------------------------
(1) Bonuses represent amounts earned by each executive officer during the
referenced year, although paid in the following year. We historically pay
bonuses each March for the prior year.
(2) Mr. Parks has been employed with us since March 1997.
(3) Mr. Szeftel has been employed with us since May 1998.
(4) Mr. Beltz has been employed with us since May 1997.
(5) Mr. Mims has been employed with us since February 1998.
(6) Mr. Anderson has been employed with us since May 1997.
62
<PAGE>
All other compensation amounts include our matching contributions to the
401(k) and Retirement Savings Plan, the Supplemental Executive Retirement Plan,
the life insurance premiums we pay on behalf of each executive officer,
relocation expenses and sign-on bonuses as follows:
<TABLE>
<CAPTION>
LIFE INSURANCE SIGN-ON
YEAR 401(K) PLAN PREMIUMS SERP RELOCATION BONUS
-------- ----------- -------------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Parks......................... 1999 -- --
1998 $10,743 $180 $7,850 -- --
1997 $ 3,829 180 -- $57,465 --
Ivan Szeftel............................. 1999 --
1998 $ 4,286 $144 -- -- $25,000
Michael A. Beltz......................... 1999 -- --
1998 $ 4,375 $120 -- $ 1,953 --
1997 -- $120 -- $63,992 --
Edward K. Mims........................... 1999 -- --
1998 $ 4,186 $108 -- -- --
James E. Anderson........................ 1999 -- --
1998 $ 4,100 $ 91 -- $ 1,578 --
1997 -- $ 91 -- $47,224 --
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning option grants
made to the named executive officers during 1999 pursuant to our stock option
plan.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENTAGE OF AT ASSUMED ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE TERM ($)(2)
OPTIONS FISCAL PRICE EXPIRATION ---------------------------
GRANTED(#) YEAR(1) ($/SH) DATE 5% 10%
---------- ------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Parks.............. 107,143 13.1% $7.70 2/1/2008 $518,838 $1,314,838
Ivan Szeftel.................. 28,571 3.5% $7.70 2/1/2008 $138,357 $ 350,623
Michael A. Beltz.............. 28,571 3.5% $7.70 2/1/2008 $138,357 $ 350,623
Edward K. Mims................ 42,857 5.2% $7.70 2/1/2008 $207,535 $ 525,935
James E. Anderson............. 42,857 5.2% $7.70 2/1/2008 $207,535 $ 525,935
</TABLE>
- ------------------------
(1) Options to purchase a total of 633,143 shares of common stock at an exercise
price of $7.70 per share and options to purchase a total of 187,857 shares
of common stock at an exercise price of $8.25 per share were granted in
1999.
(2) In accordance with the rules of the SEC, the amounts shown on this table
represent hypothetical gains that could be achieved for the respective
options if exercised at the end of the option term. These gains are based on
the assumed rates of stock appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date
and do not reflect our estimates or projections of the future price of our
common stock. The gains shown are net of the option exercise price, but do
not include deductions for taxes or other expenses associated with the
exercise. Actual gains, if any, on stock option exercises will depend on the
future performance of our common stock, the option holder's continued
employment through the option period, and the date on which the options are
exercised.
63
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR
The following table sets forth certain information concerning all
unexercised options held by the named executive officers as of December 31,
1999. No options were exercised during 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT MONEY OPTIONS AT
FISCAL YEAR-END(#) FISCAL YEAR-END(1)
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
J. Michael Parks............................... 267,857 267,857
Ivan Szeftel................................... 35,714 135,715
Michael A. Beltz............................... 46,429 125,000
Edward K. Mims................................. 17,857 96,429
James E. Anderson.............................. 24,554 89,732
</TABLE>
- ------------------------
(1) Value for "in-the-money" options represents the positive spread between the
respective exercise prices of outstanding options and the anticipated
initial public offering price of $ per share.
EMPLOYMENT AND INDEMNIFICATION AGREEMENTS
We generally do not to enter into employment agreements with our employees.
However, as part of some of our acquisitions, we have entered into agreements
with selected key individuals to ensure the success of the integration of the
acquisition and long-term business strategies. In addition, we have entered into
letter agreements with Mr. Parks and Mr. Szeftel.
J. MICHAEL PARKS. Mr. Parks entered into an employment agreement effective
March 10, 1997 to serve as our chairman of the board and chief executive
officer. During the term of this agreement, Mr. Parks will receive a minimum
base salary of $475,000. Mr. Parks is entitled to an incentive bonus of $400,000
based on the achievement of our annual financial goals. Under the agreement,
Mr. Parks was granted options to purchase 428,571 shares of our common stock at
an exercise price of $7.00 per share. Of these shares, 142,857 shares vested on
Mr. Parks second year anniversary with us. The remaining 285,714 shares vest
annually over four years based upon the achievement of corporate performance
goals. Mr. Parks is entitled to participate in our 401(k) and Retirement Savings
Plan, our 1999 Incentive Compensation Plan and any other employee benefits as
provided to other senior executives.
IVAN SZEFTEL. Mr. Szeftel entered into an employment agreement dated
May 4, 1998 to serve as the president of our retail services division. During
the remaining term of his agreement, Mr. Szeftel is entitled to receive a
minimum base salary of $325,000, subject to increases based on annual reviews.
Mr. Szeftel is entitled to an incentive bonus of $200,000 based on the
achievement of our annual financial goals. In addition, we granted Mr. Szeftel
options to purchase 142,857 shares of our common stock at an exercise price of
$7.00 per share. Mr. Szeftel is entitled to participate in our 401(k) and
Retirement Savings Plan, our 1999 Incentive Compensation Plan and any other
employee benefits as provided to other senior executives.
The employment agreement provides severance payments to Mr. Szeftel if we
terminate his employment without cause or if Mr. Szeftel terminates his
employment for good reason. In such cases, Mr. Szeftel will be entitled to six
months base salary if terminated in his first year, nine months base salary if
terminated in his second year and 12 months base salary if terminated after his
second year.
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
We adopted the Alliance Data Systems Corporation and its Subsidiaries Stock
Option and Restricted Stock Purchase Plan in August 1996. This plan provides for
grants of incentive stock options, nonqualified stock options and awards to
selected employees, officers, directors and other persons
64
<PAGE>
performing services for us or any of our subsidiaries. A total of 3,821,428
shares of common stock have been reserved for issuance pursuant to the plan. As
of December 31, 1999, there were 3,017,428 shares of common stock subject to
options previously granted at a weighted average exercise price of $7.38 per
share.
Incentive stock options may be granted to any person, including a director
or officer, employed on a full-time basis by us or any of our subsidiaries.
Nonqualified stock options and awards may be granted to any of our stockholders,
any employees of our stockholders that perform services for us and any person
employed by, or performing services for, us or any of our subsidiaries,
including our directors and officers.
The exercise price for incentive stock options granted under the plan may
not be less than 100% of the fair market value of the common stock on the option
grant date. If an incentive stock option is granted to an employee who owns more
than 10% of our common stock, the exercise price of that option may not be less
than 110% of the fair market value of the common stock on the option grant date.
The exercise price for nonqualified stock options granted under the plan may be
equal to, more than or less than 100% of the fair market value of the common
stock on the option grant date.
The plan gives the compensation committee or the board of directors the sole
discretion to determine the vesting provisions for each individual award. All
options vest on a common vesting date, which is the first day of February. The
normal vesting provision provides for vesting of 33 1/3% of the options each
year over a three-year period, beginning on the first day of February of the
eighth year after the options have been awarded. Options terminate on the tenth
anniversary of the date of grant. However, if we meet the annual operating
income goal as determined by our board of directors, vesting can be accelerated.
Our board of directors designates a percentage of the options that will vest in
this accelerated manner if we meet the annual operating income goal.
Historically, this designated percentage has been equal to 25% of the options
granted.
Restricted stock may be sold to directors, employees and consultants at
various prices, but not below par value, and may be made subject to restrictions
such as the participant's continued employment or the satisfaction of
performance targets. In general, restricted stock may not be sold or transferred
until the restrictions are removed or expire. We may repurchase restricted stock
from a participant at the original purchase price if the conditions or
restrictions are not met.
The compensation committee of our board of directors administers the plan
with respect to members of our executive committee and determines the pool of
shares available to other participants. Our chairman of the board and chief
executive officer is responsible for making individual determinations regarding
awards to those participants.
ALLIANCE DATA SYSTEMS 401(K) AND RETIREMENT SAVINGS PLAN
The Alliance Data Systems 401(k) and Retirement Savings Plan is a defined
contribution plan that is qualified under Section 401(k) of the Internal Revenue
Code of 1986, as amended, so that contributions made by employees or by us to
the plan, and income earned on these contributions, are not taxable to employees
until withdrawn from the plan. The plan covers U.S. employees of ADS Alliance
Data Systems, Inc., our wholly-owned subsidiary, and any other subsidiary or
affiliated organization that adopts this plan. We and all of our U.S.
subsidiaries are currently covered under the plan. All employees who either
(1) have been employed for at least one year and are at least 21 years old or
(2) are at least 45 years old and are scheduled to work at least 1,000 hours in
the plan year are eligible to participate. Effective January 1, 2000, all
employees who are at least 21 years old and who we have employed for at least
six months and who have worked at least 500 hours will be eligible to
participate.
Under this plan, we make regular matching contributions on the first 3% of
each participant's contributions. An additional matching contribution on the
second 3% of each participant's
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contributions may be made annually at the discretion of our board of directors.
Each of our matching contributions vests 20% over five years for employees with
less than five years of service, all contributions vest immediately or earlier
if the participating employee retires at age 65, becomes disabled, dies or is
terminated. In addition to matching contributions, we make a non-discretionary
retirement contribution based on the participant's age and years of service with
us. The retirement contributions become 100% vested once the participant has
served five years with us.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
We adopted the ADS Alliance Data Systems, Inc. Supplemental Executive
Retirement Plan in May 1999 to help certain key individuals maximize their
pre-tax savings and company contributions that are otherwise restricted due to
tax limitations. Eligibility under the plan requires an individual to: (1) be a
regular, full-time U.S. employee of ADS Alliance Data Systems, (2) receive
compensation equal to or greater than the IRS compensation limit as of
December 31 of the previous calendar year and (3) be a participant in the
Alliance Data Systems 401(k) and Retirement Savings Plan.
This plan allows the participant to contribute:
- up to 16% of eligible compensation on a pre-tax basis;
- any 401(k) contributions that would otherwise be returned because of
reaching the statutory limit; and
- any retirement savings plan contributions for compensation in excess of
the statutory limits.
The participant is always 100% vested in his or her own contributions. A
participant becomes 100% vested in the retirement savings plan contributions
after five continuous years of service. The contributions accrue interest at a
rate of 8% a year, which may be adjusted periodically by the 401(k) and
Retirement Savings Plan Investment Committee.
The participant does not have access to any of the contributions or interest
while actively employed with us, unless the participant experiences an
unforeseeable financial emergency. Loans are not available under this plan. If
the participant ceases to be actively employed, retires or becomes disabled, the
participant will receive the value of his or her account within 60 days of the
end of the quarter in which he or she became eligible for the distribution. A
distribution from the plan is taxed as ordinary income and is not eligible for
any special tax treatment.
1999 INCENTIVE COMPENSATION PLAN
The Alliance Data Systems 1999 Incentive Compensation Plan provides an
opportunity for certain U.S. employees to be eligible for a cash bonus based on
achieving certain objectives. To be eligible under the plan, employees must meet
certain eligibility requirements and be selected by the compensation committee.
Under the plan, each participant has an incentive compensation target that
is expressed as a percent of annual base earnings. The participant's incentive
compensation target is based on various objectives that are weighted to reflect
the participant's contributions to company, business unit and individual goals,
which are established at the beginning of the plan year. The company objective
is based on our operating income, the business unit objective is based on
financial and operational objectives and the individual objectives are items of
importance to us that the individual can impact. The amount of compensation a
participant receives depends on the percentage of objectives that were achieved.
Eighty percent of the objectives must be achieved before a participant is
eligible for any payout. The maximum payout is equal to 150% of the
participant's incentive compensation target.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 1999 by:
(1) each person who is known by us to own beneficially more than 5% of our
common stock;
(2) each current director;
(3) each of the named executive officers; and
(4) all directors and executive officers as a group.
Except as indicated in this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name. Percentage of ownership is based on 73,073,999 shares of our
common stock outstanding on December 31, 1999, and shares of our
common stock outstanding after completion of this offering, both of which
reflect the conversion of all outstanding shares of Series A preferred stock
into common shares and the exercise of all outstanding warrants.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY
OWNED(1)
SHARES BENEFICIALLY -------------------
OWNED BEFORE AND BEFORE AFTER
NAME OF BENEFICIAL OWNER AFTER OFFERING(1) OFFERING OFFERING
- ------------------------ ------------------- -------- --------
<S> <C> <C> <C>
Welsh, Carson, Anderson & Stowe(2) ......................... 53,859,878 73.7%
320 Park Avenue, Suite 2500
New York, New York 10022-6815
Limited Commerce Corp. ..................................... 18,852,912 25.8
Three Limited Parkway
Columbus, Ohio 43230
J. Michael Parks(3)......................................... 267,857 * *
Ivan Szeftel(4)............................................. 35,714 * *
Michael A. Beltz(5)......................................... 46,429 * *
Edward K. Mims(6)........................................... 17,857 * *
James E. Anderson(7)........................................ 24,554 * *
Bruce K. Anderson(8)........................................ 444,486 * *
Anthony J. deNicola(8)...................................... 72,869 * *
Robert A. Minicucci(8)...................................... 116,443 * *
All directors and executive officers as a group
(16 individuals)(9)....................................... 1,101,701 1.5%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the SEC's rules. In
computing percentage ownership of each person, shares of common stock
subject to options, warrants or convertible preferred stock held by that
person that are currently exercisable or convertible, or exercisable or
convertible within 60 days of December 31, 1999, are deemed to be
beneficially owned. These shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of each other person.
(2) Includes 11,750,641 shares issuable upon conversion of Series A preferred
stock owned of record by WCAS VIII L.P., WCAS Information Partners, L.P. and
20 other individuals. Also includes
- 7,142,850 shares of common stock held by Welsh, Carson, Anderson & Stowe
VI, L.P.,
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- 23,043,146 shares of common stock held by Welsh, Carson, Anderson & Stowe
VII, L.P.,
- 9,207,792 shares of common stock held by Welsh, Carson, Anderson & Stowe
VIII, L.P.,
- 140,873 shares of common stock held by WCAS Information Partners LP,
- 345,083 shares of common stock held by WCAS Capital Partners II LP,
- 842,857 shares of common stock held by WCAS Capital Partners III LP, and
- 1,386,636 shares of common stock held by individual partners of Welsh
Carson.
(3) Represents options to purchase 267,857 shares of common stock which are
exercisable within 60 days of December 31, 1999.
(4) Represents options to purchase 35,714 shares of common stock which are
exercisable within 60 days of December 31, 1999.
(5) Represents options to purchase 46,429 shares of common stock which are
exercisable within 60 days of December 31, 1999.
(6) Represents options to purchase 17,857 shares of common stock which are
exercisable within 60 days of December 31, 1999.
(7) Represents options to purchase 24,554 shares of common stock which are
exercisable within 60 days of December 31, 1999.
(8) The number of shares beneficially owned by Mr. Anderson includes 128,149
shares issuable upon conversion of Series A preferred stock. The number of
shares beneficially owned by Mr. deNicola includes 42,427 shares issuable
upon conversion of Series A preferred stock. The number of shares
beneficially owned by Mr. Minicucci includes 12,233 shares issuable upon
conversion of Series A preferred stock. Each of Bruce K. Anderson, Anthony
J. deNicola and Robert A. Minicucci are partners of Welsh, Carson,
Anderson & Stowe and certain of its affiliates and may be deemed to be the
beneficial owner of the common stock beneficially owned by Welsh Carson and
described in note 2 above.
(9) Includes options to purchase an aggregate of 392,411 shares of common stock
which are exercisable within 60 days of December 31, 1999 held by Messrs.
Parks, Szeftel, Beltz, Mims and Anderson, and 182,809 shares issuable upon
conversion of Series A preferred stock.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH WELSH, CARSON, ANDERSON & STOWE
Welsh, Carson, Anderson & Stowe VI, L.P., Welsh, Carson, Anderson & Stowe
VII, L.P., Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS Capital Partners II,
L.P., WCAS Capital Partners III, L.P., WCAS Information Partners, L.P., WCA
Management Corporation and various other individuals who are limited partners of
the Welsh Carson limited partnerships beneficially owned approximately 73.7% of
our outstanding common stock as of December 31, 1999. The individual partners of
the Welsh Carson limited partnerships include Bruce K. Anderson, Anthony J.
deNicola and Robert A. Minicucci, each of whom is a member of our board of
directors.
In July 1999, we sold 120,000 shares of Series A preferred stock to Welsh,
Carson, Anderson & Stowe VIII, L.P., WCAS Information Partners, L.P. and 20
individuals who are partners of some or all of the Welsh Carson limited
partnerships for an aggregate purchase price of $120.0 million. The preferred
shares were issued to finance, in part, the acquisition of the network services
business of SPS Payment Systems, Inc. Prior to the completion of this offering,
these preferred shares will be converted into an aggregate of 11,428,571 shares
of our common stock.
In July 1998, we sold 12,987,013 shares of common stock to Welsh, Carson,
Anderson & Stowe VIII, L.P., Welsh, Carson, Anderson & Stowe VII, L.P., WCAS
Information Partners, L.P., and 16 other individuals who are partners of some or
all of the Welsh Carson limited partnerships for an aggregate purchase price of
$100.0 million. The shares were issued to finance, in part, the acquisition of
all outstanding stock of Loyalty.
In August 1998, we sold 38,961 shares of common stock to WCAS Capital
Partners II, L.P. at a value of $7.70 per share as consideration for WCAS
Capital Partners II, L.P. extending the maturity of a 10% subordinated note we
issued to it in January 1996 in the principal amount of $30.0 million and
originally due January 24, 2002. Principal on the note is due on October 25,
2005 and interest is payable semi-annually in arrears on each January 1 and
July 1. The note was originally issued to finance, in part, the acquisition of
BSI Business Services, Inc., now known as ADS Alliance Data Systems, Inc. This
note will be paid in full with the proceeds of this offering.
In September 1998, we issued 842,857 shares of common stock to WCAS Capital
Partners III, L.P. and issued a 10% subordinated note to WCAS Capital Partners
III, L.P. in the principal amount of $52.0 million to finance, in part, the
acquisition of Harmonic Systems Incorporated. Principal on the note is due in
two equal installments on September 15, 2007 and September 15, 2008. Interest is
payable semi-annually in arrears on each March 15 and September 15. This note
will be paid in full with the proceeds of this offering.
We paid Welsh, Carson, Anderson & Stowe $2.0 million in fiscal 1998 and $1.2
million in fiscal 1999 for investment banking services rendered in connection
with our acquisitions.
We have evaluated the creation of a coalition loyalty program in the U.S.
Because of the significant funding obligation to establish such a program, we
have elected not to pursue the program. Our existing stockholders may decide to
pursue the program through a separate company that they will fund to the extent
that they choose to participate. In the event our existing stockholders choose
to pursue the program, we anticipate providing the intellectual property and
expertise necessary for the program through a service agreement, which will be
negotiated on an arms-length basis.
TRANSACTIONS WITH THE LIMITED
The Limited Commerce Corp. beneficially owned approximately 25.8% of our
common stock as of December 31, 1999. The Limited Commerce Corp. is owned by
Structure, Inc., which is owned by The Limited, Inc. Therefore, The
Limited, Inc., a significant customer of ours, indirectly owns one of our
principal stockholders. Pursuant to a stockholders agreement with Welsh Carson
and Limited
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Commerce Corp., Limited Commerce Corp. has the right to maintain two designees
on our board of directors until the completion of this offering. Mr. Finkelman
and Mr. Soll are the current Limited Commerce Corp. designees on our board of
directors.
The Limited, Inc. operates through a variety of different retail and catalog
affiliates that operate under different names, including Bath & Body Works, The
Limited Stores, Structure, Victoria's Secret Catalogue, Victoria's Secret Store,
Lerner New York, Lane Bryant and Express. Many of these affiliates have entered
into credit card processing agreements with WFNNB, and these affiliates of The
Limited represented approximately 50% of our credit card receivables as of
September 30, 1999.
Pursuant to these credit card processing agreements, WFNNB provides credit
card processing services and issues private label credit cards on behalf of the
businesses. Under these agreements, WFNNB pays the business an amount equal to
the amount charged by the business's customers using the private label credit
card issued by WFNNB, less a discount, which varies among agreements. WFNNB
assumes the credit risk for these credit card transactions. Payments are also
made to WFNNB from the businesses relating to credit card issuance and
processing.
Most of these credit card processing agreements were entered into in 1996
and expire in 2006. These agreements give the businesses various termination
rights, including the ability to terminate these contracts under certain
circumstances after the first six years if WFNNB is unable to remain competitive
with independent third parties that provide similar services.
In general, WFNNB owns information relating to the holders of credit cards
issued under these agreements, but WFNNB is prohibited from disclosing
information about these holders to third parties that the Limited determines
competes with The Limited or its affiliated businesses. WFNNB is also prohibited
from providing marketing services to competitors of The Limited or its
affiliated businesses as determined by The Limited. WFNNB may provide marketing
services to other third parties that are not competitors of The Limited or its
affiliated businesses, but it must share revenue from these services with The
Limited and its affiliated businesses.
We periodically enter into agreements with various retail affiliates of The
Limited to provide database marketing programs and projects. These agreements
are generally short-term in nature, ranging from three to six months.
We received total revenues directly from The Limited and its retail
affiliates of $30.6 million during 1997, $33.0 million during 1998 and
$36.4 million during 1999.
In August 1998, we sold 25,974 shares of common stock to Limited Commerce
Corp. at a value of $7.70 per share as consideration for Limited Commerce Corp.
extending the maturity of a 10% subordinated note we issued in January 1996 to
WCAS Capital Partners II, L.P., which sold the note to Limited Commerce Corp.
The note is in the principal amount of $20.0 million and was originally due
January 24, 2002. Principal on the note is due on October 25, 2005 and interest
is payable semi-annually in arrears on each January 1 and July 1. The note was
originally issued to finance, in part, the acquisition of BSI Business
Services, Inc., now known as ADS Alliance Data Systems, Inc. This note will be
paid in full with the proceeds of this offering.
The Limited guarantees WFNNB's lease obligations under a lease for a 100,800
square foot facility in Columbus, Ohio. The lease expires in January 2001 and
the current monthly lease rate is $69,407.
STOCKHOLDERS' AGREEMENT WITH WELSH CARSON AND THE LIMITED
In connection with the above sale of shares to the Welsh Carson affiliates
and Limited Commerce Corp., we entered into a stockholders agreement, as
amended, with Limited Commerce Corp., various Welsh Carson affiliates and
various individual stockholders who are partners in some or all of the Welsh
Carson limited partnerships. This agreement contains transfer restrictions,
various stockholder rights, provisions allowing Welsh Carson to designate up to
three members of our board of directors
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<PAGE>
and allowing Limited Commerce Corp. to designate up to two members of our board
of directors, provisions relating to the amendment of our certificate of
incorporation and bylaws and capital calls. Welsh Carson also has the right to
appoint a representative to attend and participate in board and committee
meetings. All of these provisions will terminate upon completion of this
offering.
Pursuant to the stockholders agreement, we granted the Welsh Carson
affiliates and Limited Commerce Corp. two demand registration rights and
"piggyback" registration rights. The demand rights enable the Welsh Carson
affiliates and Limited Commerce Corp. to require us to register their shares
with the SEC under the Securities Act at any time after the consummation of this
initial public offering. Piggyback rights allow the Welsh Carson affiliates and
Limited Commerce Corp. to register the shares of our common stock that they
purchased along with any shares that we register with the SEC. These
registration rights are subject to conditions and limitations, including the
right of the underwriters of an offering to limit the number of shares, and are
subject to the lock-up agreements entered into between holders of registration
rights and Bear, Stearns & Co. Inc. We anticipate that Welsh Carson affiliates
and Limited Commerce Corp. will waive these registration rights in connection
with this offering.
INTERCOMPANY INDEBTEDNESS
In December 1998, our subsidiaries issued to us revolving promissory notes,
due November 30, 2002, as described below. Principal payments are due on demand.
The notes accrue interest at the rate of 10% per annum and interest is payable
quarterly or upon demand.
<TABLE>
<CAPTION>
AMOUNT OF PRINCIPAL
OUTSTANDING AS OF
CREDIT LINE SEPTEMBER 30, 1999
------------ -------------------
<S> <C> <C>
World Financial Network National Bank note.................. $100,000,000 $ --
ADS Alliance Data Systems, Inc. note........................ 200,000,000 120,000,000
Alliance Data Systems (New Zealand) Limited note............ 11,250,000 9,750,000
Harmonic Systems Incorporated note.......................... 62,000,000 52,000,000
Loyalty Management Group Canada Inc. note................... 20,000,000 --
</TABLE>
71
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, our authorized capital stock will
consist of shares of common stock, par value $0.01 per share, of which
shares will be issued and outstanding, and shares of preferred
stock, par value $0.01 per share, of which no shares will be outstanding. The
following summary of our capital stock is qualified in its entirety by reference
to our restated certificate of incorporation and our bylaws.
COMMON STOCK
Our common stockholders are entitled to one vote for each share on all
matters voted upon by our stockholders, including the election of directors, and
do not have cumulative voting rights. Subject to the rights of holders of any
then outstanding shares of our preferred stock, our common stockholders are
entitled to any dividends that may be declared by our board of directors.
Holders of our common stock are entitled to share ratably in our net assets upon
our dissolution or liquidation after payment or provision for all liabilities
and any preferential liquidation rights of our preferred stock then outstanding.
Our common stockholders have no preemptive rights to purchase shares of our
stock. The shares of our common stock are not subject to any redemption
provisions and are not convertible into any other shares of our capital stock.
All outstanding shares of our common stock are, and the shares of common stock
to be issued in the offering will be, upon payment therefor, fully paid and
nonassessable. The rights, preferences and privileges of holders of our common
stock will be subject to those of the holders of any shares of our preferred
stock we may issue in the future.
PREFERRED STOCK
Our board of directors may from time to time authorize the issuance of one
or more classes or series of preferred stock without stockholder approval.
Subject to the provisions of our certificate of incorporation and limitations
prescribed by law, our board of directors is authorized to adopt resolutions to
issue shares, establish the number of shares, change the number of shares
constituting any series, and provide or change the voting powers, designations,
preferences and relative rights, qualifications, limitations or restrictions on
shares of our preferred stock, including dividend rights, terms of redemption,
conversion rights and liquidation preferences, in each case without any action
or vote by our stockholders.
One of the effects of undesignated preferred stock may be to enable our
board of directors to discourage an attempt to obtain control of our company by
means of a tender offer, proxy contest, merger or otherwise. The issuance of
preferred stock may adversely affect the rights of our common stockholders by,
among other things:
- restricting dividends on the common stock;
- diluting the voting power of the common stock;
- impairing the liquidation rights of the common stock; or
- delaying or preventing a change in control without further action by the
stockholders.
SERIES A PREFERRED STOCK
Upon consummation of the offering, all of the outstanding shares of
Series A preferred stock will be converted into shares of common stock and there
will be no Series A preferred stock outstanding.
EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of the offering there will be authorized but
unissued shares of our common stock and shares of preferred stock
available for our future issuance without stockholder approval. Of the shares of
common stock available for future issuance, 3,821,428 shares have been reserved
for issuance under our stock option and restricted stock purchase plan.
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Shares of common stock and preferred stock available for future issuance may
be utilized for a variety of corporate purposes, including to facilitate
acquisitions or future public offerings to raise additional capital. We do not
currently have any plans to issue additional shares of common stock or preferred
stock, other than shares of common stock issuable under our stock option plans.
ANTI-TAKEOVER CONSIDERATIONS AND SPECIAL PROVISIONS OF THE CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS. A number of provisions of our
certificate of incorporation and bylaws concern matters of corporate governance
and the rights of our stockholders. Provisions such as those that provide for
the classification of our board of directors and that grant our board of
directors the ability to issue shares of preferred stock and to set the voting
rights, preferences and other terms thereof, may have an anti-takeover effect
and may discourage takeover attempts not first approved by our board of
directors, including takeovers which may be considered by some stockholders to
be in their best interests. To the extent takeover attempts are discouraged,
temporary fluctuations in the market price of our common stock, which may result
from actual or rumored takeover attempts, may be inhibited. Such provisions also
could delay or frustrate the removal of incumbent directors or the assumption of
control by stockholders, even if such removal or assumption would be beneficial
to our stockholders. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even if they could be
favorable to the interests of stockholders, and could potentially depress the
market price of our common stock. Our board of directors believes that these
provisions are appropriate to protect our interests and the interests of our
stockholders.
CLASSIFIED BOARD OF DIRECTORS. Our certificate of incorporation divides our
board of directors into three classes. The directors in each class serve in
terms of three years and until their successors are duly elected and qualified.
The terms of directors are staggered by class. The classification system of
electing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of our company and may maintain
the incumbency of our board of directors, as the classification of our board of
directors and such other provisions generally increase the difficulty of, or may
delay, replacing a majority of the directors. Our bylaws provide that directors
may be removed only for cause, by the holders of a majority of the shares
entitled to vote at an election of directors. A majority of the directors then
in office, by action at a meeting or by written consent, may elect a successor
to fill any vacancies or newly created directorships.
MEETINGS OF STOCKHOLDERS. Our bylaws provide that annual meetings of our
stockholders may take place at the time and place established by our board of
directors, provided that the date is not more than 120 days after the end of our
fiscal year. A special meeting of our stockholders may be called by our board of
directors or our chief executive officer and will be called by our chief
executive officer or secretary upon written request by a majority of our board
of directors.
ADVANCE NOTICE PROVISIONS. Our bylaws provide that nominations for
directors may not be made by stockholders at any annual or special meeting
thereof unless the stockholder intending to make a nomination notifies us of its
intention a specified number of days in advance of the meeting and furnishes to
us certain information regarding itself and the intended nominee. Our bylaws
also require a stockholder to provide to our secretary advance notice of
business to be brought by such stockholder before any annual or special meeting
of our stockholders, as well as certain information regarding the stockholder
and any material interest the stockholder may have in the proposed business.
These provisions could delay stockholder actions that are favored by the holders
of a majority of our outstanding stock until the next stockholders' meeting.
AMENDMENT OF THE BYLAWS. Our bylaws may be altered, amended, repealed or
replaced by our board of directors or our stockholders at any annual or regular
meeting, or at any special meeting if notice of the alteration, amendment,
repeal or replacement is given in the notice of the meeting.
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DELAWARE ANTI-TAKEOVER LAW. We are subject to the provisions of
Section 203 of the Delaware General Corporation Law regulating corporate
takeovers. This section prevents certain Delaware corporations, under certain
circumstances, from engaging in a "business combination" with:
- a stockholder who owns 15% or more of our outstanding voting stock
(otherwise known as an "interested stockholder"),
- an affiliate of an interested stockholder, or
- an associate of an interested stockholder,
for three years following the date that the stockholder became an "interested
stockholder." A "business combination" includes a merger or sale of more than
10% of our assets.
However, the above provisions of Section 203 do not apply if:
- our board approves the transaction that made the stockholder an
"interested stockholder," prior to the date of that transaction;
- after the completion of the transaction that resulted in the stockholder
becoming an "interested stockholder," that stockholder owned at least 85%
of our voting stock outstanding at the time the transaction commenced,
excluding shares owned by our officers and directors; or
- on or subsequent to the date of the transaction, the business combination
is approved by our board and authorized at a meeting of our stockholders
by an affirmative vote of at least two-thirds of the outstanding voting
stock not owned by the "interested stockholder."
This statute could prohibit or delay mergers or other change in control
attempts, and thus may discourage attempts to acquire us.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation includes a provision that eliminates the
personal liability of our directors for monetary damages for breach of fiduciary
duty as a director, to the fullest extent permitted by Delaware Law.
Our certificate of incorporation and bylaws provide that:
- we must indemnify our directors, officers, employees and agents to the
fullest extent permitted by applicable law;
- we must advance expenses, as incurred, to our directors and executive
officers in connection with a legal proceeding to the fullest extent
permitted by Delaware law, subject to very limited exceptions.
Prior to the consummation of this offering, we intend to obtain directors'
and officers' insurance for our directors, officers and some employees for
specified liabilities.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against directors for breach of their fiduciary duty. They
may also have the effect of reducing the likelihood of derivative litigation
against directors and officers, even though an action of this kind, if
successful, might otherwise benefit us and our stockholders. Furthermore, a
stockholders' investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers pursuant to
these indemnification provisions. However, we believe that these indemnification
provisions are necessary to attract and retain qualified directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust and
Savings Bank.
74
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of a substantial number of shares of our common stock in the
public market could adversely affect trading prices prevailing from time to
time. As of December 31, 1999, principal stockholders held 72,712,790 shares,
representing 99.5% of the outstanding shares of our common stock. After this
offering, we will have shares of our common stock outstanding. Of these
shares, all shares sold in the offering, other than shares, if any, purchased by
our affiliates, will be freely tradable. Of the remaining shares,
shares will be freely transferable and shares will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act. Restricted shares may be sold in the public market only if such sale is
registered under the Securities Act or if such sale qualifies for an exemption
from registration, such as the one provided by Rule 144. Sales of the restricted
shares in the open market, or the availability of such shares for sale, could
adversely affect the trading price of our common stock.
Subject to the lock-up agreements described below and the provisions of
Rule 144 and 144(k), additional shares will be available for sale in
the public market.
LOCK-UP AGREEMENTS
Our officers, directors and other stockholders who hold in the aggregate
shares of our common stock and holders of options to purchase
shares of our common stock which vest and are exercisable within the next
days, have agreed not to sell or otherwise dispose of any shares of our
common stock for a period of 180 days after the date of this prospectus, without
the prior written consent of Bear, Stearns & Co. Inc.
RULE 144
In general, under Rule 144 as currently in effect, a person, or persons
whose shares are aggregated, who has beneficially owned restricted shares for at
least one year following the later of the date of the acquisition of such shares
from the issuer or from an affiliate of the issuer would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
- 1% of the number of shares of our common stock then outstanding,
approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been an affiliate of
us at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years following the later
of the date of the acquisition of such shares from the issuer or an affiliate of
the issuer, is entitled to sell such shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701, any of our employees or directors who purchase
shares from us in connection with our stock option plan or other written
agreements are eligible to resell these shares 90 days after the date of this
offering in reliance on Rule 144, without compliance with certain restrictions
contained in Rule 144, including the holding period.
We intend to file registration statements to register shares of common stock
reserved for issuance under our stock option plan. These registration statements
will permit the resale of shares issued under these plans by non-affiliates in
the public market without restriction, subject to the lock-up agreements.
75
<PAGE>
UNDERWRITING
UNDERWRITING AGREEMENT. Subject to the terms and conditions set forth in an
underwriting agreement among us and the underwriters, each of the underwriters
named below, for whom Bear, Stearns & Co. Inc., Merrill Lynch, Pierce Fenner &
Smith Incorporated and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as representatives, has severally agreed to purchase from us the number
of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
Bear, Stearns & Co. Inc.....................................
Merrill Lynch, Pierce Fenner & Smith,
Incorporated.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Total..................................................
</TABLE>
The obligations of the underwriters under the underwriting agreement are
several and not joint. This means that each underwriter is obligated to purchase
from us only the number of shares of common stock set forth opposite its name in
the table above. Except in limited circumstances set forth in the underwriting
agreement, an underwriter has no obligation in relation to the shares of common
stock which any other underwriter has agreed to purchase.
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
Under the underwriting agreement, the underwriters are obliged to purchase and
pay for all of the above shares of common stock if any are purchased.
PUBLIC OFFERING PRICE AND DEALERS CONCESSION. The underwriters propose
initially to offer the shares of common stock offered by this prospectus to the
public at the initial public offering price per share set forth on the cover
page of this prospectus and to certain dealers at that price less a concession
not in excess of $ per share. The underwriters may allow, and these dealers may
reallow, concessions not in excess of $ per share on sales to certain other
dealers. After commencement of this offering, the offering price, concessions
and other selling terms may be changed by the underwriters. No such change will
alter the amount of proceeds to be received by us as set forth on the cover page
of this prospectus.
OVER-ALLOTMENT OPTION. We have granted the underwriters an option, which
may be exercised within 30 days after the date of this prospectus, to purchase
up to additional shares of common stock to cover over-allotments, if
any, at the initial public offering price less the underwriting discount, each
as set forth on the cover page of this prospectus. If the underwriters exercise
this option in whole or in part, each of the underwriters will be severally
committed, subject to certain conditions, to purchase these additional shares of
common stock in proportion to their respective purchase commitments as indicated
in the preceding table and we will be obligated to sell these additional shares
to the underwriters. The underwriters may exercise this option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered by this prospectus. These additional shares will be sold by the
underwriters on the same terms as those on which the shares offered by this
prospectus are being sold.
76
<PAGE>
UNDERWRITING COMPENSATION. The following table summarizes the compensation
to be paid to the underwriters by us in connection with this offering:
<TABLE>
<CAPTION>
TOTAL
------------------------------------------
WITHOUT EXERCISE OF WITH EXERCISE OF THE
THE OVER-ALLOTMENT OVER-ALLOTMENT
PER SHARE OPTION OPTION
--------- ------------------- --------------------
<S> <C> <C> <C>
Underwriting discounts.........
</TABLE>
INDEMNIFICATION AND CONTRIBUTION. In the underwriting agreement, we have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in connection with these liabilities.
DISCRETIONARY ACCOUNTS. The underwriters have informed us that they do not
intend to confirm sales to any account over which they exercise discretionary
authority.
LOCK-UP AGREEMENTS. We, all of our directors and officers and other
stockholders holding an aggregate of shares of our common stock have
agreed not to sell or offer to sell or otherwise dispose of any shares of our
common stock, subject to certain exceptions, for a period of 180 days after the
date of this prospectus, without the prior written consent of Bear, Stearns &
Co. Inc.
DETERMINATION OF OFFERING PRICE. Prior to this offering, there has been no
market for our common stock. Accordingly, the initial public offering price for
the common stock was determined by negotiation between us and the
representatives of the underwriters. Among the factors considered in these
negotiations were:
- the results of our operations in recent periods;
- our financial condition;
- estimates of our future prospects and of the prospects for the industry in
which we compete;
- an assessment of our management;
- the general state of the securities markets at the time of this offering;
and
- the prices of similar securities of companies considered comparable to us.
We intend to apply to have our common stock listed on the New York Stock
Exchange under the symbol "ADD". There can be no assurance, however, that an
active or orderly trading market will develop for our common stock or that our
common stock will trade in the public markets after this offering at or above
the initial offering price.
RESERVED SHARE PROGRAM. The underwriters have reserved for sale, at the
initial public offering price, up to shares of our common stock for our
employees, directors and other persons or entities with whom we have a business
relationship. The number of shares available for sale to the general public in
the offering will be reduced to the extent those persons purchase these reserved
shares. Purchases of reserved shares are to be made through accounts at Bear,
Stearns & Co. Inc., Merrill Lynch, Pierce Fenner & Smith Incorporated or
Donaldson, Lufkin & Jenrette Securities Corporation in accordance with their
respective procedures for opening accounts and transacting in securities. Any
reserved shares not so purchased will be offered by the underwriters to the
general public on the same terms as the other shares offered in this offering.
STABILIZATION AND OTHER TRANSACTIONS. In order to facilitate this offering,
persons participating in this offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after this offering, including over-allotment, stabilizing and short-covering
transactions and the imposition of penalty bids. Specifically, the underwriters
may over-allot or otherwise create a short position in the common stock for
their own account by selling more shares of
77
<PAGE>
common stock than have been sold to them by us. The underwriters may elect to
cover this short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids, under which selling concessions allowed to syndicate
members or other broker-dealers participating in this offering are reclaimed if
shares of common stock previously distributed in this offering are repurchased
in connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales. No representation is made as to the magnitude or effect of
these stabilization transactions. These transactions may be effected on the New
York Stock Exchange or otherwise and, if commenced, may be discontinued at any
time.
LEGAL MATTERS
The validity of the shares of our common stock offered hereby will be passed
upon for us by Akin, Gump, Strauss, Hauer & Feld, L.L.P. Legal matters in
connection with this offering will be passed upon for the underwriters by
Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of Alliance Data Systems Corporation
and subsidiaries as of January 31, 1998 and December 31, 1998 and for the eleven
months ended December 31, 1998, and each of the two fiscal years in the period
ended January 31, 1998 included in this prospectus and the related financial
statement schedules included elsewhere in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration statement, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Loyalty Management Group Canada Inc. as of April 30,
1997 and 1998, and for each of the two years in the period ended April 30, 1998,
as set forth in their report. We have included these financial statements in the
propectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given on their authority as experts in accounting and
auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Harmonic Systems Incorporated at December 31, 1996 and
1997, and for each of the two years in the period ended December 31, 1997, as
set forth in their report (which contains an explanatory paragraph describing
conditions that raise substantial doubt about Harmonic Systems Incorporated's
ability to continue as a going concern as described in Note 12 to the
consolidated financial statements). We have included these financial statements
in the prospectus and elsewhere in the registration statement in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
78
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act for the common stock sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the accompanying exhibits and schedules. For
further information about us and our common stock, we refer you to the
registration statement and the accompanying exhibits and schedules. Statements
contained in this prospectus regarding the contents of any contract or any other
document to which we refer are not necessarily complete. In each instance,
reference is made to the copy of the contract or document filed as an exhibit to
the registration statement, and each statement is qualified in all respects by
that reference. Copies of the registration statement and the accompanying
exhibits and schedules may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Securities and Exchange Commission located at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of these materials may be
obtained at prescribed rates from the Public Reference Room of the Securities
and Exchange Commission Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549. You may obtain information on the operation of the Public Reference Room
by calling the Securities and Exchange Commission at 1-800-SEC-0330. The
Securities and Exchange Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Securities and Exchange Commission. The
address of the site is http://www.sec.gov.
After this offering, we will become subject to the information and reporting
requirements of the Securities Exchange Act. As a result, we will file periodic
reports, proxy statements and other information with the Securities and Exchange
Commission.
79
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ALLIANCE DATA SYSTEMS CORPORATION
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ALLIANCE DATA SYSTEMS CORPORATION AND SUBSIDIARIES
Report of Independent Auditors.............................. F-2
Consolidated Statements of Operations for the fifty-two
weeks ended February 1, 1997, the fifty-three weeks ended
January 31, 1998, and the eleven months ended December 31,
1998...................................................... F-3
Consolidated Balance Sheets as of January 31, 1998 and
December 31, 1998......................................... F-4
Consolidated Statements of Stockholders' Equity for the
fifty-two weeks ended February 1, 1997, the fifty-three
weeks ended January 31, 1998, and the eleven months ended
December 31, 1998......................................... F-5
Consolidated Statements of Cash Flows for the fifty-two
weeks ended February 1, 1997, the fifty-three weeks ended
January 31, 1998, and the eleven months ended December 31,
1998...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Unaudited Interim Consolidated Statements of Operations for
the nine months ended September 30, 1998 and 1999......... F-28
Consolidated Balance Sheets as of December 31, 1998
(audited) and September 30, 1999 (unaudited).............. F-29
Unaudited Interim Consolidated Statements of Cash Flows for
the nine months ended September 30, 1998 and 1999......... F-30
Notes to Unaudited Interim Consolidated Financial
Statements................................................ F-31
LOYALTY MANAGEMENT GROUP CANADA INC. AND SUBSIDIARY
Report of Independent Auditors.............................. F-35
Consolidated Balance Sheets as of April 30, 1997 and 1998... F-36
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the two years ended April 30, 1997 and
1998...................................................... F-37
Consolidated Statements of Cash Flows for the two years
ended April 30, 1997 and 1998............................. F-38
Notes to Consolidated Financial Statements.................. F-39
HARMONIC SYSTEMS INCORPORATED
Report of Independent Auditors.............................. F-45
Consolidated Balance Sheet as of December 31, 1996 and
1997...................................................... F-46
Consolidated Statements of Operations for the two years
ended December 31, 1996 and 1997.......................... F-47
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for three years ended December 31, 1995, 1996
and 1997.................................................. F-48
Consolidated Statements of Cash Flows for the two years
ended December 31, 1996 and 1997.......................... F-49
Notes to Consolidated Financial Statements.................. F-50
</TABLE>
F-1
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Alliance Data Systems Corporation
We have audited the accompanying consolidated balance sheets of Alliance
Data Systems Corporation and subsidiaries as of January 31, 1998 and
December 31, 1998, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the fiscal years ended
February 1, 1997 and January 31, 1998 and for the eleven months ended
December 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the companies as of
January 31, 1998 and December 31, 1998 and the results of their operations and
their cash flows for the respective stated periods in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Columbus, Ohio
March 29, 1999, except for Note 18,
as to which the date is January 13, 2000
F-2
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 11 MONTHS
ENDED ENDED ENDED
FEBRUARY 1, 1997 JANUARY 31, 1998 DECEMBER 31, 1998
---------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues
Processing and servicing fees............... $199,405 $225,504 $306,366
Financing charges, net...................... 86,709 127,007 119,352
Other income................................ 11,224 888 8,591
-------- -------- --------
Total revenue........................... 297,338 353,399 434,309
-------- -------- --------
Operating expenses
Processing and servicing.................... 144,038 161,360 209,013
Salaries and employee benefit............... 109,582 127,087 156,464
Depreciation and other amortization......... 6,860 7,402 8,270
Amortization of purchased intangibles....... 15,603 19,061 34,321
-------- -------- --------
Total operating expenses................ 276,083 314,910 408,068
-------- -------- --------
Operating income................................ 21,255 38,489 26,241
Interest expense................................ 5,649 15,459 27,884
-------- -------- --------
Income (loss) from continuing operations before
income taxes.................................. 15,606 23,030 (1,643)
Income tax expense.............................. 4,612 8,420 6,653
-------- -------- --------
Income (loss) from continuing operations........ 10,994 14,610 (8,296)
Loss from discontinued operations, net of
taxes......................................... -- (8,247) (300)
-------- -------- --------
Net income (loss)............................... $ 10,994 $ 6,363 $ (8,596)
======== ======== ========
Earnings (loss) from continuing operations per
share--basic and diluted...................... $ 0.03 $ 0.04 $ (0.02)
======== ======== ========
Earnings (loss) per share--basic and diluted.... $ 0.03 $ 0.02 $ (0.02)
======== ======== ========
Weighted average shares--basic and diluted...... 328,686 329,512 375,563
======== ======== ========
</TABLE>
See accompanying notes
F-3
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
------------ -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 20,595 $ 47,036
Restricted cash and cash equivalents........................ -- 17,909
Securities available-for-sale............................... -- 52,269
Trade receivables less allowance for doubtful accounts
($2,561 and $3,576 at January 31, 1998 and December 31,
1998 respectively)........................................ 104,361 143,286
Credit card receivables and seller's interest............... 144,440 139,458
Other current assets........................................ 44,137 54,604
-------- ----------
Total current assets................................ 313,533 454,562
Property and equipment, net................................. 54,067 66,339
Other non-current assets.................................... 27,941 62,411
Due from securitizations.................................... 126,912 121,442
Intangible assets and goodwill, net......................... 104,356 305,365
-------- ----------
Total assets........................................ $626,809 $1,010,119
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 34,941 $ 44,329
Accrued expenses............................................ 27,542 58,590
Deferred income............................................. 17,739 17,733
Debt, current portion....................................... 136,309 148,149
-------- ----------
Total current liabilities........................... 216,531 268,801
Other liabilities........................................... 21,223 21,131
Redemption obligation....................................... -- 80,213
Long-term and subordinated debt............................. 177,391 331,835
-------- ----------
Total liabilities................................... 415,145 701,980
-------- ----------
Commitments and contingencies
Common stock, $0.01 par value; authorized 450,000 shares,
issued 329,567 shares (January 31, 1998) and 427,383
shares (December 31, 1998)................................ 3,296 4,274
Additional paid-in capital.................................. 115,934 221,998
Retained earnings........................................... 92,434 83,838
Accumulated other comprehensive loss........................ -- (1,971)
-------- ----------
Total stockholders' equity.......................... 211,664 308,139
-------- ----------
Total liabilities and stockholders' equity.......... $626,809 $1,010,119
======== ==========
</TABLE>
See accompanying notes
F-4
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL TOTAL
PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS LOSS LOSS EQUITY
-------- -------- ---------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FEBRUARY 3, 1996............. 329,471 $3,295 $115,839 $75,077 $ -- $194,211
Net income................... 10,994 10,994
------- ------ -------- ------- ------- --------
FEBRUARY 1, 1997............. 329,471 3,295 115,839 86,071 -- 205,205
Net income................... 6,363 6,363
Common stock issued.......... 96 1 95 96
------- ------ -------- ------- ------- --------
JANUARY 31, 1998............. 329,567 3,296 115,934 92,434 -- 211,664
Net loss..................... (8,596) $ (8,596) (8,596)
Other comprehensive loss,
net of tax:..............
Unrealized gains on
securities
available-for-sale,
net.................... 1,207 1,207 1,207
Foreign currency
translation
adjustments.......... (3,178) (3,178) (3,178)
-------
Other comprehensive income... (1,971)
--------
Total comprehensive loss..... $(10,567)
========
Common stock issued.......... 97,816 978 106,064 107,042
------- ------ -------- ------- ------- --------
DECEMBER 31, 1998............ 427,383 $4,274 $221,998 $83,838 $(1,971) $308,139
======= ====== ======== ======= ======= ========
</TABLE>
See accompanying notes
F-5
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 11 MONTHS
ENDED ENDED ENDED
FEBRUARY 1, 1997 JANUARY 31, 1998 DECEMBER 31, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) from continuing operations........... $ 10,994 $ 14,610 $ (8,296)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
operating activities:
Loss from discontinued operations.................. -- (8,247) (300)
Depreciation and amortization...................... 22,463 26,463 43,093
Provision for doubtful accounts.................... 7,571 (294) (3,383)
Change in operating assets:
Deferred income taxes............................ (4,186) (1,413) (1,011)
Impairment of assets............................. -- -- 4,000
Accretion of deferred income..................... (4,369) (5,934) (9,395)
Change in trade accounts receivables............. 4,310 (75,876) (20,868)
Change in accounts payable and accrued
expenses....................................... 22,661 15,393 6,076
Change in other assets........................... (2,327) 1,659 (17,546)
Change in other liabilities...................... (509) 2,961 12,099
--------- --------- ---------
Net cash provided by operating activities...... 56,608 (30,678) 4,469
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Change in intangible assets........................ (57,291) (8,715) --
Change in deferred income.......................... 30,130 -- --
Purchase of credit card receivables................ (385,063) (344,464) --
Change in due from securitizations................. (48,670) (46,456) 5,470
Change in available for sale securities............ -- -- (14,704)
Net cash paid for corporate acquisition............ -- (716) (133,973)
Proceeds from sale of credit card receivable
portfolios....................................... -- -- 94,091
Proceeds from securitization....................... 335,000 321,831
Change in seller's interest........................ (871) 14,130 (76,975)
Capital expenditures............................... (10,868) (39,356) (14,443)
--------- --------- ---------
Net cash used in investing activities.......... (137,633) (103,746) (140,534)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements................... 523,911 582,497 382,043
Repayment of borrowings............................ (441,900) (477,723) (325,803)
Proceeds from issuance of common stock............. -- 96 107,042
--------- --------- ---------
Net cash provided by financing activities...... 82,011 104,870 163,282
--------- --------- ---------
Effect of exchange rate changes...................... -- -- (776)
--------- --------- ---------
Change in cash and cash equivalents.................. 986 (29,554) 26,441
Cash and cash equivalents at beginning of period..... 49,163 50,149 20,595
--------- --------- ---------
Cash and cash equivalents at end of period........... $ 50,149 $ 20,595 $ 47,036
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid...................................... $ 13,027 $ 21,669 $ 33,695
========= ========= =========
Income taxes paid.................................. $ 12,804 $ 8,466 $ 12,406
========= ========= =========
</TABLE>
See accompanying notes
F-6
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACQUISITIONS
DESCRIPTION OF THE BUSINESS--Alliance Data Systems Corporation ("ADSC" or,
including its wholly-owned subsidiaries the "Company") is a leading provider of
integrated information-based loyalty and marketing solutions primarily focused
on business-to-consumer commerce. The Company develops and executes programs
designed to help its clients target, acquire and retain loyal, profitable
customers. The Company creates value for its clients through effective customer
relationship management by: (1) facilitating transactions between its clients
and their customers through multiple distribution channels; (2) assisting its
clients in identifying and acquiring new customers; and (3) increasing the
loyalty and profitability of existing customers.
The Company operates in three reportable segments: Loyalty and Database
Marketing Services, Transaction Services and Credit Services. Loyalty and
Database Marketing Services provides a membership rewards program for multiple
sponsors and marketing services to its customers by way of providing processing
services for loyalty and rewards programs, data mining and database tools and
reports. Transaction Services encompasses transaction processing, including
network services and bank card settlement and card processing and servicing,
such as account processing, billing and payment processing and customer care.
Credit Services provides underwriting and risk management services. Credit
Services generally securitizes the credit card receivables that it underwrites
from its private label programs.
BASIS OF PRESENTATION--During fiscal 1998, the Company changed its year end
to a calendar year end basis. Prior to December 31, 1998, the Company operated a
52/53 week fiscal year that ended on the Saturday nearest January 31.
Accordingly, fiscal 1996 represents the 52 weeks ended February 1, 1997, fiscal
1997 represents the 53 weeks ended January 31, 1998 and fiscal 1998 represents
the 11 months ended December 31, 1998.
ACQUISITIONS--World Financial Network Holding Corporation ("WFNHC") provided
private label credit card services and database marketing for The Limited. On
January 24, 1996, Business Services Holdings, Inc. ("BSH") purchased J.C.
Penney's credit card transaction service business, BSI Business Services, Inc.
("BSI"). On August 30, 1996, BSH was merged into WFNHC in a transaction
accounted for as entities under common control. Prior to the merger WFNHC and
BSH were under common ownership and common management. Fiscal 1996 financial
statements include the accounts of BSH prior to the merger. Subsequent to the
merger, WFNHC changed its name to Alliance Data Systems Corporation and BSI
changed its name to ADS Alliance Data Systems, Inc. ("ADSI").
In November 1997, the Company formed a wholly-owned subsidiary, Alliance
Data Systems (New Zealand) Limited ("ADSNZ"), to acquire the stock of Financial
Automation Limited and Financial Automation Marketing Limited (collectively,
"FAL") for approximately $10.5 million, financed through working capital. The
acquisition was accounted for using the purchase method of accounting, and the
excess purchase price over the fair value of the net identifiable assets
acquired, approximately $2.8 million, was allocated to goodwill and is being
amortized over 20 years using a straight-line basis. The results of operations
of FAL have been included in the consolidated financial statements since
November 1997. FAL developed and markets a proprietary fleet management tracking
system to companies worldwide.
In July 1998, the Company acquired the stock of Loyalty Management Group
Canada, Inc. ("Loyalty") for approximately $183.0 million of net cash financed
through a capital infusion of $100.0 million from stockholders and a bank loan
of $100.0 million. The acquisition was accounted for
F-7
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS, BASIS OF PRESENTATION AND ACQUISITIONS (CONTINUED)
using the purchase method of accounting, and the excess purchase price over the
fair value of the net identifiable assets acquired, approximately $104 million,
was allocated to goodwill and is being amortized over 25 years using a straight
line basis. The results of operations of Loyalty have been included in the
consolidated financial statements since July 1998.
In September 1998 the Company acquired the stock of Harmonic Systems
Incorporated ("HSI") for approximately $51.3 million of net cash financed
through subordinated notes of $52.0 million. The acquisition was accounted for
using the purchase method of accounting, and the excess purchase price over the
fair value of the net identifiable assets acquired, approximately
$38.4 million, was allocated to goodwill and is being amortized over 25 years
using a straight line basis. The results of operations of HSI have been included
in the consolidated financial statements since September 1998. HSI provides
retail chains with private data communications networks for the transmission of
electronic data between their stores, a merchant's corporate data center and
third party information service providers.
SUPPLEMENTARY UNAUDITED PRO FORMA INFORMATION
Unaudited pro forma information for the Company is presented below as if the
Loyalty and the HSI acquisitions had occurred at the beginning of fiscal 1997
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
FISCAL 1998
-----------
<S> <C>
Revenue................................................... $508,150
Net income (loss)......................................... (33,860)
Earnings per share........................................ $ (0.08)
Weighted average number of shares......................... 422,923
</TABLE>
2. SUMMARY OF SIGNIFICANT POLICIES
PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial
statements include the accounts of ADSC and its wholly-owned subsidiaries, World
Financial Network National Bank ("WFNNB"), a credit card bank under the
Competitive Equality Banking Act of 1987, ADSI, Loyalty, HSI and ADSNZ. All
significant intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS--Restricted cash and cash equivalents
relate to a reserve fund for the Air Miles reward program. The reserve fund is
maintained to fund redemptions of Air Miles reward miles from collectors.
CREDIT CARD RECEIVABLES--Credit card receivables are generally securitized
immediately or shortly after origination. As part of its securitization
agreements, the Company is required to retain an interest in the credit card
receivables for credit enhancements, which is referred to as seller's interest.
Seller's interest is carried at fair value and credit card receivables are
carried at lower of cost or market less an allowance for doubtful accounts.
SECURITIES AVAILABLE-FOR-SALE--Debt securities for which the Company does
not have the positive intent and ability to hold to maturity are classified as
securities available-for-sale. These securities are
F-8
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
stated at fair value, with the unrealized gains and losses, net of tax, reported
as a component of cumulative other comprehensive income.
PROPERTY AND EQUIPMENT--Furniture, fixtures, computer equipment and
software, and leasehold improvements are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed on a
straight-line basis, using estimated lives ranging from 3 to 15 years. Leasehold
improvements are amortized over the remaining useful lives of the respective
leases or the remaining useful lives of the improvements, whichever are shorter.
REVENUE RECOGNITION POLICY--The Company derives substantially all of its
revenue from two principal sources. The Company receives fees for providing
information and transaction processing services to sponsors. It also earns
financing income from its credit card receivables and securitization program.
PROCESSING AND SERVICING FEES--The Company earns fees from sponsors by
charging for participation in its loyalty program, thus allowing several
sponsors to operate under a common membership rewards program. The Company is
paid for these services on a per transaction basis, subject to certain sponsor-
guaranteed minimums. Revenue is recognized upon completion of the related
transaction, provided that there are no remaining significant obligations to be
performed. Revenue from other processing and servicing fees is recognized as
such services are performed.
FINANCING CHARGES, NET--Financing charges, net, represents gains and losses
on securitization of credit card receivables and interest income on seller's
interest less a provision (credit) for doubtful accounts of $7.6 million
provision, $0.3 million credit and $3.4 million credit and related interest
expense of $7.2 million, $9.4 million and $8.4 million for fiscal 1996, 1997 and
1998, respectively.
The Company records gains or losses on the securitization of credit card
receivables on the date of sale based on the estimated fair value of assets sold
and retained and liabilities incurred in the sale. Gains represent the present
value of estimated future cash flows the Company has retained over the estimated
outstanding period of the receivables. This excess cash flow essentially
represents an interest only ("I/O") strip, consisting of the excess of finance
charges and past-due fees over the sum of the return paid to certificate
holders, and credit losses. The I/O strip is carried at fair value, with changes
in the fair value reported as a component of cumulative other comprehensive
income. The I/O strip is amortized over the life of the credit card receivables.
Certain estimates inherent in the determination of fair value of the I/O strip
are influenced by factors outside the Company's control, and as a result, such
estimates could materially change in the near term. The gains on securitizations
and other income from securitizations are included in finance charges, net.
REDEMPTION OBLIGATION--The Company accrues a liability for its estimated
future redemption obligations at the time it recognizes the related revenue. The
Company makes payments to merchants pursuant to contractual arrangements when
collectors redeem Air Miles reward miles. The Company records estimated future
incremental costs of providing free travel or other free merchandise earned. The
Company uses its historical business experience to make estimates of the amount
of the rewards that will ultimately be redeemed, basing the estimates on
historical patterns of usage and other factors. These redemption obligation
estimates are evaluated and adjusted periodically. Any adjustments resulting
from such evaluations are included in the results of operations for the periods
in which the evaluations are completed.
GOODWILL AND OTHER INTANGIBLES--Goodwill represents the excess of purchase
price over the fair value of net assets acquired arising from business
combinations and is being amortized on a
F-9
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
straight-line basis over estimated useful lives ranging from 20 to 25 years.
Other intangible assets consist primarily of capitalized systems development
costs and are amortized on a straight-line basis over the length of the
associated contract or benefit period, which generally ranges from three to
20 years.
MARKETING--The Company expenses marketing costs as incurred.
EARNINGS PER SHARE--Basic earnings per share is based only on the weighted
average number of common shares outstanding, excluding any dilutive effects of
options or other dilutive securities. Diluted earnings per share is based on the
weighted average number of common and common equivalent shares, dilutive stock
options or other dilutive securities outstanding during the year.
The following table sets forth the computation of basic and diluted net
income (loss) per share for the periods indicated (in thousands, except per
share data):
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
NUMERATOR
Income (loss) from continuing operations.................. $10,994 $14,610 $(8,296)
Loss from discontinued operations......................... -- (8,247) (300)
------- ------- -------
Net income (loss) available to common stockholders........ $10,994 $ 6,363 $(8,596)
======= ======= =======
DENOMINATOR
Weighted average shares................................... 328,686 329,512 375,563
Weighted average effect of dilutive securities:
Net effect of dilutive stock options.................... -- -- --
Net effect of dilutive stock warrants................... -- -- --
------- ------- -------
Denominator for diluted calculation....................... 328,686 329,512 375,563
======= ======= =======
Income (loss) from continuing operations--basic and
diluted................................................... $ 0.03 $ 0.04 $ (0.02)
Loss from discontinued operations--basic and diluted........ -- (0.02) --
------- ------- -------
Net income (loss) per share--basic and diluted.............. $ 0.03 $ 0.02 $ (0.02)
======= ======= =======
</TABLE>
MANAGEMENT ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CURRENCY TRANSLATION--The assets and liabilities of the Company's
subsidiaries outside the U.S. are translated into U.S. dollars at the rates of
exchange in effect at the balance sheet dates. Income and expense items are
translated at the average exchange rates prevailing during the period. Gains and
losses resulting from currency transactions are recognized currently in income
and those resulting from translation of financial statements are accumulated in
a separate component of stockholders' equity.
INCOME TAXES--Deferred income taxes are provided for differences arising in
the timing of income and expenses for financial reporting and for income tax
purposes using the asset/liability method of accounting. Under this method,
deferred income taxes are recognized for the future tax consequences
F-10
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
attributable to the differences between the financial statements' carrying
amounts of existing assets and liabilities and their respective tax bases, using
enacted tax rates.
LONG-LIVED ASSETS--Long-lived assets, goodwill and other intangible assets
are evaluated for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets or intangibles may not be
recoverable. Recoverability is measured by a comparison of the carrying amount
of an asset to future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS--The nature and composition of some
of the Company's assets and liabilities and off-balance sheet items expose the
Company to interest rate risk. To mitigate this risk, the Company enters into
interest rate swap agreements. All of the Company's interest rate swaps are
designated and effective as hedges of specific existing or anticipated assets,
liabilities or off-balance sheet items. The Company's foreign currency
denominated assets and liabilities expose it to foreign currency exchange rate
risk. The Company has entered into cross-currency hedges to fix the exchange
rate on Canadian debt. The Company does not hedge its net investment in its
Canadian subsidiary. The Company does not hold or issue derivative financial
instruments for trading purposes.
Swap agreements involve the periodic exchange of payments over the life of
the agreements. Amounts to be paid or received are recorded on an accrual basis
as an adjustment to the related income or expense of the item to which the
agreements are designated. As of January 31, 1998, the related amount receivable
from counterparties was $251. As of December 31, 1998, the related amount
payable to counterparties was $1.7 million. Changes in the fair value of
interest rate swaps are not reflected in the accompanying financial statements
where designated to existing or anticipated assets, liabilities or off-balance
sheet items and where swaps effectively modify or reduce interest rate
sensitivity.
Realized and unrealized gains or losses at the time of maturity,
termination, sale or repayment of a derivative contract are recorded in a manner
consistent with its original designation. Amounts are deferred and amortized as
an adjustment to the related income or expense over the original period of
exposure, provided the designated asset, liability or off-balance sheet item
continues to exist, or in the case of anticipated transactions, is probable of
occurring. Realized and unrealized changes in the fair value of swaps designated
with items that no longer exist or are no longer probable to occur are recorded
as a component of the gain or loss arising from the disposition of the
designated item.
Interest rate and foreign currency exchange rate risk management contracts
are generally expressed in notional principal or contract amounts that are much
larger than the amounts potentially at risk for nonperformance by
counterparties. In the event of nonperformance by the counterparties, the
Company's credit exposure on derivative financial instruments is limited to the
value of the contracts that have become favorable to the Company. The Company
actively monitors the credit ratings of its counterparties. Under the terms of
certain swaps, each party may be required to pledge collateral if the market
value of the swaps exceeds an amount set forth in the agreement or in the event
of a change in its credit rating.
SEGMENT INFORMATION--Effective December 31, 1998, the Company adopted SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information".
The new rules establish revised standards for public companies relating to the
reporting of financial and descriptive information about their operating
segments in financial statements. The adoption of SFAS No. 131 did not have any
F-11
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
effect on the Company's primary financial statements, but did affect the
disclosure of segment information contained elsewhere herein.
RECENTLY ISSUED ACCOUNTING STANDARDS--In June 1998, the FASB issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative instruments and
for hedging activities, and requires companies to recognize all derivatives as
either assets or liabilities in the balance sheet and measure such instruments
at fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date of
FASB Statement No. 133" which deferred the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. Adoption of this statement is not
anticipated to materially impact the Company's results of operations, but may
require revised balance sheet classifications and will require revised
disclosures in the notes to the consolidated financial statements.
RECLASSIFICATIONS--For purposes of comparability, certain prior period
amounts have been reclassified to conform with the current year presentation.
3. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale are primarily used to settle the Company's
redemption obligation under its Air Miles reward program in Canada. These
securities are primarily denominated in Canadian dollars. Realized gains and
losses from the sale of investment securities were not material. The principal
components of securities available-for-sale, which are carried at fair value,
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------
UNREALIZED
-------------------
COST GAINS (LOSSES) FAIR VALUE
-------- -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fixed income securities:
Government.......................... $19,951 $ 554 $ (82) $20,423
Corporate........................... 10,162 200 (300) 10,062
Equity securities..................... 22,420 1,508 (2,144) 21,784
------- ------ ------- -------
Total................................. $52,533 $2,262 $(2,526) $52,269
======= ====== ======= =======
</TABLE>
F-12
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software...................... $ 66,339 $ 64,205
Furniture and fixtures............................... 11,832 40,197
Leasehold improvements............................... 22,834 28,253
Construction in progress............................. 11,032 2,586
-------- --------
Total.............................................. 112,037 135,241
Accumulated depreciation............................. (57,970) (68,902)
-------- --------
Property and equipment, net.......................... $ 54,067 $ 66,339
======== ========
</TABLE>
During fiscal 1998, the Company recorded an impairment of $4.0 million on
computer equipment and software related to the Loyalty and Database Marketing
Services segment. The related computer equipment and software was deemed by
management to be inadequate. The related charge is included in processing and
servicing expenses in the consolidated statements of operations.
5. SECURITIZATION OF CREDIT CARD RECEIVABLES
The Company regularly securitizes its credit card receivables. During fiscal
1996, fiscal 1997 and fiscal 1998, the Company securitized $1.7 billion,
$4.2 billion, and $3.9 billion, respectively, of credit card receivables. The
total amount of securitized credit card receivables outstanding as of
January 31, 1998 and December 31, 1998 was $2.1 billion and $2.0 billion,
respectively, maturing from 1999 to 2003. As of January 31, 1998 and
December 31, 1998, seller's interest consisted of $123,552 and $139,071,
respectively.
During the initial period of a securitization reinvestment period, the
Company generally retains principal collections in exchange for the transfer of
additional credit card receivables into the securitized pool of assets. During
the amortization or accumulation period of a securitization, the investors'
share of principal collections (in certain cases, up to a maximum specified
amount each month) is either distributed each month to the investors or held in
an account until it accumulates to the total amount, at which time it is paid to
the investors in a lump sum. One of the Company's securitization trusts has
entered an early amortization period as a result of a private label customer
entering bankruptcy proceedings. The receivables associated with the customer
are in a different trust from all of the Company's other receivables; therefore,
those proceedings will not affect the other trusts. The Company's outstanding
securitizations are scheduled to begin their amortization or accumulation
periods at various times between 1999 and 2003.
F-13
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5. SECURITIZATION OF CREDIT CARD RECEIVABLES (CONTINUED)
"Due from securitizations" consists primarily of spread deposits, I/O strip
receivables and excess funding deposits as shown in the table below:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Spread deposits...................................... $ 88,890 $ 82,875
I/O strip receivables................................ 9,022 21,967
Excess funding deposits.............................. 29,000 16,600
-------- --------
$126,912 $121,442
======== ========
</TABLE>
Spread deposits, carried at estimated fair value, represent interest earning
deposits that are held by a trustee or agent and are used to absorb losses
related to securitized credit card receivables should they exceed the available
net cash flows arising from the securitized credit card receivables. The amounts
required to be deposited range from 3% to 11% of credit card receivables in the
trust depending upon performance of individual trusts. Spread deposits are
generally released proportionately as investors are repaid, although some spread
deposits are released only when investors have been paid in full. None of these
spread deposits were required to be used to cover losses on securitized credit
card receivables in the three-year period ended December 31, 1998.
The Company is required to maintain minimum interests ranging from 7% to 9%
of the securitized credit card receivables. This requirement is met through
seller's interest, and is supplemented through the excess funding deposits.
Excess funding deposits represent cash amounts deposited with the trustee of the
securitizations.
F-14
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INTANGIBLE ASSETS AND GOODWILL
Intangible assets and goodwill consist of the following:
<TABLE>
<CAPTION>
JANUARY 31 DECEMBER 31, AMORTIZATION LIFE
1998 1998 AND METHOD
---------- ------------ --------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Premium on purchased 15 years--straight line
credit card portfolio... $ 44,000 $ 37,539
Customer contracts and 20 years--straight line
lists................... 27,000 27,000
Noncompete agreement...... 19,000 19,000 3 years--straight line
Goodwill.................. 35,047 174,338 20-25 years--straight line
Deferred incentives....... -- 10,454 27 months--straight line
Sponsor contracts......... -- 37,244 5 years--declining balance
Collector database........ -- 45,738 15%--declining balance
-------- --------
Total................... 125,047 351,313
Accumulated
amortization............ (20,691) (45,948)
-------- --------
Intangible assets and
goodwill, net........... $104,356 $305,365
======== ========
</TABLE>
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Certificates of deposit.............................. $ 50,900 $ 49,500
Revolving credit loan agreement...................... 82,800 98,484
Subordinated notes................................... 50,000 102,000
Credit agreement..................................... 130,000 130,000
Term loans........................................... -- 100,000
--------- ---------
313,700 479,984
Less: current portion................................ (136,309) (148,149)
--------- ---------
Long term portion.................................... $ 177,391 $ 331,835
========= =========
</TABLE>
CERTIFICATES OF DEPOSIT--Terms of the certificates of deposit range from
six months to 24 months with annual interest rates ranging from 5.4% to 6.1% at
January 31, 1998 and from 5.1% to 5.9% at December 31, 1998. Interest is paid
monthly and at maturity.
REVOLVING CREDIT LOAN AGREEMENT--In fiscal 1996, in connection with the
Company's purchase of certain trade receivables, the Company entered into a
revolving credit loan agreement, expiring December 1999, that provides for
revolving credit loans of up to $100.0 million, based on the outstanding amount
of trade receivables. The loans are secured by the trade receivables and bear
interest at a variable rate (6.53% and 5.75% at January 31, 1998 and
December 31, 1998, respectively). The agreement contains restrictive covenants
which, among others, limits the amount of annual dividends the Company may pay
and requires the Company to maintain a certain level of tangible net
F-15
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
worth, as defined. At December 31, 1998, approximately $20.0 million of retained
earnings are available for distribution.
SUBORDINATED NOTES--The Company has outstanding a subordinated note with an
affiliate in the principal amount of $50.0 million. Such note bears interest at
10% payable semiannually. This note was issued at a discount of approximately
$3.6 million, and such discount is accreted into interest expense using the
effective rate of approximately 12% over the life of the note. The note is to be
repaid on October 25, 2005. The Company may, at its option, prepay the note at
its face amount.
The Company has outstanding a subordinated note with an affiliate in the
principal amount of $52.0 million. Such note bears interest at 10% payable
semi-annually. This note was issued at a discount of approximately
$6.5 million, and such discount is accreted into interest expense using the
effective rate of approximately 12% over the life of the note. The discount was
issued in the form of 5.9 million shares of common stock issued to the
affiliate. The note is to be repaid in two equal installments in September 2007
and September 2008. The Company may, at its option, prepay the note at its face
amount.
CREDIT AGREEMENT--In fiscal 1997, the Company entered into a credit
agreement to borrow $130.0 million. Funds borrowed under this facility bear
interest at the higher of (i) the prime rate for such day or (ii) the sum of 1/2
of 1% plus the Federal funds rate for a base rate loan or (iii) the sum of the
Euro-dollar margin plus the LIBOR rate applicable to such period for each
Euro-dollar loan. Interest is payable quarterly in arrears. The effective
interest rates were 6.67% and 7.94% at January 31, 1998 and December 31, 1998,
respectively. The revolving promissory note matures July 25, 2003. The note is
collateralized by cash, transferor's interest in trust receivables, charge card
receivables and securities.
TERM LOANS--The Company has outstanding two separate term loan facilities
each in the amount of $50.0 million. The first term loan is payable in four
separate annual installments of $3.1 million commencing July 30, 1999 with a
final lump sum payment of $37.5 million due July 25, 2003. The second term loan
is payable in six separate annual installments of $1.0 million commencing
July 30, 1999 with a final lump sum payment of $44.0 million due July 25, 2005.
Both loans bear interest at the higher of (i) the prime rate for such day or
(ii) the sum of 1/2 of 1% plus the Federal funds rate for a base rate loan or
(iii) the sum of Euro-dollar margin plus the LIBOR rate applicable to such
period for each Euro-dollar loan. Interest is payable quarterly in arrears. The
effective interest rates on the two term loans were 8.44% and 7.94%,
respectively, at December 31, 1998.
LINE OF CREDIT--The Company has available borrowings under a line of credit
agreement of $100.0 million. The line of credit bears interest at the higher of
(i) the prime rate for such day, or (ii) the sum of 1/2 of 1% plus the Federal
funds rate for a base rate loan or (iii) the sum of Euro-dollar margin plus the
LIBOR rate applicable to such period for each Euro-dollar loan. The agreement
matures on July 25, 2003. There were no amounts outstanding on the line of
credit at January 31, 1998 or December 31, 1998.
Any outstanding balances, including interest, on all debt balances will
become payable immediately if the Company consummates a public offering of
equity securities. The Company has agreed to comply with certain covenants as
part of all non-subordinated debt agreements.
F-16
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
Debt at December 31, 1998 matures as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................. $148,149
2000.............................................. 27,725
2001.............................................. 34,125
2002.............................................. 44,125
2003.............................................. 78,860
Thereafter........................................ 147,000
--------
$479,984
========
</TABLE>
8. INCOME TAXES
The Company files a consolidated Federal income tax return. Components of
the provision (credit) for income taxes are as follows:
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CURRENT
Federal......................................... $ 8,798 $ 9,464 $ 5,789
State........................................... -- 347 98
Foreign......................................... -- 22 1,777
------- ------- -------
Total current................................. 8,798 9,833 7,664
------- ------- -------
DEFERRED
Federal......................................... (3,820) (1,021) (1,843)
State........................................... (366) (392) (808)
Foreign......................................... -- 1,640
------- ------- -------
Total deferred................................ (4,186) (1,413) (1,011)
------- ------- -------
4,612 8,420 6,653
Tax benefit of discontinued operations............ -- (4,440) (159)
------- ------- -------
Total income tax provision...................... $ 4,612 $ 3,980 $ 6,494
======= ======= =======
</TABLE>
F-17
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
A reconciliation of recorded federal income tax expenses (benefit) to the
expected expense computed by applying the federal statutory rate of 35% for all
periods to income before income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected (benefit) expense at statutory rate
increase/ (decrease) in income taxes resulting
from: $5,462 $8,061 $ (575)
State and foreign income taxes (benefit).......... (677) 225 63
Non-deductible foreign losses....................... -- 159 832
Non-deductible acquired goodwill and other
intangibles....................................... -- -- 5,944
Other--net........................................ (173) (25) 389
------ ------ ------
Total........................................... $4,612 $8,420 $6,653
====== ====== ======
</TABLE>
Deferred tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX ASSETS
Deferred income.................................... $ 5,746 $ 5,424
Allowance for doubtful accounts.................... 1,616 2,733
Intangible assets.................................. 7,333 10,762
Estimated loss on contracts........................ 1,479 1,841
Net operating loss carryforwards................... 1,190 10,553
Depreciation....................................... 1,197 1,800
Other.............................................. 1,546 3,709
Valuation allowance................................ -- (8,797)
------- -------
Total deferred tax assets........................ 20,107 28,025
------- -------
DEFERRED TAX LIABILITIES
Servicing rights................................... 3,158 7,771
Accrued bonuses.................................... -- 1,283
Other.............................................. -- 970
------- -------
Total deferred tax liabilities................... $ 3,158 $10,024
------- -------
Net deferred tax asset............................. $16,949 $18,001
======= =======
</TABLE>
F-18
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
At December 31, 1998, the Company had approximately $21.9 million of Federal
net operating loss carryforwards, $21.4 million related to HSI and $460,000
related to ADSI, which expire at various times through 2013. In addition, the
Company has approximately $101.1 million of state net operating loss
carryforwards, $22.4 million related to HSI and $78.8 million related to ADSI,
which expire at various times through 2014. The utilization of these
carryforwards is dependent on the ability of HSI and ADSI to separately generate
sufficient taxable income during the carryforward periods. In addition, the
utilization of the Federal net operating loss carryforwards related to HSI are
subject to limitations under Section 382 of the Internal Revenue Code due to
changes in the equity ownership of HSI. Due to losses incurred by HSI for both
reporting and tax reporting purposes, a valuation allowance has been established
for the tax benefit associated with the Federal and state net operating loss
carryforwards generated by HSI prior to its acquisition by the Company.
9. STOCKHOLDERS' EQUITY
At December 31, 1998, the Company had stock purchase warrants outstanding to
purchase up to 1.5 million shares of the Company's common stock at $1.00 per
share and expiring in January 2008. The warrants and any stock issued upon
exercise of the warrants contain or will contain transfer restrictions.
10. STOCK COMPENSATION PLANS
Certain of the Company's employees have been granted stock options under the
Company's Stock Option and Restricted Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to benefit and advance the interests of the Company by
rewarding certain key employees for their contributions to the financial success
of the Company and thereby motivating them to continue to make such
contributions in the future. The stock options generally vest over a three year
period, beginning on the first day of February of the eighth year after the date
of grant and expire 10 years after the date of grant. Terms of all awards are
determined by the Board of Directors at the time of award.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Expected dividend yield.................................... -- -- --
Risk-free interest rate.................................... 6.0% 6.0% 6.0%
Expected life of options (years)........................... 4.0 4.0 4.0
</TABLE>
The weighted-average fair value of each option as of the grant date was
0.20, 0.21 and 0.31 in fiscal 1996, fiscal 1997, and fiscal 1998, respectively.
F-19
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK COMPENSATION PLANS (CONTINUED)
The following table summarizes stock option activity under the Plan:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
------------ -----------------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
BALANCE AT FEBRUARY 3, 1996....................... -- $ --
Granted......................................... 5,764 1.00
Exercised....................................... -- --
Canceled........................................ -- --
----------
BALANCE AT FEBRUARY 1, 1997....................... 5,764 1.00
Granted......................................... 5,368 1.00
Exercised....................................... (141) 1.00
Canceled........................................ (584) 1.00
----------
BALANCE AT JANUARY 31, 1998....................... 10,407 1.00
Granted......................................... 8,213 1.05
Exercised....................................... (508) 1.00
Canceled........................................ (1,752) 1.00
----------
BALANCE AT DECEMBER 31, 1998...................... 16,360 1.02
==========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable stock options at December 31, 1998 (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
---------------------------------------- -------------------------
REMAINING WEIGHTED- WEIGHTED-
RANGE OF CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES OPTIONS LIFE (YEARS) EXERCISE PRICE OPTIONS EXERCISE PRICE
- --------------- -------- ------------ -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 to $1.25 16,360 8.91 $1.02 5,627 $1.00
</TABLE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the Plan. The effect of determining compensation cost for the
Company's stock-based compensation plan based on the fair value at the grant
dates for awards under the Plan consistent with the methods of SFAS No. 123 is
disclosed in the following pro forma information (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Pro forma net income (loss)...................... $10,744 $6,228 $ (9,233)
======= ====== ========
Basic pro forma earnings per share............... $ 0.03 $ 0.02 $ (0.02)
======= ====== ========
Diluted pro forma earnings per share............. $ 0.03 $ 0.02 $ (0.02)
======= ====== ========
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company sponsors separate defined contribution pension plans for WFNNB
and ADSI that cover qualifying employees based on service and age requirements.
The Company makes matching (WFNNB) or discretionary (ADSI) contributions as
determined by the Board of Directors.
F-20
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. COMMITMENTS AND CONTINGENCIES
The Company has entered into certain contractual arrangements that result in
a fee being billed to the sponsors upon redemption of Air Miles reward miles.
The Company has obtained revolving letters of credit from certain of these
sponsors that expire at various dates. These letters of credit total $68.0
million at December 31, 1998, which exceeds the estimated amount of the
obligation to provide travel and other rewards.
In December 1996, the Company entered into a three year agreement with an
unrelated third party to finance trade receivables in an aggregate amount not to
exceed $100.0 million at any time. At January 31, 1998 and December 31, 1998,
the Company had outstanding receivables financed under this agreement of $83.0
million and $99.0 million, respectively.
The Company leases certain office facilities and equipment under
noncancellable operating leases and is generally responsible for property taxes
and insurance. Future annual minimum rental payments required under
noncancellable operating leases, some of which contain renewal options, as of
December 31, 1998 are (in thousands):
<TABLE>
<CAPTION>
YEAR:
- -----
<S> <C>
1999............................................... $32,677
2000............................................... 25,994
2001............................................... 20,906
2002............................................... 5,606
2003............................................... 3,288
Thereafter......................................... 5,083
-------
Total.............................................. $93,554
=======
</TABLE>
WFNNB is subject to various regulatory capital requirements administered by
the Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, WFNNB must meet specific
capital guidelines that involve quantitative measures of WFNNB's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. WFNNB's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. Management believes, as of December 31, 1998,
that WFNNB meets all capital adequacy requirements to which it is subject.
Holders of credit cards issued by the Company have available lines of
credit, which vary by accountholder, that can be used for purchases of
merchandise offered for sale by clients of the Company. These lines of credit
represent elements of risk in excess of the amount recognized in the financial
statements. The lines of credit are subject to change or cancellation by the
Company. As of December 31, 1998, WFNNB had approximately 27.0 million active
accountholders, having an unused line of credit averaging $763 per account.
SIGNIFICANT CONCENTRATION OF CREDIT RISK--The Company's Credit Services
segment is active in originating private label credit cards in the United
States. The Company reviews each potential customer's credit application and
evaluates the applicant's financial history and ability and perceived
willingness to repay. Credit card loans are made primarily on an unsecured
basis. Card holders reside throughout the United States and are not
significantly concentrated in any one area.
F-21
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financial needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit through charge cards,
interest rate swaps and futures contracts. Such instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract or normal amounts of these
instruments reflect the extent of the Company's involvement in particular
classes of financial instruments.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair values of the
Company's financial instruments were as follows:
<TABLE>
<CAPTION>
JANUARY 31, 1998 DECEMBER 31, 1998
---------------------------- ----------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and cash equivalents................ $ 20,595 $ 20,595 $ 47,036 $ 47,036
Restricted cash and cash equivalents..... -- -- 17,909 17,909
Securities available-for-sale............ -- -- 52,269 52,269
Trade receivables........................ 104,361 104,361 143,286 143,286
Credit card receivables, net............. 144,440 144,440 139,458 139,458
Due from securitizations................. 126,912 126,912 121,442 121,442
FINANCIAL LIABILITIES
Accounts payable......................... 34,941 34,941 44,329 44,329
Long-term and subordinated debt.......... 313,700 314,326 479,984 491,192
<CAPTION>
NOTIONAL AMOUNT FAIR VALUE NOTIONAL AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Unrecognized financial instruments and
interest swaps........................... $800,000 $(16,841) $900,000 $(14,148)
</TABLE>
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
CASH AND CASH EQUIVALENTS--The carrying amount approximates fair value due
to the short maturity of the cash investments.
TRADE RECEIVABLES--The carrying amount approximates fair value due to the
short maturity and the average interest rates approximate current market
origination rates.
CREDIT CARD RECEIVABLES--The carrying amount of credit card receivables
approximates fair value due to the short maturity and the average interest rates
approximate current market origination rates.
SECURITIES AVAILABLE-FOR-SALE--Fair value for securities are based on quoted
market prices.
DUE FROM SECURITIZATIONS--The carrying amount of the securitization spread
account approximates its fair value due to the relatively short maturity period
and average interest rates which approximate current market rates.
ACCOUNTS PAYABLE--Due to the relatively short maturity periods, the carrying
amount approximates the fair value.
LONG-TERM AND SUBORDINATED DEBT--The fair value was estimated based on the
current rates available to the Company for debt with similar remaining
maturities.
F-22
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. FINANCIAL INSTRUMENTS (CONTINUED)
INTEREST SWAPS--The fair value was estimated based on the cost to the
Company to terminate the agreements.
14. INTEREST SWAPS
INTEREST SWAPS--In March 1997, WFNNB entered into three interest rate swap
agreements with JP Morgan Company ("Morgan") with a notional amounts totalling
of $500.0 million. These interest rate swaps effectively change WFNNB's interest
rate exposure on $300.0 million and $200.0 million of securitized accounts
receivable to a fixed rate of approximately 6.34% and 6.72%, respectively. On
January 30, 1998, WFNNB entered into an interest rate swap agreement with Morgan
with a notional amount of $300.0 million. This interest rate swap effectively
changed WFNNB's interest rate exposure on $300.0 million of securitized accounts
receivable to a variable rate based on LIBOR. In October 1998, Loyalty entered
into two cross-currency interest rate swap agreements with Morgan with a
notional amount of $100.0 million. The interest rate swaps effectively changed
Loyalty's interest rate exposure on $50.0 million and $50.0 million of notes
payable to a variable rate based on Canadian Bankers Acceptance and to a fixed
rate of 8.995%, respectively. The following briefly outlines the terms of each
swap agreement:
<TABLE>
<CAPTION>
AMOUNT FIXED/VARIABLE FIXED/VARIABLE
NOTIONAL SWAP PERIOD RATE RECEIVED RATE PAID
- -------- --------------------------------------- ----------------------- ------------------------
<S> <C> <C> <C>
$250,000,000............ March 10, 1997 through March 10, 2000 USD-CP-H.15 6.340%
$50,000,000............. March 10, 1997 through March 10, 2000 USD-LIBOR-BBA 6.345%
$200,000,000............ May 15, 1997 through May 15, 2004 USD-LIBOR-BBA 6.720%
$300,000,000............ January 30, 1998 through March 15, 2003 5.67% USD-LIBOR-BBA
$50,000,000............. October 26, 1998 through July 25, 2003 USD-LIBOR-BBA+2.5% CAD-BA-CDOR+2.725%
$50,000,000............. October 26, 1998 through July 25, 2005 USD-LIBOR-BBA+3.0% 8.995%
</TABLE>
DEFERRED INCOME--In fiscal 1995, the Company entered into five-year and
seven-year forward rate locks to mitigate the impact of interest rate
fluctuations of the five and seven year Asset-Backed Securities ("ABS") issued
in a public offering in connection with the securitization of certain credit
card receivables. At the forward rate lock hedge determination date, the Company
was in a favorable position and received $17,700 (five year) and $16,800 (seven
year) which was recorded as deferred income and is being amortized ratably over
five and seven year periods, respectively. The hedging reduced the effective
interest rate of the five year ABS's from approximately 6.7% to 6.0% and reduced
the effective interest rate of the seven year ABS's from approximately 7.0% to
6.2%.
F-23
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. PARENT ONLY FINANCIAL STATEMENTS
ALLIANCE DATA SYSTEMS CORPORATION
(PARENT COMPANY ONLY)
CONDENSED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
JANUARY 31, DECEMBER 31,
1998 1998
BALANCE SHEETS ------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash and cash equivalents................................... $ 634 $ 889
Investment in subsidiaries.................................. 92,372 191,872
Loans to subsidiaries....................................... 169,750 271,750
Trade receivables........................................... 82,163 97,635
Other....................................................... 2,246 10,217
-------- --------
Total assets.............................................. $347,165 $572,363
======== ========
Liabilities:
Long-term and subordinated debt............................. $212,183 $317,666
Borrowings from subsidiaries................................ 17,510
Other....................................................... 12,877 7,324
-------- --------
Total liabilities......................................... 225,060 342,500
Stockholders' equity........................................ 122,105 229,863
-------- --------
Total liabilities and stockholders' equity................ $347,165 $572,363
======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL
------------------------------
1996 1997 1998
STATEMENTS OF INCOME -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest from loans to subsidiaries......................... $1,795 $3,578 $17,907
Processing and servicing fees............................... 129 695 4,457
Other income................................................ 240 156
------ ------ -------
Total revenue............................................. 1,924 4,513 22,520
Interest expense............................................ -- 1,945 21,165
Other expense............................................... 100 17 153
------ ------ -------
Total expense............................................. 100 1,962 21,318
------ ------ -------
Income before income taxes.................................. 1,824 2,551 1,202
Income tax benefit.......................................... 652 848 486
------ ------ -------
Net income.................................................. $1,172 $1,703 $ 716
====== ====== =======
</TABLE>
Note: Alliance Data Systems Corporation accounts for its investments in
subsidiaries under the cost method.
F-24
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. PARENT ONLY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
FISCAL
--------------------------------
1996 1997 1998
STATEMENTS OF CASH FLOWS -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating activities......... $(8,723) $ (59,919) $ 25,720
Investing activities:
Net cash paid for corporate acquisitions.................... -- (3,250) (151,500)
Loans to subsidiaries....................................... (2,084) (137,669) --
------- --------- ---------
Net cash used for investing activities...................... (2,084) (140,919) (151,500)
Financing Activities:
Borrowings from subsidiaries................................ -- -- 17,510
Issuance of long-term and subordinated debt................. 10,811 421,998 327,159
Repayment of long-term and subordinated debt................ -- (220,626) (221,676)
Net proceeds from issuances of common stock................. -- 96 107,042
------- --------- ---------
Net cash provided by (used for) financing activities........ 10,811 201,468 230,015
------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 4 630 107,869
Cash and cash equivalents at beginning of period............ -- 4 634
------- --------- ---------
Cash and cash equivalents at end of period.................. $ 4 $ 634 $ 889
======= ========= =========
</TABLE>
16. SEGMENT INFORMATION
Operating segments are defined by SFAS 131 as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is the Executive Committee, which consists
of the Chairman of the Board and Chief Executive Officer, Presidents of the
divisions; Executive Vice Presidents; and certain other officers. The operating
segments are reviewed separately because each operating segment represents a
strategic business unit that generally offers different products and serves
different markets.
The accounting policies of the operating segments are generally the same as
those described in the summary of significant accounting policies. Corporate
overhead is allocated to the segments based on a percentage of the segment's
revenues. Interest expense and income taxes are not allocated to the segments in
the computation of segment operating profit for internal evaluation purposes.
Transaction Services performs servicing activities related to Credit Services.
For this, Transaction Services receives a fee equal to its direct costs before
corporate overhead allocation plus a margin that it would charge an unrelated
third party for similar functions. No segment information for fiscal 1996 is
presented as
F-25
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SEGMENT INFORMATION (CONTINUED)
management did not review the business on a segment basis during that period.
Revenues are attributed to geographic areas based on the location of the unit
processing the underlying transactions.
<TABLE>
<CAPTION>
LOYALTY AND
DATABASE TRANSACTION CREDIT OTHER/
MARKETING SERVICES SERVICES ELIMINATION TOTAL
FISCAL 1997 ----------- ----------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $23,348 $256,730 $211,921 $(138,600) $353,399
Depreciation and amortization........... -- 4,323 2,966 19,174 26,463
Operating profit........................ 8,393 22,886 26,384 (19,174) 38,489
</TABLE>
<TABLE>
<CAPTION>
LOYALTY AND
DATABASE TRANSACTION CREDIT OTHER/
MARKETING SERVICES SERVICES ELIMINATION TOTAL
FISCAL 1998 ----------- ----------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $ 84,288 $286,605 $212,663 $(149,247) $434,309
Depreciation and amortization........... 13,968 6,818 3,204 18,601 42,591
Operating profit........................ 1,847 6,804 36,191 (18,601) 26,241
</TABLE>
Information concerning principal geographic areas is as follows:
<TABLE>
<CAPTION>
UNITED STATES REST OF WORLD(1) TOTAL
------------- ---------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Fiscal 1997......................... $352,975 $ 424 $ 353,399
Fiscal 1998......................... 367,588 66,721 434,309
Total assets
January 31, 1998.................... 996,291 13,428 1,010,119
December 31, 1998................... 318,397 308,412 626,809
</TABLE>
- ------------------------
(1) Primarily consists of Canada following the Loyalty acquisition in
July 1998.
17. RELATED PARTY TRANSACTIONS
One of the Company's stockholders, Welsh, Carson, Anderson & Stowe and
related affiliates ("WCAS"), have provided significant financing to the Company
since the initial merger in August 1996. The related transactions are as
follows:
- The Company issued a 10% subordinated note to WCAS in January 1996, in the
principal amount of $30.0 million. Principal on the note is due on
October 25, 2005 and interest is payable semi-annually in arrears on each
January 1 and July 1. The note was originally issued to finance, in part,
the acquisition of BSI Business Services, Inc., now known as ADSI.
Additionally, the Company issued similar notes to The Limited in the
amount of $20.0 million.
- The Company sold 90.9 million shares of common stock to WCAS in
July 1998, for an aggregate purchase price of $100.0 million. The shares
were issued to finance, in part, the acquisition of all outstanding stock
of Loyalty.
- The Company sold 272,727 shares of common stock to WCAS and 181,818 shares
of common stock to The Limited, in August 1998, for an aggregate purchase
price of $300, with $200 to The Limited.
- In September 1998, the Company issued 5,900,000 shares of common stock to
WCAS and issued a 10% subordinated note to WCAS, in the principal amount
of $52.0 million. Principal on the note is due in two equal installments
on September 15, 2007 and September 15, 2008. Interest is
F-26
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. RELATED PARTY TRANSACTIONS (CONTINUED)
payable semi-annually in arrears on each March 15 and September 15. The
shares and the note was originally issued to finance, in part, the
acquisition of HSI.
The Company paid Welsh, Carson, Anderson & Anderson $2.0 million in fiscal
1998 for fees related to acquisitions.
The other significant stockholder of the Company, The Limited (through
affiliates), is a significant customer. The Company has entered into credit card
processing agreements with several affiliates of The Limited. The Company has
received fees from The Limited and its affiliates of $30.6 million for fiscal
1997 and $33.0 million for fiscal 1998.
18. SUBSEQUENT EVENTS
In July 1999, the Company entered into a preferred stock purchase agreement
and issued 120,000 shares of its Series A Cumulative Convertible Preferred Stock
for proceeds of $120.0 million to WCAS. The terms of the preferred stock
purchase agreement include, among other things, the following, which are
described in more detail in the agreement:
- Dividends are payable by the Company upon declaration by the Board of
Directors. Dividends are cumulative and dividends not paid currently will
accrue and compound quarterly at an annual rate of 6.0%.
- Each share is convertible into common shares at a conversion rate of
$1.50, at the option of the holder, at any time following issuance. Upon a
$75.0 million or greater initial public offering, shares will be
mandatorily convertible into common stock at a stated conversion price.
- The shares have an aggregate liquidation preference equal to the face
amount plus all accrued and unpaid dividends.
- Each share may be voted together with the common stock on an as-converted
basis.
- All issued and outstanding shares are redeemable on July 12, 2007 at a per
share redemption price as defined in the agreement.
Effective July 1, 1999, the Company acquired the network services business
of SPS Payment Systems, Inc., a wholly-owned subsidiary of Associates First
Capital Corporation, for $170.0 million, which was financed by $120.0 million of
Series A Cumulative Convertible Preferred Stock and $50.0 million of working
capital. This transaction was accounted for using the purchase method of
accounting, and the excess purchase price over the fair value to the net
identifiable assets, approximately $142.1 million, was allocated to goodwill and
is being amortized over 20 years using a straight line basis.
During July 1999, the stockholders approved an increase in the number of
authorized shares from 450,000,000 shares to 600,000,000 shares.
During September 1999, the Board of Directors decided to discontinue the
Company's subscriber services business when the Company a major customer was
acquired by a third party. The business is expected to wind down by second
quarter 2000. The business had revenues of approximately $27.4 million and
approximately $44.9 million in fiscal 1997 and 1998, respectively. The net
assets of the business were immaterial.
F-27
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATION
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
REVENUES
Processing and servicing fees............................. $207,175 $344,842
Financing charges, net.................................... 111,322 110,852
Other income.............................................. 11,713 9,571
-------- --------
Total revenue........................................... 330,210 465,265
-------- --------
OPERATING EXPENSES
Processing and servicing.................................. 147,845 244,034
Salaries and employee benefit............................. 121,229 141,995
Depreciation and other amortization....................... 6,201 10,219
Amortization of purchased intangibles..................... 21,875 35,152
-------- --------
Total operating expenses................................ 297,150 431,400
-------- --------
Operating income............................................ 33,060 33,865
Interest expense............................................ 19,165 33,018
-------- --------
Income from continuing operations before income taxes....... 13,895 847
Income tax expense.......................................... 7,939 15,686
-------- --------
Income (loss) from continuing operations.................... 5,956 (14,839)
Income (loss) from discontinued operations, net of taxes.... (4,483) 7,688
Loss on disposal of discontinued operations, net of taxes... -- (3,737)
-------- --------
Net (loss) income........................................... $ 1,473 $(10,888)
======== ========
Earnings per share from continuing operation--basic and
diluted................................................... $ 0.02 $ (0.03)
======== ========
Earnings per share--basic and diluted....................... $ 0.00 $ (0.03)
======== ========
Shares used in computing per share amounts
Basic..................................................... 352,962 427,427
======== ========
Diluted................................................... 353,291 427,427
======== ========
</TABLE>
See accompanying notes
F-28
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
--------------------------
PRO FORMA
DECEMBER 31, STOCKHOLDERS'
1998 ACTUAL EQUITY
------------ ---------- -------------
(AUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 47,036 $ 88,498
Restricted cash and cash equivalents.................... 17,909 32,946
Securities available-for-sale........................... 52,269 64,436
Trade receivables....................................... 143,286 86,711
Credit card receivables and seller's interest........... 139,458 143,093
Other current assets.................................... 54,604 32,106
---------- ----------
Total current assets................................ 454,562 447,790
Property and equipment, net............................. 66,339 85,909
Other non-current assets................................ 62,411 78,518
Due from securitizations................................ 121,442 131,704
Intangible assets and goodwill, net..................... 305,365 457,709
---------- ----------
Total assets........................................ $1,010,119 $1,201,630
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................................ $ 44,329 $ 77,716
Accrued expenses........................................ 58,590 85,841
Deferred income......................................... 17,733 35,014
Debt, current portion................................... 148,149 117,041
---------- ----------
Total current liabilities........................... 268,801 315,612
Other liabilities....................................... 21,131 22,210
Redemption obligation................................... 80,213 112,081
Long-term and subordinated debt......................... 331,835 334,943
---------- ----------
Total liabilities................................... 701,980 784,846
---------- ----------
Commitments and contingencies
Series A cumulative convertible preferred stock, $0.01
par value; 120 shares authorized and issued; pro
forma--none outstanding............................... -- 120,000 $ --
Common Stock, $0.01 par value; authorized 450,000 shares
(December 31, 1998), 600,000 (September 30, 1999),
issued 427,383 shares (December 31, 1998),
427,490 shares (September 30, 1999), 507,490 (pro
forma)................................................ 4,274 4,275 4,355
Additional paid-in capital.............................. 221,998 221,504 341,424
Retained earnings....................................... 83,838 74,483 74,483
Cumulative other comprehensive loss..................... (1,971) (3,478) (3,478)
---------- ---------- --------
Total stockholders' equity............................ 308,139 296,784 $416,784
---------- ---------- ========
Total liabilities and stockholders' equity............ $1,010,119 $1,201,630
========== ==========
</TABLE>
See accompanying notes
F-29
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income (loss) from continuing operations.................. $ 5,956 $ (14,839)
Adjustments to reconcile income (loss) from continuing
operations to net cash
provided by operating activities:
Income (loss) from discontinued operations................ (4,483) 7,688
Loss on disposal of discontinued operations -- (3,737)
Depreciation and amortization............................. 28,946 36,946
Provision for doubtful accounts........................... 5,521 1,814
Changes in operating assets:
Change in trade accounts receivables.................... 22,895 59,761
Change in other assets.................................. (28,747) 7,391
Change in other accounts payable and accrued expenses... 14,825 60,638
Change in other liabilities............................. 4,811 18,360
Redemption obligation................................... 13,807 31,868
Other operating activity................................ 745 (17,468)
--------- ---------
Net cash provided by operating activities............... 64,276 188,422
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available-for-sale, net............ -- (10,660)
Increase in restricted cash and cash equivalents.......... -- (15,037)
Purchase of credit card receivables....................... (5,126) (33,817)
Change in seller's interest............................... 32,530 32,154
Change in due from securitization......................... (30,603) (10,262)
Net cash paid for corporate acquisition................... (160,644) (170,000)
Capital expenditures...................................... (9,067) (27,516)
--------- ---------
Net cash used in investing activities................... (172,910) (235,138)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under debt agreements.......................... 515,395 377,433
Repayment of borrowings................................... (485,050) (405,433)
Proceeds from issuance of common stock.................... 114,776 --
Proceeds from issuance of preferred stock................. -- 120,000
--------- ---------
Net cash provided by financing activities............... 145,121 92,000
Effect of exchange rate changes........................... (323) (3,821)
--------- ---------
Change in cash and cash equivalents....................... 36,164 41,463
Cash and cash equivalents at beginning of period.......... 29,034 47,035
--------- ---------
Cash and cash equivalents at end of period................ $ 65,467 $ 88,498
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid............................................. $ 1,422 $ 6,451
========= =========
Income taxes paid......................................... $ 15,544 $ 27,507
========= =========
</TABLE>
See accompanying notes
F-30
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The interim consolidated financial statements and related notes of the
business and operations of Alliance Data Systems Corporation (collectively, the
"Company" or "ADSC"), for the nine months ended September 30, 1998 and 1999 and
as of September 30, 1999 have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and are unaudited.
In the opinion of management, the interim consolidated financial statements
include all recurring adjustments and normal accruals necessary to present
fairly the Company's consolidated financial position and its consolidated
results of operations for the dates and periods presented. Results for interim
periods are not necessarily indicative of the results to be expected during the
remainder of the current year or for any future period. All significant
intercompany accounts and transactions have been eliminated in consolidation.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the 52 weeks
ended February 1, 1997, the 53 weeks ended January 31, 1998, and the 11 months
ended December 31, 1998 presented herein.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss)......................................... $1,475 $(10,888)
Unrealized gains on securities available-for-sale (1,417) (1,802)
Currency translation adjustment........................... (324) (295)
------ --------
Total comprehensive income (loss)......................... $ (266) $(12,395)
====== ========
</TABLE>
F-31
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION (CONTINUED)
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share for the period indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
<S> <C> <C>
NUMERATOR
Net income (loss)..................................... $ 1,473 $(10,888)
Preferred stock dividends............................. -- (1,623)
-------- --------
Numerator for basic and diluted earnings per
share--income available to common stock holders..... $ 1,473 $(12,511)
======== ========
DENOMINATOR
Weighted average shares............................... 352,962 427,427
Weighted average effect of dilutive securities:
Net effect of dilutive stock options................ 292 --
Net effect of dilutive stock warrants............... 37 --
Net effect of dilutive convertible preferred
stock............................................. -- --
-------- --------
Demominator for diluted calculations.................. 353,291 427,427
======== ========
NET INCOME (LOSS) PER SHARE
Basic and diluted..................................... $ 0.00 $ (0.03)
======== ========
</TABLE>
PRO FORMA STOCKHOLDERS' EQUITY
If the offering contemplated by this prospectus is consummated, all of the
Series A Cumulative Convertible Preferred Stock outstanding at the closing date
will be converted into shares of common stock. The unaudited pro forma
stockholders' equity as of September 30, 1999 reflects the conversion of all
outstanding convertible preferred stock at September 30, 1999 into 80,000,000
shares of common stock.
2. SEGMENT INFORMATION
Operating segments are defined by SFAS 131 as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is the Executive Committee, which consists
of the Chairman of the Board and Chief Executive Officer, Presidents of the
divisions; Executive Vice Presidents; and certain other officers. The operating
segments are reviewed separately because each operating segment represents a
strategic business unit that generally offers different products and serves
different markets.
The accounting policies of the operating segments are generally the same as
those described in the summary of significant accounting policies. Corporate
overhead is allocated to the segments based on a percentage of the segment's
revenues. Interest expense and income taxes are not allocated to the segments in
the computation of segment operating profit for internal evaluation purposes.
Transaction Services performs servicing activities related to Credit Services.
For this, Transaction Services receives a
F-32
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
2. SEGMENT INFORMATION (CONTINUED)
fee equal to its direct costs before corporate overhead allocation plus a margin
that it would charge an unrelated third party for similar functions.
<TABLE>
<CAPTION>
LOYALTY AND
DATABASE TRANSACTION CREDIT OTHER/
MARKETING SERVICES SERVICES ELIMINATION TOTAL
NINE MONTHS ENDED SEPTEMBER 30, 1998 ----------- ----------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $43,870 $230,921 $176,953 $(121,534) $330,210
Depreciation and amortization........... 6,044 4,090 2,576 15,368 28,076
Operating profit........................ 6,754 8,864 34,172 (16,924) 33,061
</TABLE>
<TABLE>
<CAPTION>
LOYALTY AND
DATABASE TRANSACTION CREDIT OTHER/
MARKETING SERVICES SERVICES ELIMINATION TOTAL
NINE MONTHS ENDED SEPTEMBER 30, 1999 ----------- ----------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $138,032 $266,758 $185,060 $(124,585) $465,265
Depreciation and amortization........... 25,344 11,160 2,356 6,510 45,371
Operating profit........................ (1,943) 21,829 34,005 (6,510) 33,865
</TABLE>
3. SPS ACQUISITION
During the nine months ended September 30, 1999, the Company acquired the
network services businesses of SPS Payment Services, a wholly-owned subsidiary
of Associated First Capital Corporation, for $170.0 million, which was financed
by $120.0 million of Series A Cumulative Convertible Preferred Stock and
$50.0 million of working capital. This transaction was accounted for using the
purchase method of accounting, and the excess purchase price over the fair value
of the net identifiable assets, approximately $142.1 million, was allocated to
goodwill and is being amortized over 20 years using a straight line basis. The
results of operations have been included in the consolidated financial
statements since July 1999.
4. SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
On July 12, 1999, the Company entered into a preferred stock purchase
agreement and issued 120,000 shares of its Series A cumulative convertible
preferred stock for proceeds of $120.0 million. The terms of the preferred stock
purchase agreement include, among other things, the following, which are
described in more detail in the agreement:
- Dividends are payable by the Company upon declaration by the Board of
Directors. Dividends are cumulative and dividends not paid currently will
accrue and compound quarterly at an annual rate of 6.0%.
- Each share is convertible into common shares at a conversion price of
$1.50, at the option of the holder, at any time following issuance. Upon a
$75.0 million or greater initial public offering, shares will be
mandatorily convertible into common stock at a stated conversion price.
F-33
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4. SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK (CONTINUED)
- The shares have an aggregate liquidation preference equal to the face
amount plus all accrued and unpaid dividends.
- Each share may be voted together with the common stock on an as-converted
basis.
- All issued and outstanding shares are redeemable on July 12, 2007 at a per
share redemption price as defined in the agreement.
5. DISCONTINUED OPERATIONS
During September 1999, the Board of Directors decided to discontinue the
Company's subscriber services business when a major customer who was acquired by
a third party. The business is expected to wind down by second quarter 2000. The
business had revenues of approximately $27.4 million and approximately
$44.9 million in fiscal 1997 and 1998, respectively. The net assets of the
business were immaterial.
F-34
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
Loyalty Management Group Canada Inc.
We have audited the consolidated balance sheets of Loyalty Management Group
Canada Inc. as at April 30, 1997 and April 30, 1998 and the consolidated
statements of operations and retained earnings (deficit) 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 an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at April 30,
1997 and April 30, 1998 and the results of its operations and its cash flows for
the years then ended in accordance with accounting principles generally accepted
in Canada.
<TABLE>
<S> <C>
/s/ ERNST AND YOUNG LLP
Toronto, Canada ERNST AND YOUNG LLP
June 12, 1998, except as to Chartered Accountants
Note 14, which is as at
January 12, 2000
</TABLE>
F-35
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
CONSOLIDATED BALANCE SHEETS
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $11,371 $ 10,691
Trade receivables........................................... 15,269 20,841
Prepaid expenses and deposits............................... 236 1,261
------- --------
Total current assets...................................... 26,876 32,793
Restricted marketable securities and cash................... 46,002 76,613
Deferred financing costs, net............................... 1,615 --
Furniture, fixtures and equipment, net...................... 2,745 6,170
Deferred income taxes....................................... 400 560
Goodwill, net............................................... 11,254 9,917
------- --------
Total assets.............................................. $88,892 $126,053
======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Accounts payable and accrued liabilities.................... $12,801 $ 18,597
Income taxes payable........................................ 3,878 4,355
Deferred revenue and deposits............................... 2,938 4,804
Due to related parties...................................... 307 412
Current portion of leasehold inducement..................... -- 184
Current portion of term loan payable........................ 3,750 --
------- --------
Total current liabilities................................. 23,674 28,352
Redemption obligation....................................... 60,237 90,555
Leasehold inducement........................................ -- 1,539
Term loan payable........................................... 6,563 --
------- --------
Total liabilities......................................... 90,474 120,446
------- --------
Capital stock; 1,434,464 authorized common shares; 1,189,542
issued common shares...................................... 730 730
Retained earnings (deficit)................................. (2,312) 4,877
------- --------
Total shareholders' equity (deficiency)................... (1,582) 5,607
------- --------
Total liabilities and shareholders' equity (deficiency)... $88,892 $126,053
======= ========
</TABLE>
See accompanying notes
F-36
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES
Air Miles revenue........................................... $ 91,393 $143,723
Other income................................................ 6,248 9,492
-------- --------
Total revenues............................................ 97,641 153,215
-------- --------
OPERATING EXPENSES
Program operations.......................................... 73,142 119,331
General and administrative.................................. 9,380 12,518
Marketing................................................... 5,094 2,742
Amortization of goodwill.................................... 1,337 1,337
Amortization of deferred financing costs.................... 669 1,615
-------- --------
Total operating expenses.................................. 89,622 137,543
-------- --------
Operating income............................................ 8,019 15,672
Interest expense............................................ 1,130 718
-------- --------
Income before income taxes.................................. 6,889 14,954
-------- --------
Income tax expense.......................................... 3,500 7,765
-------- --------
Net income for the year..................................... 3,389 7,189
Deficit, beginning of year.................................. (5,701) (2,312)
-------- --------
Retained earnings (deficit), end of year.................... $ (2,312) $ 4,877
======== ========
</TABLE>
See accompanying notes
F-37
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CANADIAN DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
---------------------
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 3,389 $ 7,189
Add (deduct) items not affecting cash:
Depreciation and amortization............................. 3,679 4,715
Deferred income taxes..................................... (400) (160)
Increase in redemption obligation......................... 12,930 30,318
Net change in non-cash working capital balances related to
operations................................................ 1,323 1,647
-------- --------
20,921 43,709
Increase in restricted marketable securities and cash....... (10,639) (30,611)
-------- --------
Cash provided by operating activities....................... 10,282 13,098
-------- --------
INVESTING ACTIVITIES
Capital expenditures........................................ (1,587) (5,188)
-------- --------
Cash used in investing activities........................... (1,587) (5,188)
-------- --------
FINANCING ACTIVITIES
Repayment of term loan payable.............................. (4,688) (10,313)
Leasehold inducement........................................ -- 1,723
-------- --------
Cash used in financing activities........................... (4,688) (8,590)
-------- --------
Net increase (decrease) in cash during the year............. 4,007 (680)
Cash and cash equivalents, beginning of year................ 7,364 11,371
-------- --------
Cash and cash equivalents, end of year...................... $ 11,371 $ 10,691
======== ========
Supplementary cash flow information:
Interest paid............................................... $ 1,130 $ 718
======== ========
Income taxes paid........................................... $ 20 $ 7,450
======== ========
</TABLE>
See accompanying notes
F-38
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(CANADIAN DOLLARS IN THOUSANDS)
1. THE COMPANY
Loyalty Management Group Canada Inc. (the "Company") was incorporated under
the laws of Ontario on May 23, 1990, and operates under the registered trademark
name of The Loyalty Group. Its business is to design, develop, market and manage
loyalty programs (the "programs") in Canada.
The Company's program, the Air Miles reward program, was launched in
March 1992 and provides travel and other awards to participating consumers and
businesses ("collectors") for purchases of products and services marketed by
sponsors. The Company provides these awards through a subsidiary company under
long-term exclusive arrangements with suppliers, including major airlines,
certain hotels and other ancillary reward-related businesses.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements of the Company are prepared in
accordance with Canadian generally accepted accounting principles ("GAAP").
Significant differences between U.S. and Canadian GAAP are discussed in
Note 14.
BASIS OF CONSOLIDATION
The consolidated financial statements of the Company include the assets,
liabilities and results of operations of its wholly-owned subsidiary, LMG Travel
Services Limited.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and short-term investments with
original maturities of less than 90 days.
FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Office equipment and furniture.............................. 20%
Computers and telephone equipment........................... 33%
Leasehold improvements...................................... 10%
</TABLE>
GOODWILL
Goodwill acquired is amortized on a straight-line basis over its expected
life of ten years.
On an ongoing basis, the Company determines whether there has been a
permanent impairment in unamortized goodwill based on an estimation of
undiscounted long-term cash flow of the operations. To date, no such impairment
has been incurred.
F-39
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LEASEHOLD INDUCEMENTS
Leasehold inducements received upon the Company's move to new premises have
been deferred in the accounts and are being amortized over the ten-year term of
the lease.
INCOME TAXES
The Company follows the deferral method of accounting for income taxes.
Accordingly, the provision for income taxes reflects the income tax effects of
timing differences between amounts claimed for income tax purposes and amounts
deducted for accounting purposes. The benefits resulting therefrom are shown as
deferred income taxes.
REVENUE RECOGNITION
The Company records revenue for Air Miles reward miles issued through
sponsors to collectors, and provides for the cost of estimated redemptions by
collectors in the year during which the Air Miles reward miles are issued.
Other revenue consists primarily of ancillary revenue derived from operation
of the program and is recorded when the services are rendered.
REDEMPTION OBLIGATION
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes.
The redemption obligation is estimated as the cost of providing travel and
other awards to collectors and related redemption service expenses required to
redeem Air Miles reward miles in the future based on management's best estimate
of the Air Miles reward miles currently issued that will ultimately be redeemed.
These estimates are revised periodically to reflect current expectations of
future redemption costs. Significant changes in future conditions or assumptions
could require a material change in the estimated amount of the redemption
obligation. The redemption obligation is expected to be partially discharged in
the following year in the amount of approximately $25.0 million and the same
amount of cash is expected to be drawn from the restricted cash account to fund
these payments. Due to significant uncertainty in the estimation of the amount
and the timing of redemption activity, no current portion of the respective
asset and liability are set out in the consolidated balance sheet.
RESTRICTED MARKETABLE SECURITIES AND CASH
In order to receive program awards, collectors must collect a specified
number of Air Miles reward miles to qualify for a particular award. Currently,
Air Miles reward miles in collector accounts which are active have no expiration
date. As such, demand for redemption is expected to occur over a considerable
period of time. This timing difference results in the availability of liquid
assets, a portion of which must be segregated to satisfy expected future
redemption costs under the terms of agreements with the Company's suppliers and
sponsors ("restricted cash"). The Company funds a segregated
F-40
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN DOLLARS IN THOUSANDS)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
investment account with a portion of amounts paid by sponsors for Air Miles
reward miles. These amounts, which earn investment income, are maintained under
the terms of agreements with a trust company entered into in December 1992.
FINANCIAL INSTRUMENTS
The carrying amounts in the consolidated financial statements for cash,
accounts receivable, accounts payable and accrued liabilities and deferred
revenue and deposits approximate fair values due to the immediate or short-term
maturities of these financial instruments.
The fair values of short-term investments and marketable securities are
recorded at quoted market value which is considered to be the closing market
price at year end.
3. CASH AND CASH EQUIVALENTS
Included in cash and cash equivalents are short-term investments as follows:
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Short-term investments................................... $3,501 $3,505 $1,493 $1,500
====== ====== ====== ======
</TABLE>
4. RESTRICTED MARKETABLE SECURITIES AND CASH
Restricted marketable securities and cash consist of the following:
<TABLE>
<CAPTION>
1997 1998
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash on hand........................................... $11,756 $11,756 $11,909 $11,909
Short-term deposits--treasury bills, bankers'
acceptances, corporate paper......................... 15,462 15,523 14,695 14,695
Fixed income securities--government.................... 17,075 17,332 22,394 22,414
Fixed income securities--corporate..................... 1,709 1,767 4,978 4,915
Equity................................................. -- -- 22,637 22,399
------- ------- ------- -------
$46,002 $46,378 $76,613 $76,332
======= ======= ======= =======
</TABLE>
F-41
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN DOLLARS IN THOUSANDS)
5. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Office equipment and furniture............................. $1,941 $ 2,963
Computer equipment......................................... 2,429 3,494
Telephone equipment........................................ 948 1,546
Leasehold improvements..................................... 730 2,508
------ -------
6,048 10,511
Less accumulated depreciation and amortization............. 3,303 4,341
------ -------
$2,745 $ 6,170
====== =======
</TABLE>
6. GOODWILL
On October 2, 1995, a financial restructuring took place involving the
purchase of the minority interest in the Company. The transaction was accounted
for under the purchase method of accounting and resulted in goodwill
approximately equal to the cash consideration paid.
Goodwill consists of the following:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Goodwill.................................................. $13,371 $13,371
Less accumulated amortization............................. 2,117 3,454
------- -------
$11,254 $ 9,917
======= =======
</TABLE>
7. RELATED PARTY TRANSACTIONS
Amounts due to related parties represent amounts due to a shareholder and
its subsidiaries. These amounts are non-interest bearing and due on demand.
Transactions with these related parties are recorded on a fair value basis.
During the year, transactions with related parties were as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Royalty expense paid to subsidiaries of a shareholder....... $957 $1,501
Management fees paid to a shareholder....................... 120 120
</TABLE>
8. CAPITAL STOCK
The Company has approved stock options to management totalling 234,774
shares, 209,207 of which were granted as of April 30, 1997 and 234,774 of which
were granted as of April 30, 1998. The options are exercisable under certain
terms and conditions at a nominal price and expire on January 6, 2003.
F-42
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN DOLLARS IN THOUSANDS)
9. INCOME TAXES
A reconciliation of the combined basic federal and provincial income tax
rate to the related effective rate is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Combined basic Canadian federal and provincial income tax
rate...................................................... 44.6% 44.6%
Non-deductible amortization of goodwill..................... 8.8 4.0
Other....................................................... (1.7) 3.3
---- ----
Effective income tax rate................................... 51.7% 51.9%
==== ====
</TABLE>
10. LEASE COMMITMENTS
Future minimum annual rental payments required under non-cancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999........................................................ $1,615
2000........................................................ 1,418
2001........................................................ 1,337
2002........................................................ 1,303
2003 and thereafter......................................... 7,245
</TABLE>
The Company is also committed to its share of operating costs with respect
to office leases.
11. MARKETING AND PROGRAM OPERATIONS EXPENSES
Under the terms of contracts with certain sponsors, the Company is able to
recover a specified amount of Air Miles reward program marketing expenses.
Marketing expenses are presented net of these cost recoveries which amounted to
$2.1 million during 1997 and $3.6 million during 1998. Program operations
expenses are also presented net of cost recoveries which are received by the
Reward Services department to offset the costs of processing redemptions. Total
cost recoveries amount to $6.2 million in 1997 and $9.6 million in 1998.
12. CONTRACTUAL COMMITMENTS
The Company has entered into certain contractual arrangements that result in
an obligation to provide travel and other awards upon redemption of Air Miles
reward miles for a fee to be billed upon redemption to certain sponsors. The
Company has obtained revolving letters of credit from certain of these sponsors
that expire at various dates. The amounts of these letters of credit total
$106.4 million, which exceeds the estimated amount of the fees to be received
from these sponsors.
13. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified
from statements previously presented to conform to the presentation of the 1998
consolidated financial statements.
F-43
<PAGE>
LOYALTY MANAGEMENT GROUP CANADA INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(CANADIAN DOLLARS IN THOUSANDS)
14. DIFFERENCES BETWEEN CANADIAN AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Significant differences between U.S. and Canadian GAAP for these
consolidated financial statements are:
(i) Under Canadian GAAP, restricted marketable securities and cash are carried
at cost. Under U.S. GAAP, restricted marketable securities and cash are
carried at fair value with the resulting difference between cost and fair
value being recorded as a separate component of equity, net of tax. The
differences as of April 30, 1997 and 1998 would not be material to the
balance sheets or shareholders' equity (deficit).
(ii) Other differences between Canadian and U.S. GAAP are immaterial.
F-44
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Harmonic Systems Incorporated
We have audited the accompanying consolidated balance sheets of Harmonic Systems
Incorporated and subsidiary as of December 31, 1996 and 1997 and the related
consolidated statements of operations, changes in shareholders' equity (deficit)
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 consolidated 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 consolidated financial position of Harmonic Systems
Incorporated and subsidiary as of December 31, 1996 and 1997 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 12 the
Company has incurred recurring operating losses and has had negative cash flow
from operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 12. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.
/s/ ERNST & YOUNG LLP
Ernst & Young LLP
Minneapolis, Minnesota
May 22, 1998
F-45
<PAGE>
HARMONIC SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,558,545 $ 989,487
Accounts receivable (net of allowances of $236,000 in 1997
and $110,000 in 1996)................................... 1,950,718 5,927,958
Receivable from related parties........................... 7,223 --
Inventories:
Finished goods.......................................... 905,727 786,485
Work in progress........................................ 1,015,638 407,085
------------ ------------
1,921,410 1,193,570
Prepaid expenses.......................................... 235,939 241,277
------------ ------------
Total current assets........................................ 5,673,835 8,352,262
Property and equipment:
Equipment................................................. 1,301,730 1,709,666
Furniture and fixtures.................................... 136,244 97,364
Leased furniture and equipment............................ 430,706 1,137,430
Leasehold improvements.................................... 36,995 42,704
------------ ------------
1,905,675 2,987,164
Less accumulated depreciation and amortization............ (528,856) (1,016,180)
------------ ------------
1,376,819 1,970,984
Other assets................................................ 96,576 79,782
Total assets................................................ $ 7,147,230 $ 10,403,028
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable to bank...................................... $ 927,170 $ --
Accounts payable.......................................... 1,688,376 3,282,401
Deferred revenue.......................................... 70,049 418,410
Employee compensation and taxes........................... 153,963 393,094
Accrued interest.......................................... 49,298 10,492
Accrued sales taxes....................................... 221,364 72,127
Other accrued expenses.................................... 403,937 439,868
Subordinated convertible debentures....................... 3,050,135 425,000
Current maturities of long-term liabilities............... 582,987 354,366
Current maturities of capital lease obligations........... 76,561 165,464
------------ ------------
Total current liabilities................................... 7,223,840 5,561,222
Long-term liabilities, net of current maturities:
Subordinated convertible debentures....................... 575,000 --
Notes payable............................................. 81,023 13,120
Capital lease obligations................................. 68,421 273,507
------------ ------------
724,444 286,627
Shareholders' equity (deficit):
Preferred Stock, par value $.01 per share................. 62,591 119,079
Common Stock, par value $.01 per share.................... 48,719 48,997
Additional paid-in-capital................................ 11,273,531 21,383,502
Accumulated deficit....................................... (12,185,895) (16,996,399)
------------ ------------
Total shareholders' equity (deficit)........................ (801,054) 4,555,179
------------ ------------
Total liabilities and shareholders' deficit................. $ 7,147,230 $ 10,403,028
============ ============
</TABLE>
See accompanying notes.
F-46
<PAGE>
HARMONIC SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Revenues.................................................... $10,516,420 $15,022,001
Cost of revenues............................................ 8,269,006 11,408,183
----------- -----------
2,247,414 3,613,818
Operating expenses:
Sales and marketing....................................... 2,041,079 1,724,839
General and administrative................................ 1,558,078 2,416,947
Research and development.................................. 3,789,613 3,999,639
----------- -----------
7,388,770 8,141,425
----------- -----------
Operating loss.............................................. (5,141,356) (4,527,607)
Interest expense............................................ (363,840) (363,279)
Interest income............................................. 20,522 59,611
Other income, net........................................... 35,966 20,771
----------- -----------
(307,352) (282,897)
----------- -----------
Net loss.................................................... $(5,448,708) $(4,810,504)
=========== ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
HARMONIC SYSTEMS INCORPORATED
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------------- --------------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
---------- -------- ---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1994............ 2,902,412 $ 29,025 4,858,566 $ 48,586 $ 3,137,994 $(4,629,190) $(1,413,585)
Private placement--Series D........ 1,200,000 12,000 -- -- 2,974,072 -- 2,986,072
Private placement--Series C........ 30,000 300 -- -- 74,700 -- 75,000
Net loss........................... -- -- -- -- -- (2,107,997) (2,107,997)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance December 31, 1995............ 4,132,412 41,325 4,858,566 48,586 6,186,766 (6,737,187) (460,510)
Private placement--Series E........ 2,060,000 20,600 -- -- 5,025,898 -- 5,046,498
Conversion of debentures........... 66,666 666 -- -- 49,334 -- 50,000
Exercise of stock option........... -- -- 13,333 133 11,533 -- 11,666
Net loss........................... -- -- -- -- -- (5,448,708) (5,448,708)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance December 31, 1996............ 6,259,078 62,591 4,871,899 48,719 11,273,531 (12,185,895) (801,054)
Private placement--Series G........ 3,891,665 38,917 -- -- 6,914,921 -- 6,953,838
Conversion of debentures........... 1,757,160 17,571 -- -- 3,145,328 -- 3,162,899
Issuance of common shares.......... -- -- 27,778 278 49,722 -- 50,000
Net loss........................... -- -- -- -- -- (4,810,504) (4,810,504)
---------- -------- ---------- -------- ----------- ------------ -----------
Balance December 31, 1997............ 11,907,903 $119,079 4,899,677 $ 48,997 $21,383,502 $(16,996,399) $ 4,555,179
========== ======== ========== ======== =========== ============ ===========
</TABLE>
See accompanying notes.
F-48
<PAGE>
HARMONIC SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(5,448,708) $(4,810,504)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 293,158 496,760
Interest added to debt principal.......................... 50,135 112,764
Provisions for doubtful accounts.......................... 95,919 126,000
Changes in operating assets and liabilities:
Accounts receivable..................................... (841,115) (4,103,240)
Due from related parties................................ (386) 7,223
Inventories............................................. (1,297,281) 727,840
Prepaid expenses........................................ (187,573) (5,338)
Accounts payable........................................ 399,439 1,594,025
Deferred revenue........................................ (325,940) 348,361
Accrued expenses........................................ 414,176 87,019
----------- -----------
Net cash used in operating activities....................... (6,848,176) (5,419,090)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (865,549) (1,081,489)
Payment of security deposits................................ (6,074) 7,358
Proceeds from sale of property and equipment................ -- 400,051
----------- -----------
Net cash used in investing activities....................... (871,623) (674,080)
FINANCING ACTIVITIES
Net (payments) proceeds from line of credit................. 927,170 (927,170)
Proceeds from issuance of notes payable..................... 100,000 1,000,000
Proceeds from issuance of convertible debentures............ 3,000,000 --
Proceeds from issuance of preferred stock................... 5,046,497 5,953,838
Proceeds from issuance of common stock...................... 11,666 50,000
Payments on long-term liabilities and capital lease
obligations............................................... (449,421) (552,586)
----------- -----------
Net cash provided by financing activities................... 8,635,912 5,524,082
----------- -----------
(Decrease) increase in cash and cash equivalents............ 916,113 (569,088)
Cash and cash equivalents at beginning of year.............. 642,432 1,558,545
----------- -----------
Cash and cash equivalents at end of year.................... $ 1,558,545 $ 989,457
=========== ===========
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 313,705 $ 289,321
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
In 1996 and 1997, lease obligations of $93,120 and $400,057, respectively,
were capitalized in connection with the acquisition of equipment.
In 1996, $50,000 of debentures were converted into preferred stock.
In 1997, $4,162,899 of debentures, demand notes and accrued interest were
converted into preferred stock.
See accompanying notes.
F-49
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Harmonic Systems Incorporated (the "Company") participates in the
information services business. The Company provides retail chains with private
data communications networks for the transmission of electronic data between
their stores, a merchant's corporate data center, and third party information
service providers.
The Company has a wholly-owned subsidiary (Harmonic Technology
Licensing, Inc.) which will market and license Exxon Computing Services Company
proprietary technology. This entity had no activity through December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1997,
cash in the amount of approximately $228,000 was escrowed for compilation of
leasehold improvements on the Company's leased office space. The escrow amounts
were released and paid to the lessor in February 1998.
INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets which
range from three to ten years.
The Company records impairment losses 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 amounts.
RESEARCH AND DEVELOPMENT
Statement of Financial Accounting Standards No. 86, ACCOUNTING FOR THE COSTS
OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE MARKETED, requires
capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have been
insignificant. All research and development costs have been expensed as
incurred.
REVENUE RECOGNITION
Revenues pertaining to the sale of Enterprise Gateway Processor (EGP)
equipment and related software are recognized when the Company has configured,
delivered, installed, tested and determined that the system is operational.
Revenues from the sale of Retail Integration Module (RIM) for pilot testing are
recognized as revenue upon completion of the pilot test. Revenues from
additional RIMs sold after the pilot test are recognized upon shipment. Revenues
pertaining to software reconfiguration are recognized at the date the related
services are completed. Revenues pertaining to service and maintenance
agreements are recognized in the month in which the services are provided.
Revenues pertaining to development contracts are recognized when earned
based on the completion of contract milestones or performance of other contract
requirements.
F-50
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company has elected to recognize compensation cost for its stock based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. Accordingly, no compensation
expense is recognized for stock options with exercise prices equal to, or in
excess of, the market value of the underlying shares of stock at the date of
grant. The Company follows the disclosure-only provisions of Statement of
Financial accounting Standards No. 123 (SFAS No. 123), ACCOUNTING FOR
STOCK-BASED COMPENSATION.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications were made to the prior periods' financial
statements to conform with the 1997 presentation.
3. DEBT OBLIGATIONS
Long-term debt obligations consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Mastercard debt, matures in 1998, unsecured, interest
rate of 11%......................................... $ 517,367 $318,233
Series F convertible debentures, mature
December 1997, subordinated, interest rate of 10%
payable quarterly................................... 3,050,135 --
Series C convertible debentures, mature September to
November 1998, subordinated, unsecured, interest
rate of 11% payable quarterly....................... 575,000 425,000
Note payable, approximately $3,370 monthly including
interest at 13%, matures April 15, 1999, secured by
certain computer equipment.......................... 81,003 49,253
Note payable, approximately $3,370 monthly including
interest at 13%, matures October 1998, secured by
specific equipment.................................. 65,640 --
---------- --------
4,289,145 792,486
Less current maturities............................... 3,633,122 779,366
---------- --------
$ 656,023 $ 13,120
========== ========
</TABLE>
Future maturities of long-term debt are approximately $779,366 in 1998 and
$13,120 in 1999.
The Mastercard agreement specifies that the debt will be reduced by $.001
per authorized transaction on a monthly basis. As an extension of the original
March 1998 due date, the Company has agreed to make minimum monthly payments of
$30,000 beginning March 1998. As a result all of the outstanding balance of
$318,233 at December 31, 1997 is due in fiscal 1998.
F-51
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DEBT OBLIGATIONS (CONTINUED)
The outstanding debentures at December 31, 1997 are subordinated to the
Company's long-term debt and all future borrowings from financial institutions,
and are convertible at $2.50 per share into preferred stock of the Company at
any time on or before the maturity date at the debenture holder's discretion.
The Company has a secured bank credit line. The line of credit allows for
borrowings not to exceed the lesser of $1,500,000 or 70% of eligible
receivables. The principal balance outstanding bears interest at the bank's
prime rate plus 3% per annum (11.5% at December 31, 1997). The line of credit
matures in May 1998, is subject to automatic renewal and contains certain
financial and non-financial covenants. All borrowings are secured by
substantially all the Company's personal property. Under this agreement,
$927,170 was outstanding at December 31, 1996. The Company renegotiated the
terms of the credit agreement in 1998 (see subsequent events footnote).
4. LEASE OBLIGATIONS
The Company leases furniture and equipment under capital leases expiring in
years through 2000. Imputed interest rates on capitalized leases vary from 10.5%
to 30.2%. The Company entered into a new capital lease line in 1997 of
$1,130,000 of which $400,051 was used in 1997.
Included in property and equipment are assets leased under capital leases
with costs of $1,137,430 and $430,706 and accumulated amortization of $425,264
and $173,061 at December 31, 1997 and 1996, respectively.
Amortization of assets under capital leases included in depreciation expense
was $199,849 in 1997 and $73,145 in 1996.
The Company leases office space under a non-cancelable operating lease,
which expires in August 2002. The lease contains an escalating rent clause over
the term of the lease.
The Company is responsible for common area maintenance costs and real estate
taxes which are charged as additional rent by the lessor. Total rent expense was
$428,829 and $334,660 for the years ended December 31, 1997 and 1996,
respectively.
F-52
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LEASE OBLIGATIONS (CONTINUED)
Future minimum payments under capital leases and non-cancelable operating
leases with initial terms of one year or more consisted of the following at
December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ----------
<S> <C> <C>
Year ending December 31:
1998................................................ $199,801 $ 260,780
1999................................................ 181,864 318,103
2000................................................ 115,218 390,260
2001................................................ -- 404,489
2002................................................ -- 418,719
Thereafter............................................ -- 727,904
-------- ----------
Total minimum lease payments.......................... 496,883 $2,520,255
==========
Amount representing interest.......................... 57,912
--------
Present value of minimum leases....................... 438,971
Current portion....................................... 165,464
--------
Long-term capital lease obligation.................... $273,507
========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into separate employment and noncompete agreements
with two of the founders. The agreements specify, among other things, that these
two founders are entitled to one year's severance in the event of a termination
of employment with the Company in exchange for a one year covenant not to
compete. Additional terms provide that the noncompete agreement can be extended
for an additional year at the Company's discretion in exchange for one
additional year of severance.
The Company also has an employment agreement with an additional founder that
provides for a nine month severance payment in return for a nine month covenant
not to compete.
In addition, the Company has entered into four retention agreements with key
officers of the Company which provide for retention bonuses and a one year
severance package in the event of a sale of the Company.
6. INCOME TAXES
As of December 31, 1997, the Company had unused research and development tax
credit carryforwards of approximately $517,000 which expire in 2012. In
addition, the Company has unused net operating loss carryforwards of
approximately $16,100,000 which expire at various times through 2012. The
utilization of these carryforwards is dependent on the Company's ability to
generate sufficient taxable income during the carryforward periods and are
subject to limitations under Section 382 of the Internal Revenue Code due to
changes in the equity ownership of the Company. Due to losses incurred for both
financial reporting and tax reporting purposes, a valuation allowance has been
established for the entire tax benefit associated with these carryforwards as
well as the other net deferred tax assets of the Company.
F-53
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
Deferred taxes are recognized for temporary differences between the basis of
assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to property and equipment, net operating losses,
research and development costs and various other accruals. The deferred tax
assets and liabilities represent the future tax consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized for tax
credits that are available to offset future taxable income.
Net deferred taxes consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Deferred tax assets................................. $ 4,531,000 $6,833,000
Deferred tax liabilities............................ (28,000) (8,000)
Valuation allowance................................. (4,503,000) (6,825,000)
----------- ----------
$ -- $ --
=========== ==========
</TABLE>
7. SHAREHOLDERS' EQUITY
The Company's authorized, issued and outstanding shares with a par value of
$.01 per share consist of the following:
<TABLE>
<CAPTION>
ISSUED AND
AUTHORIZED OUTSTANDING
----------- -----------
<S> <C> <C>
Common shares....................................... 30,000,000 4,899,677
Series A Convertible Preferred shares............... 2,333,776 2,333,776
Series B Convertible Preferred shares............... 603,302 603,302
Series C Convertible Preferred shares............... 292,000 62,000
Series D Convertible Preferred shares............... 1,200,000 1,200,000
Series E Convertible Preferred shares............... 3,433,334 2,060,000
Series F Convertible Preferred shares............... 2,262,816 --
Series G Convertible Preferred shares............... 5,676,603 5,648,825
Undesignated shares................................. 54,198,169 --
----------- ----------
Total............................................... 100,000,00 16,807,580
=========== ==========
</TABLE>
The Company issued 2,060,000 shares of new Series E Convertible Preferred
Stock at $2.50 per share to four investors in May 1996. Prior to the equity
financing closing, three previous investors loaned the Company $1,150,000 at 10%
interest which was converted to Series E Convertible Preferred Stock at the
equity closing. Also prior to the closing of the equity financing, a new
investor advanced the Company $750,000 in the form of a secured note at 12%
interest which was repaid at the equity closing.
In May 1997, the Company issued 3,333,332 shares of new Series G Convertible
Preferred Stock at $1.80 per share to an investor, Prior to the equity financing
closing, two previous investors loaned the Company $500,000 at 10% interest and
$500,000 at 12% interest which along with accrued interests was converted to
558,332 shares of Series G Convertible Preferred Stock.
F-54
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
In addition to the new equity financing, the Series F Convertible debenture
holders converted all of their debentures and accrued interest of $3,162,899
into 1,757,160 shares of Series G Preferred Stock at $1.80 per share, which
conversion rate was adjusted as a result of the negotiated terms of the
Series G financing from the originally stipulated rate.
As a result of the above mentioned financing, various provisions affecting
Series D Preferred Stock and Series D and F Warrants were triggered resulting in
the potential issuance of 208,451 additional shares of common stock upon the
conversion Series D Convertible Preferred Stock and 35,234 additional Series D
and 143,939 additional Series F Warrants upon the conversion of these shares
into common stock.
The Series E Preferred Stock purchase agreement contained a provision that
if the Series E Preferred Stock is not converted to common prior to
November 30, 1997, and certain earnings targets were not achieved, the Series E
conversion price drops from $2.50 per Share to $1.50 per share. This event did
occur on November 30, 1997 and will result in 1,373,333 additional shares being
issued to Series E Preferred shareholders upon conversion of the Series E shares
to common stock.
PREFERRED STOCK
Preferred stock may be converted into common stock at the shareholder's
option. The Series A, B and C preferred shares converts on a share-for-share
basis. The Series D, E, F and G preferred shares contain certain ratchet
provisions which increase the number of common shares to be issued upon
conversion of the preferred shares. As of December 31, 1997 additional ratchet
shares have been triggered by antidilution provisions in the preferred stock
agreements. As a result of these ratchet provisions being triggered by
additional financings, the potential increase in common shares to be issued
would be 1,581,785 shares. The Company has reserved 13,489,688 shares of common
stock for issuance upon conversion. The Company has reserved 170,000 shares of
preferred stock for issuance upon conversion of debentures. The preferred stock
has the same voting rights as common stock and automatically converts to common
stock on any public offering. In the event of liquidation the preferred
shareholders are entitled to receive distributions in amounts per share that
reflect the original purchase price of the preferred stock to the various
holders. In addition, the Series D and Series E shareholders receive a defined
rate of return on their investment prior to any distribution to the common stock
shareholders.
STOCK OPTION PLANS
The Company has an incentive stock Option plan for employees under which
options to purchase shares of the Company's common stock are granted at the fair
value of the common stock at the date of grant. Options may be exercised based
on individual vesting schedules.
The Company also has a nonqualified stock option plan. Under this. plan,
options to purchase shares of the Company's Common stock are granted at a price
equal to the fair value of the common
F-55
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
stock at the date of grant. These options may be exercised based on a five year
vesting schedule. Following is a summary of incentive and nonqualified shock
option activity:
<TABLE>
<CAPTION>
INCENTIVE STOCK OPTION PLAN NONQUALIFIED STOCK OPTION PLAN
------------------------------------- -------------------------------------
WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE
UNDER PRICE PER PRICE PER UNDER PRICE PER PRICE PER
OPTION SHARE SHARE OPTION SHARE SHARE
--------- ------------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding December 31, 1995..... 824,766 $ 1.59 69,762 $ 1.59
Granted during the year......... 69,600 2.50 12,000 .875
Canceled during the year........ (118,700) 1.09 -- --
Exercise during the year........ (13,333) .875 -- --
--------- -------
Outstanding December 31, 1996..... 762,333 $0.75 - $2.50 1.76 81.762 $ 0.875- $2.50 1.48
Granted during the year......... 657,376 1.80 28,000 1.80
Canceled during the year........ (225,277) 1.85 --
--------- -------
Outstanding December 31, 1997..... 1,194,432 0.75 - 2.50 1.76 109.762 0.875 - 2.50 1.56
========= =======
Exercisable at December 31,
1996............................ 247,884 1.20 23,252 1.39
Exercisable at December 31,
1997............................ 352,092 1.61 47,851 1.43
</TABLE>
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, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION (Statement 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 grant, no compensation expense is recognized. Pro forma
information regarding net loss is required by Statement 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a minimum value option pricing model with
the following weighted-average assumptions for 1997 and 1996, respectively:
risk-free interest rate of 5.8% and 6.0%, respectively, and a weighted-average
expected life of the option of 5 years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Pro forma net loss................................... $5,485,275 $4,850,665
</TABLE>
During the initial phase-in period, the effects of applying FASB 123 for
recognizing compensation cost may not be representative of the effects on
reported net loss or income for future years because the options in the
Incentive Stock Option Plans vest over several years and additional awards will
be made in the future.
F-56
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SHAREHOLDERS' EQUITY (CONTINUED)
The weighted average fair value for options granted during fiscal 1997 and
fiscal 1996 is $.47 and $.63 per share, respectively. As of December 31, 1997,
outstanding options had a weighted average remaining contractual life of 2.9
years and 5.2 years, respectively.
At December 31, 1997 and 1996, there were a total of 2,289,667 and 1,200,000
shares respectively reserved for both stock option plans.
At December 31, 1997, the Company has outstanding warrants which provide the
warrant holders the ability to purchase 2,169,124 shares of common stock of the
Company. The data pertaining to the warrants follows:
<TABLE>
<CAPTION>
COMMON SHARES
FINANCING TO WHICH THE COVERED BY THE EXERCISE
HOLDER OF WARRANT WARRANT IS ATTACHED WARRANT PRICE MATURITY DATE
- ----------------- ---------------------------------- -------------- -------- ---------------------
<S> <C> <C> <C> <C>
Preferred shareholder Series D preferred stock 189,873 $2.37 March 13, 2000
Shareholder Note payables (Balance paid off in 9,600 3.00 October 15, 1998
1997)
Director/shareholder Note payable (outstanding at 9,600 3.00 April 15, 1999
December 31, 1997 with balance
of $49,253)
Preferred Series E preferred stock 38,334 3.00 March 1, 2001
shareholders/
director
Director/shareholders Series F convertible debt 1,893,939 2.31 September 30, 2006
Leasing Company Capital lease line 27,778 1.80
(outstanding at
December 31, 1997 with
balance of $370,849)
</TABLE>
F-57
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The following financing arrangements were made with related parties:
<TABLE>
<CAPTION>
INTEREST
DATE AMOUNT MATURITY RATE TYPE
-------- -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
Chairman/director.............. 10/11/96 $ 15,000 12/1/97 10% Convertible Debenture
Shareholder/former director.... 9/5/94 50,000 9/5/98 11% Convertible Debenture
9/4/96 63,905 12/1/97 10% Convertible Debenture
10/21/96 50,000 12/1/97 10% Convertible Debenture
Affiliate of former director... 9/24/94 50,000 9/24/98 11% Convertible Debenture
10/15/95 65,641 10/15/98 13% Secured Loan
12/28/95 50,000 3/11/96 10% Demand Note
3/11/96 50,000 5/1/96 10% Demand Note
9/4/96 9,672 12/1/97 10% Convertible Debenture
Shareholder/former director.... 9/25/94 20,000 9/25/98 11% Convertible Debenture
9/12/96 45,000 12/1/97 10% Convertible Debenture
10/29/96 20,000 12/1/97 10% Convertible Debenture
Director/shareholder........... 9/25/94 180,000 9/25/98 11% Convertible Debenture
4/15/95 81,003 4/15/98 13% Secured Loan
12/28/95 250,000 3/11/96 10% Demand Loan
3/11/96 550,000 5/1/96 10% Demand Loan
8/8/96 500,000 9/16/96 12% Convertible Debenture
9/30/96 22,140 12/1/97 10% Convertible Debenture
10/25/96 230,427 12/1/97 10% Convertible Debenture
12/9/96 250,000 12/1/97 10% Convertible Debenture
4/23/97 125,000 5/23/97 10% Demand Note
5/2/97 125,000 5/23/97 10% Demand Note
5/15/97 250,000 5/23/97 12% Demand Note
Relative of director........... 1/1/95 100,000 11/3/98 11% Convertible Debenture
Relative of director........... 1/1/95 100,000 11/3/98 11% Convertible Debenture
Relative of
director/shareholder......... 10/10/94 25,000 10/10/98 11% Convertible Debenture
9/12/96 4,000 12/1/97 10% Convertible Debenture
9/12/96 22,965 12/1/97 10% Convertible Debenture
Relative of shareholder/former
director..................... 9/24/94 50,000 9/24/98 11% Convertible Debenture
An outside investor which
subsequently became a
preferred shareholder of the
Company...................... 4/21/96 750,000 5/1/96 12% Demand Note
8/29/96 502,000 9/16/96 12% Convertible Debenture
9/16/96 272,000 12/1/97 10% Convertible Debenture
10/16/96 230,427 12/1/97 10% Convertible Debenture
11/26/96 250,000 12/1/97 10% Convertible Debenture
4/23/97 125,000 5/23/97 10% Demand Note
5/2/97 125,000 5/23/97 10% Demand Note
5/15/97 250,000 5/23/97 12% Demand Note
<CAPTION>
STATUS
------------------------------------------
<S> <C>
Chairman/director.............. Converted to series G Preferred Stock in
1997
Shareholder/former director.... Paid in full in 1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Affiliate of former director... Paid in full in 1997
Outstanding
Paid in full in 1996
Paid in full in 1996
Converted to Series G Preferred Stock in
1997
Shareholder/former director.... Outstanding
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Director/shareholder........... Outstanding
Outstanding
Paid in full in 1996
Paid in full in 1996
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Relative of director........... Outstanding
Relative of director........... Outstanding
Relative of
director/shareholder......... Outstanding
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Relative of shareholder/former
director..................... Paid in full in 1997
An outside investor which
subsequently became a
preferred shareholder of the
Company...................... Paid in full in 1996
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
Converted to Series G Preferred Stock in
1997
</TABLE>
Prepaid director's compensation, recorded as the result of 58,566 shares of
common stock issued to directors in 1994, is being amortized on the
straight-line basis over the board members' five-year term.
F-58
<PAGE>
HARMONIC SYSTEMS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MAJOR CUSTOMERS
The Company sells a substantial portion of its product to a few customers.
During 1997 and 1996, sales to the Company's four major customers aggregated
$7,316,652 and $7,024,751, respectively.
10. YEAR 2000 ISSUE (UNAUDITED)
The Company has determined that it will not need to modify or replace
significant portions of its software so that its computer systems will function
properly with respect to dates in the Year 2000 and beyond. The Company will
need to initiate discussions with its significant suppliers, large customers and
financial institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their system interfaces with the Company's
systems or otherwise impacts its operations. The Company will need to assess the
extent to which its operations are vulnerable should those organizations fail to
properly remediate their computer systems.
11. SUBSEQUENT EVENT
In May 1998, the Company renegotiated the terms of its bank credit agreement
whereby the maximum borrowing amount was increased from $1,500,000 to $2,000,000
and, the financial covenants were modified.
12. GOING CONCERN
The Company has incurred operating losses since inception accumulating a
deficit of approximately $17 million through December 31, 1997. In addition, in
the years ended December 31, 1997 and 1996, the Company used cash for operations
of approximately $5,419,000 and $6,848,000, respectively. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management plans to mitigate these factors include, but are not limited to,
efforts to obtain additional sources of equity or debt financing as well as to
increase revenues from continued marketing efforts. However, achievement of
those plans is in part dependent upon conditions beyond the control of
management.
F-59
<PAGE>
- -------------------------------------------------------
- -------------------------------------------------------
PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER ALLIANCE DATA SYSTEMS CORPORATION NOR ANY UNDERWRITER HAS
AUTHORIZED ANYONE TO PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER
TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS
PROSPECTUS OR ANY SALE OF THESE SECURITIES.
NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY OF THESE JURISDICTIONS. PERSONS WHO COME INTO POSSESSION OF
THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTIONS OF THIS PROSPECTUS.
------------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary............................. 1
Risk Factors................................... 7
Special Note Regarding Forward-Looking
Statements................................... 18
Use of Proceeds................................ 19
Dividend Policy................................ 20
Dilution....................................... 21
Capitalization................................. 22
Unaudited Pro Forma Consolidated Financial
Information.................................. 23
Selected Historical Consolidated Financial and
Operating Information........................ 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 31
Description of our Business.................... 44
Management..................................... 58
Principal Stockholders......................... 67
Certain Relationships and Related
Transactions................................. 69
Description of Capital Stock................... 72
Underwriting................................... 76
Legal Matters.................................. 78
Experts........................................ 78
Where You Can Find More Information............ 79
Index to Financial Statements.................. F-1
</TABLE>
------------------------------
Dealer Prospectus Delivery Obligation:
Until , 2000 (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' obligations to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------
- -------------------------------------------------------
[LOGO]
SHARES
COMMON STOCK
---------------------
PROSPECTUS
---------------------
BEAR, STEARNS & CO. INC.
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
, 2000
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13--OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the issuance and distribution of
the securities being registered, other than underwriting discounts and
commissions are set forth in the following table. The Company will pay all
expenses of issuance and distribution. Each amount, except for the SEC, NASD and
New York Stock Exchange fees, is estimated.
<TABLE>
<S> <C>
SEC registration fees....................................... $79,200
NASD filing fees............................................ 30,500
New York Stock Exchange application listing fee.............
Transfer agent's and registrar's fees and expenses..........
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses.................................. 5,000
Miscellaneous...............................................
-------
Total..................................................... $ *
=======
</TABLE>
- ------------------------
* To be completed by amendment
ITEM 14--INDEMNIFICATION OF DIRECTORS AND OFFICERS
Alliance Data Systems Corporation's Certificate of Incorporation provides
that it shall, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law, indemnify all persons whom it may indemnify under
Delaware law.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to indemnity for such expenses despite such
adjudication of liability.
Alliance Data Systems Corporation's Bylaws provide for indemnification by it
of its directors, officers and certain non-officer employees under certain
circumstances against expenses (including attorneys' fees, judgments, fines and
amounts paid in settlement) reasonably incurred in connection with the defense
or settlement of any threatened, pending or completed legal proceeding in which
any such person is involved by reason of the fact that such person is or was an
officer or employee of Alliance Data Systems
II-1
<PAGE>
Corporation if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of Alliance
Data Systems Corporation, and, with respect to criminal actions or proceedings,
if such person had no reasonable cause to believe his or her conduct was
unlawful. Alliance Data Systems Corporation's Certificate of Incorporation also
provides that, to the fullest extent permitted by the Delaware General
Corporation Law, no director shall be personally liable to Alliance Data Systems
Corporation or its stockholders for monetary damages resulting from breaches of
their fiduciary duty as directors.
Expenses for the defense of any action for which indemnification may be
available may be advanced by Alliance Data Systems Corporation under certain
circumstances. The general effect of the foregoing provisions may be to reduce
the circumstances which an officer or director may be required to bear the
economic burden of the foregoing liabilities and expenses. Directors and
officers will be covered by liability insurance indemnifying them against
damages arising out of certain kinds of claims which might be made against them
based on their negligent acts or omissions while acting in their capacity as
such.
ITEM 15--RECENT SALES OF UNREGISTERED SECURITIES
Since January 1997, Alliance Data Systems Corporation has issued and sold
the following unregistered securities:
(1) In July 1998, 12,386,913 shares of common stock were sold to various
Welsh, Carson, Anderson & Stowe limited partnerships and a total of
600,100 shares of common stock were sold to a total of 16 individuals
who are partners of some or all of the Welsh Carson limited
partnerships for $100 million to finance, in part, the acquisition of
all of the outstanding capital stock of the Loyalty Management Group
Canada Inc.
(2) In August 1998, 38,961 shares of common stock were sold to WCAS Capital
Partners II, L.P. at a value of $7.70 per share as consideration for
extending the maturity on a 10% subordinated note, issued to WCAS
Capital Partners II, originally due January 24, 2002 to October 25,
2005 and 25,974 shares were sold to Limited Commerce Corp. at a value
of $7.70 per share as consideration for extending the maturity on a 10%
subordinated note, issued to Limited Commerce Corp., originally due
January 24, 2002 to October 25, 2005.
(3) In September 1998, 842,857 shares of common stock were sold to WCAS
Capital Partners III, LP to finance, in part, the acquisition of
Harmonic Systems Incorporated.
(4) In July 1999, a total of 120,000 shares of Series A preferred stock
were sold to Welsh, Carson, Anderson & Stowe VIII, L.P., WCAS
Information Partners, L.P. and 20 individuals who are also partners of
some or all of the Welsh Carson limited partnerships for $120 million.
The shares of Series A preferred stock were issued to finance, in part,
the acquisition of the network transaction processing business of
SPS Payment Systems, Inc.
(5) Since February 1997, Alliance Data Systems Corporation has granted
stock options to purchase shares of its common stock under its stock
option plan covering an aggregate of 2,761,142 shares, at exercise
prices ranging from $7.00 to $8.75 per share. Since February 1997,
Alliance Data Systems Corporation has issued 21,027 shares of Alliance
Data Systems Corporation's common stock pursuant to the exercise of
stock options. Since February 1997, 53,259 stock options have lapsed
without being exercised.
II-2
<PAGE>
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act in reliance
upon Section 4(2) of the Securities Act, Regulation D promulgated thereunder or
Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions
by an issuer not involving any public offering or transactions pursuant to
compensatory benefit plans and contracts relating to compensation as provided
under Rule 701. The recipients of securities in each transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with Alliance Data
Systems, to information about the Company.
ITEM 16--EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
- ------- --------
<C> <S>
*1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of August 30, 1996,
by and between Business Services Holdings, Inc. and World
Financial Network Holding Corporation.
2.2 Agreement and Plan of Merger, dated as of August 14, 1998,
by and among Alliance Data Systems Corporation, HSI
Acquisition Corp., and Harmonic Systems Incorporated.
2.3 Stock Purchase Agreement, dated June 8, 1998, by and between
SPS Payment Systems, Inc., Alliance Data Systems
Corporation, SPS Commercial Services, Inc., and ADS
Network Services, Inc., amended July 12, 1999.
*2.4 Agreement for the Purchase of all the Shares of Loyalty
Management Group Canada Inc., June 26, 1998, by and
between Air Miles International Group B.V., certain other
shareholders and option holders and Alliance Data Systems
Corporation as amended July 14, 1998.
*3.1 Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
*3.2 Form of Second Amended and Restated Bylaws of the
Registrant.
*4 Specimen Certificate for shares of Common Stock of the
Registrant.
*5 Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
*10.1 Credit Card Processing Agreement between World Financial
Network National Bank, Bath and Body Works, Inc. and
Tri-State Factoring, Inc., dated January 31, 1996.
*10.2 Credit Card Processing Agreement between World Financial
Network National Bank, Victoria's Secret Catalogue, Inc.,
and Far West Factoring Inc., dated January 31, 1996
(assigned by Victoria's Secret Catalogue, Inc. to
Victoria's Secret Catalogue, LLC, May 2, 1998).
*10.3 Credit Card Processing Agreement between World Financial
Network National Bank, Victoria's Secret Stores, Inc., and
Lone Mountain Factoring, Inc., dated January 31, 1996.
*10.4 Credit Card Processing Agreement between World Financial
Network National Bank, Lerner New York, Inc., and Nevada
Receivable Factoring, Inc., dated January 31, 1996.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
- ------- --------
<C> <S>
*10.5 Credit Card Processing Agreement between World Financial
Network National Bank, Express, Inc., and Retail
Factoring, Inc., dated January 31, 1996.
*10.6 Credit Card Processing Agreement between World Financial
Network National Bank, The Limited Stores, Inc., and
American Receivable Factoring, Inc., dated January 31,
1996.
*10.7 Credit Card Processing Agreement between World Financial
Network National Bank, Structure, Inc., and Mountain
Factoring, Inc., dated January 31, 1996.
*10.8 Credit Card Processing Agreement between World Financial
Network National Bank, Lane Bryant, Inc., and Sierra
Nevada Factoring, dated January 31, 1996, and amended
August 4, 1998 and September 12, 1999.
*10.9 Credit Card Processing Agreement between World Financial
Network National Bank, Henri Bendel, Inc., and Western
Factoring, Inc., dated January 31, 1996 and amended
May 13, 1998.
*10.10 Supplier Agreement between Canadian Airlines International
Ltd. and Loyalty Management Group Canada Inc., dated March
15, 1996, as amended.
10.11 Lease between Deerfield and Weiland Office Building, L.L.C.
and ADS Alliance Data Systems, Inc., dated July 30, 1999.
10.12 Indenture of Sublease between J.C. Penney Company, Inc. and
BSI Business Services, Inc., dated January 11, 1996.
10.13 Build-to-Suit Net Lease between Opus South Corporation and
ADS Alliance Data Systems, Inc., dated January 29, 1998.
10.14 Industrial Lease Agreement between CIBC Development
Corporation and Loyalty Management Group Canada Inc.,
dated October 19, 1998, amended January 26, 1999.
10.15 Lease between YCC Limited and London Life Insurance Company
and Loyalty Management Group Canada Inc. dated May 28,
1997 and amended June 19, 1997 and January 15, 1998.
10.16 Deed of Lease between Boswell International Marine (PTE)
Limited and Financial Automation Limited, dated August 3,
1999.
10.17 Office Lease between Office City, Inc. and World Financial
Network National Bank, dated December 24, 1986, and
amended January 19, 1987, May 11, 1988, August 4, 1989 and
August 18, 1999.
10.18 Lease Agreement by and between Continental Acquisitions,
Inc. and World Financial Network National Bank, dated July
2, 1990, and amended September 11, 1990, November 16, 1990
and February 18, 1991.
10.19 Lease Agreement by and between Americana Parkway Warehouse
Limited and World Financial Network National Bank, dated
June 28, 1994.
10.20 Lease Agreement by and between Morrison Taylor II, Ltd. and
ADS Alliance Data Systems, Inc., dated June 18, 1998, and
amended June 18, 1998.
10.21 Lease Agreement between Morrison Taylor, Ltd. and ADS
Alliance Data Systems, Inc. dated July 1, 1997, and
amended June 18, 1998.
10.22 Commercial Lease Agreement between Waterview Parkway, L.P.
and ADS Alliance Data Systems, Inc., dated July 16, 1997.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
- ------- --------
<C> <S>
10.23 Preferred Stock Purchase Agreement by and between Alliance
Data Systems Corporation and several persons named in
Schedule I thereto, dated July 12, 1999.
10.24 Amended and Restated Stockholder Agreement, by and between
World Financial Network Holding Corporation, Limited
Commerce Corp., Welsh, Carson, Anderson, and Stowe VII,
L.P., and the several other investors named in Annex 1
thereto dated August 30, 1996, and amended July 24, 1998,
August 31, 1998 and July 12, 1999.
10.25 Securities Purchase Agreement, by and between Business
Services Holdings, Inc., and the several purchasers named
in Schedule 1 and Schedule II thereto, dated January 24,
1996, and amended August 31, 1998.
10.26 Common Stock Purchase Agreement between Alliance Data
Systems Corporation and Welsh, Carson, Anderson, and Stowe
VII, L.P., Welsh, Carson, Anderson, and Stowe VIII, L.P.,
and the persons named in Schedule I thereto, dated July
24, 1998.
10.27 Securities Purchase Agreement between Alliance Data Systems
Corporation and WCAS Capital Partners III, L.P., dated
September 15, 1998.
10.28 10% Subordinated Note due September 15, 2008 issued by
Alliance Data Systems Corporation to WCAS Capital Partners
III, L.P. dated September 15, 1998.
10.29 10% Subordinated Note due October 25, 2005 issued by
Alliance Data Systems Corporation to the Limited Commerce
Corp., dated January 24, 1996.
10.30 10% Subordinated Note due October 25, 2005 issued by
Alliance Data Systems Corporation to WCAS Capital Partners
II, L.P. dated January 24, 1996.
10.31 Amended and Restated Credit Agreement between Alliance Data
Systems Corporation, and Loyalty Management Group Canada,
Inc., the Guarantors party thereto, the Banks party
thereto, and Morgan Guaranty Trust Company of New York,
dated July 24, 1998.
10.32 Pooling and Servicing Agreement, dated as of January 30,
1998, by and between World Financial Network National
Bank, as Transferor and as Servicer, and The Bank of New
York, as Trustee.
10.33 ADS Alliance Data Systems, Inc. Supplemental Executive
Retirement Plan, effective May 1, 1999.
10.34 Alliance Data Systems Corporation Stock Option and
Restricted Stock Purchase Plan, as amended.
10.35 Form of Alliance Data Systems Corporation Incentive Stock
Option Agreement.
10.36 Form of Alliance Data Systems Corporation Non-Qualified
Stock Option Agreement.
10.37 Form of Alliance Data Systems Corporation Confidentiality
and Non-Solicitation Agreement.
10.38 Alliance Data Systems Corporation 1999 Incentive
Compensation Plan.
10.39 Letter employment agreement with J. Michael Parks, dated
February 19, 1997.
10.40 Letter employment agreement with Ivan Szeftel, dated May 4,
1998.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBITS
- ------- --------
<C> <S>
10.41 Registration Rights Agreement dated as of January 24, 1996
between Business Services Holdings, Inc. and Welsh Carson,
Andersen, and Stowe VII, L.P., WCAS Information Partners,
L.P., WCA Management Corporation, Patrick J. Welsh,
Russell L. Carson, Bruce K. Anderson, Richard H. Stowe,
Andrew M. Paul, Thomas E. McInerney, Laura VanBuren, James
B. Hoover, Robert A. Minicucci, Anthony J. deNicola, and
David Bellet.
10.42 Securities Purchase Agreement, dated as of August 30, 1996,
by and among World Financial Network Holding Corporation,
Limited Commerce Corp., and several persons named in
Schedules I and II thereto, and WCAS Capital Partners II,
L.P., as amended August 31, 1998.
10.43 Amended and Restated License to Use the Air Miles Trade
Marks in Canada, dated as of July 24, 1998, by and between
Air Miles International Holdings N.V. and Loyalty
Management Group Canada Inc.
10.44 Amended and Restated License to Use and Exploit the Air
Miles Scheme in Canada, dated July 24, 1998, by and
between Air Miles International Trading B.V. and Loyalty
Management Group Canada Inc.
10.45 License to Use the Air Miles Trademarks in the United
States, dated as of July 24, 1998, by and between Air
Miles International Holdings N.V. and Loyalty Management
Group Canada Inc.
10.46 License to Use and Exploit the Air Miles Scheme in the
United States, dated as of July 1998, by and between Air
Miles International Trading B.V. and Alliance Data Systems
Corporation.
*10.47 Form of Retainer Agreement entered into between ADS Alliance
Data Systems, Inc. and certain affiliates of The Limited,
Inc.
*10.48 Form of Business Solutions Master Agreement between ADS
Alliance Data Systems, Inc. and certain affiliates of The
Limited, Inc.
21 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Ernst & Young LLP with regard to Loyalty
Management Group Canada Inc.
23.3 Consent of Ernst & Young LLP with regard to Harmonic Systems
Incorporated.
*23.4 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(included in its opinion filed as Exhibit 5 hereto).
24 Power of Attorney (included on the signature page hereto)
27 Financial Data Schedule (included in SEC-filed copy only).
</TABLE>
- ------------------------
* To be filed by amendment
(b) Financial Statement Schedules
None.
II-6
<PAGE>
ITEM 17--UNDERTAKINGS
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.
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
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 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 of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Dallas, State of Texas, on January 13, 2000.
<TABLE>
<S> <C>
ALLIANCE DATA SYSTEMS CORPORATION
By: /s/ J. MICHAEL PARKS
--------------------------------------------
J. Michael Parks
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of Alliance Data Systems Corporation
hereby constitute and appoint J. Michael Parks and Edward K. Mims, with full
power to act and with full power of substitution and resubstitution, our true
and lawful attorney-in-fact and agent with full power to execute in our name and
behalf in the capacities indicated below any and all amendments (including
post-effective amendments and amendments thereto) to this Registration Statement
and to file the same, with all exhibits and other documents relating thereto and
any registration statement relating to any offering made pursuant to this
Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act with the Securities and Exchange Commission
and hereby ratify and confirm all that such attorney-in-fact or his substitute
shall lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on January 13, 2000:
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ J. MICHAEL PARKS Chairman of the Board, Chief Executive Officer
------------------------------------------- and President
J. Michael Parks (principal executive officer)
/s/ EDWARD K. MIMS Executive Vice President,
------------------------------------------- Chief Financial Officer
Edward K. Mims (principal financial officer)
/s/ MICHAEL D. KUBIC Corporate Controller and
------------------------------------------- Chief Accounting Officer
Michael D. Kubic (principal accounting officer)
/s/ BRUCE K. ANDERSON
------------------------------------------- Director
Bruce K. Anderson
/s/ ANTHONY J. DENICOLA
------------------------------------------- Director
Anthony J. deNicola
/s/ DANIEL P. FINKELMAN
------------------------------------------- Director
Daniel P. Finkelman
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ ROBERT A. MINICUCCI
------------------------------------------- Director
Robert A. Minicucci
/s/ BRUCE A. SOLL
------------------------------------------- Director
Bruce A. Soll
</TABLE>
II-9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Between
BUSINESS SERVICES HOLDINGS, INC.
and
WORLD FINANCIAL NETWORK HOLDING CORPORATION
Dated as of August 30, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S><C>
PAGE
ARTICLE I
THE MERGER
SECTION 1.01 The Merger .................................................... 1
SECTION 1.02 Effect of the Merger .......................................... 1
SECTION 1.03 Consummation of the Merger .................................... 2
SECTION 1.04 Charter; By-Laws; Directors and
Officers ...................................................... 2
SECTION 1.05 Further Assurances ............................................ 3
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 Conversion of Common and Preferred
Stock of BSI ................................................. 3
SECTION 2.02 Stock Options, Warrants, Etc ................................. 4
SECTION 2.03 Surrender and Exchange of Securities ......................... 4
SECTION 2.04 Closing of Stock Transfer Books .............................. 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 Representations and Warranties of
BSI and WFN .................................................. 5
ARTICLE IV
COVENANTS
SECTION 4.01 Certain Covenants ........................................... 13
SECTION 4.02 Access to Information ....................................... 14
SECTION 4.03 Other Agreements ............................................ 14
SECTION 4.04 Notification of Certain Matters ............................. 14
SECTION 4.05 Indemnification ............................................. 14
<PAGE>
ARTICLE V
CONDITIONS PRECEDENT TO THE MERGER
SECTION 5.01 Conditions Precedent to the Merger .......................... 15
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 Termination and Abandonment ................................. 17
SECTION 6.02 Effect of Termination ....................................... 17
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Expenses, Etc ............................................... 17
SECTION 7.02 Publicity ................................................... 18
SECTION 7.03 Execution in Counterparts ................................... 18
SECTION 7.04 Notices ..................................................... 18
SECTION 7.05 Waivers ..................................................... 18
SECTION 7.06 Amendments, Supplements, Etc ................................ 19
SECTION 7.07 Entire Agreement ............................................ 19
SECTION 7.08 Applicable Law .............................................. 19
SECTION 7.09 Binding Effect, Benefits .................................... 19
SECTION 7.10 Assignability ............................................... 19
SECTION 7.11 Variation and Amendment ..................................... 20
ii
<PAGE>
INDEX TO SCHEDULES AND EXHIBITS
SCHEDULE DESCRIPTION
3.01 (b) Subsidiaries
3.01 (c) Capitalization
3.01 (e) Effect of Agreements
3.01 (f) Financial Statements
3.01 (g) Certain Changes
3.01 (i) Litigation
3.01 (j) Labor Controversies
3.01 (l) Approvals
3.01 (m) Employee Benefit Plans
5.01 (e) Consents
EXHIBIT SECTION REF. DESCRIPTION
A 5.01(f) Form of Amended and Restated Stockholders
Agreement
B 5.01(g) Form of Securities Purchase Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 30, 1996, between
BUSINESS SERVICES HOLDINGS, INC., a Delaware corporation ("BSI"), and WORLD
FINANCIAL NETWORK HOLDING CORPORATION, a Delaware corporation ("WFN"). BSI and
WFN are hereinafter sometimes referred to as the "Constituent Corporations" and
WFN as the "Surviving Corporation".
WHEREAS, BSI and WFN desire that BSI merge with and into WFN (the
"Merger"), upon the terms and conditions set forth herein and in accordance with
the General Corporation Law of the State of Delaware (the "Delaware GCL"), with
the result that WFN shall continue as the surviving corporation and the separate
existence of BSI shall cease; and
WHEREAS, BSI and WFN desire that at the Effective Time (as hereinafter
defined) all issued and outstanding shares of Common Stock, $.01 par value ("BSI
Common Stock"), and Preferred Stock, $1.00 par value ("BSI Preferred Stock"), of
BSI (excluding shares held in the treasury of BSI) be converted into the right
to receive fully paid and nonassessable shares of Common Stock, $.01 par value
("WFN Common Stock"), of WFN, as hereinafter provided; and
WHEREAS, the respective Boards of Directors and stockholders of BSI
and WFN have approved the Merger;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Merger and the mode of carrying the
same into effect, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01 THE MERGER. Subject to the terms and conditions of this
Agreement, at the Effective Time, in accordance with this Agreement and the
Delaware GCL, BSI shall be merged with and into WFN, the separate existence of
BSI shall cease, and WFN shall continue as the surviving corporation under the
corporate name of "World Financial Network Holding Corporation".
SECTION 1.02 EFFECT OF THE MERGER. Upon the effectiveness of the
Merger, the Surviving Corporation shall possess all of the rights, privileges,
powers and franchises as well of a public as of a private nature, and be subject
to all the
1
<PAGE>
restrictions, disabilities and duties, of each of the Constituent Corporations;
and all and singular, the rights, privileges, powers and franchises of each of
the Constituent Corporations, and all property, real, personal and mixed, and
all debts due to any of the Constituent Corporations on whatever account, as
well for stock subscriptions as all other things in action or belonging to each
of the Constituent Corporations, shall be vested in the Surviving Corporation;
and all property, rights, privileges, powers and franchises, and all and every
other interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise in any of the Constituent Corporations
shall not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations (including, without limitation, the
indebtedness evidenced by the 10% Subordinated Note due January 24, 2002 of BSI
in the aggregate principal amount of $50,000,000 (the "Note")) shall thenceforth
attach to the Surviving Corporation, and may be enforced against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it. In connection with the foregoing, the Surviving Corporation shall, at the
Effective Time (as hereinafter defined), in addition to such other actions as
may be required in connection with the Merger, execute and deliver to the holder
of the Note, in substitution therefore, a 10% Subordinated Note due January 24,
2002 of the Surviving Corporation having terms identical to those contained in
the Note.
SECTION 1.03 CONSUMMATION OF THE MERGER. As soon as practicable after
the satisfaction or waiver of the conditions to the obligations of the parties
to effect the Merger set forth herein, provided that this Agreement has not been
terminated previously, the parties hereto will cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
properly executed Certificate of Merger (the time of such filing being the
"Effective Time").
SECTION 1.04 CHARTER; BY-LAWS; DIRECTORS AND OFFICERS. The Certificate
of Incorporation of the Surviving Corporation from and after the Effective Time
shall be the Certificate of Incorporation of WFN as in effect immediately prior
to the Effective Time, until thereafter amended in accordance with the
provisions thereof, the terms of the Amended and Restated Stockholders Agreement
referred to in Section 5.01(f) hereof and as provided by the Delaware GCL. The
By-Laws of the Surviving Corporation from and after the Effective Time shall be
the By-Laws of WFN as in effect immediately prior to the Effective Time,
continuing until thereafter amended in accordance with the
2
<PAGE>
provisions thereof, the terms of the Amended and Restated Stockholders Agreement
referred to in Section 5.01(f) hereof and the Certificate of Incorporation of
the Surviving Corporation and as provided by the Delaware GCL. The initial
directors and officers of the Surviving Corporation shall be the directors and
officers, respectively, of WFN immediately prior to the Effective Time, in each
case until their respective successors are duly elected and qualified.
SECTION 1.05 FURTHER ASSURANCES. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (ii) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and do, in the name and on
behalf of such Constituent Corporation, all such other acts and things
necessary, desirable or proper to vest, perfect or confirm its right, title or
interest in, to or under any of the rights, privileges, powers, franchises,
properties or assets of such Constituent Corporation and otherwise to carry out
the purposes of this Agreement.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.01 CONVERSION OF COMMON AND PREFERRED STOCK OF BSI. By
virtue of the Merger and without any action on the part of the holders of the
capital stock of BSI, at the Effective Time all outstanding shares of the
capital stock of BSI (excluding shares held in the treasury of BSI, which shall
be cancelled as provided in paragraph (d) below) shall be converted into the
right to receive fully paid and nonassessable shares of WFN Common Stock on the
following basis:
(a) BSI COMMON STOCK. Each share of BSI Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive fully paid and nonassessable shares of WFN Common Stock, at the
rate of one (1) share of WFN Common Stock for each share of BSI Common Stock.
(b) BSI PREFERRED STOCK. Each share of BSI Preferred Stock issued and
outstanding immediately prior to the Effective
3
<PAGE>
Time shall be converted into the right to receive a number of fully paid and
nonassessable shares of WFN Common Stock equal to the quotient derived by
dividing:
(i) an amount equal to the sum of (x) $100 (the liquidation value of
each share of BSI Preferred Stock), plus (y) any accrued and unpaid
dividends thereon through the Effective Time; by
(ii) $1.00.
(c) PREFERRED STOCK DIVIDENDS. At the Effective Time the obligations
of BSI to pay accrued and unpaid dividends on the issued and outstanding shares
of BSI Preferred Stock shall be cancelled.
(d) TREASURY STOCK. Each share of capital stock of BSI that is held in
the treasury of BSI shall be cancel led and retired at the Effective Time and no
capital stock of WFN, cash or other consideration shall be paid or delivered in
exchange therefor.
SECTION 2.02 STOCK OPTIONS, WARRANTS. ETC. Each outstanding stock
option, warrant or other right to purchase BSI Common Stock, whether or not then
exercisable or vested, shall remain outstanding after the Effective Time and
shall at the Effective Time, subject to the satisfaction of the vesting
provisions and the payment of the exercise price thereof, be converted, subject
to Section 2.03(c) hereof, into and become the right to purchase that number of
shares of WFN Common Stock equal to the number of shares of BSI Common Stock
that would have been issued if such option, warrant or other right had been
exercised immediately prior to the Effective Time.
SECTION 2.03 SURRENDER AND EXCHANGE OF SECURITIES. (a) At the
Effective Time, each holder of an outstanding certificate or certificates that
prior thereto represented shares of BSI Common Stock or BSI Preferred Stock
shall surrender the same to WFN or its agent, and each such holder shall be
entitled upon such surrender to receive in exchange therefor, without cost to
it, the number of shares of WFN Common Stock into which the shares theretofore
represented by the certificate so surrendered shall have been converted as
provided in Section 2.01 hereof, and the certificate or certificates so
surrendered in exchange for such consideration shall forthwith be cancelled by
WFN.
(b) If a holder of BSI Common Stock or BSI Preferred Stock has lost
the certificate owned by such holder, then such holder shall submit an affidavit
describing the lost certificate, the number of shares evidenced thereby and
affirming the loss of that certificate in lieu of surrendering the lost
certificate to
4
<PAGE>
WFN, which shall deem such lost certificate cancelled. Until so surrendered, the
outstanding certificates that, prior to the Effective Time, represented shares
of the capital stock of BSI that shall have been converted as aforesaid shall be
deemed for all corporate purposes, except as hereinafter provided, to evidence
the ownership of the consideration into which such shares have been so
converted.
(c) At the Effective Time, each holder of an outstanding option or
warrant to purchase shares of BSI Common Stock shall surrender the same to WFN
or its agent, and each such holder shall be entitled upon such surrender to
receive in exchange therefor, without cost to it, an option or warrant to
purchase the number of shares of WFN Common Stock calculated as provided in
Section 2.02 hereof, and the option or warrant so surrendered in exchange shall
forthwith be cancelled by WFN.
(d) No certificates or scrip representing fractional shares of WFN
Common Stock shall be issued upon the surrender for exchange of certificates
held by stockholders of BSI and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of WFN.
SECTION 2.04 CLOSING OF STOCK TRANSFER BOOKS. On and after the
Effective Time there shall be no transfers on the stock transfer books of BSI of
shares of capital stock of BSI that were issued and outstanding immediately
prior to the Effective Time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF BSI AND WFN. Each of
BSI and WFN (being hereinafter referred to, collectively, as the "Merger
Parties" and, individually, as a "Merger Party") represents and warrants, only
as to itself and its subsidiaries, to the other Merger Party as follows:
(a) ORGANIZATION, POWER, ETC. (i) Such Merger Party is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, is duly qualified or licensed and is in good standing to do
business as a foreign corporation in each jurisdiction in which the property
owned, leased or operated by it or the nature of its business, as now being
conducted, makes such qualification or licensing necessary (other than any such
jurisdictions in which the failure to be so qualified would not, in the
aggregate, have a material adverse effect on its business, properties or
financial condition), and has all requisite corporate power and authority to
own, operate and lease its properties, to carry on its busi-
5
<PAGE>
ness as now being conducted and to execute, deliver and perform this Agreement.
(ii) WFN has all requisite corporate power and authority to execute,
deliver and perform the Amended and Restated Stockholders Agreement (as
hereinafter defined) and to issue and deliver the shares of WFN Common Stock
issuable upon the Merger at the Effective Time, as contemplated herein.
(b) SUBSIDIARIES. Except as set forth in Schedule 3.01(b) hereto, in
Part I thereof in the case of BSI and in Part II thereof in the case of WFN,
neither such Merger Party nor any of its subsidiaries owns of record or
beneficially, directly or indirectly, (i) any shares of outstanding capital
stock or securities convertible into capital stock of any other corporation or
(ii) any participating interest in any partnership, joint venture or other
non-corporate business enterprise. Except as set forth in Schedule 3.01(b), each
subsidiary of such Merger Party is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as it is now being
conducted. Except as set forth in Schedule 3.01(b), each such subsidiary is duly
qualified or licensed and is in good standing to do business as a foreign
corporation in each jurisdiction in which the property owned, leased or operated
by it or the nature of its business as now being conducted makes such
qualification or licensing necessary (other than any such jurisdiction in which
the failure to be so qualified would not, in the aggregate, have a material
adverse effect on the business, properties or financial condition of such Merger
Party and its subsidiaries, taken as a whole). All the outstanding shares of
capital stock of such Merger Party's subsidiaries are validly issued, fully paid
and nonassessable and are owned by such Merger Party or by a wholly-owned
subsidiary of such Merger Party, free and clear of any liens, claims, charges or
encumbrances, and there are no irrevocable proxies outstanding with respect to
any such shares. For purposes of this Agreement, the term "subsidiary" shall
mean any corporation or other business entity a majority of the outstanding
voting stock of which is entitled to vote for the election of directors is at
the time owned by such Merger Party and/or one or more other subsidiaries.
(c) CAPITALIZATION. (i) The authorized capital stock of BSI consists
of 34,000,000 shares of BSI Common Stock, $.01 par value, and 250,000 shares of
BSI Preferred Stock, $1.00 par value, of which 28,571,429 shares of BSI Common
Stock and 250,000 shares of BSI Preferred Stock are issued and outstanding,
fully paid and nonassessable, and 1,503,759 shares of BSI Common Stock are
reserved for issuance pursuant to an outstanding warrant to purchase BSI Common
Stock.
6
<PAGE>
(ii) The authorized capital stock of WFN consists of 350,000,000
shares of WFN Common Stock, $.01 par value, of which 275,000,000 shares of
WFN Common Stock are issued and outstanding, fully paid and nonassessable and
8,270,000 shares are reserved for issuance upon the exercise of outstanding
options granted under the World Financial Network Holding Corporation and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan.
(iii) Schedule 3.01(c) hereto, in Part I thereof in the case of BSI
and Part II thereof in the case of WFN, contains a true and complete list of
all the holders of shares of capital stock of such Merger Party and their
respective share holdings, and all outstanding options, warrants, calls or
other rights to subscribe for or purchase or acquire from such Merger Party,
or any plans, contracts or commitments providing for the issuance of, or the
granting of rights to acquire (i) any capital stock of such Merger Party or
(ii) any securities convertible into or exchangeable for any capital stock of
such Merger Party. Except as set forth in Schedule 3.01(c), such Merger Party
is not contractually obligated to repurchase, redeem or otherwise acquire any
of its outstanding shares of capital stock or options to acquire such stock
and there are no agreements among the stockholders of such Merger Party
regarding the voting of securities of such Merger Party.
(d) AUTHORIZATION OF AGREEMENTS. ETC. (i) The execution, delivery
and performance by such Merger Party of this Agreement and, in the case of
WFN, the Amended and Restated Stockholders Agreement and the consummation by
it of the transactions contemplated hereby and thereby, as the case may be,
have been duly and effectively authorized by all requisite corporate and
stockholder action. In furtherance of the foregoing, this Agreement has been
duly approved and adopted by a unanimous vote of the Boards of Directors and
stockholders of each of WFN and BSI. This Agreement constitutes, and the
Amended and Restated Stockholders Agreement, when executed and delivered by
WFN in accordance herewith, will constitute, the legal, valid and binding
obligation of such Merger Party, enforceable against such Merger Party in
accordance with its terms, subject, as to enforcement of remedies, to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws affecting the enforcement of creditors'
rights in general and to general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law.
(ii) The issuance and delivery by WFN of the shares of WFN Common
Stock issuable upon the consummation of the Merger at the Effective Time, as
contemplated herein, have been duly and effectively authorized by all
requisite corporate and stockholder
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action, and such shares, when issued and delivered in accordance with this
Agreement, will be validly issued and outstanding, fully paid and
nonassessable shares of WFN Common Stock. The issuance and delivery of the
shares of WFN Common Stock under the circumstances contemplated by this
Agreement are not subject to any preemptive rights of stockholders of WFN or
to any right of first refusal or other similar right in favor of any person
and are exempt from the registration requirements of the Securities Act of
1933.
(e) EFFECT OF AGREEMENTS. Except as set forth in Section 3.01(e)
hereto, the execution and delivery by such Merger Party of this Agreement
and, in the case of WFN, the Amended and Restated Stockholders Agreement, and
performance by it of its obligations hereunder and thereunder, as the case
may be, will not violate, in any material respect, any provision of any
statute or regulation, the Certificate of Incorporation or Bylaws of such
Merger Party or any of its subsidiaries or any by-law, rule or regulation of
MasterCard International, Inc., VISA U.S.A., Inc. and VISA International,
Inc. or any order of any court or other agency of government, or any
judgment, award or decree or any indenture, agreement or other instrument to
which such Merger Party or any of its subsidiaries is a party, or by which
such Merger Party or any of its subsidiaries or any of their respective
properties or assets is bound, or conflict with in any material respect,
result in a material breach of or constitute (with due notice or lapse of
time or both) a material default under, any such indenture, or any agreement
or other instrument, or result in the creation or imposition of any lien,
charge, security interest or encumbrance of any nature whatsoever upon any of
the material properties or assets of such Merger Party and its subsidiaries,
taken as a whole.
(f) FINANCIAL STATEMENTS. (i) BSI has furnished to WFN: (A) the
unaudited balance sheet of BSI's wholly-owned subsidiary BSI Business
Services, Inc., a Delaware corporation ("Business Services"), and its
subsidiaries as of January 28, 1995 and the related statement of income for
the fiscal year then ended, (B) the unaudited balance sheet of Business
Services and its subsidiaries as of December 2, 1995 and the related
statements of income and cash flow for the period then ended and (C) the
unaudited balance sheet of BSI and its subsidiaries as of July 27, 1996 and
the related statements of income and cash flows for the six-month period then
ended, certified by the principal financial officer of BSI.
(ii) WFN has furnished to BSI: (A) the consolidated statements of
condition of World Financial Network National Bank as of January 29, 1994 and
January 28, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows, certified by Coopers & Lybrand, and (B)
the consolidated
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balance sheet of WFN as of August 3, 1996 and the related statements of
income and cash flows for the six-month period then ended, certified by the
principal financial officer of WFN.
(iii) All such financial statements of such Merger Party (including
any related schedules and/or notes, if any) have been prepared in accordance
with generally accepted accounting principles consistently applied and
consistent with prior periods, except that such interim statements are
subject to year-end adjustments (which consist of normal recurring accruals)
and do not contain footnote disclosures and except that the financial
statements of BSI subsequent to January 10, 1996 reflect the effects of
purchase accounting. Except as set forth in Schedule 3.01(f) hereto, in Part
I thereof in the case of BSI and Part II thereof in the case of WFN, such
financial statements fairly present in all material respects the financial
position of the applicable Merger Party and its subsidiaries as of their
respective dates and present in all material respects the results of
operations of the applicable Merger Party and its subsidiaries for the
respective periods then ended, subject, in the case of unaudited financial
statements, to normal year-end adjustments and the absence of footnote
disclosure. Except (A) as set forth in the financial statements of such
Merger Party and its subsidiaries, (B) as incurred in the ordinary course of
business and consistent with past practice, or (C) as set forth in said
Schedule 3.01(f), such Merger Party and its subsidiaries have not incurred
any material liabilities or obligations of any kind or nature, whether known
or unknown (whether absolute, secured, contingent or otherwise) and whether
due or to become due since July 27, 1996, in the case of BSI, and August 3,
1996, in the case of WFN.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as otherwise set
forth in Schedule 3.01(g) hereto, in Part I thereof in the case of BSI and
Part II thereof in the case of WFN, since July 27, 1996, in the case of BSI,
and August 3, 1996, in the case of WFN, neither such Merger Party nor any of
its subsidiaries has:
(i) incurred any obligation or liability (fixed or contingent),
except normal trade or business obligations incurred in the ordinary
course of business and consistent with past practice, none of which,
individually or in the aggregate, is materially adverse, and except in
connection with this Agreement and the transactions contemplated hereby;
(ii) discharged or satisfied any lien, security interest, charge or
other encumbrance or paid any obligation or liability (fixed or
contingent), other than in the ordinary course of business and consistent
with past practice;
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(iii) mortgaged, pledged or subjected to any lien, security interest,
charge or other encumbrance any of its assets or properties with a value in
excess of $100,000 (other than mechanic's, materialman's and similar
statutory liens arising in the ordinary course of business and purchase
money security interests arising as a matter of law between the date of
delivery and payment);
(iv) transferred, leased or otherwise disposed of any of its assets or
properties except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquired any assets
or properties;
(v) authorized, declared or paid any dividend or made any other
distribution on or in respect of any class of its capital stock or
established a record date for any of the foregoing;
(vi) cancelled or compromised any debt or claim greater than $100,000
individually, other than in the ordinary course of business consistent with
past practice;
(vii) waived or released any rights of material value;
(viii) transferred or granted any rights under any concessions,
leases, licenses, agreements, patents, inventions, trademarks, trade names,
servicemarks or copyrights or with respect to any know-how other than in
the ordinary course of business consistent with past practice;
(ix) made or granted any wage or salary increase applicable to any
group or classification of employees generally, entered into any employment
contract with, or made any loan to, or entered into any material
transaction of any other nature with, any officer or employee of such
Merger Party or any of its subsidiaries or affiliates;
(x) entered into any transaction, contract or commitment that,
individually or in the aggregate, is material, except this Agreement and
the transactions contemplated hereby and as permitted by Section 4.01
hereof;
(xi) suffered any casualty loss or damage (whether or not such loss or
damage shall have been covered by insurance) that affects in any material
respect its ability to conduct its business; or
(xii) suffered any material adverse change in its business, operations
or financial condition.
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(h) ACQUISITION AGREEMENTS. (i) To the knowledge of BSI, (A) the
representations and warranties of the parties contained in the Acquisition
Agreement dated as of January 12, 1996 (the "BSI Acquisition Agreement") between
BSI and JCP Telecom Systems, Inc. are true and correct in all material respects
as if made at and as of the date hereof, except to the extent any such
representation or warranty was expressly made as of a specified date, in which
case, to the knowledge of BSI, such representation or warranty was true and
correct in all material respects as of such date, and (B) the schedules to the
BSI Acquisition Agreement were complete and accurate in all material respects as
of the date of the BSI Acquisition Agreement and, except as set forth in the
Schedules to this Agreement, since the closing under the BSI Acquisition
Agreement nothing has come to the attention of BSI that would require any
modification to or supplement of the schedules to the BSI Acquisition Agreement.
(ii) To the knowledge of WFN, (A) the representations and warranties
of the parties contained in the Stock Purchase Agreement, dated as of October
24, 1995 (the "WFN Acquisition Agreement"), among Limited Commerce Corp., a
Delaware corporation ("Limited"), WFN and Welsh, Carson, Anderson & Stowe VII,
L.P., a Delaware limited partnership ("WCAS VII"), are true and correct in all
material respects as if made at and as of the date hereof, except to the extent
any such representation or warranty was expressly made as of a specified date,
in which case, to the knowledge of WFN, such representation or warranty was true
and correct in all material respects as of such date, and (B) the schedules to
the WFN Acquisition Agreement were complete and accurate in all material
respects as of the date of the WFN Acquisition Agreement and, except as set
forth in the Schedules to this Agreement, since the closing under the WFN
Acquisition Agreement nothing has come to the attention of WFN that would
require any modification to or supplement of the schedules to the WFN
Acquisition Agreement.
(i) LITIGATION. Schedule 3.01(i) hereto, in Part I thereof in the case
of BSI and in Part II thereof in the case of WFN, sets forth, to such Merger
Party's knowledge, a complete list and an accurate description of all actions,
suits or proceedings involving claims relating to the business of such Merger
Party or any of its subsidiaries by or against such Merger Party or any of its
subsidiaries pending or threatened against such Merger Party or any of its
subsidiaries or any of their respective divisions or other operating entities at
law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality.
Except for the matters set forth in said Schedule 3.01(i), (i) no such pending
or threatened claims, actions, suits, proceedings or investigations, if
adversely determined,
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would, individually or in the aggregate, materially adversely affect the
business, properties or financial condition or prospects of such Merger Party
and its subsidiaries, taken as a whole, (ii) to such Merger Party's knowledge,
there is no basis for any other such claim, action, suit, proceeding or
investigation which, if adversely decided, would have such a material adverse
effect, and (iii) there are no actions, suits, proceedings or claims pending
before or by any court, arbitrator or government agency against or affecting
such Merger Party or any of its subsidiaries that seek to enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
(j) LABOR CONTROVERSIES. Neither such Merger Party nor any of its
subsidiaries is a party to any collective bargaining agreement, and no such
agreement is applicable to any employees of such Merger Party. There are not any
controversies between such Merger Party or any of its subsidiaries and any of
such employees that might reasonably be expected to materially adversely affect
the conduct of the business of such Merger Party or any of its subsidiaries, or
any unresolved labor union grievances or unfair labor practice or labor
arbitration proceedings pending, or to the knowledge of such Merger Party,
threatened relating to the business of such Merger Party or any of its
subsidiaries. To the knowledge of such Merger Party, there are not any
organizational efforts presently being made or threatened involving any of such
employees. Except as set forth in Schedule 3.01(j), in Part I thereof in the
case of BSI and in Part II thereof in the case of WFN, neither such Merger Party
nor any of its subsidiaries has received written notice of any claim that such
Merger Party or any of its subsidiaries has not complied with any laws relating
to the employment of labor, including any provisions thereof relating to wages,
hours, collective bargaining, the payment of social security and similar taxes,
equal employment opportunity, employment discrimination and employment safety,
or that either such Merger Party or any of its subsidiaries is liable for any
arrears of wages or any taxes or penalties for failure to comply with any of the
foregoing.
(k) COMPLIANCE WITH LAW. To the knowledge of such Merger Party,
neither such Merger Party nor any of its subsidiaries is in default of any order
of any court, governmental authority or arbitration board or tribunal to which
such Merger Party or any of its subsidiaries is a party or is subject, and, to
the knowledge of such Merger Party, each of such Merger Party and its
subsidiaries is in substantial compliance with all material laws, ordinances,
governmental rules or regulations to which it is subject and has all material
licenses, registrations, qualifications, permits, franchises or other
governmental authorizations necessary to its ownership of its assets or to
conduct its business.
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(l) GOVERNMENTAL APPROVALS. Except as set forth in Schedule 3.01(1)
hereto, in Part I thereof in the case of BSI and in Part 11 thereof in the case
of WFN, no approval, authorization, consent or order or action of or filing with
any court, administrative agency or other governmental authority is required for
the execution and delivery by such Merger Party of this Agreement or the
consummation by such Merger Party of the transactions contemplated hereby.
(m) EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 3.01(m),
in Part I thereof in the case of BSI and in Part II thereof in the case of WFN,
to the knowledge of such Merger Party, such Merger Party and each of its
subsidiaries have been and currently are in compliance, both as to form and
operation, with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), respectively, with respect to each employee
benefit plan within the meaning of Section 3(3) of ERISA (a "Plan") maintained
for the benefit of employees by such Merger Party or any of its subsidiaries or
to which such Merger Party or any of its subsidiaries contributes or is required
to contribute or in which any employee of such Merger Party or any of its
subsidiaries participates. To the knowledge of such Merger Party, no event has
occurred, and there exists no condition or set of circumstances which has
resulted in, or which could result in, the imposition of any liability on such
Merger Party or any of its subsidiaries under ERISA, the Code or other
applicable law with respect to any Plan maintained for the benefit of employees
of such Merger Party or any of its subsidiaries.
(n) BROKER'S OR FINDERS' FEES. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried out by such
Merger Party directly with the other party hereto, without the intervention of
any person on behalf of such Merger Party in such manner as to give rise to any
claim by any person against the other parties hereto for a finder's fee,
brokerage commission or similar payment.
ARTICLE IV
COVENANTS
SECTION 4.01 CERTAIN COVENANTS. During the period from the date of
this Agreement to the Effective Time, each Merger Party will conduct its
business and operations in the ordinary course consistent with past practice and
use its reasonable efforts to preserve its relationships with business partners,
suppliers, employees and customers. Without limiting the generality of the
foregoing, except as otherwise contemplated by
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this Agreement, from the date of this Agreement until the Effective Time,
without the prior written consent of the other party hereto, each Merger Party
will not do any of the things required to be disclosed in Section 3.01(g) above.
SECTION 4.02 ACCESS TO INFORMATION. Between the date hereof and the
Effective Time, each Merger Party will afford to the representatives of the
other party hereto reasonable access during normal business hours and after
reasonable notice to the offices, facilities, books and records of such Merger
Party and the opportunity to discuss the affairs of such Merger Party with
officers and employees of such Merger Party familiar therewith. Such activities
shall be performed, so far as is reasonably possible, in such a manner as to
avoid disruption of normal operations.
SECTION 4.03 OTHER AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement,
including, without limitation, using all reasonable efforts to obtain all
necessary waivers, consents and approvals and to effect all necessary
registrations and filings and submissions of information requested by
governmental authorities.
SECTION 4.04 NOTIFICATION OF CERTAIN MATTERS. Each party shall give
prompt notice to the other party hereto of (i) the occurrence, or failure to
occur, of any event which such party believes would be likely to cause any of
its representations or warranties contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Effective Time and (ii) any
failure of such party, or of any officer, director, employee or agent thereof,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; PROVIDED, HOWEVER, that failure to give such
notice shall not constitute a waiver of any defense that may be validly
asserted.
SECTION 4.05 INDEMNIFICATION. From and after the Effective Time, WFN
shall indemnify and hold harmless each current and former director and officer
of BSI against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of matters existing or
occurring at or prior to the Effective Time, whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent that BSI would have
been permitted under its Certificate of
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Incorporation and By-Laws as in effect on the date hereof to indemnify such
person (and WFN shall advance expenses as incurred to the fullest extent
permitted under BSI's Certificate of Incorporation and By-Laws as in effect on
the date hereof, provided the person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
person is not entitled to indemnification)
ARTICLE V
CONDITIONS PRECEDENT TO THE MERGER
SECTION 5.01 CONDITIONS PRECEDENT TO THE MERGER. The obligation of
each Merger Party to effect the Merger is subject, at its option, to the
satisfaction at or prior to the Effective Time of each of the following
conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the other Merger Party contained in this Agreement or in any
certificate or document delivered pursuant hereto shall be true and correct in
all material respects on and as of the Effective Time as though made at and as
of that date.
(b) COMPLIANCE WITH COVENANTS. The other Merger Party shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by it at or prior to the
Effective Time.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be taken by
the other Merger Party in connection with the transactions contemplated hereby
and all documents incident there to shall be reasonably" satisfactory in form
and substance to such Merger Party and its counsel, and such Merger Party and
said counsel shall have received all such counterpart originals or certified or
other copies of such documents as it or they may reasonably request.
(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding shall
have been instituted or threatened seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated hereby or
which would, if adversely decided, have a material adverse effect on the
business, properties or financial condition or prospects of either Merger Party.
(e) CONSENTS. The consents and actions set forth in Schedule 5.01(e)
hereto shall have been obtained or consummated, as the case may be.
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(f) AMENDED AND RESTATED STOCKHOLDERS AGREEMENT. The stockholders of
BSI and WFN shall have executed and delivered an Amended and Restated
Stockholders Agreement, substantially in the form of Exhibit A hereto, amending
and restating the Stockholders Agreement dated as of January 31, 1996 among WFN,
Limited, WCAS VII and the several investors named in Annex I thereto.
(g) SECURITIES PURCHASE AGREEMENT. The Company, Limited and the other
parties thereto shall have executed and delivered the Securities Purchase
Agreement substantially in the form of Exhibit B hereto.
(h) SUPPORTING DOCUMENTS. On or prior to the Effective Time, each
Merger Party and its counsel shall have received copies of the following
supporting documents:
(i) (1) copies of the Certificate of Incorporation of the other Merger
Party and all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Delaware, and (2) a certificate of said
Secretary dated as of a recent date as to the due incorporation and good
standing of the other Merger Party and listing all documents on file with
said Secretary, and (3) confirmation from said Secretary as of the close of
business on the next business day preceding the Effective Time as to the
continued good standing of the other Merger Party and to the effect that no
amendment to its Certificate of Incorporation has been filed since the date
of the certificate referred to in clause (2) above; and
(ii) a certificate of the Secretary or an Assistant Secretary of the
other Merger Party dated the Effective Time and certifying: (1) that
attached thereto is a true and complete copy of its By-laws as in effect on
the date of such certification; (2) that attached thereto is a true and
complete copy of the resolutions adopted by its Board of Directors and
stockholders authorizing the execution, delivery and performance of this
Agreement and the Merger and that all such resolutions are still in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (3) that its Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i) (2) above;
and (4) as to the incumbency and specimen signature of each of its officers
executing this Agreement and any certificate or instrument furnished
pursuant hereto, and a certification by another officer as to the
incumbency and signature of the officer signing the certificate referred to
in this paragraph (ii).
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All such documents shall be satisfactory in form and substance to such
Merger Party and its counsel.
ARTICLE VI
TERMINATION AND ABANDONMENT
SECTION 6.01 TERMINATION AND ABANDONMENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by mutual action of the Boards of Directors of BSI and WFN; or
(b) by either BSI or WFN, if the conditions set forth in Section 5.01
shall not have been complied with or performed in any material respect by the
other Merger Party and such noncompliance or nonperformance shall not have been
cured or eliminated (or by its nature cannot be cured or eliminated) on or
before October 31, 1996.
SECTION 6.02 EFFECT OF TERMINATION. In the event of the termination of
this Agreement and the abandonment of the Merger pursuant to Section 6.01, this
Agreement shall thereafter become void and have no effect, and no party hereto
shall have any liability to the other party hereto or its stockholders or
directors or officers in respect thereof, and each party shall be responsible
for its own expenses, except that nothing herein shall relieve either party from
liability for any willful breach hereof.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 EXPENSES, ETC. Whether or not the transactions
contemplated by this Agreement are consummated, neither of the parties hereto
shall have any obligation to pay any of the fees and expenses of the other party
incident to the negotiation, preparation and execution of this Agreement,
including the fees and expenses of counsel, accountants, investment bankers and
other experts. BSI, on the one hand, and WFN, on the other hand, shall indemnify
the other and hold it harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions as
a result of any agreement or understanding between such indemnifying party and
any third party.
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SECTION 7.02 PUBLICITY. The parties hereto agree to cooperate in
issuing any press release or other public announcement concerning this Agreement
or the transactions contemplated hereby. Each party shall furnish to the other
drafts of all such press releases or announcements prior to their release.
Nothing contained herein shall prevent either party from at any time furnishing
any information required by any government authority.
SECTION 7.03 EXECUTION IN COUNTERPARTS. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 7.04 NOTICES. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered or mailed by
registered or certified mail, postage prepaid, as follows:
If to WFN to:
World Financial Network Holding Corporation
4590 East Broad Street
Columbus, Ohio 43213
Attention: General Counsel
If to BSI to:
Business Services Holdings, Inc.
5001 Spring Valley Road
Dallas, Texas 75244
or such other address or addresses as either party hereto shall have designated
by notice in writing to the other party hereto.
SECTION 7.05 WAIVERS. Either party hereto may, by written notice to
the other party hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other party under this Agreement; (ii) waive
any inaccuracies in the representations or warranties of the other party
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or covenants of the
other contained in this Agreement; or (iv) waive performance of any of the
obligations of the other under this Agreement. Except as provided in the
preceding sentence, no action taken pursuant to this Agreement, including
without limitation any investigation by or on behalf of either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representations, warranties, covenants or agreements contained in this
Agreement. The waiver
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by either party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach.
SECTION 7.06 AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement
may be amended or supplemented by such additional agreements, articles or
certificates, as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by both parties.
SECTION 7.07 ENTIRE AGREEMENT. This Agreement, its Exhibits and
Schedules, and the documents executed at the Effective Time in connection
herewith, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof. No representation, warranty, promise, inducement or
statement of intention has been made by either party that is not embodied in
this Agreement or such other documents, and neither party shall be bound by, or
be liable for, any alleged representation, warranty, promise, inducement or
statement of intention not embodied herein or therein. The representations and
warranties contained in this Agreement shall not survive after the Effective
Time.
SECTION 7.08 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 7.09 BINDING EFFECT, BENEFITS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the parties hereto or their respective
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement.
SECTION 7.10 ASSIGNABILITY. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by either party hereto without
the prior written consent of the other party hereto.
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SECTION 7.11 VARIATION AND AMENDMENT. This Agreement may be varied or
amended at any time by action of the respective Boards of Directors of BSI or
WFN, without action by the stockholders thereof, PROVIDED that no such variance
or amendment shall, without consent of such stockholders, modify the
consideration that the holders of shares of BSI Common Stock and BSI Preferred
Stock shall be entitled to receive upon the Effective Time pursuant to Section
2.01 hereof and PROVIDED FURTHER that no such amendment or variation shall be
agreed to by WFN unless any approvals required under the WFN Stockholders
Agreement have theretofore been obtained.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
WORLD FINANCIAL NETWORK HOLDING
CORPORATION
By /s/ Ralph E. Spurgin
------------------------------
ATTEST:
/s/ Illegible
- ----------------------------------
BUSINESS SERVICES HOLDINGS, INC.
By /s/ Anthony J. deNicola
------------------------------
ATTEST:
/s/ Robert A. Minicucci
- ----------------------------------
21
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ALLIANCE DATA SYSTEMS CORPORATION
HSI ACQUISITION CORP.,
AND
HARMONIC SYSTEMS INCORPORATED
August 14, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
THE MERGER; CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . .1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 Merger Consideration . . . . . . . . . . . . . . . . . . . . . .2
1.4 Common Stock; Preferred Shares; Conversion . . . . . . . . . . .2
1.5 Dissenting Shares. . . . . . . . . . . . . . . . . . . . . . . .3
1.6 Company Warrants . . . . . . . . . . . . . . . . . . . . . . . .4
1.7 Company Convertible Debentures . . . . . . . . . . . . . . . . .4
1.8 Stock Options. . . . . . . . . . . . . . . . . . . . . . . . . .4
1.9 Exchange of Merger Subsidiary Common Stock . . . . . . . . . . .4
1.10 Exchange of Company Stock. . . . . . . . . . . . . . . . . . . .5
1.11 Exchange of the Company Warrants and Company Debentures. . . . .6
1.12 Escrow Agreement; Shareholder Representative . . . . . . . . . .6
1.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.14 Articles of Incorporation of the Surviving Corporation . . . . .8
1.15 Bylaws of the Surviving Corporation. . . . . . . . . . . . . . .8
1.16 Directors and Officers of the Surviving Corporation. . . . . . .8
ARTICLE 2
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.1 Time and Place . . . . . . . . . . . . . . . . . . . . . . . . .8
2.2 Filings at the Closing . . . . . . . . . . . . . . . . . . . . .9
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . . . . . . .9
3.1 Organization; Subsidiaries . . . . . . . . . . . . . . . . . . .9
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Reports and Financial Statements . . . . . . . . . . . . . . . 11
3.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . 12
3.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 12
3.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 12
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3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Absence of Material Adverse Changes. . . . . . . . . . . . . . 13
3.10 Environmental Laws and Regulations . . . . . . . . . . . . . . 13
3.11 Officers, Directors and Employees, Labor Relations . . . . . . 14
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.13 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.14 Title to Properties; Liens . . . . . . . . . . . . . . . . . . 16
3.15 Permits, Licenses, Etc . . . . . . . . . . . . . . . . . . . . 17
3.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.17 Intellectual Property Rights . . . . . . . . . . . . . . . . . 18
3.18 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . 19
3.19 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 23
3.20 Bank Accounts. . . . . . . . . . . . . . . . . . . . . . . . . 23
3.21 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . 23
3.22 Product Liability Claims . . . . . . . . . . . . . . . . . . . 24
3.23 Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24 Relations with Suppliers . . . . . . . . . . . . . . . . . . . 24
3.25 Relations with Customers and Clients . . . . . . . . . . . . . 24
3.26 No Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.27 Minute Books and Stock Record Books. . . . . . . . . . . . . . 25
3.28 Use of Real Property . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY. . . . . . . . . . . . . . . . . . . . . . 25
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 26
4.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . 26
4.4 No Finders . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 5
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 Conduct of Business of the Company . . . . . . . . . . . . . . 27
5.2 No Solicitation. . . . . . . . . . . . . . . . . . . . . . . . 29
5.3 Access and Information . . . . . . . . . . . . . . . . . . . . 29
5.4 Approval of Shareholders . . . . . . . . . . . . . . . . . . . 30
5.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.7 Reasonable Best Efforts; Further Actions . . . . . . . . . . . 30
5.8 Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 31
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5.9 Certain Notifications. . . . . . . . . . . . . . . . . . . . . 31
5.10 Indemnification, Exculpation and Insurance . . . . . . . . . . 31
5.11 Benefit Plans and Employee Matters . . . . . . . . . . . . . . 32
ARTICLE 6
CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.1 Conditions to Obligations of Parent, Merger Subsidiary,
and the Company. . . . . . . . . . . . . . . . . . . . . . . . 32
6.2 Conditions to Obligations of Parent and Merger Subsidiary. . . 33
6.3 Conditions to Obligations of the Company . . . . . . . . . . . 34
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Survival of Representations and Warranties . . . . . . . . . . 34
7.2 General Indemnity. . . . . . . . . . . . . . . . . . . . . . . 35
7.3 Limitations on Indemnification . . . . . . . . . . . . . . . . 36
7.4 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.5 Third Party Claims . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 8
TERMINATION AND ABANDONMENT. . . . . . . . . . . . . . . . . . . . . . . . 37
8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 9
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.1 Amendment and Modification . . . . . . . . . . . . . . . . . . 38
9.2 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . 39
9.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
9.4 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.5 Governing Law; Dispute Resolution. . . . . . . . . . . . . . . 40
9.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.7 Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.8 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . 41
9.9 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.10 Exclusivity of Remedies. . . . . . . . . . . . . . . . . . . . 42
9.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 42
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EXHIBITS:
Exhibit A - Form of Plan of Merger
Exhibit B - Form of Escrow Agreement
Exhibit C - Payment of Closing Cash Amount
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TABLE OF DEFINED TERMS
Defined Term Section
- ------------ -------
CERCLA 3.10
Closing Cash Amount 1.3(a)
Closing Warrant Payment 1.6
Closing 2.1
Closing Debenture Payment 1.7
Closing Option Payment 1.8
Code 3.18(a)
Company Preamble
Company Intellectual Property 3.17(a)
Company Preferred Stock 3.3
Company Disclosure Schedule 3
Company Common Stock 1.4(a)
Company Preferred Stock 1.4(b)
Company Interim Financials 3.4
Company 1997 Financials 3.4
Company Option Plans 1.8
Company Warrants 1.6
Compensation Plans 3.18(d)
Computer Systems 3.17(c)
Convertible Debentures 1.7
Corporation 1.13
Damages 7.2(a)
Deferred Option Payment 1.8
Dissenting Shares 1.5
Effective Time 1.2
ERISA 3.18(a)
Escrow Deposit 1.3(b)
Escrow Agreement 1.3(b)
Facility 3.10
HSR Act 3.6
Indemnified Parties 5.10(b)
IRS 3.12
MBCA 1.1
Merger Subsidiary Preamble
Merger Recitals
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Merger Consideration 1.3
Merger Subsidiary Common Stock 1.4(b)
Parent Preamble
Parent Disclosure Schedule 4.
PBGC 3.18(j)
Pension Plan 3.18(a)
Permits 3.15
Permitted Liens 3.14
Plan of Merger 1.2
Plan 3.18(i)
Product Liability 3.22
RCRA 3.10
Record Date 1.4(a)
SARA 3.10
Shareholders' Representative 1.12(a)
Software 3.17(b)
Surviving Corporation Common Stock 1.4(b)
Surviving Corporation 1.1
Tax Qualified Plan 3.18(h)
Term Sheets 5.11(b)
Welfare Plan 3.18(d)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of August 14, 1998, by and among ALLIANCE DATA
SYSTEMS CORPORATION, a Delaware corporation ("Parent"), HSI ACQUISITION CORP., a
Minnesota corporation and wholly-owned subsidiary of Parent ("Merger
Subsidiary"), and HARMONIC SYSTEMS INCORPORATED, a Minnesota corporation (the
"Company").
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "Merger") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants, and agreements contained herein, the
parties hereto agree as follows:
ARTICLE 1
THE MERGER: CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary
shall be merged with and into the Company in accordance with the provisions of
the Minnesota Business Corporation Act (the "MBCA"), whereupon the separate
corporate existence of Merger Subsidiary shall cease, and the Company shall
continue as the surviving corporation (the "Surviving Corporation"). From and
after the Effective Time, the Surviving Corporation shall possess all the
rights, privileges, powers, and franchises and be subject to all the
restrictions, disabilities, and duties of the Company and Merger Subsidiary, all
as more fully described in the MBCA. Without limiting the generality of the
foregoing, it is understood and agreed that the conversion of Company Stock
provided for in this Agreement and Plan of Merger includes within it a
continuance of all rights, privileges, properties and powers of the Company
(including, but not limited to, trade secrets, confidential information, and
goodwill possessed by the Company) for the benefit of the Company, the Surviving
Corporation, Parent, and any subsidiaries, successors or assigns thereof. It is
acknowledged by the parties that part of the purpose and intent of any
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noncompetition, nonsolicitation, and confidentiality agreements with Company's
employees and officers that are maintained or entered into in connection with
this Merger is the protection of the continued value of the Company's goodwill,
confidential information and trade secrets.
1.2 EFFECTIVE TIME. As soon as practicable after each of the
conditions set forth in Article 6 has been satisfied or waived, the Company and
Merger Subsidiary will file, or cause to be filed, with the Secretary of State
of the State of Minnesota Articles of Merger for the Merger, which Articles of
Merger shall be in the form required by and executed in accordance with the
applicable provisions of the MBCA and shall include as a part thereof a plan of
merger (the "Plan of Merger") substantially in the form attached hereto as
Exhibit A. The Merger shall become effective at the time such filing is made or,
if agreed to by Parent and the Company, such later time or date set forth in the
Articles of Merger (the "Effective Time").
1.3 MERGER CONSIDERATION. The consideration to be paid by Parent in
full payment for the consummation of the Merger (the "Merger Consideration")
shall consist of:
(a) An aggregate amount of $43,359,000 which shall be paid on
the Closing Date to the persons, in the manner and under the conditions
provided in this Article 1 (the "Closing Cash Amount"); PLUS
(b) An aggregate amount of $7,000,000 which shall be paid by
wire transfer of immediately available funds to the escrow agent under an
Escrow Agreement substantially in the form attached as Exhibit B (the
"Escrow Agreement") for the purpose of securing the indemnity obligations
of the Shareholders under Section 7.2(a)(i) (such amount deposited with
such escrow agent, the "Indemnification Escrow Deposit"); PLUS
(c) An aggregate amount of $1,641,000 which shall be paid by
wire transfer of immediately available funds to the escrow agent under
the Escrow Agreement for the purpose of securing the indemnity
obligations of the Shareholders under Section 7.2(a)(ii) (such amount
deposited with such escrow agent, the "Retention Payment Escrow Deposit"
and together with the Indemnification Escrow Deposit, the "Escrow
Deposit").
1.4 COMMON STOCK: PREFERRED SHARES: CONVERSION. At the Effective Time,
by virtue of the Merger and without any action on the part of any holder of any
share of capital stock of the Company or Merger Subsidiary:
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(a) COMPANY STOCK; CLOSING CASH AMOUNT. (i) Each share of
common stock of the Company, par value $0.01 per share ("Company Common
Stock"), issued and outstanding on the date that is the one day prior to
the date hereof (the "Record Date") (except for Dissenting Shares, as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion (as defined below) of the Closing Cash
Amount on the Closing Date, and the right to receive its Allocable
Portion of the Escrow Deposit in the manner, at the time or times, upon
the terms and subject to the conditions provided in the Escrow Agreement.
(ii) Each share of any other class of capital stock of the Company
(other than Company Common Stock) (the "Company Preferred Stock") issued
and outstanding at the Record Date (except for Dissenting Shares as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion of the Closing Cash Amount on the Closing
Date, and the right to receive its Allocable Portion of the Escrow
Deposit in the manner, at the time or times, upon the terms and subject
to the conditions provided in the Escrow Agreement. The Company Common
Stock and Company Preferred Stock are sometimes collectively referred to
hereinafter as "Company Stock".
The term "Allocable Portion" shall mean, with respect to each share of
Company Common Stock or Company Preferred Stock, the percentage of the
Closing Cash Amount to be paid in respect of such share of Company Stock
as set forth on Exhibit C hereto.
(b) MERGER SUBSIDIARY STOCK. Each share of common stock of
Merger Subsidiary, par value $0.01 per share ("Merger Subsidiary Common
Stock"), issued and outstanding immediately prior to the Effective Time
shall be converted into one share of the common stock of the Surviving
Corporation, par value $0.01 per share ("Surviving Corporation Common
Stock").
1.5 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Stock, the
holder of which has demanded and perfected such holder's right to dissent
from the Merger and to be paid the fair value of such shares in accordance
with Sections 302A.471 ET SEQ. of the MBCA and, as of the Effective Time, has
not effectively withdrawn or lost such dissenters' rights ("Dissenting
Shares"), shall not be converted into or represent a right to receive the
Merger Consideration into which shares of Company Stock are converted
pursuant to Section 1.4 hereof, but the holder thereof shall be entitled only
to such rights as are granted by the MBCA. The Company shall give Parent (i)
prompt written notice of any notice of intent to demand fair value for any
shares of Company Stock, withdrawals of such notices, and
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any other instruments served pursuant to the MBCA or any other provisions of
Minnesota law and received by the Company, and (ii) the opportunity to conduct
jointly all negotiations and proceedings with respect to demands for fair value
for shares of Company Stock under the MBCA. The Company shall not, except with
the prior written consent of Parent, voluntarily make any payment with respect
to any demands for fair value for shares of Company Stock or offer to settle or
settle any such demands.
1.6 COMPANY WARRANTS. On the Closing Date, by virtue of the Merger
and without any action on the part of the holders thereof, each warrant to
purchase Company Common Stock outstanding at the Record Date (the "Company
Warrants") shall be (a) converted into the right to receive that portion of the
Closing Cash Amount on the Closing Date as set forth on Exhibit C (the "Closing
Warrant Payment") and the right to receive that portion of the Escrow Deposit as
set forth on Exhibit C in the manner, at the time or times, upon the terms and
subject to the conditions provided in the Escrow Agreement and (b) canceled as
of the Effective Time.
1.7 COMPANY CONVERTIBLE DEBENTURES. On the Closing Date, by virtue of
the Merger and without any action on the part of the holders thereof, each
convertible debenture of the Company issued and outstanding at the Record Date
(the "Convertible Debentures") shall be (x) converted into the right to receive
that portion of the Closing Cash Amount on the Closing Date as set forth on
Exhibit C (the "Closing Debenture Payment"), and the right to receive that
portion of the Escrow Deposit as set forth on Exhibit C in the manner, at the
time or times, upon the terms and subject to the conditions provided in the
Escrow Agreement and (y) canceled as of the Effective Time.
1.8 STOCK OPTIONS. All stock options outstanding at the Record Date
under the Company's employee stock option plans (the "Company Option Plans")
shall, whether or not exercisable or vested, become fully exercisable and vested
on the Closing Date, and each option thereunder shall be converted into a right
to receive that portion of the Closing Cash Amount on the Closing Date as set
forth on Exhibit C corresponding to the name of the holder of such option (the
"Closing Option Payment"), and the right to receive that portion of the Escrow
Deposit as set forth on Exhibit C in the manner, at the time or times, upon the
terms and subject to the conditions provided in the Escrow Agreement (the
"Deferred Option Payment"). Each of the Company Option Plans and all options
issued and outstanding thereunder shall terminate effective as of the Effective
Time.
1.9 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock shall be deemed for all purposes to evidence
ownership of
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and to represent the number of shares of Surviving Corporation Common Stock
into which such shares of Merger Subsidiary Common Stock shall have been
converted. Promptly after the Effective Time, the Surviving Corporation shall
issue to Parent a stock certificate or certificates representing such shares
of Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common
Stock, which shall be canceled.
1.10 EXCHANGE OF COMPANY STOCK. (a) The Company will instruct the
holders of the certificate representing Company Stock to deliver such
certificates at or after the Closing to Parent, duly endorsed for transfer to
the Company, for cancellation. At the Closing with respect to certificates so
delivered at or prior to the Closing, and as soon as practicable after delivery
with respect to certificates not delivered until after Closing, Parent shall pay
to each transferring holder thereof an amount of money equal to the Allocable
Portion of the Closing Cash Amount to which such surrendered shares are
entitled. Such payments shall be made by bank check delivered at Closing or
mailed to the recipient pursuant to instructions given by the recipient; or by
wire transfer of immediately available funds pursuant to instructions given by
the recipient. In the event of a transfer of ownership of Company Stock that is
not registered in the transfer records of the Company, it shall be a condition
to the payment that the Company Certificate(s) so surrendered shall be properly
endorsed or be otherwise in proper form for transfer and that such transferee
shall (i) pay to the Exchange Agent any transfer or other taxes required or (ii)
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(b) All cash paid in respect of the Closing Cash Amount and rights to
receive a portion of the Escrow Deposit distributed upon the surrender for
exchange of Company Stock in accordance with the terms hereof shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Stock.
(c) After the Effective Time, there shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of the
shares of Company Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Company Certificates representing such
shares are presented to the Surviving Corporation, they shall be canceled and
exchanged as provided in this Article 1. As of the Effective Time, the holders
of Company Certificates representing shares of Company Stock shall cease to have
any rights as shareholders of the Company, except such rights, if any, as they
may have pursuant to the MBCA. Except as provided above, until such Company
Certificates are surrendered for exchange, each such Company Certificate shall,
after the Effective Time, represent for all purposes only the rights to receive
the
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Closing Cash Amount and Escrow Deposit to which the shares of Company Stock
shall have been converted pursuant to the Merger as provided in Section 1.3
hereof.
(d) In the event any Company Certificates shall have been lost,
stolen, or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen, or destroyed Company Certificates, upon the making of an affidavit of
that fact by the holder thereof, such as may be required pursuant to this
Article 1.
1.11 EXCHANGE OF THE COMPANY WARRANTS AND COMPANY DEBENTURES. (a) The
Company will instruct the holders of the Company Warrants and Company Debentures
to deliver the Company Warrants and Company Debentures at or after the Closing
to Parent, duly endorsed for transfer to the Company. At Closing, with respect
to Company Warrants and Company Debentures so delivered at or prior to the
Closing, and as soon as practicable after delivery, with respect to Company
Warrants and Company Debentures not delivered until after Closing, Parent shall
pay to each transferring holder thereof an amount of money equal to the Closing
Warrant Payment to which such surrendered Company Warrants are entitled and the
Closing Debenture Amount to which the Company Debentures are entitled. Such
payments shall be made by bank check delivered at Closing or mailed to the
recipient pursuant to instructions given by the recipient; or by wire transfer
of immediately available funds pursuant to instructions given by the recipient.
(b) All cash paid and rights to receive Escrow Deposits distributed
upon surrender for exchange of Company Warrants and Company Debentures shall be
deemed to have been issued in full satisfaction of all rights pertaining
respectively to such Company Warrants and Company Debentures.
1.12 ESCROW AGREEMENT: SHAREHOLDER REPRESENTATIVE. (a) The shareholders
of the Company, by approving the Merger, agree to be bound by the terms of the
Escrow Agreement referred to in Section 1.3, including, without limitation, the
provisions thereof appointing Barrs S. Lewis to act as the representative (the
"Shareholders' Representative") of the shareholders of the Company Stock and the
holders of the Company Options, Company Warrants and Company Debentures
(together, the "Shareholders") for the purpose of (i) administering and entering
into the Escrow Agreement, (ii) settling on behalf of the Shareholders claims
made by Parent thereunder, (iii) representing the Shareholders in any
proceedings relating to this Agreement and (iv) performing any other actions
specifically delegated to the Shareholders' Representative under the terms of
this Agreement. The Shareholders, by approving the Merger, will be bound by any
and all actions taken by the Shareholders' Representative on their behalf.
Acceptance by Shareholders of the Shareholders' Representative is a condition of
the
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Merger. The Shareholders, by approving the Merger, will be bound by the fact
that, and agree that, neither the Shareholders' Representative nor any member of
the Committee (as defined below) shall have any liability whatsoever to any of
the Shareholders for any action taken by him or her pursuant to this Agreement
or the Escrow Agreement which action is not grossly negligent and is taken by
him or her in good faith or is taken by him or her at the written direction of a
committee made up of members who will be appointed by the Board of Directors of
the Company immediately prior to the Effective Time (the "Committee"). The
Committee shall have the authority to direct the Shareholders' Representative in
connection with all actions, or failures to act, relating to the Shareholders'
Representatives' duties and obligations pursuant to this Agreement and the
Escrow Agreement. The Committee shall act by a majority of a quorum, and a
majority of the members of the Committee shall constitute a quorum. The
Shareholders' Representative shall not be a member of the Committee.
(b) The Shareholders' Representative may be removed or a new
Shareholders' Representative may be appointed by either (a) a vote of the
Shareholders holding a majority of the voting Company Stock (as defined below)
or (b) if the Board of Directors of the Company so authorizes the Committee
prior to the Effective Time, a unanimous vote of the Committee. If a
Shareholders' Representative is removed by action of the Shareholders or the
Committee, as the case may be, such removal shall be effective only upon
appointment of a new Shareholders' Representative. If the Shareholders'
Representative resigns or is no longer able to serve, a new Shareholders'
Representative shall be appointed by the Shareholders or the Committee, as the
case may be, within thirty (30) days after receipt of such resignation or notice
of the existing Shareholders' Representative's inability to serve. The
appointment of a new Shareholders' Representative is effective upon the
Committee and the new Shareholders' Representative giving notice to both Parent
and the prior Shareholders' Representative of the new Shareholders'
Representative's appointment.
For the purpose of this Section 3.2(b), the phrase "a vote of the
Shareholders holding a majority of the voting Company Stock" shall mean (x) if
the vote occurs prior to the Effective Time, a vote of the Shareholders holding
a majority of the voting Company Stock on a fully-diluted basis at the time of
such vote, and (y) if the vote occurs on or after the Effective Time, a vote of
the Shareholders which held immediately prior to the Effective Time more than a
majority of the voting Company Stock on a fully-diluted basis.
(c) Parent is entitled to rely exclusively upon communications or
writings given or executed by the Shareholders' Representative with respect to
the matters described in the Escrow Agreement and is not liable in any manner
whatsoever for any action taken or
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not taken by Parent in reliance upon the actions taken or not taken or
communication or writings given or executed by the Shareholders'
Representative. Until Parent receives notice of appointment of a new
Shareholders' Representative, Parent may rely upon actions taken by the prior
Shareholders' Representative.
1.13 EXPENSES. Not later than two business days prior to the Closing
Date, the Company may by action of a majority of the Board of Directors of the
Company amend and restate the amounts (but not the percentages) set forth on
Exhibit C to provide for payment out of the Merger Consideration on the Closing
Date of certain expenses incurred or expected to be incurred by the Company, the
Shareholders' Representative or the Shareholders in connection with the Merger
and the other transactions contemplated hereby and a proportionate reduction of
the amount of the Closing Cash Amount to be received by each of the
Shareholders, all as to be provided in Exhibit C.
1.14 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.15 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.16 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time shall
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors shall be duly elected and qualified.
ARTICLE 2
CLOSING
2.1 TIME AND PLACE. Subject to the satisfaction or waiver of the
provisions of Article 6, the closing of the Merger (the "Closing") shall take
place at 9 a.m., local time, on such date as Parent and the Company may mutually
agree that is within five (5) business days after all of the conditions to
Closing contained in Article 6 have been satisfied or waived, or on such other
date and/or at such other time as Parent and the Company may mutually agree. The
date on which the Closing actually occurs is herein referred to as the "Closing
Date." The Closing shall take place at the offices of
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Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South,
Minneapolis, Minnesota 55402, or at such other place or in such other manner
(E.G., by facsimile exchange of signature pages with originals to follow by
overnight delivery) as the parties hereto may agree.
2.2 FILINGS AT THE CLOSING. At the Closing, subject to the provisions
of Article 6, Parent, Merger Subsidiary, and the Company shall cause Articles of
Merger to be filed in accordance with the provisions of Section 302A.615 of the
MBCA, and take any and all other lawful actions and do any and all other lawful
things necessary to cause the Merger to become effective.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Company
Disclosure Schedule"), the Company hereby makes the following representations
and warranties to Parent and Merger Subsidiary:
3.1 ORGANIZATION; SUBSIDIARIES. (a) The Company is a corporation duly
organized and validly existing under the laws of the State of Minnesota and has
all requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. The Company is
duly qualified and in good standing to do business in each jurisdiction in which
the property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification necessary and where the failure to
qualify could reasonably be expected to have a Company Material Adverse Effect
(as defined below). "Company Material Adverse Effect" means an effect that,
individually or in the aggregate with other effects, has a materially adverse
effect: (i) on the business, properties, liabilities, results of operation, or
financial condition of the Company; or (ii) to the Company's ability to perform
any of its obligations under this Agreement or to consummate the Merger, but
shall exclude any effect relating to or resulting from generally applicable
economic conditions or the Company's industry in general. The jurisdictions in
which the Company is qualified are listed on the Company Disclosure Schedule.
The Company has heretofore delivered to Parent complete and accurate copies of
the Articles of Incorporation, as amended, and Bylaws of the Company as
currently in effect.
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(b) The Company owns a subsidiary, Harmonic Technology Licensing,
Inc., a corporation duly organized and validly existing under the laws of the
State of Minnesota. All issued and outstanding shares of the capital stock of
such subsidiary are owned by the Company, free and clear of all Liens and have
been duly authorized and validly issued and are fully paid and non-assessable.
There are no outstanding options, warrants, conversion or other rights or
agreements of any kind for the purchase or acquisition from, or the sale or
issuance by, the Company or its subsidiary of any shares of capital stock of
such subsidiary, and no authorization therefor has been given. Such subsidiary
owns no assets and conducts no business and has no liabilities, contingent or
otherwise. Other than such subsidiary, the Company does not, directly or
indirectly, own or control or have any capital, equity, partnership,
participation, or other ownership interest in any corporation, partnership,
joint venture, or other business association or entity.
3.2 AUTHORIZATION. The Company has full corporate power and authority
to execute, deliver and perform this Agreement and, subject to obtaining the
necessary approval of its shareholders, to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the Company's Board of
Directors, no other corporate proceedings on the part of the Company are
necessary to recommend and submit this Agreement to the Company's shareholders,
and, subject to obtaining the approval of the Company's shareholders, no other
corporate action on the part of the Company is necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to laws of general application relating to bankruptcy,
insolvency, and the relief of debtors and rules of law governing specific
performance, injunctive relief, or other equitable remedies.
3.3 CAPITALIZATION. As of June 30, 1998, the authorized capital stock
of the Company consists of (i) 30,000,000 shares of Company Common Stock, par
value $.01 of which 4,899,677 are issued and outstanding, (ii) 2,333,776 shares
of Series A convertible preferred stock, of which 2,333,776 are issued and
outstanding; (iii) 603,302 shares of Series B convertible preferred stock, of
which 603,302 are issued and outstanding; (iv) 292,000 shares of Series C
convertible preferred stock, of which 62,000 are issued and outstanding; (v)
1,200,000 shares of Series D convertible preferred stock, of which 1,200,000 are
issued and outstanding; (vi) 3,433,334 shares of Series E convertible preferred
stock, of which 2,060,000 are issued and outstanding; (vii) 2,262,816 shares of
Series F convertible preferred stock, of which none is issued and outstanding;
(viii) 5,648,825 shares of Series G convertible preferred stock, of which
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5,648,825 are issued and outstanding; and (ix) 54,225,947 undesignated shares,
none of which have been designated or issued. (The shares of preferred stock of
Series A through G are collectively referred to as "Company Preferred Stock.")
All issued and outstanding shares of Company Common Stock and Company Preferred
Stock have been validly issued, are fully paid and nonassessable, and have not
been issued in violation of and are not currently subject to any preemptive
rights. There are not any outstanding or authorized subscriptions, options,
warrants, calls, rights, convertible securities, commitments, restrictions,
arrangements, or any other agreements of any character to which the Company is a
party that, directly or indirectly, (i) obligate the Company to issue any shares
of capital stock or any securities convertible into, or exercisable or
exchangeable for, or evidencing the right to subscribe for, any shares of
capital stock, (ii) call for or relate to the sale, pledge, transfer, or other
disposition or encumbrance by the Company of any shares of its capital stock, or
(iii) to the knowledge of the Company, relate to the voting or control of such
capital stock, in each case, other than those set forth on the Company
Disclosure Schedules. The Company Disclosure Schedule sets forth a complete and
accurate list of all stock options, warrants, debentures, and other rights to
acquire Company Common Stock, including the name of the holder, the date of
grant, acquisition price, expiration date, number of shares, exercisability
schedule, and, in the case of options, the type of option under the Code. The
Company Disclosure Schedule also sets forth the restrictions to which any shares
of Company Common Stock issued pursuant to the Company Option Plans or otherwise
are currently subject and also sets forth the restrictions to which such shares
will be subject immediately after the Effective Time. No consent of holders or
participants under the Company Option Plans is required to carry out the
provisions of Section 1.8. All actions, if any, required on the part of the
Company under the Company Option Plans to allow for the treatment of Company
Options as is provided in Section 1.8, has been, or prior to the Closing will
be, validly taken by the Company.
3.4 REPORTS AND FINANCIAL STATEMENTS. The audited financial statements
and unaudited interim financial statements included in the Company Disclosure
Schedule and delivered subsequent to the date hereof pursuant to the terms
hereof, including but not limited to, when delivered, the Company's audited
financial statements at and for the year ended December 31, 1997 (the "Company
1997 Financials") and the Company's unaudited financial statements for the
quarterly periods ending March 31, 1998 and June 30, 1998 (the "Company Interim
Financials"), (i) were prepared or, when delivered, will have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto), and (ii) fairly present or, when delivered, will fairly present
in all material respects the consolidated financial position of the Company as
of the dates
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thereof and the income, cash flows, and changes in shareholders'
equity for the periods covered thereby.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liabilities
or obligations of any nature (whether absolute, accrued, contingent, or
otherwise) except (a) liabilities which do not have a Company Material Adverse
Effect and (b) liabilities or obligations required by generally accepted
accounting principles to be recognized or disclosed on a balance sheet of
Company or in the notes thereto that are accrued or reserved against in the
audited balance sheet of the Company as of December 31, 1997 contained in the
Company 1997 Financials and (c) liabilities or obligations arising since
December 31, 1997 in the ordinary course of business and consistent with past
practice.
3.6 CONSENTS AND APPROVALS. Except for (i) the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the regulations thereunder (the "HSR
Act"), (ii) approval by the Company's shareholders, (iii) the filing and
recordation of appropriate merger documents as required by the MBCA, (iv)
compliance with Chapter 302A of the MBCA regarding dissenters' rights, and (v)
any items disclosed on the Company Disclosure Schedule, the execution, delivery
and performance of this Agreement by the Company, and the consummation of the
transactions contemplated hereby will not: (a) violate any provision of the
Articles of Incorporation, as amended, or Bylaws of the Company; (b)violate any
statute, rule, regulation, order, or decree of any federal, state, local, or
foreign body or authority by which the Company or any of its properties or
assets may be bound; (c) require any filing with or permit, consent, or approval
of any federal, state, local, or foreign public body or authority; or (d) result
in any violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation, increased
payments, or acceleration under, or result in the creation of any Lien (as
defined in Section 3.14) on any of the properties or assets of the Company
under, any of the terms, conditions, or provisions of any note, bond, mortgage,
indenture, license, franchise, permit, authorization, agreement, or other
instrument or obligation to which the Company is a party, or by which it or any
of its properties or assets may be bound, except, in the case of clause (d), for
any such violations, breaches, defaults, or other occurrences that would not
prevent or delay consummation of any of the transactions contemplated hereby in
any material respect, or otherwise prevent the Company from performing its
obligations under this Agreement in any material respect.
3.7 COMPLIANCE WITH LAWS. All activities of the Company have been, and
are currently being, conducted in compliance with all applicable federal, state,
local, and foreign laws, ordinances, regulations, interpretations, judgments,
decrees, injunctions, permits, licenses, certificates, governmental
requirements, orders, and other similar items
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of any court or other governmental entity, the failure to comply with which
would reasonably be expected to have a Company Material Adverse Effect.
3.8 LITIGATION. No investigation or review by any federal, state,
local, or foreign body or authority with respect to the Company is pending or,
to the Company's knowledge, threatened, nor has any such body or authority
indicated to the Company an intention to conduct the same. There are no claims,
actions, suits, or proceedings by any private party that would have a Company
Material Adverse Effect, or by any governmental body or authority against or
affecting the Company, pending or, to the knowledge of the Company, threatened,
at law or in equity, or before any federal, state, local, foreign, or other
governmental department, commission, board, bureau, agency, or instrumentality
except any investigation, review, claim, action, suit, or proceeding that would
not have a Company Material Adverse Effect.
3.9 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31, 1997 there
has not been any (a) change or circumstance that would have a Company Material
Adverse Effect; (b) action by the Company that, if taken on or after the date of
this Agreement, would require the consent or approval of Parent pursuant to
Sections 5.1(a)-(c) and (e)-(m) hereof, except for actions as to which consent
or approval has been given as provided therein; (c) change by the Company in
accounting methods or principles used for financial reporting purposes, except
as required by a change in generally accepted accounting principles and
concurred with by the Company's independent public accountants; or (d) other
than in the ordinary course of business and consistent with past practice,
create, incur, or assume any indebtedness for borrowed money, or assume,
guarantee, endorse, or otherwise become liable or responsible (whether directly
contingently, or otherwise) for the obligations of any other person.
3.10 ENVIRONMENTAL LAWS AND REGULATIONS. The Company has obtained, and
maintained in full force and effect, all required environmental permits and
other governmental approvals and is in compliance with all applicable
Regulations (as defined below), except where the failure to so obtain and
maintain or to be in compliance would not have a Company Material Adverse
Effect. The Company has (i) not received any written notice or Claim (as defined
below) alleging potential liability under any of the Regulations or alleging a
violation of the Regulations and (ii) has no knowledge of any basis therefor.
The Company has no knowledge of any notices to or Claims against any persons
alleging potential liability under any of the Regulations with respect to any
office facility or other real property owned, leased or operated by the Company
(a "Facility"), or any adjoining properties or which would reasonably be
expected to affect such Facility. The Company has (i) not been nor is it
presently subject to or, to the knowledge of the Company, threatened with any
administrative or judicial proceeding pursuant to
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the Regulations, and (ii) no information that it may be subject to or, to the
knowledge of the Company, threatened with such a proceeding in the future. No
Hazardous Materials have been or are threatened to be discharged, emitted, or
released into the air, water, soil, or subsurface at or from any Facility by
the Company or, to the Company's knowledge, by any other person.
For purposes of this Section 3.10, the following terms shall have the
following meanings: (i) "Hazardous Materials" means asbestos, urea formaldehyde,
polychlorinated biphenyls, nuclear fuel or materials, chemical waste,
radioactive materials, explosives, known human carcinogens, petroleum products
or other substances or materials listed, identified, or designated as toxic or
hazardous or as a pollutant or contaminant in, or the use, release or disposal
of which is regulated by, the Regulations; (ii) "Regulations" means the
Comprehensive Environmental Response Compensation and Liability Act ("CERCLA")
as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"),
42 U.S.C. Sections 9601 ET SEQ.; the Federal Resource Conservation and Recovery
Act of 1976 ("RCRA"), 42 U.S.C. Sections 6901 ET SEQ.; the Clean Water Act, 33
U.S.C. Sections 1321 ET SEQ.; the Clean Air Act, 42 U.S.C. Sections 7401 ET
SEQ., and any other federal, state, county, local, foreign, or other
governmental statute, regulation, or ordinance, as now in existence, that
relates to or deals with pollution or the environment including, but not limited
to, the use, generation, discharge, transportation, disposal, record keeping,
notification, and reporting of Hazardous Materials; and (iii) "Claim" means any
and all claims, demands, causes of actions, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, penalties, attorneys' fees, and any other expenses incurred, assessed,
sustained or alleged by or against the Company.
3.11 OFFICERS, DIRECTORS AND EMPLOYEES. LABOR RELATIONS. The Company
has previously provided in writing a list of the name and current annual salary
rate of each officer or employee of the Company whose salary for the last fiscal
year was, or for the current fiscal year has been set at, in excess of $75,000,
together with a summary of the bonuses, commissions, additional compensation,
and other like benefits, if any, paid or payable to such persons for the last
fiscal year and proposed for the current fiscal year. The Company Disclosure
Schedule completely and accurately sets forth the names of the officers (with
all positions and titles indicated) and directors of the Company. No unfair
labor practice complaint against the Company is pending or to the knowledge of
the Company, threatened, before the National Labor Relations Board, and there is
no labor strike, slowdown or stoppage pending or, to the knowledge of the
Company, threatened against or involving the Company. No unionizing efforts
have, to the knowledge of the Company, been made by employees of the Company,
the Company is not a party to or subject to any collective bargaining agreement,
and no collective bargaining agreement is
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currently being negotiated by the Company. There is no labor dispute pending
or, to the knowledge of the Company, threatened between the Company and its
employees.
3.12 TAXES. The Company has previously furnished to Parent complete and
accurate copies of all federal income tax returns actually filed by the Company
for each of the fiscal years ended December 31, 1995 and 1996 and has made
available for review by Parent complete and accurate copies of all other tax or
assessment reports and tax returns (including any applicable information
returns) required by any law or regulation (whether United States, foreign,
state, local or other jurisdiction) and filed by the Company for the fiscal
years ended December 31, 1995 or 1996. The Company has filed, or has obtained
extensions to file (which extensions have not expired without filing and are
described in the Company Disclosure Schedule), all state, local, United States,
foreign, or other tax reports and returns required to be filed by it. All such
reports and returns were correct as filed and correctly reflect the facts
regarding the income, business, assets, operations, activities and status of the
Company as well as all taxes required to be paid by the Company. The Company has
timely paid all taxes (including estimated taxes) that are due and payable or
that it is obligated to withhold from any person with respect to such reports
and returns, and has established, consistent with past practice, an adequate
reserve on its June 30, 1998 balance sheet contained in the Company Interim
Financials for the payment of all taxes not yet due for any taxable period or
portion thereof ending on or prior to the Effective Time. There are no Liens (as
defined in Section 3.14), other than Permitted Liens, for taxes upon any
property or asset of the Company. The Company is not delinquent in the payment
of any tax assessment (including, but not limited to, any applicable withholding
taxes). None of the tax returns or reports for the tax periods ended December
31, 1995 and 1996 have been audited by the Internal Revenue Service (the "IRS")
or by any other taxing authority. Further, to the knowledge of the Company, no
state of facts exists or has existed that would subject the Company to an
additional material tax liability for any taxes assessable by either the IRS or
any separate state, local, foreign, or other taxing authority with respect to
any reports or returns filed on or before the date hereof (other than extension
requests for which returns have not been filed as of the date hereof). The
Company has not (i) received notification of any pending or proposed examination
by either the IRS or any state, local, foreign, or other taxing authority, (ii)
received notification of any pending or proposed deficiency by either the IRS or
any state, local, foreign, or other taxing authority, or (iii) granted any
extension of the limitations period applicable to any claim for taxes.
For the purposes of this Section 3.12, "tax" shall mean and include
taxes, additions to tax, penalties, interest, fines, duties, withholdings,
assessments, and charges assessed or imposed by any governmental authority,
including but not limited to all
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federal, state, county, local, and foreign income, profits, gross receipts,
import, ad valorem, real and personal property, franchise, license, sales,
use, value added, stamp, transfer, withholding, payroll, employment, excise,
custom, duty, and any other taxes, obligations and assessments of any kind
whatsoever and any interest, penalties or surcharges in respect of any of the
foregoing; "tax" shall also include any liability arising as a result of
being (or ceasing to be) a member of any affiliated, consolidated, combined,
or unitary group as well as any liability under any tax allocation, tax
sharing, tax indemnity, or similar agreement.
3.13 CONTRACTS. The Company Disclosure Schedule lists, and the Company
has heretofore furnished to Parent complete and accurate copies of (a) every
independent sales representative, noncompetition (except only for unmodified
noncompetition agreements entered into with the Company's employees, the copies
of which have been provided to Parent), loan, credit, escrow, security,
mortgage, guaranty, pledge, buy-sell, letter of credit, OEM, supply,
distribution, manufacturers' representative, dealer, agency, lease (except for
immaterial personal property leases), licensing (except for immaterial licenses,
which include, without limitation, licenses for off-the-shelf software),
franchise, development, joint development, joint venture, research and
development, or other contract or agreement material to the Company and to which
the Company is a party or is bound, except where the dollar amount involved in
any such contract is less than $50,000, (b) every material employment or
consulting agreement or arrangement with or for the benefit of any director,
officer, employee, other person or shareholder of the Company and (c) every
agreement or contract between the Company and any of the Company's officers,
directors, or more than 5% shareholders. The Company has performed all
obligations required to be performed by it under any listed contract, plan,
agreement, understanding, or arrangement made or obligation owed by or to the
Company, except where the failure would not have a Company Material Adverse
Effect; there has not been any event of default (or any event or condition
which with notice or the lapse of time, both or otherwise, would constitute an
event of default) thereunder on the part of the Company or, to the Company's
knowledge, any other party to any thereof that would have a Company Material
Adverse Effect; the same are in full force and effect and valid and enforceable
by the Company in accordance with their respective terms subject to laws of
general application relating to bankruptcy, insolvency, and the relief of
debtors and rules or law governing specific performance, injunctive relief, and
other equitable remedies; and the performance of any such contracts, plans,
agreements, understandings, arrangements, or obligations would not have a
Company Material Adverse Effect.
3.14 TITLE TO PROPERTIES: LIENS. The Company has good and valid title
to all personal properties and assets, and good and marketable title to all real
property,
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reflected on the Company's December 31, 1997 balance sheet contained in the
Company 1997 Financials or acquired after the date thereof (other than any
assets or properties disposed of in the ordinary course of business after
such date), subject only to (a) statutory Liens arising or incurred in the
ordinary course of business with respect to which the underlying obligations
are not delinquent, (b) with respect to personal property, the rights of
customers of the Company with respect to inventory or work in progress under
orders or contracts entered into by the Company in the ordinary course of
business, (c) Liens specifically disclosed in the Company 1997 Financials,
the Company Interim Financials, or the Company Disclosure Schedule, (d) Liens
for taxes not yet due and payable, and (e) any minor defects in title that do
not adversely impact the Company's use of such assets (collectively, the
"Permitted Liens"). The term "Lien" as used in this Agreement means any
mortgage, pledge, security interest, encumbrance, lien, claim, or charge of
any kind. All properties and assets purported to be leased by the Company are
subject to valid and effective leases that are in full force and effect, and
there does not exist any material default or event that with notice or lapse
of time, or both, would constitute a material default under any such leases.
All assets and other property of the Company reflected on the Company's
December 31, 1997 balance sheet included in the Company 1997 Financials or
acquired after the date thereof (other than any assets or properties disposed
of in the ordinary course of business after such date), including all
tangible and intangible personal property, fixtures and equipment of the
Company comprising the assets of the Company, are in a good state of repair
(ordinary wear and tear excepted) and operating condition and are sufficient
and adequate to conduct the business of the Company as currently conducted.
3.15 PERMITS. LICENSES. ETC. The Company has all rights, permits,
certificates, licenses, consents, franchises, approvals, registrations, and
other authorizations (collectively, "Permits") necessary to sell its products
and services and otherwise carry on and conduct its business and to own, lease,
use, and operate its properties and assets at the places and in the manner now
conducted and operated, except those the absence of which would not have a
Company Material Adverse Effect. The Company Disclosure Schedule lists all
Permits held by the Company that are material to the business of the Company as
currently conducted, other than Permits generally applicable to all businesses
(such as occupancy and sales tax permits), and all such Permits are in full
force and effect. The business of the Company is being conducted in compliance
in all material respects with all such Permits. The consummation of the
transactions contemplated hereby will not result in the loss, suspension or
adverse modification of any Permit.
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3.16 LEASES. Set forth in the Company Disclosure Schedule is
description of all leases of real or personal property involving payments in
excess of $50,000 per annum to which the Company is a party, either as lessee or
lessor.
3.17 INTELLECTUAL PROPERTY RIGHTS. (a) The Company Disclosure Schedule
contains a complete and accurate list of all material patents, trademarks, trade
names, service marks, registered copyrights (other than commercially available
software), and all applications for or registrations of any of the foregoing as
to which the Company is the owner or a licensee. The Company owns, free and
clear of any Lien (as defined in Section 3.14), or has the right to use, all
patents, trademarks, trade names, service marks, registered copyrights,
applications for or registrations of any of the foregoing, processes,
inventions, designs, technology, formulas, computer software programs, know-how,
and trade secrets which are used in or necessary for the conduct of its business
as currently conducted (the "Company Intellectual Property"). No claim has been
asserted or, to the knowledge of the Company, threatened by any person with
respect to the use of the Company Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement with
respect thereto. To the knowledge of the Company, neither the use of the Company
Intellectual Property by the Company in the present conduct of its business nor
any product or service of the Company infringes on the intellectual property
rights of any person. To the knowledge of the Company, no person or entity nor
such person's or entity's business or products has infringed, misused, or
misappropriated any Company Intellectual Property or currently is infringing,
misusing, or misappropriating any Company Intellectual Property. No other person
or entity has any right to receive from the Company or to the knowledge of the
Company, any obligation to pay a royalty with respect to any Company
Intellectual Property or any product or service of the Company other than any
royalty or payment obligations that are reflected on the Company 1997 Financials
and the Company Interim Financials.
(b) The Company Disclosure Schedule lists all material operating,
management, developmental and applications computer programs, software, and
database platforms owned or licensed by the Company (collectively, the
"Software"), except for commercially available or "off-the-shelf" software
generally available to the public at a per unit cost or license fee not in
excess of $10,000. The Software includes all software, applications and database
platforms used in the conduct of the business of the Company, as currently
conducted. The Company has taken and is taking reasonable precautions consistent
with industry practices to protect any material trade secrets and other
confidential information included in the Software.
(c) The Company has conducted an inventory of all computer software
programs owned or licensed by it as well as the hardware and embedded
microcontrollers
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in non-computer equipment used by the Company in its products or in
connection with providing its services, in each case sold to customers of the
Company (collectively, the "Computer Systems") in order to determine which
parts of the Computer Systems are not Year 2000 Compatible (as defined
below). Based on the above-referenced inventory, the Company represents and
warrants that the Computer Systems are either Year 2000 Compatible or that it
is the reasonable expectation of the Company that they will be Year 2000
Compatible prior to July 1, 1999, other than any failure to be Year 2000
Compatible which would not reasonably be expected to have a Company Material
Adverse Effect. "Year 2000 Compatible" means that the Computer Systems to the
extent required for their particular use (i) correctly perform date data
century recognition, and calculations that accommodate same century and
multi-century formulas and date values; (ii) operate or are expected to
operate on a basis comparable to their current operation during and after
calendar year 2000 A.D., including but not limited to leap years; and (iii)
shall not end abnormally or provide invalid or incorrect results as a result
of date data which represents or references different centuries or more than
one century.
3.18 BENEFIT PLANS. (a) Neither the Company nor any ERISA Affiliate
sponsors, maintains, contributes to, is a party to, nor has either sponsored,
maintained, or contributed to or been required to contribute to, any "employee
pension benefit plan" ("Pension Plan"), as such term is defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
including, solely for the purpose of this subsection, a plan excluded from
coverage by Section 4(b)(5) of ERISA. Each such Pension Plan presently
maintained by the Company is, in all material respects, in compliance with
applicable provisions of ERISA, the Code, and other applicable law. For purposes
of this Agreement, "ERISA AFFILIATE" means all persons and entities which are
treated as being under common control with the Company, its subsidiaries or any
ERISA affiliate under Section 414(b), (c), (m) or (o) of the Internal Revenue
Code of 1996, as amended ("Code").
(b) Neither the Company nor any ERISA Affiliate sponsors, maintains,
contributes to, is contingently liable for, nor has either sponsored,
maintained, or contributed to or been required to contribute to, any Pension
Plan that is a "Multiemployer Plan" within the meaning of Section 4001(a)(3) of
ERISA.
(c) Neither the Company nor any ERISA Affiliate (i) maintains,
sponsors, contributes to, is actually or contingently liable for (directly or
indirectly) and (ii) has ever maintained, sponsored, contributed to, been
actually or contingently liable for, any plan that is or was subject to Section
412 of the Code or Title IV of ERISA.
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(d) The Company does not sponsor, maintain, contribute to, nor has it
sponsored, maintained, contributed to, or been required to contribute to, any
"employee welfare benefit plan" ("Welfare Plan"), as such term is defined in
Section 3(1) of ERISA, whether insured or otherwise, and any such Welfare Plan
presently maintained by the Company is, in all material respects, in compliance
with the applicable provisions of ERISA, the Code, and all other applicable
laws. The Company has not established or contributed to any "voluntary
employees' beneficiary association" within the meaning of Section 501(c)(9) of
the Code. The Company does not currently maintain or contribute to any oral or
written bonus, profit-sharing, compensation (incentive or otherwise),
commission, stock option, or other stock-based compensation, retirement,
severance, change of control, vacation, sick or parental leave, dependent care,
deferred compensation, disability, hospitalization, medical, death, retiree,
insurance, or other benefit or welfare or other similar plan, policy, agreement,
trust, fund, or arrangement providing for the remuneration or benefit of all or
any employees or shareholders or any other person, that is neither a Pension
Plan nor a Welfare Plan (collectively, the "Compensation Plans").
(e) Each Welfare Plan that provides welfare benefits has been
operated in material compliance with all applicable requirements of Section
601 through 608 of ERISA and of (i) Section 162(i)(2) and (k) of the Code and
regulations thereunder (prior to 1989) and of (ii) Section 4980B of the Code
and regulations thereunder after 1988, relating to the continuation of
coverage under certain circumstances in which coverage would otherwise cease.
Neither the Company, any subsidiary of the Company, nor any ERISA Affiliate
has contributed to a nonconforming group health plan (as defined under Code
Section 5000(c)) and no ERISA Affiliate has incurred a tax under Section
5000(a) of the Code which could become a liability of the Company, or any
ERISA Affiliate. The Company or any ERISA Affiliate does not and has not
maintained, sponsored or provided post-retirement medical benefits,
post-retirement death benefits or other post-retirement welfare benefits to
its current employees or former employees, except as required by Section
4980B of the Code and at the sole expense of the participant or the
beneficiary of the participant. The Company and its subsidiaries have
complied in all material respects with the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 with respect to
each Plan that provides welfare benefits. The Company does not maintain any
Welfare Plan that has provided any "disqualified benefit" (as such term is
defined in Section 4976(b) of the Code) with respect to which an excise tax
could be imposed under Section 4976.
(f) The Company and its ERISA Affiliates do not sponsor, maintain,
or contribute to, nor have they sponsored, maintained, or contributed to, a
"self-insured
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medical reimbursement plan" within the meaning of Section 105(h) of the Code
and the regulations thereunder.
(g) Neither any Pension Plans nor Welfare Plans nor any trust created
or insurance contract issued thereunder nor any trustee, fiduciary, custodian,
or administrator thereof, nor any officer, director, or employee of the Company,
custodian, or any other "disqualified person" within the meaning of Section
4975(e)(2) of the Code, or "party in interest" within the meaning of Section
3(14) of ERISA, with respect to any such plan has engaged in any act or omission
that could reasonably be expected to subject the Company, either directly or
indirectly, to a liability for breach of fiduciary duties under ERISA or a tax
or penalty imposed by Section 502 of ERISA.
(h) Full and timely payment has been made of all amounts that the
Company is required, under applicable law, with respect to any Pension Plan,
Welfare Plan, or Compensation Plan, or any agreement relating to any Pension
Plan, Welfare Plan, or Compensation Plan, to have paid as a contribution to each
Pension Plan, Welfare Plan, or Compensation Plan. To the extent required by
generally accepted accounting principles, the Company has made adequate
provisions for reserves to meet contributions that have not been made because
they are not yet due under the terms of any Pension Plan, Welfare Plan, or
Compensation Plan or related agreements. There will be no change on or before
the Closing Date in the operation of any Pension Plan, Welfare Plan, or
Compensation Plan or documents under which any such plan is maintained that
will result in an increase in the benefit liabilities under such plan, except as
may be required by law. Each Plan that is intended to be a tax qualified plan
under Section 401(a) of the Code ("Tax Qualified Plan") has been determined by
the Internal Revenue Service to qualify under Section 401 of the Code, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and nothing has occurred, including the
adoption of or failure to adopt any Plan amendment, which would adversely affect
its qualification or tax-exempt status. The Company has provided to Parent
complete and accurate copies of all Pension Plans, Welfare Plans, Compensation
Plans, and related agreements, annual reports (Form 5500), favorable
determination letters, current summary plan descriptions, and all employee
handbooks or manuals.
(i) Except as contemplated herein or required by law, the execution of
this Agreement and the consummation of the transactions contemplated hereby, do
not constitute a triggering event under any Pension Plan, Welfare Plan and
Compensation Plan (collectively, the "Plan") which (either alone or upon the
occurrence of any additional or subsequent event) will result in any obligation
of the Company, its subsidiaries or any ERISA Affiliates to make any payment
(whether of severance pay,
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including, and not limited to, salary, related vacation pay, pension pay and
other similar payments and costs, or otherwise) or to accelerate, vest or
increase the amount of benefits payable to any employee or former employee or
director of the Company, its subsidiaries or any ERISA Affiliates. No Plan or
agreement provides for the payment of severance benefits upon the termination
of any employee's employment.
(j) True and complete copies of the following documents with
respect to any Plan of the Company, its subsidiaries, and each ERISA
Affiliate, as applicable, have been delivered to Parent (i) the most recent
Plan document and trust agreement (including any amendments thereto and prior
plan documents, if amended within the last two years), (ii) the last two IRS
Form 5500 filings and schedules thereto, (iii) the most recent IRS
determination letter, (iv) all summary plan descriptions, (v) a written
description of each material non-written Plan, (vi) each written
communication to employees intended to describe a Plan or any benefit
provided by such Plan, (vii) the most recent actuarial report and (viii) all
correspondence with the IRS, the Department of Labor and the Pension Benefit
Guaranty Corporation ("PBGC") concerning any controversy. Each report
described in clause (vii) accurately reflects the funding status of the Plan
to which it relates and subsequent to the date of such report there has been
no adverse change in the funding status of financial condition of such Plan.
(k) There are no pending or threatened claims, actions or lawsuits,
other than routine claims for benefits in the ordinary course, asserted or
instituted against (i) any Plan or its assets, (ii) any ERISA Affiliate with
respect to any Plan, or (iii) any fiduciary with respect to any Plan for which
the Company, or any ERISA Affiliate may, directly or indirectly, be liable,
through indemnification obligations or otherwise.
(l) Neither the Company nor any ERISA Affiliate has engaged, directly
or indirectly, in a non-exempt prohibited transaction (as defined in Section
4975 of the Code or Section 406 of ERISA) in connection with any Plan.
(m) There is no unfunded liability with respect to any Plan that is a
non-tax qualified deferred compensation plan.
(n) Since December 31, 1997 there have been no amendments to any Plan,
no written interpretation or announcement (whether or not written) by the
Company or any ERISA Affiliate relating to any Plan, there have been and are no
negotiations, demands, or proposals which are pending that concern any Plan, nor
has any Plan been established, which resulted in or could result in a material
increase in (i) the accrued or promised benefits of any employees of the Company
or any ERISA Affiliate and (ii) any material increase in the level of expense
incurred in respect thereof. There are no binding oral
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modifications to the Company Stock Option Plan and, from and after the
Effective Time, there will be no outstanding or new contingent liabilities or
obligations pursuant to any amendments to the Company Stock Option Plan.
(o) Any surrender, finance or penalties charges (and the total dollar
amount thereof) that would be imposed on the investments held by any tax
qualified plan (including plans with a cash or deferred arrangement under
Section 401(k) of the Code) on the liquidation of the investments in such plans
is reflected on the Company Disclosure Schedule.
3.19 INSURANCE POLICIES. The Company Disclosure Schedule sets forth a
complete and accurate list of all material policies of insurance maintained by
the Company. The Company has previously delivered to Parent complete and
accurate copies of all such policies of insurance. All such policies of
insurance are in full force and effect, have been issued for the benefit of the
Company and/or its directors, officers and employees by properly licensed
insurance carriers, and are customary for the assets, business, and operations
of the Company. All such policies are in such amounts and against such risks as
is customary for companies engaged in similar businesses to the Company to
protect the employees, properties, assets, businesses and operations of the
Company. None of such policies will in any way be affected by, or terminate or
lapse by reason of, any of the transactions contemplated hereby and may be
canceled without penalty. All premiums with respect thereto covering all periods
up to and including the date as of which this representation is being made have
been paid, and no notice of cancellation or termination has been received with
respect to any such policy. The Company has promptly and properly notified its
insurance carriers of any and all claims known to it with respect to its
operations or products for which it is insured.
3.20 BANK ACCOUNTS. The Company Disclosure Schedule sets forth a list
of each bank, broker, or other depository with which the Company has an account
or safe deposit box (other than those having a balance or value not exceeding
$5,000 individually or $25,000 in the aggregate), the names and numbers of such
accounts or boxes and the names of all persons authorized to draw thereon or
execute transactions.
3.21 POWERS OF ATTORNEY. The Company Disclosure Schedule sets forth the
names of all persons, if any, holding powers of attorney from the Company
relating to authority for actions taken in the United States and a description
of the scope of each such power of attorney (other than powers of attorney
granted in the ordinary course of business). The Company has delivered to Parent
prior to the date hereof complete and accurate copies of all such powers of
attorney.
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3.22 PRODUCT LIABILITY CLAIMS. During the three-year period preceding
the date hereof, the Company has not received a claim, or incurred any uninsured
or insured liability, for or based upon breach of product warranty (other than
warranty service or repair claims in the ordinary course of business not
material in amount or significance), strict liability in tort, negligent
provision of services or any other allegation of liability arising from the sale
of its products or from the provision of services (hereafter collectively
referred to as "Product Liability"). To the knowledge of the Company, no basis
for any claim based upon alleged Product Liability exists that would have a
Company Material Adverse Effect.
3.23 INVENTORIES. All inventories owned by the Company consist of items
of merchantable quality and quantity usable or salable in the ordinary course of
business, are salable at prevailing market prices that are not less than the
book value amounts thereof or the price customarily charged by the Company
therefor, conform to the specifications established therefor, except to the
extent that the failure of such inventories so to consist, be saleable, or
conform, would not have a Company Material Adverse Effect. The quantities of all
inventories, materials, and supplies of the Company (net of any reserve therefor
shown on the Company Interim Financials and determined in the ordinary course of
business consistent with past practice) are not obsolete, damaged, or defective,
except to the extent that the failure of such inventories to be in such
conditions would not have a Company Material Adverse Effect. The Company
Disclosure Schedule sets forth a true and complete list of the addresses of all
warehouses or other facilities in which inventories of the Company are located.
3.24 RELATIONS WITH SUPPLIERS. No material current supplier of the
Company has canceled any contract or order for provision of, and, to the
knowledge of the Company, there has been no threat by or basis for any such
supplier not to provide, raw-materials, products, supplies, or services to the
businesses of the Company.
3.25 RELATIONS WITH CUSTOMERS AND CLIENTS. Since December 31, 1997, no
customer or client of the Company has canceled or terminated, or notified the
Company of its intent to cancel or terminate, any product or service contract or
arrangement with the Company, and the Company has no knowledge of any intention
on the part of any of its current customers or clients to do so.
3.26 NO FINDERS. No act of the Company has given or will give rise to
any claim against any of the parties hereto for a brokerage commission, finder's
fee, or other like payment in connection with the transactions contemplated
herein, except payments to those parties identified on the Company Disclosure
Schedule who have acted as a finder for the Company or have been retained by the
Company as financial advisors
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pursuant to the agreements or other documents described in the Company
Disclosure Schedule.
3.27 MINUTE BOOKS AND STOCK RECORD BOOKS. The corporate minute books
and stock record books of the Company are complete and correct and accurately
reflect the actions taken at all meetings of the stockholders and the Board
of Directors of the Company and each committee of the Board of Directors in
all material respects. The stock record books of the Company are complete and
correct and accurately reflect and record the issuance and transfer of all
shares of capital stock of the Company.
3.28 USE OF REAL PROPERTY. All Facilities are used and operated by
the Company in all material respects in compliance with all applicable
leases, contracts, commitments, licenses and permits, except for any failure
in compliance that would not reasonably be expected to have a Company
Material Adverse Effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUBSIDIARY
Except as set forth in a document of even date herewith, referring
specifically to the representations and warranties in this Agreement which
identifies by section number to which such disclosure relates (the "Parent
Disclosure Schedule"), Parent and Merger Subsidiary hereby jointly and severally
make the following representations and warranties to the Company:
4.1 ORGANIZATION. Parent is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware. Merger
Subsidiary is a corporation duly organized and validly existing under the laws
of the state of Minnesota. Each of Parent and Merger Subsidiary has all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as now being conducted. Each of Parent
and Merger Subsidiary is duly qualified and in good standing to do business in
each jurisdiction in which the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification necessary and
where the failure to qualify could reasonably be expected to have a Parent
Material Adverse Effect (as defined below). "Parent Material Adverse Effect"
means an effect that, individually or in the aggregate with other effects, has a
materially adverse effect: (i) to the business, properties, liabilities, results
of operation, or financial condition of Parent and its subsidiaries, considered
as a whole, or (ii) to Parent's ability to perform any of its obligations under
this Agreement or to consummate the Merger, but shall
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exclude any effect relating to or resulting from generally applicable
economic conditions or the Parent's industry in general.
4.2 AUTHORIZATION. Each of Parent and Merger Subsidiary has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by Parent and Merger Subsidiary and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Boards of Directors of Parent and Merger Subsidiary and by
Parent as the sole shareholder of Merger Subsidiary, and no other corporate
proceedings on the part of Parent and Merger Subsidiary are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
each of Parent and Merger Subsidiary and constitutes the valid and binding
obligation of Parent and Merger Subsidiary, enforceable against each of them
in accordance with its terms, subject to laws of general application relating
to bankruptcy, insolvency, and the relief of debtors and rules of law
governing specific performance, injunctive relief, or other equitable
remedies.
4.3 CONSENTS AND APPROVALS. Except for (i) the HSR Act and (ii) the
filing and recordation of appropriate merger documents as required by the MBCA,
the execution and delivery of this Agreement by Parent and Merger Subsidiary and
the consummation of the transactions contemplated hereby will not: (a) violate
any provision of the Articles of Incorporation or Bylaws of Parent or Merger
Subsidiary; (b) violate any statute, rule, regulation, order, or decree of any
public body or authority by which Parent or any of its subsidiaries or any of
their respective properties or assets may be bound; (c) require any filing with
or permit, consent, or approval of any public body or authority; or (d) result
in any violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default under, result in the loss of any material
benefit under, or give rise to any right of termination, cancellation, increased
payments, or acceleration under, or result in the creation of any Lien on any of
the properties or assets of Parent or its subsidiaries under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, agreement, or other instrument or obligation to which Parent
or any of its subsidiaries is a party, or by which any of them or any of their
respective properties or assets may be bound, except, in the case of clause (d),
for any such violations, breaches, defaults, or other occurrences that would not
prevent or delay consummation of any of the transaction contemplated hereby in
any material respect, or otherwise prevent Parent from performing its
obligations under this Agreement in any material respect.
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4.4 NO FINDERS. No act of Parent or Merger Subsidiary has given or
will give rise to any claim against any of the parties hereto for a brokerage
commission, finder's fee, or other like payment in connection with the
transactions contemplated herein.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Effective
Time, the Company will conduct its operations according to its ordinary and
usual course of business and consistent with past practice, and the Company will
use all reasonable efforts to preserve intact its business organizations, to
maintain its present business, to keep available the services of its officers
and employees and to maintain satisfactory relationships with licensors,
licensees, suppliers, contractors, distributors, consultants, customers, and
others having business relationships with it. Further, except as otherwise
expressly provided in or contemplated by this Agreement, prior to the Effective
Time, the Company will not, without the prior written consent of Parent:
(a) amend its Articles of Incorporation, as amended, or Bylaws;
(b) authorize for issuance, issue, sell, pledge, or deliver
(whether through the issuance or granting of additional options,
warrants, commitments, subscriptions, rights to purchase, or otherwise
other than in the ordinary course of business consistent with past new
hire practices) any stock of any class or any securities convertible into
shares of stock of any class (other than the issuance of the number of
shares of Company Common Stock indicated in Section 3.3 hereof upon the
exercise in accordance with the current terms of the stock options listed
in the Company Disclosure Section with respect to Section 3.3 hereof as
outstanding on the date of this Agreement);
(c) split, combine, or reclassify any shares of its capital
stock, declare, set aside, or pay any dividend or other distribution
(whether in cash, stock, or property or any combination thereof) in
respect of its capital stock; or redeem or otherwise acquire any shares
of its capital stock or other securities; or amend or alter any material
term of any of its outstanding securities;
(d) create, incur, or assume any indebtedness for borrowed
money, or assume, guarantee, endorse, or otherwise become liable or
responsible (whether directly, contingently, or otherwise) for the
obligations of any other person which involve
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indebtedness for borrowed money or obligations that individually exceed
$25,000 or, in the aggregate, exceed $50,000;
(e) (i) increase the compensation of any of its directors,
officers, employees, shareholders, or consultants, except in the ordinary
course of business and consistent with past practice or consistent with
existing contractual commitments; (ii) pay or accelerate or otherwise
modify the payment, vesting, exercisability, or other feature or
requirement of any pension, retirement allowance, severance, change of
control, stock option, or other employee benefit not required by any
existing plan, agreement, or arrangement to any such director, officer,
employee, shareholder, or consultant, whether past or present; (iii)
except for normal increases in the ordinary course of business in
accordance with its customary past practices or consistent with existing
contractual commitments, commit itself to any additional or increased
pension, profit-sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance,
severance, change of control, retirement or other benefit, plan,
agreement, or arrangement; or (IV) adopt or amend any Plan;
(f) except in the ordinary course of business and consistent
with past practice, or pursuant to contractual obligations existing on
the date hereof, (i) sell, transfer, mortgage, or otherwise dispose of or
encumber any real or personal property, (ii) pay, discharge, or satisfy
claims, liabilities, or obligations (absolute, accrued, contingent, or
otherwise), or (iii) cancel any debts or waive any claims or rights,
commence, settle or compromise any litigation, which involve payments or
commitments to make payments that individually exceed $10,000 or, in the
aggregate, exceed $50,000;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any
other manner, any portion of the assets of, or by any other manner, any
business of any corporation, partnership, joint venture, association, or
other business organization or division thereof,
(h) make or agree to make any new capital expenditure or
expenditures that, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $50,000 unless in the ordinary course of
business consistent with the Company's 1998 budget;
(i) enter into, amend, or terminate any joint ventures or any
other agreements, commitments, or contracts that, individually or in the
aggregate, are material to the
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Company (except agreements, commitments, or contracts expressly
provided for or contemplated by this Agreement or for the purchase,
sale, or lease of goods, services, or properties in the ordinary
course of business, consistent with past practice or capital
expenditures or inventory purchases consistent with the 1998 budget);
(j) enter into or terminate, or amend, extend, renew, or
otherwise modify (including, but not limited to, by default or by failure
to act) any material distribution, independent sales representative,
noncompetition, licensing, franchise, research and development, supply,
or similar contract, agreement, or understanding (except agreements,
commitments, or contracts expressly provided for or contemplated by this
Agreement or for the purchase, sale, or lease of goods, services, or
properties in the ordinary course of business, consistent with past
practice);
(k) remove or permit to be removed from any building, facility,
or real property any machinery, equipment, fixture, vehicle, or other
personal property or parts thereof, except in the ordinary course of
business;
(l) alter or revise its accounting principles, procedures,
methods, or practices, except as required by a change in generally
accepted accounting principles and concurred with by the Company's
independent public accountants; or
(m) agree to do any of the foregoing.
5.2 NO SOLICITATION. Neither the Company nor any of its officers,
directors, employees, representatives, agents, or affiliates (including, but not
limited to any investment banker, attorney, or accountant retained by the
Company), shall, directly or indirectly, solicit, encourage, initiate, or
participate in any way in discussions or negotiations with, or knowingly provide
any information to, any corporation, partnership, person, or other entity or
group (other than Parent or any affiliate or agent of Parent) concerning any
merger, sale or licensing of any significant portion of the assets, sale of
shares of capital stock (including without limitation any proposal or offer to
the Company's shareholders), or similar transactions involving the Company.
5.3 ACCESS AND INFORMATION. FINANCIAL STATEMENTS. (a) The Company
shall afford to Parent, and to Parent's accountants, officers, directors,
employees, counsel, and other representatives, reasonable access during normal
business hours, from the date hereof through the Effective Time, to all of its
properties, books, contracts, commitments, and records, and, during such period,
the Company shall furnish promptly
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to Parent all information concerning the Company's businesses, prospects,
properties, liabilities, results of operations, financial condition,
officers, employees, distributors, customers, suppliers, and others having
dealings with the Company as Parent may reasonably request. During the period
from the date hereof to the Effective Time, the parties shall in good faith
meet and correspond on a regular basis for mutual consultation concerning the
conduct of the Company's businesses.
(b) Within five (5) business days after the date hereof, the Company
will deliver to Parent a true and correct copy of the audited financial
statements at and for the year ended December 31, 1997.
5.4 APPROVAL OF SHAREHOLDERS. The Company shall promptly take all
action necessary in accordance with Minnesota law and the Company's Articles of
Incorporation, as amended, and Bylaws to cause a special meeting of the
Company's shareholders to be duly called and held as soon as reasonably
practicable following the date hereof for the purpose of voting upon the Merger.
The shareholder vote or consent required for approval of the Plan of Merger and
the Merger shall be no greater than that set forth in the MBCA and the Company's
Articles of Incorporation, as amended, as previously provided to Parent. The
Company shall use all reasonable efforts to obtain the approval by the Company's
shareholders of this Agreement, the Plan of Merger, and the Merger.
5.5 CONSENTS. The Company will use all reasonable efforts to obtain
all approvals and consents of all third parties necessary on the part of the
Company to consummate the transactions contemplated hereby. Parent agrees to
cooperate with the Company in connection with obtaining such approvals and
consents. Parent will use all reasonable efforts to obtain all approvals and
consents of all third parties necessary on the part of Parent to consummate the
transactions contemplated hereby. The Company agrees to cooperate with Parent in
connection with obtaining such approvals and consent.
5.6 EXPENSES. Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the party incurring such costs and expenses,
except that the Parent alone will bear the filing fees required under the HSR
Act.
5.7 REASONABLE BEST EFFORT: FURTHER ACTIONS. Subject to the terms and
conditions herein provided and without being required to waive any conditions
herein (whether absolute, discretionary, or otherwise), each of the parties
hereto agrees to use its reasonable best efforts to take, or cause to be taken,
all action, and to do, or cause to be
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done, all things necessary, proper, or advisable to consummate and make
effective the transactions contemplated by this Agreement within 60 days of
the date of this Agreement. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.8 REGULATORY APPROVALS. The Company and Parent will take all
reasonable action as may be necessary under federal or state securities laws or
the HSR Act applicable to or necessary for, and will file as soon as reasonably
practicable and, if appropriate, use all reasonable efforts to have declared
effective or approved all documents and notifications with governmental or
regulatory bodies that they deem necessary or appropriate for, the consummation
of the Merger and the transactions contemplated hereby, and each party shall
give the other information reasonably requested by such other party pertaining
to it and its subsidiaries and affiliates to enable such other party to take
such actions.
5.9 CERTAIN NOTIFICATIONS. The Company shall promptly notify Parent in
writing of the occurrence of any event that will or could reasonably be expected
to result in the failure by the Company or its affiliates to satisfy any of the
conditions specified in Section 6. 1 or 6.2. Parent shall promptly notify the
Company in writing of the occurrence of any event that will or could reasonably
be expected to result in the failure by Parent or its affiliates to satisfy any
of the conditions specified in Section 6.1 or 6.3.
5.10 INDEMNIFICATION. EXCULPATION AND INSURANCE. (a) The articles of
incorporation and the by-laws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation from liability set
forth in the Company's Articles of Incorporation, as amended, and By-laws on the
date of this Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors, officers, employees or agents of
the Company, unless such modification is required by law. Parent shall guarantee
the obligations of the Surviving Corporation with respect to the indemnification
provisions contained in the Surviving Corporation's certificate of incorporation
and by-laws.
(b) In the event Parent, the Surviving Corporation or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of
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Parent or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 5.10.
(c) This Section 5.10 shall survive the consummation of the Merger at
the Effective Time, is intended to benefit the Company, Parent, the Surviving
Corporation and the Indemnified Parties, and shall be binding on all successors
and assigns of Parent and the Surviving Corporation.
5.11 BENEFIT PLANS AND EMPLOYEE MATTERS. (a) From the Effective Time
through and including December 31, 1998, Parent agrees that it will not cause or
permit the Company to terminate or modify, in any manner materially detrimental
to the employees of the Company (except as required by applicable law), any
health and welfare benefit plan and 401(k) pension plan included in the Plans
presently maintained by the Company.
(b) The parties hereto acknowledge that Parent, on the one hand, and
each of Walter A. Roberts and Jonathan Rick, on the other hand, have agreed as
of the date hereof upon term sheets containing the terms mutually agreed-upon by
them in respect of employment and other matters relating to Walter A. Roberts
and Jonathan Rick (collectively, the "Term Sheets"). Parent agrees to use all
reasonable efforts that may be necessary to enter into definitive agreements
with each of Walter A. Roberts or Jonathan Rick consistent with such Term Sheets
and containing such other mutually-agreeable terms and conditions as may be
customary to be included in such agreements on or prior to August 18, 1998, or
as soon as possible thereafter, and the Company shall use all reasonable efforts
to assist and cooperate with the same.
(c) With reference to the Employment Agreement, dated September 20,
1993, together With the Addendum to Harmonic Systems Incorporated Employment
Agreement relating to Pre-Employment Activities, dated __________, 1993, and
Amendment to Employment Agreement, dated May 20, 1998, between Harmonic
Systems Incorporated and Barrs S. Lewis (such Amendment, the "Barrs Lewis
Amendment"), on or prior to the Effective Time, the Company shall notify
Barrs S. Lewis that it is, conditioned upon the occurrence of the Effective
Time, exercising the option contained in paragraph 4 of such Barrs Lewis
Amendment to extend the Non-Competition covenants set forth in and
contemplated by Article 3 of such Barrs Lewis Amendment for an additional
twelve (12) months. For clarification, any obligations arising out of such
option being exercised shall be subject to the obligations of the
Shareholders set forth in Section 7.2(a)(ii) hereof.
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ARTICLE 6
CLOSING CONDITIONS
6.1 CONDITIONS TO OBLIGATIONS OF PARENT MERGER SUBSIDIARY AND THE
COMPANY. The respective obligations of each party to consummate the Merger shall
be subject to the fulfillment at or prior to the Closing of the following
conditions:
(a) NO INJUNCTION. None of Parent, Merger Subsidiary, or the
Company shall be subject to any final order, decree, or injunction of a
court of competent jurisdiction within the United States that (i)
prevents or materially delays the consummation of the Merger, or (ii)
would impose any material limitation on the ability of Parent effectively
to exercise full rights of ownership of the Company or the assets or
business of the Company.
(b) WAITING PERIODS. The waiting periods applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(c) EMPLOYMENTS AND OTHER AGREEMENTS. Parent shall have entered
into a definitive agreement with each of Walter A. Roberts and Jonathan
Rick that is consistent with the relevant Term Sheet, PROVIDED that this
Section 6.1(c) shall not be a condition to the obligations of Parent or
Merger Subsidiary to consummate the Merger if Parent, on the one hand,
and either Walter A. Roberts or Jonathan Rick, on the other hand, fail to
enter into their respective definitive agreement due to Parent proposing
to include any terms in such definitive agreement which terms are
materially inconsistent with the terms contained in the Term Sheet.
6.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUBSIDIARY. The
respective obligations of Parent and Merger Subsidiary to consummate the Merger
shall be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation
and warranty of the Company contained in this Agreement shall be true and
correct in all respects (in the case of any representation or warranty
containing any materiality qualification) or in all material respects (in
the case of any representation or warranty without any materiality
qualification) on the date hereof and on the Closing Date as though such
representations and warranties were made on such date (except those
representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date).
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(b) PERFORMANCE. The Company shall have performed and complied
in all material respects with all agreements, obligations, and conditions
required by this Agreement to be performed or complied with by it on or
prior to the Closing, and Parent shall have received a certificate to
such effect signed by the Chief Executive Officer of the Company.
(c) CONSENTS. The Company shall have obtained all permits,
authorizations, consents, and approvals required on its part to perform
its obligations under, and consummate the transactions contemplated by,
this Agreement, in form and substance satisfactory to Parent, and Parent
and Merger Subsidiary shall have received evidence satisfactory to them
of the receipt of such permits, authorizations, consents, and approvals.
(d) OPINION OF COUNSEL FOR THE COMPANY. Parent and Merger
Subsidiary shall have received an opinion of Fredrikson & Byron, P.A.,
counsel to the Company, dated the Closing Date, in form and substance
reasonably satisfactory to Parent as to matters set forth in Sections
3.1(a), 3.2 and 3.3.
(e) RESIGNATIONS. Such officers and directors of the Company as
shall have been specified by Parent shall have tendered their respective
resignations effective as of the Effective Time.
6.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the
Company to consummate the Merger shall be subject to the fulfillment at or prior
to the Closing of the following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. Each representation
and warranty of Parent contained in this Agreement shall be true and
correct in all respects (in the case of any representation or warranty
containing any materiality qualification) or in all material respect (in
the case of any representation or warranty without any materiality
qualification) on the date of this Agreement and on the Closing Date as
though such representations and warranties were made on such date (except
those representations and warranties that address matters only as of a
particular date shall remain true and correct as of such date).
(b) PERFORMANCE. Parent and Merger Subsidiary shall have
performed and complied in all material respects with all agreements,
obligations, and conditions required by this Agreement to be performed or
complied with by them on or prior to the Closing, and the Shareholders'
Representative (as defined below) shall have
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received a certificate to such effect signed by the Chief Executive
Officer of the Company.
(c) CONSENTS. Parent and Merger Subsidiary shall have obtained
all permits, authorizations, consents, and approvals required on their
part to perform their obligations under, and consummate the transactions
contemplated by, this Agreement, in form and substance satisfactory to
the Company, and the Company shall have received evidence satisfactory to
it of the receipt of such permits, authorizations, consents, and
approvals.
(d) OPINION OF COUNSEL FOR PARENT. The Company shall have
received an opinion of Reboul, MacMurray, Hewitt, Maynard & Kristol,
counsel to Parent dated the Closing Date, in form and substance
reasonably satisfactory to the Company as to the matters set forth in
Sections 4.1 and 4.2.
ARTICLE 7
INDEMNIFICATION
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made by any and party hereto in this Agreement or pursuant hereto
shall survive until March 31, 2000. A party may maintain a claim or action for
indemnity pursuant to Article 7 after the expiration of the representation and
warranty under Article 3 and Article 4, as the case may be, only if the party
made the claim in writing on or prior to March 31, 2000.
7.2 GENERAL INDEMNITY. (a) BY SHAREHOLDERS. Subject to the terms and
conditions of this Article 7, each Shareholder, severally but not jointly,
indemnifies and holds harmless Parent and, following the Effective Time, the
Company from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including without
limitation interest, penalties and reasonable attorneys' fees and expenses
(hereinafter collectively, the "Damages"), asserted against, resulting to,
imposed upon or incurred by Parent or, following the Effective Time, the
Company, by reason of, resulting from or arising out of (j) a breach of any
representation, warranty, covenant or agreement of the Company contained in or
made pursuant to this Agreement, except, in each case, as and to the extent that
Section 7.2(b) or 7.2(c) shall be applicable thereto, in which case the
provisions of said Section 7.2(b) or 7.2(c), as the case may be, shall govern,
and (ii) the employment, retention and other agreements listed on Schedule
7.2(a)(ii), except as otherwise specified in such Schedule 7.2(a)(ii).
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(b) TAX INDEMNITY BY SHAREHOLDERS. Each Shareholder, severally but not
jointly, indemnifies and holds harmless Parent and, following the Effective
Time, the Company from and against (i) any and all taxes incurred by, imposed
upon or attributable to the Company with respect to any tax period (or
portion thereof) ending on or prior to the date of the Effective Time and
(ii) reasonable legal and accounting fees and expenses and other
out-of-pocket expenses incurred by Parent or, following the Effective Time,
the Company or any party hereto in connection with assessment or collection
of the taxes referred to in clause (i) of this Section 7.2(b). For purposes
of this Section 7.2(b), any interest, penalty or additional charge included
in Taxes shall be deemed to be a tax for the period to which the item or
event giving rise to such interest, penalty or additional charge is
attributable, and not a tax for the period during which such interest,
penalty or additional charge accrues. Any taxes, legal fees and expenses
subject to indemnification under this Section 7.2(b) shall not be subject to
indemnification under Section 7.2(a) hereof.
(c) ERISA INDEMNITY BY SHAREHOLDERS. Each Shareholder, severally but
not jointly, indemnifies and holds harmless Parent from and against and in
respect of any Damages (including, without limitation, sanctions that arise
under ERISA) imposed upon, incurred by, assessed against Parent and
affiliates or plan fiduciaries and any of their employees arising by reason
of or relating to any failure of Company prior to the Effective Time to
comply with the requirements of ERISA with respect to any employee benefit
plan, including retirement and welfare benefit plans in existence prior to
the Closing Date. For the purposes of this provision, references to ERISA
refer to all sections of ERISA, including, but not limited to the applicable
provisions of the Code, as may be amended from time to time.
(d) BY PARENT. Subject to the terms and conditions of this Article 7,
Parent will indemnify, defend and hold the Shareholders harmless from and
against all Damages asserted against, resulting to, imposed upon or incurred
by them by reason of or resulting from or arising out of a breach of (i) any
representation, warranty, covenant or agreement of Parent or the Merger
Subsidiary contained in or made pursuant to this Agreement; and (ii) any
Damages relating to the conduct of the business of the Company and its
affiliates after the Closing.
(e) PROCEDURE. Procedures for making a claim for indemnity are set
forth in the Escrow Agreement.
7.3 LIMITATIONS ON INDEMNIFICATION. Notwithstanding the foregoing, the
maximum aggregate liability of each of the Shareholders, on the one hand, and
Parent and, following the Effective Time, the Company, on the other, for (a)
indemnification
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payments pursuant to Section 7.2(a)(i) hereof shall not exceed the amount of
the Indemnification Escrow Deposit and (b) indemnification payments pursuant
to Section 7.2(a)(ii) hereof shall not exceed the amount of the Retention
Payment Escrow Deposit. In the case of the Shareholders, the Shareholders
will have no liability for indemnification under this Article 7 except to the
extent of the unreleased amount of the Indemnification Escrow Deposit or the
Retention Payment Escrow Deposit, as the case maybe.
7.4 ADJUSTMENTS. Any Damages subject to indemnification under this
Article 7 (i) shall be net of an amount equal to (x) any insurance proceeds
realized by and paid to the party to be indemnified minus (y) any related
costs and expenses, including the aggregate cost of pursuing any related
insurance claims plus any increases in insurance premiums or other charge
backs directly related to such claims, and (ii) shall be (A) reduced by an
amount equal to the tax benefits, if any, attributable to such claim and (B)
increased by an amount equal to the taxes, if any, attributable to the
receipt of such indemnity payment, but only to the extent that such tax
benefits are actually realized, or such taxes are actually paid, as the case
may be.
7.5 THIRD PARTY CLAIMS. The respective obligations and liabilities of
the Shareholders, on the one hand, and Parent and, following the Effective
Time, the Company, on the other hand (herein sometimes called the
"indemnifying party"), to the other (herein sometimes called the "party to be
indemnified") under Section 7.2 hereof with respect to claims resulting from
the assertion of liability by third parties shall be subject to the following
terms and conditions:
(i) within 30 days after receipt of notice of commencement of
any action or the assertion of any claim by a third party, the party to
be indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading
(provided that failure so to notify the indemnifying party of the
assertion of a claim within such period shall not affect its indemnity
obligation hereunder except as and to the extent that such failure shall
adversely affect the defense of such claim), and the indemnifying party
shall have the right to undertake the defense thereof by representatives
of its own choosing;
(ii) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the
tenth day preceding the day on which an answer or other pleading must
be served in order to prevent judgment by default in favor of the
person asserting such claim), does not elect to defend against such
claim, the party to be indemnified will (upon further notice to the
indemnifying party) have the right to undertake the defense, compromise
or settlement of such
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claim on behalf of and for the account and risk of the indemnifying
party, subject to the right of the indemnifying party to consent to
any settlement or compromise thereof by the party to be indemnified;
and
(iii) in connection with any such indemnification, the party to
be indemnified will cooperate in all reasonable requests of the
indemnifying party.
ARTICLE 8
TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of the
Company, only:
(a) by mutual written consent duly authorized by the Board of
Directors of Parent and the Board of Directors of the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated on or before the date 90 days following the date
hereof; provided, however, that the terminating party shall not have
breached in any material respect its obligations under this Agreement in
any manner, including such party's obligations under Section 5.8 hereof,
that shall have been the proximate cause of, or resulted in, the failure
to consummate the Merger by such date;
(c) by either Parent or the Company if a court of competent
jurisdiction or an administrative, governmental, or regulatory authority
has issued a final nonappealable order, decree, or ruling, or taken any
other action, having the effect of permanently restraining, enjoining,
or otherwise prohibiting the Merger;
(d) by Parent if (i) Parent is not in material breach of its
obligations under this Agreement and (ii) there has been a breach by the
Company of any of its representations, warranties, or obligations under
this Agreement such that the conditions in Section 6.2 will not be
satisfied, and the breach is not curable or, if curable, is not cured by
the Company within 30 calendar days after receipt by the Company of
written notice from Parent of such breach;
(e) by the Company if (i) the Company is not in material breach of
its obligations under this Agreement and (ii) there has been a breach by
Parent of any of its representations, warranties, or obligations under
this Agreement such that the
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conditions in Section 6.3 will not be satisfied, and the breach is not
curable or, if curable, is not cured by Parent within 30 calendar days
after receipt by Parent of written notice from the Company of such
breach;
8.2 EFFECT OF TERMINATION. Except as provided in the next sentence of
this paragraph, in the event of the termination of this Agreement pursuant to
any paragraph of Section 8.1, the obligations of the parties to consummate the
Merger will expire, and none of the parties will have any further obligations
under this Agreement except pursuant to Section 5.6 and Article 9. In the event
of the termination of this Agreement pursuant to any paragraph of Section 8.1
that is caused by a breach of a party, the party whose breach was the basis for
the termination will not be relieved from any liability for its breach, and the
other party will have no further obligations under this Agreement except as
provided in Section 5.6 and Article 9.
ARTICLE 9
MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by written agreement
of Parent, Merger Subsidiary, and the Company at any time prior to the
Effective Effective Time with respect to any of the terms contained herein.
This Agreement may not be amended except by an instrument in writing signed
on behalf of each of the parties hereto.
9.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Parent or Merger
Subsidiary on the one hand, or the Company on the other hand, to comply with
any obligation, covenant, agreement, or condition herein may be waived by the
Company or Parent, respectively, only by a written instrument signed by an
officer of the party granting such waiver, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing. Merger Subsidiary agrees that any consent or waiver of compliance
given by Parent hereunder shall be conclusively binding upon Merger
Subsidiary, whether or not given expressly on its behalf.
9.3 NOTICES. All notices and other communications hereunder shall be
in writing and shall be deemed given when delivered personally by commercial
courier service or otherwise, or by telecopier, or three days after such
notice is mailed by
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registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Subsidiary, to it at:
Alliance Data Systems
5001 Spring Valley Road, Suite 650W
Dallas, TX 75244
FAX: (972) 960-5330
Attention: Michael Beltz
with separate copies thereof addressed to
Alliance Data Systems
800 Techcenter Drive
Gahanna, OH 43230
FAX: (614) 729-4949
Attention: Carolyn Melvin, General Counsel
(b) If to the Company, to it at:
Harmonic Systems Incorporated
701 4th Avenue South
Minneapolis, MN 55415
FAX: (612) 672-3549
Attention: Barrs S. Lewis
with a copy to:
Fredrikson & Byron, P.A.
1100 International Centre
900 Second Avenue South
Minneapolis, MN 55402-3397
FAX: (612) 347-7077
Attention: Thomas W. Garton
9.4 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor
any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto without the prior
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written consent of the other parties, nor is this Agreement intended to
confer upon any other person except the parties hereto any rights or remedies
hereunder except that Parent shall have the right to assign this Agreement to
any of its affiliates or subsidiaries without the prior consent of any other
party hereto.
9.5 GOVERNING LAW; DISPUTE RESOLUTION. (a) This Agreement shall be
governed by the laws of the State of Minnesota (regardless of the laws that
might otherwise govern under applicable Minnesota principles of conflicts of
law).
(b) Any dispute, controversy or claim arising out of, relating to, or
in connection with, this Agreement or any breach, termination or validity
thereof shall be finally settled by arbitration. The arbitration shall be
conducted in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect at the time of the arbitration, except as
they may be modified herein or by mutual agreement of the parties. The seat
of the arbitration shall be Minneapolis, Minnesota and it shall be conducted
in the English language. The arbitration shall be conducted by three
arbitrators. The party initiating arbitration ("the Claimant") shall appoint
its arbitrator in its request for arbitration (the "Request"). The other
party ("the Respondent") shall appoint its arbitrator within thirty (30) days
of receipt of the Request and shall notify the Claimant of such appointment
in writing. If the Respondent fails to appoint an arbitrator within such
30-day period, the arbitrator named in the Request shall decide the
controversy or claim as a sole arbitrator. Otherwise, the two arbitrators
appointed by the parties shall appoint a third arbitrator within thirty (30)
days after the Respondent has notified Claimant of the appointment of the
Respondent's arbitrator. When the arbitrators appointed by the Claimant and
Respondent have appointed a third arbitrator and the third arbitrator has
accepted the appointment, the two arbitrators shall promptly notify the
parties of the appointment of the third arbitrator. If the two arbitrators
appointed by the parties fail or are unable so to appoint a third arbitrator
or so to notify the parties, then the appointment of the third arbitrator
shall be made by President of the American Arbitration Association which
shall promptly notify the parties of the appointment of the third arbitrator.
The third arbitrator shall act as Chairman of the panel. The arbitral award
shall be in writing and shall be final and binding on the parties. The award
may include an award of costs, including reasonable attorneys' fees and
disbursements. Judgment upon the award may be entered by any court having
jurisdiction thereof or having jurisdiction over the parties or their assets.
This Section 9.5(b) shall in no way affect the right of either party hereto
to seek interim relief in any court of competent jurisdiction, and a request
for such interim relief shall not be deemed incompatible with, or a waiver
of, the agreement to arbitrate contained herein.
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9.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
9.7 KNOWLEDGE. As used in this Agreement or the instruments,
certificates or other documents required hereunder, the term "knowledge"
shall mean, as to any individual, the actual knowledge of such person or, as
to any entity, the actual knowledge of such entity's directors and executive
officers.
9.8 INTERPRETATION. The Table of Contents, article and section
headings contained in this Agreement are inserted for reference purposes only
and shall not affect the meaning or interpretation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring the resolution of any ambiguity regarding the interpretation or
construction hereof against the party causing this Agreement to be drafted.
9.9 PUBLICITY. Upon Parent entering into and executing definitive
agreements with Walter A. Roberts, Jonathan Rick and Barrs S. Lewis as
provided for and pursuant to Section 5.11(b), Parent and the Company shall
jointly issue a press release, as agreed upon by them. The parties intend
that all future statements or communications to the public or press regarding
this Agreement or the Merger will be mutually agreed upon by them. Neither
party shall, without such mutual agreement or the prior consent of the other,
issue any statement or communication to the public or to the press regarding
this Agreement, or any of the terms, conditions, or other matters with
respect to this Agreement, except as required by law or the applicable rules
of the relevant stock exchange(s) and then only (a) upon the advice of such
party's legal counsel; (b) to the extent required by law or stock exchange
rules; and (c) following prior notice to, and consultation with, the other
party (which notice shall include a copy of the proposed statement or
communication to be issued to the press or public). The foregoing shall not
restrict Parent's or the Company's communications with their employees,
consultants, agents or customers in the ordinary course of business.
9.10 EXCLUSIVITY OF REMEDIES. Indemnification pursuant to the
provisions of this Article 7 shall be the exclusive remedy of the parties for
any misrepresentation or breach of representation, warranty, obligation or
agreement hereunder, PROVIDED that nothing herein shall limit the rights of
either party to seek and obtain injunctive relief to specifically enforce the
other party's obligation or assert any matter which is the subject of the
preceding sentence, other than a claim of fraud or intentional
misrepresentation, shall be a contract action to enforce, or to recover
damages for the breach of, this Article 7. The indemnifying party shall not
be liable for any consequential, special or incidental
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Damages, including without limitation Damages for lost profits or Damages for
lost business opportunity.
9.11 SEVERABILITY. If any provision, including any phrase, sentence,
clause, section or subsection, of this Agreement is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provision in question invalid, inoperative or unenforceable in
any other case or circumstance, or of rendering any other provision herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
9.12 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto and the Confidentiality Agreement previously entered into
between the parties, embodies the entire agreement and understanding of the
parties hereto in respect of the subject matter contained herein. This
Agreement and the Confidentiality Agreement supersede all prior agreements
and the understandings between the parties with respect to such subject
matter.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Michael Beltz
----------------------------------
Its Executive Vice President
------------------------------
HSI ACQUISITION CORP.
By /s/ Ron Carter
----------------------------------
Its President
------------------------------
HARMONIC SYSTEMS INCORPORATED
By /s/ Barrs S. Lewis
----------------------------------
Its Chairman & CEO
------------------------------
The undersigned consents to its appointment as Shareholders' Representative
under this Merger Agreement, agrees to serve in such capacity at and after the
Effective Time (subject to removal or resignation as permitted under the
Agreement) and agrees to be bound by the terms of this Agreement and shall have
the rights and benefits provided to the Shareholders' Representative in this
Agreement.
Barrs S. Lewis, as Shareholders' Representative
By: /s/ Barrs S. Lewis
------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By
----------------------------------
Its
--------------------------
HSI ACQUISITION CORP.
By
----------------------------------
Its
--------------------------
HARMONIC SYSTEMS INCORPORATED
By /s/ Barrs S. Lewis
----------------------------------
Its Chairman & CEO
--------------------------
The undersigned consents to its appointment as Shareholders' Representative
under this Merger Agreement, agrees to serve in such capacity at and after
the Effective Time (subject to removal or resignation as permitted under the
Agreement) and agrees to be bound by the terms of this Agreement and shall
have the rights and benefits provided to the Shareholders' Representative in
this Agreement.
Barrs S. Lewis, as Shareholders' Representative
By: /s/ Barrs S. Lewis
------------------
<PAGE>
EXHIBIT A
PLAN OF MERGER
ARTICLE 1
NAMES OF CONSTITUENT
CORPORATIONS AND SURVIVING CORPORATION
1.1 The names of the Constituent Corporations are HSI Acquisition
Corp. ("Merger Subsidiary"), a Minnesota corporation and wholly-owned
subsidiary of Alliance Data Systems Corporation ("Parent"), a Delaware
corporation and Harmonic Systems Incorporated (the "Company"), a Minnesota
corporation. The Constituent Corporations shall be combined by the merger of
the Merger Subsidiary with and into the Company as the Surviving Corporation
(the "Merger") pursuant to the Agreement and Plan of Merger dated
August________ , 1998, by and among the Merger Subsidiary, Parent and the
Company (the "Merger Agreement") and pursuant to the applicable provisions of
the Minnesota Business Corporation Act ("MBCA").
ARTICLE 2
THE MERGER; CONVERSION OF SHARES
2.1 THE MERGER. Subject to the terms and conditions of the Merger
Agreement, at the Effective Time (as defined in Section 2.2 hereof), Merger
Subsidiary shall be merged with and into the Company in accordance with the
provisions of the MBCA, whereupon the separate corporate existence of Merger
Subsidiary shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation"). From and after the Effective Time,
the Surviving Corporation shall possess all the rights, privileges, powers,
and franchises and be subject to all the restrictions, disabilities, and
duties of the Company and Merger Subsidiary, all as more fully described in
the MBCA.
2.2 EFFECTIVE TIME. The Merger shall become effective at the time
at which the Articles of Merger and this Plan of Merger are duly filed with
the Minnesota Secretary of State or, if agreed to by Parent and the Company,
such later time or date set forth in the Articles of Merger (the "Effective
Time").
2.3 MERGER CONSIDERATION. The consideration to be paid by Parent in
full payment for the consummation of the Merger (the "Merger Consideration")
shall consist of:
(a) An aggregate amount of [$43,359,000] which shall be paid
on the Closing Date to the persons, in the manner and under the
conditions provided in this Article 2 (the "Closing Cash Amount"); PLUS
(b) An aggregate amount of $7,000,000 which shall be paid by
wire transfer of immediately available funds to the escrow agent under
an Escrow Agreement substantially in the form attached as Exhibit B to
the Merger Agreement (the "Escrow
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<PAGE>
Agreement") (such amount deposited with such escrow agent, the
"Indemnification Escrow Deposit").
(c) An aggregate amount of [$1,641,000] which shall be paid by
wire transfer of immediately available funds to the escrow agent under
the Escrow Agreement (such amount deposited with such escrow agent, the
"Retention Payment Escrow Amount"). (The Indemnification Escrow Deposit,
the Retention Payment Escrow Amount and Earnings (as defined in the
Escrow Agreement) together are referred to in the Escrow Agreement and
herein as the "Escrow Amount".)
2.4 COMMON STOCK; PREFERRED SHARES; CONVERSION. At the Effective
Time, by virtue of the Merger and without any action on the part of any
holder of any share of capital stock of the Company or Merger Subsidiary:
(a) COMPANY STOCK; CLOSING CASH AMOUNT. (i) Each share of
common stock of the Company, par value $0.01 per share ("Company Common
Stock"), issued and outstanding on the date that is the one day prior to
the date hereof (the "Record Date") (except for Dissenting Shares, as
defined in Section 1.5 hereof) shall be converted into the right to
receive its Allocable Portion (as defined below) of the Closing Cash
Amount at the Effective Time, and the right to receive its Allocable
Portion of the Escrow Amount in the manner, at the terms and under the
conditions provided in the Escrow Agreement.
(ii) Each share of any other class of capital stock of the
Company (other than Company Common Stock) (the "Company Preferred
Stock") issued and outstanding at the Record Date (except for
Dissenting Shares as defined in Section 2.5 hereof) shall be converted
into the right to receive its Allocable Portion of the Closing Cash
Amount at the Effective Time, and the right to receive its Allocable
Portion of the Escrow Amount in the manner, at the time or times and
under the conditions provided in the Escrow Agreement. The Company
Common Stock and Company Preferred Stock are sometimes collectively
referred to hereinafter as "Company Stock".
The term "Allocable Portion" shall mean, with respect to each share of
Company Stock, that portion of the Closing Cash Amount which is
designated as the Company Stock Allocable Portion on Exhibit C-1 to the
Merger Agreement.
(b) MERGER SUBSIDIARY STOCK. Each share of common stock of
Merger Subsidiary, par value $.01 per share ("Merger Subsidiary Common
Stock"), issued and outstanding immediately prior to the Effective Time
shall be converted into one share of the common stock of the Surviving
Corporation, par value $.01 per share ("Surviving Corporation Common
Stock").
2.5 DISSENTING SHARES. Notwithstanding any provision of the Merger
Agreement to the contrary, each outstanding share of Company Stock, the
holder of which has demanded and perfected such holder's right to dissent
from the Merger and to be paid the fair value of such
2
<PAGE>
shares in accordance with Sections 302A.471 ET SEQ. of the MBCA and, as of
the Effective Time, has not effectively withdrawn or lost such dissenters'
rights ("Dissenting Shares"), shall not be converted into or represent a
right to receive the Merger Consideration into which shares of Company Stock
are converted pursuant to Section 2.4 hereof, but the holder thereof shall be
entitled only to such rights as are granted by the MBCA. The Company shall
give Parent (i) prompt written notice of any notice of intent to demand fair
value for any shares of Company Stock, withdrawals of such notices, and any
other instruments served pursuant to the MBCA or any other provisions of
Minnesota law and received by the Company, and (ii) the opportunity to
conduct jointly all negotiations and proceedings with respect to demands for
fair value for shares of Company Stock under the MBCA. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment
with respect to any demands for fair value for shares of Company Stock or
offer to settle or settle any such demands.
2.6 COMPANY WARRANTS. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders thereof, each
warrant to purchase Company Common Stock outstanding at the Record Date (the
"Company Warrants") shall be converted into the right to receive that portion
of the Closing Cash Amount at the Effective Time as set forth on Exhibit C-2
of the Merger Agreement (the "Closing Warrant Amount"), and the right to
receive that portion of the Escrow Amount in the manner, at the time or
times, and under the conditions provided in the Escrow Agreement.
2.7 COMPANY CONVERTIBLE DEBENTURES. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders
thereof, each convertible debenture of the Company issued and outstanding at
the Record Date (the "Convertible Debentures") shall be converted into the
right to receive that portion of the Closing Cash Amount at the Effective
Time as set forth on Exhibit C-3 of the Merger Agreement (the "Closing
Debenture Payment"), and the right to receive that portion of the Escrow
Amount in the manner, at the time or times, and under the conditions provided
in the Escrow Agreement.
2.8 STOCK OPTIONS. All stock options outstanding at the Record Date
under the Company's employee stock option plans (the "Company Option Plans")
shall, whether or not exercisable or vested, become fully exercisable and
vested at the Effective Time, and each option thereunder shall be converted
into a right to receive that portion of the Closing Cash Amount at the
Effective Time as set forth an Exhibit C-4 of the Merger Agreement
corresponding to the name of the holder of such option (the "Closing Option
Payment"), and the right to receive that portion of the Escrow Amount, in the
manner, at the time or times, and under the conditions set forth on Exhibit
C-4 of the Merger Agreement corresponding to the name of the holder of such
option (the "Deferred Option Payment"). Each of the Company Option Plans and
all options issued and outstanding thereunder shall terminate effective as of
the Effective Time.
2.9 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares
of Merger Subsidiary Common Stock shall be deemed for all purposes to
evidence ownership of and to represent the number of shares of Surviving
Corporation Common Stock into which such shares of Merger Subsidiary Common
Stock shall have been converted. Promptly after the Effective Time, the
Surviving
3
<PAGE>
Corporation shall issue to Parent a stock certificate or certificates
representing such shares of Surviving Corporation Common Stock in exchange
for the certificate or certificates that formerly represented shares of
Merger Subsidiary Common Stock, which shall be canceled.
2.10 EXCHANGE OF COMPANY STOCK. (a) The Company will instruct the
holders of the certificate representing Company Stock to deliver such
certificates at or after the Closing to Parent, duly endorsed for transfer to
the Company, for cancellation. At the Closing with respect to certificates so
delivered at or prior to the Closing, and as soon as practicable after
delivery with respect to certificates not delivered until after Closing,
Parent shall pay to each transferring holder thereof an amount of money equal
to the Allocable Portion of the Closing Cash Amount to which such surrendered
shares are entitled. Such payments shall be made by bank check delivered at
Closing or mailed to the recipient pursuant to instructions given by the
recipient; or by wire transfer of immediately available funds pursuant to
instructions given by the recipient. In the event of a transfer of ownership
of Company Stock that is not registered in the transfer records of the
Company, it shall be a condition to the payment that the Company
Certificate(s) so surrendered shall be properly endorsed or be otherwise in
proper form for transfer and that such transferee shall (i) pay to the
Exchange Agent any transfer or other taxes required or (ii) establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(b) All cash paid in respect of the Closing Cash Amount and rights
to receive payments out of the Escrow Amount distributed upon the surrender
for exchange of Company Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Stock.
(c) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Stock that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Company
Certificates representing such shares are presented to the Surviving
Corporation, they shall be canceled and exchanged as provided in this Article
2. As of the Effective Time, the holders of Company Certificates representing
shares of Company Stock shall cease to have any rights as shareholders of the
Company, except such rights, if any, as they may have pursuant to the MBCA.
Except as provided above, until such Company Certificates are surrendered for
exchange, each such Company Certificate shall, after the Effective Time,
represent for all purposes only the rights to receive the Closing Cash Amount
and Escrow Amount to which the shares of Company Stock shall have been
converted pursuant to the Merger as provided in Section 2.3 hereof.
(d) In the event any Company Certificates shall have been lost,
stolen, or destroyed, the Exchange Agent shall issue in exchange for such
lost, stolen, or destroyed Company Certificates, upon the making of an
affidavit of that fact by the holder thereof, such as may be required
pursuant to this Article 2.
2.11 EXCHANGE OF THE COMPANY WARRANTS AND COMPANY DEBENTURES. (a)
The Company will instruct the holders of the Company Warrants and Company
Debentures to deliver the Company Warrants and Company Debentures at or after
the Closing to Parent, duly endorsed for
4
<PAGE>
transfer to the Company, At Closing, with respect to Company Warrants and
Company Debentures so delivered at or prior to the Closing, and as soon as
practicable after delivery, with respect to Company Warrants and Company
Debentures not delivered until after Closing, Parent shall pay to each
transferring holder thereof an amount of money equal to the Closing Warrant
Payment to which such surrendered Company Warrants are entitled and the
Closing Debenture Amount to which the Company Debentures are entitled. Such
payments shall be made by bank check delivered at Closing or mailed to the
recipient pursuant to instructions given by the recipient; or by wire
transfer of immediately available funds pursuant to instructions given by the
recipient.
(b) All cash paid and rights to receive Escrow Amounts distributed
upon surrender for exchange of Company Warrants and Company Debentures shall
be deemed to have been issued in full satisfaction of all rights pertaining
respectively to such Company Warrants and Company Debentures.
2.12 ESCROW AGREEMENT; SHAREHOLDER REPRESENTATIVE. (a) The
shareholders of the Company, by approving the Merger, agree to be bound by
the terms of the Escrow Agreement referred to in Section 2.3, including,
without limitation, the provisions thereof appointing a person to act as the
representative (the "Shareholders' Representative") of the shareholders of
the Company Stock and the holders of the Company Options, Company Warrants
and Company Debentures (together, the "Selling Group") for the purpose of(i)
administering and entering into the Escrow Agreement, settling on behalf of
the Shareholders' claims made by Parent thereunder, (iii) representing the
Shareholders in any proceedings relating to the Merger Agreement and (iv)
performing any other actions specifically delegated to the Shareholders'
Representative under the terms of the Merger Agreement. The Shareholders, by
approving the Merger, will be bound by any and all actions taken by the
Shareholders' Representative on their behalf. Acceptance by Shareholders of
the Shareholders' Representative is a condition of the Merger.
(b) A Committee appointed by the Board of Directors of the Company
immediately prior to the Effective Time (the "Committee") may remove the
Shareholders' Representative by unanimous vote of the Committee. If the
Shareholders' Representative resigns or is no longer able to serve, the
Committee must unanimously vote to appoint a new Shareholders' Representative
within thirty (30) days after the resignation or notice of his, her or its
inability to serve. A vote to appoint a new Shareholders' Representative is
effective when (i) the Committee so elects to appoint a new Shareholders'
Representative and (ii) the new Shareholders' Representative gives notice to
Parent and the prior Shareholders' Representative of such vote.
(c) Parent is entitled to rely exclusively upon communications or
writings given or executed by the Shareholders' Representative with respect
to the matters described in the Escrow Agreement and is not liable in any
manner whatsoever for any action taken or not taken in reliance upon the
actions taken or not taken or communication or writings given or executed by
the Shareholders' Representative. Until Parent receives notice of appointment
of a new Shareholders' Representative, Parent may rely upon actions taken by
the prior Shareholders' Representative.
5
<PAGE>
2.13 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately
prior to Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended in accordance with applicable
law; provided, however, that upon the Effective Time, Article I of the
Articles of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the corporation is Harmonic
Systems Incorporated, Inc. (hereinafter referred to as the "Corporation")."
2.14 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
2.15 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors and officers of Merger Subsidiary immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors shall be duly elected
and qualified.
6
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
---------------
<TABLE>
<CAPTION>
Total
Shares Gross Allocated Exercise Net
Warrant Holders Exercised Proceeds Expenses Proceeds Proceeds
- --------------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Series D Warrants
- -----------------
NORWEST VENTURE W 198,237 $ 511,673.55 $ 24,510.62 $ 450,000.00 $ 37,162.93
Series F Warrants
- -----------------
Donald F. Swanson Revocable Trust 69,444 $ 179,242.57 $ 8,586.23 $ 96,248.98 $ 74,407.36
Barrs S. & Holly Lewis 9,470 $ 24,442.42 $ 1,170.86 $ 13,125.00 $ 10,146.56
Richard W. & Loviah E. Aldinger 26,256 $ 67,771.16 $ 3,246.43 $ 36,391.49 $ 28,133.23
T.W. Ireland 71,910 $ 185,608.77 $ 8,891.19 $ 99,667.48 $ 77,050.10
Floor Seal Technology Profit Sharing 6,106 $ 15,760.47 $ 754.97 $ 8,463.00 $ 6,542.50
Addison Piper 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
Oscar Y. Lewis Sr. 14,498 $ 37,420.65 $ 1,792.56 $ 20,094.00 $ 15,534.10
Helayne Bruntjen 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
George N. Nelson Jr. 41,957 $ 108,295.29 $ 5,187.65 $ 58,151.99 $ 44,955.65
Sally J. & Craig F. Smith 7,210 $ 18,609.76 $ 891.46 $ 9,993.00 $ 7,725.30
Kenneth H. Dahlberg 632,934 $ 1,633,678.43 $ 78,257.84 $ 877,246.32 $ 678,174.28
Warren Mack 41,036 $ 105,918.09 $ 5,073.78 $ 56,875.49 $ 43,968.83
Norwest Equity Partners, IV 31,566 $ 81,475.67 $ 3,902.92 $ 43,750.49 $ 33,822.27
Norwest Equity Partners, V 63,131 $ 162,948.55 $ 7,805.70 $ 87,499.48 $ 67,643.37
Philip O. Rick Revocable Living Trust 2,525 $ 6,517.05 $ 312.19 $ 3,499.50 $ 2,705.36
James P. Stephenson 11,359 $ 29,319.73 $ 1,404.50 $ 15,744.00 $ 12,171.24
Thomas L. Kimer 9,470 $ 24,442.42 $ 1,170.86 $ 13,125.00 $ 10,146.56
Advanta Partners LP 791,936 $ 2,044,082.07 $ 97,917.34 $ 1,097,623.27 $ 848,541.46
------------------------------------------------------------------------------------------
Total F Warrants 1,893,939 $ 4,888,484.46 $ 234,172.29 $ 2,624,999.45 $ 2,029,312.72
Series G Warrants
- -----------------
Third Coast Capital 28,408 $ 73,324.47 $ 3,512.45 $ 49,500.00 $ 20,312.02
------------------------------------------------------------------------------------------
Total Warrants 2,120,584 $ 5,473,482.48 $ 262,195.36 $ 3,124,499.45 $ 2,086,787.67
<CAPTION>
Escrow Escrow First Second
Warrant Holders % $'s Distribution Distribution
- --------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Series D Warrants
- -----------------
NORWEST VENTURE W 0.07607% $ 5,324.59 $ 31,838.35 $ 5,324.59
Series F Warrants
Donald F. Swanson Revocable Trust 0.15230% $ 10,660.85 $ 63,746.51 $ 10,660.85
Barrs S. & Holly Lewis 0.02077% $ 1,453.77 $ 8,692.80 $ 1,453.77
Richard W. & Loviah E. Aldinger 0.05758% $ 4,030.84 $ 24,102.39 $ 4,030.84
T.W. Ireland 0.15771% $ 11,039.49 $ 66,010.61 $ 11,039.49
Floor Seal Technology Profit Sharing 0.01339% $ 937.39 $ 5,605.12 $ 937.39
Addison Piper 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
Oscar Y. Lewis Sr. 0.03180% $ 2,225.68 $ 13,308.42 $ 2,225.68
Helayne Bruntjen 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
George N. Nelson Jr. 0.09202% $ 6,441.10 $ 38,514.55 $ 6,441.10
Sally J. & Craig F. Smith 0.01581% $ 1,106.86 $ 6,618.45 $ 1,106.86
Kenneth H. Dahlberg 1.38809% $ 97,166.64 $ 581,007.64 $ 97,166.64
Warren Mack 0.09000% $ 6,299.71 $ 37,669.12 $ 6,299.71
Norwest Equity Partners, IV 0.06923% $ 4,845.95 $ 28,976.32 $ 4,845.95
Norwest Equity Partners, V 0.13845% $ 9,691.73 $ 57,951.64 $ 9,691.73
Philip O. Rick Revocable Living Trust 0.00554% $ 387.62 $ 2,317.75 $ 387.62
James P. Stephenson 0.02491% $ 1,743.86 $ 10,427.38 $ 1,743.86
Thomas L. Kimer 0,02077% $ 1,453.77 $ 8,692.80 $ 1,453.77
Advanta Partners LP 1.73680% $ 121,576.31 $ 726,965.15 $ 121,576.31
-----------------------------------------------------------------------
Total F Warrants 4.15362% $ 290,753.43 $ 1,738,559.28 $ 290,753.43
Series G Warrants
- -----------------
Third Coast Capital 0.04157% $ 2,910.24 $ 17,401.78 $ 2,910.24
-----------------------------------------------------------------------
Total Warrants 4.27126% $ 298,988.26 $ 1,787,799.41 $ 298,988.26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
HARMONIC SYSTEMS INCORPORATED
- -----------------------------
SUMMARY OF OPTIONS POST SPLIT
8/10/98
- -------
Options
Outstanding Gross Allocated Exercise Net Escrow
8/10/98 Proceeds Expenses Proceeds Proceeds %
------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Total Qualified Options 1,177,626 $ 3,039,594.41 $ 145,605.21 $ 1,904,076.80 $ 989,912.41 2.02616%
Total Non-Qualified Options 100,000 $ 258,112.03 $ 12,364.30 $ 147,150.00 $ 98,597.73 0.20181%
----------------------------------------------------------------------------------------------
Total 1,277,626 $ 3,297,706.45 $ 157,969.51 $ 2,051,226.80 $ 1,088,510.14 2.22798%
<CAPTION>
Escrow First Second
$'s Distribution Distribution
--- ------------ ------------
<S> <C> <C> <C>
Total Qualified Options $ 141,831.48 $ 848,080.92 $ 141,831.48
Total Non-Qualified Options $ 14,126.77 $ 84,470.97 $ 14,126.77
-----------------------------------------------------------
Total $ 155,958.25 $ 932,551.89 $ 155,958.25
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
- ------- ----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Michael Burke $ 0.75 74,000 $ 191,002.90 $ 9,149.58 $ 55,500.00 $ 126,353.32
Michael Burke $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 74,000 $ 191,002.90 $ 9,149.58 $ 55,500.00 $ 126,353.32
Daniel Hunt $ 0.875 50,000 $ 129,056.02 $ 6,182.15 $ 43,750.00 $ 79,123.87
Thomas Mayer $ 0.875 50,000 $ 129,056.02 $ 6,182.15 $ 43,750.00 $ 79,123.87
Thomas Mayer $ 2.50 - $ - $ - $ - $ -
Thomas Mayer $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00 $ 986.22
----------------------------------------------------------------------------------------------
Sub-total 51,500 $ 132,927.70 $ 6,367.61 $ 46,450.00 $ 80,110.08
John Payne $ 0.875 35,000 $ 90,339.21 $ 4,327.50 $ 30,625.00 $ 55,386.71
John Payne $ 2.50 - $ - $ - $ - $ -
John Payne $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00 $ 657.48
----------------------------------------------------------------------------------------------
Sub-total 36,000 $ 92,920.33 $ 4,451.15 $ 32,425.00 $ 56,044.18
Stan Rogge $ 0.875 39,000 $ 100,663.69 $ 4,822.08 $ 34,125.00 $ 61,716.62
Stan Rogge $ 2.50 - $ - $ - $ - $ -
Stan Rogge $ 2.50 - $ - $ - $ - $ -
Stan Rogge $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00 $ 1,314.95
Stan Rogge $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00 $ 1,972.43
----------------------------------------------------------------------------------------------
Sub-total 44,000 $ 113,569.29 $ 5,440.29 $ 43,125.00 $ 65,004.00
Rohert Schwartz $ 2.00 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Robert Schwartz $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Don Denzer $ 2.00 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
Don Denzer $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
John Meskinen $ 2.00 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
John Meskinen $ 2.50 - $ - $ - $ - $ -
----------------------------------------------------------------------------------------------
Sub-total 35,000 $ 90,339.21 $ 4,327.50 $ 70,000.00 $ 16,011.71
<CAPTION>
Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
- ------- --- --- ------------ ------------
<S> <C> <C> <C> <C>
Michael Burke $ 18,103.50 $ 108,249.82 $ 18,103.50
Michael Burke $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.25862% $ 18,103.50 $ 108,249.82 $ 18,103.50
Daniel Hunt 0.16195% $ 11,336.61 $ 67,787.25 $ 11,336.61
Thomas Mayer $ 11,336.61 $ 67,787.25 $ 11,336.61
Thomas Mayer $ - $ - $ -
Thomas Mayer $ 141.30 $ 844.91 $ 141.30
----------------------------------------------------------------------
Sub-total 0.16397% $ 11,477.92 $ 68,632.17 $ 11,477.92
John Payne $ 7,935.63 $ 47,451.08 $ 7,935.63
John Payne $ - $ - $ -
John Payne $ 94.20 $ 563.28 $ 94.20
----------------------------------------------------------------------
Sub-total 0.11471% $ 8,029.83 $ 48,014.35 $ 8,029.83
Stan Rogge $ 8,842.56 $ 52,874.06 $ 8,842.56
Stan Rogge $ - $ - $ -
Stan Rogge $ - $ - $ -
Stan Rogge $ 188.40 $ 1,126.55 $ 188.40
Stan Rogge $ 282.60 $ 1,689.83 $ 282.60
----------------------------------------------------------------------
Sub-total 0.13305% $ 9,313.57 $ 55,690.44 $ 9,313.37
Rohert Schwartz $ 524.37 $ 3,135.45 $ 524.37
Robert Schwartz $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.00749% $ 524.37 $ 3,135.45 $ 524.37
Don Denzer $ 2294.11 $ 13,717.60 $ 2,294.11
Don Denzer $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.03277% $ 2,294.11 $ 13,717.60 $ 2,294.11
John Meskinen $ 2,294.11 $ 13,717.60 $ 2,294.11
John Meskinen $ - $ - $ -
----------------------------------------------------------------------
Sub-total 0.03277% $ 2,294.11 $ 13,717.60 $ 2,294.11
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
- ------- ----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Renee McPherson $ 2.00 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Renee McPherson $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total 8,000 $ 20,648.96 $ 989.14 $ 16,000.00 $ 3,659.82
Charles Price $ 2.00 25,000 $ 64,528.01 $ 3,091.07 $ 50,000.00 $ 11,436.93
Charles Price $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Subtotal 25,000 $ 64,528.01 $ 3,091.07 $ 50,000.00 $ 11,436.93
Craig Twedt $ 2.00 4,000 $ 10,324.48 $ 494.57 $ 8,000.00 $ 1,829.91
Craig Twedt $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total 4,000 $ 10,324.48 $ 494.57 $ 8,000.00 $ 1,829.91
Dan Donovan $ 2.50 - $ - $ - $ - $ -
Dan Donovan $ 1.80 22,000 $ 56,784.65 $ 2,720.15 $ 39,600.00 $ 14,464.50
--------------------------------------------------------------------------------------------
Sub-total 22,000 $ 56,784.65 $ 2,720.15 $ 39,600.00 $ 14,464.50
Dave Carroll $ 2.50 - $ - $ - $ - $ -
Ed Mackay $ 1.80 70,000 $ 180,678.42 $ 8,655.01 $ 126,000.00 $ 46,023.41
Ed Mackay $ 1.80 3,526 $ 9,101.03 $ 435.97 $ 6,346.80 $ 2,318.27
--------------------------------------------------------------------------------------------
Sub-total 73,526 $ 189,779.45 $ 9,090.97 $ 132,346.80 $ 48,341.68
Scott Fraser $ 2.50 - $ - $ - $ - $ -
Scott Fraser $ 2.50 - $ - $ - $ - $ -
Scott Fraser $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55
--------------------------------------------------------------------------------------------
Sub-total 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55
Mike Oland $ 2.50 - $ - $ - $ - $ -
Mike Oland $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -
<CAPTION>
Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
- ------- --- --- ------------ ------------
<S> <C> <C> <C> <C>
Renee McPherson $ 524.37 $ 3,135.45 $ 524.37
Renee McPherson $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00749% $ 524.37 $ 3,135.45 $ 524.37
Charles Price $ 1,638.65 $ 9,798.29 $ 1,638.65
Charles Price $ - $ - $ -
--------------------------------------------------------------------
Subtotal 0.02341% $ 1,638.65 $ 9,798.29 $ 1,638.65
Craig Twedt $ 262.18 $ 1,567.73 $ 262.18
Craig Twedt $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00375% $ 262.18 $ 1,567.73 $ 262.18
Dan Donovan $ - $ - $ -
Dan Donovan $ 2,072.43 $ 12,392.07 $ 2,072.43
--------------------------------------------------------------------
Sub-total 0.02961% $ 2,072.43 $ 12,392.07 $ 2,072.43
Dave Carroll 0.00000% $ - $ - $ -
Ed Mackay $ 6,594.09 $ 39,429.33 $ 6,594.09
Ed Mackay $ 332.15 $ 1,986.11 $ 332.15
--------------------------------------------------------------------
Sub-total 0.09895% $ 6,926.24 $ 41,415.44 $ 6,926.24
Scott Fraser $ - $ - $ -
Scott Fraser $ - $ - $ -
Scott Fraser $ 1,884.02 $ 11,265.52 $ 1,884.02
--------------------------------------------------------------------
Sub-total 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02
Mike Oland $ - $ - $ -
Mike Oland $ - $ - $ -
--------------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
- ------- ----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Ron Zins $ 2.50 - $ - $ - $ - $ -
Ron Zins $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -
Daniel Savage $ 2.50 - $ - $ - $ - $ -
Daniel Savage $ 2.50 - $ - $ - $ - $ -
--------------------------------------------------------------------------------------------
Sub-total - $ - $ - $ - $ -
Ed Learned $ 2.50 - $ - $ - $ - $ -
Suzanne Orimme(Bost $ 2.50 - $ - $ - $ - $ -
Tim Hurley $ 2.50 - $ - $ - $ - $ -
Jim Johnson $ 2.50 - $ - $ - $ - $ -
Shawn Lovett $ 2.50 - $ - $ - $ - $ -
Shawn Lovett $ 1.80 4,000 $ 10,324.48 $ 494.57 $ 7,200.00 $ 2,629.91
--------------------------------------------------------------------------------------------
Sub-total 4,000 $ 10,324.48 $ 494.57 $ 7,200.00 $ 2,629.91
Bob Ludwig $ 2.50 - $ - $ - $ - $ -
Tom Ring $ 2.50 - $ - $ - $ - $ -
Ted Sanft $ 2.50 $ - $ - $ - $ -
Ted Sanft $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00 $ 3,287.39
--------------------------------------------------------------------------------------------
Sub-total 5,000 $ 12,905.60 $ 618.21 $ 9,000.00 $ 3,287.39
Steve McGuinness $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00 $ 6,574.77
--------------------------------------------------------------------------------------------
Total Qualified Options Employees 505,026 $ 1,303,532.88 $ 62,442.93 $ 693,396.80 $ 547,693.15
<CAPTION>
Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
- ------- --- --- ------------ ------------
<S> <C> <C> <C> <C>
Ron Zins $ - $ - $ -
Ron Zins $ - $ - $ -
----------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -
Daniel Savage $ - $ - $ -
Daniel Savage $ - $ - $ -
----------------------------------------------------------------
Sub-total 0.00000% $ - $ - $ -
Ed Learned 0.00000% $ - $ - $ -
Suzanne Orimme(Bost 0.00000% $ - $ - $ -
Tim Hurley 0.00000% $ - $ - $ -
Jim Johnson 0.00000% $ - $ - $ -
Shawn Lovett $ - $ - $ -
Shawn Lovett $ 376.80 $ 2,253.10 $ 376.80
----------------------------------------------------------------
Sub-total 0.00538% $ 376.80 $ 2,253.10 $ 376.80
Bob Ludwig 0.00000% $ - $ - $ -
Tom Ring 0.00000% $ - $ - $ -
Ted Sanft $ - $ - $ -
Ted Sanft $ 471.01 $ 2,816.38 $ 471.01
----------------------------------------------------------------
Sub-total 0.00673% $ 471.01 $ 2,816.38 $ 471.01
Steve McGuinness 0.01346% $ 942.01 $ 5,632.76 $ 942.01
----------------------------------------------------------------
Total Qualified
Options Employees 1.12102% $ 78,471.72 $ 469,221.43 $ 78,471.72
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds
- ------- ----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Erika Schwamb $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Brett Lasson $ 1.80 800 $ 2,064.90 $ 98.91 $ 1,440.00
Andy Roberts $ 1.80 250,000 $ 645,280.08 $ 30,910.75 $ 450,000.00
Nency Koob $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Vicki Caron $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Rick Wilson $ 1.80 100,000 $ 258,112.03 $ 12,364.30 $ 180,000.00
Michael Thompson $ 1.80 25,000 $ 64,528.01 $ 3,091.07 $ 45,000.00
Tom Smith $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00
Catherine Chen $ 1.80 7,000 $ 18,067.84 $ 865.50 $ 12,600.00
Leon Retzlaff $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Leon Retzlaff $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
Tom Pluck $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Tom Pluck $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
----------------------------------------------------------------------------
Sub-total 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
Alson Toavs $ 1.80 3,500 $ 9,033.92 $ 432.75 $ 6,300.00
Gerry Fischer $ 1.80 3,000 $ 7,743.36 $ 370.93 $ 5,400.00
Milton Miller $ 1.80 800 $ 2,064.90 $ 98.91 $ 1,440.00
Peter Eisch $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Peter Eisch $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Peter Eisch $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
----------------------------------------------------------------------------
Sub-total 25,000 $ 64,528.01 $ 3,091.07 $ 45,000.00
Ann Freemyer $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Ann Freemyer $ 1.80 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
----------------------------------------------------------------------------
Sub-total 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
Michael Knapp $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Michael Reilly $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Michael Holmberg $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Michael Holmberg $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 1,500 $ 3,871.68 $ 185.46 $ 2,700.00
Michael Fremming $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Tracy Cook $ 1.80 17,000 $ 43,879.05 $ 2,101.93 $ 30,600.00
Christopher Wiess $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Christopher Wiess $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
----------------------------------------------------------------------------
Sub-total 3,000 $ 7,743.36 $ 370.93 $ 5,400.00
Jerry Eidsvoog $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Tom Lee $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Nadia El-Afendi $ 1.80 6,000 $ 15,486.72 $ 741.86 $ 10,800.00
Nadis El-Afendi $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
----------------------------------------------------------------------------
Sub-total 11,000 $ 28,392.32 $ 1,360.07 $ 19,800.00
Frank Baker $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Pat Conlan $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Jeanie Close $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Peter Landry $ 1.80 6,000 $ 15,486.72 $ 741.86 $ 10,800.00
Asnake Meshesha $ 1.80 250 $ 645.28 $ 30.91 $ 450.00
Chip Bergquist $ 1.80 2,500 $ 6,452.80 $ 309.11 $ 4,500.00
Joleen Persien $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Holly Jepson $ 1.80 2,500 $ 6,432.80 $ 309.11 $ 4,500.00
Dave Duggan $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
----------------------------------------------------------------------------
Sub-total 497,850 $ 1,285,010.76 $ 61,555.67 $ 896,130.00
<CAPTION>
Net Escrow Escrow First Second
GRANTEE Proceeds % $'s Distribution Distribution
- ------- -------- --- --- ------------ ------------
<S> <C> <C> <C> <C> <C>
Erika Schwamb $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Brett Lasson $ 525.98 0.00108% $ 75.36 $ 450.62 $ 75.36
Andy Roberts $ 164,369.33 0.33643% $ 23,550.31 $ 140,819.02 $ 23,550.31
Nency Koob $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Vicki Caron $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Rick Wilson $ 65,747.73 0.13457% $ 9,420.12 $ 56,327.61 $ 9,420.12
Michael Thompson $ 16,436.93 0.03364% $ 2,355.03 $ 14,081.90 $ 2,355.03
Tom Smith $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60
Catherine Chen $ 4,602.34 0.00942% $ 659.41 $ 3,942.93 $ 659.41
Leon Retzlaff $ 328.74 $ 47.10 $ 281.64 $ 47.10
Leon Retzlaff $ 657.48 $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 986.22 0.00202% $ 141.30 $ 844.91 $ 141.30
Tom Pluck $ 328.74 $ 47.10 $ 281.64 $ 47.10
Tom Pluck $ 986.22 $ 141.30 $ 844.91 $ 141.30
--------------------------------------------------------------------------------------------
Sub-total $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40
Alson Toavs $ 2,301.17 0.00471% $ 329.70 $ 1,971.47 $ 329.70
Gerry Fischer $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60
Milton Miller $ 525.98 0.00108% $ 75.36 $ 450.62 $ 75.36
Peter Eisch $ 6,574.77 $ 942.01 $ 5,632.76 $ 942.01
Peter Eisch $ 3,287.39 $ 471.01 $ 2,816.38 $ 471.01
Peter Eiach $ 6,574.77 $ 942.01 $ 5,632.76 $ 942.01
--------------------------------------------------------------------------------------------
Sub-total $ 16,436.93 0.03364% $ 2,355.03 $ 14,081.90 $ 2,355.03
Ann Freemyer $ 328.74 $ 47.10 $ 281.64 $ 47.10
Ann Freemyer $ 986.22 $ 141.30 $ 844.91 $ 141.30
--------------------------------------------------------------------------------------------
Sub-total $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40
Michael Knapp $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Michael Reilly $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Michael Holmberg $ 328.74 $ 47.10 $ 281.64 $ 47.10
Michael Holmberg $ 657.48 $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 986.22 0.00202% $ 141.30 $ 844.91 $ 141.30
Michael Fremming $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Tracy Cook $ 11,177.11 0.02288% $ 1,601.42 $ 9,575.69 $ 1,601.42
Christopher Wiess $ 657.48 $ 94.20 $ 563.28 $ 94.20
Christopher Wiess $ 1,314.95 $ 188.40 $ 1,126.55 $ 188.40
--------------------------------------------------------------------------------------------
Sub-total $ 1,972.43 0.00404% $ 282.60 $ 1,689.83 $ 282.60
Jerry Eidsvoog $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Tom Lee $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01
Nadia El-Afendi $ 3,944.86 $ 565.21 $ 3,379.66 $ 565.21
Nadis El-Afendi $ 3,287.39 $ 471.01 $ 2,816.38 $ 471.01
--------------------------------------------------------------------------------------------
Sub-total $ 7,232.25 0.01480% $ 1,036.21 $ 6,196.04 $ 1,036.21
Frank Baker $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01
Pat Conlan $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Jeanie Close $ 3,287.39 0.00067% $ 471.01 $ 2816.38 $ 471.01
Peter Landry $ 3,944.86 0.00807% $ 565.21 $ 3,379.66 $ 565.21
Asnake Meshesha $ 164.37 0.00034% $ 23.55 $ 140.82 $ 23.55
Chip Bergquist $ 1,643.69 0.00336% $ 235.50 $ 1,408.19 $ 235.50
Joleen Persien $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Holly Jepson $ 1,643.69 0.00336% $ 235.50 $ 1,408.19 $ 235.50
Dave Duggan $ 657.48 0.00035% $ 94.20 $ 563.28 $ 94.20
--------------------------------------------------------------------------------------------
Sub-total $ 327,325.09 0.66997% $ 46,898.09 $ 280,427.00 $ 46,898.09
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds
- ------- ----- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Michael Chmelowsky $ 1.80 750 $ 1,935.84 $ 92.73 $ 1,350.00
Martha Barness $ 1.80 2,000 $ 5,162.24 $ 247.29 $ 3,600.00
Brenda Esson $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Wayne Garrison $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00
Kathy Grauberger $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Jeffrey Hale $ 1.80 - $ - $ - $ -
Jeffrey Hale (Terminated 1/9/98) - -
Laura Holmbeck $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
David Ingwald $ 1.80 - $ - $ - $ -
David Ingwald (Terminated)
James Kaufman $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Jennifer Korby $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Frank Kuhar $ 1.80 130,000 $ 335,545.64 $ 16,073.59 $ 234,000.00
Steve Larson $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
Sayyara Munshi $ 1.80 - $ $ - $ -
Sayyara Munshi (Terminated 7/22/98)
Taylor Root $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Robert Stokes $ 1.80 5,000 $ 12,905.60 $ 618.21 $ 9,000.00
Lindsey Swint $ 1.80 10,000 $ 25,811.20 $ 1,236.43 $ 18,000.00
Patrick Weisman $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Christine Woefle $ 1.80 1,000 $ 2,581.12 $ 123.64 $ 1,800.00
Chris Radlinski $ 1.80 500 $ 1,290.56 $ 61.82 $ 900.00
-------------------------------------------------------------------
Subtotal New Employees 1998 174,750 $ 451,050.78 $ 21,606.61 $ 314,550.00
-------------------------------------------------------------------
Total Qualified Options 1,177,626 $ 3,039,594.41 $ 145,605.21 $ 1,904,076.80
<CAPTION>
Net Escrow Escrow First Second
GRANTEE Proceeds % $'s Distribution Distribution
- ------- -------- --- --- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael Chmelowsky $ 493.11 0.00101% $ 70.65 $ 422.46 $ 70.65
Martha Barness $ 1,314.95 0.00269% $ 188.40 $ 1,126.55 $ 188.40
Brenda Esson $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Wayne Garrison $ 13,149.55 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02
Kathy Grauberger $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Jeffrey Hale $ - 0.00000% $ - $ - $ -
Jeffrey Hale (Terminated 1/9/98) - 0.00000% - - -
Laura Holmbeck $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
David Ingwald $ - 0.00000% $ - $ - $ -
David Ingwald (Terminated) 0.00000%
James Kaufman $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Jennifer Korby $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Frank Kuhar $ 85,472.05 0.17495% $ 12,246.16 $ 73,225.89 $ 12,246.16
Steve Larson $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
Sayyara Munshi $ - 0.00000% $ - $ - $ -
Sayyara Munshi (Terminated 7/22/98) 0.00000%
Taylor Root $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Robert Stokes $ 3,287.39 0.00673% $ 471.01 $ 2,816.38 $ 471.01
Lindsey Swint $ 6,574.77 0.01346% $ 942.01 $ 5,632.76 $ 942.01
Patrick Weisman $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Christine Woefle $ 657.48 0.00135% $ 94.20 $ 563.28 $ 94.20
Chris Radlinski $ 328.74 0.00067% $ 47.10 $ 281.64 $ 47.10
----------------------------------------------------------------------------------------
Subtotal New Employees 1998 $ 114,894.16 0.23517% $ 16,461.67 $ 98,432.50 $ 16,461.67
----------------------------------------------------------------------------------------
Total Qualified Options $ 989,912.41 2.02616% $ 141,831.48 $ 848,080.92 $ 141,831.48
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
INCENTIVE STOCK OPTIONS
8/10/98
<TABLE>
<CAPTION>
Options
Exercise Outstanding Gross Allocated Exercise Net
GRANTEE Price 8/10/98 Proceeds Expenses Proceeds Proceeds
- ------- ----- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John Akins $ 0.875 10,000 $ 25,811.20 $ 1,236.43 $ 8,750.00 $ 15,824.77
John Akins $ 2.00 10,000 $ 25,811.20 $ 1,236.43 $ 20,000.00 $ 4,574.77
-----------------------------------------------------------------------------------
John Akins Total 20,000 $ 51,622.41 $ 2,472.86 $ 28,750.00 $ 20,399.55
Timon Sloane $ 0.875 20,000 $ 51,622.41 $ 2,472.86 $ 17,500.00 $ 31,649.55
Timon Sloane $ 2.00 20,000 $ 51,622.41 $ 2,472.86 $ 40,000.00 $ 9,149.55
-----------------------------------------------------------------------------------
Timon Sloane Total 40,000 $ 103,244.81 $ 4,945.72 $ 57,500.00 $ 40,799.09
Paul Waldon $ 2.50 - $ $ - $ - $ -
Bob Wilsey $ 0.875 12,000 $ 30,973.44 $ 1,483.72 $ 10,500.00 $ 18,989.73
Shawn Gillam $ 1.80 20,000 $ 51,622.41 $ 2,472.86 $ 36,000.00 $ 13,149.55
Kevin Owling $ 1.80 8,000 $ 20,648.96 $ 989.14 $ 14,400.00 $ 5,259.82
-----------------------------------------------------------------------------------
Total Non-Qualified Options 100,000 $ 258,112.03 $ 12,364.30 $ 147,150.00 $ 98,597.73
<CAPTION>
Escrow Escrow First Second
GRANTEE % $'s Distribution Distribution
- ------- --- --- ------------ ------------
<S> <C> <C> <C> <C>
John Akins $ 2,267.32 $ 13,557.45 $ 2,267.32
John Akins $ 655.46 $ 3,919.31 $ 655.46
----------------------------------------------------------------
John Akins Total 0.04175% $ 2,922.78 $ 17,476.76 $ 2,922.78
Timon Sloane $ 4,534.65 $ 27,114.90 $ 4,534.65
Timon Sloane $ 1,310.92 $ 7,838.63 $ 1,310.92
----------------------------------------------------------------
Timon Sloane Total 0.08351% $ 5,845.56 $ 34,953.53 $ 5,845.56
Paul Waldon 0.00000% $ - $ - $ -
Bob Wilsey 0.03887% $ 2,720.79 $ 16,268.94 $ 2,720.79
Shawn Gillam 0.02691% $ 1,884.02 $ 11,265.52 $ 1,884.02
Kevin Owling 0.01077% $ 753.61 $ 4,506.21 $ 753.61
----------------------------------------------------------------
Total Non-Qualified Options 0.20181% $ 14,126.77 $ 84,470.97 $ 14,126.77
</TABLE>
<PAGE>
Exhibit B to the Agreement and Plan of Merger
================================================================================
ESCROW AGREEMENT
among
ALLIANCE DATA SYSTEMS CORPORATION
-------------------------------
as Shareholders' Representative
and
-------------------------------
as Escrow Agent
Dated as of , 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION I Appointment of Escrow Agent; Resignation and Successor . . . . 1
1.1 Appointment of Escrow Agent . . . . . . . . . . . . . . . . . . . . 1
1.2 Resignation of Escrow Agent; Appointment of Successor . . . . . . . 1
SECTION II Escrow Arrangements. . . . . . . . . . . . . . . . . . . . . . 2
2.1 Liability Secured by the Escrow Deposit . . . . . . . . . . . . . . 2
2.2 Delivery of the Deposit, etc. . . . . . . . . . . . . . . . . . . . 2
2.3 Investment of the Escrow Amount . . . . . . . . . . . . . . . . . . 3
2.4 Distribution of Interest. . . . . . . . . . . . . . . . . . . . . . 3
SECTION III Release of the Escrow Amount . . . . . . . . . . . . . . . . . 3
3.1 Distributions for . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION IV Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Responsibilities of Escrow Agent. . . . . . . . . . . . . . . . . . 8
SECTION V Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . .10
5.1 Shareholders' Representative. . . . . . . . . . . . . . . . . . . .10
5.2 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.3 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.4 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.7 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . .12
5.9 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . .12
5.10 Governing Law; Jurisdiction . . . . . . . . . . . . . . . . . . . .13
5.11 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
5.12 Condition to Effectiveness. . . . . . . . . . . . . . . . . . . . .13
</TABLE>
i
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT, dated as of ________________, 1998, among Alliance Data
Systems Corporation, a Delaware corporation ("Parent"), Barrs S. Lewis, as
Shareholders' representative (or any successor thereto, the "Shareholders
Representative"), and ____________ a national banking association, having its
headquarters in _________________ (the "Escrow Agent").
WHEREAS, Parent, HSI Acquisition Corp., a Minnesota corporation and
wholly-owned subsidiary of Parent ("Merger Subsidiary"), and Harmonic Systems
Incorporated, a Minnesota corporation (the "Company"), have entered into an
Agreement and Plan of Merger, dated as of August 14, 1998 (the "Merger
Agreement"), providing for the merger of the Merger Subsidiary with and into the
Company;
WHEREAS, Section 1.3(b) of the Merger Agreement provides that at the
Closing (as such term and other capitalized terms used herein without definition
are defined in the Merger Agreement), the Indemnification Escrow Deposit in the
amount of $7,000,000 and the Retention Payment Escrow Deposit in the amount of
$[1,500,000] shall be delivered to the Escrow Agent, which shall be held and
disbursed by the Escrow Agent pursuant to the terms hereof;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION I
APPOINTMENT OF ESCROW AGENT; RESIGNATION AND SUCCESSOR
1.1 APPOINTMENT OF ESCROW AGENT. The Escrow Agent is hereby appointed,
and accepts its appointment and designation as, Escrow Agent pursuant to the
terms and conditions of this Agreement.
1.2 RESIGNATION OF ESCROW AGENT; APPOINTMENT OF SUCCESSOR. The Escrow
Agent acting at any time hereunder may resign at any time by giving at least 60
days' prior written notice of resignation to Parent and the Shareholders'
Representative, such resignation to be effective on the date specified in such
notice. Upon receipt of such notice, Parent and the Shareholders' Representative
shall, unless they otherwise agree, appoint a [bank or trust company with a
combined capital and surplus of at least $100 million] as successor to the
Escrow Agent, by a written instrument delivered to such successor Escrow Agent,
Parent and the Shareholders' Representative whereupon such
<PAGE>
successor Escrow Agent shall succeed to all the rights and obligations
of the resigning Escrow Agent as of the effective date of resignation as if
originally named herein. Upon such assignment of this Agreement, the
resigning Escrow Agent shall duly transfer and deliver the Escrow Amount (as
defined in Section 2.2(b) hereof), at the time held by the resigning Escrow
Agent, to such successor Escrow Agent, PROVIDED that, if no successor Escrow
Agent shall have been appointed on the effective date of resignation of the
resigning Escrow Agent hereunder, the resigning Escrow Agent may pay any
funds remaining in the Escrow Account (as defined in Section 2.2(b)) into a
court of competent jurisdiction.
SECTION II
ESCROW ARRANGEMENTS
2.1 LIABILITY SECURED BY THE ESCROW DEPOSIT. This Agreement has been
executed and delivered, and the Escrow Account is hereby established, to
facilitate any indemnification which any Shareholder may owe to Parent pursuant
to Article 7 of the Merger Agreement.
2.2 DELIVERY OF THE DEPOSIT, ETC. (a) At the Effective Time, Parent
shall deliver to the Escrow Agent, by wire transfer of immediately available
funds, the Indemnification Escrow Deposit and the Retention Payment Escrow
Deposit (together, the "Escrow Deposit"). The parties acknowledge and agree that
for tax purposes, the Escrow Agent shall report all Earnings (as defined in
Section 2.2(b) hereof) on the Escrow Deposit as attributable to the Shareholders
and shall be reported by the Shareholders for federal, state, and local tax
purposes for the accounts of the Shareholders. Any disbursement of the Escrow
Deposit shall be allocated and paid by the Escrow Agent as provided herein and
reported by the recipient to the Internal Revenue Service as having been so
allocated and paid.
(b) The Escrow Agent shall hold the Escrow Deposit and all interest and
other proceeds from the investment thereof ("Earnings", together with the Escrow
Deposit, the "Escrow Amount") in an escrow account (the "Escrow Account"). The
Escrow Amount shall not be subject to any lien or attachment of any creditor or
any third party and shall be used solely for the purposes and subject to the
conditions set forth in this Agreement and the Merger Agreement.
2.3 INVESTMENT OF THE ESCROW AMOUNT. Except for the release of the
Escrow Amount pursuant to Section 2.4 or Section III hereof, the Escrow Agent
shall not
2
<PAGE>
sell or transfer any portion of the Escrow Deposit. Notwithstanding the
foregoing, the Escrow Agent is hereby authorized and directed to invest and
reinvest any amounts at any time in the Escrow Account in the following
obligations (collectively, the "Permitted Investments"):
(a) obligations of, or fully guaranteed as to timely payment of
principal and interest by, the United States of America;
(b) such money market funds as are agreed to from time to time by Parent
and the Shareholders' Representative; and
(c) certificates of deposit with any bank or trust company organized
under the laws of the United States of America or any agency or instrumentality
thereof or under the laws of any state thereof which has a combined capital and
surplus of at least $100 million.
Subject to the foregoing limitations, the Escrow Agent shall invest the
Escrow Amount in accordance with written instructions delivered to it by Parent
and the Shareholders' Representative from time to time. Except as provided
above, the Escrow Agent shall have no power or duty to invest the Escrow Amount
or to make substitutions therefor.
2.4 DISTRIBUTION OF INTEREST. Any and all interest or other income
earned on any portion of the Escrow Deposit shall be distributed by the Escrow
Agent to the Shareholders' Representative, or if directed by the Shareholders'
Representative, to the Shareholders, promptly after receipt thereof by the
Escrow Agent. Before making any payments of Earnings to Shareholders'
Representative (or the Shareholders if so directed by the Shareholders'
Representative), the Escrow Agent may deduct the Shareholders' share of the
Escrow Agent's fees and expenses due under Section 4.1 and pay such amount to
itself.
SECTION III
RELEASE OF THE ESCROW AMOUNT
Except as provided in Section 2.4, the Escrow Agent shall release the
Escrow Amount only in accordance with this Section 3.
3
<PAGE>
3.1 DISTRIBUTIONS FOR INDEMNIFICATION. (a) Parent may deliver to the
Escrow Agent a certificate (a "Notice of Claim") (i) stating that Parent is of
the opinion that it may he entitled to indemnification pursuant to Section
7.2(a)(i) or Section 7.2(a)(ii) of the Merger Agreement (each, an
"Indemnification Obligation"), (ii) stating the aggregate amount (the "Claim
Amount") of such Indemnification Obligation (or, in the case of an unliquidated
Indemnification Obligation, a good faith and reasonable estimate thereof), and
(iii) specifying in reasonable detail the nature of such Indemnification
Obligation. Any Notice of Claim delivered pursuant to this Section with respect
to any unliquidated Indemnification Obligation may be supplemented by a later
Notice of Claim specifying in greater detail the applicable Claim Amount or any
other items set forth therein. Parent shall deliver to the Shareholders'
Representative a copy of any Notice of Claim hereunder concurrently with the
delivery of such Notice of Claim to the Escrow Agent. Parent shall have the
right to submit (x) a Notice of Claim in respect of any Indemnification
Obligation under Section 7.2(a)(ii) at any time prior to the first anniversary
of the Effective Time (the "First Escrow Date") and (y) a Notice of Claim in
respect of any Indemnification Obligation under Section 7.2(a)(i) at any time on
or prior to March 31, 2000 (the "Final Escrow Date").
(b) If the Shareholders' Representative shall object to the
Indemnification Obligation or the Claim Amount specified in such original or
later delivered Notice of Claim, the Shareholders' Representative shall, within
twenty business days after delivery of the written notice containing a copy of
any such Notice of Claim, deliver to the Escrow Agent a certificate (a "Reply
Certificate") (x) specifying in reasonable detail each such objection,
including, without limitation, the portion of the Claim Amount that the
Shareholders' Representative does not want the Escrow Agent to release to Parent
(the "Disputed Amount"), and (y) specifying in reasonable detail the nature and
basis for such objection. The Shareholders' Representative shall deliver to
Parent a copy of any Reply Certificate hereunder concurrently with the delivery
of such Reply Certificate to the Escrow Agent. Parent and the Shareholders'
Representative shall negotiate in good faith for a period of 20 business days
after delivery of such Reply Certificate to Parent to reach a written resolution
of any objections raised in a Reply Certificate.
(c) (i) If no Reply Certificate is delivered with respect to any Notice
of Claim, then the Shareholders' Representative shall be deemed to have
delivered a Payment Authorization (as defined below) acknowledging Parent's
right to receive the Claim Amount specified in such Notice of Claim with respect
to the applicable Indemnification Obligation and the Escrow Agent shall transfer
to Parent a portion of the Indemnification Escrow Deposit in the case of an
Indemnification Obligation under Section 7.2(a)(i) or the Retention Payment
Escrow Deposit in the case of an Indemnification Obligation under Section
7.2(a)(ii), in each case in an amount equal to
4
<PAGE>
the lesser of (x) such Claim Amount and (y) the Indemnification Escrow
Deposit or the Retention Payment Escrow Deposit, as the case may be, all in
accordance with the procedures set forth in Section 3.1(e).
(ii) If a Reply Certificate is delivered that identifies a Disputed
Amount that is less than the Claim Amount (the amount by which any Claim Amount
exceeds any given Disputed Amount, the "Undisputed Amount"), then the
Shareholders' Representative shall he deemed to have delivered a Payment
Authorization acknowledging Parent's right to receive the Undisputed Amount
specified in such Reply Certificate with respect to the applicable
Indemnification Obligation and the Escrow Agent shall transfer to Parent a
portion of the Indemnification Escrow Deposit in the case of an Indemnification
Obligation under Section 7.2(a)(i) or the Retention Payment Escrow Deposit in
the case of an Indemnification Obligation under Section 7.2(a)(ii), in each case
in an amount equal to the lesser of (x) such Undisputed Amount and (y) the
Indemnification Escrow Deposit or the Retention Payment Escrow Deposit, as the
case may be, all in accordance with the procedures set forth in Section 3.1(e).
(d) If the Escrow Agent receives a Reply Certificate in a timely manner
with respect to any Notice of Claim, the Disputed Amount referred to in such
Reply Certificate shall be held by the Escrow Agent and shall not be released to
Parent except upon Parent's delivery to the Escrow Agent of written instructions
signed by each of Parent and the Shareholders' Representative directing the
Escrow Agent to release the Disputed Amount (or any other amount mutually agreed
upon by such parties a "Payment Authorization"), whereupon the amount due to
Parent as determined shall promptly be paid to Parent in accordance with the
procedures set forth in Section 3.1(e).
(e) As soon as practicable following receipt by the Escrow Agent of a
Payment Authorization (or following the deemed receipt of a Payment
Authorization pursuant to Section 3.1(c)), the Escrow Agent shall pay from the
Escrow Account to Parent the amount set forth in such Payment Authorization. In
the event the amount remaining in the Escrow Account, after converting any and
all Permitted Investments to cash (such amount, as of any given date, the
"Remaining Escrow Balance"), shall be insufficient to pay the amount expressly
set forth in such Payment Authorization, the Escrow Agent shall pay the entire
Remaining Escrow Balance to Parent in accordance with this Section 3.1(e) and
shall deliver to Parent and to the Shareholders' Representative a written
notification setting forth the amount by which such Payment Authorization
exceeds the amount of the Remaining Escrow Balance so paid.
(f) Notwithstanding anything to the contrary contained herein or in the
Merger Agreement, Parent may submit Notices of Claim for portions of the
5
<PAGE>
Indemnification Escrow Deposit solely in respect of the Indemnification
Obligations under Section 7.2(a)(i) and submit Notices of Claim for portions of
the Retention Payment Escrow Deposit solely in respect of the Indemnification
Obligations under Section 7.2(a)(ii).
(g) The Escrow Agent shall pay all amounts pursuant to Section 3.1(e)
hereof to Parent by wire transfer to the bank account or accounts designated by
Parent to the Escrow Agent in writing not less than one Business Day prior to
the date of such payment.
3.2 RELEASE. (a) The Escrow Agent shall distribute to the
Shareholders:
(x) on the First Escrow Date, any Remaining Escrow Balance of the
Retention Payment Escrow Deposit (together with any associated unpaid
Earnings); and
(y) on the Final Escrow Date, any Remaining Escrow Balance of the
Indemnification Escrow Deposit (together with any associated unpaid
Earnings)
and, upon the distribution provided in clause (y), terminate the Escrow Account,
in each case unless the Escrow Agent shall have received a Notice of Claim from
Parent prior to the First Escrow Date or the Final Escrow Date, as the case may
be, with respect to an indemnification claim (an "Escrow Date Unresolved Claim")
for which the Escrow Agent has not received a subsequent Payment Authorization
or written notification, signed by Parent and the Shareholders' Representative,
informing the Escrow Agent of the termination or other resolution of such claim
or claims (each, a "Claim Termination Notice"). If on the First Escrow Date or
the Final Escrow Date, as the case may be, there shall exist any Escrow Date
Unresolved Claim, then (i) the Escrow Agent shall retain such portion of the
Remaining Escrow Balance of the relevant Escrow Deposit in the Escrow Account as
would be sufficient for the payment of all Claim Amounts with respect to all
such Escrow Date Unresolved Claims, and (ii) the Escrow Agent shall release to
the Shareholders' Representative, on behalf of the Shareholders, the portion of
the Remaining Escrow Balance of the relevant Escrow Deposit, if any, not
otherwise retained in accordance with clause (i).
(b) Upon the resolution of any Escrow Date Unresolved Claim, the Escrow
Agent shall (A) release any portion of the Remaining Escrow Balance retained in
respect of such Escrow Date Unresolved Claim (x) to Parent in accordance with
any Payment Authorization received by the Escrow Agent in respect of such Escrow
Date Unresolved
6
<PAGE>
Claim or (y) to the Shareholders in accordance with any Claim Termination
Notice received by the Escrow Agent in respect of such Escrow Date Unresolved
Claim, and (B) if no other Escrow Date Unresolved Claims remain outstanding,
release the remainder of the Escrow Deposit to the Shareholders.
(c) Any distributions of any portion of any Remaining Escrow Balance
of any Escrow Deposit or any other amounts payable to the Shareholders under
this Agreement shall be made to the Shareholders in the percentages
corresponding to each such Shareholder as set forth in Exhibit C to the Merger
Agreement, all as provided in and subject to the terms of Article 1 of the
Merger Agreement.
3.3 DISPUTE. Any dispute among any of the parties to this Agreement
relating to this Agreement, including without limitation a dispute with respect
to (a) a claim by Parent to the relevant Escrow Deposit or any portion thereof,
(b) a claim by the Shareholders' Representative (on behalf of the Shareholders)
to the Escrow Amount or any portion thereof or (c) the interpretation or
administration of this Agreement or the Merger Agreement, shall be resolved (x)
by good faith negotiations of the parties involved (as provided herein or
otherwise) or (y) failing such resolution of any such disputes by the parties by
mutual agreement, by arbitration as provided in Section 9.5(b) of the Merger
Agreement (the "Determination"). The Escrow Agent shall not comply with any such
claims or demands from either Parent or the Shareholders' Representative as long
as such dispute may continue, and the Escrow Agent shall make no delivery or
other disposition of any property then held by it under this Agreement until it
has received a Determination directing disposition of the relevant Escrow
Deposit or Escrow Amount, as the case may be.
SECTION IV
ESCROW AGENT
4.1 FEES. For its services hereunder, the Escrow Agent shall receive
$__________ for each calendar year (or pro rated for any partial calendar year)
until it has delivered all of the Escrow Amount pursuant to Section III hereof.
Parent, on the one hand, and the Shareholders' Representative, on the other
hand, shall share equally the fees referred to in the foregoing sentence. In
addition, Parent, on the one hand, and the Shareholders' Representative, on the
other hand, shall share equally the cost of reimbursing the Escrow Agent for its
reasonable out-of-pocket expenses, including reasonable attorney's fees in
administering the Escrow Account and performing its duties under this Agreement;
PROVIDED that the Escrow Agent shall be responsible for all taxes
7
<PAGE>
imposed in respect of the receipt of fees by it pursuant to this Section 4.1.
if and when all of the Escrow Amount has been delivered pursuant to Section 3
prior to the Escrow Date, the Escrow Agent shall refUnd to Parent and the
Shareholders' Representative all fees paid in advance and not accrued, if any.
4.2 RESPONSIBILITIES OF ESCROW AGENT. The Escrow Agent's acceptance of
its duties under this Agreement is subject to the following terms and
conditions, which the parties hereto agree shall govern and control with respect
to its rights, duties, liabilities and immunities:
(a) Except as to its due execution and delivery of this
Agreement, it makes no representation and has no responsibility as to the
validity of this Agreement or of any other instrument referred to herein,
or as to the correctness of any statement contained herein, and it shall
not be required to inquire as to the performance of any obligation under
the Merger Agreement;
(b) The Escrow Agent shall be protected in acting upon any
written notice, request, waiver, consent, receipt or other paper or
document, not only as to its due execution and the validity and
effectiveness of its provisions, but also as to the truth of any
information therein contained, which it in good faith believes to be
genuine and what it purports to be;
(c) The Escrow Agent shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it in good
faith, or for any mistake of fact or law, or for anything which it may do
or refrain from doing in connection therewith, except its own gross
negligence or misconduct;
(d) The Escrow Agent may consult with competent and responsible
legal counsel selected by it, and it shall not be liable for any action
taken or omitted by it in good faith in accordance with the advice of
such counsel;
(e) Each of Parent and the Shareholders' Representative,
jointly and severally agrees to indemnify and hold the Escrow Agent and
its directors, employees, officers, agents, successors and assigns
(collectively, the "Indemnified Parties") harmless from and against any
and all losses, claims, damages, liabilities and expenses (collectively,
"Damages"), including, without limitation, reasonable costs of
investigation and counsel fees and expenses which may be imposed on the
Escrow Agent or incurred by it in connection with the performance of its
duties hereunder. Such indemnity includes, without limitation, Damages
incurred in connection with any litigation (whether at the trial or
appellate levels) arising from this Agreement or
8
<PAGE>
involving the subject matter hereof. The indemnification provisions
contained in this paragraph are in addition to any other rights any of
the Indemnified Parties may have by law or otherwise and shall survive
the termination of this Agreement or the resignation or removal of the
Escrow Agent. Notwithstanding any provision to the contrary in this
Agreement, (i) Parent's and the Shareholders' Representatives'
liability, if any, to the Indemnified Parties with respect to any
Damages shall in no event exceed the balance of the Escrow Account, as
adjusted from time to time pursuant to this Agreement, and (ii) neither
Parent nor the Shareholders' Representative shall have any liability to
the Indemnified Parties with respect to any Damages that result, directly
or indirectly, from the gross negligence or misconduct of the Escrow
Agent;
(f) The Escrow Agent shall have no duties or responsibilities
except those expressly set forth herein, and it shall not be bound by any
modification of this Agreement unless in writing and signed by all
parties hereto or their respective successors in interest;
(g) The recitals of facts in this Agreement shall be taken as
the statements of Parent or the Shareholders' Representative, and the
Escrow Agent assumes no responsibility for the correctness of the same.
The Escrow Agent shall be under no obligation or duty to perform any act
which would involve it in an expense or liability or to institute or
defend any suit in respect of this Agreement or to advance any of its own
monies unless properly indemnified;
(h) The Escrow Agent shall be protected in acting upon any
notice, resolution, request, consent, order, certificate, report,
opinion, bond or other paper or document reasonably believed by it to be
genuine and to have been signed and presented by the proper party or
parties. Whenever the Escrow Agent shall deem it necessary or desirable
that a matter be proved or established prior to taking or suffering any
action under this Agreement, such matter may be deemed conclusively
proved and established by a certificate signed by Parent and the
Shareholders' Representative, and such certificate shall be full warranty
for any action taken or suffered in good faith under the provisions of
this Agreement; and
(i) The Escrow Agent does not have any interest in the Escrow
Amount but is sewing as Escrow Agent only and having only possession
thereof This Section 4.2(i) shall survive notwithstanding any termination
of this Agreement or the resignation of the Escrow Agent.
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SECTION V
MISCELLANEOUS
5.1 SHAREHOLDERS' REPRESENTATIVE. The Shareholders of the Company, by
approving the Merger, have appointed Barrs S. Lewis as Shareholders'
Representative, in accordance with and as provided in Section 1.12 of the
Merger Agreement, to act on their behalf for the purpose of (i) administering
and entering into this Agreement, (ii) settling on behalf of the Shareholders
claims made by Parent under this Agreement, (iii) representing the Shareholders
in any proceedings relating to the Merger Agreement and (iv) performing any
other actions specifically delegated to the Shareholders' Representative by the
Committee (as provided in the Merger Agreement). The Shareholders will be bound
by any and all actions taken by the Shareholders' Representative on their
behalf.
5.2 AMENDMENT. No amendment, waiver of compliance with any provision
or condition hereof or consent pursuant to this Agreement shall be effective
unless evidenced by an instrument in writing signed by the party against whom
enforcement of any amendment, waiver, consent is sought.
5.3 TERMINATION. This Agreement shall terminate automatically at such
time as all funds from the Escrow Account have been paid or distributed in
accordance with the terms of this Agreement and the Escrow Agent has received
all fees as described in Section 4.1 hereof. Notwithstanding the foregoing, all
provisions concerning the indemnification of the Escrow Agent shall survive any
termination of this Agreement.
5.4 SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, and if any provision of this Agreement is interpreted by a court
of competent jurisdiction and found to be invalid or unenforceable, neither the
enforceability nor the validity of such provisions with respect to any other
facts or under any other circumstances shall thereby be impaired. The
unenforceability or invalidity of any provision shall not result in the
interpretation of the remainder of this Agreement, or any section hereof, in a
manner inconsistent with intent of the parties as evidenced by the terms of this
Agreement, or such section, as a whole.
5.5 WAIVER. Failure of any party to complain of any act or omission on
the part of any other party in breach or default of this Agreement, no matter
how long the same may continue, shall not be deemed to be a waiver by the party
of its rights
10
<PAGE>
hereunder. No waiver by any party at any time, express or implied, of any
breach of any other provision of this Agreement shall be deemed a waiver of a
breach of any other provision of this Agreement or a consent to any
subsequent breach of the same or other provisions.
5.6 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
made as follows: (a) if sent by registered or certified mail in the United
States return receipt requested, upon receipt; (b) if sent by reputable
overnight air courier (such as DHL or Federal Express), two business days after
mailing; (c) if sent by fax, with a copy mailed on the same day in the manner
provided in (a) or (b) above, when transmitted and receipt is confirmed by
telephone; or (d) if otherwise actually personally delivered, when delivered,
and shall be delivered as follows:
a. If to Parent:
Attention:
Phone:
Fax:
with a copy to:
b. If to the Shareholders' Representative:
with a copy to:
c. If to the Escrow Agent:
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<PAGE>
Attention:
Phone:
Fax:
or to such other address or to such other person as the party to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above.
5.7 ASSIGNMENT. Parent and the Shareholders' Representative may assign
their rights under this Agreement to the same extent as they are permitted to
assign their rights and obligations under the Merger Agreement.
5.8 ENTIRE AGREEMENT. This Agreement, the Merger Agreement and the
exhibits thereto embody the entire agreement and understanding among Parent, the
Shareholders' Representative, the Shareholders and the Escrow Agent with respect
to the subject matter hereof and supersedes any and all prior agreements and
understandings, oral and written, among Parent, the Shareholders'
Representative, the Shareholders and the Escrow Agent with respect to the
subject matter hereof.
5.9 INTERPRETATION. The headings set forth in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
5.10 GOVERNING LAW; JURISDICTION. The construction and performance of
this Agreement shall be governed by the laws of the State of Minnesota without
regard to its principles of conflict of law, and the state and federal courts of
Minnesota shall have exclusive jurisdiction over any controversy or claim
arising out of or relating to this Agreement.
5.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same agreement.
5.12 CONDITION TO EFFECTIVENESS. It shall be a condition to the
effectiveness of this Agreement that the Effective Time (as provided in the
Merger Agreement) shall have occurred.]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By:
----------------------------------
Name:
Title:
Barrs S. Lewis, as Shareholders' Representative
By:
----------------------------------
[Name of Escrow Agent]
By:
----------------------------------
Name:
Title:
13
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
<TABLE>
<CAPTION>
TOTAL
SHARES GROSS ALLOCATED EXERCISE
SUMMARY EXERCISED PROCEEDS EXPENSES PROCEEDS
- ------- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Stock Converted to Common 18,588,648 $ 47,979,537.33 $ 2,298,356.14
Total Debentures Converted - $ - $ -
Total Warrants Exercised 2,120,584 $ 5,473,482.48 $ 262,195.36 $ 3,124,499.45
Total Options Exercised 1,277,626 $ 3,297,706.45 $ 157,969.51 $ 2,051,226.80
------------------------------------------------------------------------------
Total 21,986,858 $ 56,750,726.26 $ 2,718,521.00 $ 5,175,726.25
Debentures Paid off $ 425,000.00
----------------
Total $ 57,175,726.26
<CAPTION>
NET ESCROW ESCROW FIRST SECOND
SUMMARY PROCEEDS % $'s DISTRIBUTION DISTRIBUTION
- ------- -------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Stock Converted to Common $ 45,611,181.19 93.50076% $ 6,545,053.49 $ 39,136,127.70 $ 6,545,053.49
Total Debentures Converted $ - #DIV/01 $ - $ - $ -
Total Warrants Exercised $ 2,016,787.67 4.27126% $ 298,988.26 $ 1,787,799.41 $ 298,988.26
Total Options Exercised $ 1,088,510.14 2.22798% $ 155,958.25 $ 932,551.89 $ 155,958.25
----------------------------------------------------------------------------------------
Total $ 48,856,479.00 100.00000% $ 7,000,000.00 $ 41,856,479.00 $ 7,000,000.00
Debentures Paid off $ 425,000.00 $ - $ 425,000.00 $ -
----------------- -----------------------------------------------------
Total $ 49,281,479.00 100.00000% $ 7,000,000.00 $ 42,281,479.00 $ 7,000,000.00
</TABLE>
Note: Allocated expenses are estimated and include management retention
agreement payments
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
<TABLE>
<CAPTION>
TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
TOTAL PNC PARTNERS 3,842,080 $ 9,916,870.81 $ 475,046.28 $ 9,441,824.53
Barr S. & Holly Lewis 24,065 $ 62,115.83 $ 2,975.52 $ 59,140.31
Jonathan D. Rick 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77
Judith H. Rick 4,500 $ 11,615.04 $ 556.39 $ 11,058.65
Lewis B. & Elizabeth Elliot 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04
Richard W. & Loviah E. Aldinger 111,330 $ 287,355.83 $ 13,765.16 $ 273,590.67
T.W. Ireland 220,819 $ 569,959.81 $ 27,302.69 $ 542,657.12
Floor Seal Technology Profit Sharing 39,462 $ 101,856.86 $ 4,879.23 $ 96,977.62
Melvin T. & Carol A. Lehman 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08
Randall T. & Carol A. Lehman 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08
Christopher & Jill Zollinger 57,144 $ 147,495.54 $ 7,065.46 $ 140,430.08
Jerry D. & Laquetta J. Freeman 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04
R. Hunt Greene 28,056 $ 72,415.91 $ 3,468.93 $ 68,946.98
Frank Trafton 28,572 $ 73,747.77 $ 3,532.73 $ 70,215.04
Katie Felts 13,333 $ 34,414.08 $ 1,648.53 $ 32,765.55
------------------------------------------------------------------------
SUB-TOTAL PAGE 1 4,550,793 $ 11,746,145.31 $ 562,673.73 $ 11,183,471.58
<CAPTION>
ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
- ----------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C>
TOTAL PNC PARTNERS 19.32563% $ 1,352,794.41 $ 8,089,030.12 $ 1,352,794.41
Barr S. & Holly Lewis 0.12105% $ 8,473.43 $ 50,666.87 $ 8,473.43
Jonathan D. Rick 0.05030% $ 3,520.99 $ 21,053.72 $ 3,520.99
Judith H. Rick 0.02263% $ 1,584.45 $ 9,474.20 $ 1,384.45
Lewis B. & Elizabeth Elliot 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19
Richard W. & Loviah E. Aldinger 0.55999% $ 39,199.20 $ 234,391.47 $ 39,199.20
T.W. Ireland 1.11072% $ 77,750.18 $ 464,906.94 $ 77,750.18
Floor Seal Technology Profit Sharing 0.19849% $ 13,894.64 $ 83,082.98 $ 13,894.64
Melvin T. & Carol A. Lehman 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37
Randall T. & Carol A. Lehman 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37
Christopher & Jill Zollinger 0.28743% $ 20,120.37 $ 120,309.71 $ 20,120.37
Jerry D. & Laquetta J. Freeman 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19
R. Hunt Greene 0.14112% $ 9,878.50 $ 59,068.48 $ 9,878.50
Frank Trafton 0.14372% $ 10,060.19 $ 60,154.86 $ 10,060.19
Katie Felts 0.06706% $ 4,694.54 $ 28,071.00 $ 4,694.54
-----------------------------------------------------------------------
SUB-TOTAL PAGE 1 22.89046% $ 1,602,332.03 $ 9,581,139.55 $ 1,602,332.03
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
<TABLE>
<CAPTION>
TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
- ----------- ----------- -------- --------- --------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 1 4,550,793 $ 11,746,145.31 $ 562,673.73 $ 11,183,471.58
Addison Piper 71,123 $ 183,576.55 $ 8,793.84 $ 174,782.71
James J. Ingram 41,228 $ 106,414.43 $ 5,097.55 $ 101,316.88
Gary M. Petrucci 22,858 $ 58,999.25 $ 2,826.23 $ 56,173.02
Oscar Y. Lewis Sr. 61,476 $ 158,676.66 $ 7,601.06 $ 151,075.60
John A. Bruntjen
Helayne Bruntjen 169,598 $ 437,751.79 $ 20,969.55 $ 416,782.23
George N. Nelson Jr. 177,593 $ 458,387.96 $ 21,958.09 $ 436,429.87
Paul R. Waldon 22,616 $ 58,374.62 $ 2,796.31 $ 55,578.31
Sally J. & Craig F. Smith 30,574 $ 78,914.17 $ 3,780.21 $ 75,133.96
Louise M. & William J. Brady 114,286 $ 294,985.92 $ 14,130.66 $ 280,855.25
Diana H. & Van L. Brady 114,286 $ 294,985.92 $ 14,130.66 $ 280,855.25
Donald Davis 247,620 $ 639,137.02 $ 30,616.48 $ 608,520.54
JoAnne Trafton 133,334 $ 344,151.10 $ 16,485.82 $ 327,665.28
Ben Oehler 80,164 $ 206,912.93 $ 9,911.72 $ 197,001.21
-------------------------------------------------------------------------
SUB-TOTAL PAGE 2 5,837,548 $ 15,067,413.61 $ 721,771.91 $ 14,345,641.69
<CAPTION>
ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
- ----------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 1 22.89046% $ 1,602,332.03 $ 9,581,139.55 $ 1,602,332.03
Addison Piper 0.35775% $ 25,042.31 $ 149,740.40 $ 25,042.31
James J. Ingram 0.20738% $ 14,516.36 $ 86,800.52 $ 14,516.36
Gary M. Petrucci 0.11498% $ 8,048.29 $ 48,124.73 $ 8,048.29
Oscar Y. Lewis Sr. 0.30922% $ 21,645.63 $ 129,429.97 $ 21,645.63
John A. Bruntjen
Helayne Bruntjen 0.85307% $ 59,715.22 $ 357,067.01 $ 59,715.22
George N. Nelson Jr. 0.89329% $ 62,530.28 $ 373,899.60 $ 62,530.28
Paul R. Waldon 0.11376% $ 7,963.08 $ 47,615.23 $ 7,963.08
Sally J. & Craig F. Smith 0.15379% $ 10,764.95 $ 64,369.01 $ 10,764.95
Louise M. & William J. Brady 0.57486% $ 40,240.04 $ 240,615.21 $ 40,240.04
Diana H. & Van L. Brady 0.57486% $ 40,240.04 $ 240,615.21 $ 40,240.04
Donald Davis 1.24553% $ 87,186.88 $ 521,333.66 $ 87,186.88
JoAnne Trafton 0.67067% $ 46,946.83 $ 280,718.45 $ 46,946.83
Ben Oehler 0.40322% $ 28,225.70 $ 168,775.51 $ 28,225.70
--------------------------------------------------------------------
SUB-TOTAL PAGE 2 29.36282% $ 2,055,397.64 $ 12,290,244.05 $ 2,055,397.64
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
<TABLE>
<CAPTION>
TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 2 5,837,548 $ 15,067,413.61 $ 721,771.91 $ 14,345,641.69
Kenneth H. Dahlberg
Carefree Capital, Inc. 2,131,341 $ 5,501,247.19 $ 263,525.37 $ 5,237,721.83
Warren E. Mack 152,628 $ 393,950.00 $ 18,871.32 $ 375,078.67
Donald F. Swanson Revocable Trust 237,302 $ 612,505.94 $ 29,340.77 $ 583,165.17
William D. & Rita M. Witmer 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77
Marc E. Poirier 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77
Jerry J. & Kathleen L. Krause 10,000 $ 25,811.20 $ 1,236.43 $ 24,574.77
Norwest Equity Partners, IV 1,486,887 $ 3,837,835.50 $ 183,843.22 $ 3,653,992.27
Norwest Equity Partners, V 430,280 $ 1,110,605.43 $ 53,201.16 $ 1,057,404.28
Philip O. Rick Revocable Living Trust 12,436 $ 32,099.16 $ 1,537.64 $ 30,561.52
James E. Nicholson 5,716 $ 14,733.68 $ 706.74 $ 14,046.94
James P. Stephenson 48,158 $ 124,302.47 $ 5,954.44 $ 118,348.03
Gale R. Mellum 46,000 $ 118,731.54 $ 5,687.58 $ 113,043.96
-----------------------------------------------------------------------
SUB-TOTAL PAGE 3 10,418,297 $ 26,890,878.14 $ 1,288,149.45 $ 25,602,728.68
<CAPTION>
ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
- ----------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 2 29.36282% $ 2,055,397.64 $ 12,290,244.05 $ 2,055,397.64
Kenneth H. Dahlberg
Carefree Capital, Inc. 10.72063% $ 750,444.03 $ 4,487,277.80 $ 750,444.03
Warren E. Mack 0.76772% $ 53,740.07 $ 321,338.60 $ 53,740.07
Donald F. Swanson Revocable Trust 1.19363% $ 83,554.04 $ 499,611.13 $ 83,554.04
William D. & Rita M. Witmer 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99
Marc E. Poirier 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99
Jerry J. & Kathleen L. Krause 0.05030% $ 3,520.99 $ 21,053.78 $ 3,520.99
Norwest Equity Partners, IV 7.47903% $ 523,532.32 $ 3,130,459.95 $ 523,532.32
Norwest Equity Partners, V 2.16431% $ 151,501.50 $ 905,902.78 $ 151,501.50
Philip O. Rick Revocable Living Trust 0.06255% $ 4,378.76 $ 26,182.77 $ 4,378.76
James E. Nicholson 0.02875% $ 2,012.60 $ 12,034.34 $ 2,012.60
James P. Stephenson 0.24224% $ 16,956.53 $ 101,391.50 $ 16,956.53
Gale R. Mellum 0.23138% $ 16,196.58 $ 96,847.38 $ 16,196.58
----------------------------------------------------------------------
SUB-TOTAL PAGE 3 52.40396% $ 3,668,277.05 $ 21,934,451.63 $ 3,668,277.05
</TABLE>
<PAGE>
HARMONIC SYSTEMS INCORPORATED
SHAREHOLDER LIST
ACTUAL OUTSTANDING AUGUST 10, 1998
<TABLE>
<CAPTION>
TOTAL
SHARES GROSS ALLOCATED NET
SHAREHOLDER OUTSTANDING PROCEEDS EXPENSES PROCEEDS
- ----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 3 10,418,297 $ 26,890,878.14 $ 1,288,149.45 $ 25,602,728.68
Thomas L. Kimer 43,693 $ 112,776.07 $ 5,402.29 $ 107,373.77
John K. Steffen 13,928 $ 35,949.84 $ 1,722.10 $ 34,227.74
Advanta Partners LP 3,717,942 $ 9,596,455.73 $ 459,697.49 $ 9,136,758.24
William Blair Capital Partners V LP 3,409,090 $ 8,799,272.40 $ 421,510.14 $ 8,377,762.25
Donald J. Sieb 46,250 $ 119,376.82 $ 5,718.49 $ 113,658.33
Sieb Trafton Associates 911,670 $ 2,353,129.97 $ 112,721.61 $ 2,240,408.36
The Gift Certificate Center, Inc. 27,778 $ 71,698.36 $ 3,434.56 $ 68,263.81
---------------------------------------------------------------------------
TOTAL 18,588,648 $ 47,979,537.33 $ 2,298,356.14 $ 45,681,181.19
<CAPTION>
ESCROW ESCROW FIRST SECOND
SHAREHOLDER % $'s DISTRIBUTION DISTRIBUTION
- ----------- ------ ------- ------------ -------------
<S> <C> <C> <C> <C>
SUB-TOTAL PAGE 3 52.40396% $ 3,668,277.05 $ 21,934,451.63 $ 3,668,277.05
Thomas L. Kimer 0.21977% $ 15,384.17 $ 91,989.60 $ 15,384.17
John K. Steffen 0.07006% $ 4,904.04 $ 29,323.70 $ 4,904.04
Advanta Partners LP 18.70122% $ 1,309,085.49 $ 7,827,672.75 $ 1,309,085.49
William Blair Capital Partners V LP 17.14770% $ 1,200,338.97 $ 7,177,423.28 $ 1,200,338.97
Donald J. Sieb 0.23264% $ 16,284.60 $ 97,373.73 $ 16,284.60
Sieb Trafton Associates 4.58569% $ 320,998.54 $ 1,919,409.82 $ 320,998.54
The Gift Certificate Center, Inc. 0.13972% $ 9,780.62 $ 58,483.19 $ 9,780.62
--------------------------------------------------------------------
TOTAL 93.50076% $ 6,545,053.49 $ 39,136,127.70 $ 6,545,053.49
</TABLE>
<PAGE>
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
among
SPS PAYMENT SYSTEMS, INC.,
as
SELLER,
ALLIANCE DATA SYSTEMS CORPORATION,
as
PURCHASER, and
SPS COMMERCIAL SERVICES, INC. and ADS NETWORK SERVICES, INC.,
as SUBSIDIARIES.
June 8, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE I. PURCHASE AND SALE OF SHARES 1
1.1 Purchase and Sale of Shares 1
1.2 Payment of Purchase Price 1
1.3 Post-Closing Purchase Price Adjustment 2
1.4 Closing 3
1.5 AFCC's, Seller's and the Subsidiaries'Deliveries to Purchaser 3
1.6 Purchaser's Deliveries to Seller 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF SELLER 4
2.1 Authority 4
2.2 No Conflicts; Consents 4
2.3 Organization and Standing 5
2.4 Capital Stock of the Subsidiaries 5
2.5 Subsidiaries'Equity Interests 6
2.6 Business Premises 6
2.7 Litigation 7
2.8 Taxes 7
2.9 Benefit Plans 9
2.10 Employee and Employee Relations 9
2.11 Compliance, Licenses and Permits 10
2.12 Takeover Statutes 10
2.13 Contracts in Full Force and Effect 10
2.14 Brokers, Finders, etc. 11
2.15 Insurance 11
2.16 Tangible Personal Property 12
2.17 Intentionally Omitted 12
2.18 Guaranties 12
2.19 Powers of Attorney 12
2.20 Intellectual Property 12
2.21 Warranties and Warranty Claims 15
2.22 Officers and Directors 15
2.23 Books and Records 16
2.24 Certain Payments 16
2.25 Bank Accounts 16
2.26 Year 2000 16
2.27 Service Levels 17
2.28 Financial Statements 17
2.29 Inventory 18
2.30 Accounts Receivable 18
2.31 Customers and Suppliers 19
2.32 Relationships with Related Persons 19
2.33 Disclosure 19
i
<PAGE>
<CAPTION>
PAGE
<S> <C>
2.34 Absence of Certain Changes; Conduct of Business 20
2.35 Undisclosed Liabilities 21
2.36 Conduct of the Business 21
2.37 No Other Representations or Warranties 21
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF PURCHASER 22
3.1 Organization and Standing 22
3.2 Authority 22
3.3 No Conflicts; Consents 22
3.4 Financial Ability to Perform 23
3.5 Absence of Certain Changes or Events 23
3.6 No Other Representations or Warranties 23
ARTICLE IV. COVENANTS OF SELLER AND THE SUBSIDIARIES 23
4.1 Access 23
4.2 Ordinary Conduct 23
4.3 Assets of ADS Network 24
4.4 Assets of Commercial Services 24
4.5 Assumed Liabilities 25
4.6 Hired Employee Solicitation and Employment 25
4.7 Non-Competition by the AFCC Group 25
4.8 Consents; Assignability 26
4.9 No Solicitation 26
4.10 Records Retention 26
4.11 Cease Use of Marks 27
4.12 Confidentiality 27
4.13 Cooperation Regarding Financial Statements 27
4.14 Financial Statements and Reports 28
4.15 Tax Elections 28
4.16 Supplements to Schedules 28
ARTICLE V. EMPLOYEES AND EMPLOYEE MATTERS 29
5.1 Employment 29
5.2 Hired Employee Benefits 29
5.3 Employment and Employee Benefits 29
5.4 No Employment Agreements 30
5.5 Employee Benefit Plans Coverage 30
5.6 Employee Service Credit 30
5.7 Pre-Existing Condition Exclusions 31
5.8 Medical and Dental 31
5.9 Accrued Vacation Days 32
5.10 401(k) Plans 32
5.11 Employee Withholding and Reporting 33
5.12 Withdrawal from Plans 33
5.13 Employment - No Third Party Rights 33
5.14 Seller Assistance 33
ii
<PAGE>
<CAPTION>
PAGE
<S> <C>
5.15 WARN Act 33
5.16 FleetShare Employees 33
ARTICLE VI. COVENANTS OF PURCHASER 34
6.1 Regulatory Conditions 34
6.2 Certain Understandings 34
6.3 Commonly-Available Third Party Software Programs 34
6.4 Confidentiality 35
ARTICLE VII. MUTUAL COVENANTS 35
7.1 Consummation of the Transactions 35
7.2 Publicity 35
7.3 Antitrust Notification 36
7.4 Confidentiality Prior to Closing 36
7.5 Employee, Customer, Vendor and Supplier Notification 36
7.6 Further Assurances 36
7.7 Cure for Breach Between Purchaser and Seller of
Certain Representations, Warranties and Covenants 36
7.8 Revenues and Expenses 38
7.9 Post-Closing Reimbursement for Year 2000 Costs 38
ARTICLE VIII. CONDITIONS TO CLOSING 40
8.1 Each Party's Obligations 40
8.2 Seller's and the Subsidiaries'Obligations 40
8.3 Purchaser's Obligations 41
8.4 Frustration of Closing Conditions 43
ARTICLE IX. TAX MATTERS 43
9.1 Tax Matters 43
ARTICLE X. TERMINATION 43
10.1 Termination Events 43
10.2 Information and Confidentiality 43
10.3 Remedies for Termination 44
10.4 Abandonment 44
ARTICLE XI. INDEMNIFICATION 44
11.1 Survival of Representations and Warranties 44
11.2 Indemnification by Seller 44
11.3 Indemnification by Purchaser 45
11.4 Conditions of Indemnification Relating to Third Party Claims 45
11.5 Conditions of Indemnification Relating to Claims that are not
Third Party Claims 46
11.6 Limitations on Indemnification 47
iii
<PAGE>
<CAPTION>
PAGE
<S> <C>
ARTICLE XII. DISPUTE RESOLUTION 48
12.1 Negotiation 48
12.2 Mediation 48
12.3 Provisional Remedies 48
ARTICLE XIII. MISCELLANEOUS 48
13.1 No Third-Party Beneficiaries 48
13.2 Amendment or Waiver 49
13.3 Headings 49
13.4 Counterparts 49
13.5 Assignment 49
13.6 Notices 49
13.7 Entire Agreement 50
13.8 Severability 50
13.9 Schedules 50
13.10 Governing Law 50
13.11 Expenses 50
13.12 Remedies for Breach 51
Table of Schedules and Exhibits v
Table of Definitions vii
</TABLE>
iv
<PAGE>
TABLE OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule 2.2 Conflicts, Consents
Schedule 2.4 Warrants, Options, etc.
Schedule 2.6(a) Riverwoods Lease Documents
Schedule 2.7 Litigation
Schedule 2.8(b) State Where Tax Returns Required
Schedule 2.8(c) Extension of Tax Statutes of Limitations and Tax Sharing Agreements
Schedule 2.8(d) Exceptions to Required Tax Returns
Schedule 2.8(e) Joint Ventures, Partnerships and Other Arrangements
Schedule 2.10 Employee Incentive, Bonus Obligations
Schedule 2.11 License Exceptions
Schedule 2.13(a) List of Contracts Related to Business
Schedule 2.13(b) Parties Terminating Agreements
Schedule 2.13(c) Agreements Not Valid
Schedule 2.16 Equipment Liens and Taxes
Schedule 2.18 Outstanding Guaranties Issued by Subsidiaries
Schedule 2.19 Powers of Attorney Issued by Subsidiaries
Schedule 2.20(a) Software Products
Schedule 2.20(d) Encumbrances on Intellectual Property Assets
Schedule 2.20(e) Patents
Schedule 2.20(f) Marks
Schedule 2.20(g) Copyrights
Schedule 2.20(i) Software Products Sold or Licensed to Third Parties
Schedule 2.20(k) Internet Assets
Schedule 2.21 Product /Services Warranties to Third Parties
Schedule 2.22 Officers and Directors of Subsidiaries
Schedule 2.28(b) Pro Forma Income Statements of the Business
Schedule 2.30 FleetShare Accounts Receivable
Schedule 2.31 Material Customers
Schedule 2.32 Related Persons
Schedule 2.34 Conduct of Business
Schedule 2.35 Undisclosed Liabilities
Schedule 2.36 Excluded Assets
Schedule 3.3 Conflicts or Consents Needed
Schedule 4.2 Ordinary Conduct Exceptions
Schedule 4.2(c) Contracts not to be Terminated, Etc.
Schedule 4.3 Assets Transferred to ADS Network
Schedule 4.4 Commercial Services Assets
Schedule 4.5(a) ADS Network Assumed Obligations
Schedule 4.5(b) Commercial Services Assumed Obligations
Schedule 5.1 Employees
Schedule 5.2 Severance Pay Formula and Definition of Termination for Cause
Schedule 5.14 Payroll Data
Schedule 5.16 FleetShare Employees
v
<PAGE>
Exhibit A Form of Interim Services Agreement
Exhibit B Form of Gray Lease
Exhibit C Form of Riverwoods Sublease
Exhibit D Form of Services Agreement
Exhibit E Form of Assumption Agreement
Exhibit F Form of Tax Cooperation and Indemnification Agreement
Exhibit G Form of Master Agreement for Systems Operations Services
</TABLE>
vi
<PAGE>
TABLE OF DEFINITIONS
<TABLE>
<CAPTION>
SECTION
<S> <C>
Accounts.......................................................................................................2.30
Active Employees................................................................................................5.1
ADS Network................................................................................................Preamble
ADS Network Assumed Obligations.................................................................................4.5
AFCC............................................................................................................1.5
AFCC Group......................................................................................................4.6
AFCC Letter Agreement..........................................................................................13.7
Affiliate.......................................................................................................3.3
Agreement..................................................................................................Preamble
Assumed Liabilities.............................................................................................4.5
Assumption Agreement....................................................................................1.5(g); 4.5
Audit........................................................................................................2.8(a)
Balance Sheet...............................................................................................2.28(a)
Benefit Plans...................................................................................................2.9
Business...................................................................................................Recitals
Business Records...............................................................................................4.10
Claims.........................................................................................................11.2
Closing.........................................................................................................1.4
Closing Balance Sheet........................................................................................1.3(a)
Closing Date....................................................................................................1.4
COBRA........................................................................................................5.8(c)
Code.........................................................................................................2.8(a)
Commercial Services........................................................................................Preamble
Commercial Services Retained Obligations........................................................................4.5
Confidentiality Agreement...................................................................................4.12(c)
Contracts...................................................................................................2.13(a)
Controlled Group ...............................................................................................2.9
Critical Asset..................................................................................................7.7
Critical Remediation............................................................................................7.9
Copyrights..................................................................................................2.20(b)
Date Handling..................................................................................................2.26
Disputed Matters................................................................................................7.9
DOJ.............................................................................................................7.3
Employees.......................................................................................................5.1
Encumbrances....................................................................................................1.1
ERISA...........................................................................................................2.9
FleetShare Accounts Receivable.................................................................................2.30
FleetShare Business........................................................................................Recitals
FleetShare Employees...........................................................................................5.16
FleetShare Services Termination Date...........................................................................5.16
FMLA............................................................................................................5.1
Former Employee.................................................................................................5.1
vii
<PAGE>
FTC.............................................................................................................7.3
GAAP.........................................................................................................1.3(a)
Governmental Entity.............................................................................................2.2
Gray Lease...........................................................................................1.5(g); 2.6(b)
Group........................................................................................................2.8(a)
Hired Employees ................................................................................................5.1
HSR Act.........................................................................................................1.4
IBM Contract.................................................................................................1.5(g)
Inactive Employees..............................................................................................5.1
Indemnified Party...........................................................................................11.4(a)
Indemnifying Party..........................................................................................11.4(a)
Intellectual Property Assets................................................................................2.20(b)
Independent Consultant..........................................................................................7.9
Interim Balance Sheet.......................................................................................2.28(a)
Interim Services Agreement...................................................................................1.5(g)
Internet Assets.............................................................................................2.20(k)
Inventory......................................................................................................2.29
IRS..........................................................................................................2.8(a)
Legal Requirements..............................................................................................2.4
Liabilities....................................................................................................11.2
Marks.......................................................................................................2.20(b)
Master Agreement ............................................................................................1.5(g)
Material Adverse Effect.........................................................................................2.2
Material Customer..............................................................................................2.31
Material Interest..............................................................................................2.32
Network Services Business..................................................................................Recitals
Patents.....................................................................................................2.20(b)
Permit..........................................................................................................2.2
Person..........................................................................................................2.5
Plan...........................................................................................................2.26
Post-Closing Remediation........................................................................................7.9
Post-Closing Testing............................................................................................7.9
Post Closing Testing Costs......................................................................................7.9
Prior Service...................................................................................................5.6
Project Costs...................................................................................................7.9
Proprietary Software Products...............................................................................2.20(i)
Purchase Price..................................................................................................1.2
Purchaser..................................................................................................Preamble
Purchaser's Basket..........................................................................................11.6(c)
Purchaser's 401(k) Plan.........................................................................................5.6
Related Person.................................................................................................2.32
Representatives................................................................................................4.12
Riverwoods Lease.....................................................................................1.5(g); 2.6(a)
Riverwoods Sublease..................................................................................1.5(g); 2.6(a)
Seller.....................................................................................................Preamble
Seller's Basket.............................................................................................11.6(b)
viii
<PAGE>
Seller's DCA.................................................................................................5.8(d)
Seller's FSA.................................................................................................5.8(d)
Seller's 401(k) Plans..........................................................................................5.10
Services Agreement...........................................................................................1.5(g)
Shares.....................................................................................................Recitals
Software Products...........................................................................................2.20(a)
SPS Retained Liabilities........................................................................................4.5
Subsidiary or Subsidiaries.................................................................................Recitals
Tax or Taxes.................................................................................................2.8(a)
Tax Return...................................................................................................2.8(a)
Third Party Claims.............................................................................................11.4
Trade Secrets...............................................................................................2.20(b)
Transaction Documents...........................................................................................6.2
Treasury Regulations.........................................................................................2.8(a)
WARN Act.......................................................................................................5.15
</TABLE>
ix
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of June 8, 1999 (this
"Agreement"), is by and among SPS Payment Systems, Inc., a Delaware
corporation ("Seller"), Alliance Data Systems Corporation, a Delaware
corporation ("Purchaser"), SPS Commercial Services, Inc., a Delaware
corporation ("Commercial Services"), and ADS Network Services, Inc., a
Delaware corporation ("ADS Network").
RECITALS
A. Seller, through its Network Services Division, is engaged
in the business of conducting the electronic processing of point-of-sale
transactions including POS device management, authorization, data capture,
reporting and routing for settlement of credit and debit transactions and
selling and providing servicing support for various POS equipment
(collectively, the "Network Services Business"). Seller, through its
Commercial Services subsidiary, is engaged in the business of operating a
fleetcard service including new account processing, customer service,
collections, accounts receivable, receivables financing, statement
production, remittance, and fleet management reporting (collectively, the
"FleetShare Business"). Prior to the Closing, Seller will have transferred
all of the assets it uses primarily to conduct the Network Services Business
and certain of the liabilities of the Network Services Business and the
FleetShare Business (collectively, the "Business") to ADS Network and
Commercial Services (collectively, the "Subsidiaries"). At Closing, the
Subsidiaries will own and operate the Business.
B. Seller owns all of the issued and outstanding shares of
capital stock of the Subsidiaries (collectively, the "Shares").
C. Purchaser desires to purchase from Seller, and Seller
desires to sell to Purchaser, the Shares upon the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF SHARES
1.1 PURCHASE AND SALE OF SHARES . Upon the terms and subject to
the conditions contained herein, on the Closing Date (as hereinafter
defined), Seller will sell, convey, transfer, assign and deliver to Purchaser
the Shares free and clear of all security interests, liens, adverse claims,
charges and encumbrances (collectively, the "Encumbrances"), and Purchaser
will purchase the Shares from Seller.
1.2 PAYMENT OF PURCHASE PRICE . On the Closing Date Purchaser
shall deliver to Seller by electronic wire transfer to a bank account
designated in writing by Seller at least two business days
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prior to the Closing Date, in immediately available funds, the sum of
$170,000,000, subject to adjustment as specified in Section 1.3 below (as
adjusted, the "Purchase Price").
1.3 POST-CLOSING PURCHASE PRICE ADJUSTMENT .
(a) PREPARATION OF CLOSING BALANCE SHEET. As soon as
practicable following the Closing Date, but in no event later than 30 days
after the Closing, Seller shall deliver to Purchaser a balance sheet of the
Business as of the Closing Date (the "Closing Balance Sheet") prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied without giving effect to the transfer of assets to the
Subsidiaries or the sale of Stock contemplated by this Agreement. The Closing
Balance Sheet or explanatory notes shall identify as separate items the
following: (i) the value of the Inventory (as hereinafter defined) and (ii)
the value of the FleetShare Accounts Receivable (as hereinafter defined) and
all allowances for doubtful accounts relating thereto. The Closing Balance
Sheet shall be accompanied by a certificate signed by an officer of Seller
certifying (i) that as of December 31, 1998, $3,919,487 was the amount of the
FleetShare Accounts Receivable net of all reserves, (ii) the reserves for the
FleetShare Accounts Receivable as of that date represented 1.047% of the
FleetShare Accounts Receivable, (iii) that as of December 31, 1998, $844,648
was the amount of the Inventory of the Business, and (iv) that the Closing
Balance Sheet and the certification of the FleetShare Accounts Receivable and
the Inventory described in (i) and (iii) of this sentence: (x) were prepared
in accordance with GAAP consistently applied, subject to normal recurring
year end adjustments (which will not individually or in the aggregate have a
Material Adverse Effect (as hereinafter defined)) and the absence of notes
and (y) fairly reflects the assets and liabilities of the Business as of
December 31, 1998 or the Closing Date, respectively. In the event that
Purchaser shall disagree with amounts specified on the Closing Balance Sheet
for the FleetShare Accounts Receivable, reserves related thereto or the
Inventory, Purchaser shall notify Seller of the matters with which it
disagrees within 15 days of Purchaser's receipt of the Closing Balance Sheet
and the parties shall use their best efforts to promptly resolve any
differences. If the parties are unable to resolve any disagreements that they
may have within 30 days following Purchaser's giving of notice of its
disagreement to Seller, then Seller and Purchaser shall use the dispute
resolution mechanism established in Article XII.
(b) POST-CLOSING ADJUSTMENTS TO THE PURCHASE PRICE. The amounts
shown for the FleetShare Accounts Receivable less related reserves and the
Inventory of the Business on the Closing Balance Sheet shall be compared to
the comparable items as set forth below. If the amount shown for FleetShare
Accounts Receivable on the Closing Balance Sheet less allowance for doubtful
accounts (calculated by multiplying the amount shown for FleetShare Accounts
Receivable (gross of reserves) on the Closing Balance Sheet by 1.047%) is
larger than $3,919,487, Purchaser shall pay the excess to Seller. If the
reverse is true, Seller shall pay the difference to Purchaser. If the amount
shown for Inventory on the Closing Balance Sheet is larger than $844,648,
Purchaser shall pay the excess to Seller. If the reverse is true, Seller
shall pay the difference to Purchaser. In the event Seller shall owe
Purchaser for one line item and Purchaser shall owe Seller for the other, the
payments may be offset and the party owing the balance shall pay such amount
to the other. All undisputed amounts shall be made by check or wire transfer
within 10 days of the delivery of the Closing Statement. All disputed amounts
will be paid by check or wire transfer within 10 days of the parties'
ultimate agreement upon the amounts of FleetShare Accounts Receivable and
Inventory as shown on the Closing Balance Sheet.
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1.4 CLOSING . Upon the terms and subject to the conditions
hereof, the closing of the transactions contemplated hereby (the "Closing")
shall take place at Dallas, Texas on July 1, 1999, or three (3) business days
after expiration or early termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), whichever is later, or such other place and/or time as Seller and
Purchaser may agree (the "Closing Date").
1.5 AFCC'S, SELLER'S AND THE SUBSIDIARIES' DELIVERIES TO
PURCHASER . At Closing, Associates First Capital Corporation, a Delaware
corporation ("AFCC"), Seller and the Subsidiaries shall deliver to Purchaser
the instruments and items set forth below:
(a) Stock certificates representing the Shares, registered in
the name of Seller, duly endorsed in blank or accompanied by duly executed
stock powers;
(b) A certificate of Seller and each Subsidiary's Secretary or
an Assistant Secretary certifying resolutions adopted by the Board of
Directors of Seller and each Subsidiary authorizing and approving the
execution, delivery and performance of this Agreement and the other documents
to be delivered by Seller and such Subsidiary in connection with this
Agreement and, in the case of Seller, the transfer of the Shares to Purchaser
pursuant to this Agreement;
(c) The written resignations of the directors of the
Subsidiaries, effective upon Closing;
(d) The stock books, stock ledgers, minute books, and corporate
seals of the Subsidiaries;
(e) All Certificates of AFCC's, Seller's and the Subsidiary's
officers required under or in connection with this Agreement;
(f) Any updates of Schedules pursuant to Section 4.16, which
shall be dated as of a date not more than two days prior to the Closing Date
and certified by Seller's and each Subsidiary's Secretary or an Assistant
Secretary;
(g) Duly executed Interim Services Agreement, Gray Lease,
Riverwoods Sublease, Services Agreement, Assumption Agreement, Tax
Cooperation and Indemnification Agreement and Master Agreement for Systems
Operations Services (the "Master Agreement") relating to the IBM Contract (as
defined in the Master Agreement), which documents shall be in the forms
attached hereto as Exhibits A, B, C, D, E, F, and G respectively; and
(h) All other documents, certificates, instruments, agreements
and writings required to be delivered by AFCC, Seller or either Subsidiary on
or before the Closing Date pursuant to this Agreement.
1.6 PURCHASER'S DELIVERIES TO SELLER . At Closing, Purchaser
shall deliver to Seller, or cause the delivery to Seller of, the following
instruments and items:
(a) The Purchase Price;
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(b) A certificate of Purchaser's Secretary or an Assistant
Secretary certifying resolutions of the Board of Directors of Purchaser
authorizing and approving the execution, delivery, and performance of this
Agreement;
(c) All certificates of Purchaser's officers required under or
in connection with this Agreement;
(d) Duly executed Interim Services Agreement, Gray Lease,
Riverwoods Sublease, Services Agreement, Tax Cooperation and Indemnification
Agreement and Master Agreement in the forms attached hereto as Exhibits A, B,
C, D, F and G respectively; and
(e) All other documents, certificates, instruments, agreements
and writings required to be delivered by the Purchaser on or before the
Closing Date pursuant to this Agreement.
ARTICLE II
ARTICLE REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
2.1 AUTHORITY . Seller and each Subsidiary have the corporate
power and authority to execute this Agreement and all documents, instruments
and agreements required to be executed by Seller or either Subsidiary
pursuant hereto and to consummate the transactions contemplated hereby or
thereby. Prior to Closing, the execution and delivery of this Agreement and
all documents, instruments and agreements required to be executed by Seller
or either Subsidiary pursuant hereto or thereto, and the performance by
Seller or either Subsidiary of its obligations hereunder or thereunder, have
been duly authorized by the respective Board of Directors of Seller and the
Subsidiaries and no further corporate action is necessary on the part of
Seller or either Subsidiary. This Agreement and all documents, instruments
and agreements required to be executed by Seller or either Subsidiary
pursuant hereto have been duly executed and delivered by Seller and the
Subsidiaries and constitute valid and legally binding obligations of Seller
and the Subsidiaries, enforceable against them in accordance with their
respective terms subject, as to the enforcement of remedies, to applicable
bankruptcy, reorganization, insolvency, moratorium (whether general or
specific) and similar laws relating to creditors' rights generally, and
general principles of equity regardless of whether such enforcement is sought
in a proceeding in equity or at law.
2.2 NO CONFLICTS; CONSENTS . Except as set forth on Schedule
2.2, neither the execution and delivery of this Agreement by Seller or either
Subsidiary, nor the execution and delivery of any other documents,
instruments and agreements required to be executed and delivered by Seller or
either Subsidiary pursuant hereto, nor the consummation of the transactions
contemplated hereby or thereby will conflict with, or result in any violation
of or default (with or without notice or lapse of time, or both) under, or
give rise to a right of first refusal, right of termination, cancellation or
acceleration or similar right relating to any obligation or to loss of a
benefit under any provision of (a) the respective certificates of
incorporation or by-laws of Seller or either Subsidiary, (b) any note, bond,
mortgage, indenture, deed of trust, license, lease, contract, commitment,
agreement or
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arrangement to which Seller or either Subsidiary is a party or by which any
of them or any of their respective properties or assets is bound or (c) any
judgment, order or decree, or statute, law, ordinance, rule or regulation,
applicable to Seller or either Subsidiary or any of their respective
properties or assets, in the case of (b) and (c) above, except for any such
conflict, violation, default or right which would not reasonably be expected
to have a material adverse effect on the business, assets, financial
condition, or results of operations of the Subsidiaries taken as a whole (a
"Material Adverse Effect"). No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing (each, a "Permit")
with, any Federal, state, local or foreign government or any court of
competent jurisdiction, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or other
regulatory or self-regulatory body or association (each, a "Governmental
Entity") is required to be obtained or made by Seller or the Subsidiaries in
connection with the consummation of the transactions contemplated hereby
other than (x) compliance with and filings under the HSR Act, (y) as set
forth on Schedule 2.2, and (z) with respect to the Network Services Business,
those the failure of which to make or obtain would not have a Material
Adverse Effect.
2.3 ORGANIZATION AND STANDING . Each of Seller and the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Seller and each
of the Subsidiaries has all requisite corporate power and authority to carry
on its respective business as presently conducted and to own, lease and
operate its respective properties and assets as currently owned, leased and
operated, and each is duly qualified to do business and is in good standing
in each jurisdiction in which the properties owned, leased or operated by it,
or where the nature of the business conducted by it, make such qualification
necessary, except where the failure to so qualify or be in good standing
would not have a Material Adverse Effect.
2.4 CAPITAL STOCK OF THE SUBSIDIARIES . The authorized capital
stock of ADS Network consists of 1,000 shares of common stock, par value $.01
per share, of which 1,000 shares are duly authorized and validly issued and
outstanding, fully paid and nonassessable and are owned by Seller free and
clear of any Encumbrances. The authorized capital stock of Commercial
Services consists of 1,000 shares of capital stock, par value $.01 per share,
of which 1,000 shares are duly authorized and validly issued and outstanding,
fully paid and nonassessable and are owned by Seller free and clear of any
Encumbrances. Except for the Shares, there are no shares of capital stock or
other equity securities of either Subsidiary outstanding. None of the Shares
have been issued in violation of any orders, constitutions, laws, ordinances,
principles of common law, regulations, rules, statutes and treaties
(collectively, "Legal Requirements"), or in violation of, or are subject to,
any purchase option, call, right of first refusal or preemptive, subscription
or similar right. Except as set forth on Schedule 2.4, there are no
outstanding warrants, options, rights, agreements, convertible or
exchangeable securities or other commitments (other than this Agreement) (a)
pursuant to which Seller or either Subsidiary, is or may become obligated to
issue, sell, purchase, return or redeem any shares of capital stock or other
securities of such Subsidiary or (b) that give any Person (as hereinafter
defined) the right to receive any benefits or rights similar to any rights
enjoyed by or accruing to the holders of shares of capital stock of such
Subsidiary. Upon delivery to Purchaser at the Closing of certificates
representing the Shares, duly endorsed by Seller for transfer to Purchaser,
and upon Seller's receipt of the Purchase Price, Purchaser will acquire title
to the Shares, free and clear of any Encumbrances. No legend (other than a
restricted securities legend) or other reference to any purported Encumbrance
appears upon any certificate representing equity securities of either
Subsidiary.
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2.5 SUBSIDIARIES' EQUITY INTERESTS . The Subsidiaries do not
own, directly or indirectly, any capital stock of or other equity interests
in any corporation, partnership, limited liability partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or any other entity (collectively, together with any individual,
"Person").
2.6 BUSINESS PREMISES .
(a) Seller is a party to a lease (the "Riverwoods Lease")
covering the premises at 2500 Lake Cook Road, Riverwoods, Illinois 60015,
which is used, in part, in connection with the Business. Schedule 2.6(a)
contains a complete and accurate list of the Riverwoods Lease, all amendments
thereto, and all other material documents relating to the Riverwoods Lease,
true copies of which documents have been previously made available to
Purchaser. Except as set forth in Schedule 2.6(a), (i) the Riverwoods Lease
is in full force and effect, constitutes the legal, valid and binding
obligation of, and is enforceable against, Seller and, to the knowledge of
Seller, each other Person that is a party thereto, in accordance with its
terms, (ii) Seller has not received any written notice from the lessor under
the Riverwoods Lease of the termination thereof, and (iii) there is no
default (including any failure by Seller to make timely payments to the
lessor in accordance with the terms of the Riverwoods Lease) or event which,
with notice or lapse of time, or both, would constitute a default on the part
of Seller (nor, to the knowledge of Seller, on the part of any other party
thereto). Seller will have entered into a written sublease with ADS Network
in the form attached hereto as Exhibit C (the "Riverwoods Sublease") covering
the portion of the Riverwoods, Illinois premises used in connection with the
Business, effective as of the Closing Date. At Closing, the Riverwoods
Sublease will be in full force and effect. Seller will have transferred to
ADS Network at Closing, good and valid title to the leasehold estate in the
premises demised under the Riverwoods Sublease free and clear of any
Encumbrance. The Riverwoods Sublease will cover substantially all the
properties that Seller and the Subsidiaries currently use to operate the
Business (other than the Gray Lease, defined below, and off-site storage
facilities). The Riverwoods, Illinois premises is not, to the knowledge of
Seller subject to: any requisition, closing or demolition order; any notice
of enforcement orders, abatement notices or declarations given by a
Governmental Entity that has not been complied with; any order or agreement
with a planning authority regulating use or development thereof which would
have a material adverse effect on the Business currently conducted on that
property; or any material dispute with any Person relating to the property or
its use. The Riverwoods Lease complies, and the Riverwoods Sublease will
comply, with all material and applicable Governmental Entity Legal
Requirements.
(b) Seller owns the premises located at 104 Sunset Drive, Gray,
Tennessee 37615, which is used in connection with the Business, and Seller
has the right and power to lease all or part of such premises. Seller will
have entered into a lease with ADS Network in the form attached hereto as
Exhibit B (the "Gray Lease") covering the Gray, Tennessee premises used in
connection with the Business, effective as of the Closing Date. At Closing,
the Gray Lease will be in full force and effect. Seller will have transferred
to ADS Network at Closing, good and valid title to the leasehold estate in
the premises demised under the Gray Lease free and clear of any Encumbrance.
The Gray Lease will cover substantially all the properties that Seller and
the Subsidiaries currently use to operate the Business (other than the
Riverwoods Sublease, defined above, and off-site storage facilities). The
Gray, Tennessee premises is not, to the knowledge of Seller, subject to: any
requisition, closing or demolition order; any notice of enforcement orders,
abatement notices or declarations given by a
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Governmental Entity that has not been complied with; any order or agreement
with a planning authority regulating use or development thereof which would
have a material adverse effect on the Business currently conducted in that
property; or any material dispute with any Person relating to the property or
its use. The Gray Lease will comply with all material and applicable Legal
Requirements.
2.7 LITIGATION . Except as disclosed on Schedule 2.7, there is
no suit, action or proceeding pending or, to the knowledge of Seller or
either Subsidiary, threatened against Seller relating to the Business, or
against either Subsidiary. There is no judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against Seller or
either Subsidiary which has had or is reasonably likely to have a Material
Adverse Effect.
2.8 TAXES .
(a) For purposes of this Agreement, (i) "Tax" or "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, however
denominated, including, without limitation, income, profits, gross receipts,
excise, property, sales, withholding, social security, occupation, use,
service, license, payroll, franchise, transfer and recording taxes, fees and
charges, including estimated taxes, imposed by the United States or any other
federal, territorial, state, local or other taxing authority (domestic or
foreign), whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest, fines, penalties
or additional amounts attributable to, or imposed upon, or with respect to
any such taxes, charges, fees, levies or other assessments; (ii) "Tax Return"
shall mean any return, report or other document or information required to be
supplied to a taxing authority in connection with Taxes; (iii) "IRS" shall
mean the United States Internal Revenue Service; (iv) "Treasury Regulations"
shall mean the Treasury Regulations promulgated under the Code; (v) "Group"
shall mean, individually and collectively, (A) the Subsidiaries, (B) Seller,
(C) AFCC, and (D) any individual, trust, corporation, partnership or any
other entity as to which either one or both of the Subsidiaries is liable for
Taxes incurred by such individual or entity either (x) as a transferee, (y)
pursuant to Treasury Regulations Section 1.1502-6, or (z) pursuant to any
other provision of federal, territorial, state, local or foreign law or
regulation; (vi) "Audit" shall mean any audit or inquiry, assessment of
Taxes, reassessment of Taxes, or other examination by any taxing authority or
any judicial or administrative proceedings or appeal of such proceedings; and
(vii) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(b) In the last five years, the only jurisdictions where the
Subsidiaries have filed (or had filed on their behalf) any income Tax Returns
are with the Federal government of the United States and with those States
set forth on Schedule 2.8(b).
(c) As of the date hereof and at Closing, except as set forth
on Schedule 2.8(c): (i) all Tax Returns required to be filed by or on behalf
of the members of the Group with respect to any period ending on or prior to
the date hereof or the Closing Date, as the case may be, have been duly filed
on a timely basis and such Tax Returns are true, complete and correct in all
material respects; (ii) all Taxes shown to be payable on such Tax Returns or
on subsequent assessments with respect thereto have been paid in full on a
timely basis; (iii) there are no liens for Taxes upon any shares of the stock
or assets of the Subsidiaries, except for statutory liens for current Taxes
not yet due; (iv) the Subsidiaries have complied in all respects with all
applicable laws, rules and regulations relating to the payment and
withholding of Taxes except where the failure to so comply would not
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have a Material Adverse Effect; and have, within the time and the manner
prescribed by law, withheld from and paid over to the proper Governmental
Entities all amounts required to be so withheld and paid over under
applicable laws; (v) there are no Audits or other administrative proceedings
or court proceedings pending with regard to any Taxes or Tax Returns of the
Subsidiaries, and neither Seller nor the Subsidiaries have received notice of
any pending Audits or proceedings, in each case, except those which would not
have a Material Adverse Effect; (vi) there are no outstanding written
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies against
any of the Subsidiaries; (vii) none of the Subsidiaries is a party to any
agreement providing for the allocation or sharing of Taxes; and (viii) no
power of attorney has been executed by any of the Subsidiaries with respect
to any matter relating to Taxes which is currently in force.
(d) TAX RETURNS FURNISHED. Purchaser has been furnished by
Seller or the Subsidiaries true and correct copies, as such may exist, of (i)
relevant portions of income tax audit reports, statements of deficiencies,
closing or other agreements received by the Subsidiaries or on behalf of the
Subsidiaries relating to Taxes, and (ii) all federal, state and local income
or franchise Tax Returns for the Subsidiaries for all periods ending after
1993. Except as set forth on Schedule 2.8(d), each Subsidiary has never been
a member of an affiliated group filing consolidated returns other than as a
group of which AFCC, the Subsidiaries and Seller were the only members.
Neither one of the Subsidiaries does business or derives income from any
state, local, territorial or foreign taxing jurisdiction other than those for
which all Tax Returns for all periods ending after 1993 have been furnished
to Purchaser. No claim has ever been made in writing to AFCC, Seller or any
Subsidiary by a taxing authority in a jurisdiction where the Subsidiaries do
not file Tax Returns that either entity is or may be subject to taxation by
that jurisdiction.
(e) TAX ELECTIONS AND SPECIAL TAX STATUS. As of the date hereof
and at Closing, except as set forth on Schedule 2.8(e): (i) neither of the
Subsidiaries is a party to any safe harbor lease within the meaning of
Section 168(f)(8) of the Code as in effect prior to amendment by the Tax
Equity and Fiscal Responsibility Act of 1982; (ii) neither of the
Subsidiaries has entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a
nondeductible expense to the Subsidiaries pursuant to Section 280G of the
Code; (iii) none of the assets of either of the Subsidiaries is "tax exempt
use property" within the meaning of Section 168(h) of the Code; (iv) none of
the assets of either of the Subsidiaries is property which is required to be
treated as being owned by any other Person pursuant to the so-called "safe
harbor lease" provisions of former Section 168(f)(8) of the Code; (v) none of
the assets of either of the Subsidiaries directly or indirectly secures any
debt, the interest on which is tax-exempt pursuant to Section 103(a) of the
Code; (vi) neither Subsidiary has any liability for the Taxes of any Person
(other than such Subsidiary) either (A) under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law), (B) as a
transferee or successor, (C) by contract, or (D) otherwise; (vii) Seller is
not and will not be a "foreign person" (as that term is defined in Section
1445 of the Code); (viii) neither of the Subsidiaries has a permanent
establishment in any foreign country, as defined in any applicable Tax treaty
or convention between the United States of America and such foreign country;
(ix) except as set forth in Schedule 2.8(e), neither of the Subsidiaries is a
party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income Tax purposes; and
(x) neither Subsidiary owns shares of stock or
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other equity ownership interests in any corporation or other entity taxable
as an association for federal income tax purposes.
(f) SECTION 338 ELECTION. AFCC has the authority to make a
joint election under Code Section 338(h)(10) and similar state elections with
respect to the purchase of the Shares of the Subsidiaries by Purchaser as
contemplated by this Agreement.
2.9 BENEFIT PLANS . For purposes of this Agreement, "Benefit
Plans" means each bonus, incentive compensation, deferred compensation,
pension, profit-sharing, retirement, stock purchase, stock option or other
stock-based compensation, severance or termination benefits, supplemental
unemployment benefits, salary continuation, salary in lieu of notice,
hospitalization or other medical, life or other insurance plan or retiree
medical or retiree life insurance plan relating to Seller's and the
Subsidiaries' businesses, employees, officers or directors, including any
policy, plan, program or agreement that provides for the payment of similar
benefits including all plans that are "employee welfare benefit plans" or
"employee pension benefit plans" as such terms are defined in Sections 3(1)
and 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") maintained, sponsored or contributed to by Seller, either
Subsidiary, any Affiliate (as hereinafter defined) of them or any member of
their Controlled Group or under which Seller, either Subsidiary, any
Affiliate of them or any member of their Controlled Group has any present or
future obligations or liability on behalf of the Employees, Former Employees
or their dependents or beneficiaries. For purposes of this Agreement,
"Controlled Group" shall mean with respect to Seller and the Subsidiaries,
each Person which together with Seller and the Subsidiaries is treated as a
single employer under Sections 414(b), (c), (m) and (o) of the Code. The
Subsidiaries do not have any employees.
All contributions made or required to be made by the Subsidiaries
under any Benefit Plan meet the requirements for deductibility under the Code
in all material respects, and all contributions that are required to have
been made or to be made by the Subsidiaries prior to the Closing have been
made or will be made prior to the Closing.
Neither Subsidiary has sponsored or contributed to any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA). No event or
condition has occurred in connection with which either Subsidiary is or could
be subject to any material Liability or any Encumbrance or lien with respect
to any Benefit Plan under ERISA, the Code or any other applicable law or
under any agreement or arrangement pursuant to or under which either
Subsidiary is required to indemnify any Person against such liability.
2.10 EMPLOYEE AND EMPLOYEE RELATIONS .
Except as set forth on Schedule 2.10, neither Subsidiary is
a to or subject to, or directly or indirectly liable under, any incentive,
bonus or commission plan or similar arrangement or understanding for the
benefit of any current or former officer, director or employee of Seller or
either Subsidiary or any deferred compensation, severance, retention or
employment contract or similar arrangement or understanding with any such
officer, director or employee (whether written or oral), that is not
terminable at will by Seller or either Subsidiary and that in any event could
result in liability of or an obligation against Purchaser or either
Subsidiary following the Closing. Except as set forth
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on Schedule 2.10 or as otherwise expressly provided in this Agreement, no
officer, director or employee of Seller or either Subsidiary shall be
entitled to any severance pay or retention pay or bonus from Purchaser or
either Subsidiary solely as a result of the consummation of the transactions
contemplated hereby.
2.11 COMPLIANCE, LICENSES AND PERMITS . Seller and its
Subsidiaries each has complied in all material respects with all Legal
Requirements including, without limitation, all consumer protection laws and
regulations. Except as set forth on Schedule 2.11, Seller and the
Subsidiaries each has all Permits necessary to permit Seller and the
Subsidiaries to conduct the Business as now being conducted, other than such
Permits which, individually or in the aggregate, with respect to the Network
Services Business, if not obtained, would not have a Material Adverse Effect.
Except as set forth on Schedule 2.11, each such Permit is in good standing
and there is no proceeding pending or, to the Seller's and each Subsidiary's
knowledge, threatened, to revoke or limit any of them.
2.12 TAKEOVER STATUTES . No "fair price," "moratorium," "control
share acquisition" or other similar anti-takeover statute or regulation
enacted under state or federal laws in the United States applicable to Seller
or either Subsidiary is applicable to the transaction contemplated hereby
(including, without limitation, Section 203 of the General Corporation Law of
the State of Delaware).
2.13 CONTRACTS IN FULL FORCE AND EFFECT .
(a) Schedule 2.13(a) sets forth a complete and accurate list of
each contract or agreement relating to the Business as to which the
Subsidiaries will be bound by or subject to at Closing as a result of
Sections 4.3, 4.4, and 4.5:
(i) pursuant to which Seller or either Subsidiary has been
engaged by any other Person to provide any products or services in
connection with the Business;
(ii) pursuant to which Seller or either Subsidiary purchases
or otherwise acquires any products or services from any other Person in
connection with the Business with an annualized anticipated expense of
more than $25,000;
(iii) pursuant to which Seller or either Subsidiary leases any
of the assets used by Seller or either Subsidiary to operate the
Business;
(iv) that contains covenants or other provisions limiting the
freedom of Seller to compete with the Business, or limiting the freedom
of either Subsidiary to compete in any line of business or with any
Person or in any area;
(v) pursuant to which Seller or either Subsidiary licenses
(either as a licensor or licensee), obtains or possesses any rights
with respect to, or that otherwise relates to, Intellectual Property
Assets (as defined below);
(vi) evidencing or relating to any Encumbrance on any asset
used by Seller or either Subsidiary to operate the Business;
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(vii) evidencing or relating to any employment, consulting,
bonus, commission, severance, non-compete or confidentiality agreement
or arrangement (or any other agreement with Employees or consultants);
or
(viii) that would have a Material Adverse Effect in the event
of termination or default of the contract or agreement (the contracts
and agreements listed in (i) - (viii) collectively, the "Contracts").
At Closing, the Subsidiaries will hold all of Seller's rights, title and
interests under the Contracts.
(b) Seller and the Subsidiaries will make available to
Purchaser a complete and accurate copy of each Contract as presently in
effect, and, except as listed Schedule 2.13(b), neither Seller nor either
Subsidiary has received any written notice from any party to any such
Contract of the termination or threatened termination thereof.
(c) Except as expressly set forth in Schedule 2.13(c), all
Contracts are valid and binding, and are in full force and effect and are
enforceable against Seller or the Subsidiaries in accordance with their terms
and, to the knowledge of Seller and either Subsidiary, are enforceable
against the other parties thereto, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
similar laws of general applicability affecting creditors' rights and by
general equitable principles. Neither Seller nor either Subsidiary has
received notice of any pending or threatened bankruptcy, insolvency or
similar proceeding with respect to any party to such agreements except as
disclosed on Schedule 2.13(c). Except as set forth in Schedule 2.13(c), each
of the Contracts may be assigned by Seller to ADS Network or Commercial
Services without the consent or approval of any other Person and, upon
consummation of the transactions contemplated by this Agreement and by the
other documents, instruments and agreements required to be executed and
delivered by Seller or either Subsidiary pursuant hereto, will remain in full
force and effect and will not create a right of any other Person that is a
party thereto to terminate such Contract based upon such transactions.
2.14 BROKERS, FINDERS, ETC. Except for Salomon Smith Barney
Inc., Seller is not subject to any valid claim of any broker, investment
banker, finder or other intermediary in connection with the transactions
contemplated by this Agreement. Neither Subsidiary has or will pay any costs
or expenses including, without limitation, investment advisors, brokers,
accountant and attorneys' fees, for services rendered as a result of or in
connection with the preparation, negotiation, execution or performance of
this Agreement. Any such costs and expenses incurred by either Subsidiary
shall be paid by Seller.
2.15 INSURANCE . Seller and/or the Subsidiaries are and, until
Closing, will be covered by the policies of insurance (including fidelity
bonds) that, in respect of amounts, types and risks insured, management
reasonably believes to be adequate for the Business (which policies are in
full force and effect). Upon request, Seller and the Subsidiaries shall
provide to Purchaser copies of such insurance policies.
2.16 TANGIBLE PERSONAL PROPERTY . Except as listed in Schedule
2.16 and except for liens for Taxes not yet due and payable, Seller or either
Subsidiary currently owns or leases, and at Closing
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the Subsidiaries will own or lease, free and clear of all Encumbrances, all
tangible personal property which Seller and the Subsidiaries use primarily to
conduct the Business as presently conducted. Such tangible personal property
has been and will be maintained in good condition (ordinary wear and tear
excepted) as to permit Seller and each Subsidiary to conduct the Business as
presently conducted.
2.17 INTENTIONALLY OMITTED .
2.18 GUARANTIES . Except as set forth on Schedule 2.18, no
Subsidiary is a guarantor or is otherwise liable for any liability or
obligation (including indebtedness) of any other Person.
2.19 POWERS OF ATTORNEY . Schedule 2.19 contains a complete and
accurate list of each power of attorney granted to any Person by either
Subsidiary or by Seller with regard to the Business.
2.20 INTELLECTUAL PROPERTY .
(a) The term "Software Products" means the currently
distributed versions and all earlier and predecessor versions, and
versions presently in development, of computer programs developed by
Seller or one of the Subsidiaries relating to the Business as listed on
Schedule 2.20(a), which term also includes source and object code
versions and associated documentation, and all other computer programs
(other than miscellaneous commonly-available third-party software) used
primarily in connection with the Business.
(b) The term "Intellectual Property Assets" includes:
(i) the name "FleetShare" and all fictional business
names, trading names, registered and unregistered trademarks,
service marks, and applications therefor owned, used or licensed
by Seller or either Subsidiary primarily in connection with the
Business excluding any name using "SPS" or any derivation thereof
(collectively, "Marks");
(ii) all patents, patent applications, provisional
patent applications, continuations, continuations in part, and
inventions and discoveries that may be patentable owned or
licensed by Seller or either Subsidiary primarily in connection
with the Business (collectively, "Patents");
(iii) all copyrights in both published works and
unpublished works, including the Software Products, owned by
Seller or either Subsidiary primarily in connection with the
Business (collectively, "Copyrights");
(iv) the Software Products;
(v) all rights in mask works owned by Seller or
either Subsidiary primarily in connection with the Business;
(vi) all know-how, trade secrets, confidential or
proprietary INFORMATION, customer lists, technical information,
data, process technology, plans, drawings, and
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blue prints owned or licensed (whether as licensee or licensor)
by Seller or either Subsidiary primarily in connection with
Business (collectively, "Trade Secrets"); and
(vii) all Internet domain names and other computer user
identifiers and any rights in and to web sites, including rights
in and to any text, graphics, audio and video files or other code
incorporated in such sites owned by or licensed to Seller or
either Subsidiary used primarily in connection with the Business
(collectively, "Internet Assets").
(c) Schedule 2.13(a) contains a complete and accurate list of
all Contracts relating to the Intellectual Property Assets except for any
license implied by the sale of a product and perpetual, paid-up licenses for
commonly-available third-party software programs under which Seller or either
Subsidiary is the licensee. Except as set forth on Schedule 2.20(c), there
are no outstanding and, to Seller's and each Subsidiary's knowledge, no
threatened disputes or disagreements with respect to any such Contract. All
commonly-available third-party software programs used in connection with the
Business are installed on computer equipment that is, or will be at Closing,
owned by a Subsidiary, pursuant to valid and existing software licenses to
Seller.
(d) One or more of the Subsidiaries is, or will be at Closing,
the owner of all right, title, and interest in and to each of the
Intellectual Property Assets, free and clear of all Encumbrances other than
those identified in Schedule 2.20(d), and either or both of the Subsidiaries
has, or will have, the right to use and license others to use all of the
Intellectual Property Assets. All former and current employees of Seller and
of each Subsidiary involved in the Business who participated in the creation
of any Intellectual Property Asset did so in the normal course and scope of
his or her employment by Seller or the Subsidiaries, and his or her work
product is considered "work made for hire." No independent contractor was
used by Seller or either Subsidiary in the creation of any Intellectual
Property Asset unless such contractor first executed a written contract with
Seller or the Subsidiaries providing that all work created by the contractor
was "work made for hire," and that all right, title, and interest in and to
such work would be assigned without reservation to Seller or the
Subsidiaries, as the case may be. No employee of Seller or either Subsidiary
involved in the Business has entered into any Contract that restricts or
limits in any way the scope or type of work in which the employee may be
engaged or requires the employee to transfer, assign, or disclose information
concerning his or her work to anyone other than Seller or the Subsidiaries.
(e) Schedule 2.20(e) contains a complete and accurate list and
summary description of all patent registrations and patent applications. All
of the issued Patents are currently in compliance with formal legal
requirements (including payment of filing, examination, and maintenance fees
and proofs of working or use), are valid and enforceable, and are not subject
to any maintenance fees or taxes or actions falling due within ninety days
after the Closing Date. No patent registration or application has been or is
now involved in any interference, infringement, reissue, reexamination, or
opposition proceeding. To Seller's knowledge, there is no potentially
interfering or infringing patent or patent application of any third party. To
Seller's knowledge, no Patent is infringed or has been challenged or
threatened as to its validity or enforceability in any way. Seller does not
have knowledge of any act constituting inequitable conduct in the procurement
or maintenance of any Patent. The Software Products can be manufactured,
distributed and used without infringement of any patent or other proprietary
right of any Person. Neither Seller nor either
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Subsidiary has committed any act with respect to any Patent which may
constitute patent misuse or may otherwise render a patent registration
unenforceable.
(f) Schedule 2.20(f) contains a complete and accurate list and
summary description of all Marks that have been registered or for which
application for registration has been made. All Marks that have been
registered with the United States Patent and Trademark Office are currently
in compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and
renewal applications), are valid and enforceable, and are not subject to any
maintenance fees, Taxes, or actions falling due within ninety days after the
Closing Date. No Mark that has been registered or applied for has been or is
now involved in or threatened with any opposition, invalidation, or
cancellation proceeding and, to Seller's knowledge, no such action is
threatened with the respect to any of the Marks. To Seller's knowledge, there
is no potentially interfering or infringing registered or common law
trademark, service mark, trademark application, or service mark application
of any third party. To Seller's knowledge, no Mark is infringed or has been
challenged or threatened in any way. The Marks can be used in the Business
and to identify the Subsidiaries' goods and services without infringing any
trademark, service mark or trade name right of any Person, and without
violating any anti-dilution law.
(g) Schedule 2.20(g) contains a complete and accurate list and
summary description of the Copyright registrations. No Copyright is infringed
or, to Seller's and each Subsidiary's knowledge, has been challenged or
threatened in any way. The creation of the Software Products did not involve
the copying, reproduction or adaptation of any pre-existing work in which
Seller or one of the Subsidiaries was not the copyright owner except to the
extent authorized by the copyright owner. The Software Products can be
copied, and copies of the Software Products can be manufactured, distributed
and used by Seller and the Subsidiaries and their customers and licensees
without infringing any copyright of any Person and without violating any
contractual restriction by which Seller or either Subsidiary is bound.
(h) With respect to each Trade Secret, the documentation, as
such exists, relating to such Trade Secret is current, accurate, and
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the knowledge or memory of any
individual. Seller and each Subsidiary have used commercially reasonable
efforts to document the Trade Secrets, and have taken all commercially
reasonable precautions to protect the secrecy, confidentiality, and value of
the Trade Secrets. Seller and one or more of the Subsidiaries has good title
and an absolute (but not necessarily exclusive) right to use the Trade
Secrets, and at Closing one or more of the Subsidiaries will have good title
and an absolute (but not necessarily exclusive) right to use the Trade
Secrets. To Seller's knowledge, the Trade Secrets have not been used,
divulged, or appropriated either for the benefit of any Person (other than
one or more of the Subsidiaries) or to the detriment of either Subsidiary. No
Trade Secret is subject to any adverse claim or has been challenged or
threatened in any way.
(i) Seller and the Subsidiaries have provided or will provide
to Purchaser true and accurate copies of the source code versions of all
Software Products developed or owned by Seller or either of the Subsidiaries
(collectively, "Proprietary Software Products"), including, with respect to
each Proprietary Software Product, documentation of previous versions of such
product and materials and information evidencing when, by whom and how each
version of such product was
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created, including drafts, flow charts, written documents, manuals and other
materials produced during the creation of such Proprietary Software Product
that is sufficient to utilize such Proprietary Software Product. Except as
identified in Schedule 2.20(i), no copies of any of the Proprietary Software
Products have been sold or licensed to any Person. No Person, other than
Seller or a Subsidiary, is in possession of a source code version of any of
the Proprietary Software Products, and at Closing no Person, other than a
Subsidiary, will be in possession of a source code version of any of the
Proprietary Software Products. All copies of all the Proprietary Software
Products distributed have been distributed in object code format subject to
written licenses which restrict the use of the Proprietary Software Products
and forbid copying, decompiling, revision or reverse engineering of the
Proprietary Software Products. All licensees of Software Products are in full
compliance with all the terms of their licenses. All copies of the
Proprietary Software Products licensed or sold to third parties substantially
conform to all published specifications therefor and all technical and other
written materials provided by Seller or either Subsidiary to a licensee or
purchaser in connection with the respective Proprietary Software Product.
Except as identified in Schedule 2.20(i), the Proprietary Software Products
contain no material operating defects and, to Seller's knowledge, the other
Software Products contain no material operating defects.
(j) At Closing, the Subsidiaries will have adequate programming
and operations to meet existing commitments of the Business relating to the
Software Products.
(k) Schedule 2.20(k) contains a complete and accurate list of
the Internet Assets. Seller does not know of any dispute with any trademark
or service mark claimant or registrant concerning use of any domain name
listed on Schedule 2.20(k), nor has any Internet domain name registering
administration organization, including Network Solutions, Inc., delivered any
notice to Seller or either of the Subsidiaries demanding that it change or
discontinue use of any domain name listed on Schedule 2.20(k). Seller and the
Subsidiaries have licenses allowing the reproduction and display on all
Internet sites listed on Schedule 2.20(k) of the graphical material
(including maps, trademarks, service marks, drawings photographs and scans),
audio, video and textual material appearing on such Internet sites. Seller
and the Subsidiaries are not aware of any graphics, words or phrases used on
any Internet sites listed on Schedule 2.20(k), including in meta-tags and
meta-descriptions or other indexing features of such Internet sites, or any
hyperlinks including on any such Internet sites, which would infringe or
dilute the mark of another, which would defame or disparage any Person or
which would violate the rights or privacy or publicity of another.
2.21 WARRANTIES AND WARRANTY CLAIMS . Schedule 2.21 lists and
accurately summarizes all product and service warranties made by or on behalf
of Seller or either Subsidiary in connection with the Business. Schedule 2.21
lists and accurately summarizes all warranty claims received by Seller or
either Subsidiary relating to the Business for the two year period ending
December 31, 1998, and the three-month period ending March 31, 1999. Neither
Seller nor either Subsidiary has knowledge of any basis for any product or
service warranty, product liability or similar claims against Seller or
either Subsidiary relating to the Business.
2.22 OFFICERS AND DIRECTORS . Schedule 2.22 contains a complete
and accurate list of the officers and directors of each Subsidiary.
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2.23 BOOKS AND RECORDS . The books of account, minute books,
stock record books, and other records of Seller and each Subsidiary relating
to the Business, all of which have been made available to Purchaser, are
complete and correct and have been maintained in accordance with sound
business practices, including the maintenance of an adequate system of
internal controls. Such minute books of each Subsidiary contain accurate and
complete records of all formal meetings held of, and corporate action taken
by, the stockholders, the Boards of Directors, and committees of the Boards
of Directors of the relevant Subsidiary. No meeting of any such stockholders,
Board of Directors, or committee has been held at which any corporate action
was taken for which minutes have not been prepared and are not contained in
such minute books. At the Closing, all of the books and records referred to
in this Section 2.23 will be in the possession of the relevant Subsidiary.
2.24 CERTAIN PAYMENTS . Neither Seller nor either Subsidiary or
any director, officer, agent, or employee of Seller or either Subsidiary, or
any other Person associated with or acting for or on behalf of Seller or
either Subsidiary, has, in connection with the Business, directly or
indirectly (a) made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback, or other payment to any Person, private or public,
regardless of form, whether in money, property, or services (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured, (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of either Subsidiary, or (iv)
in violation of any Legal Requirement, or (b) established or maintained any
fund or asset relating to the Business that has not been recorded in the
books and records of Seller or the relevant Subsidiary.
2.25 BANK ACCOUNTS . The only bank or securities account
maintained by or on behalf of either Subsidiary or the Business is Commercial
Services' account number 5544718 at 1st Chicago. The only Persons authorized
to sign on behalf of Commercial Services with respect to such bank account
are D. Michael Gatewood, Kent M. Williams, Christopher T. Porter, Michael C.
Smith, John F. Hughes and Roy A. Guthrie.
2.26 YEAR 2000 . As used in this Agreement, the term "Date
Handling" means the consistent and accurate: (i) handling of date data
before, during or after January 1, 2000; (ii) processing, providing,
receiving, calculating, comparing and sequencing of date data before, during
or after January 1, 2000; and (iii) responding to two-digit year date data in
a manner that resolves any ambiguity as to the 20th and 21st centuries.
(a) PLAN. Seller and the Subsidiaries have developed a
detailed, comprehensive plan and time line for addressing on a timely basis
their ability for proper Date Handling relating to the Business (the "Plan").
Schedule 2.26 is a complete and accurate copy of the Plan. The Plan has been
approved by Seller's senior management. Seller reasonably believes that: (i)
the Plan addresses all aspects of potential improper Date Handling associated
with the Business; (ii) the Plan is capable of being completely implemented,
in a timely manner, in accordance with its time line; (iii) currently, Seller
has, and, immediately prior to the Closing, the Subsidiaries will have, an
adequate number of employees with the necessary expertise and experience to
continue to implement the Plan, on a timely basis, in accordance with its
time line; and (iv) the Plan includes contingency plans in the event of
failure of any system, application or equipment (whether theirs or a third
party's) due to improper Date Handling, which contingency plans Seller
reasonably believes are feasible and allow (after
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implementation of contingency plans) the uninterrupted and unimpaired
operation of the Business in the event of any such failure.
(b) IMPLEMENTATION OF THE PLAN. Seller and the Subsidiaries
have implemented, and will through Closing continue to implement, the Plan in
accordance with the Plan's requirements and time line. At Closing, Seller
reasonably believes Seller and the Subsidiaries will have progressed in all
material respects in the implementation of the Plan to the corresponding
milestone required by the Plan's time line for the Closing Date. On or prior
to Closing Seller will notify Purchaser of the status of the Plan including
any remaining remediation and testing of any improper Date Handling with
regard to the remaining portion of the Business's systems, applications and
equipment. In implementing the Plan, Seller is making due inquiry and will
through Closing continue to make due inquiry of all of the suppliers, vendors
and third-party trading partners of the Business regarding the status of such
other Persons' efforts to address improper Date Handling. Seller and the
Subsidiaries are in the process of coordinating, and will through Closing
continue to coordinate, with such other Persons in such Person's efforts to
remediate any improper Date Handling by the systems, applications and
equipment of such other Persons which may affect the Business. Seller and the
Subsidiaries have, or by Closing will have, notified each of the customers of
the Business of: (i) the necessity for each customer to participate in
testing for proper Date Handling the interface and connections between the
respective systems, applications and equipment of Seller and the Subsidiaries
relating to the Business, on one hand, and the customer, on the other hand;
(ii) the necessity for each customer to require its third-party service
providers relating to the Business to likewise participate in such testing;
(iii) the time line for such testing; and (iv) the consequences of results
from such testing indicating that a customer's or any of its third-party
service provider's systems, applications or equipment does not accommodate
proper Date Handling. On or prior to the Closing Seller will notify Purchaser
of the status of its dealings with its customers, including a more detailed
report with respect to any Business customer whose 1998 revenue with respect
to the Business was $1 million or greater.
(c) Seller reasonably believes that if the Plan is completely
implemented in accordance with the Plan's time line, all of the systems,
applications and equipment owned or operated by Seller or Commercial Services
for the Business and affected by any improper Date Handling will be
identified and remedied before any such system, application or equipment will
cause any interruption or impairment of the operations of the Business.
2.27 SERVICE LEVELS . The Business is, and will at Closing be,
capable of performing at levels of service that meet in all material respects
all contractual service level requirements relating to the Business, or, to
the extent there are no such requirements, at a level of service that meets
in all material respects the levels of service performed by the Business
since November 1, 1998.
2.28 FINANCIAL STATEMENTS .
(a) Seller has delivered to Purchaser: (i) its unaudited
consolidated balance sheet as at December 31, 1998 (the "Balance Sheet") and
the related unaudited consolidated statement of income for the year then
ended; and (ii) its unaudited consolidated balance sheet as at March 31, 1999
(the "Interim Balance Sheet") and the related unaudited consolidated
statement of income for the three months then ended, including in each case
the notes thereto. Such financial statements and
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notes fairly present the financial condition and the results of operations of
Seller as at the respective dates of and for the periods referred to in such
financial statements, all in accordance with GAAP, subject, in the case of
the interim financial statements, to normal recurring year-end adjustments
(which will not, individually or in the aggregate, have a Material Adverse
Effect) and the absence of notes. The financial statements referred to in
this Section 2.28(a) reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes
to such financial statements. Except for the entities included in the
consolidated financial statements, GAAP does not require the financial
statements of any other Person to be included in the financial statements of
Seller.
(b) Attached as Schedule 2.28(b) are: (i) pro forma statements
of income of the Business for each of the fiscal years ending December 31,
1994 through 1998; and (ii) a pro forma statement of income for the Business
for the three months ending March 31, 1999. Such pro forma financial
statements fairly present in all material respects the results of operations
of the Business, as at the respective dates of and for the periods referred
to in such pro forma financial statements, all in accordance with GAAP,
subject, in the case of the interim pro forma financial statements, to normal
recurring year-end adjustments (which will not, individually or in the
aggregate, have a Material Adverse Effect) and the absence of notes. The pro
forma financial statements referred to in this Section 2.28(b) reflect the
consistent application of such accounting principles throughout the periods
involved. The assumptions used in the preparation of the pro forma financial
statements of the Business are reasonable and appropriate to give pro forma
effect in all material respects to the transactions or circumstances
described therein. No financial statements of any Person, other than of
Seller and the Subsidiaries, are required by GAAP to be included in the pro
forma financial statements of the Business.
2.29 INVENTORY . All inventories of products held for sale or
lease or under customer orders for purchase or lease by Seller or either
Subsidiary relating to the Business (collectively the "Inventory") consists
in all material respects of a quality usable and salable in the ordinary
course of business. All Inventory has been and will be recorded at cost. At
Closing there will be, in all material respects consistent with historical
demand, sufficient Inventory on hand to enable the Subsidiaries to continue
to conduct the Business as it is being conducted at the time this Agreement
is executed, and to supply in all material respects, their customers with the
products and services they have ordered.
2.30 ACCOUNTS RECEIVABLE . Schedule 2.30 (which, upon the
agreement of the parties, may be delivered in commonly readable electronic
format) contains a complete and accurate list of all accounts receivable of
Seller and each Subsidiary relating to the FleetShare Business (collectively,
the "FleetShare Accounts Receivable") as of April 30, 1999 and as of a date
that is no more than two days prior to the Closing Date, as the case may be,
which list sets forth the aging of such FleetShare Accounts Receivable. With
respect to all commercial credit card accounts (the "Accounts") and related
FleetShare Accounts Receivable: (a) such Accounts Receivable represent valid
obligations arising from sales actually made or services actually performed
in the ordinary course of business; (b) there is no contest, claim or, to the
knowledge of Seller or either Subsidiary, right of set-off, under any
contract with any obligor of a FleetShare Account Receivable relating to the
amount or validity of such FleetShare Account Receivable; (c) all
underwriting and origination of Accounts were performed in accordance with
the then applicable written policies and procedures of Commercial Services;
(d) each of the FleetShare Accounts Receivable and Accounts and the interest
rates, fees
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and charges in connection therewith comply, and have at all times in all
material respects complied with, all Legal Requirements; (e) each Account,
FleetShare Account Receivable and the related cardholder agreement is the
legal, valid and binding obligation of the cardholder-obligor and any
guarantor named therein and each is enforceable and legally collectible in
accordance with its terms under all applicable Legal Requirements, and, to
Seller's and Commercial Services' knowledge, is subject to no defense, offset
or counterclaim, subject to applicable bankruptcy, reorganization,
insolvency, moratorium (whether general or specific) and similar laws
relating to creditor rights generally, and general principles of equity
regardless of whether such enforcement is sought in a proceeding in equity or
at law; (f) each FleetShare Account Receivable is free and clear of any and
all Encumbrances incurred or existing by, through or on behalf of, or in
favor of any Person; and (g) each cardholder agreement constitutes the
agreement of Commercial Services and the cardholder, and Commercial Services
has made no amendment, modification or supplement to any cardholder agreement
which is not reflected in writing in such agreement.
2.31 CUSTOMERS AND SUPPLIERS . Except to the extent set forth in
Schedule 2.31, there has not been any adverse change in the business
relationship of Seller or either Subsidiary with any customer listed on
Schedule 2.31 (a "Material Customer") or with any supplier and no Material
Customer or supplier has notified Seller or either Subsidiary in writing or
otherwise that they have canceled or otherwise terminated or threatened in
writing or otherwise to cancel or otherwise terminate, their relationship
with Seller or either Subsidiary nor, to Seller's and each Subsidiary's
knowledge, has there been any material dispute with any Material Customer or
supplier.
2.32 RELATIONSHIPS WITH RELATED PERSONS . For purposes of this
Agreement, the term "Related Person" as used with regard to an entity means
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person; (b) any Person that holds a direct or indirect
beneficial ownership of voting securities or other voting interests
representing at least 10% of the outstanding voting power of a Person or
equity securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests ("Material Interest") in
such specified Person; (c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest; and (e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity). As of
the Closing Date, neither Seller nor any Related Person of Seller or of
either Subsidiary has, or will have, any interest in any property (whether
real, personal, or mixed and whether tangible or intangible), used primarily
in the operation of the Business, except for the various arrangements between
Seller and the Subsidiaries expressly contemplated by this Agreement. Except
for such arrangements, neither Seller nor any Related Person of Seller or of
either Subsidiary is, or has owned (of record or as a beneficial owner) an
equity interest or any other financial or profit interest in, an entity that
has had business dealings or a material financial interest in any transaction
with either Subsidiary other than business dealings or transactions conducted
in the ordinary course of business with either Subsidiary at substantially
prevailing market prices and on substantially prevailing market terms. Except
as expressly contemplated by the provisions of this Agreement or as set forth
in Schedule 2.32, neither Seller nor any Related Person of Seller or of
either Subsidiary is a party to any contract with, or has any claim or right
against, either Subsidiary.
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2.33 DISCLOSURE . No representation or warranty of Seller or
either Subsidiary contained in this Agreement and no statement contained in
any certificate or schedule furnished or to be furnished by or on behalf of
Seller or either Subsidiary to Purchaser or any of its representatives hereto
contains or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact necessary in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading or necessary in order to fully and finally provide the
information required to be provided in any such document, certificate or
schedule. There is no fact known to Seller or either Subsidiary that has
specific application to Seller or either Subsidiary (other than general
economic or industry conditions) and that materially adversely affects or, as
far as Seller and each Subsidiary can reasonably foresee, materially
threatens, the assets, business, prospects, financial condition, or results
of operations of the Business or either Subsidiary that has not been set
forth in this Agreement or the related schedules.
2.34 ABSENCE OF CERTAIN CHANGES; CONDUCT OF BUSINESS . Except as
contemplated by the parties in connection with the creation of ADS Network
and the transfer of the Business from Seller to the Subsidiaries pursuant to
the provisions of this Agreement, or as set forth in Schedule 2.34, since
December 31, 1998:
(a) Seller and each Subsidiary have conducted the Business only
in the ordinary course, consistent with past practice, and there has not
occurred or arisen any event, individually or in the aggregate, having, or
which, insofar as reasonably can be foreseen, in the future is likely to
have, a Material Adverse Effect on the business, operations, properties,
prospects, assets, or condition of either Subsidiary or the Business;
(b) there has been no change in either Subsidiary's authorized
or issued shares; no grant of any option or right to purchase shares of
either Subsidiary; no issuance of any security convertible into such shares;
no grant of any registration rights; no purchase, redemption, retirement, or
other acquisition by either Subsidiary of any shares; and no declaration or
payment of any dividend or other distribution or payment in respect of shares;
(c) there has been no amendment to any of the original
certificates of incorporation or bylaws or similar documents of either
Subsidiary;
(d) except in the ordinary course of business, there has been
no payment or increase by Seller or either Subsidiary relating to the
Business of any bonuses, salaries, or other compensation to any shareholder,
director, officer, or employee or entry into any employment, severance, or
similar contract with any director, officer, or employee involved in the
Business;
(e) there has been no damage to or destruction or loss of any
asset or property of Seller or either Subsidiary relating to the Business,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of the
relevant Subsidiary or the Business;
(f) there has been no entry into, termination of, or receipt of
notification of termination of any joint venture, credit, or similar
agreement involving Seller or either Subsidiary relating to the Business;
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(g) there has been no termination or breach of, or receipt of
notice of termination of any vendor contract or any Material Customer
contract, by or to Seller or either Subsidiary relating to the Business;
(h) there has been no sale (other than sales of inventory in
the ordinary course of business), lease, or other disposition of any material
asset or property of Seller or any Subsidiary relating to the Business, or
Encumbrance on any material asset or property of Seller or either Subsidiary
relating to the Business, including the sale, license, or other disposition
of any of the Intellectual Property Assets;
(i) there has been no cancellation or waiver of any claims or
rights with a value to Seller or either Subsidiary with regard to the
Business in excess of $100,000;
(j) there has been no material change in the accounting methods
used by Seller or either Subsidiary with regard to the Business;
(k) there has been no acquisition by merger or consolidation
with, or purchase of a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire any assets
that are material, individually or in the aggregate, to the Subsidiaries or
the Business; and
(l) there has been no agreement, whether oral or written, by
Seller or either Subsidiary with regard to the Business to do any of the
foregoing.
2.35 UNDISCLOSED LIABILITIES . Except as set forth in
Schedule 2.35, there are no Liabilities with respect to:
(a) Seller, except (i) as and to the extent set forth on the
Interim Balance Sheet, (ii) as incurred in connection with the transactions
contemplated, or as provided, by this Agreement or (iii) as incurred since
the date of the Interim Balance Sheet to the extent such Liabilities, when
aggregated, do not decrease the net worth of Seller to less than
$170,000,000; or
(b) the Business or either Subsidiary, except (i) as incurred
in connection with the transactions contemplated, or as provided, by this
Agreement or (ii) as incurred in the ordinary course of business and
consistent with past practice and not in violation of Section 2.34.
2.36 CONDUCT OF THE BUSINESS . Schedule 2.36 lists all of the
assets, whether tangible or intangible, and all other rights, title and
interests that are used by Seller or the Subsidiaries to conduct the Business
as conducted by Seller and the Subsidiaries immediately prior to the Closing
that will not be possessed by the Subsidiaries after the Closing.
2.37 NO OTHER REPRESENTATIONS OR WARRANTIES . Except for the
representations and warranties contained in this Article II, neither Seller
nor any other person makes any other express or implied representation or
warranty on behalf of Seller.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION AND STANDING. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
3.2 AUTHORITY. Purchaser has all requisite corporate power and
authority to execute this Agreement and all documents, instruments and
agreements required to be executed by Purchaser pursuant hereto and to
consummate the transactions contemplated hereby. The execution and delivery
of the Agreement and all documents, instruments and agreements required to be
executed by Purchaser hereto, and the performance by Purchaser of its
obligations hereunder have been duly authorized by all necessary action on
the part of Purchaser (including requisite stockholder approval, if
necessary). This Agreement has been duly executed and delivered by Purchaser
and, assuming the due execution and delivery hereof by Seller and the
Subsidiaries, constitutes a valid and legally binding obligation of
Purchaser, enforceable against Purchaser in accordance with its terms
(subject, as to the enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency, moratorium (whether general or specific) and
similar laws relating to creditors' rights generally, and general principles
of equity (regardless of whether such enforcement is sought in a proceeding
in equity or at law)).
3.3 NO CONFLICTS; CONSENTS. Except as set forth on Schedule 3.3,
neither the execution and delivery of this Agreement by Purchaser, nor the
consummation of the transactions contemplated hereby will conflict with, or
result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under any
provision of (a) the certificate of incorporation or by-laws of Purchaser,
(b) any note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which Purchaser is a party
or by which it or any of its properties or assets is bound or (c) any
judgment, order or decree, or statute, law, ordinance, rule or regulation,
applicable to Purchaser or any of its properties or assets, in the case of
(b) and (c) except for any such conflict, violation, default or right which
would not reasonably be expected to have a material adverse effect on the
business, assets, financial condition, or results of operations of Purchaser
and its Affiliates taken as a whole. No Permit of, or registration,
declaration or filing with, any Governmental Entity is required to be
obtained or made by Purchaser or in connection with the consummation of the
transactions contemplated hereby other than (x) compliance with and filings
under the HSR Act, (y) as set forth on Schedule 3.3 hereto and (z) those the
failure of which to make or obtain would not materially affect the ability of
Purchaser to consummate the transactions contemplated hereby. As used herein,
the term "Affiliate" shall mean, as to any specified Person, any other Person
that directly or indirectly through one or more intermediaries, controls or
is controlled by, or under common control with such specified Person. For the
purpose of this definition, "control," when used with respect to any
specified Person, means the power to direct or cause the direction of the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise, and the
terms "controlling" and "controlled" shall have meanings correlative to the
foregoing.
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3.4 FINANCIAL ABILITY TO PERFORM. At Closing Purchaser will have
sufficient funds available (through existing credit arrangements or
otherwise) to purchase all the Shares and to pay all of its fees and expenses
related to the transactions contemplated by this Agreement.
3.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. There has not occurred or
arisen any event or events which is reasonably likely to prevent or delay in
any material respect the consummation of any of the transactions contemplated
by this Agreement.
3.6 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the
representations and warranties contained in this Article III, neither
Purchaser nor any other Person makes any other express or implied
representation or warranty on behalf of Purchaser.
ARTICLE IV
COVENANTS OF SELLER AND THE SUBSIDIARIES
Seller and each Subsidiary covenants and agrees with Purchaser as
follows:
4.1 ACCESS. Prior to the Closing, at Purchaser's expense, Seller
and the Subsidiaries: (a) shall give Purchaser and its officers, employees,
representatives, counsel and accountants reasonable access, during normal
business hours and upon reasonable notice, to the assets, personnel,
properties, financial statements, contracts, books, records, working papers
and other relevant information pertaining to the Subsidiaries or the
Business; (b) shall furnish to Purchaser and its officers, employees,
representatives, counsel and accountants such financial and operating data
and other information with respect to the Subsidiaries or the Business as
Purchaser shall from time to time reasonably request; and (c) shall provide
reasonable accommodations during normal business hours at each of its
locations for up to three employees of Purchaser at a time, and shall allow
such employees of Purchaser reasonable access to facilities and personnel of
Seller or the Subsidiaries for purposes of monitoring the operation of the
Business; provided, however, that such access shall be in a manner that does
not unreasonably interfere with the normal operation of the Business.
4.2 ORDINARY CONDUCT. Except as set forth on Schedule 4.2 or
otherwise permitted by the terms of this Agreement, from the date hereof to
the Closing, Seller and the Subsidiaries shall (i) cause the Business to be
conducted in the ordinary course in substantially the same manner as
presently conducted and shall make all reasonable efforts consistent with
past practices to preserve their relationships with customers and others with
whom Seller or either Subsidiary deals, and (ii) maintain in effect all
insurance relating to the Business as to which the Seller or either
Subsidiary is a beneficiary, including any directors and officers insurance.
Except as set forth on Schedule 4.2 or otherwise permitted by the terms of
this Agreement, from the date hereof until the Closing, neither Seller (with
respect to the Business) nor either Subsidiary shall do any of the following
without the written consent of Purchaser (which consent will not be
unreasonably withheld):
(a) enter into or amend any agreement, contract or other arrangement
(or series of related agreements, contracts or other arrangements) by which
the Subsidiaries or any of their properties or assets are bound which (i) as
to any service contract with a customer, does not provide for a mark-up of at
least one cent over the applicable incremental cost per transaction, (ii) has
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annualized anticipated expenses to the Subsidiaries in excess of $100,000,
(iii) is not terminable by Seller or the Subsidiaries, as the case may be, by
notice of not more than 60 days for an aggregate cost of less than $100,000,
or (iv) is otherwise not in the ordinary course of business and consistent
with past practices of the Business;
(b) sell any of the Shares or any other shares of capital stock of
either Subsidiary;
(c) terminate, breach, modify or amend any Contract listed on
Schedule 4.2(c) to the extent such would have an adverse effect on the
Business;
(d) mortgage or otherwise subject to any Encumbrance any assets or
interests of the Business, other than in the ordinary course of business and
consistent with past practice provided such Encumbrance will be released on
or prior to Closing;
(e) enter into any Contract that contains any provision that, solely
as a result of the consummation of the transactions contemplated by this
Agreement, would (assuming that the other party's consent or approval is not
obtained, to the extent required) result in any penalty, additional payments
or forfeiture that would be payable or sufferable by a Subsidiary at or after
the Closing Date;
(f) solicit or induce any Employee not to become a Hired Employee;
(g) hold in the Subsidiaries any assets or liabilities other than
those related to the Business or operate any business in the Subsidiaries
other than the Business;
(h) take any action that would, or could reasonably be expected to,
result in (i) any of the representations and warranties of Seller or either
Subsidiary set forth in this Agreement that are qualified as to materially
becoming untrue, (ii) any of such representations and warranties of Seller or
either Subsidiary that are not so qualified becoming untrue in any material
respect, or (iii) any of the conditions set forth in Article VIII not being
satisfied; or
(i) agree, whether in writing or otherwise, to do any of the
foregoing.
4.3 ASSETS OF ADS NETWORK. On the Closing Date, Seller shall
transfer to ADS Network all of Seller's rights, title and interest in each of
assets listed in Schedule 4.3; provided, however, Purchaser may direct Seller
to transfer all or part of the assets listed in Schedule 4.3 to Commercial
Services, and Seller shall comply with such directions unless Seller has
previously transferred the relevant assets to ADS Network or the transfer of
the assets as directed will have a material adverse effect on Seller.
4.4 ASSETS OF COMMERCIAL SERVICES. On or before the Closing Date,
each of the assets listed in Schedule 4.4 will be among the assets of
Commercial Services, and Seller shall have no further right, title or
interest in such assets; provided, however, if any such assets are not owned
by Commercial Services at the time this Agreement is executed, Purchaser may
direct Seller to transfer all or part of such assets to ADS Network, unless
Seller has previously transferred the relevant assets
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to Commercial Services or the transfer of the assets as directed will have a
material adverse effect on Seller.
4.5 ASSUMED LIABILITIES. On or before the Closing Date, ADS Network
shall assume the obligations of Seller relating to the Network Services
Business to the extent, and only to the extent, (a) listed on Schedule 4.5(a)
(collectively, the "ADS Network Assumed Obligations") or (b) provided in the
Tax Cooperation and Indemnification Agreement. On or before the Closing Date,
pursuant to an assumption agreement substantially in the form attached hereto
as Exhibit E (the "Assumption Agreement"), Commercial Services shall assign
to Seller and Seller shall assume all obligations and liabilities, known or
unknown, of Commercial Services other than the obligations of Commercial
Services listed on Schedule 4.5(b) (the obligations retained by Commercial
Services, the "Commercial Services Retained Obligations"; and the ADS Network
Assumed Obligations and the Commercial Services Retained Obligations
collectively, the "Assumed Liabilities"). Neither Seller nor either
Subsidiary shall cause or permit either Subsidiary to assume or incur any
obligation or liability other than the ADS Network Assumed Obligations and
the Commercial Services Retained Obligations. On or before the Closing Date,
Seller shall retain or assume all obligations and liabilities associated with
the Business other than the Assumed Liabilities (collectively, the "SPS
Retained Liabilities").
4.6 HIRED EMPLOYEE SOLICITATION AND EMPLOYMENT. For a period of two
(2) years from and after the Closing Date, neither Seller, AFCC nor any of
their Affiliates (the "AFCC Group") will without Purchaser's prior written
consent solicit or employ the Employees other than Hired Employees (as
hereinafter defined) whose employment with the Subsidiaries or Purchaser is
thereafter terminated by Purchaser or the Subsidiaries or as to which
Purchaser or the Subsidiaries shall consent in writing.
4.7 NON-COMPETITION BY THE AFCC GROUP. For a period of five years
following the Closing Date, the AFCC Group shall refrain from engaging in any
business which competes with the Network Services Business. With respect to
the FleetShare Business, for a period of five years following the Closing
Date, the AFCC Group shall not intentionally target or directly solicit any
customer of the FleetShare Business as of the Closing Date to offer or
provide a private label fleetcard. Notwithstanding the foregoing, the AFCC
Group shall be entitled to acquire as part of a strategic business
acquisition (but not to develop on its own) a business that competes with the
Network Services Business so long as such acquired business is not primarily
engaged in the business of electronic processing of point-of-sale
transactions (e.g., such acquired business derives less than fifty percent of
its total revenues and less than fifty percent of its net income from such
business). In the event the AFCC Group determines to divest itself of any
such acquired business that is engaged in the business of electronic
processing of point-of-sale transaction, a member of the AFCC Group shall
give notice in writing to Purchaser of its intention to sell such business.
Purchaser and its Affiliates shall have a right of first refusal for a period
of 60 days thereafter to purchase such business from the AFCC Group on such
terms and conditions as shall be agreed upon between the parties.
4.8 CONSENTS; ASSIGNABILITY.
(a) Seller shall use commercially reasonable efforts to obtain
consents to the assignment of, or change of control under, the Contracts
listed on Schedule 2.2. Purchaser shall use all commercially reasonable
efforts to assist Seller in that endeavor.
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(b) If a Material Customer raises a colorable objection to the
assignment of its Contract, by operation of law or otherwise, based on the
form or structure of the transfers of the Business contemplated by this
Agreement, and Seller receives notice of such objection within ninety (90)
days from the date this Agreement is executed: (i) if the Material Customer
Contract is terminated, Seller agrees to reimburse Purchaser for any losses
in revenues to be suffered by Purchaser according to the following formula:
thirty percent (30%) of the Material Customer's 1998 revenue will be
multiplied by 11, or (ii) if revenues on a per transaction basis under a
Material Customer's Contract are reduced, Seller shall reimburse Purchaser
for any losses in revenues to be suffered by Purchaser as follows: the amount
of the per unit reduction shall be multiplied times the Material Customer's
transaction volume for the calendar month prior to the reduction, and such
amount shall be multiplied times the number of months remaining in the term
of the Material Customer's Contract. Any such amount shall be payable to
Purchaser by Seller within 10 days of Seller's receipt of notice of any such
objection.
4.9 NO SOLICITATION. From the date hereof through the Closing Date,
no member of the AFCC Group and none of their officers, directors,
stockholders, members, partners, employees and agents not to, directly or
indirectly, solicit or negotiate with, or provide any non-public information
relating to the Business or the Subsidiaries or afford access to the
properties, books and records of Seller or the Subsidiaries to any third
party that may be considering an acquisition of the Business or the
Subsidiaries or a substantial portion thereof, or otherwise cooperate in any
way with or assist or participate in, or facilitate or encourage any attempt
by any Person to do or seek any of the foregoing. The AFCC Group will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations by or on behalf of the AFCC Group with any
parties conducted heretofore with respect to any of the foregoing. The AFCC
Group shall each immediately notify Purchaser (a) after receipt by any member
of the AFCC Group of any offer or indication that any Person is considering
making an offer for any such acquisition, which notice shall include the
terms and conditions of such offer or indication, and (b) upon receipt by any
member of the AFCC Group of any request for non-public information relating
to Business or the Subsidiaries or for access to the properties, books or
records of Seller or the Subsidiaries with respect to the Business or the
Subsidiaries from any Person that may be considering any such acquisition.
4.10 RECORDS RETENTION. The AFCC Group (a) shall preserve and keep
the books, records, files and accounting records of Seller and the
Subsidiaries relating to the Business that are not transferred to or in the
possession of the Subsidiaries at the date of Closing (the "Business
Records") for periods prior to the Closing Date for a period of the longer of
the retention period under applicable Legal Requirements or the retention
period provided under the document retention policy of AFCC or Seller, as the
case may be and (b) shall make such books, records, files and accounting
records available to Purchaser and its Affiliates, and shall permit Purchaser
and its Affiliates to make copies thereof, upon request by Purchaser, which
request will not unreasonably be denied. Seller shall undertake reasonable
measures to preserve in good order the Business Records retained by it.
4.11 CEASE USE OF MARKS. From and after the Closing Date, Seller
shall refrain, and shall cause its Affiliates to refrain, from using the
Marks, the Internet Assets and all other Intellectual Property Assets.
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4.12 CONFIDENTIALITY.
(a) The AFCC Group covenants and agrees that all confidential
information regarding Purchaser or any of its Affiliates provided to AFCC,
Seller or the Subsidiaries or any of their directors, officers, employees,
consultants, agents, advisors, Affiliates or representatives (collectively
"Representatives") by Purchaser, its agents or representatives, whether
furnished before or after the date of this Agreement, shall be kept
confidential by the AFCC Group and its Representatives. Except with the prior
written consent of Purchaser, neither the AFCC Group nor its Representatives
will disclose any such information. The AFCC Group and its Representatives
shall not use this confidential information for any purpose other than to
evaluate Purchaser as a prospective party to the transactions contemplated
under this Agreement. Upon written request by Purchaser, the AFCC Group and
its Representatives, will promptly deliver to Purchaser all documents and
other matters furnished by Purchaser containing confidential information,
together with all copies thereof in the possession of the AFCC Group or any
of its Representatives.
(b) The AFCC Group covenants and agrees that following the Closing,
all Trade Secrets will be the property of the Subsidiaries unless otherwise
required by law. From and after the Closing Date, the AFCC Group: (i) shall
use their reasonable best efforts and exercise utmost diligence to protect
and safeguard all of such Trade Secrets; (ii) shall not, directly or
indirectly, use, sell, license, publish, disclose or otherwise transfer or
make available to others any of such Trade Secrets; (iii) without the prior
written consent of Purchaser, shall not, directly or indirectly, disclose any
of such Trade Secrets; and (iv) it shall not, directly or indirectly, use for
its own benefit or for the benefit of another, any of such Trade Secrets. It
is expressly understood, however, that the obligations in the preceding
sentence shall not apply to any information that was or becomes available to
the public on a non-confidential basis or was or becomes available to the
public on a non-confidential basis from a third party who is not bound to
Seller, either Subsidiary or Purchaser to keep such information confidential.
In addition, AFCC and Seller covenant and agree that after Closing, without
the prior written consent of Purchaser or unless as a result of a Legal
Requirement, the AFCC Group will not disclose the economic terms of this
Agreement.
(c) The parties acknowledge and agree that, at Closing, that certain
Confidentiality Agreement dated January 20, 1999 between Purchaser and AFCC
(the "Confidentiality Agreement") shall terminate and be of no further force
or effect.
4.13 COOPERATION REGARDING FINANCIAL STATEMENTS. In connection with
any filings to be made by Purchaser or its Affiliates under the Securities
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended,
with respect to or as a result of the transactions contemplated by this
Agreement, AFCC and Seller agree that the AFCC Group shall (i) use
commercially reasonable efforts to provide to Purchaser and its Affiliates
the financial and other information and documents pertaining to the Business
(as such may be in the possession or control of the AFCC Group) that
Purchaser and its Affiliates will be required by applicable SEC rules and
regulations to be included in its filings, (ii) use commercially reasonable
efforts to cause the accountants for the AFCC Group to deliver such consents
and reports in and provide access to files and work papers in connection
therewith (as such may be subject to the AFCC Group's control) as Purchaser
and its Affiliates may reasonably request and (iii) generally use
commercially reasonable efforts to cooperate with Purchaser and its
Affiliates in connection therewith. Purchaser acknowledges that prior to
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October 1998 Seller was not owned by AFCC or its Affiliates. As a result, to
the extent that the AFCC Group currently does not possess or does not have
access to any information and documents requested by Purchaser or its
Affiliates under this Section 4.13, the AFCC Group will use commercially
reasonable efforts to assist Purchaser in Purchaser's efforts to cause the
prior owners of Seller to comply with the terms of this Section 4.13. Nothing
in this Section 4.13 is intended to require the AFCC Group to create at the
expense of the AFCC Group documents and/or records which do not exist as of
the Closing. To the extent the AFCC Group does not possess, but has the right
of access to any information or documentation requested by Purchaser or its
Affiliates under this Section 4.13, the AFCC Group will, at Purchaser's
expense, obtain such information and documents on behalf of Purchaser.
4.14 FINANCIAL STATEMENTS AND REPORTS. As promptly as practicable
after each month or fiscal quarter ending between the date hereof and the
Closing Date, but in no event later than 15 days after the end of each month
or and 30 days after the end of each quarter, as the case may be, Seller and
the Subsidiaries shall deliver to Purchaser true and correct copies of the
unaudited pro forma statements of operations of the Business as of and for
the month or the quarter, as the case may be, then ended, prepared in
accordance with GAAP and which shall present fairly, in all material
respects, the results of operations of the Business for and during the period
then ended, subject to normal and recurring year-end audit and quarter-end
adjustments.
As promptly as practicable, Seller and the Subsidiaries will deliver
to Purchaser true and complete copies of such other material financial
statements, reports or analyses as may be prepared or received by Seller or
either Subsidiary between the date hereof and the Closing Date as relates to
the Business.
4.15 TAX ELECTIONS. No new elections with respect to Taxes, or any
changes in current elections with respect to Taxes, affecting the
Subsidiaries after the Closing shall be made without the prior consent of
Purchaser.
4.16 SUPPLEMENTS TO SCHEDULES. Prior to Closing, Seller and the
Subsidiaries shall provide to Purchaser, as of a date that is within two days
prior to the Closing Date, updated Schedules. If any such supplement or
amendment shall include any matter which would result in a failure to satisfy
the condition set forth in Section 8.3(a) and is unacceptable to Purchaser,
Purchaser may deem the condition set forth in Section 8.3(a) not to be
satisfied.
ARTICLE V
EMPLOYEES AND EMPLOYEE MATTERS
5.1 EMPLOYMENT. Effective as of the Closing, Purchaser or the
Subsidiaries (a) shall offer to employ each employee of the Business listed
on Schedule 5.1 as updated upon request and finally at Closing (collectively,
the "Employees") who is actively at work on the Closing (collectively, the
"Active Employees"), and (b) shall offer to employ any Employee who is not
actively at work on the Closing Date due to approved leave of absence,
short-term illness or injury (including those Employees who are absent due to
illness or injury for a period of less than 10 days), military leave or
layoff with recall rights or reemployment rights under the Family and Medical
Leave Act (the
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"FMLA") or any other applicable law (collectively, the "Inactive Employees")
upon the conclusion of their leave or layoff. In addition, any Employee who
is not actively at work on the Closing Date due to a short-term absence
(including due to vacation, holiday, jury duty or bereavement leave) in
accordance with applicable policies of Seller shall be deemed to be an Active
Employee provided such Employee returns to active employment in accordance
with such policies. Active Employees who immediately following the Closing
become employed by Purchaser or either Subsidiary and Inactive Employees, to
the extent that they later become employed by Purchaser or either Subsidiary
prior to January 1, 2000, shall be referred to collectively as "Hired
Employees." Seller makes no representation as to whether any Employee will
accept employment with Purchaser or the Subsidiaries after Closing. For
purposes hereof, an Employee who has terminated employment for any reason
prior to, as of, or in connection with, the Closing (including by reason of
resignation, retirement, short-term or long-term disability, workers'
compensation, personal leaves of absence (other than leaves of absence under
FMLA) as of the Closing) shall be referred to as a "Former Employee."
5.2 HIRED EMPLOYEE BENEFITS. Except as expressly set forth in this
Section 5.2, nothing in this Agreement shall prohibit or limit Purchaser's or
either Subsidiary's right on or after the Closing Date, at any time and from
time to time, to modify, amend or terminate any salary and wages payable or
benefit provided to any Hired Employee, or to terminate the employment of any
Hired Employee at any time for any reason. The employment of the Hired
Employees shall be subject to all of the Purchaser's practices and policies,
including its policy of employment-at-will. Notwithstanding the above, (a) as
of the Closing Date Purchaser or a Subsidiary shall employ the Hired
Employees at the same base salary and base wages in effect as of Closing Date
as known by Purchaser, and (b) until October 15, 1999, Purchaser or the
Subsidiaries shall provide for the payment of severance pay (and not
benefits) to any Hired Employee whose employment is terminated by Purchaser
or a Subsidiary (other than for cause or total and permanent disability) in
amounts determined in accordance with Seller's severance policies. For this
purpose, Schedule 5.2 sets forth the formula for determining the amount of
severance pay due upon termination by Purchaser and defines what constitutes
termination for cause.
5.3 EMPLOYMENT AND EMPLOYEE BENEFITS.
(a) Seller and its Affiliates (other than the Subsidiaries) shall be
liable for all employment claims, benefit claims and obligations in respect
of Hired Employees, Former Employees, and their respective eligible
dependents and beneficiaries, that arise prior to or on the Closing Date.
Purchaser shall be liable for employment claims, benefit claims and
obligations in respect of only Hired Employees and their respective
dependents and beneficiaries that arise after the Closing Date; provided
further that Purchaser shall not be liable for any such employment claims,
benefit claims or obligations that arise or are payable with respect to
Inactive Employees prior to the date such Inactive Employees become employed
by Purchaser, or any such employment claims, benefit claims or obligations
with respect to any Inactive Employees who do not become employed by
Purchaser in accordance with this Section 5.3, all of which employment
claims, benefit claims and obligations shall remain with Seller.
(b) AFCC and Seller, on a joint and several basis, shall be liable
for and indemnify and hold Purchaser, the Subsidiaries and their Affiliates
harmless from and against all claims, losses,
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liabilities, damages, deficiencies, judgments, assessments, fines,
settlements, costs or expenses, including without limitation, attorneys' fees
by Purchaser, either of the Subsidiaries and/or their Affiliates, arising out
of, resulting from, or relating to: (i) the employee benefits and the
employee benefit plans (as the term is defined in Section 3(3) of ERISA)
which have been or are maintained, sponsored or contributed to by AFCC,
Seller, either of the Subsidiaries (with respect to periods prior to Closing
only), or any member of their Controlled Group; (ii) post-employment
benefits, including but not limited to retiree medical, retiree life and
retiree accidental death and disability benefits for current and former
Employees of Seller, either Subsidiary (with respect to periods prior to
Closing only), and each member of Seller's Controlled Group; (iii) any
requirement to provide any Employee of Seller or either of the Subsidiaries,
any spouse or dependent of any such Employee, and each member of Seller's
Controlled Group on or prior to the Closing Date with continuation coverage
under the requirements of Sections 601-609 of ERISA, or Section 4980B of the
Code with respect to any "qualifying event" as defined in Section 4980B(f)(3)
of the Code; and (iv) any other liabilities retained or assumed by Seller
under the terms of this Article V relating to employees or employee benefits.
The conditions to indemnification contained in Sections 11.4 and 11.5 shall
apply to any claim for indemnification under this Section 5.3(b).
5.4 NO EMPLOYMENT AGREEMENTS. Seller represents there are no
written or oral employment agreements with any of the Employees that will
survive Closing.
5.5 EMPLOYEE BENEFIT PLANS COVERAGE. Except as otherwise provided
herein, on and after the Closing Date (or on such other date as may be
determined under the terms of the Interim Services Agreement), Purchaser
shall provide the Hired Employees with the employee benefits and paid
time-off plans generally provided to other employees of Purchaser, subject to
the terms and conditions of Purchaser's plans.
5.6 EMPLOYEE SERVICE CREDIT. Purchaser and the Subsidiaries shall
cause Purchaser's employee benefit plans and any fringe benefit plans in
existence on the Closing Date, including vacation programs and policies, to
the extent such plans may cover Hired Employees on or after the Closing Date,
to recognize for all purposes (except as noted below for the ADS 401(k) and
Retirement Savings Plan ("Purchaser's 401(k) Plan")) the service of each
Hired Employee with Seller and the Subsidiaries and the service of each Hired
Employee with all other prior employers prior to the Closing Date, but only
to the extent such service shall have previously been credited by Seller or
its Affiliates to such Hired Employee under any employee benefit or fringe
benefit plans of Seller or its Affiliates (such periods of time,
collectively, "Prior Service"). Such Prior Service credit shall be calculated
by using the original hire date of such Hired Employee as credited by Seller
or its Affiliates as known by Purchaser. Notwithstanding anything herein to
the contrary, Hired Employees will receive Prior Service credit under
Purchaser's 401(k) Plan solely for purposes of eligibility for participation.
The Closing Date will be used as the original hire date to determine service
credit under Purchaser's 401(k) Plan for purposes of vesting of benefits and
service related contributions.
5.7 PRE-EXISTING CONDITION EXCLUSIONS. If a Hired Employee or
eligible dependent shall have satisfied the pre-existing condition exclusion
period under Seller's or its Affiliates' welfare benefit plans, Purchaser
shall waive application of any additional waiting period or preexisting
condition exclusion under Purchaser's comparable plans; provided, however,
Seller acknowledges that certain benefits provided under Purchaser's
long-term disability plan may be
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reduced in the event the Hired Employee fails to satisfy Purchaser's
long-term disability plan's pre-existing condition exclusion eligibility
requirement.
5.8 MEDICAL AND DENTAL.
(a) MEDICAL AND DENTAL PLANS GENERALLY. Seller and its Affiliates
(other than the Subsidiaries) shall be responsible in accordance with their
applicable welfare benefit plans for all medical and dental claims for
expenses incurred on or prior to the Closing Date by Hired Employees and
their dependents subject to Section 5.8. Purchaser shall be responsible in
accordance with its applicable welfare plans (or under the terms of the
Interim Services Agreement) for all medical and dental claims made by Hired
Employees and their dependents for expenses incurred after the Closing Date.
A medical or dental claim otherwise covered under Seller's or Purchaser's
applicable welfare benefit plan (or under the terms of the Interim Services
Agreement) shall be deemed incurred when the services giving rise to the
claim are rendered (regardless of when such claim is billed by the service
provider or submitted by the Hired Employee).
(b) DEDUCTIBLES. All charges and expenses of such Hired Employees
and their eligible dependents which were applied to the deductible and
out-of-pocket maximums under Seller's or its Affiliates' welfare benefit
plans during the plan year of Seller in which the Closing Date falls shall be
credited toward any deductible and out-of-pocket maximum applicable in the
plan year of Purchaser in which the Closing Date falls; provided, however,
that the foregoing shall be applicable to any Hired Employee and eligible
dependents only to the extent such Hired Employee provides an explanation of
benefits satisfactory to the administrator of such plan reflecting amounts
paid or accrued prior to the Closing Date.
(c) COBRA. Seller shall be responsible for satisfying obligations
under Section 601 ET. SEQ. of ERISA and the rules and regulations promulgated
thereunder and Section 4980B of the Code ("COBRA"), and to provide COBRA
continuation coverage to or with respect to any Employee or Former Employee
of Seller or the Subsidiaries, or to any COBRA "qualified beneficiary" of any
such Employee or Former Employee, with respect to any COBRA "qualifying
event" occurring on or prior to the Closing Date, including any COBRA
"qualifying event" resulting from the Closing. Purchaser or, with respect to
the period after the Closing, the Subsidiaries shall be responsible for
satisfying all requirements of COBRA with respect to any Hired Employee or
COBRA "qualified beneficiary" of a Hired Employee for any COBRA "qualifying
event" which occurs after the Closing Date.
(d) CAFETERIA PLAN. Effective as of the Closing Date (but with any
transfer of funds and/or accounts to occur on such other date as may be
determined under the terms of the Interim Services Agreement), Purchaser and
the Subsidiaries shall allow Hired Employees to participate in Purchaser's so
called "cafeteria" plans by (i) continuing to apply for the then current
fiscal year all elections (including benefit elections and salary reduction
elections) made by Hired Employees under Seller's or its Affiliates' flexible
spending account plan ("Seller's FSA") and Seller's or its Affiliates'
dependent care assistance plan ("Seller's DCA") for the then current fiscal
year, and (ii) giving credit for all unused amounts credited for the then
current fiscal year for each Hired Employee as of the Closing Date under
Seller's FSA and Seller's DCA; provided, however, that Purchaser's obligation
to allow Hired Employees to participate is contingent upon (i) receipt from
Seller, Seller's FSA or
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Seller's DCA, in cash, of amounts equal to the unused credit amounts in each
Hired Employee's accounts in Seller's FSA and Seller's DCA, without any
netting of credit and debit amounts in different individual Seller FSA and
Seller DCA accounts, and (ii) with respect to any Hired Employee, such Hired
Employee has provided a new salary reduction election to Purchaser and such
election does not revoke or adversely change his or her salary reduction
election. Seller or its Affiliates shall retain all assets and liabilities of
Seller's DCA and Seller's FSA accounts for the Hired Employees for all claims
for benefits incurred on or before the Closing Date.
5.9 ACCRUED VACATION DAYS. Purchaser and the Subsidiaries shall,
through the end of the calendar year that includes the Closing Date, honor
all unused vacation days accrued by Hired Employees as of the Closing Date
under the respective programs and policies of Seller and its Subsidiaries
which were applicable to Hired Employees immediately prior to the Closing
Date. Effective as of January 1 of the year after becoming a Hired Employee,
each Hired Employee will be subject to the terms and conditions of
Purchaser's vacation programs and policies.
5.10 401(k) PLANS. Each Hired Employee eligible to participate in
any 401(k) plan for the benefit of the employees of Seller or the
Subsidiaries as of the Closing (collectively, "Seller's 401(k) Plans") shall
become eligible to participate in the Purchaser's 401(k) Plan upon
fulfillment of the minimum age and service conditions of Purchaser's 401(k)
Plans. Each Hired Employee shall receive credit for all Prior Service with
Seller only for purposes of eligibility (but not for vesting or service
related contributions) under Purchaser's 401(k) Plan. Effective as of the
Closing Date, (a) each Hired Employee shall cease active participation in
Seller's 401(k) Plans, (b) to the extent required by the terms of Seller's
401(k) Plans, Seller shall make any contributions to Seller's 401(k) Plans
due in respect of Hired Employees relating to periods on or prior to the
Closing Date in accordance with the terms of Seller's 401(k) Plans, and (c)
Seller shall cause all Hired Employees who are participants in such plan to
become 100 percent vested in their account balances under Seller's 401(k)
Plans as of the Closing Date. Neither Purchaser nor the Subsidiaries will
assume, or receive transfers of, benefits or liabilities accrued with respect
to Hired Employees under Seller's 401(k) Plans. To the extent not
inconsistent with the qualification requirements of the Code, Seller agrees
that the account balances of all Hired Employees under Seller's 401(k) Plans
shall be distributed or available for rollover as soon as administratively
feasible after the Closing Date. "Eligible rollover distributions," as
defined in Section 402(c)(4) of the Code, of Hired Employees who decide to
roll over such distributions into Purchaser's 401(k) Plan will be accepted by
Purchaser's 401(k) Plan provided Purchaser is satisfied Seller's 401(k) Plans
are tax-qualified plan under the Code.
5.11 EMPLOYEE WITHHOLDING AND REPORTING. Purchaser and Seller agree
that they will follow the "standard procedure" set forth in Section 4 of Rev.
Proc. 96-60 promulgated by the Internal Revenue Service with respect to
reporting of wages and other compensation. Purchaser agrees to furnish
Seller's Forms W-2 to Hired Employees to the extent such Forms W-2 are timely
forwarded by Seller to Purchaser so that any Legal Requirement for such
distribution is satisfied.
5.12 WITHDRAWAL FROM PLANS . Prior to the Closing Date, Seller shall
cause the Subsidiaries to withdraw from any employee benefit plans as defined
in Section 3(3) of ERISA or arrangements maintained by Seller or any of its
Affiliates in which any of the Subsidiaries is a participating employer as of
the Closing Date, in the manner, if any, that such plan or arrangement
specifies for withdrawal
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of a participating employer. Seller shall be liable for any liability, cost
or expense which arise as a result of Seller or the Subsidiaries' withdrawal
from such plans.
5.13 EMPLOYMENT - NO THIRD PARTY RIGHTS. Nothing in this Agreement,
express or implied, shall confer upon any employee of Seller, Purchaser, the
Subsidiaries, or any of their Affiliates or any legal representatives thereof
or any collective bargaining agent any rights or remedies, including any
right to employment, or continued employment for any specific period. Nothing
in this Agreement, express or implied, shall be deemed to confer upon any
Person (or any beneficiary) any rights under or with respect to any plan,
program, or arrangement described in or contemplated by this Agreement, and
each Person (or any beneficiary) shall be entitled to look only to the
express terms of any such plan, program, or agreement. Nothing in this
Agreement, express or implied, shall create a third-party beneficiary
relationship or otherwise confer any benefit, entitlement, or right upon any
Person other than the parties to this Agreement and their respective
corporate Affiliates.
5.14 SELLER ASSISTANCE. As soon as practicable after execution of
this Agreement, Seller shall provide Purchaser with a download file from
Seller's payroll records of the data listed on Schedule 5.14.
5.15 WARN ACT. Seller shall be responsible for providing notices
for any "plant closing" or "mass layoff," as defined in the Worker Adjustment
and Retraining Notification Act (the "WARN Act"), 29 U.S.C. Section 2101 ET
SEQ., up to and including the Closing Date. After the Closing Date, Purchaser
or the Subsidiaries shall be responsible for providing notice for any "plant
closing" or "mass layoff" to Hired Employees in accordance with the WARN Act.
5.16 FLEETSHARE EMPLOYEES. Schedule 5.16 lists each employee of the
FleetShare Business as of the date of this Agreement (the "FleetShare
Employees"). Such Schedule shall be updated as of the date of Closing and as
of the date of the termination of the services rendered by Seller under the
terms of the Interim Services Agreement relating to the FleetShare
Receivables (such date, the "FleetShare Services Termination Date"). Pending
the FleetShare Services Termination Date, Seller shall use its best efforts
to retain, shall not grant any compensation increase to, and shall not enter
into any contract or arrangement for the benefit of any FleetShare Employee
other than in the ordinary course of business consistent with Seller's past
practices. Effective as of FleetShare Services Termination Date, Purchaser or
the Subsidiaries shall offer to employ each FleetShare Employee who is
actively at work on the FleetShare Services Termination Date on the terms
specified in this Article V. For purposes of applying the provisions of this
Agreement to the FleetShare Employees, (a) the FleetShare Employees shall be
deemed to be Employees, (b) FleetShare Employees who become employed by
Purchaser or either Subsidiary shall become Hired Employees, (c) any former
employees of the FleetShare Business shall be deemed to be Former Employees
and (d) all references to provisions becoming effective as of the Closing
shall become effective with respect to any FleetShare Employee as of the
FleetShare Services Termination Date. As soon as practicable after the
Subsidiaries have given notice to Seller of the termination of the Services
under the Interim Services Agreement that relate to the FleetShare Business,
Seller shall provide Purchaser with a download file from Seller's payroll
records of the data listed on Schedule 5.14 with respect to all FleetShare
Employees.
ARTICLE VI
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COVENANTS OF PURCHASER
Purchaser covenants and agrees with Seller as follows:
6.1 REGULATORY CONDITIONS. To the extent required by any regulatory
authority as a condition to approval of the purchase and sale of the Shares
or the other transactions contemplated hereby, Purchaser shall take such
reasonable action as may be required in order to comply with any such
requirement.
6.2 CERTAIN UNDERSTANDINGS. Purchaser acknowledges that, except as
expressly set forth in this Agreement or in any other document or certificate
to be delivered by Seller or either Subsidiary or any other party in
connection herewith (collectively, the "Transaction Documents"), (a) neither
Seller nor any other Person has made any representation or warranty, express
or implied, as to the accuracy or completeness of any information regarding
the Subsidiaries, including but not limited to projections, estimates,
budgets, forecasts and other information relating to the Subsidiaries, (b)
neither Seller nor any other Person will be subject to any liability to
Purchaser or any other Person resulting from the distribution to Purchaser,
or the use of, any such information, and (c) SELLER EXPRESSLY DISCLAIMS ANY
WARRANTIES OF MERCHANTABILITY AND WARRANTIES OF SUITABILITY OR FITNESS FOR A
PARTICULAR PURPOSE WITH RESPECT TO THE TANGIBLE ASSETS OF THE BUSINESS.
Purchaser acknowledges that, should the Closing occur, Purchaser will acquire
the Subsidiaries' businesses without any representation or warranty of any
kind, express or implied, except for such representations and warranties as
are expressly set forth in this Agreement or in any Transaction Document.
6.3 COMMONLY-AVAILABLE THIRD PARTY SOFTWARE PROGRAMS. After
Closing, to the extent commonly-available third party Software Programs are
installed on computer equipment owned by either of the Subsidiaries which, by
the terms of the license related thereto, cannot be transferred to the
Subsidiaries, or only may be transferred with additional payments, Purchaser
will either license such software programs at Purchaser's expense or delete
such software programs from such computer equipment.
6.4 CONFIDENTIALITY. After the Closing, Purchaser covenants and
agrees that all confidential information regarding Seller or any of its
Affiliates (other than the Subsidiaries) provided to Purchaser or any of its
Representatives by Seller or its Representatives, whether furnished before or
after the date of this Agreement, which does not relate to the Business shall
be kept confidential by Purchaser and its Representatives. Except with the
prior written consent of Seller, neither Purchaser nor its Representatives
will disclose any such information. It is expressly understood, however, that
the obligations in the preceding sentence shall not apply to any information
that was or becomes available to the public on a non-confidential basis or
was or becomes available to the public on a non-confidential basis from a
third party who is not bound to Seller to keep such information confidential.
Upon written request by Seller, Purchaser and its Representatives will
promptly deliver to Seller all documents and other matters furnished by
Seller containing confidential information which does not relate to the
Business together with all copies thereof in the possession of Purchaser or
its Representatives.
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ARTICLE VII
MUTUAL COVENANTS
7.1 CONSUMMATION OF THE TRANSACTIONS. Subject to the terms and
conditions of this Agreement, each party hereto shall use its best efforts
consistent with applicable Legal Requirements to cause the Closing to occur.
AFCC, Seller and the Subsidiaries and each of their respective directors,
officers and representatives shall file and agree to cooperate with Purchaser
in filing, and Purchaser and its directors, officers and representatives
shall, file and agree to cooperate with AFCC, Seller and the Subsidiaries in
filing, any necessary applications, reports or other documents with, giving
any notices to, and seeking any consents from, any court, administrative
agency or commission or other Governmental Entities and all third parties as
may be required by AFCC, Seller or either Subsidiary, on the one hand, and
Purchaser, on the other hand, in connection with the consummation of the
transactions contemplated by this Agreement and the performance by the
Subsidiaries of the Business after such consummation, and in seeking
necessary consultation with and prompt favorable action by any such
Governmental Entity or third party.
7.2 PUBLICITY. The parties hereto agree that, notwithstanding the
terms of the Confidentiality Agreement, from the date of the execution and
delivery of this Agreement through the Closing, no public release or
announcement concerning the transactions contemplated hereby shall be issued
by any party hereto without the prior consent of (a) Purchaser in the case of
a release or an announcement by AFCC, Seller, the Subsidiaries or any of
their Affiliates, or (b) Seller in the case of a release or an announcement
by Purchaser (in each case which consent shall not be unreasonably withheld),
except as such release or announcement may be required by law or the rules or
regulations of any United States or foreign securities exchange, in which
case the party required to make the release or announcement shall allow the
other party reasonable time to comment on such release or announcement in
advance of such issuance. After the date hereof and prior to Closing, the
parties hereto shall not make any comments or statements with respect to the
transactions contemplated hereby to any third party (including, without
limitation, members of the news media, securities analysts and employees of
AFCC, Seller, the Subsidiaries, or any of their Affiliates, or Purchaser or
any of its subsidiaries) without the prior consent of Purchaser, on the one
hand, or Seller, on the other hand, as the case may be; provided, however,
that the provisions of this Section 7.2 shall not apply to communications by
Seller or Purchaser to any Governmental Entity in connection with obtaining
any consents or approvals required for the consummation of the transactions
contemplated hereby or to any other communications pursuant to Section 7.5.
7.3 ANTITRUST NOTIFICATION. AFCC and Seller shall on the one hand,
and Purchaser, on the other, shall, as promptly as practicable, file with the
United States Federal Trade Commission (the "FTC") and the United States
Department of Justice (the "DOJ") the notification and report form, if any,
required for the transactions contemplated hereby and any supplemental
information requested in connection therewith pursuant to the HSR Act. Any
such notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. AFCC, Seller and
the Subsidiaries shall furnish to Purchaser, and Purchaser shall furnish to
Seller, such necessary information and reasonable assistance as may be
requested in connection with the preparation of any filing or submission
which is necessary under the HSR Act. Each of AFCC and Seller shall keep
Purchaser reasonably informed, and Purchaser shall keep Seller reasonably
informed,
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of the status of any communications with, and any inquiries or requests for
additional information from, the FTC and the DOJ and shall comply promptly
with any such inquiry or request.
7.4 CONFIDENTIALITY PRIOR TO CLOSING. Prior to Closing, the
Confidential Agreement shall continue to apply, except to the extent that any
of the provisions of the Confidentiality Agreement are inconsistent with this
Agreement in which case the terms of this Agreement shall govern and
supersede such provisions. In addition, the parties hereto agree not to
disclose (without the consent of the other parties under the terms of Section
7.2) the nature and terms of this Agreement to a third party, unless such
disclosure is required by law.
7.5 EMPLOYEE, CUSTOMER, VENDOR AND SUPPLIER NOTIFICATION. From the
date hereof through the Closing Date, Seller and the Subsidiaries shall
cooperate with Purchaser to jointly notify employees, customers, vendors and
suppliers of the Business regarding the pending transactions contemplated
under this Agreement in a mutually agreed upon manner, and Seller and the
Subsidiaries shall use commercially reasonable efforts to cooperate in
Purchaser's efforts to employ the Employees and to negotiate retention
agreements with key employees.
7.6 FURTHER ASSURANCES. From time to time, as and when reasonably
requested by another party hereto, a party hereto shall execute and deliver,
or cause to be executed and delivered, all such documents and instruments and
shall take, or cause to be taken, all such further acts or other actions as
such other party may reasonably deem necessary or desirable to consummate the
transactions contemplated by this Agreement.
7.7 CURE FOR BREACH BETWEEN PURCHASER AND SELLER OF CERTAIN
REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) If any party discovers that, pursuant to Sections 4.3, 4.4 or
4.5, additional assets of the Business should have been transferred to either
Subsidiary or additional liabilities should have been assumed by either
Subsidiary or by Seller, as the case may be, the party discovering such
omission promptly shall notify the other affected parties. A party
purportedly in breach of such covenants by its failure to transfer any such
asset or assume any such liability relating to such breach shall have an
opportunity, in the absence of a Third Party Claim relating to such breach,
to cure such omission as provided in this Section 7.7.
(b) With regard to any asset which was not transferred to either
Subsidiary pursuant to Sections 4.3 or 4.4, the absence of which results in
any interruption or impairment to the Business that results or could
reasonably be expected to result in a Material Adverse Effect (a "Critical
Asset"), Seller shall as promptly as possible, and in no event more than five
days after receipt of the written notice provided for herein, transfer the
Critical Asset to the appropriate Subsidiary. If Seller is unable or
unwilling to transfer the Critical Asset to the appropriate Subsidiary within
such period, Seller shall, at its own cost and expense, use its utmost best
efforts to provide or otherwise arrange for the provision of appropriate
replacement assets or services in order to completely remediate the
interruption or other impairment resulting from the absence of the Critical
Asset.
(c) With regard to any asset which was not transferred to either
Subsidiary pursuant to Sections 4.3 or 4.4, and which is not a Critical
Asset, Seller shall as promptly as possible,
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and in no event more than 30 days after receipt of the written notice
provided for herein, transfer such asset to the appropriate Subsidiary. If
Seller is unable or unwilling to transfer such asset to the appropriate
Subsidiary within such period, Seller shall, at its own cost and expense, use
its best efforts to provide or otherwise arrange for the provision of
appropriate replacement assets or services to remediate the interruption or
other impairment resulting from the absence of the asset.
(d) If any party discovers that an asset or right, title and
interest that should have been listed on Schedule 2.36, was not so listed,
the party discovering such omission promptly shall notify the other affected
parties. Seller shall, at its own cost and expense, use commercially
reasonable efforts to provide or otherwise arrange for the provision of
appropriate replacement assets or services to remediate the interruption or
other impairment resulting from the absence of the asset or right, title and
interest. Purchaser shall take all commercial reasonable efforts to mitigate
any damage or loss resulting from such omission.
(e) With regard to any obligation or liability which was not assumed
by either Subsidiary or by Seller, as the case may be, pursuant to Section
4.5, the party notified of such omission shall as promptly as possible, and
in no event more than five days after receipt of the written notice provided
for herein, cause the obligation or liability to be assumed in accordance
with Section 4.5. The party assuming such obligation or liability shall, at
its own cost and expense, use its best efforts to satisfy or assume such
obligation or liability directly without the other party being obligated to
satisfy such obligation or liability.
(f) Seller shall promptly upon demand reimburse the affected
Subsidiary for all reasonable costs and expenses incurred by such Subsidiary
in connection with any efforts to remediate the interruption or other
impairment resulting from the absence of any asset from Schedule 4.3,
Schedule 4.4 or Schedule 2.36 or from the failure to assume any SPS Retained
Liability, and Seller shall indemnify for, and hold the affected Subsidiary
harmless from, any Claims arising out of such circumstances.
(g) If any purported failure to transfer any asset or to assume
liability pursuant to Sections 4.3, 4.4 or 4.5 is timely cured in the manner
provided in this Section 7.7, in the absence of a third party Claim, there
shall be deemed to have been no breach of the covenants contained in Section
4.3, 4.4 or 4.5 or of the representations and warranties affected by such
covenants (consisting of those representations and warranties contained in
Sections 2.16, 2.20, and 2.36 that represent that the assets transferred are
all the assets used primarily to conduct the Business or, in the case of
Section 2.36, all the assets relating to the Business not being transferred)
and that, as between Seller and Purchaser, in the absence of a third party
Claim, there shall be no additional remedy for such purported breach. If
Third Party Claim shall arise out any matter described in this Section 7.7,
the parties acknowledge that Purchaser and the Subsidiaries shall have
indemnification rights for any such breach in accordance with Article XI.
7.8 REVENUES AND EXPENSES. The parties intend and agree that (a) all
revenue of the Business prior to Closing shall belong to Seller, (b) all
revenue of the Business on or after the Closing shall belong to the
Subsidiaries, (c) all expenses of the Business that occurred prior to the
Closing (other than Taxes) shall be the liability of and shall be timely paid
by Seller, including all expenses of the Subsidiaries that occurred prior to
the Closing, (d) all expenses of the Business that
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occurred on or after the Closing (other than Taxes) shall be the liability of
and shall be timely paid by the Subsidiaries unless any such expense shall
not constitute an Assumed Liability and (e) Seller shall be liable for and
shall timely pay all SPS Retained Liabilities. The allocation of Taxes
between Seller and Purchaser shall be governed by the provisions of the Tax
Cooperation and Indemnification Agreement. In the event either party shall
receive revenues of the other, such revenues shall promptly be paid to the
other party. In the event one party shall receive invoices for expenses or
demands relating to obligations of the other party, such party shall promptly
forward such invoices or demands to the other party.
7.9 POST-CLOSING REIMBURSEMENT FOR YEAR 2000 COSTS. The parties
desire to expedite implementation of the Plan and to set forth certain
agreements regarding allocation of certain costs and liabilities between them
about Year 2000 Date Handling.
(a) Prior to Closing, Seller covenants to continue to implement the
Plan in accordance with the Plan's requirements and time line. After Closing,
as part of implementation of the Plan, Seller acknowledges Purchaser intends
to conduct additional testing of the systems, applications and equipment of
the Business and its interfaces with the customers, vendors and third party
trading partners of the Business (the "Post-Closing Testing"). Seller agrees
to reimburse Purchaser or the Subsidiaries for all Post-Closing Testing Costs
to the extent conducted by Purchaser on or before December 31, 1999 up to
$200,000; provided, however, that such reimbursement obligation shall be
reduced by any unexpended amount as of the Closing Date of the $550,000
currently budgeted under the Plan for 1999. For purposes of this Agreement,
"Post-Closing Testing Costs" shall mean all commercially reasonable project
costs incurred by Purchaser or the Subsidiaries to conduct the Post-Closing
Testing including, but not limited to, all independent consultant and
employee time and related expenses and all Y2K Project Support under the
Interim Services Agreement. In the event the Closing is delayed beyond July
1, 1999, Seller agrees to consult with Purchaser to identify and use
reasonable commercial efforts to carry out the testing that Purchaser
intended to implement as the Post-Closing Testing.
(b) If the Post-Closing Testing reveals that any additional
remediation, re-testing and implementation of remediation plans is necessary
for proper Date Handling with respect to the Proprietary Software Programs of
Business (the "Post-Closing Remediation"), Purchaser shall be entitled to
undertake such Post-Closing Remediation and Seller shall to reimburse
Purchaser and the Subsidiaries for all Project Costs relating to such
Post-Closing Remediation incurred on or before December 31, 1999. For
purposes of this Agreement, "Project Costs" shall mean all commercially
reasonable project costs to renovate and remediate the Proprietary Software
Products of the Business for proper Date Handling, including all of those
relating to the renovation, repair, replacement, re-testing and
implementation costs, such as independent consultant and employee time and
related expenses and all Y2K Project Support costs incurred under the Interim
Services Agreement.
(c) Purchaser shall report to Seller promptly (i) when, in
aggregate, any Post-Closing Remediation Costs exceed $100,000 and/or (ii)
when the Post-Closing Testing has been completed. Such reports shall provide
in reasonable detail the matters requiring Post-Closing Remediation, the
results of the testing and Purchaser's reasonable expectation, based on
current information, of additional Post-Closing Remediation Costs.
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(d) Purchaser shall notify Seller promptly in the event Purchaser
reasonably expects any Post-Closing Remediation project to exceed $50,000 or
when a project which was not expected to exceed such amount is revised to be
reasonably expected to exceed such amount (a "Critical Remediation"). Within
48 hours of such notice Seller agrees to meet with Purchaser for the purpose
of discussing the problem identified, the anticipated means of remediating
such problem and an estimate of the Project Costs. Within 24 hours after such
meeting, Seller shall notify Purchaser whether Seller consents to the project
relating to such Critical Remediation, which consent Seller agrees may not be
unreasonably withheld. In the event Seller is unwilling or unable to meet
such schedule, Seller waives any rights to object to the Critical
Remediation. Purchaser shall be entitled to pursue any Critical Remediation
notwithstanding the fact that Seller withholds its consent. However, any
disputed matters relating to the Critical Remediation shall be resolved in
accordance with Section 7.9(f).
(e) Each month Purchaser shall provide Seller with a written
invoice, specifying in detail the Post-Closing Testing Costs and Project
Costs during the preceding month and the total cost therefor. Within 30 days
following the date of receipt of each invoice, Seller shall pay to Purchaser
any undisputed invoiced amounts.
(f) Any specific remediation efforts and costs approved in advance
by Seller, including those under Section 7.9(d), or those matters as to which
Seller has waived its rights, may not be disputed. If Seller disputes any
other matters, which disputes shall be limited to the commercial
reasonableness of any Post-Closing Remediation, the scope of any Post-Closing
Remediation or the amount of any Post-Closing Testing Costs or Project Costs
(the matters in dispute, the "Disputed Matters"), Seller shall deliver to
Purchaser, within 10 days from the date Seller receives notice of the matter
which constitutes the Disputed Matter, a written statement identifying the
Disputed Matters and providing a detailed explanation of its objections. If
the parties cannot resolve all disputes under this Section 7.9 in a mutually
satisfactory manner on or before January 15, 2000, the disputes shall be
finally adjudicated by an independent consultant whose business involved Date
Handling and who is mutually acceptable to the parties (the "Independent
Consultant"). The Independent Consultant will review the Disputed Matters for
commercial reasonableness, and shall make such other investigations as the
Independent Consultant may deem necessary in order to ascertain the whether
such matters were commercially reasonable. Pending the Independent
Consultant's final determination, Seller shall pay the amounts not in dispute
to Purchaser, subject to any adjustment as required to give effect to the
Independent Consultant's final determination. Seller shall pay to Purchaser
any amounts determined by the Independent Consultant to be owed with respect
to the Disputed Matters. If the Disputed Matters are determined to be
substantially correct, Seller shall pay Purchaser all costs incurred in
engaging the Independent Consultant. If the Project Costs are not
substantially correct, Purchaser shall pay to Seller all costs incurred in
engaging the Independent Consultant. For purposes of this Agreement,
"substantially correct" shall mean that the amount of the costs invoiced by
Purchaser relating to the Disputed Matters varied no more than five percent
from the Independent Consultant's final determination of such costs.
(g) The parties do not intend that the remedies granted to Purchaser
and the Subsidiaries in this Section 7.9 to preclude any other remedies that
Purchaser or the Subsidiaries may have with respect to improper Date Handling
according to the representations and warranties contained in
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Section 2.26, but Purchaser and the Subsidiaries agree that Seller shall not
be liable twice for the same damages suffered by Purchaser or the
Subsidiaries.
ARTICLE VIII
CONDITIONS TO CLOSING
8.1 EACH PARTY'S OBLIGATIONS. The respective obligations of each
party hereto to effect the transactions contemplated hereby is subject to the
satisfaction or waiver as of the Closing of the following conditions:
(a) No statute, rule, regulation, executive order, decree, temporary
restraining order, preliminary or permanent injunction or other order shall
have been enacted, entered, promulgated, enforced or issued by any
Governmental Entity and no other legal restraint or prohibition preventing
consummation of any of the transactions contemplated by this Agreement shall
be in effect;
(b) The waiting period under the HSR Act, if applicable to the
transactions contemplated hereunder, shall have expired or been terminated;
and
(c) In all material respects, the parties hereto shall have filed
all applications, reports or other documents, given all notices, met all
requirements, received all consents and approvals, satisfied any and all
conditions of approval and all applicable waiting periods shall have expired
in connection with the consummation of the transactions contemplated hereby.
(d) IBM CONTRACT. Seller shall have extended the term of the IBM
Contract (as defined in the Interim Services Agreement) to June 30, 2000 and
shall have obtained IBM's consent for the parties to enter into the Master
Agreement, and all other conditions precedent to such extension of such term
and to the entering into the Master Agreement shall have been satisfied.
8.2 SELLER'S AND THE SUBSIDIARIES' OBLIGATIONS. The obligations of
Seller and the Subsidiaries to effect the transactions contemplated hereby is
subject to the satisfaction (or waiver by Seller) as of the Closing of the
following additional conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES, COMPLIANCE WITH
COVENANTS. The representations and warranties of Purchaser made in this
Agreement qualified as to materiality shall be true and correct, and those
not so qualified shall be true and correct in all material respects, as of
the date hereof and as of the time of the Closing as though made as of such
time, except to the extent such representations and warranties expressly
relate to an earlier date (in which case such representations and warranties
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, on and as of
such earlier date). Purchaser shall have duly performed, complied with and
satisfied in all material respects all covenants, agreements and conditions
required by this Agreement to be performed, complied with or satisfied by it
by the time of the Closing. Purchaser shall have delivered to Seller a
certificate dated the Closing Date and signed by an officer of Purchaser
confirming the foregoing.
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(b) ABSENCE OF LITIGATION, INJUNCTION. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or Governmental Entity requesting an
order, judgment or decree (except those in which Seller is a plaintiff
directly or derivatively) which, in the reasonable judgment of Seller, would,
if issued, be reasonably likely to restrain or prohibit the consummation of
the transactions contemplated hereby or require rescission of this Agreement
or such transactions or result in material damages to Seller, and there shall
not be in effect any injunction, writ, preliminary restraining order or any
order of any nature issued by a court or Governmental Entity of competent
jurisdiction directing that the transactions contemplated hereby not be
consummated as so provided or any statute, rule or regulation enacted or
promulgated that makes consummation of the transactions contemplated hereby
illegal.
(c) SPECIFIED ITEMS. Purchaser shall have delivered the items to be
delivered to Seller pursuant to Section 1.6.
8.3 PURCHASER'S OBLIGATIONS. The obligations of Purchaser to effect
the transactions contemplated hereby is subject to the satisfaction (or
waiver by Purchaser) as of the Closing of the following additional conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES, COMPLIANCE WITH
COVENANTS. The representations and warranties of Seller and the Subsidiaries
made in this Agreement qualified as to materiality shall be true and correct,
and those not so qualified shall be true and correct in all material
respects, as of the date hereof and as of the time of the Closing as though
made as of such time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties qualified as to materiality shall be true and
correct, and those not so qualified shall be true and correct in all material
respects, on and as of such earlier date), and except that the
representations and warranties contained in Section 2.36 shall be true and
correct in all respects or Seller shall have undertaken in writing to cure
any known breaches that are the subject matter of Section 7.7 in accordance
with Section 7.7. Except to the extent such covenants relate to the period
after Closing, the covenants of the AFCC Group made in this Agreement
qualified as to materiality shall have been duly performed, complied with and
satisfied, and those not so qualified shall have been duly performed,
complied with and satisfied in all material respects, as of the time of the
Closing, except that the covenants contained in Sections 4.3, 4.4, and 4.5
shall have been duly performed, complied with and be satisfied in all
respects or Seller shall have undertaken in writing to cure any known
breaches that are the subject matter of Section 7.7 in accordance with
Section 7.7. The AFCC Group shall have duly performed, complied with and
satisfied in all material respects all other agreements and conditions
required by this Agreement to be performed, complied with or satisfied by the
AFCC Group by the time of the Closing. The AFCC Group shall have delivered to
Purchaser a certificate dated the Closing Date and signed by an officer of
AFCC, Seller and the Subsidiaries confirming the foregoing.
(b) ABSENCE OF LITIGATION, INJUNCTIONS. There shall not be
threatened, instituted or pending any suit, action, investigation, inquiry or
other proceeding by or before any court or governmental or other regulatory
or administrative agency or commission requesting an order, judgment or
decree (except those in which Purchaser is a plaintiff directly or
derivatively) which, in the reasonable judgment of Purchaser would, if
issued, be reasonably likely to restrain or prohibit the
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consummation of the transactions contemplated hereby or require rescission of
this Agreement or such transactions or result in material damages to
Purchaser, if the transactions contemplated hereby are consummated, and there
shall not be in effect any injunction, writ, preliminary restraining order or
any order of any nature issued by a court or governmental agency of competent
jurisdiction directing that the transactions contemplated hereby not be
consummated as so provided or any statute, rule or regulation enacted or
promulgated that makes consummation of the transactions contemplated hereby
illegal.
(c) TERMINATION OF INTRACOMPANY AGREEMENTS. Each Subsidiary shall
have terminated each contract, agreement or understanding between any of
them, on one hand, and any member of the AFCC Group (other than the
Subsidiaries), on the other hand, relating to either Subsidiary or the
Business; provided, however, that nothing in this Section 8.3(c) is intended
to affect the Transaction Documents.
(d) INTERCOMPANY DEBTS. At or immediately prior to the Closing, each
Subsidiary shall have discharged in full any and all amounts due from such
Subsidiary to any member of the AFCC Group and each member of the AFCC Group
(other than the Subsidiaries) shall have discharged in full any and all
amounts due to each Subsidiary, in each case that are outstanding at the
Closing Date.
(e) SPECIFIED ITEMS. AFCC, Seller and the Subsidiaries shall have
delivered the items to be delivered to Purchaser pursuant to Section 1.5.
(f) CONSENT TO SUBLEASE. Seller shall have taken all actions
necessary to receive the consent of NOVUS Credit Services, Inc. as the
landlord under the Riverwoods Lease to the Sublease.
8.4 FRUSTRATION OF CLOSING CONDITIONS. No party to this Agreement
may rely on the failure of any condition set forth in this Article VIII if
such failure was caused by such party's failure to act in good faith or to
use its best efforts to cause the Closing to occur.
ARTICLE IX.
TAX MATTERS
9.1 TAX MATTERS. Certain tax matters which are the subject matter
of the Tax Cooperation and Indemnification Agreement shall be governed by the
Tax Cooperation and Indemnification Agreement to be executed by the parties
thereto.
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ARTICLE X.
TERMINATION
10.1 TERMINATION EVENTS. Anything contained herein to the contrary
notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the Seller and Purchaser;
(b) by either Seller or Purchaser if the Closing does not occur on
or prior to October 15, 1999; provided, however, that the right to terminate
this Agreement pursuant to this Section 10.1(b) shall not be available to any
party hereto, if it has failed to perform any of its obligations under this
Agreement, which failure has resulted in a failure of any of the conditions
of Article VIII; or
(c) by either Seller or Purchaser if any Governmental Entity shall
have issued a judgment, order or decree or taken any other action permanently
enjoining, restraining or otherwise prohibiting any of the transactions
contemplated by this Agreement, and such judgment, order or decree or other
action shall have become final and nonappealable.
10.2 INFORMATION AND CONFIDENTIALITY. In the event of any
termination pursuant to this Article X, written notice thereof setting forth
the reasons therefor shall promptly be given to the other parties and the
transactions contemplated by this Agreement shall be terminated, without
further action by any party. If the transactions contemplated by this
Agreement are terminated as provided herein: (a) Purchaser shall return all
documents and other materials received from Seller and the Subsidiaries
relating to the transactions contemplated hereby, whether so obtained before
or after the execution hereof, to Seller; and (b) all confidential
information received by Purchaser with respect to the business of Seller and
the Subsidiaries shall be treated in accordance with the Confidentiality
Agreement, which shall remain in full force and effect notwithstanding the
termination of this Agreement.
10.3 REMEDIES FOR TERMINATION. In the event that this Agreement is
terminated due to the intentional breach of a representation, warranty,
covenant or condition by the breaching party, then the non-breaching party
shall be entitled to pursue, exercise and enforce any and all remedies,
rights, powers and privileges available at law or in equity including the
recovery of its actual expenses incurred in the negotiation and execution of
this Agreement.
10.4 ABANDONMENT. If this Agreement is terminated and the
transactions contemplated hereby are abandoned as described in this Article
X, this Agreement shall become void and of no further force or effect, except
for the provisions of (a) Section 7.4 relating to confidentiality, (b)
Section 7.2 relating to publicity, (c) this Article X and (d) Section 13.11
relating to certain expenses. In addition, upon termination of this
Agreement, Network Services shall promptly change its name to a name that
does not include the initials "ADS." Nothing in this Article X shall be
deemed to release any party from any liability for any breach by such party
of the terms and provisions of this
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Agreement or to impair the right of any party to compel specific performance
by any other party of its obligations under this Agreement.
ARTICLE XI
INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties in this Agreement and in any Schedule or
certificate delivered hereto shall survive the Closing for purposes of the
other party asserting claims for breaches of such representations and
warranties for eighteen months after Closing (except for (a) those
representations and warranties contained in Sections 2.1, 2.4, 2.8, 2.9 and
3.2, which shall survive the Closing for any applicable statute of
limitations periods and any extensions thereof, (b) the representations and
warranties contained in Section 2.36, which shall survive the Closing through
June 30, 2000, and (c) the representations and warranties contained in
Section 2.26, which shall survive the Closing through December 31, 1999). The
right of a party to indemnification, payment of damages or other remedy based
on a breach of the representations or warranties contained herein will not be
affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) by such party at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of, or compliance with, any
such representation or warranty. The waiver of any condition based on the
accuracy of any representation or warranty will not affect the right to
indemnification, payment of damages or other remedy based on such
representations or warranties.
11.2 INDEMNIFICATION BY SELLER. Upon the terms and subject to the
conditions of this Article XI, Seller shall indemnify Purchaser, the
Subsidiaries, their Affiliates and each of their respective officers,
directors, employees and agents against and hold them harmless from any
losses, liabilities, claims, damages or expenses (including costs of
investigation and defense and reasonable legal fees and expenses) whether or
not involving a third-party claim (collectively, "Claims") suffered or
incurred by any such indemnified Person arising from, relating to or
otherwise in respect of (a) any and all obligations and liabilities, secured
or unsecured, whether absolute, accrued, contingent or otherwise, whether
known or unknown and whether or not due ("Liabilities") of Seller or the
Subsidiaries other than the Assumed Liabilities; (b) any breach of, or
inaccuracy in, any representation or warranty of Seller or Subsidiaries in
this Agreement (without giving effect to any supplement to the Schedules to
this Agreement) or any certificate, instrument or other document delivered
pursuant hereto or in connection herewith; (c) any breach of any covenant of
Seller or, with respect to the period prior to the Closing, the Subsidiaries,
contained in this Agreement; (d) any exercise or attempt to exercise any
right of refusal or similar right with respect to the sale of the
Subsidiaries, the Business or any portion thereof, including but not limited
to any such right described on Schedule 2.2; or (e) any claim of a breach of
a software license agreement as a result of the hiring of the FleetShare
Employees by the Subsidiaries.
11.3 INDEMNIFICATION BY PURCHASER. Upon the terms and subject to
the conditions of this Article XI, Purchaser shall indemnify Seller and each
of its officers, directors, employees and agents against and hold them
harmless from any Claims suffered or incurred by any such indemnified party
arising from, relating to or otherwise in respect of (a) the operations of
the Subsidiaries to the extent such Claims relate to an occurrence on or
after the Closing Date (except to the extent such Claims
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are not Assumed Liabilities); and (b) any breach of, or inaccuracy in, any
representation or warranty of Purchaser contained in this Agreement (without
giving effect to any supplement to the Schedules to this Agreement) or any
certificate, instrument or other document delivered pursuant hereto or in
connection herewith.
11.4 CONDITIONS OF INDEMNIFICATION RELATING TO THIRD PARTY CLAIMS.
Subject to the provisions of this Article XI, the obligations and liabilities
of Seller, in the case of Section 11.2(a), (b), (d) and (e) and the
Purchaser, in the case of Section 11.3(b), with respect to Claims made by or
against third parties ("Third Party Claims"), shall be subject to the
following terms and conditions:
(a) The Person to whom such Third Party Claim relates (the
"Indemnified Party") will give the party from which indemnity is sought
hereunder (the "Indemnifying Party") prompt notice of such Third Party Claim,
which notice in any event shall be given to the Indemnifying Party within 10
days of the Indemnified Party first becoming aware of the facts and
circumstances that form the basis of such Third Party Claim; provided that
the omission so to promptly notify the Indemnifying Party with respect to a
Third Party Claim brought against or sought to be collected from such
Indemnified Party will not relieve the Indemnifying Party from any liability
which it may have to such Indemnified Party under Section 11.2 or 11.3 except
to the extent that such failure has materially prejudiced such Indemnifying
Party with respect to the defense of such Third Party Claim. The Indemnifying
Party shall have the right to control the defense of any such Third Party
Claim. Except as otherwise provided herein, the Indemnified Party shall have
the right to participate in (but not control) the defense of any Third Party
Claim and to retain its own counsel in connection therewith, but the fees and
expenses of any such counsel for the Indemnified Party shall be borne by the
Indemnified Party.
(b) If the Indemnifying Party, within a reasonable time after notice
of any such Third Party Claim, fails to assume the defense thereof, the
Indemnified Party shall (upon a subsequent 10 days' notice to the
Indemnifying Party) have the right to undertake the defense or, with the
consent of the Indemnifying Party, to undertake a compromise or settlement of
such Third Party Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying Party to assume
the defense of such Third Party Claim at any time prior to the settlement,
compromise or final determination thereof. The Indemnifying Party shall not
be liable for any compromise or settlement of a Third Party Claim effected
without its written consent. During any period when the Indemnifying Party is
contesting any such Third Party Claim in good faith, the Indemnified Party
shall not pay, compromise or settle such Third Party Claim without the
Indemnifying Party's consent; provided that the Indemnified Party may
nonetheless pay, compromise or settle such Third Party Claim without such
consent during such period, in which event it shall, automatically and
without any further action on its part, waive any right (whether or not
pursuant to this Agreement) to indemnity in respect of all losses,
liabilities, damages or expenses relating to such Third Party Claim. If the
Indemnifying Party shall defend any such Third Party Claim until such Third
Party Claim shall be adjudicated by order, decree, ruling or other action,
then the Indemnifying Party shall have the right, in the exercise of its
exclusive discretion, to determine whether or not to appeal such adjudication.
(c) Anything in this Section 11.4 to the contrary notwithstanding,
the Indemnifying Party shall not, without the written consent of the
Indemnified Party (which consent shall not be
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withheld unreasonably or delayed), settle or compromise any Third Party Claim
or consent to the entry of any judgment which imposes any future obligation
on the Indemnified Party or which does not include as an unconditional term
thereof the giving by the claimant and or plaintiff to the Indemnified Party
a release from all liabilities in respect of such Third Party Claim; provided
that, whether or not such a release is required to be obtained, the
Indemnifying Party shall remain liable to such Indemnified Party in
accordance with Section 11.2 or 11.3 in the event that a Third Party Claim is
subsequently brought against or sought to be collected from such Indemnified
Party.
(d) The Indemnified Party shall, and shall cause its Affiliates to,
provide the Indemnifying Party with such assistance (without charge) as may
reasonably be requested by the Indemnifying Party in connection with any
indemnification or defense provided for herein, including, without
limitation, providing the Indemnifying Party with such information, documents
and records and reasonable access to the services of and consultations with
such personnel of the Indemnified Party or its Affiliates as the Indemnifying
Party shall deem necessary (provided that such access shall not unreasonably
interfere with the performance of the duties performed by or responsibilities
of such personnel).
(e) The indemnification required by Section 11.2 or 11.3, as the
case may be, shall be made by periodic payments of the amount thereof during
the course of the investigation or defense, as and when bills with reasonable
documentation are received or Claims are actually incurred.
11.5 CONDITIONS OF INDEMNIFICATION RELATING TO CLAIMS THAT ARE NOT
THIRD PARTY CLAIMS. In the event any Indemnified Party should have a claim
against any Indemnifying Party under Section 11.2 or 11.3 that does not
involve a Third Party Claim being asserted against or sought to be collected
from such Indemnified Party, to the extent not otherwise cured pursuant to
Section 7.7, the Indemnified Party shall deliver notice of such claim with
reasonable promptness to the Indemnifying Party within the applicable time
period specified in Section 11.1. The failure by any Indemnified Party so to
notify the Indemnifying Party shall not relieve the Indemnifying Party from
any liability which it may have to such Indemnified Party under Section 11.2
or 11.3 except to the extent that the Indemnifying Party demonstrates that it
has been materially prejudiced by such failure. If the Indemnifying Party
disputes its liability with respect to such claim, the Indemnifying Party and
the Indemnified Party agree to proceed in good faith to negotiate a
resolution of such dispute and, if not resolved through negotiations, such
dispute will be resolved in accordance with Article XII.
11.6 LIMITATIONS ON INDEMNIFICATION. Any Claim brought under Section
11.2(b) or Section 11.3(b) is subject in each case to the following
limitations and restrictions:
(a) Claims may not be asserted any time after 11:59 p.m. on the date
on which a claim for a breach of the related representation and warranty
terminates as established in Section 11.1. A claim for indemnification for
which notice was given pursuant to Section 11.1 prior to the end of such
period shall survive until such claim is fully and finally determined.
(b) Claims made pursuant to Section 11.2(b) will be paid only to the
extent they exceed $2,000,000 (the "Seller's Basket"); provided, however,
that (i) once Seller's Basket has been exceeded, all amounts back to the
first dollar of claims shall be recoverable (ii) and the aggregate amount
recoverable pursuant to Section 11.2(b) shall in no event exceed $50,000,000.
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Notwithstanding anything to the contrary in this Article XI, the limitations
and restrictions in this Section 11.6(b) shall not apply to any breach of the
representations and warranties contained in Sections 2.8 and 2.9 of this
Agreement.
(c) Claims made pursuant to Section 11.3(b) will be paid only to the
extent they exceed $2,000,000 (the "Purchaser's Basket"); provided, however,
that (i) once Purchaser's Basket has been exceeded, all the amounts back to
the first dollar of claims shall be recoverable and (ii) the aggregate amount
recoverable pursuant to Section 11.3(b) shall in no event exceed $50,000,000.
(d) The limitations contained in Sections 11.6(b) and 11.6(c) shall
not apply to any breach of a representation or warranty to the extent the
Person making such warranty had knowledge of such breach at any time prior to
the date on which such representation and warranty is made.
(e) Each Claim shall be reduced by the amount of any insurance
proceeds actually received in connection with such Claim. Each party
covenants to exercise its reasonable commercial efforts to collect insurance
proceeds under applicable insurance policies that are then in force if and to
the extent that such Claim relates to an event covered by such insurance
policies.
(f) The representations and warranties of Seller and the
Subsidiaries specifically enumerated in Section 11.2(b) for purposes of
determining whether a breach thereof has occurred that may entitle Purchaser
or any other Person to recover for any Claim under Section 11.2(b) shall not
be deemed qualified by any references to materiality (or variations thereof)
contained therein and any breaches thereof shall be determined without regard
to whether such breach constitutes a Material Adverse Effect.
(g) Following the Closing, the remedies provided in this Article XI
shall be the sole recourse of all parties hereto for all Claims relating to
breaches of representations and warranties, other than as may be provided for
elsewhere in this Agreement and other than for the willful misconduct of
Purchaser or Seller related to or arising, directly or indirectly, out of
this Agreement or the transactions contemplated hereby.
(h) Notwithstanding anything herein to the contrary, if a matter
which constitutes a breach of any representation or warranty by Seller or
(before Closing) either Subsidiary also meets the definition of a SPS
Retained Liability, then any limitations or restrictions imposed by this
Section 11.6 shall not be applicable to a claim against Seller for any such
SPS Retained Liability.
(i) All Claims described in Section 5.3 shall be governed by the
provisions of Article V and not by the provisions of this Article XI except
to the extent Article XI is expressly referenced. All Claims covered by the
Tax Cooperation and Indemnification Agreement shall be governed by the
provisions of such Tax Cooperation and Indemnification Agreement, and not by
the provisions of this Article XI.
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ARTICLE XII
DISPUTE RESOLUTION
12.1 NEGOTIATION. In the event of any dispute, claim, question, or
disagreement arising from or relating to this Agreement or the breach
thereof, the parties hereto shall use their reasonable best efforts to settle
the dispute, claim, question, or disagreement. To this effect, a party who is
involved in the dispute shall provide written notice to the other parties
hereto, specifying in reasonable detail the factual background of the dispute
and the basis for the party's claim. Thereafter, the parties shall consult
and negotiate with each other in good faith and, recognizing their mutual
interests, attempt to reach a just and equitable solution satisfactory to the
parties. If the parties do not reach such solution within a period of sixty
(60) days, then the dispute will be handled according to Section 12.2 below.
12.2 MEDIATION. If any dispute, claim, question or disagreement
arising from or relating to this Agreement or the breach thereof cannot be
settled according to Section 12.1 above, the parties agree to endeavor first
to settle the dispute in an amicable manner by mediation administered by the
American Arbitration Association under its Commercial Mediation Rules before
resorting to any other remedy.
12.3 PROVISIONAL REMEDIES. Notwithstanding anything to the contrary
in this Article XII, either party may seek from a court any interim or
provisional relief that is necessary to protect the rights or property of
that party.
ARTICLE XIII
MISCELLANEOUS
13.1 NO THIRD-PARTY BENEFICIARIES. Except as otherwise provided in
Article XI which is for the benefit of, and enforceable by, the Indemnified
Parties, this Agreement is for the sole benefit of the parties hereto and
their permitted assigns, and nothing herein expressed or implied shall give
or be construed to give to any Person, other than the parties hereto and such
assigns, any legal or equitable rights hereunder.
13.2 AMENDMENT OR WAIVER. No amendment, modification or waiver in
respect of this Agreement shall be effective unless it shall be in writing
and signed by the parties hereto.
13.3 HEADINGS. The headings contained in this Agreement, or in any
exhibit or schedule hereto and in the table of contents to this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been
signed by each of the parties and delivered to the other parties.
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13.5 ASSIGNMENT. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto
(including by operation of law in connection with a merger, or sale of
substantially all the assets, or any dissolution, of any party hereto)
without the prior written consent of the other parties hereto; PROVIDED,
HOWEVER, that Purchaser may assign its rights hereunder, in whole or in part,
to an Affiliate of the Purchaser without the prior written consent of any
party hereto; PROVIDED FURTHER, however, that no assignment shall limit or
affect the assignor's obligations hereunder. Any attempted assignment in
violation of this Section 13.5 shall be void.
13.6 NOTICES. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by telecopy or sent, postage prepaid, by registered, certified
or express mail or overnight courier service and shall be deemed given when
so delivered by hand, or telecopied, or if mailed, three days after mailing
(one business day in the case of express mail or overnight courier service),
as follows:
if to Seller, or the Subsidiaries (before Closing)
SPS Payment Systems, Inc.
2500 Lake Cook Road
Riverwoods, IL 60015
Telecopy No: (847) 405-4952
Attention: General Counsel
with a copy to:
Associates First Capital Corporation
250 E. Carpenter Freeway
Irving, Texas 75065
Telecopy No.: (972) 652-7123
Attention: General Counsel
if to Purchaser, or the Subsidiaries (after Closing)
Alliance Data Systems Corporation
17655 Waterview Parkway
Dallas, Texas 75252
Telecopy No.: (972) 348-4534
Attention: President, Network Services
Division
with copies to:
Alliance Data Systems Corporation
800 Techcenter Drive
Gahanna, Ohio 43230
Telecopy No.: (614) 729-4949
Attention: General Counsel
49
<PAGE>
or such other address as any party may from time to time specify by written
notice to the other parties hereto.
13.7 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits hereto, together with the letter agreement from AFCC executed in
connection with the execution of this Agreement (the "AFCC Letter") and the
Confidentiality Agreement and all other documents or certificates executed by
the Parties in connection herewith and therewith contain the entire agreement
and understanding between the parties hereto with respect to the subject
matter hereof and thereof and supersede all prior agreements and
understandings relating to such subject matter.
13.8 SEVERABILITY. If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any Person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, (a) a
suitable and equitable provision shall be substituted therefor in order to
carry out, so far as may be valid and enforceable, the intent and purpose of
such invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other Persons or
circumstances shall not be affected by such invalidity or unenforceability.
13.9 SCHEDULES. The inclusion of any matter in any schedule to this
Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, including each representation and warranty to which it may relate,
but inclusion therein shall expressly not be deemed to constitute an
admission by Seller or Purchaser, or otherwise imply, that any such matter is
material or creates a measure for materiality for the purposes of this
Agreement.
13.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware
without regard to any conflicts of laws principles.
13.11 EXPENSES. Whether or not the transactions contemplated hereby
are consummated, and except as otherwise specifically provided in this
Agreement, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby by Seller and the Subsidiaries shall
be paid by Seller (and not the Subsidiaries) and all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby by Purchaser shall be paid by Purchaser.
13.12 REMEDIES FOR BREACH. It is possible that remedies at law may
be inadequate and, therefore, the parties hereto shall be entitled to
equitable relief including injunctive relief, specific performance or other
equitable remedies in addition to all of the remedies provided under this
Agreement or available to the parties under this Agreement at law or in
equity. Subject to the provisions of Article XII, no remedy made available by
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other
remedy given under this Agreement or now or hereafter existing at law or in
equity.
[Remainder of page intentionally left blank]
50
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on their respective behalf, by their respective officers,
thereunto duly authorized, as of the day and year first above written.
SPS PAYMENT SYSTEMS, INC.
By: /S/ R. L. ROBINSON
----------------------------
Name: R. L. Robinson
Title: President
ALLIANCE DATA SYSTEMS CORPORATION
By: /S/ MICHAEL BELTZ
----------------------------
Name: Michael Beltz
Title: Executive Vice President
SPS COMMERCIAL SERVICES, INC.
By: /S/ STEPHEN W. MAXWELL
----------------------------
Name: Stephen W. Maxwell
Title: President
ADS NETWORK SERVICES, INC.
By: /S/ STEPHEN W. MAXWELL
----------------------------
Name: Stephen W. Maxwell
Title: President
51
<PAGE>
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
AMONG SPS PAYMENT SYSTEMS, INC., ALLIANCE DATA SYSTEMS
CORPORATION, SPS COMMERCIAL SERVICES, INC.
AND ADS NETWORK SERVICES, INC.
This First Amendment to Stock Purchase Agreement, dated as of July
12, 1999 (this "Amendment"), is by and among SPS Payment Systems, Inc., a
Delaware corporation ("Seller"), Alliance Data Systems Corporation, a
Delaware corporation ("Purchaser"), SPS Commercial Services, Inc., a Delaware
corporation ("Commercial Services"), and ADS Network Services, Inc., a
Delaware corporation ("ADS Network").
WHEREAS, on June 8, 1999, the parties to this Amendment entered into
a Stock Purchase Agreement (the "Original Agreement");
WHEREAS, the parties have determined to establish 12:01 a.m. July 1,
1999 as the effective time (the "Effective Time") for the transactions
contemplated by the Original Agreement for purposes of allocating revenue and
expenses among the parties (but not for purposes of otherwise allocating risk
and responsibility for any other benefits or Liabilities relating to
operation of the Business prior to the Closing, for example, for the right to
indemnification against third party claims for operation of the Business),
and therefore desire to amend the Original Agreement as set forth below;
NOW THEREFORE, for and in consideration of the mutual covenants
contained in this Amendment, the parties agree to the following amendments to
the Original Agreement:
1. Defined terms used in this Amendment shall have the meanings set forth
for such terms in the Original Agreement, except where the context
herein requires otherwise.
2. Section 1.2 of the Original Agreement shall be deleted and the
following shall replace Section 1.2 in its entirety: "1.2 PAYMENT OF
PURCHASE PRICE Section 1.2 of the Original Agreement shall be deleted
and the following shall replace Section 1.2 in its entirety:
1.2 PAYMENT OF PURCHASE PRICE. On July 13, 1999, Purchaser shall
deliver to Seller by electronic wire transfer to a bank account
designated in writing by Seller at least two business days prior
to the Closing Date, in immediately available funds, the sum of
$169,000,000, together with interest thereon at an annual rate of
5.8% from July 1, 1999 through July 13, 1999, subject to
adjustment as specified in Section 1.3 below (as adjusted, the
"Purchase Price"). The parties acknowledge that the Purchase
Price specified has been reduced by $1,000,000 to pay an
intercompany debt owed by Seller to Commercial Services as
required by Section 8.3(d)."
3. Section 1.3(a) of the Original Agreement shall be revised by deleting
the phrase "Closing Date" in the first and third sentences and
substituting the phrase "Effective Time" so that Section 1.3(a) shall
read in its entirety as follows:
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<PAGE>
"(a) PREPARATION OF CLOSING BALANCE SHEET. As soon as
practicable following the Closing Date, but in no event later than 30
days after the Closing, Seller shall deliver to Purchaser a balance
sheet of the Business as of the Effective Time (the "Closing Balance
Sheet") prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied without giving effect to the
transfer of assets to the Subsidiaries or the sale of Stock
contemplated by this Agreement. The Closing Balance Sheet or
explanatory notes shall identify as separate items the following: (i)
the value of the Inventory (as hereinafter defined) and (ii) the value
of the FleetShare Accounts Receivable (as hereinafter defined) and all
allowances for doubtful accounts relating thereto. The Closing Balance
Sheet shall be accompanied by a certificate signed by an officer of
Seller certifying (i) that as of December 31, 1998, $3,919,487 was the
amount of the FleetShare Accounts Receivable net of all reserves, (ii)
the reserves for the FleetShare Accounts Receivable as of that date
represented 1.047% of the FleetShare Accounts Receivable, (iii) that as
of December 31, 1998, $844,648 was the amount of the Inventory of the
Business, and (iv) that the Closing Balance Sheet and the certification
of the FleetShare Accounts Receivable and the Inventory described in
(i) and (iii) of this sentence: (x) were prepared in accordance with
GAAP consistently applied, subject to normal recurring year end
adjustments (which will not individually or in the aggregate have a
Material Adverse Effect (as hereinafter defined)) and the absence of
notes and (y) fairly reflects the assets and liabilities of the
Business as of December 31, 1998 or the Effective Time, respectively.
In the event that Purchaser shall disagree with amounts specified on
the Closing Balance Sheet for the FleetShare Accounts Receivable,
reserves related thereto or the Inventory, Purchaser shall notify
Seller of the matters with which it disagrees within 15 days of
Purchaser's receipt of the Closing Balance Sheet and the parties shall
use their best efforts to promptly resolve any differences. If the
parties are unable to resolve any disagreements that they may have
within 30 days following Purchaser's giving of notice of its
disagreement to Seller, then Seller and Purchaser shall use the dispute
resolution mechanism established in Article XII."
4. Section 1.4 of the Original Agreement shall be deleted and the
following shall replace Section in its entirety:
"1.4 CLOSING. Upon the terms and subject to the conditions
hereof, the closing of the transactions contemplated hereby (the
"Closing") shall take place at Dallas, Texas on July 12, 1999, unless
the parties receive a second request under the terms of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), in which case the Closing shall be at such other place
and/or time as Seller and Purchaser may agree (the "Closing Date")."
5. The first sentence of Section 2.30 of the Original Agreement shall be
revised by deleting the phrase "Closing Date" and substituting the
phrase "Effective Time" so that Section 2.30 shall read in its entirety
as follows:
"Schedule 2.30 (which, upon the agreement of the parties, may be
delivered in commonly readable electronic format) contains a complete
and accurate list of all accounts receivable of Seller and each
Subsidiary relating to the FleetShare Business (collectively, the
"FleetShare Accounts Receivable") as of April 30, 1999 and as of the
Effective Time, the later of which shall be delivered as of a date that
is no more than two days prior to
53
<PAGE>
the Closing Date, which list sets forth the aging of such FleetShare
Accounts Receivable."
6. Sections 4.3 through 4.5 of the Original Agreement shall be deleted and
the following shall replace such Sections in their entirety:
"4.3 ASSETS OF ADS NETWORK. On the Closing Date, but
effective as of the Effective Time, Seller shall transfer to ADS
Network all of Seller's rights, title and interest in each of assets
listed in Schedule 4.3; provided, however, Purchaser may direct Seller
to transfer all or part of the assets listed in Schedule 4.3 to
Commercial Services, and Seller shall comply with such directions
unless Seller has previously transferred the relevant assets to ADS
Network or the transfer of the assets as directed will have a material
adverse effect on Seller.
"4.4 ASSETS OF COMMERCIAL SERVICES. On or before the Closing
Date, but effective as of the Effective Time, each of the assets listed
in Schedule 4.4 will be among the assets of Commercial Services, and
after the Closing Date, but effective as of the Effective Time, Seller
shall have no further right, title or interest in such assets;
provided, however, if any such assets are not owned by Commercial
Services at the time this Agreement is executed, Purchaser may direct
Seller to transfer all or part of such assets to ADS Network, unless
Seller has previously transferred the relevant assets to Commercial
Services or the transfer of the assets as directed will have a material
adverse effect on Seller.
"4.5 ASSUMED LIABILITIES. On or before the Closing Date, but
effective as of the Effective Time, ADS Network shall assume the
obligations of Seller relating to the Network Services Business to the
extent, and only to the extent, (a) listed on Schedule 4.5(a)
(collectively, the "ADS Network Assumed Obligations") or (b) provided
in the Tax Cooperation and Indemnification Agreement. On or before the
Closing Date, but effective as of the Effective Time, pursuant to an
assumption agreement substantially in the form attached hereto as
Exhibit E (the "Assumption Agreement"), Commercial Services shall
assign to Seller and Seller shall assume all obligations and
liabilities, known or unknown, of Commercial Services other than the
obligations of Commercial Services listed on Schedule 4.5(b) (the
obligations retained by Commercial Services, the "Commercial Services
Retained Obligations"; and the ADS Network Assumed Obligations and the
Commercial Services Retained Obligations collectively, the "Assumed
Liabilities"). Neither Seller nor either Subsidiary shall cause or
permit either Subsidiary to assume or incur any obligation or liability
other than the ADS Network Assumed Obligations and the Commercial
Services Retained Obligations. On or before the Closing Date, but
effective as of the Effective Time, Seller shall retain or assume all
obligations and liabilities associated with the Business other than the
Assumed Liabilities (collectively, the "SPS Retained Liabilities")."
7. Section 7.8 of the Original Agreement shall be deleted and the
following shall replace Section 7.8 in its entirety:
"7.8 REVENUES AND EXPENSES. The parties intend and agree
that effective after the Closing (a) all revenue of the Business prior to the
Effective Time shall belong to Seller, (b) all revenue of the Business on or
after the Closing Date shall belong to the Subsidiaries, (c)
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<PAGE>
all revenues of the Business that are the result of Interim Operations, as
hereinafter defined, reduced by any Interim Period Tax Burden, as hereinafter
defined, and increased by any Interim Period Tax Benefit, as hereinafter
defined, will be deemed to belong to and shall be paid over to the
Subsidiaries, (d) all expenses of the Business that occurred prior to the
Effective Time (other than Taxes, which shall be allocated based upon the
Closing Date and governed by the Tax Cooperation and Indemnification
Agreement) shall be the liability of and shall be timely paid by Seller,
including all expenses of the Subsidiaries that occurred prior to the
Effective Time, (e) all expenses of the Business that occurred on or after
the Effective Time (other than Taxes, which shall be allocated based upon the
Closing Date and governed by the Tax Cooperation and Indemnification
Agreement), shall be the liability of and shall be timely paid by the
Subsidiaries unless any such expense shall not constitute an Assumed
Liability, provided that the Subsidiaries shall not be responsible for and
shall not pay costs and expenses incurred during the Interim Period, as
hereinafter defined, outside of the ordinary course of the conduct of the
Business, including without limitation any costs and expenses related to the
transactions contemplated by this Agreement, and (f) Seller shall be liable
for and shall timely pay all SPS Retained Liabilities. For the limited
purpose of determining the Interim Period Tax Burden and any Interim Period
Tax Benefit, the taxable income or loss of the Business for the Interim
Period that are the result of Interim Operations ("Interim Period Results")
and the Taxes for the Interim Period that are the result of Interim
Operations shall be determined by application of the principles set forth in
Section 2.2(c) of the Tax Cooperation and Indemnification Agreement, as
reasonably interpreted and applied by the parties; provided that any income
taxes included in calculating the Interim Period Tax Burden and any Interim
Period Tax Benefit shall be determined by multiplying the Interim Period
Results by the highest marginal corporate income Tax rate in effect for such
Interim Period. Except for the limited purpose of determining the Interim
Period Tax Burden and any Interim Period Tax Benefit, the allocation of Taxes
between Seller and Purchaser shall be governed by the provisions of the Tax
Cooperation and Indemnification Agreement. For purposes of this Section 7.8,
"Interim Operations" means the ordinary and necessary operations of the
Business during the Interim Period and shall not include any transactions or
occurrences outside of the ordinary course of the conduct of the Business;
"Interim Period" means the period commencing with the Effective Time and
ending on the Closing Date; "Interim Period Tax Burden" means any Taxes
allocated to the Interim Period pursuant to this Section 7.8; and "Interim
Period Tax Benefit" means any reduction in Taxes realized by Seller or any of
its Affiliates as a result of net losses incurred from Interim Operations.
For purposes of allocating revenues and expenses for the Interim Period, the
parties intend that (a) any expenses for such period that are described as
services to be provided by Seller to the Subsidiaries after the Closing under
the terms of the Interim Services Agreement shall be calculated using the
pricing for such services under the Interim Services Agreement; for example,
notwithstanding that the Riverwoods Lease, the Sublease and the Interim
Services Agreement are entered into effective as of the Closing Date,
expenses for use of the premises under the Riverwoods Lease and the Sublease
shall be for the account of the Subsidiaries from the Effective Time and such
expenses shall be calculated using the amounts set forth for such services in
the Interim Services Agreement, and (b) notwithstanding that the Subsidiaries
are, under the terms of Article V, not hiring the Active Employees and are
not responsible for certain benefits with respect to Hired Employees until
the Closing Date, employee and employee benefit expenses, such as payroll and
other costs of employee benefits, of Seller from the Effective Time for
Employees who become Hired Employees shall be for the account of the
Subsidiaries. In the event either party shall receive revenues of the other,
such revenues shall promptly be paid to the other party. In the event one
party shall receive invoices for expenses or
55
<PAGE>
demands relating to obligations of the other party, such party shall promptly
forward such invoices or demands to the other party."
8. The third sentence of Section 7.9(a) of the Original Agreement shall be
revised by deleting the phrase "Closing Date" and substituting the
phrase "Effective Time" so that the third sentence of Section 7.9(a)
reads in its entirety as follows:
"Seller agrees to reimburse Purchaser or the Subsidiaries for all
Post-Closing Testing Costs to the extent conducted by Purchaser on or
before December 31, 1999 up to $200,000; provided, however, that such
reimbursement obligation shall be reduced by any unexpended amount as
of the Effective Time of the $550,000 currently budgeted under the Plan
for 1999."
9. Section 8.1(d) of the Original Agreement shall be deleted and the
following shall replace Section 8.1(d) in its entirety:
"(f) IBM CONTRACT. Seller shall have extended the term of the
IBM Contract (as defined in the Interim Services Agreement) to June 30,
2000, and all other conditions precedent to such extension of such term
and to the entering into of the Master Agreement shall have been
satisfied."
10. Section 8.3(d) of the Original Agreement shall be deleted and the
following shall replace Section 8.3(d) in its entirety:
"(d) INTERCOMPANY DEBTS. At or immediately prior to
the Closing, but effective prior to the Effective Time, each Subsidiary
shall have discharged in full any and all amounts due from such
Subsidiary to any member of the AFCC Group and each member of the AFCC
Group (other than the Subsidiaries) shall have discharged in full any
and all amounts due to each Subsidiary, in each case that are
outstanding at the Closing Date. The parties acknowledge that the
$1,000,000 intercompany debt owed by Seller to Commercial Services has
been satisfied by the reduction of the Purchase Price referred to in
Section 1.2 as amended hereby."
11. Section 11.2 of the Original Agreement shall be amended by deleting the
word "or" in front of subpart "(e)" and inserting the following phrase
at the end of the sentence "or (f) any failure to obtain the consent of
IBM to the terms of the Master Agreement."
12. Exhibit E shall be amended to make the Assumption Agreement effective
as of the Effective Time as shown on the attached revised Exhibit E.
13. In all other respects, the Original Agreement shall remain in full
force and effect.
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56
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed on their respective behalf, by their respective officers,
thereunto duly authorized, as of the day and year first above written.
SPS PAYMENT SYSTEMS, INC.
By: /S/ Richard L. Robinson
------------------------
Name: Richard L. Robinson
Title: President
ALLIANCE DATA SYSTEMS CORPORATION
By: /S/ Michael Beltz
------------------
Name: Michael Beltz
Title: Executive Vice President
SPS COMMERCIAL SERVICES, INC.
By: /S/ Steve Maxwell
------------------
Name: Steve Maxwell
Title: President
ADS NETWORK SERVICES, INC.
By: /S/ Steve Maxwell
------------------
Name: Steve Maxwell
Title: President
57
<PAGE>
ASSUMPTION AGREEMENT
This Assumption Agreement (the "Agreement") is entered into as of
July 12, 1999, by and between SPS Payment Systems, Inc., a Delaware
corporation ("SPS"), and SPS Commercial Services Inc., a Delaware corporation
and a wholly-owned subsidiary of SPS ("Commercial Services").
WHEREAS, SPS and Commercial Services are parties to that certain
Stock Purchase Agreement, dated June 8, 1999, by and among SPS, Commercial
Services, ADS Network Services, Inc. and Alliance Data Systems Corporation
(the "Stock Purchase Agreement");
WHEREAS, the Stock Purchase Agreement requires that Commercial
Services and SPS execute and deliver this Agreement at the Closing of the
Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual representations,
warranties, and agreements contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby, agree as follows:
1. DEFINITIONS. Capitalized terms not otherwise defined in this
Agreement will have the respective definitions set forth in the Stock
Purchase Agreement.
2. ASSIGNMENT. Commercial Services hereby assigns to SPS effective as
of 12:01 a.m. July 1, 1999 (the "Effective Time") all of Commercial Services'
right, title and interest in and to all obligations and liabilities of
Commercial Services, except for those listed in the attached Exhibit A (such
assigned obligations and liabilities, the "SPS Assumed Liabilities").
3. ACCEPTANCE OF ASSIGNMENT BY SPS; PERFORMANCE. SPS hereby accepts the
assignment from Commercial Services of the SPS Assumed Liabilities. Effective
as of the Effective Time, SPS hereby agrees to perform and discharge all such
obligations and liabilities, when and as the same become due.
4. AMENDMENT . No amendment, modification or waiver in respect to this
Agreement shall be effective unless it shall be in writing and signed by the
parties hereto.
5. ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES . This Agreement,
including the documents referred to herein, (a) constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings relating to
such subject matter, and (b) is not intended to confer upon any Person other
than the parties hereto (and their permitted assigns) any rights or remedies.
<PAGE>
6. ASSIGNMENT . Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or in part,
by operation of law or otherwise, by any of the parties without the prior
written consent of the other party hereto; provided, however, that Commercial
Services may assign its rights hereunder, in whole or in part, to ADS
Alliance Data Systems, Inc. or any of its Affiliates without the prior
written consent of SPS. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the
parties and their respective successors and assigns.
7. GOVERNING LAW . This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware, without regard to
any conflicts of law principles.
8. IN WITNESS WHEREOF, SPS and Commercial Services have caused this
Agreement to be duly executed by their respective officers, thereunto duly
authorized, as of the date first written above.
SPS PAYMENT SYSTEMS, INC.
By:
----
Name:
Title:
SPS COMMERCIAL SERVICES, INC.
By:
----
Name:
Title:
<PAGE>
EXHIBIT A
to the Assignment and Assumption Agreement
between SPS and Commercial Services
EXCEPTION TO THE SPS ASSUMED LIABILITIES
The SPS Assumed Liabilities consist of all obligations and liabilities of SPS
Commercial Services, Inc., EXCEPT the following:
(a) the obligations and liabilities of SPS Commercial Services,
Inc. for the period after July 12, 1999 (the "Closing Date")
to perform under the following contracts:
Alliance Energy Corp. FleetShare Agreement
A. T. Williams FleetShare Agreement
East Coast Oil Corp. FleetShare Agreement
Farm Stores, Inc. FleetShare Agreement
Fas Mart Convenience Stores, Inc. FleetShare Agreement
Gate Petroleum Company FleetShare Agreement
Junior Food Stores, Inc. FleetShare Agreement
Lil Champ Food Stores, Inc. FleetShare Agreement
Murphy Oil USA, Inc. FleetShare Agreement
Summit Oil FleetShare Agreement
Volta Oil Co. FleetShare Agreement
Phillips 66 Company FleetShare Agreement
Thornton Oil Corporation FleetShare Agreement
; provided, however, that the FleetShare Receivables and
revenues and expenses relating to such contracts shall be
for the account of SPS Commercial Services, Inc. as of 12:01
a.m. July 1, 1999.
(b) all other liabilities and obligations for the period after the
Closing Date with respect to the operation of the FleetShare
Business except for the FleetShare Employees.
<PAGE>
LEASE SCHEDULE
1. Date of Lease: July 30, 1999.
2. Landlord: Deerfield & Weiland Office Building, L.L.C., an Illinois limited
liability company
3. Tenant: ADS Alliance Data Systems, Inc.
4. Guarantor: Alliance Data Systems Corporation
5. Property Address: 975 Weiland Road, Buffalo Grove, Illinois.
6. Premises: second floor, described on Appendix "A" attached hereto.
7. Purpose: General offices, provided same is in compliance with all zoning
and land use regulations and covenants and restrictions of record.
8. Lease Term: Ten (10) years and four (4) months, beginning November 1, 1999
("Commencement Date") and ending February 29, 2010. Renewal
Options: 2 - 5 year options to renew.
9. Area of Premises: in rentable square feet ("r.s.f."): Approximately 24,136;
in useable square feet: Approximately 22,165
10. Jurisdiction in which the
Property is located: Village of Buffalo Grove, County of Lake,
State of Illinois.
11. Tenant's Share: 49.9%
12. Annual Base Rent in U.S. Dollars: Years 1 - 5 $ 424,793.60
Years 6 - 10 $ 485,616.32
13. Monthly Base Rent in U.S. Dollars: Years 1 - 5 $ 35,399.47
Years 6 - 10 $ 40,468.03
14. Rent Commencement Date: March 1, 2000, provided however said date shall be
extended on a daily basis to the extent that the date by which Landlord
substantially completes the Work as hereinafter defined, is delayed beyond
November 1, 1999 as a result of the acts or omissions of Landlord, its
agents, employees, and contractors, or delay in the issuance of permits by
the Village of Buffalo Grove except as a result of the acts or omissions of
Tenant or Tenant's consultants.
15. Addresses for Purpose of Notice:
Landlord: Lawrence M. Freedman, Ash, Anos, Freedman & Logan, L.L.C., 77
West Washington Street, Suite 1211, Chicago, IL 60602, Fax No:
(312) 346-7847.
Tenant: 17655 Waterview Parkway, Dallas, TX 75252, Attention: Jim
Anderson.
With a copy to: Gregg Eakins, 17655 Waterview Parkway, Dallas, TX
75252.
16. Brokers: Podolsky Northstar Realty Partners, L.L.C., and Peterson Realty
Group.
<PAGE>
LEASE
THIS LEASE MADE and entered into as of the date set forth on the Lease
Schedule as Date of Lease, which Lease Schedule is appended to this Lease and is
specifically incorporated by reference herein, by and between the Landlord and
Tenant as set forth in the Lease Schedule.
WITNESSETH:
DEMISE
A. Landlord does hereby lease to Tenant and Tenant hereby lets from
Landlord, the Premises set forth in the Lease Schedule, which are situated in
that certain building (the "Building") located as denoted as the Property
Address in the Lease Schedule. The Building and the real estate on which it is
located are hereinafter referred to as the "Property". Tenant acknowledges that
the sole purpose of the attached Appendix A" is to identify the location of the
Premises in the Building. Landlord makes no representations or warranties in
said Appendix "A" as to the useable or rentable square footage of the Premises.
B. Such letting and hiring is upon and subject to the terms, covenants and
conditions herein set forth and Tenant and Landlord covenant as a material part
of the consideration for this Lease to keep and perform each and all of said
terms, covenants and conditions by them to be kept and performed and that this
Lease is made upon the condition of such performance.
1.
PURPOSE
The Premises are to be used for the Purpose set forth in the Lease Schedule
and for no other purpose without the prior written consent of the Landlord.
2.
TERM
The Lease Term shall be as set forth in the Lease Schedule except as
otherwise expressly provided in this Lease.
3.
POSSESSION
A. If Landlord, for any reason whatsoever, cannot deliver possession of the
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Premises to the Tenant on the intended date of the commencement of the Term,
this Lease shall not be void or voidable, nor shall the Landlord be liable to
Tenant for any loss or damage resulting therefrom. Under such circumstances, the
rent provided for herein shall not commence until possession of the Premises is
made available to Tenant and no such failure to give possession on the date of
commencement of the Term shall affect the validity of this Lease or the
obligations of the Tenant hereunder, and the Term shall be extended accordingly.
B. Subject to the provisions of Appendix "C" hereto, Landlord, at its sole
cost and expense, shall provide and furnish, free and clear of any and all liens
and claims of laborers, artisans, materialmen, suppliers and subcontractors, the
following (collectively, the "Work"): all labor, materials, supplies, apparatus,
equipment, fixtures, tools and implements required to fully construct, perform
and completely finish in a good and workmanlike manner, in accordance with all
applicable laws, ordinances, rules and regulations (including, without
limitation, all zoning, building, flood plain and control and health, safety and
environmental protection laws, rules and regulations), and in accordance with
the approved TI Budget (as defined below), which TI Budget shall provide for a
maximum ten (10%) percent construction fee, (inclusive of profit, g&a and
general conditions): (a) Base Building substantial completion of shell and core,
and all common areas of the Building sufficient to permit Tenant's access to and
use of the Premises for the purpose of installation by Tenant of its furniture,
and partitions, as well as telephones and data systems; and (b) the construction
of the Premises in accordance with the TI Plans and Specifications (as
hereinafter defined in Appendix "C"). Subject to Section 27 hereof, Landlord
shall substantially complete the Work ("Substantial Completion") on or prior to
November 1, 1999, and if for any reason other than the default or delay of
Tenant hereunder or delay resulting from the following improvements which may
require longer delivery times than normal: specialty or decorative light
fixtures; VAV and fan powered boxes; Herculite doors; custom receptionist desk,
or any approved Change Order which causes delay beyond November 1, 1999 (and to
the extent any such Change Order is approved, such November 1, 1999 date shall
be extended for the period of time reflected in the Change Order to complete
same), Substantial Completion shall not occur on November 1, 1999 (or such later
date as set forth in such Change Order), then Tenant shall be entitled to one
day's rent abatement for each day after November 1, 1999 until Substantial
Completion shall have occurred, and in all events if Substantial Completion
shall not have occurred on or prior to February 1, 2000, (the "Election Date"),
Tenant, at its election by written notice to Landlord (the "Election Notice")
shall have the right to either: (x) terminate the Lease effective as of the date
of such Election Notice, in which event Tenant shall receive an immediate refund
of all amounts theretofore paid by Tenant under the Lease (including, without
limitation, all amounts expended by Tenant in respect of the Work within or for
the benefit of the Premises in excess of Landlord's Construction Allowance (as
defined below); or (y) complete that portion of the Work attributable to the
Premises provided that: (1) said portion of the Work shall be limited to the
Premises only, except for Work required to those portions of the Building
necessary for Tenant to complete the Work in the Premises sufficient for Tenant
to occupy and use the Premises as herein provided; (2) Landlord's failure to
substantially complete the Work on or before the Election Date results from the
failure of the General Contractor to perform the Work in a timely manner; (3)
all Work affecting Building systems or common elements shall be subject to
review and approved by Landlord's Architect; and (4) Tenant's exercise of the
foregoing election in this subsection (y) shall not act to release Landlord of
its obligations hereunder; the provisions of Section 27 hereof shall not
however, notwithstanding anything to the contrary herein contained, act in any
manner to delay the Election Date and limit the rights of Tenant to deliver the
Election Notice if Substantial Completion has not occurred on or prior to the
Election Date, provided however, delays or defaults on the part of Tenant shall
delay the Election Date and the right of the Tenant to give the Election Notice.
C. The Premises shall be deemed to be ready for Tenant's occupancy if
only minor or insubstantial details of construction, decoration or mechanical
adjustments remain to be done in the Premises or any part thereof, or if the
delay in the availability of the Premises or any part thereof for occupancy
shall be due to special work, changes, alterations, or additions required or
made by Tenant in the layout or finishing of the Premises. Whether or not the
Premises are ready for occupancy shall be determined by; (i) the Jurisdiction in
which the
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<PAGE>
Property is located as set forth in the Lease Schedule, which shall evidence
same by authorizing Tenant's occupancy thereof, which authorization may be in
the form of oral or written permission to occupy which if in the form of written
permission, may be in the form of a temporary or permanent certificate of
occupancy; and (ii) a certification by Landlord's architect ("Landlord's
Architect") of such Substantial Completion, provided however, in the event a
licensed architect appointed by Tenant ("Tenant's Architect"), disagrees with
Landlord's Architect that Substantial Completion has occurred, then such two
architects shall jointly select a third architect, who shall be independent of
Tenant and Landlord, and such independent architect's determination shall be
final and binding upon the parties hereto. The cost of Tenant's and Landlord's
architects shall be borne by Tenant and Landlord, respectively, and if a third
architect is required as aforesaid, the cost of such third architect shall be
split equally between Tenant and Landlord. It is further understood that within
48 hours of initial occupancy, the parties shall jointly inspect the Premises
and prepare a "punch list" of incomplete items to be completed by Landlord
within a reasonable time after occupancy. Tenant agrees to provide a
supplemental "punch list" within thirty (30) days after occupancy encompassing
all items not then completed except for latent defects. Landlord agrees to the
extent reasonably possible to complete all "punch list items" within thirty (30)
days of receipt thereof.
4.
DEFINITIONS AS USED IN THIS LEASE
A. The term "Commencement Date" is the date of the beginning of the Lease
as set forth in the Lease Schedule.
B. The term "Tenant's Share" shall mean that amount set forth as such in
the Lease Schedule being the ratio which the rentable area of the Premises bears
to the entire rentable area in the Building. The Tenant's Share allocated to the
Premises as it relates to the Building as a whole, is not meant, nor shall it be
construed, as a representation by Landlord as to the rentable or useable square
footage of the Premises. The parties recognize that this ratio as well as the
area measurements are reasonable approximations that may not be exactly precise,
but both Landlord and Tenant accept such ratio and measurements as final and
binding for all purposes of this Lease.
C. The Term "Taxes" means any and all taxes of every kind and nature
whatsoever which Landlord shall pay or become obligated to pay during a calendar
year (regardless of whether such taxes were assessed or became a lien during,
prior or subsequent to the calendar year of payment) because of or in connection
with the ownership, leasing and operation of the Property including without
limitation, real estate taxes, personal property taxes, sewer rents, water
rents, special assessments, transit taxes, legal fees and court costs charged
for the protest or reduction of property taxes and/or assessments or an increase
therein in connection with the Premises including the Building, any tax or
excise on rent or any other tax (however described) on account of rental
received for use and occupancy of any or all of the Building and/or the
Premises, whether any such taxes are imposed by the United States, the state or
other local governmental municipality, authority or agency or any political
subdivision of any thereof in the Jurisdiction in which the Property is located.
Taxes shall not include any income, capital stock, estate or inheritance taxes.
D. (i) The term "Operating Costs" means to the extent the same are normal
and customary for properties substantially similar to the Property within the
five (5) mile radius thereof, and as the same are limited by this Section D, any
and all actual expenses, costs and disbursements (other than Taxes as defined in
Section 4(C)) of every kind and nature whatsoever incurred by Landlord in
connection with the ownership, management, maintenance, operation and repair of
the Property including, without limitation, interior and/or exterior energy
costs (including but not limited to the cost of electricity, steam, water, gas,
fuel, heating, lighting and air conditioning), easement maintenance expenses,
any and all common area expenses in the development in which the Property is
located, including but not limited to landscaping and other maintenance of
properties which benefit the Property, usual and customary property management
fees (not to exceed five (5%) percent of gross
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<PAGE>
rental receipts) and on-site management costs (including but not limited to
on-site management office rent, equipment costs, and other typical related
office expenses but only to the extent same relate to operations of the Property
and no other property), insurance costs (including but not limited to fire,
extended coverage, liability, workers' compensation and elevator insurance, as
well as all reasonable and customary deductibles paid by Landlord for damages
and injuries covered by policies of insurance maintenance for the Property, and
all sums paid to satisfy judgments rendered affecting the Landlord or the
Property to the extent not covered by Landlord's insurance and to the extent not
the result of the actions or inactions of Landlord) and routine repairs,
maintenance and interior and/or exterior decorating, wages, salaries, and
benefits of employees working at the Property on a full or part-time basis (but
only to the extent allocable to the operations of the Property and excluding
those above the level of property or building manager), uniforms, supplies,
sundries, sales or use taxes on supplies or services (but only to the extent
same relate solely to the Property), snow removal, parking lot repairs, legal
and accounting costs and expenses, (but only to the extent same relate solely to
the Property and in no event relating to the governance or other operation or
financial matters of Landlord) janitorial expenses, roof repairs, exterminating,
elevator maintenance, HVAC system maintenance, which Landlord shall be or become
obligated to pay in respect of a calendar year regardless of when such Operating
Costs were incurred which in accordance with generally accepted accounting or
management principles respecting first class buildings in the Jurisdiction in
which the Property is located would be considered as an expense of owning,
managing, operating, maintaining or repairing the Property.
(ii) Operating Costs shall not include:
(a) The cost of alterations, capital improvements, equipment
replacements, and other items which under generally accepted
accounting principles are properly classified as capital
expenditures.
(b) Expenses incurred for business interruption or rental value
insurance.
(c) Leasing commissions and/or expenses and advertising and
promotional expenses.
(d) Legal fees or other professional or consulting fees in
connection with the negotiation of tenant leases or
compliance with applicable law for owning, operation or
management of the Building to the extent said compliance
relates to the failure of Landlord to perform its respective
agreements, covenants, and liabilities hereunder.
(e) Repairs required to cure violations of laws enacted prior to
the date of the Lease and repairs required to cure
violations of laws enacted after the date of the Lease,
provided same relate to the failure of Landlord to perform
its respective agreements, covenants and liabilities
hereunder.
(f) The cost of repairs or replacements incurred by reason of
fire or other casualty or condemnation to the extent that
either (1) Landlord is compensated therefor through proceeds
of insurance or condemnation awards; (2) Landlord failed to
obtain insurance against such fire or casualty, if insurance
was available at a commercially reasonable rate, against a
risk of such nature at the time of same; or (3) Landlord is
not fully compensated therefor due to the coinsurance
provisions of its insurance policies on account of
Landlord's failure to obtain a sufficient amount of coverage
against such risk. Notwithstanding the foregoing, Landlord's
reasonable insurance deductibles shall be deemed as
Operating Costs.
(g) Damage and repairs necessitated by the negligence or willful
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<PAGE>
misconduct of Landlord, Landlord's employees, or agents.
(h) Compensation paid to officers or executives of the Landlord
above the level of building or property manager.
(i) That portion of salaries of service personnel to the extent
such salaries are applicable and relate to performance of
services by such personnel other than in connection with the
management, operation, repair, or maintenance of the
Building.
(j) The cost of incremental expense to Landlord incurred by
Landlord in curing its defaults.
(k) Legal fees, accounting fees, and other expenses incurred
specifically in connection with disputes with tenants or
occupants of the Building or associated with the enforcement
of the terms of any leases with tenants or the defense of
Landlord's title or interest in the Building or any part
thereof.
(l) Costs (including permits, licensing, and inspection fees)
incurred in renovations or otherwise improving, decorating,
painting, or altering space for tenants or other occupants
of vacant space (excluding common areas) in the Building.
(m) Any cash or other consideration paid by Landlord on account
of, with respect to, or in lieu of the tenant work or
alterations described in subsection (1) above.
(n) Cost of any service provided to tenants or other occupants
of the Building for which Landlord is entitled to be
reimbursed.
(o) Interest and principal payments on mortgages.
(p) Depreciation.
(q) Landlord shall not collect in excess of one hundred (100%)
percent of Operating Costs and shall not recover any items
of cost more than once.
(iii) Provided however:
(a) The cost of any capital improvements to the Building made
after the date of this Lease which are (1) intended to
reduce Operating Costs or (2) required to cause the Building
to comply with the Americans with Disabilities Act or (3)
which are required under any governmental laws, regulations,
or ordinances which were not applicable to the Building as
of the date hereof, amortized on a level pay debt service
basis over fifteen (15) years, with interest at ten (10%)
percent per annum shall be included in Operating Costs.
(b) If the Building is not at least ninety-five (95%) percent
occupied by tenants during all or a portion of any calendar
year, then Landlord may elect to make an appropriate
adjustment for such year of components of Operating Costs
and the amounts thereof which may vary depending upon the
occupancy level of the Building or with the number of
tenants using the service, such that tenants then occupying
space in the Building will pay their respective
proportionate shares of the amount of such variable
components of Operating Costs which would have been incurred
if the Building had been ninety-five (95%) percent occupied
during the entire
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calendar year and Landlord had paid or incurred such costs
and expenses for the calendar year. Any such adjustments
shall be deemed costs and expenses paid or incurred by
Landlord and included in Operating Costs for such calendar
year.
5.
BASE RENT
A. Except as otherwise provided herein, Tenant shall pay as initial Base
Rent to Landlord the Annual Base Rent as set forth in the Lease Schedule in
equal monthly installments as set forth as the Monthly Base Rent in the Lease
Schedule in advance on the first day of the first full calendar month and on the
first day of each calendar month thereafter during the Term, and at the same
rate for fractions of a month if the Term shall begin on any day except the
first day or shall end on any day except the last day of a calendar month,
provided however so long as Tenant is not in default, Base Rent shall be abated
until March 1, 2000.
B. Any rent (whether Base Rent or additional rent) or other amount due from
Tenant to Landlord under this Lease not paid when due shall incur a late fee
equal to interest from the receipt of notice from Landlord until the date paid
at the annual rate of Four (4%) Percent above the prime rate as set forth as the
Base Rate on Corporate Loans published by the Wall Street Journal from time to
time, but the payment of such interest shall not excuse or cure any default by
Tenant under this Lease. The covenants herein to pay rent (both Base Rent and
additional rent) shall be independent of any other covenant set forth in this
Lease.
C. Base Rent and all of the rent provided herein shall be paid without
deduction or off-set in lawful money of the United States of America to c/o
Lawrence M. Freedman, Ash, Anos, Freedman & Logan, L.L.C., 77 West Washington
Street, Suite 1211, Chicago, IL 60602 or as designated from time to time by
written notice from Landlord, provided Tenant shall have the right to pay by
wire transfer and Landlord agrees to provide account information on request for
such purpose.
6.
ADDITIONAL RENT
TAXES
A. It is further agreed between the parties hereto that in addition to the
rental provided for herein that Tenant will also pay during the term of this
Lease, as additional rent, an amount equal to Tenant's Share of the Taxes,
provided however so long as Tenant is not in default Tenant shall not be
responsible for any Taxes until the Rent Commencement Date.
OPERATING COSTS
B. It is further agreed between the parties hereto that in addition to the
rental provided for herein that Tenant shall also pay during the term of this
Lease, as additional rent, an amount equal to Tenant's Share of the Operating
Costs, provided however: (i) so long as Tenant is not in default, Tenant shall
not be responsible for any Operating Costs until the Rent Commencement Date; and
(ii) for the first five (5) years of the Term those components of Operating
Costs which are subject to Landlord's reasonable control shall not exceed one
hundred five (105%) percent of such components for the immediately preceding
year. It is understood that snow removal, utility costs, and wages of union
personnel shall not be deemed to be components the cost of which are within
Landlord's reasonable control.
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<PAGE>
7.
RENT ADJUSTMENT PAYMENT
A. Sixty (60) days prior to the commencement of the Term, Landlord shall
deliver to Tenant a written statement setting forth Landlord's good faith
estimate of Tenant's Share of Taxes and Operating Costs (a "Taxes and Operating
Cost Statement") for the remainder of the calendar year in which the Term
commences. Thereafter, prior to January 1 of each subsequent calendar year, or
from time to time during each subsequent calendar year, Landlord shall deliver
an estimated Taxes and Operating Cost Statement pertaining to each such
forthcoming calendar year. Commencing on the first full calendar month of the
Term and on the first day of each calendar month thereafter during the Term,
Tenant shall pay one-twelfth (1/12th) of Tenant's Share of Taxes and Operating
Costs as estimated by Landlord. Not less than once in each calendar year after
the initial year of the Term, Landlord shall furnish to Tenant a written
statement showing in reasonable detail actual Operating Costs and Taxes for the
preceding year for which such statement is furnished and showing the amount, if
any, of rental adjustment due for such year. Landlord shall use its best efforts
to deliver such statement on or before March 31 of each year, but in no event
later than June 1.
B. Subject to paragraph 6.D hereof, on the monthly rental payment date (the
"adjustment date") next following Tenant's receipt of each such annual
statement, Tenant shall pay to Landlord as additional rent an amount equal to
the sum of the net aggregate rental adjustment shown on each such annual
statement less the amount, if any, of the total estimated additional rent paid
by Tenant during the preceding calendar year.
C. In the event that any such settlement required above indicates that the
total additional rent paid by Tenant during the preceding calendar year exceeds
the aggregate rental payable by Tenant for such calendar year, Landlord shall
apply such excess on any amounts of additional rent next falling due under this
Lease as long as Tenant is not then in default of any of the terms and
provisions of this Lease, or upon expiration of the Lease pay any such amount to
Tenant.
D. The annual determination of Taxes and Operating Cost Statement shall be
prepared in accordance with generally acceptable cash basis accounting
principles. Tenant using either its own employee(s) or its certified public
accountant shall have the right to inspect at reasonable times and in a
reasonable manner, at the Landlord's office, such of the Landlord's books of
account and records as pertain to or contain information concerning the items
included in Operating Costs and Taxes for that year in order to verify the
amounts thereof. Any and all information obtained through the Tenant's
inspection with respect to financial matters (including, without limitation,
costs, expenses, income) and any and all other matters pertaining to the
Landlord and/or the Property as well as any compromise, settlement, or
adjustment reached between Landlord and Tenant relative to the results of any
such inspection shall be held in strict confidence by the Tenant and its
officers, agents, and employees; and Tenant shall cause its certified public
accountant and any of its officers, agents, and employees to be similarly bound.
If Tenant shall dispute any item or items included in the Operating Costs or
Taxes for such year, and such dispute is not resolved by the parties within
ninety (90) days after such statement is delivered to Tenant, then either party
may at its sole expense, within thirty (30) days thereafter, request that a firm
of independent certified public accountants mutually selected by Landlord and
Tenant ("Independent Review") render to the parties an opinion as to whether or
not the disputed item or items should have been included in the Operating Costs
and/or Taxes for such year; and the opinion of such firm on such matter shall be
conclusive and binding upon both parties, provided however, it shall be a
further condition of Tenant's right to conduct an Independent Review that the
firm conducting the Independent Review shall not be retained upon the basis of
all or a portion of its fees being contingent based upon the results of the
Independent Review. Landlord and Tenant agree that the firm's opinion shall be
confidential and shall not be disclosed to any other party whatsoever. In the
event such Independent Review discloses that the amount due from Tenant was
overstated in excess of five (5%)
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percent on an annualized basis, Landlord shall bear the reasonable cost of such
Independent Review. In all other cases, Tenant shall bear the cost of such
Independent Review. Tenant employee(s) or certified public accountants may
examine the records of Landlord supporting the Taxes and Operating Cost
Statement at Landlord's or the Management Agent's office during normal business
hours within forty-five (45) days after the Taxes and Operating Statement is
furnished. Unless Tenant takes written exception to any item within ninety (90)
days after the furnishing of the Taxes and Operating Statement (which shall be
noted on the item as "paid under protest"), such Statement shall be considered
as final and accepted by Tenant. Tenant shall promptly tender payment for any
undisputed items and shall tender payment for any disputed items within ten (10)
days after the resolution of any such dispute.
E. In no event shall any rent adjustment result in a decrease of the Base
Rent as set forth in the Lease Schedule.
F. In the event of the termination of this Lease by expiration of the
stated term or for any other cause or reason whatsoever prior to the
determination of rental adjustment as hereinabove set forth, Tenant's agreement
to pay additional rental accrued up to the time of termination, and Landlord's
obligation to pay any sums to Tenant shall survive the expiration or termination
of the Lease.
8.
HOLDING OVER
Should Tenant hold over after the termination of this Lease, by lapse of
time or otherwise, Tenant shall become a tenant from month to month only upon
each and all of the terms herein provided as may be applicable to such month to
month tenancy and any such holding over shall not constitute an extension of
this Lease; provided, however, during such holding over, Tenant shall pay Base
Rent and all Additional Rent (as heretofore adjusted, or as estimated by
Landlord) for the first thirty (30) days of such holdover at One Hundred
Twenty-Five (125%) Percent of the rate payable for Base Rent and all Additional
Rent for the month immediately preceding said holding over, and thereafter at
One Hundred Seventy-Five (175%) Percent of such rate, and in addition, Tenant
shall pay Landlord all direct damages, sustained by reason of Tenant's holding
over. The provisions of this paragraph do not exclude the Landlord's rights of
re-entry or any other right hereunder.
9.
BUILDING SERVICES
A. Landlord agrees to furnish to the Premises and the common areas during
reasonable hours (8:00 A.M. to 6:00 P.M. Mondays through Fridays and 8:00 A.M.
to 1:00 P.M. on Saturdays) except for the following legal holidays: Memorial
Day, July 4th, Labor Day, Thanksgiving, Christmas and New Years Day, and subject
to the rules and regulations of the Building, passenger and elevator service to
the extent applicable, heat and air conditioning in accordance with the design
for such systems and as required in Landlord's reasonable judgment for the
comfortable use and occupancy of the Premises and common areas, subject to
scheduling by Landlord. Landlord shall also furnish janitorial and cleaning
services in and about the Premises, Saturdays, Sundays excepted, comparable to
the standard janitor services furnished by other first class office buildings in
the Jurisdiction which the property is located and further agrees to maintain
and operate the Building in the manner and to the standard of other first class
office buildings in the Jurisdiction which the property is located. Landlord
further agrees, except for the interior of the Premises (other than Building
systems, equipment or components), to maintain the Property in good condition
and repair, including but not limited to snow removal, landscaping, and parking
lot, provided that the cost of same may be included in Operating Costs.
B. Except to the extent same are caused by the failure of Landlord to
perform its respective agreements, covenants, and obligations hereunder, neither
Landlord nor any company, firm or individual, operating, maintaining, managing
or supervising the plant or
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facilities furnishing the services included in Landlord's energy costs nor
any of their respective agents, beneficiaries, or employees, shall be liable
to Tenant, or any of Tenant's employees, agents, customers or invitees or
anyone claiming through or under Tenant, for any damages, injuries, losses,
expenses, claims or causes of action, because of any interruption or
discontinuance at any time for any reason in the furnishing of any of such
services, or any other service to be furnished by Landlord as set forth
herein; nor shall any such interruption or discontinuance relieve Tenant from
full performance of Tenant's obligations under this lease. Provided however
to the extent that the Premises are rendered untenantable for seventy-two
(72) consecutive hours or more as a result of the act or omission of
Landlord, rent shall abate until tenantability is restored.
C. Electricity shall not be furnished by Landlord, but except as
otherwise hereinafter provided, shall be furnished by the approved electric
utility company serving the area ("Electric Service Provider"). Landlord
shall permit the Tenant to receive such service direct from such public
utility company at Tenant's cost, and shall permit Landlord's wire and
conduits, to the extent available, suitable and safely capable, to be used
for such purposes. Tenant shall make all necessary arrangements with the
local utility company for metering and paying for electric current furnished
by it to Tenant and Tenant shall pay for all charges for electric current
consumed on the Premises during Tenant's occupancy thereof. The electricity
used during the performance of janitorial service, the making of alterations
or repairs in the Premises, and for the operation of the Premises' air
conditioning system at times other than as provided herein; or the operation
of any special air conditioning systems which may be required for data
processing equipment or for other special equipment or machinery installed by
Tenant, shall be paid for by Tenant. Tenant shall make no alterations or
additions to the Building's electric equipment and/or appliances without the
prior written consent of the Landlord in each instance, which consent shall
not be unreasonably withheld. Tenant also agrees to purchase from the
Landlord or its agent all lamps, bulbs after the initial installation
thereof, ballasts and starters used in the Premises, provided however that
the availability, quality, and cost of any such items shall be comparable to
that available to Tenant from other suppliers. Tenant covenants and agrees
that at all times its use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installed thereon. If
Tenant shall require water or electric current in excess of that which is
respectively obtainable from existing water pipes or electrical outlets and
normal for use of the Premises as general office space, Tenant shall first
procure the consent of Landlord, which Landlord may not unreasonably refuse.
If Landlord consents to such excess water or electric requirements, Tenant
shall pay all costs including but not limited to meter service and
installation of facilities necessary to furnishing such excess capacity.
D. (1) Landlord has advised Tenant that presently Electric Service
Provider is the utility company selected by Landlord to provide electricity
service for the Building. Notwithstanding the foregoing, to the extent
permitted by law, Landlord shall have the right at any time and from time to
time during the Term to either contract for service from a different company
or companies providing electricity service (each such company hereinafter
described as an "Alternate Service Provider") or continued to contract for
service from the Electric Service Provider, provided that any portion of the
cost of such service to Tenant shall be based upon the cost thereof as
changed by said Alternate Provider with no additional fee to Landlord.
(2) 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, writing, and any other machinery within the Premises.
10.
CONDITION OF THE PREMISES
A. Subject to latent defects and "punch lists" heretofore referred to by
taking
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possession of the Premises, Tenant shall be deemed to have agreed that the
Premises were as of the date of taking possession, in good order, repair and
condition. No promises of the Landlord to alter, remodel, decorate, clean or
improve the Premises or the Building and no representation or warranty
expressed or implied, respecting the condition of the Premises or the
Building has been made by the Landlord to Tenant, unless the same is
contained herein or made a part hereof.
B. Tenant shall, at its own expense, keep the Premises in good repair
and tenantable condition, and shall promptly and adequately repair all
damages to the Premises under the supervision and with the approval of
Landlord and within a reasonable period of time as specified by Landlord,
loss by ordinary wear and tear, fire and other casualty excepted. If Tenant
does not do so promptly and adequately, Landlord may, but need not, make such
repairs and Tenant shall pay Landlord immediately upon request by Landlord.
C. The parties acknowledge that the Americans With Disabilities Act of
1990 (42 U.S.C. 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
under Title III of the ADA ("Title III") pertaining to business operations,
accessibility and barrier removal, and that such requirements may be unclear
and may or may not apply to the Premises and the Building depending on, among
other things: (1) whether Tenant's business operations are deemed a "place of
public accommodation" or a "commercial facility," (2) whether compliance with
such requirements is "readily achievable" or "technically infeasible," and
(3) whether a given alteration affects a "primary function area" or triggers
so-called "path of travel" requirements. Landlord represents that the
Building, as of the date of commencement hereof complies with Title III.
Tenant shall be responsible for all Title III compliance and costs in
connection with the Premises (including structural work, if any, and
including leasehold improvements or other work to be performed in the
Premises under or in connection with this Lease) to the extent that same
arises out of matters specific to Tenant's activities or operations or
resulting from alterations to the Premises made by Tenant.
11.
USES PROHIBITED
Tenant shall not use, or permit the Premises or any part thereof to be
used, for any purpose or purposes other than as specified the Lease Schedule.
No use shall be made or permitted to be made of the Premises, nor acts done,
which will increase the existing rate of insurance upon the Building, or
cause a cancellation of any insurance policy covering the Building, or any
part thereof, nor shall Tenant sell, or permit to be kept, used or sold, in
or about the Premises, any article which may be prohibited by Landlord's
insurance policies. Tenant shall not commit or suffer to be committed, any
waste upon the Premises, or any public or private nuisance or other act or
thing which may disturb the quiet enjoyment of any other Tenant in the
Building, nor, without limiting the generality of the foregoing, shall Tenant
allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose. Tenant agrees at all times to cause the Premises to be
operated in compliance with all federal, state, local or municipal laws,
statutes, ordinances, and rules and regulations, including but not limited to
those relating to zoning, environmental protection, health, and safety.
Tenant further agrees to promptly cure any such violation at its own expense,
and shall furthermore defend and indemnify Landlord, beneficiaries,
mortgagees, and officers, agents, and employees thereof respectively, for any
and all liability, loss, costs (including attorneys' fees and expenses),
damages, responsibilities or obligations incurred as a result of any
violation of any of the foregoing. Tenant shall upon request of Landlord
certify in writing that it has not received any notice of non-compliance with
applicable local, state and federal environmental rules, regulations,
statutes and laws for the preceding year. At the request of the Landlord,
Tenant shall submit to the Landlord, or shall make available for inspection
and copying upon reasonable notice and at reasonable times, any or all of the
documents and materials prepared by or for Tenant pursuant to any
environmental law or regulation or submitted to any governmental regulatory
agency in conjunction therewith. Upon reasonable
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notice except in cases of emergency, Landlord shall have reasonable access to
the Premises to inspect the same to confirm that the Tenant is using the
Premises in accordance with local, state and federal environmental rules,
regulations, statutes and laws. Tenant shall, at the request of the Landlord
and at the Tenant's expense, conduct such testing and analysis as is
necessary to ascertain whether the Tenant is using the Premises in compliance
with all local, state and federal environmental rules, regulations, statutes
and laws, provided however, Landlord shall not request that Tenant conduct
such tests unless Landlord has a reasonable basis for belief that Tenant may
be in violation of the foregoing rules, regulations, statutes, or laws. Said
tests shall be conducted by qualified independent experts chosen by the
Tenant and subject to Landlord's reasonable approval. Copies of reports of
any such tests shall be provided to the Landlord. The provisions within this
paragraph shall survive termination of this Lease and shall be binding upon
and shall inure to the benefit of the parties hereto, their respective
successors and assigns, and mortgagees thereof
12.
COMPLIANCE WITH LAW
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which in any way conflict with any law, statute, ordinance
or governmental rule or regulation now in force or which may hereafter be
enacted or promulgated. Tenant shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force
and with the requirements of any board of fire underwriters or other similar
body now or hereafter constituted relating to or affecting the condition, use
or occupancy of the premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent Jurisdiction or the admission of Tenant in an action against Tenant
whether Landlord be a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement shall be
conclusive of that fact as between Landlord and Tenant.
13.
ALTERATIONS AND REPAIRS
A. Tenant shall keep the Premises in good condition and repair ordinary
wear and tear and loss by fire and other casualty excepted, and shall not do
any painting or decorating, or erect any partitions, make any alterations in
or additions, changes or repairs to the Premises without the Landlord's prior
written approval in each and every instance, such consent not to be
unreasonably withheld, provided however, Landlord's consent shall not be
required so long as: (i) Landlord is given prior notice thereof; (ii)
Landlord is given as-built plans upon completion for alterations and repairs
which are affixed to the Premises; (iii) structure, roof, and building
systems are not affected; (iv) the aggregate cost does not exceed FIFTY
THOUSAND ($50,000.00) DOLLARS; and (v) Tenant obtains all necessary permits.
It shall not be unreasonable for Landlord to withhold approval of any
alteration or addition which impacts structure or any Building system, or
which would otherwise result in requiring additional improvements to the
Premises and/or the Property, or result in a labor dispute. Unless otherwise
agreed by Landlord and Tenant in writing, all such work shall be performed
either by or under the direction of Landlord, but at the cost of Tenant.
During the term of this Lease, no work shall be performed by or under the
direction of Tenant without the express written consent of Landlord. Unless
otherwise provided by written agreement, all alterations, improvements, and
changes shall remain upon and be surrendered with the Premises, excepting
however that at Landlord's option, Tenant shall, at its expense, when
surrendering the Premises, remove from the Premises and the Building all
alterations, improvements, and changes (other than initial Work) and further
provided that Tenant shall, on the election of Landlord, remove any trade
fixtures provided the Premises are restored to a condition reasonably
satisfactory to Landlord. If Tenant does not remove said additions,
decorations, fixtures, hardware, non-trade fixtures and improvements after
request to do so
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by Landlord, Landlord may remove the same and Tenant shall pay the cost of such
removal to Landlord upon demand. Except to the extent of Landlord's negligent or
willful act or omission, Tenant hereby agrees to hold Landlord and Landlord's
beneficiaries, their agents and employees harmless from any and all liabilities
of every kind and description which may arise out of or be connected in any way
with said alterations or additions. Any mechanic's lien filed against Premises,
or the Building or the Property, for work claimed to have been furnished to
Tenant shall be discharged of record by Tenant within ten (10) days thereafter,
at Tenant's expense, provided however Tenant shall have the right to contest any
such lien on the posting of reasonably sufficient security.
B. Tenant shall, at the termination of this Lease, surrender the Premises
to Landlord in as good condition and repair as reasonable and proper use thereof
will permit, loss by ordinary wear and tear, fire or other casualty excepted.
14.
ABANDONMENT OF PERSONAL PROPERTY
During the term, if Tenant shall abandon, vacate or surrender (whether at
the end of the stated term or otherwise) the Premises, or be dispossessed by
process of law, or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed abandoned, at the option of the Landlord.
15.
ASSIGNMENT AND SUBLETTING
A. Tenant shall not assign this Lease, or any interest therein and shall
not sublet the Premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person to occupy or use the Premises,
or any portion thereof, without the written consent of Landlord first had and
obtained, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Landlord's consent shall not be required for
assignments or subleases of all or a major portion of the Premises, so long as:
(i) the use of the Premises does not change and the proposed assignee or
sublessee is not a governmental agency, school, or medical office; (ii) Landlord
is given prior notice thereof; and (iii) the net worth of such assignee or
sublessee is not less than THIRTY-FIVE MILLION ($35,000,000.00) DOLLARS as
evidenced by an audited financial statement prepared in accordance with
generally accepted amounting principles by a nationally recognized public
accounting firm. In the event of an assignment or sublease which meets the
foregoing criteria in sections (i)-(iii) of this Section 15.A, Tenant and
Guarantor shall be released from further liability. Otherwise no such assignment
or sublease shall release Tenant or Guarantor of their respective obligations
under this Lease.
B. Except for assignments and subleases to affiliates or subsidiaries (for
which no consent of Landlord shall be required under A above if Guarantor shall
remain liable under its Guaranty), Tenant shall, by notice in writing, advise
Landlord of its intention from on and after a stated date (which shall not be
less than sixty (60) days after the date of Tenant's notice) to assign or to
sublet any such part of all of the Premises for the balance or any part of the
Term, and, in such event Landlord shall have the right, to be exercised by
giving written notice to Tenant thirty (30) days after receipt of Tenant's
notice, to recapture the space described in Tenant's notice and such recapture
notice shall, if given, cancel and terminate this Lease with respect to the
space therein described as of the date stated in Tenant's notice. Tenant's said
notice shall state the name and address of the proposed subtenant or assignee,
the proposed subtenant's or assignee's intended use of the Premises, and shall
include the potential subtenant's or assignee's most current certified financial
statement, and a true and complete copy of the proposed assignment or sublease
or form of assignment shall be delivered to Landlord with said notice. If
Tenant's notice shall cover all of the space hereby demised and if Landlord
shall give the aforesaid recapture notice with respect thereto, the
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Term of this Lease shall expire and end on the date stated in Tenant's notice
as fully and completely as if that date had been herein definitely fixed for
the expiration of the Term. If, however, this Lease be canceled pursuant to
the foregoing with respect to less than the entire Premises, the rental and
the escalation percentages herein reserved shall be adjusted on the basis of
the number of square feet retained by Tenant in proportion to the rent and
escalation percentages reserved in this Lease, and this Lease as so amended
shall continue thereafter in full force and effect. If Landlord, upon
receiving Tenant's said notice with respect to any such space, shall not
exercise its right to cancel as aforesaid, Landlord will not unreasonably
withhold its consent to Tenant's assigning or subletting the space covered by
its notice, provided; (i) at the time thereof Tenant is not in default under
this Lease, (ii) Landlord, in its sole discretion reasonably exercised,
determines that the reputation, business, proposed use of the Premises and
financial responsibility of the proposed sublessee or occupant, as the case
may be, of the Premises are satisfactory to Landlord, (iii) any assignee or
subtenant shall expressly assume all the obligations of this Lease on
Tenant's part to be performed; (iv) such consent if given shall not release
Tenant of any of its obligations (including, without limitation, its
obligation to pay rent) under this Lease, (v) Tenant agrees specifically to
pay over to Landlord, as additional rent, all sums received by Tenant under
the terms and conditions to such assignment or sublease, which are in excess
of the amounts otherwise required to be paid pursuant to the Lease; (vi) a
consent to one assignment, subletting occupation or use shall be limited to
such particular assignment, sublease or occupation and shall not be deemed to
constitute Landlord's consent to an assignment or sublease to or occupation
by another person. Any such assignment or subletting without such consent
shall be void and shall, at the option of Landlord, constitute a default
under this Lease. Tenant will pay all of Landlord's costs associated with any
such assignment or subletting including but not limited to reasonable legal
fees; and (vii) the person or entity to whom Tenant wishes to assign or
sublet is not (nor, immediately prior to such assignment or sublease, was) a
tenant or occupant in the Buildings; or any other building owned or operated
by Landlord or any affiliate thereof, in the same complex as the Building.
16.
SIGNS
Tenant shall not place or affix any exterior or interior signs visible from
the outside of the Premises. For purposes of this Lease, "signs" shall include
all signs, designs, monuments, logos, banners, projected images, pennants,
decals, advertisements, pictures, notices, lettering, numerals, graphics, or
decorations. Notwithstanding the foregoing, Landlord agrees to provide, at
Landlord's cost which shall not be included in Tenant's allowance for the Work,
a monument sign upon which Tenant may, at Tenant's expense, including
installation of Tenant's letters, have identification on approximately fifty
(50%) percent thereof, which sign shall be subject to the reasonable approval of
Landlord and the approval of the Jurisdiction in which the Property is located.
Landlord further agrees that unless provided to Tenant, no other tenant will be
entitled to a sign on the Building, nor shall any other tenant have more
prominent signage than Tenant.
17.
DAMAGE TO PROPERTY - INJURY TO PERSONS
A. Tenant, as a material part of the consideration to be rendered to
Landlord under this Lease, to the extent permitted by law, hereby waives all
claims except claims caused by or resulting from the non-performance of the
Landlord, willful or negligent act or omission of Landlord, its agents, servants
or employees which Tenant or Tenant's successor or assigns may have against
Landlord, its agents, servants, or employees for loss, theft or damage to the
property and for injuries to persons in, upon or about the Premises or the
Building from any cause whatsoever. Tenant will hold Landlord, its agents,
servants, and employees exempt and harmless from and on account of any damage or
injury to any person, or to the goods, wares, and merchandise of any person,
arising from the uses of the Premises by Tenant or arising
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from the failure of Tenant to keep the Premises in good condition as herein
provided if non-performance by the Landlord or negligence of the Landlord, its
agents, servants or employees does not contribute hereto. Neither Landlord nor
its agents, servants, employees shall be liable to Tenant for any damage by or
from any act or negligence of any co-tenant or other occupant of the same
Building, or by any owner or occupant of adjoining or contiguous property,
provided however, that the provisions of this paragraph shall not apply to
negligent or willful act or omission of Landlord or misconduct of any such
individuals or entities. Tenant agrees to pay for all damage to the Building or
the Premises, as well as all damage to tenants or occupants thereof caused by
Tenant's misuse or neglect of the Premises, its apparatus or appurtenances or
caused by any licensee, contractor, agent or employees of Tenant.
B. Particularly, but not in limitation of the foregoing paragraph, all
property belonging to Tenant or any occupant of the Premises that is in the
Building or the Premises shall be there at the risk of Tenant or other person
only, and Landlord or its agent, servants, or employees (except in case of
non-performance by the Landlord or negligent or willful act or omission of
Landlord or its agents, servants, employees) shall not be liable for: damage to
or theft of or misappropriation of such property; nor for any damage to property
entrusted to Landlord, its agents, servants, or employees, if any; nor for the
loss of or damage to any property by theft or otherwise, by any means
whatsoever, nor for any injury or damage to persons or property resulting from
fire, explosion, falling plaster, steam, gas, electricity, snow, water or rain
which may leak from any part of the Building or from the pipes, appliances or
plumbing works therein or from the roof, street or subsurface or from any other
place or resulting from dampness or any other cause whatsoever; nor for
interference with the light or other incorporeal hereditaments, nor for any
latent defect in the Premises or in the Building. Tenant shall give prompt
notice to Landlord in case of fire or accidents in the Premises or in the
Building or of defects therein or in the fixtures or equipment.
C. In case any action or proceeding be brought against Landlord by reason
of any obligation on Tenant's part to be performed under the term of this Lease,
or arising from any act or negligence of the Tenant, or of its agents or
employees, Tenant, upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord.
D. Tenant shall maintain in full force and effect during the term of this
Lease (including any period prior to the beginning of the term during which
Tenant has taken possession and including also any period of extension of the
Term in which Tenant obtains possession), in responsible companies approved by
Landlord (i) special causes of loss coverage insurance covering all Tenant's
property in, on or about the Premises, with full waiver of subrogation rights
against Landlord in an amount equal to the full replacement cost of such
Property, and (ii) commercial general liability insurance including products and
completed operations insuring Tenant against all claims, demands or action for
bodily injury and property damage with limits of not less than TWO MILLION
($2,000,000.00) DOLLARS or THREE MILLION ($3,000,000.00) DOLLARS each occurrence
and in the aggregate. A separate limit of TWO MILLION ($2,000,000.00) DOLLARS or
THREE MILLION ($3,000,000.00) DOLLARS each occurrence and in the aggregate shall
be provided for products and completed operations or such other amounts as
Landlord may reasonably require from time to time and (iii) rental insurance
equal to one year's rent insurance naming Landlord as loss payee. All liability
policies shall cover the entire demised premises. Landlord shall maintain in
full force and effect during the term of this Lease special causes of loss
coverage insurance for the full replacement cost of the Building, the premium
for which shall be included in the Operating Costs.
E. All such policies shall name Landlord, any mortgagees of Landlord, and
all other parties designated by Landlord as additional parties insured. All
insurance policies shall indicate that at least thirty (30) days prior written
notice shall be delivered to all additional parties insured by the insurer prior
to modification, termination, or cancellation of such insurance and Tenant shall
provide Certificates of Insurance, not less than ten (10) days prior to the
Commencement Date, evidencing the aforesaid coverage to all insured parties.
Failure of Tenant to provide the insurance coverage set forth in subparagraphs
(ii) and (iii) in the
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immediately preceding paragraph shall entitle Landlord to either (a) treat said
failure as a default and/or (b) obtain such insurance and charge Tenant the
premiums therefor plus interest thereon as additional rent. Tenant shall not
violate or permit a violation of any of the conditions or terms of any such
insurance policies and shall perform and satisfy all reasonable requirements of
the insurance company issuing such policies. With respect to any insurance
policy procured to comply with any financial assurance requirement imposed by
any state or federal law or regulation, or to any other casualty, property, or
environmental impairment insurance purchased by Tenant, such policy or policies
shall name Landlord and any mortgagees of Landlord as additional parties
insured.
18.
DAMAGE OR DESTRUCTION
In the event the Premises or the Building are damaged by fire or other
insured casualty and the insurance proceeds have been made available therefor by
the holder or holders of any mortgages or deeds of trust covering the Building,
the damage shall be repaired by and at the expense of Landlord to the extent of
such insurance proceeds available therefor, provided such repairs can, in
Landlord's reasonable opinion, be made within one hundred eighty (180) days
after the occurrence of such damage without the payment of overtime or other
premiums. Until such repairs are completed, the rent shall continue to be paid
by Tenant's rental insurance and shall otherwise be abated to the extent the
Premises are rendered untenantable. If repairs cannot, in Landlord's reasonable
opinion be made within one hundred eighty (180) days, Landlord shall notify
Tenant within thirty (30) days the occurrence of such damage of its
determination, in which event, or in the event such repairs are commenced but
are not substantially completed within one hundred eighty (180) days of the date
of such occurrence, either party may, by written notice to the other, cancel
this Lease as of the date of the occurrence of such damage. In the event
Landlord commences repairs, and same are not substantially completed within one
hundred eighty (180) days after occurrence of such damage, Tenant may elect to
terminate the Lease. Except as provided in this Section, there shall be no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business or property arising from any such fire or
other casualty or from the making or not making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant understands that Landlord
will not carry insurance of any kind on Tenant's furniture or furnishings or on
any fixtures or equipment removable by Tenant under the provisions of this
Lease and that Landlord shall not be obliged to repair any damage thereto or
replace the same. Landlord shall not be required to repair any injury or damage
caused by fire or other cause, or to make any repairs or replacements to or of
improvements installed in the Premises by or for Tenant.
19.
ENTRY BY LANDLORD
Landlord and its agents shall have the right to enter the Premises at all
reasonable times (upon reasonable notice except in cases of emergency) for the
purpose of examining or inspecting the same, to supply janitorial services and
any other service to be provided by Landlord to Tenant hereunder or any other
tenants, to show the same to prospective purchasers or tenants of the Building,
and make such alterations, repairs, improvements, or additions, whether
structural or otherwise, to the Premises or to the Building as Landlord may deem
necessary or desirable. Landlord may enter by means of a master key without
liability to Tenant except for any failure to exercise due care for Tenant's
property and without affecting this Lease. Landlord shall use reasonable efforts
on any such entry not to unreasonably interrupt or interfere with Tenant's use
and occupancy of the Premises. Landlord agrees not to enter the Premises to show
same to prospective tenants prior to ten (10) months before scheduled expiration
of the Lease, which time shall be extended to twelve (12) months in the event
Tenant has not elected to renew this Lease for any subsequent
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period.
20.
INSOLVENCY OR BANKRUPTCY
A. In the event that Tenant shall become a debtor under Chapter 7, 11 or 13
of the Bankruptcy Code ("Debtor") and the trustee ("Trustee") or Tenant shall
elect to assume this Lease for the purpose of assigning the same or otherwise,
such election and assignment may only be made if all of the terms and conditions
of Sections 20.B and 20.D hereof are satisfied. The Tenant acknowledges that it
is essential to the ability of Landlord to continue servicing the mortgage on
the Building that a decision on whether to assume or reject this Lease be made
promptly. Under these circumstances, Tenant agrees that should Tenant, as
debtor-in-possession ("Debtor-in-Possession") or any Trustee appointed for
Tenant, fail to elect to assume this Lease within sixty (60) days after the
filing of the petition under the Bankruptcy Code ("Tenant's Petition"), this
Lease shall be deemed to have been rejected. Tenant further knowingly and
voluntarily waives any right to seek additional time to affirm or reject the
Lease and acknowledges that there is no cause to seek such extension. If Tenant,
as Debtor-in-Possession, or the Trustee abandons the Premises, the same shall be
deemed a rejection of the Lease. Landlord shall be entitled to at least thirty
(30) days prior written notice from Tenant, as Debtor-in-Possession, or its
Trustee of any intention to abandon the Premises. Landlord shall thereupon be
immediately entitled to possession of the Premises without further obligation to
Tenant or the Trustee, and this Lease shall be cancelled, but Landlord's right
to be compensated for damages in such liquidation proceeding shall survive.
B. No election by the Trustee or Debtor-in-Possession to assume this Lease,
whether under Chapter 7, 11 or 13, shall be effective unless each of the
following conditions, which Landlord and Tenant acknowledge are commercially
reasonable in the context of a bankruptcy proceeding of Tenant, have been
satisfied, and Landlord has so acknowledged in writing:
(1) The Trustee or the Debtor-in-Possession has cured, or has
provided Landlord adequate assurance (as defined below) that:
(a) Within ten (10) days from the date of such assumption the
Trustee will cure all monetary defaults under this Lease;
and
(b) Within thirty (30) days from the date of such assumption the
Trustee will cure all non-monetary defaults under this
Lease.
(2) The Trustee or the Debtor-in-Possession has compensated, or has
provided to Landlord adequate assurance that within ten (10) days
from the date of assumption Landlord will be compensated, for any
pecuniary loss incurred by Landlord arising from the default of
Tenant, the Trustee, or the Debtor-in-Possession as recited in
Landlord's written statement of pecuniary loss sent to the
Trustee or Debtor-in-Possession.
(3) The Trustee or the Debtor-in-Possession has provided Landlord
with adequate assurance of the future performance (as defined
below) of each of Tenant's the Trustee's or
Debtor-in-Possession's obligations under this Lease, provided,
however, that:
(a) The Trustee or Debtor-in-Possession shall also deposit with
Landlord, as security for the timely payment of rent, an
amount equal to three (3) months Base Rent (as adjusted
pursuant to Section 20.B.(3)(c) below) and other monetary
charges accruing under this Lease; and
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(b) If not otherwise required by the terms of this Lease, the
Trustee or Debtor-in-Possession shall also pay in advance
one-twelfth (1/12th) of Tenant's annual obligations under
this Lease for Operating Costs, Taxes, insurance and similar
charges.
(c) From and after the date of the assumption of this Lease, the
Trustee or Debtor-in-Possession shall pay as minimum rent
an amount equal to the sum of the minimum rent otherwise
payable hereunder, within the five (5) year period prior to
the date of Tenant's Petition, which amount shall be payable
in advance in equal monthly installments.
(d) The obligations imposed upon the Trustee or
Debtor-in-Possession shall continue with respect to Tenant
or any assignee of this Lease after the completion of
bankruptcy proceedings.
(4) The assumption of the Lease will not breach any provision in any
other lease, mortgage, financing agreement or other agreement by
which Landlord is bound relating to the Property.
(5) The Tenant as Debtor-in-Possession or its Trustee shall provide
the Landlord at least forty-five (45) days' prior written notice
of any proceeding concerning the assumption of this Lease.
(6) For purposes of this Section 20.B, Landlord and Tenant
acknowledge that, in the context of a bankruptcy proceeding of
Tenant, at a minimum "adequate assurance" shall mean:
(1) The Trustee or the Debtor-in-Possession has and will
continue to have sufficient unencumbered assets after the
payment of all secured obligations and administrative
expenses to assure Landlord that the Trustee or
Debtor-in-Possession will have sufficient funds to fulfill
the obligations of Tenant under this Lease.
(2) The Bankruptcy Court shall have entered an order segregating
sufficient cash payable to Landlord, and/or the Trustee or
Debtor-in-Possession shall have granted a valid and
perfected first lien and security interest and/or mortgage
in property of Tenant, the Trustee or Debtor-in-Possession,
acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee or
Debtor-in-Possession, to cure the monetary and/or
non-monetary defaults under this Lease within the time
periods set forth above.
C. In the event that this Lease is assumed by a Trustee appointed for
Tenant or by Tenant as Debtor-in-Possession, under the provisions of Section
20.B hereof, and thereafter Tenant is liquidated or files a subsequent Tenant's
Petition for reorganization or adjustment of debts under Chapter 11 or 13 of the
Bankruptcy Code, then, and in either of such events, Landlord may, at its
option, terminate this Lease and all rights of Tenant hereunder, by giving
Tenant written notice of its election to so terminate, within thirty (30) days
after the occurrence of either of such events.
D. If the Trustee or Debtor-in-Possession has assumed this Lease pursuant
to the terms and provisions of 20.A and 20.B hereof, for the purpose of
assigning (or elects to assign) Tenant's interest under this Lease or the estate
created thereby, to any other person, such interest or estate may be so assigned
only if Landlord shall acknowledge in writing that the intended assignee has
provided adequate assurance as defined in this Section 20.D of future
performance of all of the terms, covenants and conditions of this Lease to be
performed by Tenant.
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For purposes of this Section 20.D, Landlord and Tenant acknowledge
that, in the contest of a bankruptcy proceeding of Tenant, at a minimum
"adequate assurance of future performance" shall mean that each of the following
conditions have been satisfied, and Landlord has so acknowledged in writing:
(a) The assignee has submitted a current financial statement audited
by a certified public accountant which shows a net worth and
working capital in amounts determined to be sufficient by
Landlord to assure the future performance by such assignee of
Tenant's obligations under this Lease;
(b) The assignee, if requested by Landlord, shall have obtained
guarantees in form and substance satisfactory to Landlord from
one or more persons who satisfy Landlord's standards of
creditworthiness; and
(c) The Landlord has obtained all consents or waivers from any third
party required under any lease, mortgage, financing arrangement
or other agreement by which Landlord is bound to permit Landlord
to consent to such assignment.
E. When, pursuant to the Bankruptcy Code, the Trustee or
Debtor-in-Possession shall be obligated to pay reasonable use and occupancy
charges for the use of the Premises or any portion thereof, such charges shall
not be less than the minimum rent as defined in this Lease and other monetary
obligations of Tenant for the payment of Operating Costs, Taxes, insurance and
similar charges.
F. Neither Tenant's interest in this Lease, nor any lesser interest of
Tenant herein, nor any estate of Tenant hereby created, shall pass to any
trustee, receiver, assignee for the benefit of creditors, or any other person or
entity, or otherwise by operation of law, unless Landlord shall consent to such
transfer in writing. No acceptance by Landlord of rent or any other payments
from any such trustee, receiver, assignee, person or other entity shall be
deemed to have waived, nor shall it waive the need to obtain Landlord's consent,
or Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease without such consent.
G. In the event the estate of Tenant created hereby shall be taken in
execution or by the process of law, or if Tenant or any guarantor of Tenant's
obligations shall be adjudicated insolvent pursuant to the provisions of any
present or future insolvency law under state law, or if any proceedings are
filed by or against such guarantor under the Bankruptcy Code, or any similar
provisions of any future federal bankruptcy law, or if a custodian receiver or
Trustee of the property of Tenant or such guarantor shall be appointed under
state law by reason of Tenant's or such guarantor's insolvency or inability to
pay its debts as they become due or otherwise, or if any assignment shall be
made of Tenant's or such guarantor's property for the benefit of creditors under
state law; then and in any such event Landlord may, at its option, terminate
this Lease and all rights of Tenant hereunder by giving Tenant written notice of
the election to so terminate within thirty (30) days after the occurrence of
such event.
21.
DEFAULT
A. If any of the following events of default shall occur, to wit;
(i) Tenant defaults for more than five (5) days after written notice
of default after the due date therefor in the payment of rent
(whether Base Rent or additional rent) or any other sum required
to be paid hereunder, or any part thereof, or
(ii) Tenant defaults in the prompt and full performance of any other
(i.e.
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other than payment of rent or any other sum) covenant, agreement
or condition of this Lease and such other default shall continue
for a period of thirty (30) days after written notice thereof
from Landlord to Tenant (unless such other default involves a
hazardous condition, in which event it shall be cured forthwith),
provided however in the event such default cannot be cured within
a period of thirty (30) days and Tenant is diligently attempting
to cure such default, the time period to cure same shall be
reasonably extended, or
(iii) The leasehold interest of Tenant be levied upon under execution
or be attached by process of law, or if Tenant abandons the
Premises, or
(iv) Adjudication of Bankruptcy or insolvency of Tenant, then in any
such event, Landlord, besides other rights or remedies, it may
have, shall have the immediate right of re-entry and may remove
all persons and property from the Premises; such Property may be
removed and stored in any other place in the Building in which
the Premises are situated, or in any other place, for the account
of and at the expense and at the risk of Tenant.
B. Tenant hereby waives all claims for damages which may be caused by the
re-entry of Landlord and taking possession of the Premises or removing or
storing the furniture and property as herein provided, and will save Landlord
harmless from any loss, costs, or damages occasioned Landlord thereby, and no
such re-entry shall be considered or construed to be a forcible entry.
C. Should Landlord elect to re-enter, as herein provided, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by law; it may either terminate this Lease or it may from time to time, without
terminating this Lease, re-let the Premises or any part thereof for such terms
and at such rental or rentals and upon such other terms and conditions as
Landlord in its sole discretion may deem advisable, with the right to make
alterations and repairs to the Premises.
D. Landlord may elect to apply rentals received by it (i) to the payment of
any indebtedness, other than rent, due hereunder from Tenant to Landlord; (ii)
to the payment of any reasonable cost of such re-letting including but not
limited to any broker's commissions or fees in connection therewith; (iii) to
the payment of the cost of any reasonable alterations and repairs to the
Premises; (iv) to the payment of rent due and unpaid hereunder; and the residue,
if any, shall be held by Landlord and applied in payment of future rent as the
same may become due and payable hereunder. Should such rentals received from
such re-letting after application by Landlord to the payments described in
foregoing clauses (i) through (iv) during any month be less than that agreed to
be paid during that month by Tenant hereunder, then Tenant shall pay such
deficiency to Landlord. Such deficiency shall be calculated and paid monthly on
demand by Landlord.
E. In lieu of electing to receive and apply rentals as provided in the
immediately preceding paragraph, Landlord may elect to receive from Tenant as
and for Landlord's liquidated damages for Tenant's default, an amount equal to
the present value of the entire amount of Base Rent provided for in this Lease
for the remainder of the Term, less fair market rental value thereof, which
amount shall be forthwith due and payable by Tenant upon its being advised of
such election by Landlord.
F. No such re-entry or taking possession of the Premises by Landlord shall
be construed as an election on its part to terminate this Lease unless a written
notice of same is given to Tenant or unless the termination thereof be decreed
by a court of competent Jurisdiction. Notwithstanding any such re-letting
without termination, Landlord may at any time thereafter elect to terminate this
Lease for such previous breach.
G. Nothing herein contained shall limit or prejudice the right of Landlord
to provide for and obtain as damages by reason of any such termination of this
Lease or of
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possession an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when such termination takes place (other than
consequential or special damages), whether or not such amount be greater, equal
to or less than the amounts of damages which Landlord may elect to receive as
set forth above. Notwithstanding anything to the contrary herein contained or
any other rights exercised by Landlord hereunder, upon the occurrence of an
event of a monetary or material default by Tenant under the terms of this Lease,
rent which otherwise would be due or would have been due except for any
abatement provided for in this Lease shall be immediately due and payable.
Landlord agrees to use reasonable efforts to mitigate its damages in the event
of any default by Tenant.
22.
RULES AND REGULATIONS
The rules and regulations attached hereto and marked Appendix "B", as well
as such reasonable rules and regulations as may be hereafter adopted by Landlord
for the safety, care and cleanliness of the Premises and the preservation of
good order thereon, are hereby expressly made a part hereof, and Tenant agrees
to obey all such rules and regulations. The violation of any such rules and
regulations by Tenant shall be deemed a default under this Lease by Tenant,
affording Landlord all those remedies set out in the Lease. Landlord shall not
be responsible to Tenant for the non-performance by any other tenant or occupant
of the Building or any of said rules and regulations. Landlord agrees all rules
and regulations shall be uniformly enforced.
23.
NON REAL ESTATE TAXES
During the term hereof, Tenant shall pay prior to delinquency all taxes
assessed against and levied upon fixtures, furnishings, equipment and all other
personal property of Tenant contained in the Premises, and Tenant shall cause
said fixtures, furnishing, equipment and other personal property to be assessed
and billed separately from the real property of Landlord. In the event any or
all of the Tenant's fixtures, furnishings, equipment and other personal property
shall be assessed and taxed with the Landlord's real property, the Tenant shall
pay to Landlord its share of such taxes within ten (10) days after delivery to
Tenant by Landlord of a statement in writing setting forth the amount of such
taxes applicable to the Tenant's property.
24.
EMINENT DOMAIN
If the Building, or a substantial part thereof or a substantial part of the
Premises, shall be lawfully taken or condemned or conveyed in lieu thereof, (or
conveyed under threat of such taking or condemnation), for any public or
quasi-public use or purpose, the term of this Lease shall end upon and not
before the date of the taking of possession by the condemning authority and
without apportionment of the award. Tenant hereby assigns to Landlord Tenant's
interest, if any, in such award and specifically agrees that any such award
shall be the entire property of Landlord in which Tenant shall not be entitled
to share. Tenant further waives any right to challenge the right of the
condemning authority to proceed with such taking. Current rent shall be
apportioned as of the date of such termination. If any part of the Building
other than the Premises or not constituting a substantial part of the Premises,
shall be so taken or condemned (or conveyed under threat of such taking or
condemnation), or if the grade of any street adjacent to the Building is changed
by any competent authority and such taking or change of grade makes it necessary
or desirable to substantially remodel or restore the Building, Landlord shall
have the right to cancel this Lease upon not less than ninety (90) days notice
prior to the date of cancellation designated in the notice. No money or
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other consideration shall be payable by Landlord to Tenant for the right of
cancellation, and Tenant shall have no right to share in any condemnation
award or in any judgment for damages or in any proceeds of any sale made
under any threat of condemnation or taking. Tenant shall have the right to
separately pursue its own award for relocation expenses in the event of such
condemnation proceedings.
25.
SUBORDINATION
A. Landlord has heretofore and may hereafter from time to time execute
and deliver mortgages or trust deeds in the nature of a mortgage, both
referred to herein as "Mortgages" against the Land and Building, or any
interest therein. If requested by the mortgagee or trustee under any
Mortgage, Tenant will either (a) subordinate its interest in this Lease to
said Mortgages, and to any and all advances made thereunder and to the
interest thereon, and to all renewals, replacements, modifications and
extensions thereof, or (b) make Tenant's interest in this Lease inferior
thereto; and Tenant will promptly execute and deliver such agreement or
agreements as may be reasonably required by such mortgage or trustee under
any Mortgage, provided however that any such subordination shall provide that
so long as Tenant is not in default hereunder, its tenancy shall not be
disturbed. Landlord further agrees to obtain written assurance of such
non-disturbance from any present mortgagee.
B. It is further agreed that (i) if any Mortgage shall be foreclosed (a)
the liability of the mortgagee or trustee thereunder or purchaser at such
foreclosure sale or the liability of a subsequent owner designated as
Landlord under this Lease shall exist only so long as such trustee,
mortgagee, purchaser or owner is the owner of the Building and such liability
shall not continue or survive after further transfer of ownership; and (b)
upon request of the mortgagee or trustee, Tenant will attorn, as Tenant under
this Lease, to the purchaser at any foreclosure sale under any Mortgage, and
Tenant will execute such instruments as may be necessary or appropriate to
evidence such attornment; and (ii) this Lease may not be modified or amended
so as to reduce the rent or shorten the term provided hereunder, 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 mortgagee or trustee under any
Mortgage. It is understood that Tenant's tenancy shall not be disturbed so
long as Tenant is not in default under this Lease.
C. No mortgagee and no person acquiring title to the premises by reason
of foreclosure of any Mortgage or by conveyance in lieu of foreclosure shall
have any obligation or liability to Tenant on account of any security deposit
unless such mortgagee or title holder shall receive such security deposit in
cash.
26.
WAIVER
The waiver of Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same or any other term, covenant,
or condition herein contained. The acceptance of rent hereunder shall not be
construed to be a waiver of any breach by Tenant of any term, covenant or
condition of this Lease. It is understood and agreed that the remedies herein
given to Landlord shall be cumulative, and the exercise of any one remedy by
Landlord shall not be to the exclusion of any other remedy. It is also agreed
that after the service of notice or the commencement of a suit or judgment
for possession of the Premises, Landlord may collect and receive any monies
due, and the payment of said monies shall not waive or affect said notice,
suit or judgment.
27.
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INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the covenants and agreements hereunder on part of Tenant to be
performed shall not be affected, impaired or excused, nor shall Landlord at
any time be deemed to be in default hereunder because Landlord is unable to
fulfill any of its obligations under this Lease or to supply or is delayed in
supplying any service expressly or by implication to be supplied or is unable
to make, or is delayed in making any Tenant improvement, repair, additions,
alterations, or decorations or is unable to supply or is delayed in supplying
any equipment or fixtures if Landlord is prevented or delayed from so doing
by reason of acts or omissions of Tenant, strike or labor troubles or any
outside cause whatsoever beyond the reasonable control of Landlord, including
but not limited to riots and civil disturbances or energy shortages or
governmental preemption in connection with a national emergency or by reason
of any rule, order, or regulation of any department or subdivision thereof of
any government agency or by reason of the conditions of supply and demand
which have been or are affected by war or other emergency. Tenant shall at no
time be deemed in default hereunder because Tenant is unable to fulfill any
of its non-monetary obligations hereunder by reason of any outside cause
whatsoever beyond the reasonable control of Tenant.
28.
SUBROGATION
The parties hereto agree to use good faith efforts to have any and all
fire, extended coverage or any and all material damage insurance which may be
carried endorsed with a subrogation clause substantially as follows: "This
insurance shall not be invalidated should the insured waive in writing prior
to a loss any or all right of recovery against any party for loss occurring
to the property described herein"; and each party hereto waives all claims
for recovery from the other party for any loss or damage (whether or not such
loss or damage is caused by negligence of the other party and notwithstanding
any provision or provisions contained in this Lease to the contrary) to any
of its property insured under valid and collectible insurance policies to the
extent of any recovery collectible under such insurance, subject to the
limitation that this waiver shall apply only when it is permitted by the
applicable policy of insurance.
29.
SALE BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building
containing the Premises, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions, expressed or
implied, herein contained in favor of Tenant, and in such event Tenant agrees
to look solely to the responsibility of the successor in interest of Landlord
in and to this Lease for such future obligation. If any security deposit has
been made by Tenant hereunder, Landlord shall transfer such security deposit
to such successor in interest of Landlord and thereupon Landlord shall be
released from any further obligations hereunder. This Lease shall not be
affected by any such sale, and the Tenant agrees to attorn to the purchaser
or assignee.
30.
RIGHTS OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any
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abatement of rent. If Tenant shall fail to pay any sum of money, other than
rent, required to be paid it hereunder, or shall fail to perform any other
act on its part to be performed hereunder, and such failure shall continue
for ten (10) days after notice thereof by Landlord, Landlord may, but shall
not be obligated so to do, and without waiving or release Tenant from any
obligations of Tenant, make any such payment or perform any such other act on
Tenant's part to be made or performed as in this Lease provided. All sums so
paid by Landlord and all necessary incidental costs together with interest
thereon at the rate heretofore set forth with respect to late payments of
rent, computed from the date of such payment by Landlord shall be payable to
Landlord on demand and the Landlord shall have (in addition to any other
right or remedy of Landlord) the same rights and remedies in the event of the
non-payment thereof by Tenant as in the case of default by Tenant in the
payment of rent.
31.
ATTORNEYS' FEES
In the event of any litigation between Tenant and Landlord to enforce
any provision of this Lease, or any right of either party hereto, the
unsuccessful party of such litigation, shall pay to the prevailing party all
costs and expenses, including reasonable attorneys' fees, incurred therein.
Moreover, if either party, without fault is made a party to any litigation
instituted by or against the other party, the other party shall indemnify
such party without fault against and save it harmless from all costs and
expenses, including reasonable attorneys' fees incurred by it in connection
therewith.
32.
ESTOPPEL CERTIFICATE
Either party shall at any time and from time to time upon not less than
ten (10) days' prior written notice from the other and not more than twice
annually, execute, acknowledge and deliver to the requesting party a
statement in writing certifying that this Lease is unmodified and in full
force and effect (or if modified, stating the nature of the modification and
certifying that this Lease, as so modified, is in full force and effect) and
the dates to which the rental and other charges are paid and acknowledging
that there are not, to such certifying party's knowledge, any uncured
defaults on the part of the other party hereunder or specifying such defaults
if any are claimed, as well as any other reasonable information requested by
Landlord. In the case of a statement made by Tenant, it is expressly
understood and agreed that any such statement may be relied upon by any
prospective purchaser or encumbrancer of all or any portion of the real
property of which the Premises are a part. Tenant's failure to deliver such
statement within such time shall be conclusive upon Tenant that this Lease is
in full force and effect, without modification except as may be represented
by Landlord, that there are no uncured defaults in Landlord's performance and
that not more than two (2) months' rental has been paid in advance.
33.
PREPARATION
Landlord agrees as provided in Appendix "C" to cause the Premises to be
completed in accordance with the plans, specification and agreements approved
by both parties on the terms, conditions, and provision as provided in the
plans attached hereto in Appendix "C" which is attached hereto and made a
part of this Lease.
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34.
NOTICE
Any notice from Landlord to Tenant or from Tenant to Landlord may be served
personally, by mail, by overnight delivery, by affixing a copy on any door
leading into the Premises or by facsimile transmission. If served by mail,
notice shall be deemed served on the second day after mailing by registered or
certified mail, addressed to Tenant at the Premises or to Landlord at the place
from time to time established for the payment of rent and a copy thereof shall
until further notice, be served personally or by registered or certified mail to
Landlord at the address shown for service of notice in the Lease Schedule. In
the event of a release or threatened release of pollutants or contaminants to
the environment resulting from Tenant's activities at the site or in the event
any claim, demand, action or notice is made against the Tenant regarding
Tenant's failure or alleged failure to comply with any local, state and federal
environmental rules, regulations, statutes and laws, the Tenant shall
immediately notify the Landlord in writing and shall give to Landlord copies of
any written claims, demands or actions, or notices so made.
35.
RIGHTS RESERVED
Landlord reserves the following rights, exercisable without notice and
without liability to Tenant for damage or injury to property, person or business
and without effecting an eviction, constructive or actual or disturbance of
Tenant's use of possession or giving rise to any claim for set-off or abatement
of rent:
(a) Except as otherwise herein provided, to install, affix and maintain
any and all signs on the interior or exterior of the Building;
(b) To designate and approve, prior to installation, all types of window
shades, blinds, drapes, awnings, window ventilators and other similar
equipment, and to control all interior or exterior lighting of the
Building;
(c) To designate, restrict and control all sources from which Tenant may
obtain sign painting and lettering, food and beverages or other
services on the Premises, and in general to designate, limit, restrict
and control any service in or to the Building and its Tenant, provided
such services as are designated by Landlord are reasonably competitive
as to the rates charged thereby, and further provided that such
designation, restrictions, or controls do not prohibit Tenant's
operations in accordance with the terms of this Lease. No vending or
dispensing machines of any kind shall be placed in or about the
Premises without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. Notwithstanding the foregoing, it
is understood that Tenant shall have the right to operate beverage
machines, microwave ovens, and refrigerators for the convenience of
its employees and invitees;
(d) To retain at all times, and to use in appropriate instances, keys
and/or keycards, to all doors within and into the Premises. No locks
or bolts shall be altered, changed or added without the prior written
consent of Landlord, provided Tenant shall be entitled to access to
the Premises at all times;
(e) To decorate or to make repairs, alterations, additions or
improvements, whether structural or otherwise, in and about the
Building, or any part thereof, and for such purpose to enter upon the
Premises, and during the continuance of said work to temporarily close
doors, entryways, and public spaces in the Building and to interrupt
or temporarily suspend Building services and facilities, provided that
Tenant is not prevented from access to the Premises, or are its
operations materially interfered with;
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(f) To prescribe the location and style of the suite number and
identification sign or lettering for the Premises occupied by Tenant;
(g) Subject to any restrictions on Landlord's access provided elsewhere
herein to enter the Premises at reasonable hours for reasonable
purposes upon reasonable notice except in cases of emergency,
including inspection and supplying janitorial or any other service or
other service to be provided to Tenant hereunder;
(h) To require all persons entering or leaving the Building during such
hours as Landlord may from time to time reasonably determine to
identify themselves to watchmen by designation or otherwise, and to
establish their right to enter or leave in accordance with the
provisions of the Lease. Landlord shall not be liable except for the
willful or negligent act or omission of Landlord in damages for any
error with respect to admission to or eviction or exclusion from the
Building of any person. In case of fire, invasion, insurrection, mob,
riot, civil disorder, public excitement or other commotion, or threat
thereof, Landlord reserves the right to limit or prevent access to the
Building during the continuance of the same or otherwise take such
action or preventive measures deemed necessary by Landlord for the
safety of the Tenants or other occupants of the Building or the
protection of the Building and the property in the Building. Tenant
agrees to cooperate in any reasonable safety program developed by
Landlord;
(i) To control and prevent access to common areas and other non-general
public areas including any loading docks, service elevators, or roof;
(j) To have and retain a paramount title to the Premises free and clear of
any act of Tenant;
(k) To grant to anyone the exclusive right to conduct any business or
render any services in the Building, which do not interfere with
Tenant's use of the Premises;
(l) To approve the weight, size and location of safes and other heavy
equipment and articles in and about the Premises and the Building, and
to require all such items and furniture to be moved into and out of
the Building and the Premises only at such times and in such manner as
Landlord shall direct in writing. Movements of Tenant's property into
or out of the Building and within the Building are entirely at the
risk and responsibility of Tenant and Landlord reserves the right to
require permits before allowing any such property to be moved into or
out of the building.
36.
REAL ESTATE BROKER
Tenant represents that Tenant has dealt directly with and only with the
brokers set forth in the Lease Schedule as brokers in connection with this Lease
and agrees to indemnify and hold Landlord harmless from all claims or demands of
any other broker or brokers for any commission alleged to be due such broker or
brokers in connection with its participating in the negotiation with Tenant of
this Lease.
37.
MISCELLANEOUS PROVISIONS
A. Time is of the essence of this Lease and each and all of its
provisions.
B. Submission of this instrument for examination or signature by Tenant
does not
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constitute a reservation or offer or option for lease, and it is not
effective as a lease or otherwise so as to incur the least
inconvenience to Tenant. Tenant acknowledges and agrees with Landlord
that, except as may be specifically set forth elsewhere in this Lease,
neither Landlord, nor any employee of Landlord, nor other party
claiming to act on Landlord's behalf, has made any representations,
warranties, estimations, or promises of any kind or nature whatsoever
relating to the physical condition of the Building in which the
Premises are located, or the land under the Building, including by way
of example only, the fitness of the Premises for Tenant's intended use
or the actual dimensions of the Premises or Building; and
C. The invalidity or unenforceability of any provision hereof shall not
affect or impair any other provisions.
D. This Lease shall be governed by and construed pursuant to the laws of
the Jurisdiction on which the property is located.
E. Tenant agrees to provide to Landlord, upon request, a current
financial statement of Tenant certified by an authorized
representative of Tenant to be true and correct, and further agrees to
provide any other financial information reasonably requested by
Landlord.
F. All rights and remedies of Landlord under this Lease, or that may be
provided by law, may be exercised by Landlord in its own name
individually, or in its name by its Management Agent, and all legal
proceedings for the enforcement of any such rights or remedies,
including distress for rent, forcible detainer, and any other legal or
equitable proceedings, may be commenced and prosecuted to final
judgment and execution by Landlord in its own name individually or in
its name or by its agent. Tenant conclusively agrees that Landlord has
full power and authority to execute this Lease and to make and perform
the agreements herein contained and Tenant expressly stipulates that
any rights or remedies available to Landlord either by the provision
of this Lease or otherwise may be enforced by Landlord in its own name
individually or in its name by agent or principal.
G. All of the covenants and conditions of this Lease shall survive
termination of the Lease.
H. The marginal headings and titles to the paragraphs of this Lease are
not a part of this Lease and shall have no effect upon the
construction or interpretation of any part hereof.
I. Any and all Exhibits or Appendices attached hereto are expressly made
a part of this Lease.
J. Upon termination of the Lease or upon Tenant's abandonment of the
leasehold, the Tenant shall, at its sole expense, remove any equipment
which may cause contamination of the property, and shall clean up any
existing contamination in compliance with all applicable local, state
and federal environmental rules, regulations, statutes and laws or in
accordance with orders of any governmental regulatory authority.
K. This is a commercial lease and has been entered into by both parties
in reliance upon the economic and legal bargains contained herein, and
both parties agree and represent each to the other that they have had
the opportunity to obtain counsel of their own choice to represent
them in the negotiation and execution of this Lease, whether or not
either or both have elected to avail themselves of such opportunity.
This Lease shall be interpreted and construed in a fair and impartial
manner without regard to such factors as the party which prepared the
instrument, the relative bargaining powers of the parties or the
domicile of
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any party.
L. WAIVER OF RIGHT TO TRIAL BY JURY. Landlord and Tenant hereby waive any
right to a trial by jury in any action or proceeding based upon, or
related to, the subject matter of this Lease. This waiver is
knowingly, intentionally, and voluntarily made by each of parties
hereto and each party acknowledges to the other that neither the other
party nor any person acting on its respective behalf has made any
representations to induce this waiver of trial by jury or in any way
to modify or nullify its effect. The parties acknowledge that they
have read and understand the meaning and ramifications of this waiver
provision and have elected same of their own free will.
M. Landlord hereby covenants that so long as Tenant is not in default
under the terms and provisions of this Lease, Tenant shall be entitled
to quiet enjoyment of the Premises.
N. This Lease does not grant any rights to light or air over or about the
real property of Landlord. Except to the extent specifically otherwise
herein provided, Landlord specifically excepts and reserves to itself
the use of any roofs, the exterior portions of the Building, all
rights to and the land and improvements below the improved floor level
of the Building, to the improvements and air rights above the Building
and to the improvements and air rights located outside the demising
walls of the Building and to such areas within the Building required
for installation of utility lines and other installations required to
serve any occupants of the Building and to maintain and repair same,
and no rights with respect thereto are conferred upon Tenant, unless
otherwise specifically provided herein.
O. In accordance with applicable codes, Landlord shall provide 4.4
parking spaces per 1,000 square feet of rentable area of the Building,
which Tenant shall be entitled to use on a non-exclusive basis.
38.
AUTHORITY
Tenant represents and warrants that this Lease has been duly authorized,
executed and delivered by and on behalf of the Tenant and constitutes the valid
and binding agreement of the Tenant in accordance with the terms hereof.
39.
SUCCESSORS AND ASSIGNS
The covenants and conditions herein contained shall apply to and bind the
respective heirs, successors, Executors, administrators, and assigns of the
parties hereto. The terms "Landlord" and "Tenant" shall include the successors
and assigns of either such party, whether immediate or remote.
40.
TERMINATION OPTIONS
So long as Tenant is not in default, Tenant shall have the right to elect
to terminate the Lease effective February 28, 2005, or effective February 28,
2007, upon not less than twelve (12) months prior written notice of such
election, provided that said notice shall be accompanied by a termination fee
equal to SEVEN HUNDRED EIGHTY-TWO THOUSAND THREE HUNDRED THIRTY-EIGHT DOLLARS
and 02/100 ($782,338.02) (for a termination effective February 28, 2005) or
equal to FIVE HUNDRED SEVENTY-THREE THOUSAND FOUR HUNDRED EIGHTY-SEVEN DOLLARS
and 99/100 ($573,487.99) (for a termination
-28-
<PAGE>
effective February 23, 2007).
41.
RENEWAL OPTIONS
So long as Tenant is not in default, Tenant shall have two (2) options to
extend the Term of this Lease for two (2), five (5) year periods upon the same
terms and conditions contained herein except for rental. Said options shall be
exercised in writing not less than twelve (12) months prior to the expiration of
the initial term, or the first extended term as the case may be. In the event of
exercise of either or both of said options, Base Rent for each extended period
shall be equal to ninety-five (95%) percent of the then prevailing market rate
and terms, including but not limited to escalations, commissions, tenant
improvements, allowances and concessions ("PMR"). In the event Landlord and
Tenant are unable to agree on PMR within thirty (30) days of Tenant's exercise
of either option, each party shall select a Qualified Broker, as hereinafter
defined, which Qualified Broker shall select a third Qualified Broker. The
majority of such three Qualified Brokers shall determine the PMR within thirty
(30) days of the selection of the third Qualified Broker, and Tenant shall have
ten (10) days from receipt of such determination in writing to withdraw its
election, or to agree to lease based upon the PMR as so determined. A Qualified
Broker shall be licensed broker, with not less than ten (10) years brokerage
experience in the general vicinity of the Property with comparable properties.
Failure to exercise the first such option shall render the second such option
null and void.
42.
RIGHT OF FIRST OFFER
So long as Tenant is not in default, Tenant shall have a right of first
offer on not less than 12,000 rentable square feet of the first floor of the
Building on the following terms and conditions. At such time as Landlord has
either: (a) issued its initial proposal for the leasing of such space; or (b)
has prepared a space plan for such space, then Landlord shall notify Tenant of
the terms and conditions under which Landlord is willing to lease such space to
a third party. Tenant shall have a period of ten (10) calendar days from receipt
of such notice in which to advise Landlord in writing that it elects to lease
all of such space on the terms and conditions set forth in Landlord's notice for
a term which shall be co-terminus with the term hereunder, but shall in no event
be less than a period of five (5) years. If Tenant does not so advise Landlord
in writing of its exercise of such right, Landlord shall be entitled to enter
into a lease of such space to third party tenants on materially the same terms
and conditions contained in the notice given to Tenant. In the event Landlord
does not enter into a lease on such terms and conditions with third parties
within ninety (90) days from the date of said notice, then Tenant's rights
hereunder shall be deemed reinstated.
43.
CELLULAR, RADIO, MICROWAVE AND OTHER ELECTRONIC TRANSMISSION
Tenant may use the Property for any lawful activity in connection with the
provision of mobile communication, including without limitation, the
transmission and the reception of radio, microwave, or other electronic
communication signals on various frequencies of service. Landlord agrees to
cooperate with Tenant in making applications for and obtaining all licenses,
permits and any and all other necessary approvals that may be required for this
aspect of Tenant's intended use of the Property, all of which shall be at
Tenant's sole cost and expense. At all times during the term of the Lease,
Tenant will be responsible for obtaining and maintaining any licenses or
approvals that may be required from any governmental body of competent
jurisdiction for this aspect of its intended use of the Property. Failure to
obtain any such required licenses or approvals shall not invalidate any portion
of the Lease other than those provision contained within this Section 43. If
requested by Landlord, Tenant shall provide copies of all such licenses or
approvals, including copies of any forms used in making
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<PAGE>
application for same.
After approval of Tenant's specific plans by Landlord, which approval shall
not be unreasonably withheld or delayed, Tenant, at its sole cost and expense,
shall have the right to erect, maintain and operate radio communications
facilities, including radio transmitting and receiving antennas, towers,
microwave dishes and supporting structures thereto (the Tenant's facilities). In
connection therewith and after Landlord's approval of Tenant's specific plans
and under Landlord's reasonable direction, Tenant shall have the right to
prepare, maintain and alter the Property for Tenant's business operations and to
install transmission lines connecting to Tenant's facilities to the Building.
Tenant's installation, construction and ongoing maintenance shall be performed
in a workman like manner and any damage to the Building, Premises or Property
done by Tenant and Tenant's suppliers and/or subcontractors shall be reported to
Landlord and shall be repaired by Tenant at its sole cost and expense. Any
Tenant facilities installed hereunder shall meet all applicable city, county,
state or other applicable ordinances and/or codes and shall not interfere with
the reception of television, radio or other electronic signals or the operation
of any equipment used on the Property by any other tenant or other occupants, or
by owners or tenants of surrounding properties and/or building. Title to the
Tenant facilities shall be held by Tenant at all times. Tenant facilities shall
remain Tenant's personal property and are not fixtures. Tenant has the right to
remove all Tenant facilities at is sole cost and expense on or before expiration
of the term, provided that Tenant shall be responsible for repairing any damage
to the Building or the Property resulting from said removal to the reasonable
satisfaction of Landlord. Landlord agrees it will not allow other tenants to use
the roof of the Building in such a manner as may interfere with Tenant's
operations.
TENANT shall at all times operate Tenant facilities in a manner that
Tenant's transmission will not cause interference with television, radio or
other electronic signals to Landlord, to other tenants of the Building or
Property, or to owners, tenants or occupants of surrounding properties lawful
and in compliance with all regulations or requirements of Federal Communications
Commission or, any other governmental agency of competent jurisdiction. Tenant
shall hold Landlord and Landlord's agents harmless from any and all liabilities
arising out of the installation, maintenance, or operation of the Tenant
facilities whether such liabilities arise (i) from interference with radio,
television and other electronic reception within the Building; (ii) from
interference with the business operations of Landlord's other tenants within the
Building; (iii) from interference with the business operation or radio,
television or other electronic reception in buildings surrounding or adjoining
the Property; (iv) from tower or equipment breakage, collapse or failure; (v) or
from any other cause directly or indirectly resulting from Tenant's use,
maintenance, installation and/or operation of the Tenant facilities.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease the
day and year first above written.
Landlord:
DEERFIELD & WEILAND OFFICE
BUILDING, L.L.C., an Illinois
liability company,
By: /s/ [ILLEGIBLE]
-------------------------------
Tenant:
ADS ALLIANCE DATA SYSTEMS, INC.,
By: /s/ [ILLEGIBLE]
-------------------------------
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<PAGE>
GUARANTY
In order to induce Landlord to execute the foregoing Lease, the undersigned
does hereby absolutely and unconditionally guarantee the full performance and
observance of all of the covenants, conditions, and agreements provided to be
performed and observed by Tenant in said Lease, including, without limitation,
the prompt payment of the Base Rent and Rent Adjustments and all other amounts
provided in said Lease to be paid by Tenant.
The undersigned hereby waives notice of non-payment, non-performance or
non-observance and all other notices and all proof or demands.
Further, the undersigned expressly agrees that its obligations hereunder
shall in no way be terminated, affected or impaired by reason of the granting by
Landlord of any indulgences to Tenant or by reason of the assertion against
Tenant of any of the rights or remedies reserved to Landlord pursuant to the
provisions of said Tenant or by relief of the Tenant from any of the Tenant's
obligations under said Lease by operation of law or otherwise, the undersigned
hereby waiving all suretyship defense. The undersigned further covenants and
agrees that this Guaranty shall remain and continue in full force and effect as
to any renewal, modification or extension of the Lease whether or not the
undersigned shall have received any notice of or consented to such renewal,
modification or extension.
The undersigned further agrees that its liability hereunder shall be
primary, and that in any right of action which shall accrue to the Landlord
under the Lease, the Landlord may, at its option, proceed against the
undersigned and the Tenant, jointly or severally, may proceed against the
undersigned without having commenced any action against or having obtained any
judgment against the Tenant.
It is agreed that the failure of the Landlord to insist in any one or more
instances upon strict performance or observance of any of the terms, provisions
or covenants of the Lease or to exercise any right therein contained shall not
be construed or deemed to be a waiver or relinquishment for the future of such
term, provision, covenant or right but the same shall continue and remain in
full force and effect. Receipt by the Landlord of rent or other payments with
knowledge of the breach of any provision of the Lease shall not be deemed a
waiver of such breach.
No assignment or other transfer of the Lease or any interest therein by any
party shall operate to extinguish or diminish the liability of the undersigned
hereunder except as otherwise provided in Section 15.A of the Lease.
To the extent that Landlord is required to remit any amount previously paid
to Landlord by Tenant, including but not limited to those remitted pursuant to
the order of any bankruptcy court, Guarantor shall be obligated to reimburse
Landlord for the amount of such repayment.
IN WITNESS WHEREOF, this Guaranty is executed this 30TH day of July, 1999.
ALLIANCE DATA SYSTEMS CORPORATION,
By: /s/ [ILLEGIBLE]
------------------------------
------------------------------
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<PAGE>
APPENDIX "A"
Appendix A - Premises
24,136 Rentable Square Feet
[FLOOR PLAN]
Buffalo Grove Office Building Second Floor Plan
- -------------------------------------------------------------------------------
Busch & Welland Partnership
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<PAGE>
APPENDIX "B"
RULES AND REGULATIONS ATTACHED TO
AND MADE PART OF THIS LEASE
1. Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may in Landlord's judgment
appear unsightly from outside the premises or the Building. Landlord shall
furnish and install building standard window blinds at all exterior windows.
2. The sidewalks, passages, exits, loading docks and entrances shall not be
obstructed by Tenant or used by Tenant for any purpose other than for ingress to
and egress from the Premises. The passages, exits, entrances and roof are not
for the use of the general public and the Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence in
the judgment of Landlord, reasonably exercised, shall be prejudicial to the
safety, character, reputation and interests of the Building. Neither Tenant nor
any employees or invitees of any Tenant shall go upon the roof of the building.
3. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and to the
extent caused by Tenant or its employees or invitees, the expense of any
breakage, stoppage or damage resulting from the violation of this rule shall be
borne by Tenant.
4. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
5. No cooking other than microwave warming shall be done or permitted by
Tenant on the Premises, nor shall the Premises be used for lodging.
6. Tenant shall not bring upon, use or keep in the Premises or the Building
any kerosene gasoline or inflammable or combustible fluid or material, or use
any method of heating or air conditioning other than that supplied by Landlord.
7. Landlord shall have sole power to direct electricians as to where and
how telephone and other wires are to be introduced. No boring or cutting for
wires will be allowed without the consent of Landlord. The location of
telephone, call boxes and other office equipment affixed to the Premises shall
be subject to the approval of Landlord.
8. Upon the termination of the tenancy, Tenant shall deliver to the
Landlord all keys or electronic key cards and passes for offices, rooms, parking
lot and toilet rooms which shall have been furnished Tenant. In the event of
loss of any keys or electronic key cards so furnished, Tenant shall pay the
Landlord therefor. Tenant shall not make or cause to be made any such keys or
electronic key cards and shall order all such keys or electronic key cards
solely from Landlord and shall pay Landlord for any additional such keys or
electronic key cards over and above the keys furnished by Landlord at occupancy.
9. Tenant shall not install linoleum, tile, carpet or other floor coverings
so that the same shall be affixed to the floor of the Premises in any manner
except as approved by the Landlord.
10. Tenant shall cause all doors to the Premises to be closed and securely
locked before leaving the Building at the end of the day.
11. Without the prior written consent of Landlord not to be unreasonably
withheld or delayed, Tenant shall not use the name of the Building or any
picture of the Building in connection with or in promoting or advertising the
business of Tenant except Tenant may use the address of the Building as the
address of its business.
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<PAGE>
12. Tenant shall refrain from attempting to adjust any heat or air
conditioning controls other than room or system thermostats installed within the
Premises for Tenant's use.
13. Tenant assumes full responsibility for protecting the Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to Premises closed and secured.
14. Peddlers, solicitors and beggars shall be reported to the office of the
Building or as Landlord otherwise requests.
15. Tenant shall not advertise the business, profession or activities of
Tenant conducted in the Building in any manner which violates the letter or
spirit of any code of ethics adopted by any recognized association or
organization pertaining to such business, profession or activities.
16. Tenant shall allow no animals or pets other than guide dogs for
disabled persons to be brought or to remain in the Building or any part thereof.
17. Tenant acknowledges that Building security problems may occur which may
require the employment of extreme security measures in the day-to-day operation
of the Building. Accordingly:
(a) Landlord may at any time, or from time to time, or for regularly
scheduled time periods, as deemed advisable by Landlord and/or
its agents, in their sole discretion, require that persons
entering or leaving the Building identify themselves to watchmen
or other employees designated by Landlord by registration,
identification or otherwise.
(b) Landlord may at any time, or from time to time or for regularly
scheduled time periods, as deemed advisable by Landlord and/or
its agents, in their sole discretion, employ such other security
measures as but not limited to the search of all persons,
parcels, packages, etc., entering and leaving the Building, the
evacuation of the Building and the denial of access of any person
to the Building.
(c) Tenant hereby assents to the exercise of the above discretion of
Landlord and its agents, whether done acting under reasonable
belief of cause or for drills, regardless of whether or not such
action shall in fact be warranted and regardless of whether any
such action is applied uniformly or as aimed at specific persons
whose conduct is deemed suspicious.
(d) The exercise of such security measures and the resulting
interruption of service and cessation or loss of Tenant's
business, if any, shall never be deemed an eviction or
disturbance of Tenant's use and possession of the Premises, or
any part thereof, or render Landlord liable to Tenant for damages
or relieve Tenant from Tenant's obligations under this Lease.
(e) Tenant agrees that it and its employees will cooperate fully with
Building employees in the implementation of any and all security
procedures.
18. In the event carpeting is furnished by Landlord, Tenant will be fully
responsible for and upon Landlord's request will pay for any damage to carpeting
caused by lack of protective mats under desk chairs or equipment or any other
abnormal puncture and wearing of carpet.
19. Tenant shall comply with all applicable laws, ordinances, governmental
orders or regulations and applicable orders or directions from any public office
or body having Jurisdiction, with respect to the Premises and the use or
occupancy thereof. Tenant shall not
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<PAGE>
make or permit any use of the Premises which directly or indirectly is forbidden
by law, ordinances, governmental regulations or order or direction of applicable
public authority, or which may be dangerous to person or property.
20. Tenant shall not use or permit to be brought into the Premises or the
Building any flammable oils or fluids, or any explosive or other articles deemed
hazardous to persons or property, or do or permit to be done any act or thing
which will invalidate or which if brought in would be in conflict with any
insurance policy covering the Building or its operation, or the Premises, or any
part of either, and will not do or permit to be done anything in or upon the
Premises, or bring or keep anything therein, which shall not comply with all
rules, orders, regulations or requirements of any organization, bureau,
department or body having Jurisdiction with respect thereto (and Tenant shall
at all times comply with all such rules, orders, regulations or requirements),
or which shall increase the rate of insurance on the Building, its
appurtenances, contents or operation. The foregoing prohibitions shall include
but not be limited to the discharge of any toxic wastes, or other hazardous
materials in violation of any law, ordinance, statute, rule or insurance
regulation.
21. If Tenant desires signal, communication, alarm or other utility or
similar service connections installed or changed, Tenant shall not install or
change the same without the approval of Landlord and then only under direction
of Landlord and at Tenant's expense. Tenant shall not install in the Premises
any equipment which requires a substantial amount of electrical current without
the advance written consent of the Landlord and Tenant shall ascertain from the
Landlord the maximum amount of load or demand for or use of electrical current
which can safely be permitted in the Premises, taking into account the capacity
of the electric wiring in the Building and the Premises and the needs of other
Tenants of the Building, and shall not in any event connect a greater load than
such safe capacity.
22. Service requirements of Tenant will be attended to only upon
application to Management Agent of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties unless under
special instruction from Landlord.
23. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord is intoxicated or under the influence of
liquor or drugs or who shall in any manner do any act in violation of any of the
rules and regulations of the building.
24. No vending machines of any description shall be installed, maintained
or operated in the Premises without the written consent of Landlord.
25. Tenant shall not (i) install or operate any internal combustion engine,
boiler, machinery, refrigerating, heating or air-conditioning apparatus in or
about the Premises, (ii) carry on any mechanical business in or about the
Premises without the written permission of Landlord, (iii) exhibit, sell or
offer for sale, use, rent or exchange in the Premises or Building any article,
thing or service except those ordinarily embraced within the permitted use of
the Premises specified in this Lease, (iv) use the Premises for housing, lodging
or sleeping purposes, (v) permit preparation or warming of food in the Premises
or permit food to be brought into the Premises for consumption therein (warming
of coffee and individual lunches of employees and invitees excepted) except by
express permission of Landlord, (vi) except as provided in the Lease, place any
radio, television antennae, or microwave dish on the roof or on or in any part
of the inside or outside of the Building other than the inside of the Premises,
(vii) operate or permit to be operated any musical or sound producing instrument
or device inside or outside the Premises which may be heard outside the
Premises, (viii) use any illumination or power for the operation of any
equipment or device other than electricity, (ix) operate any electrical device
from which may emanate electrical waves which may interfere with or impair radio
or television broadcasting or reception from or in the Building or elsewhere,
(x) bring or permit to be in the Building any bicycle or other vehicle, or dog
(except in the company of a disabled person) or other animal or bird, (xi) make
or permit any objectionable noise or odor to emanate from the Premises, (xii)
disturb, solicit or canvas any occupant of the Building, (xiii) do anything in
or about the Premises tending to create or maintain a nuisance or do any act
tending to injure the reputation of the Building, or (xiv)
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<PAGE>
throw or permit to be thrown or dropped any article from any window or other
opening in the Building.
26. From time to time Landlord reserves the right to amend and modify these
rules and regulations in a manner not inconsistent with the terms of the Lease
and further provided that any such amendment shall not restrict the use and
enjoyment of the Premises as contemplated by the Lease as of the date of
execution thereof, nor restrict access of the Premises, and any such amendment
shall be consistent with rules and regulations for comparable buildings in the
vicinity of the Property.
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<PAGE>
APPENDIX "C"
Landlord and Tenant agree as follows:
1. Tenant agrees to cause its architect to provide plans and specifications
in form and substance sufficient to allow Landlord to approve same and obtain
all required governmental permits for all of the Work on or before August 15,
1999, for Landlord's review and approval in order to enable Landlord to complete
prior to the Commencement Date the Premises in accordance therewith.
Notwithstanding the date by which such plans and specifications are finalized or
approved, Tenant's obligation to pay rent shall commence on Rent Commencement
Date.
2. All such plans and specifications shall be subject to Landlord's
reasonable approval and upon approval shall constitute the "TI Plans and
Specifications". Upon agreement as to such plans and specifications, Landlord
agrees to cause its general contractor ("the General Contractor") to bid same,
which bids shall be reviewed by the General Contractor and Tenant, who shall
mutually agree on which bids to accept. Upon reaching agreement as to which bids
are to be accepted, Landlord shall provide Tenant with a budget for the cost of
the Work which shall be subject to Tenant's reasonable approval ("TI Budget").
The TI Budget may be amended by a change order in writing signed by Landlord and
Tenant setting forth any change in the Work, any increase or decrease in cost
resulting therefrom, and any change in time for performance of the Work
resulting therefrom ("Change Order").
3. Landlord agrees to provide an allowance for all tenant improvement
work in an amount of EIGHT HUNDRED FORTY-FOUR THOUSAND SEVEN HUNDRED SIXTY
($844,760.00) DOLLARS, up to TWO HUNDRED FORTY-ONE THOUSAND THREE HUNDRED
SIXTY ($241,360.00) DOLLARS of which may be used for Tenant's telephone, data
and other cabling, and for architects' and engineers' fees. It is understood
that Tenant shall pay for all Work to the extent that the cost of same
exceeds the foregoing allowance, but Tenant shall not be responsible to the
extent such costs exceed the amount of the TI Budget (as may be increased by
Change Order), and Landlord shall pay same. To the extent any portion of the
aforesaid allowance is not used, an amount, not to exceed TWO HUNDRED
FORTY-ONE THOUSAND THREE HUNDRED SIXTY ($241,360.00) DOLLARS, may be applied
toward a reduction in Base Rent amortized over the term of the Lease at an
amortization rate of ten (10%) percent.
4. Landlord agrees that the General Contractor shall not be entitled to any
construction management fee, general contractor's fee, overhead, profit or
general conditions, which exceed in the aggregate more than ten (10%) percent of
the cost of the Work.
5. The provisions of this Work Letter Agreement supplement are specifically
subject to all provisions of the Lease.
Landlord:
DEERFIELD & WEILAND OFFICE
BUILDING, L.L.C., an Illinois
liability company,
BY: /s/ [ILLEGIBLE]
------------------------------
Tenant:
ADS ALLIANCE DATA SYSTEMS, INC.
BY: /s/ [ILLEGIBLE]
------------------------------
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<PAGE>
Premises at: Nacogdoches at El Charro Road
San Antonio, Texas
J. C. PENNEY COMPANY, INC.,
Landlord,
TO
BSI BUSINESS SERVICES, INC.,
Tenant.
SUBLEASE
INDEX
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
ACCESS TO DEMISED PREMISES...................................... 19
ALTERATIONS.AND IMPROVEMENTS.................................... 9
APPLICABLE LAW.................................................. 20
ASSIGNMENT AND SUBLETTING....................................... 14
ATTORNEYS' FEES................................................. 21
CONDEMNATION.................................................... 12
COVENANT OF TITLE, AUTHORITY AND QUIET POSSESSION .............. 6
DAMAGE AND DESTRUCTION.......................................... 13
DEFAULT AND LANDLORD'S REMEDIES................................. 16
DEFINITIONS..................................................... 1
DEMISE OF PREMISES.............................................. 4
ENTIRE AGREEMENT................................................ 22
HAZARDOUS MATERIALS............................................. 21
HOLDING OVER.................................................... 15
INDEMNIFICATION................................................. 11
INSURANCE....................................................... 10
INTERPRETATION.................................................. 2
LANDLORD'S PROPERTY REPRESENTATIVE.............................. 19
LEGAL REQUIREMENTS.............................................. 9
LIENS........................................................... 12
NOTICES......................................................... 19
OFFICE LEASE.................................................... 3
OPTIONS TO EXTEND............................................... 4
PARKING AND ACCESS.............................................. 10
PARTIAL INVALIDITY.............................................. 20
REAL ESTATE TAXES AND OTHER TAXES............................... 10
REMEDIES CUMULATIVE............................................. 20
RENT............................................................ 5
RENT RIDER AND EXHIBITS TO LEASE................................ 3
RENT TAX........................................................ 15
REPAIRS......................................................... 9
SIGNS........................................................... 9
SUCCESSORS AND ASSIGNS; MODIFICATIONS .......................... 20
SURRENDER OF PREMISES........................................... 15
TENANT'S FIXTURES AND PERSONALTY................................ 9
TENANT'S WORK................................................... 7
TERM............................................................ 4
USE AND OPERATION OF DEMISED PREMISES........................... 7
UTILITIES....................................................... 9
WAIVER OF JURY TRIAL............................................ 20
WAIVER OF PERFORMANCE BY EITHER PARTY........................... 19
</TABLE>
RENT RIDER
EXHIBIT A - DESCRIPTION OF THE DEMISED PREMISE AND THE LAND
ON WHICH THE DEMISED PREMISES ARE LOCATED
EXHIBIT B - SITE PLAN OF OFFICE BUILDING
EXHIBIT C - OFFICE LEASE
<PAGE>
THIS INDENTURE OF SUBLEASE, dated as of
JANUARY 11, 1996, by and between J. C. PENNEY
COMPANY, INC. a Delaware corporation, with a
mailing address of P. O. Box 10001, Dallas, Texas
75301-2105 ("Landlord"), and BSI BUSINESS
SERVICES, INC., a Delaware corporation with
offices at 5001 Spring Valley Road, Farmers
Branch, Texas 75244-3910 ("Tenant").
THE PARTIES HERETO DO HEREBY MUTUALLY
COVENANT AND AGREE AS FOLLOWS:
DEFINITIONS The following terms for purposes of this
lease shall have the meanings hereinafter
specified:
(a) "COMMENCEMENT DATE" - the date upon
which this lease is fully executed and delivered.
(b) "DEMISED PREMISES" - that portion of
the Penney Premises comprising the Office
Building, as such Office Building is shown on
Exhibit B attached hereto.
(c) "EVENT OF DEFAULT" - as defined in the
"DEFAULT AND LANDLORD'S REMEDIES" article.
(d) "FIXED RENT" - the rent payable under
paragraph A. of the Rent Rider.
(e) "FLOOR AREA" - the number of square
feet of floor area at each level or story of the
Office Building lying within the exterior faces of
exterior walls (except party walls as to which the
center line, not the exterior faces shall be used
for measurement purposes).
(f) "LEASE YEAR" - in the case of the
first Lease Year, the period commencing on the
commencement of the term hereof and expiring on
the 31st day of December, 1996; thereafter each
Lease Year hereunder shall comprise the next
following 12 month period, except that in the
event of the expiration or termination of this
lease, the last Lease Year hereunder shall end on
the date of such expiration or termination.
(g) "LEGAL REQUIREMENTS" - Federal,
state, county and municipal laws, ordinances,
rules, regulations and orders, and the rules,
regulations
<PAGE>
and orders of all duly constituted governmental
agencies, authorities and subdivisions.
(h) "PENNEY PREMISES" - the Office
Building and the land demised under the Office
Lease, including the Demised Premises.
(i) "OFFICE BUILDING" - the building
located on the land described on Exhibit A.
(j) "OFFICE LEASE" - that certain lease
dated as of June 9, 1981, by and between Hines
Industrial, Ltd., as lessor and Landlord, as
lessee, covering the Penney Premises, as amended.
(k) "OVERLANDLORD" - the landlord under
the Office Lease.
(l) "THIRD PARTY" - any party other than
Landlord or a corporation which controls, is
controlled by or is otherwise affiliated with
Landlord.
(m) "UTILITY FACILITIES" - all water,
electric, gas, sanitary and storm sewer lines, other
utility lines, and appurtenant equipment providing
utility service for the Office Building.
INTERPRETATION For purposes of interpreting the provisions
of this lease the following shall apply:
(a) The words "term of this lease", "the
term hereof", or words of like import shall be deemed
to refer to the initial term of this lease together
with any extension or renewal thereof.
(b) Words and phrases used in the singular
shall be deemed to include the plural and vice versa,
and nouns and pronouns used in any particular gender
shall be deemed to include any other gender.
(c) Captions throughout this lease and the
index are inserted only as a matter of convenience
and are not to be given any effect whatsoever in
construing this lease.
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(d) All charges and sums, in addition to
Fixed Rent, payable by Tenant to Landlord hereunder
shall be deemed additional rent.
(e) Whenever in this lease it is provided
that a party shall or may perform any act, in the
absence of any provision to the contrary, such act
(i) may be performed by an agent of, or
independent contractor for, such party, and (ii)
shall be performed at the sole cost and expense of
such party.
(f) Notwithstanding anything to the
contrary herein contained, whenever pursuant to
the Office Lease, Overlandlord or a Third Party is
responsible to Landlord for the performance of any
obligations which are also obligations of Landlord
under this lease, Landlord shall be deemed to have
complied with its obligation if it shall take
steps as are reasonable to cause Overlandlord or
such Third Party to comply with such obligations,
and Landlord shall have no other or further
obligation or liability to Tenant.
(g) All words with capital initial
letters are defined terms, and shall have the
meanings ascribed thereto in the "DEFINITIONS"
article or as elsewhere defined in this lease.
OFFICE LEASE Landlord represents and warrants that
Exhibit C contains a true and correct listing of
the documents comprising the Office Lease. Tenant
acknowledges that it has received a copy of each
document comprising the Office Lease. It is
understood and agreed that Landlord is not the
owner of the Demised Premises, but that this lease
is a sublease under the Office Lease, hereinbefore
more fully described. Tenant represents and
acknowledges that it is familiar with all of the
terms, covenants, provisions and conditions of the
Office Lease and agrees that this lease is made
subject to all of such terms, covenants,
provisions and conditions of the Office Lease.
RENT RIDER Attached to this lease and hereby made a
AND EXHIBITS TO part hereof are the following, which for the
LEASE purpose of identification have been initialed by
the parties hereto or their attorneys:
RENT RIDER - a statement of the Fixed Rent
payable hereunder, together with provisions
pertaining to the payment thereof.
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EXHIBIT A - a description of land on
which the Office Building is located.
EXHIBIT B - a site plan showing the
location of the Office Building.
EXHIBIT C - a listing of the documents
comprising the Office Lease.
DEMISE Landlord hereby demises and leases
OF to Tenant and Tenant hereby leases from Landlord,
PREMISES the Demised Premises to have and to hold for the
term hereinafter set forth.
Tenant acknowledges that it has
inspected the Demised Premises and accepts same
"as is", and acknowledges that Landlord has made
no representations or warranties in respect of the
Demised Premises, the condition thereof or the use
to which the Demised Premises may be devoted,
except to the extent, if any, expressly set forth
herein. Tenant further acknowledges that Landlord
shall not be liable to Tenant for any damage to
Tenant's personal property or leasehold
improvements occasioned by the condition of the
Office Building, including the roof, or otherwise,
or by breakage or stoppage of mains or pipes
therein or on other parts of the Office Building.
TERM The term of this lease shall commence on
the date Landlord tenders delivery of possession of
the Demised Premises to Tenant, and shall expire on
January 31, 2002, unless extended or terminated as
provided herein.
OPTIONS Tenant shall have the right and option to
TO extend the term of this lease as hereinafter set
EXTEND forth, provided that all of the following express
conditions have been fully satisfied:
1. During the term of this lease, no Event of
Default has occurred.
2. At the time Tenant exercises its option(s)
to extend the term of this lease, Tenant is
not in default under this lease.
3. Under those certain Indentures of
Sublease by and between Landlord and
Tenant covering premises located at (a)
Four Echelon Plaza, Laurel Road and
Britton Place, Vorhees, New Jersey, (b)
Park Central IV, Dallas, Texas, (c)
Providence Towers, Farmers Branch, Texas,
or (d) 5665 Foxridge, Mission, Kansas,
Tenant
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<PAGE>
is not in default and no Event of Default
(as defined, respectively, therein) has
occurred.
4. At the time Tenant exercises its
option(s) to extend the term of this
lease, Tenant's minimum net worth as
determined in accordance with generally
accepted accounting principles is not
less than Twenty Three Million Dollars
($23,000,000.00), and Tenant's working
capital as determined in accordance with
generally accepted accounting principles
is not less than Eleven Million Dollars
($11,000,000.00), and Tenant so certifies
in an affidavit signed by an independent
certified public accountant.
5. At the time Tenant exercises its
option(s) to extend the term of this
lease, Tenant's current ratio (i.e., the
ratio of current assets to current
liabilities) is not less than 1.62 to 1,
and Tenant so certifies in an affidavit
signed by an independent certified public
accountant.
Provided Tenant has fully complied with conditions 1
through 5 above each time that Tenant exercises an
option to extend, then Tenant shall have two (2)
successive options to extend the term of the Lease
each for a separate additional period of five (5)
years, from the date upon which the term would
otherwise expire. Each such extension shall be upon
and subject to the same terms, covenants and
conditions, other than rent, as those specified in
this lease, except that Tenant may not exercise again
any option previously exercised. If Tenant elects to
exercise any of said options, it shall do so by
giving Landlord notice of such election at least
eighteen (18) months before the beginning of the
additional period for which the term of this lease is
to be extended by the exercise of such option. If
Tenant gives such notice, the term of this lease
shall be automatically extended for the additional
period of years covered by the option so exercised
without execution of an extension or renewal lease.
If Tenant shall exercise any of said options, then in
lieu of the rental specified in this lease, Tenant
shall pay Landlord the rent during the option periods
as provided for in the Rent Rider attached hereto.
RENT Effective as of the Commencement Date and
throughout the term hereof, Tenant shall pay to
Landlord, without offset or deduction, the rent
provided for in the Rent Rider without notice or
demand therefor.
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<PAGE>
COVENANT Landlord represents and warrants that
OF TITLE, Landlord has a good leasehold estate in the
AUTHORITY Demised Premises under and by virtue of the Office
AND QUIET Lease and has full right and lawful authority to
POSSESSION enter into and perform Landlord's obligations
under this lease, subject to the Office Lease, and
subject to all documents and matters to which this
lease and the Office Lease are subject and
subordinate. If Tenant shall perform its covenants
and discharge its obligations hereunder, Tenant
shall have and enjoy, during the term hereof, the
quiet and undisturbed possession of the Demised
Premises without hindrance or ejection by
Overlandlord, Landlord or any party claiming by,
through or under Overlandlord, Landlord, except as
otherwise provided herein, and Landlord will
defend Tenant in the peaceful and quiet possession
of the Demised Premises.
Anything herein to the contrary
notwithstanding, Tenant acknowledges that this lease
is a sublease, subject and subordinate to the Office
Lease, and the aforesaid documents and matters.
Tenant further acknowledges that no right, power or
privilege granted to Tenant hereunder may be
exercised or enjoyed by Tenant, and no term, covenant
or condition of this lease benefiting Tenant or
binding Landlord shall be operative if, and to the
extent, that such exercise, enjoyment or operation
would not be permitted by or would violate or be in
conflict with any term, covenant or condition of the
Office Lease, and that in the event of the expiration
or termination of the estate of the tenant under the
Office Lease for any reason whatsoever, including but
not limited to, the exercise by landlord or tenant
thereunder of an option to terminate said estate, or
the nonexercise by the tenant thereunder of an option
to extend the term of the Office Lease, or the
partial termination of the tenant's estate under the
Office Lease by reason of such tenant's election to
exclude the Demised Premises from the premises
demised thereunder, this lease shall automatically
terminate on the day preceding the date of expiration
or termination of the estate of the tenant under the
Office Lease, and Landlord and Tenant shall thereupon
be relieved of all liability hereunder, except that
Tenant shall remain liable for the performance of all
obligations under this lease, actual or contingent,
which shall have arisen on or prior to the date of
the termination of this lease.
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<PAGE>
USE AND Tenant shall not use or occupy the Demised
OPERATION Premises or permit the Demised Premises to be used
OF DEMISED or occupied in violation of any Legal Requirements
PREMISES or in any manner which would violate the certificate
of occupancy for the Demised Premises. The Demised
Premises may be only occupied for general office
purposes. As an inducement to Landlord to enter into
this lease, Tenant covenants to continuously operate
the Demised Premises for the aforementioned specific
uses during normal business hours Monday through
Friday.
Tenant will operate the Demised Premises
so as not to jeopardize or harm the reputation and
goodwill of Landlord or of the Office Building, and
shall at all times conduct its business in a
reputable and dignified manner and not in a
disreputable manner.
TENANT'S If during the term of this lease, Tenant
WORK desires to make any alterations or improvements to
the Demised Premises ("Tenant's Work"), Tenant
shall obtain Landlord's written approval before
commencing such work.
In performing Tenant's Work, Tenant shall
comply with all reasonable requirements of Landlord
including the following specific requirements:
(a) Tenant's general contractor
and all subcontractors
shall be approved by
Landlord, which approval
shall not be unreasonably
withheld or delayed.
(b) At Landlord's request,
Tenant will cause its
general contractor to
furnish Landlord prior to
the commencement of
Tenant's Work with a
completion and payment
bond, naming both Landlord
and Tenant as
beneficiaries.
(c) Tenant's plans and
specifications shall show
any modifications to the
existing utility facilities
and sprinkler system.
(d) The installation of all
electrical facilities shall
conform to the National
Electric Code and meet the
requirements of Landlord's
fire
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<PAGE>
underwriter (presently
Factory Mutual Engineering
Association).
(e) All electrical equipment
and fixtures shall carry a
UL label.
(f) Tenant's plans shall show
all proposed roof
penetrations for vents and
equipment as well as
reinforcing curb work and
flashing incident thereto.
(g) Landlord shall have the
right to enter upon the
Demised Premises at all
reasonable times for the
purpose of inspecting
Tenant's Work; provided,
however, that such right
shall not be deemed to
impose any duty on
Landlord or in any way
affect Tenant's
obligation under the
"INDEMNIFICATION"
article.
(h) The approval by Landlord
of any feature of
Tenant's plans and
specifications shall not
be deemed an
acknowledgment by
Landlord as to the
correctness or adequacy
of any such feature.
(i) Tenant shall not store any
materials outside of the
Demised Premises.
(j) Tenant's contract with
its general contractor
and each subcontract
shall include a
guarantee that the work
covered by such contract
will be free from
defects in workmanship
and materials for a
period of at least one
year after substantial
completion of the work,
which guarantee shall
inure to the benefit of
Landlord as well as
Tenant.
(k) Tenant shall secure all
necessary alteration
permits as well as
whatever certificates of
occupancy may be
required in connection
with Tenant's use and
occupancy of the Demised
Premises.
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<PAGE>
(l) No such work shall violate
any of the provisions of
the Office Lease.
UTILITIES Beginning with the commencement of the
term, Tenant will pay for all utility services
directly to the utility company furnishing such
service.
Landlord or Overlandlord shall have the
right upon reasonable notice to Tenant to cut off
and discontinue any utility service to the Demised
Premises for the purpose of effecting repairs to
Utility Facilities or in the case of an emergency,
and no such action by Landlord or Overlandlord or
any interruption of utility service shall be
deemed an eviction or disturbance of possession of
Tenant. Nothing contained in this paragraph shall
be deemed to modify Tenant's repair obligations as
otherwise provided for in this lease.
REPAIRS Tenant shall be responsible for all
repairs to the Demised Premises.
ALTERATIONS Tenant shall not make any alterations or
AND improvements to the Demised Premises, without the
IMPROVEMENTS Landlord's written consent to each and every such
alteration or improvement.
LEGAL Tenant will comply with all Legal
REQUIREMENTS Requirements respecting the use and occupancy of the
Demised Premises.
TENANT'S Upon the expiration or prior termination of
FIXTURES AND the term hereof Tenant shall remove all of its
PERSONALTY fixtures and other personal property from the Demised
Premises, and shall repair any damage to the Demised
Premises caused by such removal. To the extent that
the same shall not be so removed, Landlord may at its
option (i) treat same as abandoned and dispose of
same in whatsoever manner it shall see fit without
being liable to Tenant in any way for such
disposition, or (ii) remove and store same on behalf
of and at the expense of Tenant, without liability to
Tenant for loss thereof or damage thereto.
SIGNS Tenant shall not erect or maintain any
signs on the exterior of the Demised Premises
except such signs which comply with the Office
Lease and which have been approved in writing by
Landlord (and the Overlandlord, if necessary).
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<PAGE>
PARKING Tenant shall have the right during the term
AND of this lease to use the parking areas and access
ACCESS drives located on the Penney Premises.
REAL ESTATE Tenant shall pay to Landlord within 10 days
TAXES AND after demand therefor all real estate taxes and
OTHER TAXES special assessments due or which may become due in
respect of the Penney Premises for each Lease Year of
the term hereof. In the event Tenant pays to Landlord
estimated tax payments for a Lease Year in excess of
the actual taxes paid by Landlord for such Lease
Year, then Landlord shall credit such excess towards
Tenant's tax liability for the next succeeding year.
Such payments by Tenant to Landlord shall be
apportioned between Landlord and Tenant at the
commencement and then again at the expiration of the
term of this lease to the end that Tenant shall pay
all such sums only in respect of such periods of time
which fall within the term of this lease.
Tenant shall pay as and when due all
personal property taxes, inventory taxes, business
license fees and other taxes incident to the
operation of Tenant's business, which if not paid
would become a lien on the Penney Premises or any
part thereof.
INSURANCE Throughout the term hereof, Tenant shall
keep the Office Building insured against loss or
damage by fire and the perils commonly covered
under the extended coverage endorsement to the
extent of at least that percentage of the full
replacement cost thereof (exclusive of the cost of
foundations, excavations and footings below the
lowest basement floor, without any deduction being
made for depreciation) necessary to keep Tenant
from being deemed a coinsurer as to the risks
covered.
Throughout the term hereof, Tenant shall
maintain in full force and effect, a policy of
comprehensive public liability insurance covering the
Demised Premises and the business of Tenant with
limits of liability per occurrence of not less than:
$3,000,000.00 for injury to or death of any one
person, $3,000,000.00 for injury to or death in any
one accident and $1,000,000.00 for loss of or damage
to property (including property of Landlord) or
$4,000,000.00 combined single limit for injury to or
death of persons and loss of or damage to property,
which insurance shall provide contractual coverage of
Tenant's liability to Landlord assumed under the
"INDEMNIFICATION" article.
Throughout the term hereof, Tenant shall
keep in full force and effect workers' compensation
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<PAGE>
insurance and employer's liability insurance
affording (i) protection under the workers'
compensation law of the State in which the Penney
Premises are located and (ii) employer's liability
protection with limits of not less than
$1,000,000.00.
At all times during the performance of any
Tenant's Work, Tenant shall maintain in full force
and effect "all risk" builder's risk insurance for
the full replacement value of such Tenant's Work.
All insurance required to be maintained by
Tenant pursuant to this article shall be written by
companies licensed to do business in the State in
which the Penney Premises are located, and shall name
as insureds Tenant, Landlord, the Overlandlord, and
any other parties required to be so named under the
Office Lease. All such insurance may be maintained in
whole or in part under blanket policies covering
other locations of Tenant. Prior to the commencement
of the term hereof, Tenant shall furnish Landlord
with certificates evidencing the existence of the
insurance required to be carried by Tenant pursuant
to this article, which certificates shall specify
that the insurance evidenced thereby will not be
canceled or materially changed unless the insurer has
given Landlord at least 30 days' prior written
notice, and the certificate evidencing the public
liability notice shall also state that such insurance
covers the liability of Tenant assumed under the
"INDEMNIFICATION" article.
Anything in this lease to the contrary
notwithstanding, Landlord shall not be liable to
Tenant or to any insurance company insuring Tenant
for any loss or damage to any property of Tenant
located on the Demised Premises which was or could
have been covered by fire and extended coverage or
water damage insurance even though such loss or
damage may have been occasioned by the negligence of
Landlord, its agents or employees, nor shall Tenant
be so liable to Landlord for any loss or damage to
the Demised Premises, but only to the extent that the
tenant under the Office Lease is relieved under the
Office Lease of such liability to Overlandlord.
INDEMNIFICATION
Tenant shall defend, indemnify and hold
harmless Landlord and its employees and agents, and
any other parties required to be indemnified by
Landlord pursuant to the Office Lease and their
employees and agents, from and against any and all
costs, losses and expenses, liability, damages,
settlements and claims for damages (including
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<PAGE>
reasonable attorney's fees and the costs of
defending any action) suffered, incurred, or
arising from or as a result of (a) injury to or
death of persons, or damage to or destruction of
property, occurring on the Demised Premises, (b)
the actual or alleged negligence or willful acts
or omissions of Tenant or any subtenant of Tenant,
and their respective employees or agents,
regardless of where such negligence, acts or
omissions occurred, (c) Tenant's use or occupancy
of the Demised Premises or its operations therein,
and (d) the breach by Tenant of any of the terms
of this lease or Tenant's failure to perform any
of its obligations hereunder. The foregoing
indemnity agreement shall in no way be deemed
released, waived, modified or limited in any
respect by reason of any insurance, or surety bond
furnished by any contractor of Tenant or any
allegation or judicial determination that the
claim in question arose as a result of or was
based upon the acts, omissions or negligence of
Landlord.
LIENS Tenant will not permit any mechanic's,
materialman's or like statutory lien to be placed
upon the Demised Premises or any part thereof. If
any such lien shall be filed as the result of work
done on or materials furnished to the Demised
Premises by or for Tenant, Tenant shall cause same
to be discharged of record within 20 days, failing
which Landlord may pay same, without inquiring as
to the validity of same, and Tenant shall
forthwith reimburse Landlord for the amount so
paid. Nothing in this lease shall be construed as
constituting the consent or request of Landlord,
expressed or implied by inference or otherwise,
to any contractor, subcontractor, laborer or
materialman for the performance of any labor or
services or the furnishing of any materials for
any improvement, alteration, addition or repair of
or to the Demised Premises or any part thereof.
Tenant shall give Landlord at least 10
days' prior notice of Tenant's intention to
commence any Tenant's Work to the Demised Premises
such work and shall take such steps as are
permitted under the mechanic's lien law of the
State where the Demised Premises are located to
avoid or limit the filing of mechanic's,
materialmen or like liens against the Demised
Premises.
CONDEMNATION If 50% or more of the Floor Area of the
Demised Premises shall be taken by condemnation,
and this lease shall not terminate because neither
Landlord nor Overlandlord shall have elected to
terminate the term of the Office Lease or exclude
the Demised Premises from the Office Lease as a
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<PAGE>
result of such taking, then Tenant shall have the
option of terminating the term of this lease by
giving Landlord notice to such effect within 60
days after the taking of title by the condemning
authority, and upon such notice being given the
term of this lease shall terminate. If less than
50% of the Floor Area of the Demised Premises
shall be so taken, or if 50% or more of such Floor
Area shall be so taken and Tenant does not elect
to terminate the term of this lease, Landlord
shall restore the building on the Demised Premises
to anarchitectural whole, but only to the extent
that the net proceeds of the condemnation award
designated for or fairly attributable to the
Demised Premises received by Landlord will defray
the cost of such restoration.
If the term of this lease terminates as the
result of any condemnation, any unearned rent and
other charges shall be refunded by Landlord to
Tenant; if the term of this lease does not so
terminate, the Fixed Rent and any additional rent
shall be reduced proportionally with the Floor Area
taken by such condemnation. During the course of any
restoration work being performed by Landlord, the
Fixed Rent fairly allocable to the space which is
being restored shall abate until such restoration
work shall have been completed.
Any award to which Landlord or Tenant may be
entitled by reason of any condemnation of all or any
part of the Penney Premises, including the Demised
Premises, and any award or payment in respect of
Tenant's leasehold estate, shall belong to and be the
property of Landlord, and Tenant hereby assigns to
Landlord all rights which it may have in and to any
such award or payment. Notwithstanding the foregoing,
Tenant shall be entitled, to the extent permitted by
the condemning authority, to make a separate claim
for its damages in respect of its moving expenses and
any of its trade fixtures taken by the condemning
authority and for any other award specifically
payable by law to tenants; provided, however, that
any claim or award for such damages shall not reduce
or adversely affect any award or payment to which
Landlord, or Overlandlord as landlord under the
Office Lease, would otherwise be entitled but for
this sentence.
DAMAGE AND If the Demised Premises shall be damaged
DESTRUCTION or destroyed in whole or in part, by fire or other
casualty required to be insured against by Tenant
hereunder Tenant shall at Landlord's option,
either (i) restore the Demised Premises in accordance
with as-built plans and specifications for the
damaged or destroyed improvements provided
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<PAGE>
to Tenant by Landlord, or (ii) deliver the
insurance proceeds to Landlord.
During the course of restoration of the
Demised Premises there shall be no abatement of rent
unless the Demised Premises shall have been rendered
untenantable by reason of such damage or partial
destruction, in which case the Fixed Rent and the
additional charges (other than utilities) shall abate
until the Demised Premises shall once again become
tenantable.
ASSIGNMENT Except as provided in the immediately
AND succeeding sentence, Tenant shall not assign this
SUBLETTING lease, sublet the Demised Premises in whole or in
part, grant any license or concession or other
right of occupancy in respect of the Demised
Premises, or encumber its rights under this lease
without the prior consent of Landlord in each
instance first had and obtained, and any attempted
assignment, subletting, grant of license or
concession, or encumbrance made without such
consent shall be absolutely void. Tenant may
assign this lease to any successor that acquires
all or substantially all of the assets or business
of Tenant, whether by asset sale, merger or
otherwise, provided that at the time of such
assignment all of the following express conditions
have been fully satisfied:
1. During the term of this lease, no Event of
Default has occurred;
2. At the time of such assignment, Tenant is
not in default under this lease;
3. Under those certain Indentures of
Sublease by and between Landlord and
Tenant covering premises located (a) Four
Echelon Plaza, Laurel Road and Britton
Place, Vorhees, New Jersey, (b) Park
Central IV, Dallas, Texas, (c) Providence
Towers, Farmers Branch, Texas, or (d)
5665 Foxridge, Mission, Kansas, Tenant is
not in default and no Event of Default
(as defined, respectively, therein) has
occurred;
4. At the time of such assignment, Tenant's
minimum net worth as determined in
accordance with generally accepted
accounting principles is not less than
Twenty Three Million Dollars
($23,000,000.00) and Tenant's working
capital as determined in accordance with
generally accepted accounting principles
is not less than Eleven Million Dollars
($11,000,000.00), and Tenant so certifies
in an affidavit signed by an independent
certified public accountant; and
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5. At the time of such assignment, Tenant's
current ratio (i.e., the ratio of current
assets to current liabilities) is not
less than 1.62 to 1, and Tenant so
certifies in an affidavit signed by an
independent certified public accountant.
If this lease shall be assigned or the Demised
Premises or any part thereof be sublet, as above
provided, Landlord may, after an Event of Default,
collect rent from the assignee or subtenant, as the
case may be, and apply the net amount received
against the rent reserved hereunder. No such
assignment, subletting or grant shall be deemed to
release Tenant, or any guarantor of Tenant's
obligations hereunder, from any of Tenant's
obligations under this lease, and Tenant shall remain
primarily liable for such obligations.
SURRENDER On the expiration or earlier termination
OF PREMISES of the term hereof Tenant shall surrender
possession of the Demised Premises to Landlord,
together with the keys thereto, in the same
condition as at the commencement of the term,
normal wear and tear excepted. No act or thing
done by Landlord or its agents during the term
hereof shall be deemed an acceptance of a
surrender of the Demised Premises, and no
agreement to accept a surrender of the Demised
Premises shall be valid unless the same be made in
writing and subscribed by the Landlord.
For the period of 180 days prior to the
expiration of the term hereof, Landlord shall have
the right to display on the exterior of the building
on the Demised Premises (but not in any window or
doorway thereof) a sign advertising that the Demised
Premises is for rent, and during such period Landlord
may show the Demised Premises to prospective tenants
during normal business hours.
HOLDING OVER Should Tenant, or any of its successors in
interest, hold over the Demised Premises, or any
part thereof, after the expiration of the term of
this lease, unless otherwise agreed in writing,
such holding over shall constitute and be
construed as a tenancy from month-to-month only,
at a Fixed Rent rental equal to the Fixed Rent
payable for the last month of the term of this
lease. The foregoing shall not, however, be
construed as Landlord's consent for Tenant to hold
over.
RENT TAX Tenant shall pay any tax which may
hereafter be imposed upon the rent payable
hereunder, and if any such tax shall be imposed
upon Landlord, Tenant shall reimburse Landlord for
the amount
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thereof within 30 days after payment thereof by
Landlord; provided, however Landlord shall pay any
federal, state or local income taxes imposed on
Landlord's income from this lease.
DEFAULT AND Each of the following events ("Event of
LANDLORD'S Default") shall be deemed to be a default by Tenant
REMEDIES under this lease:
(a) Tenant shall fail to pay any
installment of the rent hereby reserved or
pay any additional rent, and such failure
shall continue for (i) a period of 10 days
after notice thereof from Landlord, or (ii)
for a period of 10 days after the due date
if Landlord shall have previously given
Tenant 3 or more notices for prior defaults
in the payment of rent.
(b) Tenant shall fail to comply with
any term, provision, or covenant of this
lease, other than the payment of rent, and
such failure shall persist for 20 days after
notice thereof to Tenant.
(c) Tenant shall make an assignment
for the benefit of creditors.
(d) Tenant shall file a petition
under any section or chapter of the National
Bankruptcy Code, as amended, or under any
similar law or statute of the United States
or any State thereof; or Tenant shall be
adjudged bankrupt or insolvent in
proceedings filed against Tenant thereunder,
and such adjudication shall not be vacated
or set aside or stayed within 120 days.
(e) A receiver or trustee shall be
appointed for all or substantially all of
the assets of Tenant and such receivership
shall not be terminated or stayed within 120
days.
If Tenant fails (a) to perform any of its
obligations hereunder and such failure (i) if it
relates to a matter which is not of an emergency
nature, shall persist for a period of 10 days after
Landlord shall have given Tenant notice of such
failure (or if such failure cannot with due diligence
be cured within such 10 day period, if Tenant shall
fail to proceed to cure such failure within such 10
day period and thereafter prosecute the curing of
such failure with due diligence), or (ii) if it
relates to a matter which in Landlord's
16
<PAGE>
judgment reasonably exercised is of an emergency
nature, shall remain uncured for a period of 24
hours after Landlord shall have given Tenant
notice of such failure, or (b) to make any payment
which Tenant agrees to make, then Landlord shall
have the right to perform such obligation, or make
such payment, as Tenant's agent, and in Landlord's
sole discretion as to the necessity therefor, and
the full amount of the cost and expense entailed
in performing such obligation, or of the payment
so made, together with interest thereon at the
maximum legal rate from the date of payment, shall
immediately be owing by Tenant to Landlord as
additional rent.
This lease and the term and estate hereby
granted are subject to the limitation that
whenever an Event of Default shall have happened
and be continuing, Landlord shall have the right
at its election, then or at any time thereafter
while any such Event of Default shall continue,
and notwithstanding the fact that Landlord may
have some other remedy hereunder or at law, to
give Tenant notice of its intention to terminate
the term of this lease on a day specified in such
notice, which date shall not be less than 5 days
after the date of giving of such notice, and on
the date specified in any such notice, all right,
title and interest of Tenant hereunder shall
thereupon expire, and Tenant shall then quit the
Demised Premises and surrender the same to
Landlord but shall remain liable as hereinafter
provided. In the event any such notice is given,
Landlord shall have the immediate right of
re-entry and possession of the Demised Premises
and the right to remove all persons and property
therefrom. Should Landlord elect to re-enter as
herein provided or should Landlord take possession
pursuant to legal proceedings or pursuant to any
notice provided for by law, Landlord may from time
to time re-let the Demised Premises or any part
thereof for such term or terms and at such rental
or rentals and upon such terms and conditions as
Landlord may deem advisable with the right to make
alterations in and repairs to the Demised Premises.
If the term of this lease shall have been
terminated as above provided or as otherwise
permitted by law, Landlord may enter upon the Demised
Premises, and again have, repossess and enjoy the
same as if this lease had not been made, and in any
such event, neither Tenant nor any person claiming
through or under Tenant shall be entitled to
possession or to remain in possession of the Demised
Premises but shall forthwith quit and surrender the
Demised Premises.
17
<PAGE>
If Landlord shall re-enter and obtain
possession of the Demised Premises by reason of or
following an Event of Default, whether or not the
term of this lease shall have terminated, (i)
Landlord shall have the right, without notice, to
repair or alter the Demised Premises in such
manner as to Landlord may seem necessary or
advisable so as to put the Demised Premises in
good order and to make the same rentable, and
shall have the right, at its option, to re-let the
Demised Premises or any part thereof, and Tenant
shall pay on demand all expenses incurred by
Landlord in obtaining possession, and in altering,
repairing and putting the Demised Premises in good
order and condition, and in re-letting the same,
including fees of attorneys, architects, and other
experts, and also any other legitimate expenses or
commissions, and (ii) Tenant shall pay Landlord
upon the rent payment dates specified herein, in
each year following such re-entry until the end of
the term of this lease, the sums of money which
would have been payable by Tenant as rent and
additional rent hereunder upon said payment dates
if Landlord had not re-entered and resumed
possession of the Demised Premises, deducting only
the net amount of rent, if any, which Landlord
shall actually receive in the meantime from and by
any re-letting of the Demised Premises, and Tenant
shall remain liable for all sums, aforesaid, as
well as for any deficiency. Landlord shall have
the right from time to time to begin and maintain
successive actions or other legal proceedings
against Tenant for the recovery of such deficiency
or damages or for a sum equal to any installment
or installments of rent and any other sums payable
hereunder, and to recover the same upon the
liability of Tenant herein provided, which
liability shall survive the institution of any
action to secure possession of the Demised
Premises.
Nothing herein contained shall be deemed
to require Landlord to wait to begin such action
or other legal proceedings until the date when
this lease would have expired by limitation had
there been no such default by Tenant.
In lieu of all other claims for damages
on account of such termination, Landlord shall be
entitled to recover from Tenant as liquidated
damages an amount equal to the excess of all Fixed
Rent reserved hereunder for the unexpired portion
of term hereof over the fair rental value of the
Demised Premises at the time of termination for
such unexpired portion discounted at the rate of
6% per annum from the date such rents would have
18
<PAGE>
become due under this lease to the date of such
termination.
NOTICES All notices, demands, requests,
designations and consents by either party hereto
to the other party shall be in writing and shall
be sent by Registered or Certified Mail (Return
Receipt Requested) addressed to:
Landlord - J. C. Penney Company, Inc.
Attn: Real Estate Counsel
P. O. Box 10001
Dallas, Texas 75301-2105
Tenant - at the address of Tenant set forth at
the head of this lease.
All such communications shall be deemed
given on the date of mailing. The foregoing addresses
may be changed from time to time by either party by
notice given to the other party, as aforesaid.
ACCESS TO Tenant shall permit Landlord and
DEMISED Overlandlord and authorized representatives of
PREMISES each to enter the Demised Premises at all
reasonable times for the purpose of: serving or
posting thereon notices required by Legal
Requirements; conducting periodic inspections; and
performing any work thereon required to be
performed by Landlord pursuant to this lease or
that Landlord or Overlandlord in the reasonable
exercise of its judgment may deem necessary to
prevent waste, loss, damage or deterioration to or
in connection with the Demised Premises.
LANDLORD'S Landlord hereby designates Ray Emma as its
PROPERTY representative ("Property Representative") to handle
REPRESENTATIVE Tenant's property management and maintenance concerns
and requests regarding the Demised Premises. Landlord
shall cause the Property Representative (i) to
respond promptly and diligently to all questions,
inquiries and concerns of Tenant regarding the
condition of the Demised Premises, and (ii) to
perform or cause to be performed all of Landlord's
management obligations hereunder. Until such time as
Landlord notifies Tenant in writing of a different
Property Representative or address, Tenant shall
contact the Property Representative at the following
address:
Mr. Ray Emma
J. C. Penney Company, Inc.
P. O. Box 10001
Dallas, Texas 75301-2104
(214) 431-1621
19
<PAGE>
WAIVER OF One or more waivers of any covenant, term
PERFORMANCE or condition of this lease by either party shall
BY EITHER not be construed as a waiver of a subsequent
PARTY breach of the same or any other covenant, term or
condition; nor shall any delay or omission by
either party to seek a remedy for any breach of
this lease or to exercise a right accruing to such
party by reason of such breach be deemed a waiver
by such party of its remedies or rights with
respect to such breach. The consent or approval by
either party to or of any act by the other party
requiring such consent or approval shall not be
deemed to waive or render unnecessary consent to
or approval of any similar act.
SUCCESSORS All covenants, agreements, provisions and
AND conditions of this lease shall be binding upon and
ASSIGNS; inure to the benefit of the parties hereto and
MODIFICATIONS their heirs, devisees, executors, administrators,
successors in interest and assigns, and shall be
deemed to run with the land.
No modification of this lease shall be
binding unless evidenced by an agreement in writing
signed by Tenant and signed in Landlord's name by one
of Landlord's duly authorized officers.
REMEDIES Except to the extent expressly otherwise
CUMULATIVE provided herein, all rights, privileges and remedies
afforded either of the parties hereto by this lease
or by law shall be deemed cumulative, and the
exercise of any one of such rights, privileges and
remedies shall not be deemed to be a waiver of any
other right, privilege or remedy provided for herein
or granted by law.
PARTIAL If any covenant, term or condition of this
INVALIDITY lease or any application thereof shall be invalid or
unenforceable, the remainder of this lease and any
other application of such covenant, term or condition
shall not be affected thereby.
APPLICABLE This lease shall be construed according
LAW to, and be governed by, the law of the State in
which the Office Building is situated.
WAIVER OF The parties hereto waive trial by jury,
JURY TRIAL to the extent permitted by law, in any action,
proceeding or counterclaim brought by either of them
against the other on any matter whatsoever arising
out of or in any way connected with this lease, the
relationship of Landlord and Tenant,
20
<PAGE>
Tenant's use or occupancy of the Demised Premises,
and any emergency statute or any other statutory
remedy.
ATTORNEYS' If any rent or additional rent or other
FEES charges owing from Tenant to Landlord under this
lease are collected by or through an
attorney-at-law, Tenant shall pay the fees of
Landlord's attorneys not to exceed 15% of the
greater of the amount collected or the judgment,
if any, rendered in Landlord's favor.
HAZARDOUS Tenant agrees and acknowledges that in
MATERIALS accordance with the article hereof captioned
"DEMISE OF PREMISES" Tenant is accepting the
Demised Premises in an "as is" condition.
Except (i) as necessary in accordance
with Tenant's normal course of business as
described in the article hereof captioned "USE AND
OPERATION OF DEMISED PREMISES", and (ii) in strict
compliance with all applicable environmental laws,
Tenant shall not, by way of Tenant's use of or by
way of Tenant's installation of Tenant's
improvements in the Demised Premises, or
otherwise, use, cause or permit any hazardous
material to be located, discharged or disposed in,
on or about the Demised Premises or any part of
the Penney Premises.
Tenant shall defend, indemnify and hold
Landlord harmless from any and all claims, losses,
damages, suits, penalties, costs, liabilities and
expenses (including without limitation any clean
up costs and reasonable investigation expenses,
and attorney's fees) arising directly or
indirectly out of or brought on account of any
claim for loss or damages to the Demised Premises
or the Penney Premises, any injury to any person
or persons or property, or loss of life, any
contamination of or adverse effect on the
environment, or any violation of any environmental
laws, rules, regulations or codes of any
governmental authority, entity or agency, caused
by or resulting from any hazardous or toxic
material which Tenant may release, spill, emit,
discharge, use, keep, bring upon, or transport
through, in or upon the Demised Premises or the
Penney Premises.
Landlord agrees to comply with all
environmental laws affecting the Demised Premises
with respect to the acts or omissions of Landlord
which accrued prior to the delivery of possession
of the Demised Premises to Tenant, except for
compliance required or resulting from the acts or
omissions
21
<PAGE>
of Tenant, its agents, employees, contractors and
all other third parties. Notwithstanding anything
to the contrary in this lease, with respect to the
Demised Premises, nothing shall be deemed to limit
Tenant's recourse, rights and remedies against
Landlord under environmental laws and Landlord's
recourse, rights and remedies against Tenant under
environmental laws.
ENTIRE This lease constitutes the entire
AGREEMENT agreement between Landlord and Tenant, and each
party acknowledges to the other that it is not
relying on any representations or agreements other
than those specifically set forth in this lease.
IN WITNESS WHEREOF, Landlord and Tenant
have caused this lease to be duly executed and
sealed as of the day and year first above written.
<TABLE>
<S> <C>
LANDLORD:
ATTEST: APPROVED J. C. PENNEY COMPANY, INC.
--------
/s/ [ILLEGIBLE] S.W. By: /s/ [ILLEGIBLE]
------------------------- -------- ---------------------------
Assistant Secretary ATTORNEY Senior Vice President
TENANT:
ATTEST: BSI BUSINESS SERVICES, INC.
By: /s/ [ILLEGIBLE]
-------------------------- ---------------------------
Secretary Senior Vice President
</TABLE>
22
<PAGE>
STATE OF TEXAS )
)SS.:
COUNTY OF COLLIN )
This instrument was acknowledged before me on the 11th day of
January, 1996, by Ted L. Spurlock, a Vice President of J. C. PENNEY COMPANY,
INC., a Delaware corporation, on behalf of said corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
My Commission Expires:
ELAINE R. LESHER
MY COMMISSION EXPIRES
April 15, 1996 /s/ Elaine R. Lesher
- ------------------------------ -----------------------------
Notary Public, State of Texas
STATE OF Texas )
) SS.:
COUNTY OF Collin )
On this the 11th day of January, 1996, before me, a Notary Public
duly authorized in and for the said County in the State aforesaid to take
acknowledgments, personally appeared Lawrence A. [ILLEGIBLE] to me known and
known to me to be Senior President of BSI BUSINESS SERVICES, INC., one of the
corporations described in the foregoing instrument, and acknowledged that as
such officer, being authorized so to do, he executed the foregoing instrument
on behalf of said corporation by subscribing the name of such corporation by
himself as such officer and caused the corporate seal of said corporation to
be affixed thereto, as his free and voluntary act, and as the free and
voluntary act of said corporation, for the uses and purposes therein set
forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
My Commission Expires:
ELAINE R. LESHER
MY COMMISSION EXPIRES
April 15, 1996 /s/ Elaine R. Lesher
- ------------------------------ -----------------------------
Notary Public
<PAGE>
RENT RIDER
A. Effective as of the Commencement Date, Tenant shall pay
Landlord the following Fixed Rent for the Demised
Premises at the following annual rates for the
following periods, payable in equal monthly
installments in advance on or before the first day of
each calendar month; however, if the Commencement Date
occurs on a day other than the first day of the month,
Tenant shall pay on the Commencement Date a pro rata
share of a full monthly installment of Fixed Rent:
<TABLE>
<CAPTION>
MONTHLY
TERM COMMENCING ON ENDING ON ANNUAL RATE INSTALLMENTS
- ---- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Initial Term Commencement
Date 1-31-1997 $493,660.00 $41,138.33
Initial Term 2-1-1997 1-31-2002 $572,300.00 $47,691.67
1st Option Period 2-1-2002 1-31-2007 $663.467.00 $55,288.92
2nd Option Period 2-1-2007 1-31-2012 $769,156.00 $64,096.33
</TABLE>
B. Until it receives other instructions in writing from Landlord,
Tenant shall pay all Fixed Rent and other charges and payments
due under this lease by check to the order of
J. C. Penney Company, Inc.
Salt Lake City Accounting
P.O. Box 27704
Salt Lake City, Utah 94127-0704
Unit No. #6210
****************
Attached to and forming part of lease dated as of January 11, 1996,
by and between J. C. PENNEY COMPANY, INC., as Landlord, and BSI
BUSINESS SERVICES, INC., as Tenant, covering certain premises
situated at Nacogdoches at El Charro Road, San Antonio, Texas.
Initialed for Initialed for
identification identification
for Landlord: for Tenant:
By /s/ S.W. By /s/ [ILLEGIBLE]
-------------- -----------------
Attorney
RR-1
<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND ON WHICH THE OFFICE BUILDING IS LOCATED:
Lot 26, Block 2, New City Block 16673, VALENCIA UNIT 7a, in the City
of San Antonio, Bexar County, Texas, according to plat thereof,
recorded in Volume 9000, Page 235, Deed and Plat Records of Bexar
County, Texas.
****************
Attached to and forming part of lease dated as of January 11, 1996,
by and between J. C. PENNEY COMPANY, INC., as Landlord, and BSI
BUSINESS SERVICES, INC., as Tenant, covering certain premises
situated at Nacogdoches at El Charro Road, San Antonio, Texas.
Initialed for Initialed for
identification identification
for Landlord: for Tenant:
By /s/ S.W. By /s/ [ILLEGIBLE]
-------------- -----------------
Attorney
<PAGE>
EXHIBIT B
Site Plan of Office Building
Attached
****************
Attached to and forming part of lease dated as of January 11,
1996, by and between J.C. PENNEY COMPANY, INC., as Landlord, and BSI
BUSINESS SERVICES, INC., as Tenant, covering certain premises
situated at Nacogdoches at El Charro Road, San Antonio, Texas.
Initialed for Initialed for
identification identification
for Landlord: for Tenant:
By /s/ S.W. By /s/ [ILLEGIBLE]
------------------ ------------------
Attorney
<PAGE>
BUILD-TO-SUIT NET LEASE
BETWEEN
OPUS SOUTH CORPORATION
AS LANDLORD
AND
ADS ALLIANCE DATA SYSTEMS, INC.,
AS TENANT
JANUARY ___, 1998
<PAGE>
BUILD-TO-SUIT NET LEASE
THIS BUILD-TO-SUIT NET LEASE ("LEASE") is entered into as of January __,
1998 by and between the Landlord and Tenant identified in SECTION 1.1.
1. DEFINITIONS AND EXHIBITS
1.1 DEFINITIONS. In this Lease, the following defined terms have the
meanings set forth for them below or in the section of this Lease indicated
below:
"ADA" means the Americans with Disabilities Act, as amended from time to
time.
"ADDITIONAL RENT" means all amounts required to be paid by Tenant
under this Lease in addition to Basic Rent including, without limitation,
Taxes and insurance premiums.
"AFFILIATES" means, with respect to any party, any entities or
individuals that control, are controlled by or are under common control
with such party, together with its and their respective partners,
venturers, directors, officers, shareholders, trustees, trustors,
beneficiaries, agents, employees and spouses.
"ALLOWANCE" has the meaning set forth in SECTION 3.10.
"APPROVED EXPANSION BASE BUILDING PLANS" has the meaning set forth
in SECTION 18(b).
"APPROVED EXPANSION COSTS" has the meaning set forth in SECTION
18(d).
"APPROVED EXPANSION LEASEHOLD IMPROVEMENTS PLANS" has the meaning
set forth in SECTION 18(c).
"APPROVED EXPANSION RENTABLE SQUARE FEET" has the meaning set
forth in SECTION 18(f).
"APPROVED ORIGINAL BASE BUILDING PLANS" has the meaning set forth
in SECTION 3.2.
"APPROVED ORIGINAL LEASEHOLD IMPROVEMENTS PLANS" has the meaning
set forth in SECTION 3.3.
"APPROVED ORIGINAL RENTABLE SQUARE FEET" has the meaning set forth
in SECTION 3.6.
"APPROVED TENANT'S COSTS" has the meaning set forth in SECTION
3.4.
"BASIC RENT" means the Original Basic Rent and, if applicable, the
Expansion Basic Rent.
"BUILDING" means the Original Building and the Expansion Building.
1
<PAGE>
"CORE BUILDING SYSTEMS" means the items delineated on EXHIBIT K.
"DEADLINE EXTENSION" has the meaning set forth in SECTION 3.2.
"ENVIRONMENTAL LAWS" means the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 ET SEQ., the Comprehensive Environmental
Response, Compensation and Liability Act, U.S.C. Section 9601 ET SEQ.
(including the so-called "Superfund" amendments thereto), any other
applicable Laws governing or pertaining to any hazardous substances,
hazardous wastes, chemicals or other materials, including, without
limitation, asbestos, polychlorinated biphenyls, radon, petroleum and any
derivative thereof or any common law theory based on nuisance or strict
liability.
"EVENT OF DEFAULT" has the meaning set forth in SECTION 15.2.
"EXPANSION BASE BUILDING" has the meaning set forth in SECTION
18(a).
"EXPANSION BASE BUILDING PLANS" has the meaning set forth in
SECTION 18(b).
"EXPANSION BASIC RENT" has the meaning set forth in SECTION
18(j)(II)(B).
"EXPANSION BUILDING" has the meaning set forth in SECTION 18(a).
"EXPANSION CHANGE ORDER" has the meaning set forth in SECTION
18(e).
"EXPANSION COMMENCEMENT DATE" has the meaning set forth in SECTION
18(j)(I).
"EXPANSION COSTS" means the actual amount of those costs described
on EXHIBIT J which Landlord incurs in connection with the construction of
the Expansion Building. Expansion Costs specifically do not include any
acquisition or carrying costs for any portion of the Land, it being
understood that those costs are included in the Original Basic Rent for
the Original Premises. Landlord and Tenant further agree that Expansion
Costs will include (a) the cost of general conditions and insurance, not
to exceed three percent (3%) of the cost of the construction work,
excluding soft costs, (b) overhead, not to exceed three percent (3%) of
the cost of the construction work, excluding soft costs and the general
conditions and insurance and (c) a general contractor's fee payable to
Landlord in an amount equal to five percent (5%) of the construction
work, excluding soft costs and overhead.
"EXPANSION LEASEHOLD IMPROVEMENTS" has the meaning set forth in
SECTION 18(a).
"EXPANSION LEASEHOLD IMPROVEMENTS PLANS" has the meaning set forth
in SECTION 18(c).
"EXPANSION PUNCH LIST" has the meaning set forth in SECTION 18(h).
"FAIR MARKET RENT" has the meaning set forth in SECTION 2.5.
"FINAL COMPLETION" means that all Landlord's Original Work or
Landlord's Expansion Work, as the case may be, has been fully and finally
completed.
"FINANCED AMOUNT" has the meaning set forth in SECTION 3.10.
2
<PAGE>
"FIRST RENEWAL TERM" has the meaning set forth in SECTION 2.5.
"FIRST STAGE COMPLETION" means that Landlord's Original Work on
the first floor of the Original Building has been Substantially
Completed and the first floor of the Original Building is ready for and
can be occupied by Tenant.
"FORCE MAJEURE" means any delays due to strikes, riots, acts of
God, war, or any other causes of any kind whatsoever which are beyond the
control of Landlord or Tenant at any time during the term of this Lease,
it being agreed that the inability to perform financial obligations
(including, without limitation, paying the Basic Rent and other charges
due under this Lease), shortages of labor or materials, and governmental
laws, rules or restrictions shall not constitute events beyond the
reasonable control of Landlord or Tenant.
"GUARANTOR" means Alliance Data Systems Corporation, a Delaware
corporation, but the term "GUARANTOR" means any then-existing guarantor
of Tenant's obligations under this Lease pursuant to a guaranty agreement
substantially similar to the form attached to this Lease as EXHIBIT G or
another form reasonably acceptable to Landlord.
"HAZARDOUS SUBSTANCE" means any substance, chemical or material
declared to be, or regulated as, hazardous or toxic under any
Environmental Law or the presence of which may give rise to liability
under any Environmental Law.
"IMPROVEMENTS" means the Building, the Leasehold Improvements, and
any other structures, pavement, landscaping, lighting fixtures or other
improvements now or later constructed or installed upon the Land.
"INTEREST RATE" means the prime interest rate (as published from
time to time by THE WALL STREET JOURNAL, and with any changes in such
rate to be effective on the date such change is published) plus 5% per
annum, but if such rate exceeds the maximum interest rate permitted by
law, such rate will be reduced to the highest rate allowed by law under
the circumstances.
"LAND" means the real property located on Waterview Parkway in the
City of Dallas, Collin County, Texas (including all of its appurtenant
rights and easements) and legally described on EXHIBIT A.
"LANDLORD" means Opus South Corporation, a Florida corporation.
"LANDLORD'S EXPANSION WORK" has the meaning set forth in SECTION
18(a).
"LANDLORD'S NOTICE ADDRESS" means:
12225 Greenville Avenue
Suite 900
Dallas, Texas 75243-9363
Telecopy: (972) 669-2216
with a copy to:
700 Opus Center
9900 Bren Road East
3
<PAGE>
Minnetonka, Minnesota 55343
Attention: Legal Department
Telecopy: (612) 936-9808
"LANDLORD'S ORIGINAL WORK" means the construction and installation
of the Original Base Building and the Original Leasehold Improvements.
"LANDLORD'S RENT ADDRESS" means:
5401 Corporate Woods Drive
Suite 100
Pensacola, Florida 32504
"LANDLORD'S REPRESENTATIVE" means Lamar Lawson.
"LAWS" means any and all present or future federal, state or local
laws, statutes, ordinances, rules, regulations or orders of any and all
governmental or quasi-governmental authorities having jurisdiction.
"LEASEHOLD IMPROVEMENTS" means the Original Leasehold Improvements
and the Expansion Leasehold Improvements.
"ORIGINAL BASE BUILDING" means those portions of the Original
Building and the associated site Improvements on the Land (such as
driveways, parking areas, landscaping and exterior lighting) that are
specified on EXHIBIT B and are identified with an asterisk (*) on EXHIBIT
C under the column "Base Building Core & Shell".
"ORIGINAL BASE BUILDING PLANS" has the meaning set forth in
SECTION 3.2.
"ORIGINAL BASIC RENT" means the rent payable according to SECTION
4.1.
"ORIGINAL BUILDING" means the building containing approximately
114,419 rentable square feet to be constructed by Landlord for Tenant
upon the Land according to SECTION 3 and includes both the Original Base
Building and the Original Leasehold Improvements.
"ORIGINAL CHANGE ORDER" has the meaning set forth in SECTION 3.5.
"ORIGINAL COMMENCEMENT DATE" means the first day of the Term,
which will be the Third Stage Completion Date, unless the Original
Commencement Date is extended according to SECTION 3.6.
"ORIGINAL LEASEHOLD IMPROVEMENTS" means all leasehold improvements
and installations, in addition to the Original Base Building, that are to
be constructed or installed by Landlord for Tenant according to
SECTION 3, and which are identified with an asterisk (*) on EXHIBIT C
under the column "Tenant Improvement".
"ORIGINAL LEASEHOLD IMPROVEMENTS PLANS" means construction plans
and specifications for the Original Leasehold Improvements.
"ORIGINAL PREMISES" means the Land and the Original Building.
4
<PAGE>
"ORIGINAL PUNCH LIST" has the meaning set forth in SECTION 3.8.
"ORIGINAL TERM" means the period between the Original Commencement
Date and the Expiration Date.
"PERMITTED EXPANSION FORCE MAJEURE DELAYS" has the meaning set
forth in SECTION 18(g).
" PERMITTED ORIGINAL FORCE MAJEURE DELAYS" has the meaning set
forth in SECTION 3.7.
"PLAN APPROVAL DELAY" has the meaning set forth in SECTION 3.2 AND
SECTION 3.3.
"PREMISES" means the Land and all then-existing Improvements.
"PROJECTED EXPANSION COMPLETION DATE" has the meaning set forth in
SECTION 18(f).
"RELEASE CONDITIONS" means all of the following conditions have
been met: (a) the assignee of this Lease or sublessee of all of the
Premises has a net worth (excluding goodwill) of at least $75 million,
(b) if such assignee or sublessee is a subsidiary of any entity, Tenant
has obtained and delivered to Landlord a guaranty by such parent entity
of the assignee or sublessee's obligations under this Lease, and (c) in
the event Tenant subleases the entire Premises (it being understood and
agreed that this condition does not apply in the case of an assignment),
Tenant has obtained and delivered to Landlord a written agreement from
such sublessee assuming the obligations of Tenant under this Lease from
and after the effective date of such sublease.
"RENEWAL NOTICE" has the meaning set forth in SECTION 2.5.
"RENEWAL NOTICE DATE" has the meaning set forth in SECTION 2.5.
"RENEWAL TERM" has the meaning set forth in SECTION 2.5.
"RENT" means Basic Rent, Expansion Basic Rent (if applicable), and
all Additional Rent.
"RENTABLE SQUARE FEET" means the standard for "Rentable Area" as
promulgated by the Building Owners and Managers Association International
and approved by the American National Standards Institute, Inc. on June
7, 1996 (reference number ANSI/BOMA Z65.1-1996).
"REPORT" has the meaning set forth in SECTION 6.3(c).
"SECOND RENEWAL TERM" has the meaning set forth in SECTION 2.5.
"SECOND STAGE COMPLETION" means that the Landlord's Original Work
on the first floor and the second floor of the Original Building has
been Substantially Completed and the first floor and second floor of the
Original Building are ready for occupancy and can be occupied by Tenant.
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"SUBSTANTIALLY COMPLETED" or "SUBSTANTIAL COMPLETION" or
"SUBSTANTIALLY COMPLETE" means that the applicable portion of the
Premises is broom clean, free of construction tools and materials, and
Landlord's Original Work has been completed according to the Approved
Original Base Building Plans and the Approved Original Leasehold
Improvements Plans or Landlord's Expansion Work has been completed
according to the Approved Expansion Base Building Plans and the Approved
Expansion Leasehold Improvements Plans, as the case may be, with only
minor punch list items that will not interfere to more than a minor
extent with Tenant's use and enjoyment of the Premises remaining to be
completed or corrected pursuant to the terms of this Lease; that an
unconditional certificate of occupancy for the applicable portion of the
Premises has been issued (unless the issuance thereof is conditioned upon
any work or installations the responsibility of which is not included
within Landlord's Original Work or Landlord's Expansion Work, as the
case may be) and not suspended or revoked or amended in a manner that
would prevent Tenant from occupying the applicable portion of the
Premises for the purposes for which they were designed; and that all
utilities called for in the Approved Original Base Building Plans or
Approved Expansion Base Building Plans, as the case may be, or the
Approved Original Leasehold Improvements Plans or the Approved Expansion
Leasehold Improvements Plans, as the case may be, are installed and
operable with all hook-up, tap or similar fees paid.
"TAXES" means, subject to the terms of SECTION 5.3 below, all ad
valorem real and personal property taxes and assessments, special or
otherwise, levied upon or with respect to the Premises, the personal
property used in operating the Premises, and the rents and additional
charges payable by Tenant according to this Lease, and imposed by any
taxing authority having jurisdiction; and all taxes, levies and charges
which may be assessed, levied or imposed in replacement of, or in
addition to, all or any part of ad valorem real or personal property
taxes or assessments as revenue sources, and which in whole or in part
are measured or calculated by or based upon the Premises, the leasehold
estate of Landlord or Tenant in and to the Premises, or the rents and
other charges payable by Tenant according to this Lease. Taxes will not
include any net income, franchise, inheritance or similar taxes of
Landlord.
"TAX YEAR" means a 12-month period for which Taxes are assessed.
"TENANT" means ADS Alliance Data Systems, Inc., a Delaware
corporation.
"TENANT'S COST" means the total cost of preparing the Original
Leasehold Improvements Plans, obtaining all necessary permits for, and
constructing and installing, the Original Leasehold Improvements in the
Original Base Building, and providing any required services during
construction of the Original Leasehold Improvements (such as electricity
and other utilities and refuse removal). Landlord and Tenant agree that
Tenant's Cost will include (a) the cost of general conditions and
insurance, not to exceed three percent (3%) of the cost of the
construction work, excluding soft costs, (b) overhead, not to exceed
three percent (3%) of the cost of the construction work, excluding soft
costs and the general conditions and insurance and (c) a general
contractor's fee payable to Landlord in an amount equal to five percent
(5%) of the construction work, excluding soft costs and overhead.
"TENANT'S COST PROPOSAL" has the meaning set forth in SECTION 3.9.
"TENANT'S EXPANSION COST PROPOSAL" has the meaning set forth in
SECTION 18(d).
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"TENANT ORIGINAL DELAY" has the meaning set forth in SECTION 3.7.
"TENANT EXPANSION DELAY" has the meaning set forth in SECTION
18(g).
"TENANT'S NOTICE ADDRESS" means,
for notices given before the Original Commencement
Date:
5001 Spring Valley Road
Dallas, Texas 75244
Attention: Mr. Robert S. Murphy
Telecopy: (972) 960-5275
with a copy at the same time to:
4590 East Broad Street
Columbus, Ohio 43213
Attention: General Counsel
Telecopy: (614) 863-5965
and
Harriet Anne Tabb
Tabb & Associates
8333 Douglas Avenue
Suite 1250
Dallas, Texas 75225
and for notices given after the Original
Commencement Date:
Tenant's address at the Premises, with a copy at the
same time to:
4590 East Broad Street
Columbus, Ohio 43213
Attention: General Counsel
and
Harriet Anne Tabb
Tabb & Associates
8333 Douglas Avenue
Suite 1250
Dallas, Texas 75225
"TENANT'S REPRESENTATIVE" means Robert S. Murphy.
"TERM" means the duration of this Lease, which will be
approximately 11 years beginning on the Original Commencement Date and
ending on the "EXPIRATION DATE" (as defined below), unless terminated
earlier or extended further as provided in this Lease. The "EXPIRATION
DATE" means (i) if the Original Commencement Date is the first day of a
month, the 11-year anniversary of the day immediately preceding the
Original Commencement
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Date; or (ii) if the Original Commencement Date is not the first day
of a month, the 11-year anniversary of the last day of the month in
which the Original Commencement Date occurs. The Term will also
include any exercised Renewal Term.
"THIRD STAGE COMPLETION" means that all of Landlord's Original
Work in the Original Building is Substantially Completed and all of the
Original Building is ready for and can be occupied by Tenant.
1.2 EXHIBITS. The Exhibits listed below are attached to and
incorporated in this Lease. In the event of any inconsistency between such
Exhibits and the terms and provisions of this Lease, the terms and provisions of
the Exhibits will control, but the terms of this Lease may specifically modify
the exhibits. The Exhibits to this Lease are:
Exhibit A - Legal Description of the Land
Exhibit B - Base Building Specifications (including
Building Elevation, Site Plan, Floor Plan and
Building Specifications)
Exhibit C - Base Building/Tenant Matrix
Exhibit D - Matters Affecting Landlord's Title
Exhibit E - Memorandum of Lease
Exhibit F - NDA
Exhibit G - Lease Guaranty
Exhibit H - 2-Story Plan
Exhibit I - 3-Story Plan
Exhibit J - Expansion Cost Summary
Exhibit K - Core Building Systems
2. GRANT OF LEASE; RENEWAL OPTIONS
2.1 DEMISE. Subject to the terms, covenants, conditions and
provisions of this Lease, Landlord leases to Tenant and Tenant leases from
Landlord the Premises for the Term.
2.2 QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
Basic Rent and Additional Rent and performing all other obligations of Tenant
under this Lease, will have quiet and peaceful possession of the Premises during
the Term, and such possession will not be disturbed by Landlord or anyone
claiming by, through or under Landlord. Upon Landlord's acquisition of the
Land, Landlord will own the Land in fee simple, subject only to the matters set
forth on EXHIBIT D. Landlord hereby represents and warrants that the execution
of this Lease, the construction of the Original Building, and the construction
of the Expansion Building will not violate the terms of any of the items
described on EXHIBIT D and that Landlord has received or will receive all
approvals necessary for the construction of the Original Building and the
Expansion Building.
2.3 LANDLORD AND TENANT COVENANTS. Landlord covenants to observe and
perform all of the terms, covenants and conditions applicable to Landlord in
this Lease. Tenant covenants to pay the Rent when due, and to observe and
perform all of the terms, covenants and conditions applicable to Tenant in this
Lease.
2.4 MEMORANDUM OF LEASE. Promptly after execution of this Lease,
Landlord and Tenant will execute and acknowledge a recordable memorandum of
lease on the form attached as EXHIBIT E, which memorandum must be recorded
immediately after the deed into Landlord (i.e., with no intervening document).
After the occurrence of the Original Commencement Date, either party will, upon
the other's request, execute and acknowledge a recordable memorandum setting
forth
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the date on which the Original Commencement Date occurred and the date on
which the Expiration Date is scheduled to occur.
2.5 TENANT'S RENEWAL OPTIONS. Subject to the terms and provisions of
this SECTION 2.5, Tenant, at its option, may extend the Original Term of this
Lease for one five-year period at the end of the Original Term (the "FIRST
RENEWAL TERM") and, if Tenant exercises its option with respect to the First
Renewal Term, for an additional five-year period at the end of the First Renewal
Term (the "SECOND RENEWAL TERM"). The First Renewal Term and the Second Renewal
Term are individually referred to herein as a "RENEWAL TERM." To exercise each
such option, Tenant must deliver written notice of the exercise thereof (a
"RENEWAL NOTICE") to Landlord no later than nine months prior to the expiration
of (i) the Original Term, in the case of Tenant's option with respect to the
First Renewal Term, or (ii) the First Renewal Term, in the case of Tenant's
option with respect to the Second Renewal Term. The dates by which Tenant is
required to deliver its Renewal Notices will each be referred to hereinafter as
a "RENEWAL NOTICE DATE." If Tenant fails to give its Renewal Notice with
respect to either Renewal Term by the applicable Renewal Notice Date, such
Renewal Notice Date will be extended until the first to occur of (A) the 15th
day after Landlord gives Tenant notice that Tenant has failed to exercise its
option with respect to the subject Renewal Term; or (B) the last day of the
then-current Term. Landlord and Tenant agree that once Tenant has delivered a
Renewal Notice, both parties will be responsible for their respective
obligations under this Lease for the subject Renewal Term, regardless of the
outcome of the Basic Rent determination for such Renewal Term as described
below. During each Renewal Term, all of the terms and provisions of this Lease
will apply, except that after the Second Renewal Term there will be no further
right of renewal, and except that the Basic Rent payable for each month of the
First Renewal Term will be 90% of the "FAIR MARKET RENT" (as defined below), but
in no event less than 100%, or more than 118%, of the monthly Basic Rent payable
during the last year of the initial Term, and the Basic Rent payable for each
month of the Second Renewal Term will be 90% of the Fair Market Rent, but in no
event less than 100%, or more than 118%, of the monthly Basic Rent payable
during the last year of the First Renewal Term. As used herein, "FAIR MARKET
RENT" will mean an amount of rent per month equal to the prevailing monthly rent
then being obtained by landlords of premises comparable to the Land and the Base
Building and the Expansion Base Building, if appropriate (I.E., the Premises,
but excluding the Original Leasehold Improvements, the Expansion Leasehold
Improvements, and any subsequent Improvements made by Tenant) in the Dallas,
Texas metropolitan area (or that such landlords would then be able to obtain)
under leases of premises comparable to the Land and the Base Building and the
Expansion Base Building, if appropriate, for terms comparable to the subject
Renewal Term. Landlord and Tenant will, for a period of 30 days from and after
the subject Renewal Notice Date, meet with each other and negotiate in good
faith to agree upon the then-current Fair Market Rent (using the criteria set
forth above) acceptable to both parties. If the parties are unable to agree
upon the Fair Market Rent during such 30-day period, then, within seven days
after such 30-day period expires, Landlord and Tenant will each appoint a
certified MAI appraiser who has at least five years' full-time commercial
appraisal experience in the Dallas, Texas market. If one party fails to so
appoint an appraiser within such seven-day period, the determination of the Fair
Market Rent by the one appraiser who was timely appointed by the other party
will be binding on both parties. The appraisers will, within 30 days of their
appointment, submit their determinations of the Fair Market Rent to both
parties. If the difference between the two determinations is 10% or less of the
higher appraisal, then the average between the two determinations will be the
Fair Market Rent. If the difference between the two determinations is greater
than 10% of the higher thereof, then within 10 days of the date the second
determination is submitted to the parties, the two appraisers will designate a
third appraiser who must also meet the qualifications described above and,
further, must not have previously acted for either party in any capacity. The
sole responsibility of the third appraiser will be to determine which of the
determinations made by the first two appraisers is more accurate. The third
appraiser will
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have no right to propose a middle ground or any modifications to either of
the prior determinations made by the first appraisers. The third appraiser's
choice will be submitted to the parties within 20 days after his or her
selection. Such determination will bind both parties, and the determination
of the Fair Market Rent made by one of the first two appraisers and selected
by the third appraiser as the more accurate will be the Fair Market Rent.
All appraisers will be instructed, in making their required determinations,
to use the criteria as to the Fair Market Rent set forth above. Each party
will pay the fees and expenses of the appraiser selected by it, and they will
pay equal shares of the fees and expenses of the third appraiser. Tenant
will have no right to extend the Term and a Renewal Notice will be
ineffective if an Event of Default exists at the time such notice is given or
at the commencement of the subject Renewal Term. Any termination of this
Lease terminates all rights under this SECTION 2.5.
3. CONSTRUCTION; DELIVERY AND ACCEPTANCE OF PREMISES
3.1 LANDLORD'S CONSTRUCTION OBLIGATIONS. Subject to and in accordance
with the provisions of this SECTION 3, Landlord will (i) at
Landlord's sole cost and expense, design (consistent with the
terms of EXHIBIT B and EXHIBIT C), construct and install the
Original Base Building on the Land in accordance with the Approved
Original Base Building Plans (as defined below); and (ii) subject
to the provisions of SECTION 3.5, construct and install the
Original Leasehold Improvements in accordance with the Approved
Original Leasehold Improvements Plans (as defined below).
Landlord must perform the Landlord's Original Work in a good and
workmanlike manner, using new materials, and in accordance with
all applicable laws, ordinances, rules, and regulations,
including, without limitation, ADA and all applicable
environmental laws, as interpreted and enforced by the
governmental bodies having jurisdiction thereof at the time of
construction.
3.2 ORIGINAL BASE BUILDING PLANS. On or before January 15, 1998,
Landlord delivered to Tenant preliminary plans and specifications for the Base
Building (the "ORIGINAL BASE BUILDING PLANS"), which plans are described as
follows: Shell Building Plans for Alliance Data Systems - Corporate
Headquarters, Dallas, Texas (dated 1/15/98) and Specifications for Alliance Data
Systems - Corporate Headquarters, Dallas, Texas (dated 1/14/98). Landlord
acknowledges that Tenant responded to such delivery within five (5) business
days. The specifications attached as EXHIBIT B are the Original Base Building
Plans described above and although there are not yet any Approved Original Base
Building Plans, neither have any Plan Approval Delays, Tenant Original Delays,
or Deadline Extensions accrued during the period before lease execution. The
revised preliminary Original Base Building Plans are due from Landlord on
January 29, 1998. Within five (5) business days after Tenant receives such
revised preliminary Original Base Building Plans, Tenant will either approve the
same in writing or notify Landlord in writing of Tenant's objections to the
revised preliminary Original Base Building Plans and how the revised preliminary
Original Base Building Plans must be changed in order to make them acceptable to
Tenant. Each day following the fifth (5th) business day after the revised
preliminary Original Base Building Plans are submitted to Tenant until Tenant
either approves them or delivers a notice of objections to Landlord will be a
day of Tenant Original Delay (as that term is defined in SECTION 3.7 hereof).
Within five (5) business days after Landlord's receipt of Tenant's notice of
objections, Landlord will cause its architect to prepare revised Original Base
Building Plans according to such notice and submit the revised Original Base
Building Plans to Tenant. In any review, Tenant cannot object to any aspect of
the proposed Original Base Building Plans if (i) subject to the next-succeeding
sentence, such objection would require material deviations from the terms of
EXHIBIT B AND EXHIBIT C attached to this Lease, or (ii) such objection was not
included within any of the previous objections made by Tenant to the Original
Base Building Plans, unless the item objected to was not included in any of the
previous
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versions of the Original Base Building Plans or such item was so included,
but has been affected by a subsequent change to the Original Base Building
Plans. However, it is understood and agreed that Tenant has the right to
select the following items, even if such items are not consistent with the
guidelines detailed in the Base Building Specifications attached as EXHIBIT
B, as long as such items are available to comply with the schedule of
construction of the Original Building: exterior brick, glass, and metal
frames; restroom finishes (including, without limitation, ceramic tile and
toilet partitions); lobby finishes; elevator cab finishes; landscaping; and
common area interior finishes, doors and hardware. Upon submittal to Tenant
of the revised Original Base Building Plans, and upon submittal of any
further revisions, the procedures described above will be repeated until
Landlord and Tenant have reached agreement. Once they have reached
agreement, Landlord must promptly prepare permit-ready Original Base Building
Plans and submit them to Tenant for Tenant's approval. The only grounds upon
which Tenant can object to such permit-ready Original Base Building Plans is
that they materially differ from the final approved preliminary Original Base
Building Plans. Tenant's failure to respond to Landlord's submission within
five (5) business days after Landlord delivers such permit-ready Original
Base Building Plans to Tenant constitutes Tenant's approval of such
permit-ready Original Base Building Plans. The final permit-ready Original
Base Building Plans, as approved by Landlord and Tenant, constitute the
"APPROVED ORIGINAL BASE BUILDING PLANS" under this Lease. Each day following
March 1, 1998, that the Approved Original Base Building Plans have not been
approved by Landlord and Tenant for any reason other than Landlord's failure
to perform or respond as required by this SECTION 3.2 shall constitute a
"PLAN APPROVAL DELAY". Each day that Landlord does not perform or respond as
required by this SECTION 3.2 will extend such March 1, 1998 deadline by one
(1) day and will constitute a day of "DEADLINE EXTENSION."
3.3 LEASEHOLD IMPROVEMENT PLANS. On or before April 6, 1998
(extended by one (1) day for each day of Deadline Extension), Tenant will
cause its architect to prepare and deliver to Landlord preliminary plans and
specifications for the Original Leasehold Improvements (the "ORIGINAL
LEASEHOLD IMPROVEMENTS PLANS"). While these preliminary plans and
specifications are not required to be permit-ready, they must show sufficient
detail concerning all aspects of the Original Leasehold Improvements Plans so
that making them permit-ready is only a matter of incorporating technical
details. Each day following April 6, 1998 (extended by one (1) day for each
day of Deadline Extension), until Tenant delivers the preliminary Original
Leasehold Improvements Plans will be a day of Plan Approval Delay. Within
five (5) business days after receipt of the preliminary Leasehold Improvement
Plans, Landlord will either approve the same in writing or notify Tenant in
writing of Landlord's objections to the preliminary Original Leasehold
Improvements Plans and how the preliminary Original Leasehold Improvements
Plans must be changed in order to make them acceptable to Landlord. Landlord
can only object to the preliminary Original Leasehold Improvements Plans on
the grounds that they would adversely affect the structural integrity of the
Original Base Building or materially modify any portion of the Core Building
Systems and cannot object in any subsequent review to any matter not raised
in a preceding review, unless the item objected to was not included in any of
the previous versions of the Original Leasehold Improvements Plans or such
item was so included, but has been affected by a subsequent change to the
Original Leasehold Improvements Plans. However, under all circumstances,
Tenant has the right to select the following items as they apply to the
Original Leasehold Improvements, but only as long as such items are available
to comply with the schedule of construction of the Original Building:
exterior brick, glass, and metal frames; restroom finishes (including,
without limitation, ceramic tile and toilet partitions); lobby finishes;
elevator cab finishes; landscaping; and common area interior finishes, doors
and hardware. If Landlord fails to respond in the manner set forth above
within five (5) business days after the date Tenant delivers the preliminary
Original Leasehold Improvements Plans to Landlord or objects to the
preliminary Original Leasehold Improvements Plans on any grounds other than
those set forth in this SECTION 3.3, then Landlord will be
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conclusively deemed to have approved the preliminary Original Leasehold
Improvements Plans. Within five (5) business days after Tenant's receipt of
Landlord's notice of objections (if such objections meet the requirements set
forth above), Tenant will cause its architect to prepare revised Original
Leasehold Improvements Plans according to such notice and submit the revised
Original Leasehold Improvements Plans to Landlord. Upon submittal to
Landlord of the revised Original Leasehold Improvements Plans, and upon
submittal of any further revisions, the procedures described above will be
repeated until Landlord and Tenant have reached agreement. Once they have
reached agreement, Tenant must promptly prepare permit-ready Original
Leasehold Improvements Plans to Landlord for Landlord's approval. The only
grounds upon which Landlord can object to such permit-ready Original
Leasehold Improvements Plans is that they materially differ from the final
approved Original Leasehold Improvements Plans. Landlord's failure to
respond to Tenant's submissions within five (5) business days after Tenant
delivers such permit-ready Original Leasehold Improvements Plans to Landlord
constitutes Landlord's approval of such permit-ready Original Leasehold
Improvements Plans. The permit-ready Original Leasehold Improvements Plans,
as finally approved, are referred to in this Lease as the "APPROVED LEASEHOLD
IMPROVEMENTS PLANS." Each day following April 20, 1998 (extended by one (1)
day for each day of Deadline Extension), that the Approved Original
Leasehold Improvements Plans have not been approved by Landlord and Tenant
for any reason other than Landlord's failure to perform or respond as
required by this SECTION 3.3 shall constitute a Plan Approval Delay. Each
day that Landlord does not perform or respond as required by this SECTION 3.3
will constitute a day of Deadline Extension.
3.4 TENANT'S COST PROPOSAL. At such time as Landlord and Tenant
have approved the Approved Original Leasehold Improvements Plans (and in any
event within fifteen (15) days thereafter), Landlord will (i) obtain at least
three bids for each of the major trades that will be involved in the
construction of the Original Leasehold Improvements (with Landlord agreeing
to solicit and consider bids from subcontractors selected by Tenant), unless
less than three qualified subcontractors exist for a given trade, in which
case Landlord will obtain a bid from all qualified subcontractors of such
trade; (ii) using the lowest qualified bid (which, in order to be qualified,
must fully comply with all bid requirements, including but not limited to any
time requirements specified) from each of the bids so received (unless (a)
Landlord advises Tenant in writing within five (5) business days after the
bids are received that Landlord believes the lowest bidder will be unable to
perform the work upon which it has bid in a timely manner or to the quality
required by Tenant, giving written evidence of its reasons for such belief,
it being understood and agreed that if Landlord fails to so notify Tenant
within such five (5) business day period, Landlord will be deemed to have
waived any objection to any subcontractor, and (b) Tenant has consented to
the use of a bidder other than the lowest bidder, which consent Tenant will
not unreasonably withhold and which consent shall be deemed granted unless
Tenant expressly denies such consent by written notice to Landlord within 3
business days after Landlord's notice of objection to the subcontractor),
prepare a proposed budget for all items to be included in Tenant's Cost
("TENANT'S COST PROPOSAL"); and (iii) submit copies of all bids and the
Tenant's Cost Proposal to Tenant for Tenant's review and approval. Tenant, at
Tenant's option, may either approve the Tenant's Cost Proposal in writing, or
elect to eliminate or revise one or more items of Original Leasehold
Improvements shown on the Original Leasehold Improvements Plans, or request
additional bids so as to reduce the costs shown in the Tenant's Cost
Proposal. Tenant may then approve in writing the reduced Tenant's Cost
Proposal (based on revised Original Leasehold Improvements Plans (which will
be deemed the Approved Original Leasehold Improvements Plans for all purposes
under this Lease) prepared by Tenant's architect or revised bids, as the case
may be). However, each business day following May 1, 1998 (extended by one
(1) day for each day of Deadline Extension) until the day on which Landlord
has received Tenant's written approval of the Tenant's Cost Proposal will be
a day of Plan Approval Delay. The Tenant's Cost Proposal, as finally
approved, is referred to in this Lease as the "APPROVED TENANT'S COSTS."
Each day that Landlord does not perform or respond as required by
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this SECTION 3.4 will constitute a day of Deadline Extension.
3.5 ORIGINAL CHANGE ORDERS. Tenant's Representative may request
and authorize changes in the Landlord's Original Work as long as such
changes (i) are consistent with the scope of Landlord's Original Work, and
(ii) do not affect the Original Base Building or any portion of the Core
Building Systems. All other changes will be subject to Landlord's prior
written approval, which approval Landlord cannot unreasonably withhold,
delay, or condition. Within five (5) business days after Tenant requests a
change in the Landlord's Original Work and prior to commencing any change,
Landlord will prepare and deliver to Tenant, for Tenant's approval, a change
order ("ORIGINAL CHANGE ORDER") identifying the total cost or savings of such
change, which will include associated architectural, engineering and
construction contractor's fees, and the total time that will be added to or
subtracted from the construction schedule by such change. Once Landlord
delivers an Original Change Order to Tenant for Tenant's approval, Tenant
must either affirmatively approve or disapprove of the Original Change Order
within three (3) business days following Tenant's receipt of the Original
Change Order. In the event Tenant fails to respond within the three (3)
business day period, then each day thereafter that Tenant fails to respond
shall be a Tenant Original Delay. Alternatively, Landlord may deliver to
Tenant, within the same five (5) business day period, an estimate of the time
and costs to be expended in calculating the Original Change Order. In the
event Tenant does not respond or fails to affirmatively authorize Landlord to
proceed on the third (3rd) business day following Tenant's receipt of such
estimate, then it shall be conclusively deemed that Tenant withdrew its
request for any change in Landlord's Original Work. If Tenant authorizes
Landlord to proceed with calculating the cost of the Original Change Order,
then Tenant shall be responsible for all reasonable costs associated
therewith (and pay same to Landlord within 30 days following Landlord's
written request) and any delay in connection with such calculation shall be a
Tenant Original Delay, whether or not Tenant ultimately approves the Original
Change Order.
3.6 DELIVERY OF POSSESSION. Landlord acknowledges and agrees that
Tenant is terminating an existing lease on a specific date in reliance upon
Landlord's commitment to deliver the Original Building to Tenant in
accordance with the schedule set forth below, subject only to Plan Approval
Delays (as defined in SECTIONS 3.2 AND 3.3 above), Tenant Original Delays
(as defined in SECTION 3.7 below) and Permitted Original Force Majeure
Delays (as defined in SECTION 3.7 below), which exceed, when taken together,
ten (10) days:
First Stage Completion: August 31, 1998
Second Stage Completion: September 10, 1998
Third Stage Completion: September 20, 1998
Final Completion: Thirty (30) days after Original Punch List
delivery
Therefore, Landlord must deliver the Original Building to Tenant in accordance
with the foregoing schedule as such scheduled dates have been delayed due to
Plan Approval Delays, Tenant Original Delays and Permitted Original Force
Majeure Delays which exceed, when taken together, ten (10) days only, it being
understood and agreed that such dates cannot be extended for any reason other
than Plan Approval Delays, Tenant Original Delays and Permitted Original Force
Majeure Delays which exceed, when taken together, ten (10) days. If Landlord is
unable to deliver possession of the Original Building in accordance with the
foregoing schedule, as it may be extended, (i) the Original Commencement Date
will be extended automatically by one day for each day of the period after the
Third Stage Completion Date to the day on which Landlord tenders possession of
the Original Building to Tenant with Landlord's Original Work Substantially
Completed, less any portion of that period attributable to Tenant Original
Delays; and (ii) Landlord will pay Tenant, as liquidated damages, an amount
equal to $2,000.00 per day for each day after August 31, 1998 (as such date may
be extended) that the First Stage Completion has not occurred; and (iii) if the
First Stage
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Completion has occurred, Landlord will pay to Tenant, as liquidated damages,
$2,000.00 per day for each day after September 10, 1998 (as such date may be
extended) that the Second State Completion has not occurred; and (iv)
Landlord will pay to Tenant, as liquidated damages, $4,000.00 per day for
each day after September 20, 1998 (as such date may be extended) to the day
upon which Landlord tenders possession of the Original Building to Tenant
with Landlord's Original Work Substantially Completed; and (v) if Landlord
has Substantially Completed the Original Building, Landlord will pay to
Tenant $500.00 per day for each day after the thirtieth day after Tenant
delivers the Original Punch List to Landlord that the Final Completion has
not occurred; and (vi) if Landlord does not tender possession of the Original
Building to Tenant with the Landlord's Original Work Substantially Completed
on or before December 1, 1998 (plus any period of delay caused by Plan
Approval Delays, Tenant Original Delays or Permitted Force Majeure Delay
which exceed, when taken together, ten (10) days), Tenant will have the right
to terminate this Lease by delivering written notice of termination to
Landlord not more than 30 days after such deadline date. Upon a termination
under clause (vi) above, each party will, upon the other's request, execute
and deliver an agreement in recordable form containing a release and
surrender of all right, title and interest in and to this Lease; neither
Landlord nor Tenant will have any further obligations to each other,
including, without limitation, any obligations to pay for work previously
performed in the Original Building through the date of such termination
except as set forth in this sentence; all improvements to the Premises will
become and remain the property of Landlord; and Landlord will refund to
Tenant any sums paid to Landlord by Tenant in connection with this Lease,
including, without limitation, any payments to Landlord of portions of
Tenant's Cost and pay to Tenant the amounts that have accrued under clauses
(ii) through (v) above. Such postponement of the commencement of the Term,
payment of liquidated damages and termination and refund right will be in
full settlement of all claims that Tenant might otherwise have against
Landlord by reason of Landlord's failure to have complied with the schedule
set forth above. If Landlord delivers possession of the Original Building
with the Landlord's Original Work Substantially Completed prior to the dates
specified in the schedule set forth above, then Tenant may either accept such
delivery (in which case such date will be the Original Commencement Date
hereunder) or may refuse to accept delivery until any date selected by Tenant
that is no later than the dates specified in the schedule set forth above.
Within sixty (60) days after the Original Commencement Date, Landlord will
provide to Tenant a complete set of as-built drawings of Landlord's Original
Work and manuals for all equipment incorporated into the Improvements as a
part of Landlord's Original Work. Landlord and Tenant have sixty (60) days
after Landlord notifies Tenant that the Original Building has been
Substantially Completed in which to remeasure the Original Building, but
after the expiration of such sixty (60) day period, neither Tenant nor
Landlord may remeasure the Original Building. Landlord and Tenant agree that
provided the Original Building is otherwise Substantially Completed, a
variance in the size of the Original Building (as the same may change due to
any Original Change Order) by more or less than one percent (1%) shall be
permitted and shall have no effect on the Original Building being
Substantially Completed, nor on the calculation of the Original Basic Rent,
Allowance or Financed Amount. In the absence of such remeasurement or the
right to do so, it shall be conclusively deemed that the Original Building
contains 114,419 Rentable Square Feet (subject to any approved revisions to
the Approved Original Base Building Plans, with the final Rentable Square
Feet as shown in the Approved Original Base Building Plans being sometimes
referred to as the "APPROVED ORIGINAL RENTABLE SQUARE FEET"). If Tenant does
timely elect to remeasure the Original Building, and the variance is greater
than one percent (1%) but less than two percent (2%), the variance shall be
permitted and have no affect on the Original Building being Substantially
Completed, but (A) the Basic Rent (as provided in SECTION 4.1) will be
adjusted to be $5.95 per Rentable Square Foot under clause (a) of SECTION
4.1, $11.98 per Rentable Square Foot under clause (b) of SECTION 4.1 and
$13.45 per Rentable Square Foot under clause (c) of SECTION 4.1, (B) the
Allowance (as provided in SECTION 3.10) will be adjusted to be $20.00 per
Rentable Square Foot and (C) the Financed Amount (as provided in SECTION
3.10) will be adjusted to be $5.00 per Rentable Square Foot. If the
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Original Building contains more than 102% of the Approved Original Rentable
Square Feet, then the Allowance and Financed Amount will be adjusted based on
the actual amount of square feet in the Original Building, but all other
amounts will be calculated as if the Original Building contains 102% of the
Approved Original Rentable Square Feet. If the Original Building contains
less than 98% of the Approved Original Rentable Square Feet, then Landlord
must make all alterations necessary to increase the size of the Original
Building to at least 98% of the Approved Original Rentable Square Feet and
the Original Building will be deemed to be not Substantially Complete. If, in
such event, Tenant fails to terminate this Lease pursuant to SECTION 3.6(VI)
above, then Tenant will be deemed to have accepted the size of the Original
Building and the Original Building will be deemed to have been Substantially
Complete on the day Landlord delivered the Original Building to Tenant with
Landlord's Original Work (other than the area of the Original Building)
Substantially Complete. In such event, the Allowance and Financed Amount will
be calculated based on Approved Original Rentable Square Feet, but all other
amounts will be calculated on the actual size of the Original Building.
3.7 PLAN APPROVAL DELAYS, TENANT ORIGINAL DELAYS AND PERMITTED
ORIGINAL FORCE MAJEURE DELAYS. As provided in SECTION 3.6, the Term of this
Lease (and therefore Tenant's obligation for the payment of Rent) will not
commence until Landlord has Substantially Completed Landlord's Original Work;
provided, however, that if Landlord is delayed in causing Landlord's Original
Work to be Substantially Completed as a result of: (a) any Plan Approval
Delays described in SECTIONS 3.2 AND 3.3, (b) any Tenant Original Delays
described in SECTIONS 3.2, 3.3, 3.4 AND 3.5, or any Original Change Orders or
changes in any drawings, plans or specifications requested by Tenant or any
other act or omission of Tenant or Tenant's architects, engineers,
constructors or subcontractors, all of which will be deemed to be delays
caused by Tenant (with each individual occurrence constituting a "TENANT
ORIGINAL DELAY" and the cumulative occurrences constituting "TENANT ORIGINAL
DELAYS"), or (c) force majeure delays with such force majeure delays being
referred to in this Lease as "PERMITTED ORIGINAL FORCE MAJEURE DELAYS"),
then, if such delays exceed, in total, ten (10) days, the Original
Commencement Date will only be extended under SECTION 3.6 until the date on
which Landlord would have Substantially Completed the performance of
Landlord's Original Work but for such delays. The aggregate delays described
in this SECTION 3.7 will be reduced by the number of days deducted from the
construction schedule on account of Original Change Orders. As a condition to
claiming a Permitted Original Force Majeure Delay or a Tenant Original Delay,
the day of delay must have otherwise been a day upon which Landlord intended
to work on the item affected by the delay and Landlord must advise Tenant of
the circumstances giving rise to the claim within ten (10) business days
after they arise, the estimated cost that Tenant can pay at that time to
effect any available remedy to eliminate or reduce such delay (for example,
overtime work), and the cumulative total number of Permitted Original Force
Majeure Delays, Tenant Original Delays, and Plan Approval Delays through the
date of each event. If the number of Permitted Original Force Majeure Delays
exceeds ninety (90) days then Tenant may terminate this Lease by written
notice to Landlord at any time before the Original Commencement Date
actually occurs and in such event Landlord must return to Tenant all amounts
previously paid by Tenant and must pay Tenant $350,000.00, but will not be
required to make any payment of liquidated damages under SECTION 3.6 of this
Lease (and if Landlord has done so, Landlord will be permitted to offset the
amount so paid against the $350,000.00 due to Tenant). If, under such
circumstances, Tenant does not terminate this Lease as set forth above, then
the maximum amount Landlord would be required to pay to Tenant as liquidated
damages under SECTION 3.6 above would be $350,000.00.
3.8 ORIGINAL PUNCH LIST. Tenant's taking possession of any
portion of the Original Building will be conclusive evidence that such
portion of the Original Building was in good order and satisfactory
condition, and that all of Landlord's Original Work in or to such portion of
the Original Building was satisfactorily completed, when Tenant took
possession, except as to any patent defects
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or uncompleted items identified on a punch list (the "ORIGINAL PUNCH LIST")
prepared by Tenant's Representative after an inspection of the Original
Building by both Tenant's Representative and Landlord's Representative
(unless Landlord's Representative fails to attend an inspection scheduled by
Tenant's Representative, with Tenant acknowledging that Tenant's
Representative must cooperate with Landlord's Representative in attempting to
establish a mutually-acceptable date and time of inspection) made within
thirty (30) days after Tenant takes possession, and except as to any latent
defects in Landlord's Original Work. Landlord will not be responsible for
any items of damage caused by Tenant, its agents, independent contractors or
suppliers, except that in connection with Tenant's "phased" move-in to the
Original Building, Landlord must repair damage caused by Tenant as part of
its move-in and cannot claim such damage and repair constitutes any form of
permitted delay, unless caused by Tenant's gross negligence or wilful
misconduct. No promises to construct, alter, remodel or improve the Original
Building, and no representations concerning the condition of the Original
Building, have been made by Landlord to Tenant other than as may be expressly
stated in this Lease.
3.9 REPRESENTATIVES. Landlord appoints Landlord's Representative
to act for Landlord in all matters covered by this SECTION 3. Tenant
appoints Tenant's Representative to act for Tenant in all matters covered by
this SECTION 3. All inquiries, requests, instructions, authorizations and
other communications with respect to the matters covered by this SECTION 3
will be made to Landlord's Representative or Tenant's Representative, as the
case may be. Tenant will not make any inquiries of or requests to, and will
not give any instructions or authorizations to, any other employee or agent
of Landlord, including Landlord's architect, engineers and contractors or any
of their agents or employees, with regard to matters covered by this SECTION
3. Either party may change its representative at any time by three days'
prior written notice to the other party.
3.10 PAYMENT OF TENANT'S COST. Landlord and Tenant acknowledge that
the Basic Rent has been computed based on Landlord's allowance of
$2,288,380.00 (the "ALLOWANCE") towards the cost of the Original Leasehold
Improvements. To the extent the Approved Tenant's Costs (as increased or
decreased by Original Change Orders): (A) are less than the Allowance, the
"savings" will be credited to the next installment(s) of Original Basic Rent
due after such determination, (B) exceed the Allowance, Tenant will pay such
excess to Landlord as herein required. Any such excess sums owing by Tenant
to Landlord pursuant to this SECTION 3.10 (up to a maximum of an amount equal
to $572,095.00 (the "FINANCED AMOUNT") shall be paid by Tenant to Landlord in
monthly installments, amortized over the remaining months of the initial
11-year term of this Lease at a rate of nine percent (9%) per annum, with the
Original Basic Rent to be increased by an amount equal to such amortized
installments. Landlord and Tenant will, upon request of the other, promptly
enter into an amendment to this Lease to evidence the increase in the
Original Basic Rent. Any such excess sums owing by Tenant to Landlord
pursuant to this SECTION 3.10 in excess of the Financed Amount shall be paid
by Tenant to Landlord within thirty (30) days following the determination of
the sum due to Landlord by Tenant and delivery to Tenant of supporting
documentation of the entire amount paid. Tenant will own all of the Original
Leasehold Improvements until the end of the Term, at which time the Original
Leasehold Improvements will become Landlord's property in accordance with
SECTION 14.1. During the Term, Tenant may, in its sole discretion, remove or
replace any of the personal property, equipment, trade fixtures or movable
partitions owned by Tenant and placed or installed in the Premises at
Tenant's expense. Subject to SECTION 10.1, Tenant may also remove or replace
the Original Leasehold Improvements. Landlord warrants that the Original
Base Building and Original Leasehold Improvements will be free of all
defects in design, materials or construction for a period of one year from
the Original Commencement Date.
3.11 REASONABLENESS AND GOOD FAITH STANDARD. Landlord and Tenant
acknowledge that they must work together cooperatively in order to design the
Original Building and therefore
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agree to act reasonably and in good faith in such design process.
40 RENT
4.1 BASIC RENT AND ORIGINAL BASIC RENT. Commencing on the
Original Commencement Date and then throughout the Term, Tenant agrees to pay
Landlord Basic Rent according to the following provisions. Basic Rent
throughout the Term will be payable in monthly installments, in advance, on
or before the first day of each and every month during the Term. The
Original Basic Rent is in the amount of (a) during the portion of the Term
beginning on the Original Commencement Date and ending on the first
anniversary of the last day of the month preceding the month in which the
Original Commencement Date occurs, $56,732.75 per month; (b) during the
portion of the Term beginning on the second anniversary of the first day of
the month in which the Original Commencement Date occurs and ending on the
last day of the month preceding the sixth anniversary of the Original
Commencement Date, $114,228.30 per month; (c) during the portion of the Term
beginning on the sixth anniversary of the first day of the month in which the
Original Commencement Date occurs to the Expiration Date of the initial
Term, $128,244.62 per month; and (d) during each Renewal Term with respect to
which Tenant exercises its option, the amount per month determined pursuant
to SECTION 2.5. However, if the Term commences on other than the first day
of a month or ends on other than the last day of a month, Basic Rent for such
month will be appropriately prorated.
4.2 NET LEASE. Neither Landlord nor Tenant will be required to pay
any costs or expenses or provide any services in connection with the Premises
except as expressly provided in this Lease.
4.3 TERMS OF PAYMENT. All Rent will be paid to Landlord in lawful
money of the United States of America, at Landlord's Rent Address or to such
other person or at such other place as Landlord may from time to time
designate in writing, without notice or demand and without right of
deduction, abatement or setoff, except as otherwise expressly provided in
this Lease. Tenant's covenants to pay Basic Rent and Additional Rent are
independent of any other covenant, condition, provision or agreement
contained in this Lease; provided, however, that the foregoing statement
cannot be deemed in any way to limit Tenant's rights and remedies set forth
elsewhere in this Lease.
4.4 LATE PAYMENTS. Any payment of Rent which is not received
within five days after it is due will be subject to a late charge equal to 5%
of the unpaid payment, or $100.00, whichever is greater. This amount is in
compensation of Landlord's additional cost of processing late payments. In
addition, any Rent which is not paid within five days after it is due will
accrue interest at the Interest Rate from the date on which it was due until
the date on which it is paid in full with accrued interest.
4.5 RIGHT TO ACCEPT PAYMENTS. No receipt by Landlord of an amount
less than Tenant's full amount due will be deemed to be other than payment "on
account," nor will any endorsement or statement on any check or any accompanying
letter effect or evidence an accord and satisfaction. Landlord may accept such
check or payment without prejudice to Landlord's right to recover the
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balance or pursue any right of Landlord. No payments by Tenant to Landlord
after the expiration or other termination of the Term, or after the giving of
any notice (other than a demand for payment of money) by Landlord to Tenant,
will reinstate, continue or extend the Term or make ineffective any notice
given to Tenant prior to such payment. After notice or commencement of a
suit, or after final judgment granting Landlord possession of the Premises,
Landlord may receive and collect any sums of Rent due under this Lease, and
such receipt will not void any notice or in any manner affect any pending
suit or any judgment obtained. Any amounts received by Landlord may be
allocated to any specific amounts due from Tenant to Landlord as Landlord
determines.
50 TAXES
5.1 PAYMENT OF TAXES. Except as provided in SECTION 5.3 and
SECTION 5.4 below, Tenant will pay before delinquency, directly to the taxing
authority, all Taxes which accrue during or are attributable to any part of
the Term. Within 10 days after Landlord's written request, Tenant will
provide Landlord with evidence of Tenant's payment of Taxes for the most
recent Tax Year for which Taxes have been paid. Landlord will use reasonable
efforts to have the real property tax notices and bills issued directly to
Tenant, but if Landlord is unable to do so, Landlord will promptly (and in
any event with fifteen (15) days after Landlord's receipt thereof) forward
all such notices and bills directly to the address to which Landlord is then
required to send notices to Tenant.
5.2 PRORATION AT BEGINNING AND END OF TERM. If the Term begins on
other than the first day of a Tax Year or if the Term expires or otherwise
terminates on other than the last day of a Tax Year, Taxes for the Tax Year
in which the Term begins or ends, as the case may be, will be prorated
between Landlord and Tenant, based on the most recent levy and most recent
assessment. Such proration will be subsequently adjusted when the actual
bills become available for Taxes for the Tax Year for which Taxes were
prorated. The parties' obligations under this SECTION 5 will survive the
expiration of the Term or other termination of this Lease.
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5.3 SPECIAL ASSESSMENTS. Tenant will pay, as Taxes, all special
assessments and other like impositions; provided, however, that Tenant may
pay in installments any such special assessments or like impositions that may
be so paid according to applicable Laws and, in such event, Tenant will only
be required to pay those installments of any such assessments or impositions
that are assessed or imposed for periods of time within the Term and with
proration, as provided above, of any installment due period at the beginning
or end of the Term that covers a period of time that includes both a portion
of the Term and an additional period either before or after the Term. The
Premises are not now, and Landlord will take no action to cause or permit the
Premises on the Original Commencement Date to be, located in a special
improvement district or otherwise subject to special assessments. Landlord
will not consent to the inclusion of the Premises in a special improvement
district or other district that would subject the Premises to special
assessments without Tenant's prior written approval and without giving Tenant
the right and sufficient notice to allow Tenant to object to the inclusion in
Landlord's name and on Landlord's behalf.
5.4 TAX CONTESTS. Tenant will have the right to contest any Taxes
payable by Tenant; provided, however, that Tenant will make timely payment of
the contested Taxes notwithstanding the pendency of any such contest unless
applicable Laws permit the withholding of payment without delinquency, in
which case Tenant may withhold payment of the contested Taxes until such time
as payment thereof (or of such Taxes as the same may be reduced by such
contest) is required to be made by applicable Laws in order to avoid
delinquency. Tenant will notify Landlord within five business days of the
commencement of any such contest. So long as Tenant complies with the terms
of this SECTION 5.4, Tenant will have the right, in connection with any such
contest, at its sole expense, to institute and prosecute, in good faith and
with due diligence and in Landlord's name if necessary, any appropriate
proceedings, and Landlord will, at Tenant's expense, fully cooperate with
Tenant's efforts to contest any such Taxes or special assessments.
60 USE, OCCUPANCY AND COMPLIANCE
6.1 USE. Tenant may use the Premises for any and all uses and
purposes that are from time to time permitted by Laws. Tenant will not keep
anything on or about the Premises which would
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invalidate any insurance policy required to be carried on the Premises by
Tenant pursuant to this Lease. Tenant will not cause or permit to exist any
public or private nuisance on or about the Premises.
6.2 COMPLIANCE. On the Original Commencement Date, the Premises
will comply with all Laws applicable to their use and occupancy for the
purposes for which they were designed. Tenant will comply with all Laws
applicable to the use and occupancy of the Premises during the Term and will
keep and maintain the Premises in compliance with all applicable Laws.
Tenant will have the right, however, to contest or challenge by appropriate
proceedings the enforceability of any Law or its applicability to the
Premises or the use or occupancy thereof by Tenant so long as Tenant
diligently prosecutes the contest or challenge to completion and, in the
event Tenant loses the contest or challenge, thereafter abides by and
conforms to such Law. In the event of Tenant's challenge or contest of such
Law, Tenant may elect not to comply with such Law during such challenge or
contest; provided, however, that such election not to comply will not result
in any material risk of forfeiture of Landlord's interest in the Premises.
Tenant will indemnify and hold Landlord harmless from and against all claims,
damages or judgments resulting from any such election not to comply.
6.3 HAZARDOUS SUBSTANCES.
(a) TENANT'S COVENANTS. Tenant will not allow any Hazardous
Substance to be located on the Premises and will not conduct or authorize
the use, generation, transportation, storage, treatment or disposal at
the Premises of any Hazardous Substance other than in quantities
incidental to the conduct of Tenant's business in the Premises and in
compliance with Environmental Laws; provided, however, nothing herein
contained will permit Tenant to allow any so-called "acutely hazardous,"
"ultra-hazardous," "imminently hazardous chemical substance or mixture"
or comparable Hazardous Substance to be located on or about the Premises.
If the presence, release, threat of release, placement on or in the
Premises or the generation, transportation, storage, treatment or
disposal at the Premises of any Hazardous Substance as a result of
Tenant's use or occupancy of the Premises (i) gives rise to liability
(including, but not limited to, a response action, remedial action or
removal action) under Environmental Laws; (ii) causes a significant
public health effect; or (iii) pollutes or threatens to pollute the
environment, Tenant will promptly take any and all remedial and removal
action necessary to clean up the Premises and mitigate exposure to
liability arising from the Hazardous Substance, whether or not required
by Laws.
(b) TENANT'S INDEMNITY. Tenant will indemnify, defend and hold
Landlord harmless from and against all damages, costs, losses, expenses
(including, without limitation, actual attorneys' fees and engineering
fees) arising from or attributable to (i) the existence of any Hazardous
Substance at the Premises as a result of the acts of Tenant or its
agents, employees or contractors or Tenant's use and occupancy of the
Premises, and (ii) any breach by Tenant of any of its covenants contained
in this SECTION 6.3.
(c) LANDLORD'S REPRESENTATION AND INDEMNITY. Landlord has
delivered to Tenant copies of all studies in Landlord's possession
concerning the presence of Hazardous Substances on the Premises and will
promptly furnish Tenant with a copy of any additional such study that
Landlord obtains on or within two months after the Original Commencement
Date. Landlord represents to Tenant that, to Landlord's current actual
knowledge (without any investigation other than as described in Phase I
Environmental Site Assessment; 10.32 Acres of Undeveloped Land, Waterview
Parkway, Dallas, Texas, Terracon Project No. 54975133, December 31, 1997,
Prepared for Opus South Corporation, 12225 Greenville
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Avenue, #900, Dallas, Texas 75243 and prepared by Terracon
Environmental, Inc., Dallas, Texas (the "REPORT") and subject to all
matters reflected or referenced thereon), there are no Hazardous
Substances present on the Premises as of the date of this Lease in any
manner or quantity that violates any Environmental Laws. Landlord
will indemnify, defend and hold Tenant harmless from and against all
damages, costs, losses, expenses (including, without limitation,
actual attorneys' fees and engineering fees) arising from or
attributable to (i) the existence of any Hazardous Substance at the
Premises as a result of the acts of Landlord or its agents, employees
or contractors, and (ii) any breach by Landlord of its representation
contained in this SECTION 6.3.
(d) SURVIVAL. The parties' obligations under this SECTION
6.3 will survive the expiration of the Term or other termination of
this Lease.
6.4 AMERICANS WITH DISABILITIES ACT. Landlord will be obligated to
design and construct the Original Base Building and, if applicable, the
Expansion Base Building in accordance with the ADA and Texas Accessibility
Standards and if Landlord fails to do so, Landlord will have the continuing
obligation to cause the Original Base Building and, if applicable, the
Expansion Base Building to meet such requirement. Subject to the terms of
the preceding sentence, Tenant will, at its expense, cause the Premises and
the operation of any business within the Premises to comply with the ADA, and
if Tenant fails to maintain the Premises in compliance with the ADA, Landlord
will have the right, but not the obligation, at Tenant's expense, to enter
the Premises and cause the Premises to comply with the ADA; and Tenant will
indemnify, defend and hold Landlord harmless from and against any and all
costs, claims and liabilities, including, without limitation, attorneys' fees
and court costs, arising from or related to Tenant's failure to maintain the
Premises in compliance with the ADA; provided, however, Landlord will cause
the Original Base Building and, if applicable, the Expansion Base Building to
be designed and constructed in accordance with the "ADA Guidelines for
Buildings and Facilities" attached as "Appendix A" to the rules and
regulations implementing the ADA, as the same are interpreted as of the date
Landlord submits its complete application for a building permit for such
construction, and provided, further, that any such obligation of Landlord
will be subject to and based upon Tenant's representations concerning
Tenant's status as a "Public Accommodation" and concerning the location of
any "area of primary function." Without limiting the generality of the
foregoing, if work is performed by, through or under Tenant after the
Original Commencement Date, Tenant will, at Tenant's expense, cause such work
to be designed and constructed in compliance with the ADA, and Tenant will be
responsible for (i) the cost of any work required as a result of (A) Tenant
or an assignee or subtenant being deemed a "Public Accommodation" or the
Premises being deemed a "Place of Public Accommodation," or (B) such work
being deemed to affect an "Area of Primary Function" (as such terms are
defined in the ADA); and (ii) the cost of the installation or implementation
of any "Auxiliary Aid" required under the ADA as a result of the operation of
any business within the Premises.
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6.5 SIGNS. Tenant may erect, maintain or replace from time to time
upon the Premises at Tenant's cost all signs that Tenant deems appropriate to
the conduct of its business, including, without limitation, pylon signs,
monument signs, roof signs, banners, signage on the exterior of the Building or
glass surfaces of the windows and doors of the Building, provided that all of
such signs and signage are in compliance with applicable Laws. Landlord will,
at Tenant's expense, cooperate and assist Tenant in obtaining any permits for
signage, including variances from Laws.
70 UTILITIES
7.1 PAYMENT; INTERRUPTION OF SERVICES. Landlord will cause all
utilities described in the Approved Original Base Building Plans and Approved
Original Leasehold Improvements Plans and, if applicable, the Approved
Expansion Base Building Plans and the Approved Expansion Leasehold Improvements
Plans to be brought to the applicable portion of the Premises and hooked-up, and
will pay the applicable tap, hook-up or similar fees. Tenant will pay for all
electricity, gas, water, sewer or other utility service provided to the Premises
from and after the Original Commencement Date. Landlord will not be liable in
damages or otherwise, nor will there be an abatement of Rent, if the furnishing
by any supplier of any utility service or other service to the Premises is
interrupted or impaired by fire, accident, riot, strike, act of God, the making
of necessary repairs or improvements, or by any causes beyond Landlord's
reasonable control.
7.2 HVAC. From and after the Original Commencement Date, Tenant will
pay the cost for all heating, air conditioning and ventilation service provided
to the Premises, including the cost of maintenance, repair and replacement of
same. Tenant may maintain a preventative maintenance contract on the HVAC units
in the Premises, which contract will provide for periodic maintenance in
accordance with the manufacturer's specifications, or Tenant may perform such
preventative maintenance itself. In the event Tenant fails to maintain such
preventative maintenance contract or to perform such preventative maintenance
itself, Landlord, at its option and after giving Tenant notice
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and an opportunity to cure pursuant to SECTION 15.2, may arrange for such a
preventative maintenance contract for the HVAC units, in which event the cost
of such preventative HVAC maintenance will be billed directly to Tenant and
will be paid within 10 days of receipt of invoice therefor.
80 REPAIRS AND MAINTENANCE
8.1 TENANT'S OBLIGATIONS. Tenant will, at its expense (a)
maintain, replace and repair all of the Premises (including, without
limitation, all non-structural components of the walls, all flooring,
ceilings and fixtures, all windows, window fittings and sashes, all interior
and exterior doors, and all paved and landscaped areas on the Land), except
those portions the maintenance of which is expressly Landlord's responsibility
pursuant to SECTION 8.2, in a good, clean, safe, orderly and sanitary
condition, ordinary wear and tear excepted; (b) keep the Premises free of
insects, rodents, vermin and other pests; (c) repair and maintain all
heating, ventilating and air conditioning equipment that serves the Premises
and all utility systems, lines, conduits and appurtenances thereto that serve
the Premises; (d) keep any garbage, trash, rubbish or refuse removed on a
regular basis and temporarily stored on the Premises in accordance with local
Laws; and (e) provide such janitorial services to the Building and such snow
and ice removal from the paved areas on the Land as may be required by Laws
or otherwise necessary for the operation of Tenant's business.
8.2 LANDLORD'S OBLIGATIONS. Landlord will, at its expense
(a) maintain, replace and repair the roof and structural elements of the
Building (including the foundations, structural components of the walls and
structural columns and beams) and all utility lines and facilities serving the
Premises that extend beyond the exterior walls of the Building in good
condition, ordinary wear and tear excepted; and (b) make all capital repairs and
replacements (but not ordinary maintenance and repairs) required to keep the
driveways and parking areas on the Land in good condition, ordinary wear and
tear excepted (including such resurfacing thereof as may from time to time be
necessary and any restriping required in connection with such resurfacing);
provided however, that subject to the penultimate sentence of SECTION 3.8, if
the need for any such repair is caused by (i) Tenant or anyone claiming by or
through Tenant; or (ii) the installation or removal of Tenant's property,
regardless of fault or by whom such damage is caused (unless caused by Landlord,
its agents, contractors, servants, employees or licensees), then, in any such
case, subject to SECTION 9.4, Tenant agrees to reimburse Landlord for all costs
and expenses incurred by Landlord with respect to such repair. Landlord will
commence repairs it is required to do hereunder as soon as reasonably
practicable after receiving written notice from Tenant of the necessity of such
repairs.
8.3 LANDLORD'S RIGHT OF ENTRY. For purposes of performing Landlord's
obligations under SECTION 8.2, or performing any of Tenant's obligations under
SECTION 8.1 that Tenant fails to perform within the cure period provided in
SECTION 15.2, or to inspect the Premises, Landlord may enter the
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Premises upon reasonable prior notice to Tenant (except in cases of actual or
suspected emergency, in which case no prior notice will be required) without
liability to Tenant for any loss or damage incurred as a result of such entry
(excluding, subject to SECTION 9.4, any damage to Tenant's personal property
or equipment caused by the negligence of Landlord or its agents, employees or
contractors), provided that Landlord will take reasonable steps in connection
with such entry to minimize any disruption to Tenant's business or its use of
the Premises.
90 INSURANCE, WAIVERS AND INDEMNITY
9.1 PROPERTY INSURANCE. Landlord will throughout the Term, provide
and maintain a "special form" insurance policy (including fire and standard
extended coverage perils, leakage from fire protective devices and other
water damage) covering loss or damage to the Improvements (including, without
limitation, the Original Base Building, the Original Leasehold Improvements,
the Expansion Base Building, and the Expansion Leasehold Improvements, and
any alterations made to the Premises from time to time) on a full replacement
cost basis, excluding excavations, footings and foundations and providing for
a deductible of no greater than $10,000.00 (unless Landlord can obtain a
smaller deductible and Tenant approves of such deductible and the increased
cost in such insurance arising from such smaller deductible). Tenant agrees
to pay Landlord, as Additional Rent, Landlord's cost of maintaining such
insurance, said payments to be made to Landlord within ten (10) days after
Landlord presents Tenant a statement setting forth the amount due, together
with reasonable supporting documentation. In the event of a casualty, Tenant
shall pay to Landlord the lesser of the amount of the deductible or the full
amount of the loss in the case of a loss in an amount less than the
deductible, subject in both cases, to the $10,000.00 limit set forth above,
in respect of any insured loss, which payment shall be treated in the same
manner as insurance proceeds. Tenant will provide and maintain throughout
the Term, at its expense, such property insurance covering Tenant's
machinery, equipment, furniture, fixtures, personal property (including also
property under the care, custody, or control of Tenant) and business
interests which may be located in, upon or about the Premises in such amounts
as Tenant may from time to time deem prudent. All of such property policies
will permit Tenant's waiver of claims against Landlord under SECTION 9.4 for
matters covered thereby.
9.2 LIABILITY AND OTHER INSURANCE. Tenant will throughout the Term,
at its expense as Additional Rent, provide and maintain the following insurance,
in the amounts specified below:
(a) bodily injury and property damage liability insurance, with
a combined single occurrence limit of not less than $5,000,000.00; such
insurance will be on a commercial general liability form including,
without limitation, personal injury and assumed contractual liability for
the performance by Tenant of the indemnity agreements set forth in
SECTION 9.5; Landlord and its mortgagee will be named as an additional
insureds in the policy providing such liability insurance, which will
include cross liability and severability of interests clauses
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or endorsements; unless otherwise approved in writing by Landlord, such
policy will have a deductible of $5,000.00 or less and will not have a
retention or self-insurance provision;
(b) worker's compensation insurance insuring against and
satisfying Tenant's obligations and liabilities under the worker's
compensation laws of the State of Texas and employers' liability
insurance in the limit of $100,000/500,000/100,000 (provided that Tenant
may self-insure this obligation pursuant to a program of self-insurance);
and
(c) if Tenant operates owned, hired or nonowned vehicles on the
Premises, comprehensive automobile liability will be carried at a limit
of liability not less than $1,000,000.00 combined bodily injury and
property damage.
9.3 GENERAL INSURANCE REQUIREMENTS. All insurance required to be
maintained by Landlord and Tenant pursuant to SECTIONS 9.1 AND 9.2 will be
maintained with insurors licensed to do business in the State of Texas and
having a Best's Key Rating of at least A-:XII. Tenant and Landlord will each
file with the other, on or before the Original Commencement Date and at least 10
days before the expiration date of expiring policies, such copies of either
current policies or certificates as may be reasonably required to establish that
the insurance coverage required by SECTIONS 9.1 AND 9.2 is in effect from time
to time and that the insuror(s) have agreed to give the other party at least 30
days notice prior to any cancellation of, or material modification to, the
required coverage. Landlord and Tenant will cooperate with each other in the
collection of any insurance proceeds which may be payable in the event of any
loss, including the execution and delivery of any proof of loss or other actions
required to effect recovery. All commercial general liability and property
policies maintained by Tenant will be written as primary policies, not
contributing with and not supplemental to any coverage that Landlord may carry.
9.4 WAIVERS. Except to the extent caused by the willful or negligent
act or omission or breach of this Lease by Landlord, its agents or employees or
anyone else for whom Landlord is legally responsible, Landlord and its
Affiliates will not be liable or in any way responsible for, and Tenant waives
all claims against Landlord and its Affiliates for, any loss, injury or damage
suffered by Tenant or others relating to (a) loss or theft of, or damage to,
property of Tenant or others; (b) injury or damage to persons or property
resulting from fire, explosion, falling plaster, escaping steam or gas,
electricity, water, rain or snow, or leaks from any part of the Improvements or
from any pipes, appliances or plumbing, or from dampness; or (c) damage caused
by persons on or about the Premises, or caused by the public or by construction
of any private or public work. Provided that Landlord maintains the insurance
required to be maintained by Landlord pursuant to SECTION 9.1, Landlord and its
Affiliates will not be liable or in any way responsible to Tenant for, and
Tenant waives all claims against Landlord and its Affiliates for, any loss,
injury or damage that is insured under SECTION 9.1 or required to be insured by
Tenant under SECTION 9.1. Provided that Tenant maintains the insurance required
to be maintained by Tenant pursuant to SECTION 9.1, Tenant and its Affiliates
will not be liable or in any way responsible to Landlord for, and Landlord
waives all claims against Tenant and its Affiliates for, any loss, injury or
damage that is insured by Tenant under SECTION 9.1.
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9.5 INDEMNITY. Except to the extent caused by the willful or
negligent act or omission or breach of this Lease by Landlord, its agents or
employees or anyone else for whom Landlord is legally responsible, Tenant
will indemnify and hold Landlord harmless from and against any and all
liability, loss, claims, demands, damages or expenses (including reasonable
attorneys' fees) due to or arising out of any accident or occurrence on or
about the Premises during the Term (including, without limitation, accidents
or occurrences resulting in injury, death, property damage or theft) or any
willful or negligent act or omission of or breach of this Lease by Tenant or
anyone for whom Tenant is legally responsible.
100 ALTERATIONS; MECHANICS' LIENS
10.1 ALTERATIONS. Tenant will not make any modifications,
improvements, alterations, additions or installations in or to the Premises
that affect the Original Building's structural systems, the Expansion
Building's structural systems, or the Core Building Systems, or that will
cost more than $50,000.00 per building, without Landlord's prior written
consent, which consent will not be unreasonably withheld. Tenant will notify
Landlord prior to making any modifications, improvements, alterations,
additions or installations in or to the Premises (referred to in this section
as the "work"), regardless of whether Landlord's consent is required in
connection with such work. Along with any request for Landlord's consent and
at least 15 days before commencement of any work or delivery of any materials
to be used in any work to the Premises, Tenant will furnish Landlord with
plans and specifications, estimated commencement and completion dates, the
name and address of Tenant's general contractor, and the necessary permits
and licenses. Landlord will have the right to post notices of
non-responsibility or similar notices on the Premises in order to protect the
Premises against any liens resulting from such work. Tenant agrees to
indemnify, defend and hold Landlord harmless from any and all claims and
liabilities of any kind and description which may arise out of or be
connected in any way with such work. Tenant will pay the cost of all such
work, and also the cost of painting, restoring or repairing the Premises
occasioned by such work. Upon completion of the work, Tenant will furnish
Landlord with contractor's affidavits that include full and final waivers of
liens and receipts for all amounts due for labor and materials. In the case
of any work that required Landlord's consent, Tenant will also provide
Landlord with as-built plans and specifications of the Premises as altered by
such work. All work will comply with all insurance requirements and all
applicable Laws (including, without limitation, the ADA) and will be
constructed in a good and workmanlike manner, using materials of first-class
quality and free and clear of all liens or claims therefor. Tenant will
permit Landlord to inspect construction operations in connection with any
such work. Landlord's approval of any plans for any modifications,
improvements, alterations, additions or installations proposed by Tenant will
not constitute a representation that the same will comply with
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Laws or be fit for any particular purpose; such approval will merely
constitute Landlord's consent to construct or install the same in the
Premises.
10.2 MECHANICS' LIENS. Tenant will not permit any mechanic's lien or
other lien to be filed against the Premises by reason of any work performed by
or for, or material furnished to, Tenant (including, without limitation, any
work undertaken by Tenant pursuant to SECTION 10.1). If any such lien is filed
at any time against the Premises, Tenant will cause the same to be discharged of
record (including by bonding) within 10 days after the date of filing the same.
If Tenant fails to discharge any such lien within such period, then, in addition
to any other right or remedy of Landlord, after 10 days prior written notice to
Tenant, Landlord may, but will not be obligated to, discharge the same by paying
to the claimant the amount claimed to be due or by procuring the discharge of
such lien as to the Premises by deposit in the court having jurisdiction of such
lien, the foreclosure thereof or other proceedings with respect thereto, of a
cash sum sufficient to secure the discharge of the same, or by the deposit of a
bond or other security with such court sufficient in form, content and amount to
procure the discharge of such lien, or in such other manner as is now or may in
the future be provided by present or future Laws for the discharge of such lien
as a lien against the Premises. Any amount paid by Landlord, or the value of
any deposit so made by Landlord, together with all costs, fees and expenses in
connection therewith (including reasonable attorney's fees of Landlord),
together with interest thereon at the Interest Rate, will be repaid by Tenant to
Landlord on demand
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by Landlord and if unpaid may be treated as Additional Rent. Notwithstanding
the foregoing, if Tenant desires to contest any such lien, Tenant may do so
provided that, within 10 days after Tenant learns of the filing thereof,
Tenant notifies Landlord of Tenant's intention to do so and, until such time
as Tenant causes such lien to be removed by the payment thereof or by bonding
over such lien in the manner provided by law or posting with Landlord such
security as Landlord may reasonably request to provide funds with which
Landlord may discharge such lien in the event Tenant is unsuccessful in its
contest and then fails to discharge such lien. Tenant will indemnify and
defend Landlord against and save Landlord and te Premises harmless from all
losses, costs, damages, expenses, liabilities, suits, penalties, claims,
demands and obligations, including, without limitation, reasonable attorney's
fees resulting from the assertion, filing, foreclosure or other legal
proceedings with respect to any such mechanic's lien or other lien.
110 ASSIGNMENT AND SUBLETTING
11.1 NOTICE AND CONSENT. Tenant may, upon notice to Landlord but
without obtaining Landlord's consent, assign this Lease or sublet all or any
portion of the Premises to any of Tenant's Affiliates. Tenant will not,
however, assign this Lease or sublet all or any portion of the Premises to any
assignee or subtenant that is not one of Tenant's Affiliates without first
obtaining Landlord's written consent, which consent will not be unreasonably
withheld, conditioned or delayed. It is not reasonable for Landlord to withhold
its consent to an otherwise acceptable assignee or sublessee on the grounds that
Tenant and its guarantor would or could be released from liability as a result
of such assignment or sublease or on the grounds that such assignee or sublessee
would be entitled to exercise the expansion right set forth in SECTION 18 below,
it being understood and agreed that Landlord's recapture remedy described below
is sufficient. If Tenant desires to effect an assignment or subletting that
will require Landlord's consent, Tenant will seek such written consent of
Landlord by a written request therefor, setting forth the date (which will not
be less than 30 days after date of Tenant's notice) on which Tenant desires to
assign this Lease or to sublet all or any portion of the Premises, the name and
address of the proposed assignee or sublessee and its proposed use of the
Premises, copies of the proposed assignee's or subtenant's financial statements
(or, if not available, any other information in Tenant's possession concerning
the proposed assignee's or
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subtenant's financial condition and business), and the proposed form of
assignment or sublease. If Landlord does not withhold its consent in
writing, stating the reason for withholding such consent, within twenty (20)
days after Tenant submits the documentation required by the terms of the
preceding sentence, then Landlord will be deemed to have approved of such
assignment or subletting. If it would be unreasonable for Landlord to
withhold, condition or delay its consent, but Landlord for whatever reason
does not wish an assignment or subletting of the entire Premises to be
consummated, Landlord's sole and exclusive right in such situation shall be
to terminate this Lease by written notice to Tenant, which notice must
specify a termination date no earlier than sixty (60) days after the date of
such notice and no later than one hundred twenty (120) days after the date of
such notice. Such termination notice must be given within twenty (20) days
after the date upon which Tenant requests Landlord's consent to such
assignment or subletting. If such termination notice is not given within
such twenty (20)-day period of time, then Landlord shall be deemed to have
consented to such assignment or subletting.
11.2 DEEMED ASSIGNMENTS. Any change in the partners or members of
Tenant (except to any of Tenant's Affiliates), if Tenant is a partnership or
limited liability company, or, if Tenant is a corporation, any transfer of
any or all of the shares of stock of Tenant (except to any of Tenant's
Affiliates), resulting in a change in the identity of the person or persons
owning a majority of equity interests in Tenant as of the date of this Lease,
will be deemed to be an assignment within the meaning of this SECTION 11.
However, a transfer of the stock or partnership or membership interests of
Tenant if Tenant is a publicly held entity whose equity interests are traded
on a national stock exchange, or in an initial public offering, will not
constitute an assignment requiring Landlord's consent pursuant to this
SECTION 11. A transfer of interests in Tenant's parent entity does not
constitute a violation of this SECTION 11.2.
11.3 GENERAL PROVISIONS. No subletting or assignment by Tenant
hereunder, regardless of whether the same requires Landlord's consent, will
release or discharge Tenant of or from any liability, whether past, present or
future, under this Lease, and Tenant will continue fully liable hereunder.
Notwithstanding the foregoing, in the event the Release Conditions, as defined
above, are met, then Tenant and Guarantor will be automatically released from
all obligations arising under this Lease from and after the date of such
assignment or sublease and Landlord agrees to execute an agreement confirming
such release within ten (10) days after requested to do so by Tenant or
Guarantor, or both, although execution of such document will not be necessary
for such release to be effective. The sublessee or assignee will agree to
comply with and be bound by all of the terms,
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covenants, conditions, provisions and agreements of this Lease to the extent
of the space sublet or assigned from and after the date of such assignment or
subletting, and Tenant will deliver to Landlord promptly after execution an
executed copy of each such sublease or assignment and such an agreement of
compliance by each such sublessee or assignee. Consent by Landlord to any
assignment of this Lease or to any subletting of the Premises will not be a
waiver of Landlord's rights under this section as to any subsequent
assignment or subletting. Any sale, assignment, mortgage, transfer or
subletting of this Lease which is not in compliance with the provisions of
this SECTION 11 will be of no effect and void. Landlord will not assign its
interest in this Lease before the Original Commencement Date. After the
Original Commencement Date, Landlord's right to assign its interest in this
Lease will remain unqualified. Landlord may charge Tenant up to $1,000.00
for attorneys' fees and administrative expenses incident to a review of any
documentation related to any proposed assignment or subletting by Tenant.
120 CASUALTY
12.1 LANDLORD'S OBLIGATIONS.
(a) Subject to subsections (b) and (c) below, in the event the
Improvements shall be damaged by fire or other casualty, Landlord shall,
at its own expense, cause such damage to be repaired, and the Rent shall
be abated from the date of the occurrence of such fire or other casualty
until such repair work is completed.
(b) Subject to subsection (c) below, if a fire or other
casualty occurs during the last two (2) years of the Term of this Lease
and (A) the cost of repairing or restoring the Improvements to their
condition existing prior to such casualty, as determined by an architect
or contractor selected by Landlord and reasonably approved by Tenant, is
equal to or greater than 75% of the market value of the Improvements
immediately preceding such casualty, as determined by an appraiser
selected by Landlord and reasonably approved by Tenant or (B)
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the time required to repair and restore the Improvements to their
condition existing prior to such casualty, using a reasonable
construction schedule as determined by an architect or contractor
selected by Landlord and reasonably approved by Tenant, will exceed 180
days from the commencement of repairs and restoration, then either
Landlord or Tenant may, at its option, elect to terminate this Lease by
giving the other written notice of termination within thirty (30) days
from the date of such occurrence. In such event, the proceeds of
insurance will belong to the party carrying such insurance, Tenant will
not be required to pay the deductible, and the Rent shall abate
completely from and after the date of the occurrence of such fire or
other casualty.
(c) Notwithstanding the foregoing, in the event that the
Improvements shall be damaged by any casualty not covered by Landlord's
insurance as required by SECTION 9.1, Landlord shall have the option to
terminate this Lease by notice to Tenant within sixty (60) days of the
occurrence; provided, that Tenant may nullify Landlord's notice of
termination in such case by notifying Landlord within ten (10) days
thereafter that Tenant will make available to Landlord funds sufficient
to cover the uninsured damage and making arrangements reasonably
satisfactory to Landlord to make such funds available to Landlord as
needed. If Tenant makes such funds available to Landlord, Landlord shall
have no obligation to repay such funds to Tenant any time or in any
manner.
12.2 TIME FOR REPAIRS. In the event of partial damage to the
Improvements, Landlord shall advise Tenant in writing within thirty (30) days of
the occurrence the time that Landlord estimates will be required to repair or
restore the Improvements, using a reasonable construction schedule. If Landlord
is obligated to repair or to restore the Improvements damaged by fire other
casualty, Landlord shall commence to repair any such damage or to restore the
Improvements as soon as reasonably possible (and in any event, within sixty (60)
days after the date of such occurrence) and shall diligently pursue completion
of such repairs or restoration. In the event Landlord does not complete such
repairs within the time period specified in such estimate (as extended by one
(1) day of each day of each day of delay after the tenth (10th) day of delay due
to force majeure), then Landlord must pay to Tenant $2,000 per day for the
period of time after the date specified in such estimate until Landlord
completes such repairs. If Landlord does not complete such repairs within one
hundred eighty (180) days after commencement of such repairs and restoration,
then Tenant may also terminate this Lease by written notice to Landlord at any
time before Landlord completes such repairs. In such event, Landlord and Tenant
will have no further obligations to each other except that Landlord must return
all Basic Rent and other charges paid by Tenant for the period after the
occurrence of such event and must pay to Tenant the amounts accruing under this
SECTION 12.2 for Landlord's failure to complete such repairs and Tenant will not
be required to pay the deductible to Landlord.
13. EMINENT DOMAIN
13.1 TERMINATION. If the whole of the Premises is taken by any public
authority under the power of eminent domain, this Lease will terminate as of the
day possession is taken by such public authority. If more than 30% of the floor
area of the Building is taken, or if so much of the Land is taken that Tenant is
permanently deprived of the use of more than 30% of the parking spaces
previously available on the Land (and such spaces cannot be reconstructed on the
remaining Land or any adjacent land acquired by Landlord for that purpose within
90 days after Tenant is so deprived of such use), by any public authority under
the power of eminent domain, then Tenant may, by notice to Landlord, terminate
this Lease as of the day possession is taken by such public authority. In case
of any such termination, Landlord will make a pro rata refund of any prepaid
Rent.
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13.2 RESTORATION; AWARD. Anything in this SECTION 13 to the contrary
notwithstanding, in the event of a partial condemnation of the Premises where
this Lease is not terminated, (i) Landlord will, at its sole cost and expense,
restore the Premises (other than any alterations or improvements installed by
Tenant) to a complete architectural unit (but Landlord's restoration obligations
will be limited to restoration and repair of the Original Building and, if
applicable, the Expansion Building, including all sitework), and (ii) the Basic
Rent provided for herein during the period from and after the date of delivery
of possession pursuant to such proceedings to the termination of this Lease will
be reduced to a sum equal to the product of the Basic Rent provided for herein
multiplied by a fraction, the numerator of which is the area of the Premises
remaining after such taking and after the same has been restored to a complete
architectural unit, and the denominator of which is the area of the Premises
prior to such taking. In the event of any such taking or purchase in lieu
thereof and neither Landlord nor Tenant terminates this Lease, Landlord shall be
entitled to receive the entire price or award from any such taking or private
purchase in lieu thereof without any payment to Tenant, and Tenant hereby
assigns to Landlord Tenant's interest, if any, in such award. If this Lease
terminates for any reason, then Landlord and Tenant may prosecute their claims
in any condemnation proceedings for the value of their respective interest.
Landlord shall be entitled to the condemnation award attributable to the real
property and improvements and Tenant shall be entitled to the condemnation award
for the taking of its personalty (store fixtures and equipment), relocation
expenses, goodwill, loss of business and any other award not related to the
value of the real property and improvements, but shall not be entitled to make a
claim for the leasehold improvements or the leasehold estate.
14. END OF TERM
14.1 SURRENDER. On the last day of the Term, or on the sooner
termination thereof, Tenant will peaceably surrender the Premises in good
condition and repair (ordinary wear and tear and damage by casualty excepted),
consistent with Tenant's duty to make repairs as herein provided. Tenant will
give written notice to Landlord at least 30 days prior to vacating the Premises
for the express purpose of arranging a meeting with Landlord for a joint
inspection of the Premises. On or before the last day of the Term, or the date
of sooner termination thereof, Tenant may, at its sole cost and expense, remove
all of its property and trade fixtures and equipment from the Premises and
repair all damage to the Premises caused by such removal. All property not
removed will be deemed abandoned. Tenant hereby appoints Landlord its agent to
remove all property of Tenant not so removed from the Premises upon termination
of this Lease and to cause its transportation and storage for Tenant's benefit,
all at the sole cost and risk of Tenant, and Landlord will not be liable for
damage, theft, misappropriation or loss thereof, nor will Landlord be liable in
any manner in respect thereto. Tenant will reimburse Landlord upon demand for
any expenses incurred by Landlord with respect to removal, transportation or
storage of abandoned property and with respect to restoring such Premises to
good order, condition and repair. All Leasehold Improvements and any other
modifications, improvements, alterations, additions and fixtures, other than
Tenant's trade fixtures and equipment, which have been made or installed by
either Landlord or Tenant upon the Premises, will become the property of
Landlord on the last day of the Term or sooner termination thereof and will be
surrendered with the Premises as a part thereof. Tenant will promptly surrender
all keys for the Premises to Landlord at the place then fixed for the payment of
Rent and will inform Landlord of combinations on any vaults, locks and safes
left on the Premises.
14.2 HOLDING OVER. In the event Tenant remains in possession of the
Premises after expiration of this Lease without Landlord's consent, Tenant will
be deemed to be occupying the Premises without claim of right, and Tenant will
indemnify Landlord against loss or liability resulting from delay by Tenant in
surrendering the Premises, including, without limitation, claims made by any
succeeding tenants founded on such delay and any attorneys' fees resulting
therefrom. In addition,
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if Tenant remains in possession of the Premises after expiration of this
Lease without a written agreement with Landlord as to (i) the amount Rent to
be paid for such occupancy, Tenant will pay a charge for each day of
occupancy in an amount equal to 150% of the Basic Rent (on a daily basis)
payable immediately prior to such expiration, plus 100% of all Additional
Rent (also on a daily basis); or (ii) the duration of Tenant's holdover
tenancy, Tenant will be deemed a tenant at sufferance.
15. DEFAULTS AND REMEDIES
15.1 GENERAL. All rights and remedies of Landlord and Tenant
enumerated in this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress at law or in equity to which either party
may be lawfully entitled in case of any breach or threatened breach by the other
party of any provision of this Lease. The failure of either party to insist in
any one or more cases upon the strict performance of any of the covenants of
this Lease or to exercise any option herein contained will not be construed as a
waiver or relinquishment for the future of such covenant or option. A receipt
by Landlord of Rent with knowledge of the breach of any covenant hereof (other
than breach of the obligation to pay the portion of such Rent paid) will not be
deemed a waiver of such breach, and no waiver by either party of any provisions
of this Lease will be deemed to have been made unless expressed in writing and
signed by such party. Each party agrees to pay, upon demand, all of the other
party's costs, charges and expenses, including the reasonable fees and
out-of-pocket expenses of counsel, agents, and others retained, incurred in
successfully enforcing the other party's obligations under this Lease.
15.2 EVENTS OF DEFAULT. Each of the following events will constitute
an "EVENT OF DEFAULT" under this Lease:
(a) FAILURE TO PAY RENT. Tenant fails to pay Basic Rent or any
other Rent payable by Tenant under the terms of this Lease when due, and
such failure continues for 10 days after notice from Landlord to Tenant
of such failure (provided that, with respect to monthly installments of
Basic Rent, Tenant will only be entitled to two notices of such failure
during any calendar year and if, after two such notices are given in any
calendar year, Tenant fails, during such calendar year, to pay any
further monthly installment of Basic Rent when due, such failure will
constitute an Event of Default hereunder without any further notice from
Landlord or additional cure period).
(b) FAILURE TO PERFORM OTHER OBLIGATIONS. Tenant breaches or
fails to comply with any provision of this Lease applicable to Tenant
other than a covenant to pay Rent, and such breach or noncompliance
continues for a period of 30 days after notice thereof from Landlord to
Tenant; or, if such breach or noncompliance cannot be reasonably cured
within such 30-day period, Tenant does not commence to cure such breach
or noncompliance within such 30-day period or, after commencing to cure
such breach or noncompliance, does not thereafter diligently pursue such
cure in good faith to completion.
(c) EXECUTION AND ATTACHMENT AGAINST TENANT. Tenant's interest
under this Lease or in the Premises is taken upon execution or by other
process of law directed against Tenant, or is subject to any attachment
by any creditor or claimant against Tenant and such attachment is not
discharged or disposed of within 60 days after levy.
(d) BANKRUPTCY OR RELATED PROCEEDINGS. Tenant files a petition
in bankruptcy or insolvency, or for reorganization or arrangement under
any bankruptcy or insolvency Laws, or voluntarily takes advantage of any
such Laws by answer or otherwise, or dissolves or
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makes a general assignment for the benefit of creditors, or involuntary
proceedings under any such Laws or for the dissolution of Tenant are
instituted against Tenant, or a receiver or trustee is appointed for the
Premises or for all or substantially all of Tenant's property, and such
involuntary proceedings are not dismissed or such receivership or
trusteeship vacated within 60 days after such institution or appointment.
15.3 LANDLORD'S REMEDIES. Time is of the essence. If any Event of
Default occurs, Landlord will have the right, at Landlord's election, then or at
any later time, to exercise any one or more of the following remedies:
(a) CURE BY LANDLORD. Landlord may, at Landlord's option but
without obligation to do so, and without releasing Tenant from any
obligations under this Lease, make any payment or take any action as
Landlord deems necessary or desirable to cure any Event of Default in
such manner and to such extent as Landlord in good faith deems necessary
or desirable. Tenant will pay Landlord, upon demand, all reasonable
advances, costs and expenses of Landlord in connection with making any
such payment or taking any such action, including reasonable attorney's
fees, together with interest at the Interest Rate, from the date of
payment of any such advances, costs and expenses by Landlord.
(b) TERMINATION OF LEASE AND DAMAGES. Landlord may terminate
this Lease, effective at such time as may be specified by notice to
Tenant, and demand (and, if such demand is refused, recover) possession
of the Premises from Tenant. In such event, Landlord will be entitled to
recover from Tenant, as damages for loss of the bargain and not as a
penalty, an aggregate sum equal to (i) all unpaid Basic Rent and other
Rent for any period prior to the termination date of this Lease
(including interest from the due date to the date of the award at the
Interest Rate); plus (ii) the present value at the time of termination
(calculated by discounting on a monthly basis at a discount rate equal to
the rate payable on U.S. Treasury securities offered at the time of award
having a maturity closest to the date on which the Term would have
expired but for such termination) of the amount, if any, by which (A) the
aggregate of the Basic Rent and all other Rent payable by Tenant under
this Lease that would have accrued for the balance of the Term after
termination, exceeds (B) the amount of such Basic Rent and other Rent
which could reasonably be recovered by reletting the Premises for the
remainder of the Term at the then-current fair rental value; plus (iii)
interest on the amount described in (ii) above from the termination date
to the date of the award at the Interest Rate.
(c) REPOSSESSION AND RELETTING. Landlord may reenter and take
possession of all or any part of the Premises, without additional demand
or notice unless required by applicable Laws, and repossess the same and
expel Tenant and any party claiming by, through or under Tenant, and
remove the effects of both using such force for such purposes as may be
necessary, without being liable for prosecution for such action or being
deemed guilty of any manner of trespass, and without prejudice to any
remedies for arrears of Rent or right to bring any proceeding for breach
of covenants or conditions. No such reentry or taking possession of the
Premises by Landlord will be construed as an election by Landlord to
terminate this Lease unless a notice of such intention is given to
Tenant. No notice from Landlord or notice given under a forcible entry
and detainer statute or similar Laws will constitute an election by
Landlord to terminate this Lease unless such notice specifically so
states. Landlord reserves the right, following any reentry or reletting,
to exercise its right to terminate this Lease by giving Tenant such
notice, in which event this Lease will terminate as specified in such
notice. After recovering possession of the Premises, Landlord will use
reasonable efforts to relet the Premises on commercially reasonable terms
and conditions.
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Landlord may collect and receive the rents for such reletting.
Landlord may apply the same first to the payment of such expenses as
Landlord may have incurred in recovering possession of the Premises,
including attorneys' fees and expenses for putting the same into good
order and condition (but specifically excluding the cost of any lease
commission or the cost of preparing or altering the same for
re-rental), and then to the fulfillment of the covenants of Tenant
hereunder. Any such reletting herein provided for may be for the
remainder of the Term or any renewal term of this Lease, as originally
granted, or for a longer or shorter period; Landlord will have the
right to change the character and use made of the Premises, and
Landlord will not be required to accept any substitute tenant offered
by Tenant or to observe any instructions given by Tenant about
reletting. Regardless of Landlord's recovery of possession of the
Premises, so long as this Lease is not terminated Tenant will continue
to pay (and Landlord may recover, if Tenant fails to do so), on the
dates specified in this Lease, the Basic Rent and other Rent which
would be payable if such repossession had not occurred, less a credit
for the net amounts, if any, actually received by Landlord through any
reletting of the Premises as long as Landlord gives Tenant at least
thirty (30) days' notice of the net amount due (which notice Landlord
may change from time to time as the facts change). Tenant will have
thirty (30) days after receipt of notice from Landlord of any other
amount due in which to pay such amount.
(d) BANKRUPTCY RELIEF. Nothing contained in this Lease will
limit or prejudice Landlord's right to prove and obtain as liquidated
damages in any bankruptcy, insolvency, receivership, reorganization or
dissolution proceeding, an amount equal to the maximum allowable by any
Laws governing such proceeding in effect at the time when such damages
are to be proved, whether or not such amount be greater, equal or less
than the amounts recoverable, either as damages or Rent, under this
Lease.
15.4 LANDLORD'S DEFAULT; TENANT'S REMEDIES. If, during the Term,
Landlord defaults in fulfilling any of its covenants, obligations or agreements
set forth in this Lease, Tenant may give Landlord notice of such default and, if
at the expiration of 30 days after delivery of such notice, such default
continues to exist, or in the event of a default which cannot with due diligence
be cured within a period of 30 days, if Landlord fails to proceed promptly after
the delivery of such notice and with all due diligence to commence to cure the
same and thereafter to prosecute the curing of such default with all due
diligence to completion as soon as reasonably possible, then Tenant will be
entitled to exercise any right or remedy available to Tenant at law or in equity
by reason of such default, except to the extent expressly waived or limited by
the terms of this Lease, and, provided that Tenant stated in such notice of
default to Landlord that Tenant intended to effect its self-help and offset
rights under this SECTION 15.4, Tenant may proceed to cure Landlord's default
and offset the amount reasonably expended by Tenant in doing so, plus interest
thereon at the Interest Rate from the date incurred to the date offset, against
the next accruing amounts of Basic Rent due hereunder; provided, however, in no
event may Tenant offset against any monthly installment of Basic Rent an amount
exceeding 25% of such installment and if such monthly offset is less than the
total amount of Tenant's expenses which are allowable for offset, the remaining
balance thereof may be carried forward and offset against future installments of
Basic Rent (but never more than 25% of any month's Basic Rent); provided further
that, if the balance of the Term will not allow full recovery of the offset
amount at the rate of 25% of each installment of Basic Rent, Tenant may amortize
the full offset over the balance of the remaining monthly installments of Basic
Rent, even if the monthly amortized offsets are in excess of 25% of those
installments. Notwithstanding the foregoing, however, if Tenant has been
notified of the name and address of any mortgagee, ground lessor, trust deed
holder, and/or sale-leaseback lessor of Landlord's interest in the Premises,
then Tenant will not exercise any remedy as a result of Landlord's default
unless and until Tenant has given any such mortgagee,
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ground lessor, trust deed holder and/or sale-leaseback lessor, by registered
or certified mail, a copy of any notice of default served upon Landlord
simultaneously with the delivery of notice to Landlord.
15.5 DISCLAIMER OF LANDLORD'S LIEN. Landlord disclaims and waives any
statutory or common law lien (excluding, however, any judgment lien) on the
Leasehold Improvements or any personal property of Tenant in or on the Premises.
16. SUBORDINATION
16.1 SUBORDINATION, NONDISTURBANCE AND ATTORNMENT. This Lease will
be subject and subordinate to any mortgage, deed of trust, ground lease or
sale-leaseback now placed upon the Premises by Landlord, and to amendments,
renewals and extensions thereof. Landlord must obtain from any holder of any
mortgage, deed of trust, ground lease, or sale-leaseback interest which has
priority over this Lease at the time of execution of this Lease and recording
of the Memorandum of Lease a Non-disturbance Agreement on the form attached
to this Lease as EXHIBIT F or such other form as is acceptable to Tenant (an
"NDA") and if Landlord does not do so before the Original Commencement Date,
all Rent will be forgiven from the Original Commencement Date through the
date that Landlord delivers such NDA, executed by such holder and Landlord,
to Tenant. Tenant agrees to subordinate this Lease to any mortgage, deed of
trust, ground lease, or sale-leaseback interest placed upon the Premises by
Landlord after the Original Commencement Date and to any amendments,
renewals, and extensions thereof upon the condition that the holder of the
instrument to which this Lease is subordinated has given Tenant an NDA upon
the form attached as EXHIBIT F or such other form as is acceptable to Tenant.
16.2 OPTION TO MAKE LEASE SUPERIOR. Notwithstanding anything contained
in SECTION 16.1, in the event the holder of any mortgage, deed of trust, ground
lease or sale-leaseback instrument at any time elects to have this Lease
constitute a prior and superior lien to its mortgage, deed of trust, ground
lease or sale-leaseback instrument, then, and in such event, upon any such
holder or Landlord notifying Tenant to that effect in writing, this Lease in its
entirety will be deemed prior and superior in lien to such mortgage, deed of
trust, ground lease or sale-leaseback instrument, whether this Lease is dated
prior to or subsequent to the date of such mortgage, deed of trust, ground lease
or sale-leaseback instrument.
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17. MISCELLANEOUS
17.1 BROKERS. Landlord and Tenant represent and warrant that no
broker or agent negotiated or was instrumental in negotiating or consummating
this Lease except Peterson Realty Group. Neither party knows of any other
real estate broker or agent who is or might be entitled to a commission or
compensation in connection with this Lease. Landlord will pay any and all
fees, commissions or other compensation payable to Peterson Realty Group.
Tenant and Landlord will indemnify and hold each other harmless from all
damages paid or incurred by the other resulting from any claims asserted
against either party by brokers or agents claiming through the other party
(other than Peterson Realty Group, who will be paid by Landlord as provided
above).
17.2 ESTOPPEL CERTIFICATES. Landlord and Tenant agree, from time to
time, upon not less than 10 days' prior written request by the other party, to
deliver to the other party a statement in writing certifying (i) this Lease is
unmodified and in full force and effect (or if there have been modifications,
that this Lease as modified is in full force and effect and stating the
modifications); (ii) the dates to which Basic Rent and other Rent have been
paid; (iii) the other party is not in default in any provision of this Lease or,
if in default, the nature thereof specified in detail; (iv) the amount of
monthly Basic Rent currently payable by Tenant; (v) the amount of any prepaid
Rent; (vi) that Tenant has taken possession of the Original Premises (if Tenant
has in fact done so) and that Landlord has performed all of its obligations
under SECTION 3 with respect to the design, construction and installation of the
Original Base Building and the Original Leasehold Improvements, or if there are
any such obligations remaining to be performed, specifying the same in detail;
(vii) if applicable, that Tenant has taken possession of the Expansion Building
(if Tenant has in fact done so) and that Landlord has performed all of its
obligations under SECTION 18 with respect to the design, construction and
installation of the Expansion Base Building and the Expansion Leasehold
Improvements, or if there are any such obligations remaining to be performed,
specifying the same in detail; and (viii) such other matters as may be
reasonably requested by the requesting party or any mortgagee or prospective
purchaser of the Premises.
17.3 NOTICES. All notices required or permitted under this Lease must
be in writing and will only be deemed properly given and received (i) when
actually given and received, if delivered in person to a party who acknowledges
receipt in writing or, for purposes of notice pursuant to SECTION 3, if
transmitted by telecopier; or (ii) one business day after deposit with a private
courier or overnight delivery service, if such courier or service obtains a
written acknowledgment of receipt; or (iii) three business days after deposit in
the United States mails, certified or registered mail with return receipt
requested and postage prepaid. All such notices must be transmitted by one of
the methods described above to the party to receive the notice at, in the case
of notices to Landlord, Landlord's Notice Address, and in the case of notices to
Tenant, the applicable Tenant's Notice Address, or, in either case, at such
other address(es) as either party may notify the other of according to this
SECTION 17.3.
17.4 ACTIONS BY AGENTS. All rights and remedies of Landlord and Tenant
under this Lease or that may be provided by law may be executed by the
applicable party in its own name, individually, or in the name of its agent, and
all legal proceedings for the enforcement of any such rights or remedies,
including those set forth in SECTION 15, may be commenced and prosecuted to
final judgment and execution by the applicable party in its own name or in the
name of its agent. The applicable party will, upon the other's request, provide
written evidence of the authority of any agent of Landlord to act on Landlord's
behalf.
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17.5 SEVERABILITY; GOVERNING LAW. If any term or provision of this
Lease is to any extent held invalid or unenforceable, the remaining terms and
provisions of this Lease will not be affected thereby, but each term and
provision of this Lease will be valid and enforced to the fullest extent
permitted by law. This Lease will be construed and enforced in accordance with
the laws of the State of Texas.
17.6 TRANSFERS OF LANDLORD'S INTEREST. The term "LANDLORD" as used in
this Lease, so far as covenants or obligations on the part of Landlord are
concerned, will be limited to mean and include only the owner or owners of the
Premises at the time in question, and in the event of any transfer or conveyance
after the Original Commencement Date, the then-grantor will be automatically
freed and released from all personal liability accruing from and after the date
of such transfer or conveyance as respects the performance of any covenant or
obligation on the part of Landlord contained in this Lease to be performed, it
being intended hereby that the covenants and obligations contained in this Lease
on the part of Landlord will be binding, subject to SECTION 17.11, on the
then-Landlord only during and in respect to its period of ownership. In the
event of a sale or conveyance by Landlord of the Premises after the Original
Commencement Date, the same will operate to release Landlord from any future
liability upon any of the covenants or conditions herein contained and in such
event Tenant agrees to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. This Lease will not be affected by
any such sale or conveyance, and Tenant agrees to attorn to the purchaser or
grantee, which will be obligated on this Lease only so long as it is the owner
of Landlord's interest in and to this Lease. In the event Landlord sells or
otherwise transfers the Premises, Tenant will be entitled to pay all Rent and
other amounts due under the terms of this Lease to Landlord at Landlord's last
known address unless and until Tenant receives written notice from Landlord
authorizing Tenant to pay such amounts to the new owner of the Premises and a
written assumption by such new owner of all Landlord's duties and obligations
under this Lease which arise after the transfer.
17.7 HEADINGS. The marginal or topical headings of the several
sections are for convenience only and do not define, limit or construe the
contents of such sections.
17.8 COMPLETE AGREEMENT; MODIFICATION. All of the representations and
obligations of the parties are contained in this Lease and no modification,
waiver or amendment of this Lease or of any of its conditions or provisions will
be binding upon a party unless in writing signed by such party.
17.9 NO OFFER. The submission of this document for examination does
not constitute an offer to lease, or a reservation of, or option for, the
Premises. This document becomes effective and binding only upon the execution
and delivery hereof by the proper officer of Landlord and by Tenant.
17.10 SURVIVAL. All obligations of Tenant hereunder not fully performed
as of the expiration or earlier termination of the Term will survive the
expiration or earlier termination of the Term, including, without limitation,
all payment obligations with respect to Taxes and all obligations concerning the
condition of the Premises.
17.11 LIMITATION ON LANDLORD'S LIABILITY. Tenant agrees to look solely
to Landlord's interest in the Premises for the recovery of any judgment from
Landlord, it being agreed that Landlord, and if Landlord is a partnership, its
partners whether general or limited, and if Landlord is a corporation, its
directors, officers or shareholders, and if Landlord is a limited liability
company, its managers or members, will never be personally liable for any such
judgment.
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17.12 AUTHORITY. Tenant will furnish to Landlord and Landlord will
furnish to Tenant, promptly upon demand, a corporate resolution, proof of due
authorization of partners, or other appropriate documentation reasonably
requested by the other party evidencing the due authorization of Tenant or
Landlord, as the case may be, to enter into this Lease.
17.13 NO PARTNERSHIP. This Lease will not be deemed or construed to
create or establish any relationship or partnership or joint venture or similar
relationship or arrangement between Landlord and Tenant hereunder.
17.14 FORCE MAJEURE. Whenever a period of time is herein prescribed
for action to be taken by either party, such party will not be liable or
responsible for, and there will be excluded from the computation of any such
period of time, any delays due to force majeure.
17.15 FINANCIAL STATEMENTS. Tenant acknowledges that it has provided
Landlord with its financial statement as a material inducement to Landlord's
agreement to lease the Premises to Tenant, and that Landlord has relied on the
accuracy of such financial statement in entering into this Lease. Tenant
represents and warrants that the information contained in such financial
statement is true, complete and correct in all material aspects. Within 10 days
from request by Landlord, Tenant will make available to Landlord or to any
prospective purchaser or lender of the Premises, audited financial statements of
Tenant or any guarantor, provided, that Landlord or any such prospective
purchaser or lender agrees to maintain such statements in confidence, and
provided further that if audited financial statements of Tenant are not
available at the time of such request, Tenant may deliver unaudited statements
prepared in accordance with generally accepted accounting principles
consistently applied and certified to be true and correct by Tenant's chief
financial officer.
17.16 BINDING EFFECT. The covenants and agreements herein contained
will bind and inure to the benefit of Landlord and its successors and assigns,
and Tenant and its permitted successors and assigns. All obligations of each
party constituting Tenant hereunder will be the joint and several obligations of
each such party.
17.17 LEASE GUARANTY. Tenant covenants and agrees to cause Guarantor to
execute and deliver to Landlord a Lease Guaranty in form and substance as that
which is attached hereto as EXHIBIT G. In the event a fully executed original
of the Lease Guaranty is not provided to Landlord within three (3) days
following the date of this Lease, then Landlord may, at its option and as its
sole and exclusive remedy, terminate this Lease.
17.18 CORPORATE AUTHORITY. Contemporaneous with the execution of this
Lease, Tenant shall provide to Landlord the following:
(a) A copy of Tenant's Good Standing, or similar certificate,
issued by the Secretary of State of the State of Tenant's incorporation;
(b) Evidence that Tenant is qualified to do business in the
State wherein the Land is located; and
(c) A copy of the appropriate corporate resolutions, certified
by the secretary or the assistant secretary of the Tenant, evidencing the
authorization of the Tenant to execute this Lease.
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In the event a guaranty agreement is executed with respect to this Lease,
Tenant shall additionally provide to Landlord, contemporaneous with the
execution of this Lease, the items listed above for the guarantor.
18. EXPANSION OPTION. Landlord hereby grants to Tenant the right to expand
the Improvements on the Land in accordance with the terms of this SECTION 18.
Such expansion right is a continuing right that expires on the Expiration Date,
and inures solely to the benefit of (A) Tenant, Tenant's corporate successors
and assigns (including, without limitation, any person or entity that acquires
Tenant), and (B) any assignee of this Lease (including, without limitation,
Tenant's Affiliates) to whom Tenant assigns such right unless Landlord is
entitled to and recaptures the Premises in accordance with the terms of SECTION
11.1 above and their corporate successors and assigns (with all such persons or
entities being deemed included in the term "TENANT"). Tenant cannot assign this
expansion option to any person or entity other than an assignee of this Lease.
Tenant cannot exercise this expansion option (Y) if an Event of Default has
occurred and is ongoing, or (Z) if neither Tenant nor its guarantor has a net
worth (excluding goodwill) greater than or equal to $75 million at the time
Tenant (or its assignee, as the case may be) exercises such expansion option.
(a) In the event Tenant wishes to exercise this right, Tenant
must notify Landlord of such fact, which notice must specify that Tenant
wishes to go forward with the expansion pursuant to the specifications of
EXHIBIT H to this Lease (the "2-STORY PLAN") or the specifications of
EXHIBIT I to this Lease (the "3-STORY PLAN"). The building shell for the
building that Tenant elects to have constructed is referred to in this
Lease as the "EXPANSION BASE BUILDING" and the Tenant improvements to the
Expansion Base Building are referred to as the "EXPANSION LEASEHOLD
IMPROVEMENTS." The Expansion Base Building and the Expansion Leasehold
Improvements are collectively referred to as the "EXPANSION BUILDING" and
the work of constructing the Expansion Building is referred to as
"LANDLORD'S EXPANSION WORK".
(b) On or before thirty (30) days after Tenant delivers such
notice to Landlord, Landlord will cause its architect to prepare and
deliver to Tenant preliminary plans and specifications for the Expansion
Base Building (the "EXPANSION BASE BUILDING PLANS"), which plans must be
based on an exterior appearance substantially similar to the Original
Base Building. While these preliminary plans and specifications are not
required to be permit-ready, they must contain a site plan, floor plan,
one-quarter inch (0.25") scale core building plans, elevations of the
Expansion Base Building and a riser diagram of the mechanical, electrical
and plumbing systems. Within five (5) business days after Tenant
receives such preliminary Expansion Base Building Plans, Tenant will
either approve the same in writing or notify Landlord in writing of
Tenant's objections to the preliminary Expansion Base Building Plans and
how the preliminary Expansion Base Building Plans must be changed in
order to make them acceptable to Tenant. Each business day following the
fifth (5th) business day after the preliminary Expansion Base Building
Plans are submitted to Tenant until Tenant either approves them or
delivers a notice of objections to Landlord will be a day of Tenant
Expansion Delay. Within five (5) business days after Landlord's receipt
of Tenant's notice of objections, Landlord will cause its architect to
prepare revised Expansion Base Building Plans according to such notice
and submit the revised Expansion Base Building Plans to Tenant. In any
review, Tenant cannot object to any aspect of the proposed Expansion Base
Building Plans (i) if such objection would require material deviations
from the terms of EXHIBIT H or EXHIBIT I attached to this Lease, as the
case may be, or (ii) such objection was not included within any of the
previous objections made by Tenant to the Expansion Base Building Plans
unless the item objected to was not included in any of the previous
versions of the Expansion Base Building Plans or such item was so
included, but has been affected by a subsequent change to the Expansion
Base Building Plans. However, it is understood
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and agreed that Tenant has the right to select the following items,
even if such items are not consistent with the guidelines detailed in
the Base Building Specifications attached as EXHIBIT B or with the
same items in the Original Building , as long as they are available to
comply with the schedule for construction of the Expansion Building:
exterior brick, glass, and metal frames; restroom finishes (including,
without limitation, ceramic tile and toilet partitions); lobby
finishes; elevator cab finishes; landscaping; and common area interior
finishes, doors and hardware. Upon submittal to Tenant of the revised
Expansion Base Building Plans, and upon submittal of any further
revisions, the procedures described above will be repeated until
Landlord and Tenant have reached agreement. Once they have reached
agreement, Landlord must promptly prepare permit-ready Expansion Base
Building Plans and submit them to Tenant for Tenant's approval. The
only grounds upon which Tenant can object to such permit-ready
Expansion Base Building Plans is that they materially differ from the
final approved preliminary Expansion Base Building Plans. Tenant's
failure to respond to Landlord's submission within five (5) business
days after Landlord delivers such permit-ready Expansion Base Building
Plans to Tenant constitutes Tenant's approval of such permit-ready
Expansion Base Building Plans. The final permit-ready Expansion Base
Building Plans, as approved by Landlord and Tenant, constitute the
"APPROVED EXPANSION BASE BUILDING PLANS" under this Lease.
(c) On or before seventy-five (75) days after Landlord and
Tenant have approved the Approved Expansion Base Building Plans, Tenant
will cause its architect to prepare and deliver to Landlord preliminary
plans and specifications for the Expansion Leasehold Improvements (the
"EXPANSION LEASEHOLD IMPROVEMENTS PLANS"). While these preliminary plans
and specifications are not required to be permit-ready, they must show
sufficient detail concerning all aspects of the Expansion Leasehold
Improvements so that making them permit-ready is only a matter of
incorporating technical details. Each day following the expiration of
such seventy-five (75)-day period until Tenant delivers the preliminary
Expansion Leasehold Improvements Plans will be a day of Expansion Tenant
Delay. Within five (5) business days after receipt of the preliminary
Expansion Leasehold Improvements Plans, Landlord will either approve the
same in writing or notify Tenant in writing of Landlord's objections to
the preliminary Expansion Leasehold Improvements Plans and how the
preliminary Expansion Leasehold Improvements Plans must be changed in
order to make them acceptable to Landlord. Landlord can only object to
the preliminary Expansion Leasehold Improvements Plans on the grounds
that they would adversely affect the structural integrity of the
Expansion Base Building or materially modify any portion of the Core
Building Systems of the Expansion Base Building and cannot object in any
subsequent review to any matter not raised in a preceding review, unless
the item objected to was not included in any of the previous versions of
the Expansion Leasehold Improvements Plans or such item was so included,
but has been affected by a subsequent change to the Expansion Leasehold
Improvements Plans. However, under all circumstances, Tenant has the
right to select the following items as they apply to the Expansion
Leasehold Improvements, but only as long as such items are available to
comply with the schedule of construction of the Expansion Building:
exterior brick, glass, and metal frames; restroom finishes (including,
without limitation, ceramic tile and toilet partitions); lobby finishes;
elevator cab finishes; landscaping; and common area interior finishes,
doors and hardware. If Landlord fails to respond in the manner set forth
above within five (5) business days after the date Tenant delivers the
preliminary Expansion Leasehold Improvements Plans to Landlord or objects
to the preliminary Expansion Leasehold Improvements Plans on any grounds
other than those set forth in the immediately-preceding sentence, then
Landlord will be conclusively deemed to have approved the preliminary
Expansion Leasehold Improvements Plans. Within five (5) business days
after Tenant's receipt of Landlord's notice of objections (if such
objections
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meet the requirements set forth above), Tenant will cause its
architect to prepare revised Expansion Leasehold Improvements Plans
according to such notice and submit the revised Expansion Leasehold
Improvements Plans to Landlord. Upon submittal to Landlord of the
revised Expansion Leasehold Improvements Plans, and upon submittal of
any further revisions, the procedures described above will be repeated
until Landlord and Tenant have reached agreement. Once they have
reached agreement, Tenant must promptly prepare permit-ready Expansion
Leasehold Improvements Plans and submit them to Landlord for
Landlord's approval. The only grounds upon which Landlord can object
to such permit-ready Expansion Leasehold Improvements Plans is that
they materially differ from the final approved Expansion Leasehold
Improvements Plans. Landlord's failure to respond to Tenant's
submissions within five (5) business days after Tenant delivers such
permit-ready Expansion Leasehold Improvements Plans to Landlord
constitutes Landlord's approval of such permit-ready Expansion
Leasehold Improvements Plans. The permit-ready Expansion Leasehold
Improvements Plans, as finally approved, are referred to in this Lease
as the "APPROVED EXPANSION LEASEHOLD IMPROVEMENTS PLANS."
(d) At such time as Landlord and Tenant have approved the
Approved Expansion Leasehold Improvements Plans (and in any event within
fifteen (15) days thereafter), Landlord will (i) obtain at least three
bids for each of the major trades that will be involved in the
construction of the Expansion Building, unless less than three qualified
subcontractors exist for a given trade, in which case Landlord will
obtain a bid from all qualified subcontractors of such trade (with
Landlord agreeing to solicit and consider bids from subcontractors
selected by Tenant); (ii) using the lowest qualified bid (which, in order
to be qualified, must fully comply with all bid requirements, including
but not limited to any time requirements specified) from each of the bids
so received, prepare a proposed budget for all items to be included in
Expansion Costs ("TENANT'S EXPANSION COST PROPOSAL"); and (iii) submit
copies of all bids, the Tenant's Expansion Cost Proposal, and the
Expansion Basic Rent that Tenant would be required to pay based on the
costs set forth in the Tenant's Expansion Cost Proposal to Tenant for
Tenant's review and approval. Tenant, at Tenant's option, may either
approve Tenant's Expansion Cost Proposal in writing, or elect to
eliminate or revise one or more items of Expansion Building shown on the
Approved Expansion Base Building Plans or the Approved Expansion
Leasehold Improvements Plans, or request additional bids so as to reduce
the costs shown in the Tenant's Expansion Cost Proposal. Tenant may then
approve in writing the reduced Tenant's Expansion Cost Proposal (based on
revised Approved Expansion Base Building Plans or Approved Expansion
Leasehold Improvements Plans prepared by Tenant's architect or revised
bids, as the case may be, which will then be deemed the Approved
Expansion Base Building Plans and the Approved Expansion Leasehold
Improvements Plans for all purposes under this Lease). However, each day
following the fifth (5th) business day after Tenant's receipt of Tenant's
Expansion Cost Proposal until the day on which Landlord has received
Tenant's written approval of Tenant's Expansion Cost Proposal will be a
day of Expansion Tenant Delay. The Tenant's Expansion Cost Proposal, as
finally approved, is referred to in this Lease as the "APPROVED EXPANSION
COSTS."
(e) Tenant's Representative may request and authorize changes
in Landlord's Expansion Work as long as such changes (i) are consistent
with the scope of Landlord's Expansion Work, and (ii) do not affect the
Expansion Base Building or any portion of the Core Building Systems
relating to the Expansion Base Building. All other changes will be
subject to Landlord's prior written approval, which approval Landlord
cannot unreasonably withhold, delay, or condition. Within five (5)
business days after Tenant requests a change in Landlord's Expansion
Work and prior to commencing any change, Landlord will prepare and
42
<PAGE>
deliver to Tenant, for Tenant's approval, a change order ("EXPANSION
CHANGE ORDER") identifying the total cost or savings of such change,
which will include associated architectural, engineering and construction
contractor's fees, and the total time that will be added to or subtracted
from the construction schedule by such change. Once Landlord delivers
an Expansion Change Order to Tenant for Tenant's approval, Tenant must
either affirmatively approve or disapprove of the Expansion Change Order
within three (3) business days following Tenant's receipt of the
Expansion Change Order. In the event Tenant fails to respond within the
three (3) business day period, then each day thereafter that Tenant fails
to respond shall be a Tenant Expansion Delay. Alternatively, Landlord
may deliver to Tenant, within the same five (5) business day period, an
estimate of the time and costs to be expended in calculating the
Expansion Change Order. In the event Tenant does not respond or fails to
affirmatively authorize Landlord to proceed on the third (3rd) business
day following Tenant's receipt of such estimate, then it shall be
conclusively deemed that Tenant withdrew its request for any change in
Landlord's Expansion Work. If Tenant authorizes Landlord to proceed with
calculating the cost of the Expansion Change Order, then Tenant shall be
responsible for all reasonable costs associated therewith (and pay same
to Landlord within 30 days following Landlord's written request) and any
delay in connection with such calculation shall be an Expansion Tenant
Delay, whether or not Tenant ultimately approves the Expansion Change
Order.
(f) Landlord must deliver the Expansion Building to Tenant,
with Landlord's Expansion Work Substantially Completed, on or before two
hundred ten (210) days after Landlord and Tenant approve the Approved
Expansion Leasehold Improvements Plans (the "PROJECTED EXPANSION
COMPLETION DATE"), as such date has been delayed due to any Tenant
Expansion Delays and Permitted Expansion Force Majeure Delays only, it
being understood and agreed that such date cannot be extended for any
reason other than Tenant Expansion Delays and Permitted Expansion Force
Majeure Delays. If Landlord is unable to deliver possession of the
Expansion Building, with Landlord's Expansion Work Substantially
Completed by the Projected Expansion Completion Date, as it may be
extended, (i) the Expansion Commencement Date (as that term is defined in
SECTION 18(j)(I) below) will be extended automatically by one day for
each day of the period after the Projected Expansion Completion Date to
the day on which Landlord tenders possession of the Expansion Building to
Tenant with Landlord's Expansion Work Substantially Completed, less any
portion of that period attributable to Tenant Expansion Delays; and
(ii) Landlord will pay Tenant, as liquidated damages, an amount equal to
$2,000.00 per day for each day after such Projected Expansion Completion
Date (as it may be extended) until Landlord tenders possession of the
Expansion Building to Tenant with Landlord's Expansion Work Substantially
Completed and, if Landlord has tendered the Expansion Building to Tenant
with Landlord's Expansion Work Substantially Complete, Landlord will pay
to Tenant, as liquidated damages, $500.00 per day after the thirtieth
(30th) day after Tenant delivers the Expansion Punch List to Landlord
until Final Completion of Landlord's Expansion Work; and (iv) if Landlord
does not tender possession of the Expansion Building to Tenant with the
Landlord's Expansion Work Substantially Completed on or before two
hundred seventy (270) days after Landlord and Tenant approve the Approved
Expansion Leasehold Improvements Plans (plus any period of delay caused
by Tenant Expansion Delays or Permitted Expansion Force Majeure Delay),
Tenant will have the right to terminate this Lease by delivering written
notice of termination to Landlord not more than 30 days after such
deadline date. Upon a termination under clause (iv) above, each party
will, upon the other's request, execute and deliver an agreement in
recordable form containing a release and surrender of all right, title
and interest in and to this Lease; neither Landlord nor Tenant will have
any further obligations to each other, including, without limitation, any
obligations to pay for work previously performed in the Expansion
Building or
43
<PAGE>
the Premises, except as set forth in this sentence; all Improvements
to the Original Building and the Expansion Building will become and
remain the property of Landlord; and Landlord will refund to Tenant
any sums paid to Landlord by Tenant in connection with this Lease,
including, without limitation, any payments to Landlord of portions of
Tenant's Expansion Cost and pay to Tenant the amounts that have
accrued under clause (ii) above. Such postponement of the Expansion
Commencement Date, payment of liquidated damages and termination and
refund right will be in full settlement of all claims that Tenant
might otherwise have against Landlord by reason of Landlord's failure
to have Substantially Completed its obligations by the Projected
Expansion Completion Date (as it may be extended). If Landlord
delivers possession of the Expansion Building with the Landlord's
Expansion Work Substantially Completed prior to the Projected
Expansion Completion Date, then Tenant may either accept such delivery
(in which case such date will be the Expansion Commencement Date
hereunder) or may refuse to accept delivery until any date selected by
Tenant that is no later than the Projected Expansion Completion Date
(as it may be extended). Within sixty (60) days after the Expansion
Commencement Date, Landlord will provide to Tenant a complete set of
as-built drawings of Landlord's Expansion Work and manuals for all
equipment incorporated into the Improvements as a part of Landlord's
Expansion Work. Landlord and Tenant have sixty (60) days after
Landlord notifies Tenant that the Expansion Building has been
Substantially Completed in which to remeasure the Expansion Building,
but after the expiration of such sixty (60) day period, neither
Landlord nor Tenant may remeasure the Expansion Building. The final
Rentable Square Feet as shown in the Approved Expansion Base Building
Plans are sometimes referred to as the "APPROVED EXPANSION RENTABLE
SQUARE FEET". In the absence of such remeasurement or the right to do
so, it shall be conclusively deemed that the Expansion Building
contains the Approved Expansion Rentable Square Feet. If Tenant
timely elects to remeasure the Expansion Building, and the variance is
greater than one percent (1%) but less than two percent (2%), the
variance shall be permitted and have no effect on the Expansion
Building being Substantially Completed, but the Expansion Basic Rent
for the Expansion Building and all other amounts calculated based on
the area of the Expansion Building will be modified accordingly. If
the Expansion Building contains more than 102% of the Approved
Expansion Rentable Square Feet, all amounts will be calculated as if
the Expansion Building contains 102% of the Approved Expansion
Rentable Square Feet. If the Expansion Building contains less than
98% of the Approved Expansion Rentable Square Feet, then Landlord must
make all alterations necessary to increase the size of the Expansion
Building to at least 98% of the Approved Expansion Rentable Square
Feet, and the Expansion Building will not be deemed to be
Substantially Completed. If, under such circumstances, Tenant fails
to terminate this Lease pursuant to the termination right set forth in
SECTION 18(f)(iv) above, then Tenant will be deemed to have accepted
the size of the Expansion Building and the Expansion Building will be
deemed to have been Substantially Completed on the day Landlord
delivered the Expansion Building to Tenant with the Landlord's
Expansion Work (other than the area of the Expansion Building)
Substantially Complete. In such event, all amounts will be calculated
on the actual size of the Expansion Building.
(g) As provided in SECTION 18(j)(I) , the Expansion
Commencement Date (and therefore Tenant's obligation for the payment of
Expansion Basic Rent) will not commence until Landlord has Substantially
Completed Landlord's Expansion Work; provided, however, that if Landlord
is delayed in causing Landlord's Expansion Work to be Substantially
Completed as a result of: (a) any Change Orders or changes in any
drawings, plans or specifications requested by Tenant (with each
individual occurrence constituting a "TENANT EXPANSION DELAY" and the
cumulative occurrences constituting TENANT EXPANSION DELAYS"), or (b)
force majeure delays (with such force majeure delays being referred to in
this Lease as "PERMITTED EXPANSION FORCE MAJEURE DELAYS"), then, if such
delays exceed ten (10) days, the
44
<PAGE>
Expansion Commencement Date will only be extended under SECTION 18(f)
until the date on which Landlord would have Substantially Completed
the performance of such work but for such delays. As a condition to
claiming a Permitted Expansion Force Majeure Delay or a Tenant
Expansion Delay, the day of delay must have otherwise been a day upon
which Landlord intended to work on the item affected by the delay and
Landlord must advise Tenant of the circumstances giving rise to the
claim within ten (10) business days after they arise, the estimated
cost that Tenant can pay as that time to effect any available remedy
to eliminate or reduce such delay (for example, overtime work), the
cumulative total number of Permitted Expansion Force Majeure Delays
and Tenant Expansion Delays through the date of each event.
(h) Landlord must perform the Landlord's Expansion Work in
accordance with the Approved Expansion Base Building Plans and the
Approved Expansion Leasehold Improvements Plans and in a good and
workmanlike manner, using new materials, and in accordance with all
applicable laws, ordinances, rules, and regulations, including without
limitation, ADA (as it exists at the time) and all applicable
environmental laws as interpreted and enforced by the governmental bodies
having jurisdiction thereof at the time of construction. Tenant's taking
possession of any portion of the Expansion Building will be conclusive
evidence that such portion of the Expansion Building was in good order
and satisfactory condition, and that all of Landlord's Expansion Work in
or to such portion of the Expansion Building was satisfactorily
completed, when Tenant took possession, except as to any patent defects
or uncompleted items identified on a punch list (the "EXPANSION PUNCH
LIST") prepared by Tenant's Representative after an inspection of the
Expansion Building by both Tenant's Representative and Landlord's
Representative (unless Landlord's Representative fails to attend an
inspection scheduled by Tenant's Representative, with Tenant
acknowledging that Tenant's Representative must cooperate with Landlord's
Representative in attempting to establish a mutually-acceptable date and
time of inspection) made within thirty (30) days after Tenant takes
possession, and except as to any latent defects in Landlord's Expansion
Work. Landlord will not be responsible for any items of damage caused by
Tenant, its agents, independent contractors or suppliers. No promises to
construct, alter, remodel or improve the Expansion Building, and no
representations concerning the condition of the Expansion Building, have
been made by Landlord to Tenant other than as may be expressly stated in
this Lease.
(i) Landlord appoints Landlord's Representative to act for
Landlord in all matters covered by this SECTION 18. Tenant appoints
Tenant's Representative to act for Tenant in all matters covered by this
SECTION 18. All inquiries, requests, instructions, authorizations and
other communications with respect to the matters covered by this
SECTION 18 will be made to Landlord's Representative or Tenant's
Representative, as the case may be. Tenant will not make any inquiries
of or requests to, and will not give any instructions or authorizations
to, any other employee or agent of Landlord, including Landlord's
architect, engineers and contractors or any of their agents or employees,
with regard to matters covered by this SECTION 18. Either party may
change its representative at any time by three days' prior written notice
to the other party. Landlord and Tenant acknowledge that they must work
together cooperatively in order to design the Expansion Building and
therefore agree to act reasonably and in good faith in such design
process
(j) Upon Tenant's approval of the Tenant's Expansion Cost
Proposal, this Lease will automatically be amended as follows (with
Landlord and Tenant each agreeing to execute a written agreement
confirming these amendments upon delivery of such an amendment to such
party by the other party):
45
<PAGE>
(I) The Term of this Lease will be extended so that it
ends on the day before the tenth (10th) anniversary of the
date of Substantial Completion of the Expansion Building
(the "EXPANSION COMMENCEMENT DATE"). The options to extend
the Term of this Lease granted in SECTION 2.5 above will
remain in full force and effect and may be exercised at the
end of the Term of this Lease, as so extended, subject to
the notice and other requirements of SECTION 2.5. Any
exercise of the option to extend will apply to and include
both the Original Building and the Expansion Building.
(II) The Basic Rent will be as follows:
(A) for the Original Building, the Original Basic
Rent will be the same as provided in SECTION
4.1 above for the number of years which
represents the balance of the Original Term
as defined in SECTION 1.1 above. Thereafter,
the Original Basic Rent will increase on the
first day after the original expiration date
of the Original Term to an amount equal to
one hundred twelve and one-half percent
(112.5%) of the Original Basic Rent in effect
for the immediately preceding period and will
increase every fifth (5th) anniversary of the
original expiration date of the Original Term
through the end of the then-existing initial
term (i.e., excluding the renewal terms) to
an amount equal to one hundred twelve and
one-half percent (112.5%) of the Original
Basic Rent in effect for the immediately
preceding period. For example, if the
Original Basic Rent were $128,244.62 per
month, then for the period beginning on the
day after the original expiration date of the
Original Term and extending for the lesser of
five (5) years or the date of the expiration
of the then-existing initial term, the Basic
Rent would be $144,275.19.
(B) for the Expansion Building, the monthly rent
(the "EXPANSION BASIC RENT") will be equal to
the amount determined by multiplying the
Expansion Costs (up to or equal to the
Approved Expansion Costs) by 11.4% and then
dividing the result thus obtained by twelve
(12).
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first set forth above.
LANDLORD: TENANT:
OPUS SOUTH CORPORATION, a ADS ALLIANCE DATA SYSTEMS, INC., a
Florida corporation Delaware corporation
By: _____________________________ By: ________________________________
Neil J. Rauenhorst, President Its: _____________________________
46
<PAGE>
And: ________________________________
Its: ________________________________
STATE OF __________________________)
) ss.
COUNTY OF _________________________)
The foregoing instrument was acknowledged before me this _____ day of
January, 1998 by Neil J. Rauenhorst as President of Opus South Corporation, a
Texas corporation.
Witness my hand and official seal.
________________________________
Notary Public
My commission expires: _________________________________
STATE OF __________________________)
) ss.
COUNTY OF _________________________)
The foregoing instrument was acknowledged before me this _____ day of
January, 1998 by _______________________________ as ____________________________
and ________________________________________ as ____________________________ of
ADS Alliance Data Systems, Inc., a Delaware corporation.
Witness my hand and official seal.
________________________________
Notary Public
My commission expires: _________________________________
47
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF THE LAND
BEING a parcel or tract of land situated in the City of Dallas, Collin County,
Texas, and being part of the John Clay Survey, Abstract 223, and being part of
Phase I, U.T.D. Synergy Park, an Industrial Addition to the City of Dallas,
filed for record in Cabinet F, Page 483 and 484 of the Deed Records of Collin
County, Texas; and being part of the tract of land conveyed to the Board of
Regents, the University of Texas System as recorded in Volume 835, Page 713 of
the Deed Records of Collin County, Texas, and being more particularly described
as follows:
BEGINNING at an Iron rod on the west right of way line of Waterview Parkway (120
feet wide) and the northeast corner of the Smith/Allen Matuschka - One Tract and
the southEAST corner of the herein described tract;
THENCE South 90 degrees 00 minutes 00 seconds West a distance of 700.39 feet
following the north line of the Smith/Allen Matuschka - One tract to an iron rod
found for corner, said iron rod being in the easterly line of Texas A & M
University System tract;
THENCE North 00 degrees 12 minutes 12 seconds West a distance of 642.68 feet
following the east line of the Texas A & M System tract to the intersection with
the southwest corner of the Intervoice tract and an iron rod found for corner;
THENCE North 90 degrees 00 minutes 00 seconds East a distance of 700.39 feet
following the south line of the Intervoice tract to an iron rod found for corner
in the westerly right of way line of Waterview Parkway, said point being the
southeast corner of the Intervoice tract;
THENCE South 00 degrees 12 minutes 12 seconds East, a distance of 642.68 feet
following the westerly right of way line of Waterview Parkway to the Point of
Beginning and containing 450,125 square feet or 10.3334 acres, more or less.
<PAGE>
EXHIBIT B
BASE BUILDING SPECIFICATIONS
<PAGE>
EXHIBIT C
BASE BUILDING/TENANT MATRIX
<PAGE>
EXHIBIT D
MATTERS AFFECTING LANDLORD'S TITLE
1. Restrictive covenants recorded in Volume 1959, Page 755, Land Records of
Collin County, Texas.
2. Restrictive covenants recorded in Volume 2007, Page 475, Land Records of
Collin County, Texas.
3. 12.5' water main easement granted by Board of Regents of the University
of Texas Systems to City of Richardson, filed 03/25/77, recorded in
Volume 1042, Page 840, Deed Records of Collin County, Texas, and as shown
on survey of BSM Engineers, Inc., certified to by Arthur F. Beck,
R.P.L.S. #2130, dated 12/19/97, And as shown on plat recorded in Volume
F, Page 483, Map Records of Collin County, Texas.
4. Easement granted by Board of Regents of the University of Texas Systems
to Dallas Power & Light Company and Southwestern Bell Telephone Company,
recorded in Volume 1444, Page 555, Land Records of Collin County, Texas,
and as shown on survey of BSM Engineers, Inc., certified to by Arthur P.
Beck, R.P.L.S. #2130, dated 12/19/97, And as shown on plat recorded in
Volume F, Page 483, Map Records of Collin County, Texas.
5. Easement granted by Board of Regents of the University of Texas Systems
to City of Dallas, filed 04/09/86, recorded in Volume 2343, page 314,
Land Records of Collin County, Texas, and as shown on survey of BSM
Engineers, Inc., certified to by Arthur F. Beck, R.P.L.S. #2130, dated
12/19/97.
6. Easement granted by Board of Regents of the University of Texas Systems
to Texas Utilities Electric Company, filed 10/06/97, cc#97-0084664, Land
Records of Collin County, Texas, and as shown on survey of BSM Engineers,
Inc., certified to by Arthur F. Beck, R.P.L.S. #2130, dated 12/19/97.
<PAGE>
EXHIBIT E
MEMORANDUM OF LEASE
This Memorandum of Lease is dated as of January ___, 1998 and is by and between
Opus South Corporation, a Florida corporation ("LANDLORD") and ADS Alliance Data
Systems, Inc., a Delaware corporation ("TENANT").
R E C I T A L S
(7) Landlord is the owner of that certain property described on EXHIBIT A
attached to and made a part of this Memorandum of Lease for all purposes
(the "PROPERTY").
(8) Effective as of the same date as the date of this Memorandum of Lease,
Landlord and Tenant entered into that certain Build-to-Suit Net Lease
(the "LEASE") covering the entire Property.
(9) Tenant and Landlord wish to record this Memorandum of Lease in order to
evidence the existence of the Lease.
I N F O R M A T I O N
(1) PRIMARY TERM: Tenant has leased the entire Property from Landlord for a
period of approximately 11 years commencing on the date set forth in the
Lease and ending on the Expiration Date, as defined in the Lease.
(2) RENEWAL OPTIONS: Tenant has two (2) five (5)-year renewal options, as
more fully set forth in the Lease.
(3) INITIAL CONSTRUCTION: Landlord has covenanted and agreed to construct a
building on the Property for Tenant within the time periods and in
accordance with the terms of the Lease.
(4) EXPANSION OPTION: During the initial 11-year term, Tenant has the right
to require that Landlord construct an additional building for Tenant, as
more fully set forth in the Lease.
(5) QUIET POSSESSION: Landlord has covenanted and agreed that Tenant will
have quiet and peaceful possession of the Property during the entire term
of the Lease, and such possession will not be disturbed by Landlord or
anyone claiming by, through or under Landlord.
(6) INTERPRETATION. Landlord and Tenant have entered into this Memorandum
of Lease in order that third parties may have notice of the existence of
the Lease and some of its specific provisions. This Memorandum of Lease
is not a complete summary of the Lease, all of the terms, covenants, and
conditions of
<PAGE>
which are made apart of this Memorandum of Lease as though fully set
forth in this Memorandum of Lease. This Memorandum of Lease is not
intended to amend, modify, or otherwise change the terms and conditions
of the Lease. In the event of a conflict between this Memorandum of
Lease and the Lease, the Lease controls.
<TABLE>
<CAPTION>
LANDLORD: TENANT:
<S> <C>
OPUS SOUTH CORPORATION, a ADS ALLIANCE DATA SYSTEMS, INC., a
Florida corporation Delaware corporation
By: _____________________________ By: ______________________
Neil J. Rauenhorst, President Its: ______________________
And: ______________________
Its: ______________________
</TABLE>
STATE OF _________________________ )
) ss.
COUNTY OF ________________________ )
The foregoing instrument was acknowledged before me this _____ day of
__________________, 1998 by Neil J. Rauenhorst as President of Opus South
Corporation, a Texas corporation.
Witness my hand and official seal.
____________________________
Notary Public
My commission expires: ______________________________________________
STATE OF _________________________ )
) ss.
COUNTY OF ________________________ )
The foregoing instrument was acknowledged before me this _____ day of
__________________, 1998 by _______________________________ as ______________
and ________________________________________ as _____________________________
of ADS Alliance Data Systems, Inc., a Delaware corporation.
Witness my hand and official seal.
<PAGE>
_____________________________
Notary Public
My commission expires: _______________________________________________
EXHIBIT F
NDA
<PAGE>
EXHIBIT G
LEASE GUARANTY
THIS LEASE GUARANTY (this "GUARANTY") is given by ALLIANCE DATA
SYSTEMS CORPORATION, a Delaware corporation ("GUARANTOR"), to OPUS SOUTH
CORPORATION, a Florida corporation ("LANDLORD"), with respect to that certain
Build-to-Suit Net Lease dated January __, 1998 (the "LEASE") by and between
Landlord and ADS Alliance Data Systems, Inc., a Delaware corporation
("TENANT"), under which Tenant has leased from Landlord the land in
Richardson, Texas that is legally described on EXHIBIT A attached hereto and
all improvements thereon.
In order to induce Landlord to execute the Lease and for other good
and valuable consideration, the receipt and sufficiency of which Guarantor
acknowledges, Guarantor promises and agrees as follows:
1. Guarantor absolutely, unconditionally and irrevocably
guarantees the payment and performance of, and agrees to pay and perform as a
primary obligor, all of Tenant's covenants, obligations, liabilities and
duties (including, without limitation, payment of rent and all other amounts
required to be paid by Tenant) under the Lease (the "GUARANTEED
OBLIGATIONS"), as if Guarantor had executed the Lease as Tenant.
2. Guarantor's obligations under this Guaranty are primary and
independent of Tenant's obligations. Guarantor agrees that Landlord will not
be required first to enforce against Tenant or any other person any
Guaranteed Obligations before seeking enforcement against Guarantor.
Landlord may bring and maintain an action against Guarantor to enforce any
Guaranteed Obligations without joining Tenant or any other person (including,
without limitation, any other guarantor) in such action. Landlord may,
however, join Guarantor in any action commenced by Landlord against Tenant to
enforce any Guaranteed Obligations and Guarantor waives any demand by
Landlord or any prior action by Landlord against Tenant.
3. Guarantor's obligations under this Guaranty will remain in full
force and effect and will not be affected in any way by: (a) any
forbearance, indulgence, compromise, settlement or variation of terms which
may be extended to Tenant by Landlord; (b) any alteration of the Lease by the
parties, whether prior or subsequent to Lease execution; (c) any renewal,
extension, modification or amendment of the Lease; (d) any subletting of the
premises demised under the Lease or any assignment of Tenant's interest in
the Lease; (e) any termination of the Lease to the extent that Tenant remains
liable under the Lease after such termination; or (f) the release by Landlord
of any party (other than Guarantor) obligated for the Guaranteed Obligations
or Landlord's acquisition, release, return or misapplication of any other
collateral (including, without limitation, any other guaranties) given now or
later as additional security for the Guaranteed Obligations. Guarantor
waives notice of any of the above and agrees that Guarantor will remain
liable for the Guaranteed Obligations as they may be so altered, renewed,
<PAGE>
extended, modified, amended or assigned. Guarantor also waives notice of
acceptance of this Guaranty and all other notices in connection with this
Guaranty or the Guaranteed Obligations, including notices of default by
Tenant under the Lease, and waives diligence, presentment and suit by
Landlord in the enforcement of any Guaranteed Obligations.
4. Guarantor's obligations under this Guaranty will remain in full
force and effect and will not be affected in any way by: (a) the release or
discharge of Tenant in any insolvency, receivership, bankruptcy or other
proceedings; (b) the impairment, limitation or modification of the liability
of Tenant or the estate of Tenant in bankruptcy, or of any remedy for the
enforcement of Tenant's liability under the Lease, resulting from the
operation of any present or future provision of the Federal Bankruptcy Code
or other statute or from the decision in any court; (c) the rejection or
disaffirmance of the Lease in any such proceeding; or (d) Tenant's
dissolution or other termination or any disability or other defense of Tenant.
5. Guarantor agrees to pay the reasonable attorneys' fees and
expenses incurred by Landlord in successfully enforcing Guarantor's
obligations under this Guaranty in any action or proceeding to which Landlord
is a party. In any action brought under this Guaranty, Guarantor submits to
the jurisdiction to the courts of the State of Texas, and to venue in the
District Court of Dallas County, Texas.
6. This Guaranty will be binding on Guarantor and its successors
and assigns and will inure to the benefit of Landlord and its successors and
assigns.
7. Notwithstanding anything to the contrary set forth elsewhere in
this Guaranty, in the event the Release Conditions, as defined in the Lease,
are met, then Guarantor will automatically be released from its obligations
under this Guaranty effective as of the date of such assignment or
subletting, and (b) Guarantor will at all times be entitled to assert as a
defense to any obligation under this Guaranty that Tenant has a defense to
the guaranteed obligation under the terms of the Lease.
Executed this _____ day of January, 1998.
GUARANTOR:
ATTEST: ALLIANCE DATA SYSTEMS CORPORATION,
a Delaware corporation
By: ______________________________ By:__________________________________
<PAGE>
EXHIBIT H
2-STORY PLAN
<PAGE>
EXHIBIT I
3-STORY PLAN
<PAGE>
EXHIBIT J
EXPANSION COST SUMMARY
SCHEDULE OF COST FOR THE EXPANSION BUILDING
OPTION B NO LAND
<TABLE>
<S> <C> <C>
LAND:
SOIL TEST ___
ENVIRONMENTAL ___
TITLE FEE ___
SUB-TOTAL FOR LAND ___
BUILDING:
BASE BUILDING ___
SITE DEVELOPMENT ___
TENANT IMPROVEMENTS ___
DESIGN FEE ___
SUB-TOTAL FOR BUILDING ___
DEVELOPMENT:
BROKER FEE (Market) ___
LEGAL ___
DEVELOPMENT
(5% of total project cost) ___
CONTINGENCY ___
CONSTRUCTION INTEREST ___
BANK FEES ___
SUB-TOTAL FOR DEVELOPMENT ___
TOTAL PROJECT COST: ___
RENT CALCULATION:
EXPANSION COSTS X 11.4%-RENT ___
TOTAL RENT ___
</TABLE>
<PAGE>
EXHIBIT K
CORE BUILDING SYSTEMS
- -- Foundation System
- -- Structural Framing System
- -- Core Plumbing Systems
- -- Exterior Envelope Back-up System (Framing, Sheathing, and Insulation)
- -- Roofing System
- -- Core Building Fire Sprinkler System
- -- Core Plumbing HVAC System (Central plant, main supply loop ductwork;
perimeter zone boxes, and interior VAV boxes and controls)
- -- Electrical System (Wiring of all base building HVAC equipment,
elevators, exterior lighting, main switchgear, distribution to electrical
panel boards on each floor, and lighting of interior common areas with
exit and emergency lighting as required by code)
- -- Minimum Code Requirements (Stairs, Restroom Count, and Elevators)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS AND EXHIBITS. . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2 GRANT OF LEASE; RENEWAL OPTIONS . . . . . . . . . . . . . . . . . . .8
2.1 Demise . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
2.2 Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . .8
2.3 Landlord and Tenant Covenants. . . . . . . . . . . . . . . . .8
2.4 Memorandum of Lease. . . . . . . . . . . . . . . . . . . . . .9
2.5 Tenant's Renewal Options . . . . . . . . . . . . . . . . . . .9
3. CONSTRUCTION; DELIVERY AND ACCEPTANCE OF PREMISES . . . . . . . . . 10
3.1 Landlord's Construction Obligations. . . . . . . . . . . . . 10
3.2 Original Base Building Plans . . . . . . . . . . . . . . . 10
3.3 Leasehold Improvement Plans . . . . . . . . . . . . . . . . 11
3.4 Tenant's Cost Proposal . . . . . . . . . . . . . . . . . . . 12
3.5 Original Change Orders . . . . . . . . . . . . . . . . . . . 13
3.6 Delivery of Possession . . . . . . . . . . . . . . . . . . . 13
3.7 Plan Approval Delays, Tenant Original Delays and Permitted
Original Force Majeure Delays . . . . . . . . . . . . . . . 15
3.8 Original Punch List . . . . . . . . . . . . . . . . . . . . 16
3.9 Representatives . . . . . . . . . . . . . . . . . . . . . . 16
3.10 Payment of Tenant's Cost . . . . . . . . . . . . . . . . . . 16
3.11 Reasonableness and Good Faith Standard . . . . . . . . . . . 17
4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.1 Basic Rent and Original Basic Rent . . . . . . . . . . . . . 17
4.2 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.3 Terms of Payment . . . . . . . . . . . . . . . . . . . . . . 17
4.4 Late Payments. . . . . . . . . . . . . . . . . . . . . . . . 18
4.5 Right to Accept Payments . . . . . . . . . . . . . . . . . . 18
5. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.1 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . 18
5.2 Proration at Beginning and End of Term . . . . . . . . . . . 18
5.3 Special Assessments. . . . . . . . . . . . . . . . . . . . . 18
5.4 Tax Contests . . . . . . . . . . . . . . . . . . . . . . . . 19
6. USE, OCCUPANCY AND COMPLIANCE . . . . . . . . . . . . . . . . . . . 19
6.1 Use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Hazardous Substances . . . . . . . . . . . . . . . . . . . . 20
6.4 Americans With Disabilities Act. . . . . . . . . . . . . . . 21
6.5 Signs. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
<PAGE>
7.1 Payment; Interruption of Services. . . . . . . . . . . . . . 21
7.2 HVAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . 22
8.1 Tenant's Obligations . . . . . . . . . . . . . . . . . . . . 22
8.2 Landlord's Obligations . . . . . . . . . . . . . . . . . . . 22
8.3 Landlord's Right of Entry. . . . . . . . . . . . . . . . . . 22
9. INSURANCE, WAIVERS AND INDEMNITY. . . . . . . . . . . . . . . . . . 23
9.1 Property Insurance . . . . . . . . . . . . . . . . . . . . . 23
9.2 Liability and Other Insurance. . . . . . . . . . . . . . . . 23
9.3 General Insurance Requirements . . . . . . . . . . . . . . . 24
9.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . 24
10. ALTERATIONS; MECHANICS' LIENS . . . . . . . . . . . . . . . . . . . 25
10.1 Alterations. . . . . . . . . . . . . . . . . . . . . . . . . 25
10.2 Mechanics' Liens . . . . . . . . . . . . . . . . . . . . . . 25
11. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . 26
11.1 Notice and Consent . . . . . . . . . . . . . . . . . . . . . 26
11.2 Deemed Assignments . . . . . . . . . . . . . . . . . . . . . 26
11.3 General Provisions . . . . . . . . . . . . . . . . . . . . . 27
12. CASUALTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
12.1 Landlord's Obligation . . . . . . . . . . . . . . . . . . . 27
12.2 Time for Repairs . . . . . . . . . . . . . . . . . . . . . . 28
13. EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13.1 Termination. . . . . . . . . . . . . . . . . . . . . . . . . 28
13.2 Restoration; Award . . . . . . . . . . . . . . . . . . . . . 28
14. END OF TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.1 Surrender. . . . . . . . . . . . . . . . . . . . . . . . . . 29
14.2 Holding Over . . . . . . . . . . . . . . . . . . . . . . . . 29
15. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . 30
15.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . 30
15.2 Events of Default. . . . . . . . . . . . . . . . . . . . . . 30
15.3 Landlord's Remedies. . . . . . . . . . . . . . . . . . . . . 31
15.4 Landlord's Default; Tenant's Remedies. . . . . . . . . . . . 32
15.5 Disclaimer of Landlord's Lien . . . . . . . . . . . . . . . 33
16. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
16.1 Subordination, Nondisturbance and Attornment . . . . . . . . 33
16.2 Option to Make Lease Superior. . . . . . . . . . . . . . . . 33
E-2
<PAGE>
17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.1 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
17.2 Estoppel Certificates. . . . . . . . . . . . . . . . . . . . 33
17.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
17.4 Actions by Agent . . . . . . . . . . . . . . . . . . . . . . 34
17.5 Severability; Governing Law. . . . . . . . . . . . . . . . . 34
17.6 Transfers of Landlord's Interest . . . . . . . . . . . . . . 34
17.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17.8 Complete Agreement; Modification . . . . . . . . . . . . . . 35
17.9 No Offer . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17.10 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 35
17.11 Limitation on Landlord's Liability . . . . . . . . . . . . . 35
17.12 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . 35
17.13 No Partnership . . . . . . . . . . . . . . . . . . . . . . . 35
17.14 Force Majeure. . . . . . . . . . . . . . . . . . . . . . . . 35
17.15 Financial Statements . . . . . . . . . . . . . . . . . . . . 36
17.16 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 36
17.17 Lease Guaranty. . . . . . . . . . . . . . . . . . . . . . . 36
17.18 Corporate Authority. . . . . . . . . . . . . . . . . . . . 36
18. EXPANSION OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exhibit A - Legal Description of the Land
Exhibit B - Base Building Specifications (including
Original Building Elevation, Site Plan,
Floor Plan and Original Building
Specifications)
Exhibit C - Base Building /Tenant Matrix
Exhibit D - Matters Affecting Landlord's Title
Exhibit E - Memorandum of Lease
Exhibit F - NDA
Exhibit G - Lease Guaranty
Exhibit H - 2-Story Plan
Exhibit I - 3-Story Plan
Exhibit J - Expansion Cost Summary
Exhibit K - Core Building Systems
</TABLE>
E-2
<PAGE>
FINAL AGREEMENT CONCERNING RENT COMMENCEMENT AND
CONSTRUCTION COSTS AND LIQUIDATED DAMAGES
This Final Agreement Concerning Rent Commencement and Construction Costs and
Liquidated Damages (this "AGREEMENT") is executed by and between Oaklawn
Alliance, L.L.C., a Delaware limited liability company ("LANDLORD") and ADS
Alliance Data Systems, Inc., a Delaware corporation ("TENANT") and is effective
as of the last day accompanying the signature of Original Landlord, Landlord,
and Tenant below. Original Landlord, Guarantor, and Mortgagee (all as defined
below) are executing this Agreement for the purposes indicated in this
Agreement.
R E C I T A L S
A. Effective as of January 29, 1998, Opus South Corporation, a Florida
corporation ("ORIGINAL LANDLORD") and Tenant entered into that certain
Build-To-Suit Net Lease (the "LEASE") covering certain property located in
the City of Dallas, Collin County, Texas (the "LAND").
B. The Lease was guaranteed by Alliance Data Systems Corporation, a Delaware
corporation ("GUARANTOR") pursuant to the terms of that certain Lease
Guaranty dated the same date as the Lease (the "GUARANTY").
C. A Memorandum of Lease was executed the same day as the Lease and recorded
on January 30, 1998 in Volume 4091, Page 1447 of the real property records
of Collin County, Texas.
D. Original Landlord, Tenant, and NationsBank, N.A., a national banking
association ("MORTGAGEE") entered into that certain Subordination,
Non-disturbance and Attornment Agreement dated April 3, 1998 and recorded
on April 7, 1998 under Volume 4138, Page 1032 of the real property records
of Collin County, Texas.
E. Under the terms of the Lease, Original Landlord, as the Landlord under the
Lease, was required to construct for Tenant the Original Base Building (as
defined in the Lease) on the Land. Under the terms of the Lease, Tenant
had to pay for certain cost overruns and Original Landlord, as the Landlord
under the Lease, had to pay certain liquidated damages in the event that
construction of the Original Base Building was not completed on or before
certain dates. The Land together with the Original Base Building is
referred to in this Agreement as the "DEMISED PREMISES."
F. On December 3, 1998, Original Landlord transferred the Demised Premises to
Landlord.
G. Original Landlord, Landlord, and Tenant have been working together to
establish the Original Commencement Date under the Lease, the amount of any
cost overruns for which Tenant is
<PAGE>
obligated to pay Landlord, and the amount of any liquidated damages due to
Tenant for late delivery. The purpose of this Agreement is to memorialize
their understanding.
AGREEMENTS
NOW, THEREFORE, for and in consideration of the matters set forth in the
Recitals and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Original Landlord, Landlord, and Tenant hereby
agree as follows:
1. ORIGINAL COMMENCEMENT DATE: The Original Commencement Date of the Lease is
November 4, 1998. As provided in Section 1.1 of the Lease, the Term
expires at midnight on November 30, 2009, unless sooner terminated or
unless renewed or extended as set forth in the Lease.
2. OVERRUN AMOUNT AND LIQUIDATED AMOUNT: The amount of cost overruns for
which Tenant is responsible is $263,575.00 (the "OVERRUN AMOUNT") and the
amount of liquidated damages to which Tenant is entitled is $125,500.00
(the "LIQUIDATED AMOUNT").
3. PARTIES TO WHOM PAYMENT OF THE OVERRUN AMOUNT AND THE LIQUIDATED AMOUNT ARE
DUE: Original Landlord performed the construction work and so Original
Landlord believes that Original Landlord is entitled to receive the Overrun
Amount. Landlord hereby agrees that Original Landlord is entitled to
receive the Overrun Amount. Since Original Landlord is receiving the
Overrun Amount, Landlord believes that Original Landlord should pay Tenant
the Liquidated Amount. Tenant is willing to accept the Liquidated Amount
from Original Landlord, but such agreement to allow Original Landlord to do
so does not in any way release Landlord from the obligation to do so unless
and until Tenant actually receives the full amount of the Liquidated
Amount. If for any reason Original Landlord does not pay the full amount
of the Liquidated Amount within the time period specified in PARAGRAPH 4
below, then the obligation to pay the Liquidated Amount will constitute a
joint and several obligation of Original Landlord and Landlord and Tenant
will be entitled to demand payment from both of them and to offset the
amount due to Tenant from all Rent and other amounts accruing under the
Lease.
4. TIMING OF PAYMENT OF THE OVERRUN AMOUNT AND THE LIQUIDATED AMOUNT: Original
Landlord and Tenant hereby covenant and agree that on or before Friday, May
28, 1999, they will each present the other with a check drawn on
immediately-available funds in the amount due to the other, so that Tenant
will present Original Landlord with a check for $263,575.00 and Original
Landlord will present Tenant with a check in the amount of $125,500.00.
5. LANDLORD'S REPRESENTATIONS, WARRANTIES, AND RELEASES: Landlord hereby (a)
confirms, represents, and warrants to Tenant that Tenant is to pay the
Overrun Amount to Original Landlord and not Landlord, and (b) releases
Tenant from any and all claims that Landlord
2
<PAGE>
might have against Tenant under the Lease for payment of the Cost Overrun,
payment for any other cost overruns, and payment of Basic Rent, other
payments which are due on a regular monthly basis charges, Taxes, and
insurance premiums (with the exception of insurance premiums which were
billed in March, 1999, about which Landlord and Tenant are currently in
disagreement), IF, AND ONLY IF, SUCH CLAIMS AROSE ON OR BEFORE THE DATE OF
THIS AGREEMENT but whether or not such claims are now known or anticipated
(collectively, "CLAIMS" and individually, a "CLAIM"). Landlord
acknowledges that there is no additional promise or agreement in
consideration of this release. Landlord expressly acknowledges and agrees
that such release is a contractual undertaking and that the agreements
concerning payment settles any and all Claims by Landlord against Tenant in
connection with the Lease. This release is binding upon Landlord and the
heirs, executors, administrators, personal representatives, successors, and
assigns of Landlord and inures to the benefit of Tenant.
6. ORIGINAL LANDLORD'S REPRESENTATIONS, WARRANTIES, AND RELEASES: Original
Landlord is executing this Agreement in order to (a) confirm, represent,
and warrant to Tenant that Tenant is to pay the Overrun Amount to Original
Landlord and not Landlord, (b) confirm, represent, and warrant that
Original Landlord will pay the Liquidated Amount to Tenant as and when due
under the terms of PARAGRAPH 4 above, and (c) release Tenant from any and
all claims, OTHER THAN THE CLAIM FOR THE COST OVERRUN, that Original
Landlord might have against Tenant under the Lease for payment of Basic
Rent and other charges, including without limitation, Taxes and insurance
premiums, whether such claims now exist or hereafter arise and whether or
not such claims are now known or anticipated (collectively, "CLAIMS" and
individually, a "CLAIM"). Original Landlord acknowledges that there is no
additional promise or agreement in consideration of this release. Original
Landlord expressly acknowledges and agrees that such release is a
contractual undertaking and that the agreements concerning payment settles
any and all Claims by Original Landlord against Tenant in connection with
the Lease. This release is binding upon Original Landlord and the heirs,
executors, administrators, personal representatives, successors, and
assigns of Original Landlord and inures to the benefit of Tenant.
7. TENANT'S RELEASES: Tenant hereby releases Original Landlord and Landlord
from any and all claims that Tenant might have against Original Landlord
and Landlord for payment of any liquidated damages under Section 3.6 of the
Lease OTHER THAN the Liquidated Amount.
8. ESTABLISHMENT OF THE NUMBER OF RENTABLE SQUARE FEET IN THE ORIGINAL
BUILDING: Landlord and Tenant hereby confirm that the Original Building
contains 114,419 Rentable Square Feet.
9. RATIFICATION AND CONFIRMATION OF THE LEASE: Landlord and Tenant hereby
ratify and confirm that they are bound by all of the terms of the Lease,
including, without limitation, the terms of Section 18 of the Lease.
Landlord further acknowledges that any claims which Tenant might have under
the Lease concerning the Original Base Building and Original Leasehold
Improvements constitute claims against Landlord even though Landlord was
not the
3
<PAGE>
Landlord at the time the Original Base Building and the Original Leasehold
Improvements were constructed and even though Tenant is obligated to pay
the Cost Overrun to Original Landlord.
10. GUARANTOR'S EXECUTION: Guarantor is executing this Agreement for the
purpose of confirming that the execution and delivery of this Agreement
does not in any way terminate or limit Guarantor's obligations under the
Guaranty.
11. MORTGAGEE'S EXECUTION: Mortgagee is executing this Agreement for the
purpose of evidencing its consent to and agreement that if Mortgagee
becomes the Landlord under the Lease, Mortgagee will be bound by the terms
and provisions of this Agreement; provided, however, that under no
circumstances is Mortgagee obligated to pay the Liquidated Amount to
Tenant.
12. COUNTERPARTS: This Agreement may be executed in multiple counterparts, all
of which, when taken together, will constitute one (1) original.
LANDLORD: OAKLAWN ALLIANCE, L.L.C.,
a Delaware limited liability company
By: /s/ Neil Rauenhorst
--------------------------------------
Name: Neil Rauenhorst
--------------------------------------
Title: President & CEO
--------------------------------------
Date of Signature: 5/28/99
--------------------------
TENANT: ADS ALLIANCE DATA SYSTEMS INC.,
a Delaware corporation
By: /s/ James E. Anderson
--------------------------------------
Name: James E. Anderson
--------------------------------------
Title: Exec. V.P. & CEO
--------------------------------------
Date of Signature: 6-14-99
--------------------------
4
<PAGE>
ORIGINAL LANDLORD: OPUS SOUTH CORPORATION,
a Florida corporation
By: /s/ Neil Rauenhorst
--------------------------------------
Name: Neil Rauenhorst
--------------------------------------
Title: President & CEO
--------------------------------------
Date of Signature: 5/28/99
--------------------------
GUARANTOR: ALLIANCE DATA SYSTEMS CORPORATION,
a Delaware corporation
By: /s/ James E. Anderson
--------------------------------------
Name: James E. Anderson
--------------------------------------
Title: Exec. V.P. & CEO
--------------------------------------
Date of Signature: 6-14-99
--------------------------
MORTGAGEE: NATIONSBANK, N.A.,
a national banking association
By: /s/ Charles S. Flint
--------------------------------------
Name: Charles S. Flint
--------------------------------------
Title: Senior Vice President
--------------------------------------
Date of Signature: 5/28/99
--------------------------
5
<PAGE>
OCTOBER 19, 1998
DATED: October 19, 1998.
BETWEEN:
CIBC DEVELOPMENT CORPORATION
- AND -
LOYALTY MANAGEMENT GROUP CANADA INC.
5055 SATELLITE DRIVE
INDUSTRIAL LEASE AGREEMENT
Mississauga, Ontario
<PAGE>
5055 SATELLITE DRIVE, MISSISSAUGA, ONTARIO
INDUSTRIAL LEASE
TABLE OF CONTENTS
ARTICLE I - BASIC LEASE TERMS
Section 1.01 Variable Defined Terms
Section 1.02 Standard Definitions
ARTICLE II - LEASED PREMISES - TERM - RENT
Section 2.01 Leased Premises and Term
Section 2.02 Use of Additional Areas
Section 2.03 Construction of the Leased Premises
Section 2.04 Adjustment of Areas
Section 2.05 Agreement to Pay
Section 2.06 Basic Rent
Section 2.07 Late Payment Charge
Section 2.08 Net Lease
Section 2.09 Acknowledgement of Commencement Date
ARTICLE III - TAXES AND OPERATING COSTS
Section 3.01 Taxes Payable by Landlord
Section 3.02 Tenant's Share of Taxes
Section 3.03 Tenant's Proportionate Share of Operating Costs
Section 3.04 Management Fee
Section 3.05 Tenant's Taxes
Section 3.06 Tenant's Responsibility
Section 3.07 Payment of Estimated Taxes, Operating Costs & Management Fee
ARTICLE IV - COMPLEX - CONTROL AND SERVICES
Section 4.01 Control of the Complex by the Landlord
Section 4.02 Substitution
ARTICLE V - UTILITIES AND ADDITIONAL SERVICES
Section 5.01 Charges for Utilities
Section 5.02 Additional Services of the Landlord
Section 5.03 Third Party Services
ARTICLE VI - USE OF LEASED PREMISES
Section 6.01 Use of the Leased Premises
Section 6.02 Observance of Law
Section 6.03 Energy Conservation
Section 6.04 Odours, Dust or Noise
Section 6.05 Obstructions
Section 6.06 Outside Areas
Section 6.07 Environmental Law
ARTICLE VII - INSURANCE AND INDEMNITY
Section 7.01 Tenant's Insurance
Section 7.02 Increase in Insurance Premiums
Section 7.03 Cancellation of Insurance
Section 7.04 Loss or Damage
Section 7.05 Landlord's Insurance
Section 7.06 Indemnification of the Landlord
Section 7.07 Limitations of Liability
<PAGE>
ARTICLE VIII - MAINTENANCE, REPAIRS AND ALTERATIONS
Section 8.01 Maintenance and Repairs by the Tenant
Section 8.02 Landlord's Approval of the Tenant's Repairs
Section 8.03 Maintenance and Repairs by the Landlord
Section 8.04 Surrender of the Leased Premises
Section 8.05 Repair Where the Tenant is at Fault
Section 8.06 Tenant Not to Overload Facilities
Section 8.07 Tenant Not to Overload Floors
Section 8.08 Removal and Restoration by Tenant
Section 8.09 Notice by the Tenant
Section 8.10 Tenant to Discharge All Liens
Section 8.11 Signs and Advertising
ARTICLE IX - DAMAGE AND DESTRUCTION
Section 9.01 Destruction of the Leased Premises
Section 9.02 Destruction of the Complex
Section 9.03 Abrogation
ARTICLE X - TRANSFER AND SALE
Section 10.01 Assigning and Subletting
Section 10.02 Landlord's Right to Terminate
Section 10.03 Conditions of Transfer
Section 10.04 No Advertising of the Leased Premises
Section 10.05 Corporate Ownership
Section 10.06 Assignment by the Landlord
Section 10.07 Transfer Without Consent
ARTICLE XI - ACCESS AND ALTERATIONS
Section 11.01 Right of Entry
Section 11.02 Right to Show Leased Premises
Section 11.03 Entry Not Forfeiture
Section 11.04 Landlord's Covenant For Quiet Enjoyment
Section 11.05 Inspection
ARTICLE XII - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
Section 12.01 Status Statement
Section 12.02 Subordination and Attornment
Section 12.03 Attorney
Section 12.04 Financial information
Section 12.05 Acknowledgment of Title
ARTICLE XIII - DEFAULT
Section 13.01 Right to Re-Enter
Section 13.02 Right to Re-Let
Section 13.03 Termination
Section 13.04 Accelerated Rent
section 13.05 Expenses
Section 13.06 Waiver of Exemption from Distress
Section 13.07 Landlord May Cure Tenant's Default or Perform Tenant's
Covenants
Section 13.08 Additional Rent
Section 13.09 Remedies Generally
Section 13.10 Holding Over
Section 13.11 No Waiver
ii
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ARTICLE XIV - MISCELLANEOUS
Section 14.01 Rules and Regulations
Section 14.02 Security Deposit
Section 14.03 Pest Control
Section 14.04 Obligations as Covenants
Section 14.05 Amendments and Supplementary Lease Provisions
Section 14.06 Certificates
Section 14.07 Time
Section 14.08 Successors and Assigns
Section 14.09 Governing Law
Section 14.10 Headings
Section 14.11 Entire Agreement
Section 14.12 Severability
Section 14.13 No Option
Section 14.14 Occupancy Permit
Section 14.15 Place for Payments
Section 14.16 Extended Meanings
Section 14.17 No Partnership or Agency
Section 14.18 Unavoidable Delay
Section 14.19 Registration
Section 14.20 Joint & Several Liability
Section 14.21 Name of Complex
Section 14.22 Changes in Complex
Section 14.23 Compliance with the Planning Act
ARTICLE XV - INDEMNITY AGREEMENT - INTENTIONALLY DELETED
Section 15.01 Indemnity - Intentionally Deleted
Section 15.02 Further Assurances - Intentionally Deleted
SCHEDULES
Schedule "A" - Legal Description of Lands
Schedule "B" - Plan Showing Location of Leased Premises
Schedule "C" - Rules and Regulations
Schedule "D" - Acknowledgement of Commencement Date
Schedule "E" - Supplementary Lease Provisions
1. Tenant's Option to Terminate
2. Tenant's Option to Renew
3. Tenant's First Right to Lease
4. Parking
5. Communications Equipment
6. Access to the Leased Premises
7. Business Days
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5055 SATELLITE DRIVE, MISSISSAUGA
INDUSTRIAL LEASE
ARTICLE 1
BASIC LEASE TERMS
SECTION 1.01 - VARIABLE DEFINED TERMS
In this Lease the following terms will have the following meanings:
(1) "LEASE" means this lease dated the 19TH DAY OF OCTOBER, 1998, and
includes all schedules annexed hereto, as from time to time amended in
writing.
(2) "LANDLORD" - CIBC DEVELOPMENT CORPORATION and its successors and
assigns.
(3) "LANDLORD'S ADDRESS" - Suite 2800, 145 King Street West, Toronto,
Ontario, M5H 3T7 or such other address as is designated by the Landlord
in Canada.
(4) "TENANT" - LOYALTY MANAGEMENT GROUP CANADA INC. and its successors and
permitted assigns.
(5) "TENANT'S ADDRESS" - 4110 YONGE STREET, SUITE 200, TORONTO, ONTARIO,
M2P 2B7, ATTENTION: VICE PRESIDENT, LEGAL SERVICES or such other
address as is designated by the Tenant in Canada.
(6) "INDEMNIFIER" - INTENTIONALLY DELETED.
(7) "INDEMNIFIER'S ADDRESS" - INTENTIONALLY DELETED.
(8) "LEASED PREMISES" - Those premises leased to the Tenant pursuant to
Section 2.01 hereof, cross-hatched on Schedule "B" hereto, being the
part of the building known as 5055 Satellite Drive, Mississauga,
Ontario.
(9) "RENTABLE AREA OF THE LEASED PREMISES" - The Rentable Area of the
Leased Premises being approximately 40,000 square feet of area
determined in accordance with Section 1.02 (21) hereof, and subject to
adjustment in accordance with Section 2.04 hereof.
(10) "BASIC RENT" - Basic Rent per square foot of Rentable Area of the
Leased Premises per annum payable pursuant to Section 2.06 hereof shall
be as follows:
(a) TWELVE DOLLARS AND SEVENTY-FIVE CENTS ($12.75) IN THE FIRST
(1ST) AND SECOND (2ND) YEARS OF THE TERM;
(b) THIRTEEN DOLLARS AND FIFTY CENTS ($13.50) IN THE THIRD (3RD),
FOURTH (4TH) AND FIFTH (5TH) YEARS OF THE TERM;
(c) FOURTEEN DOLLARS AND EIGHTY-FIVE CENTS ($14.85) IN THE SIXTH
(6TH), SEVENTH (7TH) EIGHTH (8TH), NINTH (9TH) AND TENTH
(10TH) YEARS OF THE TERM.
(11) "COMMENCEMENT DATE" - AUGUST 1, 1999 (SUBJECT TO DELAYS AS DESCRIBED
IN PARAGRAPH 27 OF THE AGREEMENT TO LEASE).
(12) "TERM" - TEN (10) YEARS (SUBJECT TO THE PROVISIONS OF PARAGRAPH 1 OF
SCHEDULE "E" OF THIS LEASE), COMMENCING ON THE COMMENCEMENT DATE.
(13) "AGREEMENT TO LEASE" means, COLLECTIVELY, the written agreement to
lease between the Landlord and the Tenant with respect to the Leased
Premises ACCEPTED BY THE LANDLORD AND THE TENANT ON THE 11TH DAY OF
AUGUST, 1998 (THE "OFFER TO LEASE"), AS AMENDED BY AN AMENDING LETTER
DATED THE 2ND DAY OF SEPTEMBER, 1998 (THE "AMENDING LETTER").
(14) "SECURITY DEPOSIT" means the sum of ONE HUNDRED AND FORTY-FIVE THOUSAND
DOLLARS ($145,000.00) + GST (WITH ALL INTEREST ACCRUED THEREON) applied
in accordance with Section 14.02.
(15) "TYPE OF BUSINESS OF THE TENANT" means for the purpose OF GENERAL
BUSINESS OFFICES, INCLUDING AN OUT-BOUND AND IN-BOUND CALL CENTRE AND
EMPLOYEE CAFETERIA, PROVIDED THAT SUCH USE COMPLIES WITH ALL APPLICABLE
BY-LAWS.
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SECTION 1.02 - STANDARD DEFINITIONS
(1) "ADDITIONAL RENT" means all sums of money, other than Basic Rent, which
are required to be paid by the Tenant TO THE LANDLORD pursuant to any
provision of this Lease.
(2) "ADDITIONAL SERVICE" means any service which is requested or required
by or for a tenant (including the Tenant) in addition to those supplied
by the Landlord as part of the normal services provided in the Complex,
and which the Landlord is prepared or elects to supply at an additional
cost to the tenant in question and includes, without limitation,
janitor and cleaning services, the provision of labour and supervision
in connection with deliveries, supervision in connection with the
moving of any furniture or equipment of any tenant, the making of any
repairs or alterations by any tenant and the cost of replacing building
standard electric light fixtures, ballasts, tubes, starters, lamps and
light bulbs not located within Common Facilities.
(3) "ADDITIONAL SERVICE COST" means the additional cost payable by the
Tenant to the Landlord for any Additional Service in accordance with
Section 5.02 hereof.
(4) "ARCHITECT" means the architect, professional engineer or surveyor
named by the Landlord from time to time.
(5) "BANK RATE" means the interest rate per annum as announced by the
chartered bank of the Landlord at the principal office of such bank in
Toronto and reported by it to the Bank of Canada as its prime rate.
(6) "CAPITAL TAX IN RESPECT OF THE COMPLEX" means the aggregate of:
(a) an amount of the tax or excise imposed by the Province of
Ontario upon the Landlord or the owners of the Complex which
is measured by or based in whole or in part upon the capital,
surplus, reserves or indebtedness of such Landlord or owners,
and which is at present based upon the application of the
prescribed rate of 0.3 % to the amount of such Landlord's or
owner's "taxable paid-up capital" as defined in the
Corporations Tax Act (Ontario); the amount of the tax or
excise for the purposes hereof shall be calculated in any year
as if the Complex was the only establishment in the Province
of Ontario owned by such Landlord or owners in the year and
such Landlord or owners had no establishment other than in the
Province of Ontario; and
(b) an amount of the tax or excise imposed by the Government of
Canada upon the Landlord or the owners of the Complex which is
measured by or based in whole or in part upon the capital,
surplus, reserves or indebtedness of the Landlord or the
owners, and which tax is at present based upon the application
of the prescribed rate of .2% to the amount by which the
"taxable capital employed in Canada" by such Landlord or
owners as defined in the Income Tax Act (Canada) exceeds its
capital deduction for the year; the amount of the tax or
excise for the purposes hereof shall be calculated in any year
as if the Complex was the only asset owned by such Landlord or
owners in the year and the capital deduction of such Landlord
or owners for the year was nil.
(7) "COMMON FACILITIES" means those areas and facilities of or for the
Complex which serve or benefit the Complex including, without
limitation, roadways, landscaped areas, sidewalks, public entrance
doors, halls, public lobbies, lavatories, stairways, passageways,
service ramps and Common Use Equipment, and which are designated from
time to time by the Landlord for the common use or enjoyment of the
tenants in the Complex and users of adjacent properties, and their
agents, invitees, servants, employees and licensees, or for use by the
public, but excluding rentable premises in the Complex and other
portions of the Complex which are from time to time designated by the
Landlord ACTING REASONABLY for private use by one or a limited group of
tenants.
(8) "COMMON USE EQUIPMENT " means all mechanical, plumbing, electrical and
heating, ventilating, and air-conditioning equipment, pipes, ducts,
wiring, machinery and equipment and other integral services, utility
connections and the like providing services to the Complex, including
such services to and within rentable premises (it being understood that
any changes to such services made by or on behalf of the Tenant shall
be considered to be Leasehold Improvements).
(9) "COMPLEX" means the Lands and the buildings and other fixed
improvements located thereon and includes all structures and
improvements from time to time thereunder or associated therewith.
(10) "INSURANCE COST" means, for any fiscal period, the total cost to the
Landlord calculated in accordance with generally accepted accounting
principles, for insuring the Complex.
(11) "INSURED DAMAGE" means that part of any damage occurring to the
Complex, including the Leased Premises, of which the entire cost of
repair (except as to any deductible amount provided for in the
applicable policy or policies of insurance) is actually recovered by
the Landlord under a policy or policies of insurance from time to time
effected by the Landlord pursuant hereto, OR WOULD HAVE BEEN
RECOVERABLE BY THE LANDLORD OR ANY ASSIGNEE TO WHOM THE LANDLORD HAS
ASSIGNED
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THE INSURANCE PROCEEDS, ACTING REASONABLY, HAD THE LANDLORD INSURED AS
IT IS REQUIRED BY THIS LEASE.
(12) "LANDS" means the lands described in Schedule "A" attached hereto and
includes other lands designated by the Landlord as part of 5055
Satellite Drive in which the Landlord from time to time has an
interest.
(13) "LEASEHOLD IMPROVEMENTS" means all items generally considered as
leasehold improvements, including, without limitation, all fixtures,
equipment, improvements, installations, alterations and additions from
time to time made, erected or installed by or on behalf of the Tenant,
or any previous occupant of the Leased Premises in the Leased Premises,
and by or on behalf of other tenants in other premises in the Complex,
including all partitions, however affixed and whether or not movable,
and all wall-to-wall carpeting other than carpeting laid over finished
floors and affixed so as to be readily removable without damage and
changes to services which are part of Common Use Equipment; but
excluding trade fixtures, furniture or free-standing partitions and
equipment not of the nature of trade fixtures.
(14) "MANAGEMENT FEE" means a reasonable fee for the administration and
management of the Complex applied to the aggregate of all revenues
received or receivable from the Tenant, which fee shall be comparable
to fees charged by management companies for managing and administering
developments similar to the Complex;
(15) "MORTGAGE" means any instrument hypothec, deed of trust, document or
security interest (resulting from any method of financing or
refinancing) or blanket mortgage pledge or charge (affecting the
Complex as well as other property) now or hereafter secured upon the
Complex or any part thereof, and includes all renewals, modifications,
consolidations, replacements and extensions thereof.
(16) "MORTGAGEE" means the mortgagee, hypothecary or other creditor or
trustee for bondholders or others named in any Mortgage.
(17) "NOTICE" means any notice, statement, consent, approval, demand or
request herein required or permitted to be given by any party to
another pursuant to this Lease and shall be in writing and, if to the
Landlord, addressed to the Landlord at the Landlord's Address, if to
the Tenant, addressed to the Tenant at the Tenant's Address, and if to
the Indemnifier, addressed to the Indemnifier at the Indemnifier's
Address. All Notices shall be hand-delivered and the effective date of
such Notices shall be the date of delivery.
(18) "OPERATING COSTS" means, the total of all expenses, costs, fees,
rentals, disbursements and outlays of every kind paid, payable or
incurred by or on behalf of the Landlord in the complete maintenance,
repair, operation, supervision, replacement and administration of the
Complex, ON A REASONABLE, FAIR AND EQUITABLE BASIS, ACTING AS A
REASONABLE AND PRUDENT ADMINISTRATOR OF A FIRST CLASS INDUSTRIAL
BUILDING LOCATED IN MISSISSAUGA, ONTARIO AND CONFORMING WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES, CONSISTENTLY APPLIED, and a reasonable
amount, as determined by the Landlord from time to time, for all
expenses incurred by or on behalf of tenants in the Complex with whom
the Landlord may from time to time have agreements whereby, in respect
of their premises, those tenants perform any cleaning, maintenance or
other work, utilities or services usually performed or provided by the
Landlord which, if directly incurred by the Landlord, would have been
included in Operating Costs. Without limiting the generality of the
foregoing, Operating Costs shall include, without duplication:
(A) (i) the Insurance Cost;
(ii) the cost of providing security, supervision, life safety
systems, traffic control, landscaping, exterior cleaning and
snow removal services;
(iii) the cost of repairs and replacements to and maintenance of the
Complex in each case in respect of the Common Facilities but
excluding the original capital cost of same AND NET OF AMOUNTS
IN 1.02)(18)(B)(v) AND (vi);
(iv) the cost of hot and cold water, electric light and power,
telephone, steam, gas, sewage disposal and other utilities and
services;
(v) the cost of maintaining and replacing general signs and
directory boards;
(vi) accounting costs incurred in connection with the maintenance,
repair, replacement, operation, administration or management
of the Complex, including computations required for the
imposition of charges to tenants, the cost of preparing
statements and opinions for tenants and banking fees and
expenses and audit fees;
(vii) the cost of performing its obligations under Section 8.03;
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(viii) the fair rental value (HAVING REGARD TO THE RENTALS PREVAILING
AT THE TIME THE SPACE IS ESTABLISHED FOR USE BY THE LANDLORD
FOR A TERM OF FIVE (5) YEARS AND THEREAFTER RENTALS PREVAILING
ON THE BASIS OF TERMS NOT LESS THAN FIVE (5) YEARS) of space
in the Complex used by the Landlord, acting reasonably, in
connection with the maintenance, repair, replacement,
operation, administration or management of the Complex;
(ix) all other indirect expenses to the extent allocable to the
maintenance, repair, replacement, operation, administration or
management of the Complex;
(x) all costs and expenses (including legal and other professional
fees and interest and penalties on deferred payments) incurred
by the Landlord in contesting, resisting or appealing any
Taxes;
(xi) the amount of all salaries, wages and fringe benefits paid to
or for personnel, managers, and superintendents, wherever
located, to the extent that they are employed or retained by
or on behalf of the Landlord in connection with the
maintenance, repair, replacement, operation, administration or
management of the Complex and all amounts paid to independent
contractors for any services in connection with the
maintenance, repair, replacement, operation, administration or
management of the Complex or any part of it;
(xii) fees and expenses of architects, engineers, quantity surveyors
and other consultants retained by the Landlord EXCLUDING FEES
AND EXPENSES RELATING TO THE MEASUREMENT OF THE RENTABLE AREA
OF THE LEASED PREMISES;
(xiii) the costs of uniforms for personnel, and of supplies, tools,
equipment and materials used in connection with the
maintenance, repair, replacement, operation, administration,
management or caretaking of the Complex;
(xiv) amortization of the costs OTHER THAN THE COSTS OF LANDLORD'S
WORK (AS DEFINED IN THE AGREEMENT TO LEASE) incurred to make
alterations, replacements or additions to the Complex intended
to reduce the cost of other items included in Operating Costs,
improve the operation of the Complex or maintain its operation
as a quality industrial complex; costs being amortized will
include, without limitation, costs incurred in respect of
alterations, replacements or additions to the roof and other
machinery, equipment, facilities, decorating, flooring,
systems, and property installed in or used in connection with
the Complex (except to the extent that the costs are charged
fully to income account in the accounting period in which they
are incurred) and interest on the unamortized portion of the
original cost of such items being amortized, payable monthly,
from or after the date on which the relevant cost was incurred
at an annual rate of interest that is one percentage (1%)
point above the Bank Rate in effect from time to time; the
amortization costs and interest charged under this clause
shall be calculated by the Landlord, acting reasonably, in
accordance with sound and generally accepted accounting
principles, but no amortization or interest will be charged in
respect of any such items installed in conjunction with the
original construction of the Complex;
(xv) goods and services taxes, business transfer taxes, value-added
taxes, multi-stage sales taxes, sales, use or consumption
taxes and any like taxes on property and services provided by
or on behalf of the Landlord except to the extent recoverable
by the Landlord;
(xvi) Capital Tax in respect of the Complex, any Ontario commercial
concentration tax and any business or similar taxes or licence
fees in respect of the business of the Landlord which pertains
to the management, operation and maintenance of the Complex;
(xvii) all other direct and indirect costs and expenses of every
kind, to the extent incurred in or allocable to the
maintenance, repair, replacement, operation, supervision or
administration of all or any part of the Complex, or any of
its appurtenances including expenses incurred or contributions
made by the Landlord in respect of off-site facilities which
are utilized by or benefit the Complex or for which the
Landlord is required to contribute;
(B) except to the extent otherwise provided in Part (A) of this definition,
Operating Costs shall exclude or shall have deducted therefrom:
(i) Taxes and Management Fee;
(ii) THE COST OF ARRANGING, AND debt service in respect of
financing secured by or related to the Complex AND THE CAPITAL
RETIREMENT OF DEBT and interest on debt save for interest
payable if as and when costs and expenses in respect of
Operating Costs and Taxes and goods and services taxes
temporarily exceed recoveries from time to time in respect
thereof;
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(iii) depreciation of the initial cost of the Complex;
(iv) the cost of replacing building standard electric fixtures,
ballasts, tubes, starters, lamps and light bulbs in each case
not located within Common Facilities;
(v) an amount equal to the net proceeds of insurance actually
recovered by the Landlord OR ANY ASSIGNEE TO WHOM THE LANDLORD
HAS ASSIGNED THE INSURANCE PROCEEDS (OR WHICH WOULD HAVE BEEN
RECOVERED BY THE LANDLORD HAD THE LANDLORD INSURED AS IT IS
REQUIRED) for damage to the Complex to the extent that the
cost to repair such damage is included in Operating Costs;
(vi) an amount equal to recoveries by the Landlord in respect of
warranties or guarantees relating to repairs or alterations to
the Complex or any part of it, to the extent that the repair
or alteration costs in respect of the work covered by warranty
or guarantee is included in Operating Costs;
(vii) all Additional Service Costs chargeable to specific tenants of
the Complex for Additional Service to the extent that those
amounts are included in Operating Costs, including any
administrative or overhead charges;
(viii) an amount equal to the contribution made by owners or
occupants of adjacent buildings who are, by agreement,
entitled to use any facilities of and for the Complex;
(ix) THE COST OF COMMISSIONS, ADVERTISING AND LEGAL EXPENSES IN
CONNECTION WITH THE LEASING OF THE COMPLEX;
(x) BAD DEBTS AND ANY COSTS INCURRED IN THE COLLECTION OF SUCH BAD
DEBTS, INCLUDING LEGAL COSTS ASSOCIATED WITH THE SAME;
(xi) ANY AMOUNT DUE TO THE LANDLORD'S NON-COMPLIANCE WITH ANY LAW,
BY-LAW, REGULATION, OR ACT;
(xii) THE COST OF SERVICES, INCLUDING WITHOUT LIMITATION, JANITORIAL
SERVICES, THAT THE TENANT ITSELF SUPPLIES OR CONTRACTS FOR
WITH A SUPPLIER OTHER THAN THE LANDLORD AND WHICH WOULD
OTHERWISE BE INCLUDING IN OPERATING COSTS; AND
(xiii) THE COST OF JANITORIAL SERVICES SUPPLIED BY THE LANDLORD TO
TENANTS IN THE COMPLEX;
(C) any costs that are not directly incurred by the Landlord but are
chargeable as Operating Costs may be estimated by the Landlord on a
reasonable basis to the extent that the Landlord cannot ascertain the
exact amount; and
(D) the taxes enumerated in Section 1.02(18)(A)(xv) above are included
amongst Operating Costs upon the understanding that the Landlord will
look first for reimbursement of such taxes to its input tax credits in
the case of the goods and services tax in force at the date hereof, and
to corresponding credits, if any, in the case of subsequent taxes from
time to time in force, the intent being that so long as such credits
are available to the Landlord the taxes referred to in Section
1.02(18)(A)(xv) will not be included in Operating Costs.
(19) "PROPORTIONATE SHARE" means, for any period, the fraction which has as
its numerator the Rentable Area of the Leased Premises and as its
denominator the Total Rentable Area.
(20) "RENT" means Basic Rent and Additional Rent.
(21) "RENTABLE AREA" of any portion of the Complex means the floor area
THEREOF MEASURED IN ACCORDANCE WITH THE BOMA STANDARD METHOD FOR
MEASURING FLOOR SPACE IN INDUSTRIAL BUILDINGS expressed in square feet
of all floor space (including the floor space of mezzanines, if any)
measured from the exterior face of all exterior walls (and across the
extension of the planes thereof over the openings for doors and
windows) comprising the boundaries of such premises and, in the case of
walls separating any rentable premises from adjoining rentable
premises, measured from the centre line of such walls but ignoring the
finished treatment thereof; any such area shall be adjusted from time
to time to reflect any addition, reduction, rearrangement or relocation
of space.
(22) "TAXES" means all taxes, rates, duties, levies, fees, charges, sewer
levies, local improvement rates, and assessments whatsoever imposed,
assessed, levied or charged, now or in the future, by any school,
municipal, regional, provincial, federal, parliamentary or other
governmental body, corporate authority, agency or commission
(including, without limitation, school boards and utility commissions),
against the Complex or any part thereof, and/or the Landlord and/or the
owners of the Complex in connection therewith, calculated on the basis
of the Complex being assessed as a fully leased and operational
building, but excluding (unless specifically referred to above):
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(a) income or profit taxes upon the income of the Landlord to the
extent such taxes are not levied in substitution or in lieu of
any of the foregoing;
(b) business or similar taxes or licence fees in respect of the
business of the Landlord which pertains to the management,
operation and maintenance of the Complex (and which are
included in Operating Costs);
(c) goods and services taxes or similar taxes (and which are
payable pursuant to other provisions of this Lease);
(d) business or similar taxes or licence fees in respect of any
business carried on by, and imposed upon, tenants and
occupants (including the Tenant) of the Complex; and
(e) Capital Tax in respect of the Complex and any Ontario
commercial concentration tax (and which are included in
Operating Costs).
(23) "TENANT'S TAXES" means all taxes, rates, duties, levies or license fees
imposed upon the Tenant which are attributable to the business, income
or occupancy of the Tenant or any other occupant of the Leased
Premises, and to the use of any of the Common Facilities by the Tenant
or other occupant of the Leased Premises, including any taxes, rates,
duties, levies or license fees which are imposed in lieu of or in
addition to any such Tenant's Taxes; and if any such Tenant's Taxes are
levied against the Landlord or any owner on account of its ownership in
the Complex or its interest therein, they shall be included in Taxes.
(24) "TOTAL RENTABLE AREA" means the aggregate of all Rentable Area
(including the Leased Premises) in the Complex determined in accordance
with Section 1.02(21) hereof and adjusted from time to time to reflect
any addition, reduction, rearrangement or relocation of space.
(25) "TRANSFER" means an assignment of this Lease, a sublease of all or any
part of the Leased Premises, any transaction whereby the rights of the
Tenant under this Lease to the Leased Premises are transferred to
another, any transaction by which any right of use or occupancy of all
or any part of the Leased Premises is conferred upon anyone, any
mortgage, charge or encumbrance of this Lease or the Leased Premises or
any part thereof, or other arrangement under which either this Lease or
the Leased Premises becomes security for any indebtedness or other
obligations, and includes any transaction or occurrence whatsoever
which has changed or might change the identity of the person or persons
having lawful use or occupancy of any part of the Leased Premises.
(26) "UNAVOIDABLE DELAY" means any delay by a party in the performance of
its obligation under this Lease caused in whole or in part by any acts
of God, strikes, lockouts or other industrial disturbances, acts of
public enemies, sabotage, war, blockades, insurrections, riots,
epidemics, washouts, nuclear and radiation activity or fallout,
arrests, civil disturbances, explosions, breakage of or accident to
machinery, any legislative, administrative or judicial action which has
been resisted in good faith by all reasonable legal means, any act,
omission or event, whether of the kind herein enumerated or otherwise,
not within the control of such party, and which, by the exercise of
control of such party, could not have been prevented, but lack of funds
on the part of such party shall not constitute an Unavoidable Delay.
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ARTICLE II
LEASED PREMISES - TERM - RENT
SECTION 2.01 - LEASED PREMISES AND TERM
In consideration of the rents, covenants and agreements herein
contained on the part of the Tenant to be paid, observed and performed, the
Landlord leases to the Tenant, and the Tenant leases from the Landlord, the
Leased Premises for the Term.
SECTION 2.02 - USE OF ADDITIONAL AREAS
The use and occupation by the Tenant of the Leased Premises includes
for the purposes of carrying on its business, the non-exclusive right of the
Tenant, the Tenant's employees, agents, invitees, suppliers (subject to the
Rules and Regulations) and persons having business with the Tenant in common
with the Landlord, its other tenants, sub-tenants and all others entitled or
permitted to the use of the Common Facilities.
SECTION 2.03 - CONSTRUCTION OF THE LEASED PREMISES
The provisions THE LAST PARAGRAPH OF PARAGRAPH 2 (TERM) AND PARAGRAPHS
9 (LANDLORD'S WORK), 10 (TENANT'S WORK), 11 (LEASEHOLD IMPROVEMENT ALLOWANCE),
11A (WORKING DRAWINGS), 11B (PERMITS AND APPROVALS), 11C (EARLY ACCESS), 27
(UNAVOIDABLE DELAY) AND SCHEDULE "C" (LANDLORD'S WORK) OF THE OFFER TO LEASE AND
PARAGRAPHS 1, 2, 3, AND 4 OF THE AMENDING LETTER relating to construction of the
Leased Premises and delay in availability of the Leased Premises for occupancy
by the Tenant shall remain in effect and shall not merge upon the execution of
this Lease. The Tenant shall abide by the provisions of Section 8.02 in respect
of the construction of Leasehold Improvements and fixtures in the Leased
Premises following the commencement of the Term.
SECTION 2.04 - ADJUSTMENT OF AREAS
The Landlord may from time to time re-measure or re-calculate the
Rentable Area of the Leased Premises and may re-adjust the Basic Rent or the
amount of Additional Rent accordingly. The effective date of any such
re-adjustment shall:
(a) in the case of an adjustment to the Rentable Area resulting
from a change in the aggregate of all rentable premises on the
floor on which the Leased Premises are situated, be the date
on which such change occurred; and
(b) in the case of a correction to any measurement or calculation
error, be the first date as of which such error was discovered
in the calculation of Basic Rent or Additional Rent.
THE LANDLORD, AT ITS COST, SHALL WITHIN TWENTY (20) BUSINESS DAYS OF
THE COMMENCEMENT DATE, PROVIDE TO THE TENANT A COPY OF THE CERTIFICATE OF THE
LANDLORD'S ARCHITECT AS TO THE RENTABLE AREA OF THE LEASED PREMISES CALCULATED
IN ACCORDANCE WITH THE TERMS OF THIS LEASE CALCULATED IN ACCORDANCE WITH THE
TERMS OF THIS LEASE, AND THE PARTIES AGREE TO BE BOUND THEREBY, AND THE
PROVISIONS OF SECTION 2.04 SHALL HAVE NO FURTHER FORCE OR EFFECT WITH RESPECT TO
THE LEASED PREMISES LEASED TO THE TENANT AS AT THE COMMENCEMENT DATE.
SECTION 2.05 - AGREEMENT TO PAY
The Tenant shall pay Basic Rent and Additional Rent as herein provided
in lawful money of Canada, without any prior demand therefor and without any
deduction, abatement, set-off or compensation whatsoever save as provided in
Section 9.01. The Tenant agrees to pay to the Landlord in addition to Basic Rent
and Additional Rent, any goods and services tax, business transfer tax,
value-added tax, multi-stage sales tax, sales, use or consumption tax, or any
like tax imposed by any governmental authority in respect of this Lease or in
respect of any property or services provided hereunder, including, without
limitation, such taxes calculated on or in respect of any Rent (whether Basic
Rent or Additional Rent) payable under this Lease; any such tax shall be deemed
not to be Rent, but the Landlord shall have the same remedies for and rights of
recovery of such amount as it has for recovery of Rent under this Lease. The
obligation to pay Additional Rent (and adjustments thereto) shall survive the
expiration or sooner termination of this Lease. All amounts payable under this
Lease, unless otherwise provided, become due with the next instalment of Basic
Rent. The Landlord may, at its option, upon Notice to the Tenant direct that the
Tenant pay any or all Rent by way of pre-authorized bank debit and/or to any
other party specified by the Landlord.
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SECTION 2.06 - BASIC RENT
The Tenant shall pay from and after the Commencement Date to the
Landlord the Basic Rent, such Basic Rent to be computed in accordance with
Section 1.01(10) hereof and payable in equal monthly instalments in advance on
the first day of each and every month. WITHIN 20 BUSINESS DAYS AFTER THE
COMMENCEMENT DATE, the Landlord shall PROVIDE THE TENANT WITH A CERTIFICATE OF
THE LANDLORD'S ARCHITECT AS TO the Rentable Area of the Leased Premises and only
at such time shall any necessary adjustments in the Basic Rent and Additional
Rent be made.
If the Commencement Date is not the first day of a calendar month, then
the Basic Rent for the first and last months of the Term shall be appropriately
adjusted, on a per diem basis, based upon a period of three hundred and
sixty-five (365) days, and the Tenant shall pay upon the Commencement Date, the
portion of the Basic Rent so adjusted from the Commencement Date to the end of
the month in which the Commencement Date occurs.
SECTION 2.07 - LATE PAYMENT CHARGE
The Tenant hereby acknowledges that late payment by the Tenant to the
Landlord of Basic Rent or Additional Rent due hereunder will cause the Landlord
to incur costs not contemplated by this Lease, the exact amount of which will be
difficult or impracticable to ascertain. Such costs include, but are not limited
to, processing and accounting charges and late charges which may be imposed on
the Landlord by the terms of any Mortgage. Accordingly, if any Basic Rent or
Additional Rent shall not be received by the Landlord or the Landlord's designee
within five (5) days after such amount shall be due, AND, IF, IN THE OPINION OF
THE LANDLORD, ACTING REASONABLY, THE TENANT HAS BEEN HABITUALLY LATE IN THE
PAYMENT OF BASIC RENT AND/OR ADDITIONAL RENT HEREUNDER, the Tenant shall pay to
the Landlord a late charge equal to five per cent (5%) of such overdue amount.
The parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs the Landlord will incur by reason of late payment by the
Tenant. Acceptance of such late charge by the Landlord shall in no event
constitute a waiver of the Tenant's default with respect to such overdue amount,
nor prevent the Landlord from exercising any of the other rights and remedies
granted hereunder. The foregoing shall be without prejudice to any other right
or remedy available to the Landlord under or pursuant to this Lease by reason of
a monetary default by the Tenant. The Tenant agrees that if any of the Tenant's
cheques are returned for lack of sufficient funds the Tenant shall pay to the
Landlord upon demand a minimum administrative fee of not less than Twenty-five
Dollars ($25.00).
SECTION 2.08 - NET LEASE
The Basic Rent payable under this Lease is intended to be an absolutely
net return to the Landlord, except as expressly herein set out to the contrary.
The Landlord is not responsible for any expenses or outlays of any nature
arising from or relating to the Leased Premises, or the use or occupancy
thereof, or the contents thereof or the business carried on therein. The Tenant
shall pay all charges, impositions and outlays of every nature and kind relating
to the Leased Premises except as expressly herein set out to the contrary.
SECTION 2.09 - ACKNOWLEDGMENT OF COMMENCEMENT DATE
The Tenant agrees to execute and return to the Landlord, within fifteen
(15) days of written demand from the Landlord, an acknowledgment of the
Commencement Date in the form set forth in Schedule "C" annexed hereto, subject
to such variations as the facts require.
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ARTICLE III
TAXES, OPERATING COSTS & MANAGEMENT FEE
SECTION 3.01 - TAXES PAYABLE BY LANDLORD
The Landlord shall pay directly to the appropriate and lawful taxing
authorities all Taxes subject to Sections 3.02 and 3.05 hereof. The Landlord may
contest any Taxes and appeal any assessments with respect thereto; withdraw any
such contest or appeal; and agree with the taxing authorities on any settlement
or compromise with respect to Taxes.
SECTION 3.02 - TENANT'S SHARE OF TAXES
The Tenant shall pay to the Landlord as Additional Rent a share of all
Taxes which share shall be the amount which is the aggregate, without
duplication, of either:
(1) (a) the amount obtained by multiplying the appropriate
commercial mill rate or rates for the year by the
assessed value of the Leased Premises as determined
by the lawful authority; provided that if for any
year such assessed value of the Leased Premises is
not available, then the Landlord may determine the
assessed value on an equitable basis using such
information and data as is available; and
(b) the Tenant's Proportionate Share of Taxes, if any,
allocated to any part of the Complex that is not
charged to the Tenant and other tenants pursuant to
Section 3.02(1)(a) and similar provisions in the
leases of such other tenants; or
(2) the Tenant's Proportionate Share of the Taxes assessed against
the Complex, including a portion of the Taxes attributable to
the Common Facilities and allocated to the Complex by the
Landlord. The amounts of such assessment and allocation, if
not determined by allocation or apportionment and identified
as such to the Landlord by the appropriate and lawful taxing
authority in question, shall be determined by allocation or
apportionment by the Landlord from time to time on an
equitable basis having regard, amongst other things, to
general principles of assessment.
If the Tenant elects to be assessed as a separate school supporter, the
Tenant will pay to the Landlord, in addition to any other amounts owing pursuant
to this Section 3.02, the excess, if any, of the separate school taxes over
public school taxes resulting from such election.
SECTION 3.03 - TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS
The Tenant shall pay to the Landlord as Additional Rent in accordance
with Section 3.07 the Proportionate Share of Operating Costs.
SECTION 3.04 - MANAGEMENT FEE
The Tenant shall pay to the Landlord as Additional Rent in accordance
with Section 3.07 the Management Fee.
SECTION 3.05 - TENANT'S TAXES
The Tenant shall pay to the appropriate and lawful taxing authorities,
or to the Landlord, as appropriate, and shall discharge when the same become due
and payable, all Tenant's Taxes.
SECTION 3.06 - TENANT'S RESPONSIBILITY
The Tenant shall promptly deliver to the Landlord copies of assessment
notices, tax bills and other documents received by the Tenant relating to Taxes
and Tenant's Taxes and receipts for payment of Taxes and Tenant's Taxes. The
Tenant shall not contest any Taxes or Tenant's Taxes or appeal any assessments
relating thereto without the Landlord's prior written approval, NOT TO BE
UNREASONABLY WITHHELD. If the Tenant obtains such approval, the Tenant shall
deliver to the Landlord such security for the payment of such Taxes or Tenant's
Taxes as the Landlord REQUIRES, ACTING REASONABLY, and the Tenant shall
diligently prosecute any such appeal or contestation to a speedy resolution and
shall keep the Landlord informed of its progress in that regard from time to
time.
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SECTION 3.07 - PAYMENT OF ESTIMATED TAXES, OPERATING COSTS & MANAGEMENT FEE
(a) The amounts payable by the Tenant pursuant to Sections 3.02,
3.03, 3.04 and 3.05 hereof may be estimated by the Landlord
for such period as the Landlord determines from time to time,
NOT EXCEEDING 12 MONTHS and the Tenant agrees to pay to the
Landlord the amounts so estimated in monthly instalments in
advance during such period as Additional Rent. Notwithstanding
the foregoing, as soon as bills for all or any portion of the
said amounts so estimated are received, the Landlord may bill
the Tenant for the Proportionate Share thereof and the Tenant
shall pay the Landlord such amounts so billed (less all
amounts previously paid on account by the Tenant on the basis
of the Landlord's estimate as aforesaid) as Additional Rent on
demand.
(b) Within ONE HUNDRED AND EIGHTY (180) DAYS after the end of the
period for which such estimated payments have been made, the
Landlord shall deliver to the Tenant a statement, CONTAINING
REASONABLE DETAIL, AND, CERTIFIED BY A SENIOR FINANCIAL
OFFICER OF THE LANDLORD AS HAVING BEEN CALCULATED IN
ACCORDANCE WITH THE LEASE, from the Landlord of the Operating
Costs, Taxes and Management Fee together with a calculation of
the Tenant's share of the costs and expenses payable to the
Landlord pursuant to Sections 3.02, 3.03, 3.04 and 3.05 and,
if necessary, an adjustment shall be made between the parties
in the following manner. If the Tenant has paid in excess of
the amounts due, the excess shall be refunded by the Landlord
within THIRTY (30) DAYS after the delivery of the said
statement. If the amount the Tenant has paid is less than the
amounts due, the Tenant agrees to pay such additional amounts
due WITHIN THIRTY (30) DAYS AFTER demand. If any fiscal year
during the Term is greater or less than any such period
determined by the Landlord as aforesaid, the Tenant's share of
the costs and expenses payable to the Landlord, pursuant to
Sections 3.02, 3.03, 3.04 and 3.05 shall be subjected to a per
diem, pro rata adjustment based upon a period of three hundred
and sixty-five (365) days. The obligations set out herein
shall survive the expiration of the Term or earlier
termination of this Lease. Failure of the Landlord to render
any statement of Taxes, Operating Costs and Management Fee
shall not prejudice the Landlord's right to render such
statement thereafter or with respect to any other period. The
rendering of any such statement shall also not affect the
Landlord's right to subsequently render an amended or
corrected statement WITHIN TWELVE (12) MONTHS THEREAFTER.
(c) THE AMOUNT PAYABLE BY THE TENANT PURSUANT TO SECTIONS 3.02,
3.03 AND 3.04 HEREOF HAVE BEEN ESTIMATED BY THE LANDLORD,
WITHOUT PREJUDICE, TO BE FIVE DOLLARS AND FORTY CENTS ($5.40)
PER SQUARE FOOT OF RENTABLE AREA OF THE LEASED PREMISES FOR
THE FIRST PERIOD ENDING OCTOBER 31, 1999, CALCULATED AS
FOLLOWS:
TAXES: $3.95 PER SQUARE FOOT OF RENTABLE AREA OF
THE LEASED PREMISES
OPERATING COSTS: $1.00 PER SQUARE FOOT OF RENTABLE AREA OF
THE LEASED PREMISES
MANAGEMENT FEE: $0.45 PER SQUARE FOOT OF RENTABLE AREA OF
THE LEASED PREMISES
TOTAL: $5.40 PER SQUARE FOOT OF RENTABLE AREA OF
THE LEASED PREMISES
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ARTICLE IV
COMPLEX - CONTROL AND SERVICES
SECTION 4.01 - CONTROL OF THE COMPLEX BY THE LANDLORD
The Landlord shall operate and maintain the Complex in a reasonable
and reputable manner as would a prudent landlord of a similar FIRST CLASS
industrial building LOCATED IN MISSISSAUGA, ONTARIO, having regard to size,
age and location.
The Complex is at all times subject to the exclusive control,
management and operation of the Landlord. Without limiting the generality of
the preceding sentence, the Landlord has the right, in its control,
management and operation of the Complex and by the establishment of Rules and
Regulations and general policies with respect to the operation of the Complex
or any part thereof at all times during the period when the Tenant is given
possession of the Leased Premises and throughout the Term to:
(a) construct improvements in or to the Complex and make
alterations and additions thereto, subtractions therefrom,
rearrangements thereof (including parking areas and all
entrances and exits to the Complex), build additional storeys
on the Complex and construct additional facilities adjoining
or proximate to the Complex;
(b) relocate or re-arrange the various facilities and improvements
comprising the Complex or erected on the Lands from those
existing at the Commencement Date;
(c) do and perform such other acts in and to the Complex as in the
use of good business judgment the Landlord determines to be
advisable for the more efficient and proper operations of the
Complex.
Notwithstanding anything contained in this Lease, it is understood
and agreed that if as a result of the exercise by the Landlord of its right
set out in this Section 4.01, the facilities in or improvements to the
Complex are diminished or altered in any manner whatsoever, the Landlord is
not subject to any liability, nor is the Tenant entitled to any compensation,
nor shall any such diminution or alteration of the facilities or improvements
in or to the Complex be deemed constructive or actual eviction, or a breach
of any covenant for quiet enjoyment contained in this Lease or implied by law
provided that the Landlord shall not materially impede access to the Leased
Premises OR MATERIALLY ADVERSELY AFFECT THE TENANT'S USE AND ENJOYMENT OF THE
LEASED PREMISES during the completion of any such work and provided further
that the Landlord shall complete all such work diligently and with due speed.
SECTION 4.02 - SUBSTITUTION
At any time, the Landlord may substitute for the Leased Premises or
any portion thereof other premises in the Complex (the "New Premises"), in
which event the New Premises shall be deemed to be the Leased Premises or
such portion for all purposes hereunder, provided that the New Premises shall
be similar in area and utility for the Tenant's purposes. If the Tenant is
occupying the Leased Premises at the time of such substitution, the Landlord
shall pay the reasonable expense of moving the Tenant, its property and
equipment to the New Premises and shall, at its sole cost, improve the New
Premises (or the new portion, as the case may be) with Leasehold Improvements
substantially similar to those located in the Leased Premises.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS SECTION 4.02, PROVIDED
THE TENANT IN OCCUPATION OF THE WHOLE OF THE LEASED PREMISES IS LOYALTY
MANAGEMENT GROUP CANADA INC., OR A PERMITTED TRANSFEREE PURSUANT TO SECTION
10.07A, THE LANDLORD SHALL HAVE NO RIGHT TO RELOCATE ALL OR PART OF THE
LEASED PREMISES DURING THE TERM OF THIS LEASE.
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ARTICLE V
UTILITIES AND ADDITIONAL SERVICES
SECTION 5.01 - CHARGES FOR UTILITIES
The Tenant shall be solely responsible for and shall promptly pay
for the cost of operating, repairing, maintaining, replacing and inspecting
the machinery and other facilities required for the heating, ventilating and
cooling of the Leased Premises and costs of electricity, water, steam, fuel,
power, telephone, sewer and other utilities applicable to the Leased Premises
on the basis of separate meters and otherwise on the basis of the Rentable
Area of the Leased Premises or estimated consumption within the Leased
Premises. The Landlord shall be entitled, acting equitably, to allocate to
the Leased Premises an Additional Service Cost (BUT WITHOUT MARK-UP BEYOND
THE COST THEREOF) for any Additional Service in respect of usage of ANY SUCH
UTILITY THAT IS NOT SEPARATELY METERED in the Leased Premises WHICH IS in
excess of AMOUNTS ALLOCATED ON THE BASIS OF AREA OR ESTIMATED CONSUMPTION.
The Tenant further covenants to heat the Leased Premises to a sufficient
temperature to prevent at all times, any damage to the Leased Premises and/or
building containing the Leased Premises and without limiting the generality
of the foregoing, to heat the Leased Premises so as to comply with any law,
order, requirement and/or regulations which from time to time govern the
heating thereof. Upon the request of the Landlord, the Tenant shall install
its own separate meter(s) for the Leased Premises at its own expense if so
requested by the Landlord.
SECTION 5.02 - ADDITIONAL SERVICES OF THE LANDLORD
Subject to Article 4 hereof, and excluding services supplied by the
Landlord and charged to the Tenant as Operating Costs, one hundred and
fifteen per cent (115 %) of the cost to the Landlord of all Additional
Services provided by the Landlord or its agent to the Tenant shall be payable
forthwith by the Tenant, upon demand by the Landlord, as an Additional
Service Cost. Such services shall include any services performed at the
Tenant's request including, without limitation, maintenance, repair,
janitorial or cleaning services, construction of additional Leasehold
Improvements and replacement of bulbs (including non-standard bulbs), tubes
and ballasts. Such services shall also include any services provided at the
Landlord's reasonable discretion including, without limitation, supervising
the movement of furniture, equipment, freight and supplies for the Tenant.
Additional Services provided by the Landlord or its agent on behalf of the
Tenant in respect of any of the Tenant's obligations set out in the Lease
which the Tenant fails to perform shall be ONE HUNDRED AND FIFTEEN PER CENT
(115%) of the cost to the Landlord.
SECTION 5.03 - THIRD PARTY SERVICES
Excluding services supplied by the Landlord and charged to the
Tenant as Operating Costs or as an Additional Service Cost, the Tenant shall
be solely responsible for, and promptly pay to the appropriate third party,
all charges for services used or consumed in or provided to the Leased
Premises, including, without limitation, rug shampooing, TELECOMMUNICATIONS
SERVICES, JANITORIAL SERVICES, pest control and other services not available
through the Landlord. In no event will the Landlord be liable to the Tenant
in damages or otherwise for any failure to supply any third-party services to
the Leased Premises.
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ARTICLE VI
USE OF LEASED PREMISES
SECTION 6.01 - USE OF THE LEASED PREMISES
The Leased Premises shall be used for the Type of Business of the
Tenant specified in Section 1.01(15), provided such purpose complies with all
applicable laws, by-laws, regulations or other governmental ordinances from
time to time in existence. The Leased Premises may not be used for any other
purposes. AS AT THE DATE OF EXECUTION OF THIS LEASE, THE LANDLORD REPRESENTS
THAT THE TYPE OF BUSINESS OF THE TENANT IS A PERMITTED USE UNDER EXISTING
MUNICIPAL LAND USE BY-LAWS THAT APPLY TO THE COMPLEX.
SECTION 6.02 - OBSERVANCE OF LAW
The Tenant shall at its sole cost and expense and, where applicable
in compliance with Sections 8.01 and 8.02 hereof promptly observe and comply
with all laws or requirements of all governmental authorities, including
federal, provincial and municipal legislative enactments, by-laws and other
regulations and all other authorities having jurisdiction, including fire
insurance underwriters, now or hereafter in force which pertain to or affect
the Leased Premises, the Tenant's use of the Leased Premises or the conduct
of any business in the Leased Premises, or the making of any repairs,
replacements, alterations, additions, changes, substitutions or improvements
of or to the Leased Premises. The Tenant shall carry out all modifications,
alterations or changes of or to the Leased Premises and the Tenant's conduct
of business in or use of the Leased Premises which are required by any such
authorities.
SECTION 6.03 - ENERGY CONSERVATION
Consistent with its obligations to keep the Leased Premises in good
repair, order and condition hereunder, the Tenant will at its cost comply
with all laws, by-laws, regulations and orders relating to the conservation
of energy affecting the Leased Premises and the conduct of business therein,
including compliance with all reasonable requests and demands of the Landlord
intended to achieve the conservation of energy.
SECTION 6.04 - ODOURS, DUST OR NOISE
The Tenant warrants that no noxious odours, dust or unreasonable
noise will emanate from the Leased Premises as a result of the operations
conducted by the Tenant therein and the Tenant further covenants that it will
not cause or maintain any nuisance in, at or on the Leased Premises and/or
the Lands. Accordingly, the Tenant agrees that should such noxious odours,
dust or noise conditions exist, the Tenant will, at its own expense, take
such steps as may be necessary to rectify the same, provided further that if
the Tenant shall fail to commence to do so within forty-eight (48) hours and
complete the same within a reasonable time after Notice is received by the
Tenant from the Landlord, then the Landlord may, at its option and without
prejudice to its other rights or recourses:
(i) notify Tenant by Notice that it must shut down all its
operations in the Leased Premises; and
(ii) the Landlord may proceed forthwith to take reasonable measures
to correct the situation and the Landlord shall be entitled to
cover the cost thereof from the Tenant forthwith upon demand
as an Additional Service Cost.
The LANDLORD AGREES TO USE REASONABLE EFFORTS TO OBTAIN SIMILAR
COVENANTS REGARDING ODOURS, DUST, NOISE AND NUISANCE FROM OTHER TENANTS OF
THE COMPLEX AND TO USE REASONABLE EFFORTS TO ENFORCE SUCH COVENANTS.
SECTION 6.05 - OBSTRUCTIONS
The sidewalks, entries, passage corridors and stairways shall not be
obstructed by the Tenant, its officers, agents, servants, employees or
customers or used for any other purposes than for ingress and egress to or
from the Leased Premises, and the Tenant shall save the Landlord harmless
from damages to persons or property because of any nuisance or other act
which shall obstruct the free movements of persons to, in and from the
building and Lands.
SECTION 6.06 - OUTSIDE AREAS
The Tenant shall not use any part of the exterior parking and
loading areas or any other areas outside the Leased Premises for any purpose
other than parking, shipping or receiving in the areas designated by the
Landlord from time to time for same. The Tenant shall not allow any type of
storage and/or transportation trailer belonging to or being used by or on
behalf of the Tenant to remain in such parking, shipping or receiving
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areas for any period of time longer than shall be necessary for the Tenant's
purposes and if any such vehicle has remained in any parking, shipping or
receiving areas for a period in excess of that required for the Tenant's
purposes, as determined by the Landlord acting reasonably, the Landlord shall
be entitled to have such trailer removed at the Tenant's sole cost as an
Additional Service. In addition, any damage caused to such parking, shipping
or receiving areas as a result of the presence of such trailer shall be
forthwith repaired by the Tenant, at the Tenant's sole cost or, at the
Landlord's option, shall be repaired by the Landlord and the costs thereof
shall be payable forthwith by the Tenant, upon demand by the Landlord, as an
Additional Service Cost.
SECTION 6.07 - ENVIRONMENTAL LAW
For the purposes of this Lease:
(a) "Environmental Law" means any law, by-law, order, ordinance,
ruling, regulation, certificate, approval, consent or
directive of any applicable federal, provincial or municipal
government, governmental department, agency or regulatory
authority or any court of competent jurisdiction, relating to
environmental matters and/or regulating the import, storage,
distribution, labelling, sale, use, handling, transport or
disposal of Hazardous Substances, including but not limited
to, the Environmental Protection Act (Ontario), as amended
from time to time;
(b) "Hazardous Substance" means any contaminant, pollutant,
dangerous substance, noxious substance, toxic substance,
hazardous waste, flammable or explosive material, radioactive
material, urea formaldehyde foam insulation, asbestos,
polychlorinated byphenyls, polychlorinated biphenyl waste,
polychlorinated biphenyl related waste, and any other
substance or material now or hereafter declared, defined or
deemed to be regulated or controlled in or pursuant to the
Environmental Law; and
(c) "Release" means any release, spill, emission, leakage,
pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration.
During the Term of this Lease:
(i) THE LANDLORD AND THE TENANT SHALL comply with all requirements
of the Environmental Law, and all other applicable laws,
by-laws, rules, regulations, orders, ordinances, whether
federal, provincial or municipal; and
(ii) THE TENANT SHALL conduct its business operation in the Leased
Premises in such a manner as to prevent the Release of any
Hazardous Substance in, on, under, over or at the Leased
Premises.
If the Tenant creates or brings to the Lands, Complex or the Leased
Premises any Hazardous Substances or if the conduct of the Tenant's business
shall cause there to be any Hazardous Substance at the Lands, the Complex or
the Leased Premises then, notwithstanding any rule of law to the contrary,
such Hazardous Substance shall be and remain the sole and exclusive property
of the Tenant and shall not become the property of the Landlord
notwithstanding the degree of affixation to the Leased Premises, Complex or
the Lands of the Hazardous Substance, and notwithstanding the expiry or
earlier termination of this Lease.
During the Term, and at the expiration of the Term of this Lease,
the Tenant shall, at the Tenant's sole cost and expense in accordance with
all requirements of the Environmental Law, remove any Hazardous Substance
CREATED OR BROUGHT TO THE LANDS, COMPLEX OR THE LEASED PREMISES BY THE TENANT.
IF THE LANDLORD CREATES OR BRINGS TO THE LANDS, COMPLEX OR THE
LEASED PREMISES ANY HAZARDOUS SUBSTANCE OR IF THE PERFORMANCE OF THE
LANDLORD'S OBLIGATIONS AS REQUIRED UNDER THIS LEASE SHALL CAUSE THERE TO BE
ANY HAZARDOUS SUBSTANCE AT THE LANDS, THE COMPLEX OR THE LEASED PREMISES
THEN, OR IF THERE IS ANY HAZARDOUS SUBSTANCE EXISTING IN, ON, UNDER, OVER OR
AT THE COMPLEX AS AT THE DATE HEREOF, IN EACH CASE SUCH HAZARDOUS SUBSTANCE
SHALL BE REMOVED AT THE EXPENSE OF THE LANDLORD IN ACCORDANCE WITH ALL
REQUIREMENTS OF ENVIRONMENTAL LAW.
THE LANDLORD WARRANTS THAT TO THE BEST OF ITS KNOWLEDGE AND BELIEF, THE
COMPLEX AND LEASED PREMISES CONTAINS NO HAZARDOUS SUBSTANCE AS AT THE
COMMENCEMENT DATE.
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ARTICLE VII
INSURANCE AND INDEMNITY
SECTION 7.01 - TENANT'S INSURANCE
(a) The Tenant shall throughout the period that the Tenant is
given possession of the Leased Premises and during the entire
Term, at its sole cost and expense, take out and keep in full
force and effect, the following insurance:
(i) all-risk property insurance (including but not
limited to sprinkler leakage, flood, earthquake and
collapse coverage) in an amount equal to the full
replacement cost thereof upon property of every
description and kind owned by the Tenant or for which
the Tenant is liable, or installed by or on behalf of
the Tenant and which is located within the Complex
including, without limitation, Leasehold
Improvements, tenant's fixtures, the Tenant's
stock-in-trade, furniture and personal property
provided that if there is a dispute as to the amount
which comprises full replacement cost, the decision
of the TENANT'S INSURER shall be conclusive;
(ii) business interruption insurance in such amount as
will reimburse the Tenant for direct or indirect loss
of earnings attributable to all perils insured
against in Section 7.01(a)(i) and other perils
commonly insured against by prudent tenants or
attributable to prevention of access to the Leased
Premises or the Complex as a result of such perils.
PROVIDED HOWEVER, THAT SO LONG AS THE TENANT IS
LOYALTY MANAGEMENT GROUP CANADA INC. OR A PERMITTED
TRANSFEREE PURSUANT TO SECTION 10.07A AND IS IN
OCCUPATION OF THE WHOLE OF THE LEASED PREMISES, THE
LANDLORD HEREBY AGREES THAT THE TENANT SHALL BE
PERMITTED AT ITS OPTION, TO SELF-INSURE WITH RESPECT
TO THE COVERAGE FOR THE INTERRUPTION OF ITS BUSINESS
REFERRED TO IN THIS SECTION 7.01(a)(ii), BUT IN THE
EVENT THAT IT DOES SO, THE TENANT SHALL BE DEEMED FOR
ALL PURPOSES UNDER THIS LEASE TO HAVE PLACED SUCH
INSURANCE AND BE MAINTAINING THE SAME;
(iii) comprehensive general and legal liability insurance,
including bodily injury, property damage and personal
injury liability, tenant's legal liability,
contractual liability and owners' and contractors'
protective insurance coverage with respect to the
Leased Premises and the Tenant's use of the Complex,
coverage to include the activities and operations
conducted by the Tenant and any other person for whom
the Tenant is in law responsible. Such policies shall
be written on a comprehensive basis with inclusive
limits of not less than FIVE MILLION DOLLARS
($5,000,000) for bodily injury to any one or more
persons or property damage, and such higher limits as
the Landlord OR THE MORTGAGEE, acting reasonably,
requires from time to time, and shall contain a
severability of interests clause and a
cross-liability clause;
(iv) if appropriate, broad form comprehensive boiler and
machinery insurance on a blanket repair and
replacement basis with limits for each accident in an
amount not less than the full replacement cost of all
Leasehold Improvements and of all boilers, pressure
vessels, air-conditioning equipment and miscellaneous
electrical apparatus owned or operated by the Tenant
or by others (other than the Landlord) on behalf of
the Tenant in or serving the Leased Premises;
(v) insurance required by reason of the introduction by
or on behalf of the Tenant or any occupant of the
Leased Premises, or any part thereof, of any
radioactive material or substance, into or on or
about the Leased Premises or on the Lands, or for any
other reason requiring special coverage; and
(vi) any other form of insurance which the Landlord,
acting reasonably, requires from time to time in
form, in amounts and for risks against which a
prudent tenant would insure.
(b) All policies shall:
(i) be taken out with insurers acceptable to the
Landlord, ACTING REASONABLY;
(ii) be in a form satisfactory from time to time to the
Landlord which form may include a reasonable
deductible, the amount of THAT A PRUDENT TENANT WOULD
ARRANGE;
(iii) be non-contributing with and shall apply only as
primary and not as excess to any other insurance
available to the Landlord or the Mortgagee;
(iv) not be invalidated as respects the interests of the
Landlord and of the Mortgagee by reason of any breach
or violation of any warranties, representations or
conditions contained in the policies;
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(v) contain an undertaking by the insurers to notify the
Landlord and the Mortgagee in writing not less than
thirty (30) days prior to any material change,
cancellation or termination thereof; and
(vi) name the Landlord and the Mortgagee as insured
parties, AS THEIR RESPECTIVE INTERESTS APPEAR and, in
respect of property damage insurance, incorporate the
Mortgagee's standard mortgage clause.
(c) Certificates of insurance on the Landlord's standard form or
if required by the Landlord or the Mortgagee certified copies
of each such insurance policy will be delivered to the
Landlord as soon as practicable after the placing of the
required insurance and in any event at least ten (10) days
prior to the effective date of coverage. Provided that no
review or approval of any such insurance certificate by the
Landlord shall derogate from or diminish the Landlord's rights
or the Tenant's obligations contained in this Article.
(d) If the Tenant fails to take out or keep in force any insurance
referred to in this Section 7.01, or should any such insurance
not be approved by either the Landlord or the Mortgagee and
should the Tenant not commence to diligently rectify (and
thereafter proceed to diligently rectify) the situation within
twenty-four (24) hours after written notice by the Landlord to
the Tenant (stating, if the Landlord or the Mortgagee does not
approve of such insurance, the reasons therefor), the Landlord
has the right without assuming any obligation in connection
therewith to effect such insurance at the sole cost of the
Tenant and all outlays by the Landlord shall be paid by the
Tenant to the Landlord on demand as Additional Rent without
prejudice to any other rights and remedies of the Landlord
under this Lease.
(e) The Tenant agrees that in the event of damage or destruction
to the Leasehold Improvements in the Leased Premises covered
by insurance pursuant to Section 7.01(a)(i), the Tenant shall
use the proceeds of such insurance for the purpose of
repairing or restoring such Leasehold Improvements. In the
event of damage to or destruction of the Complex entitling the
Landlord to terminate the Lease pursuant to Section 9.01(b) or
9.02, then if the Leased Premises have also been damaged or
destroyed and the Lease is terminated, the Tenant shall
forthwith pay to the Landlord all of its insurance proceeds
relating to the Leasehold Improvements in the Leased Premises
and if the Leased Premises have not been damaged or destroyed,
the Tenant shall upon demand deliver to the Landlord in
accordance with the provisions of this Lease the Leasehold
Improvements and the Leased Premises.
SECTION 7.02 - INCREASE IN INSURANCE PREMIUMS
The Tenant shall not keep, use, sell or offer to sell in or upon the
Leased Premises any article which may be prohibited by any fire insurance policy
in force from time to time covering the Leased Premises or the Complex. If:
(a) the occupation of the Leased Premises;
(b) the conduct of business in the Leased Premises; or
(c) any act or omission of the Tenant in the Complex or any part
thereof;
causes or results in any increase in premiums for the insurance carried from
time to time by the Landlord with respect to the Complex, the Tenant shall
pay any such increase in premiums as Additional Rent forthwith upon demand by
the Landlord. In determining whether increased premiums are caused by or
result from the use or occupancy of the Leased Premises, a schedule issued by
the organization computing the insurance rate on the Complex showing the
various components of such rate shall be conclusive evidence of the several
items and charges which make up such rate. The Tenant shall comply promptly
with all requirements of any insurer now or hereafter in effect pertaining to
or affecting the Leased Premises or the Complex.
SECTION 7.03 - CANCELLATION OF INSURANCE
If any insurance policy upon the Complex or any part thereof shall be
cancelled or shall be threatened by the insurer to be cancelled or the coverage
thereunder reduced in any way by the insurer by reason of the use or occupation
of the Leased Premises or any part thereof by the Tenant or by any assigns or
sub-tenant of the Tenant, or by anyone permitted by the Tenant to be upon the
Leased Premises, the Tenant shall remedy the condition giving rise to
cancellation, threatened cancellation or reduction of coverage within
twenty-four (24) hours after Notice thereof by the Landlord.
SECTION 7.04 - LOSS OR DAMAGE
The Landlord shall not be liable for any death or injury arising from
or out of any occurrence in, upon, at or relating to the Complex, or damage to
property of the Tenant or of others located on the Leased
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Premises or elsewhere in the Complex, nor shall it be responsible for any
loss of or damage to any property of the Tenant or others from any cause
whatsoever, except for any such death, injury, loss or damage which results
from the negligence of the Landlord, its agents, servants or employees or
other persons for whom it may in law be responsible and provided that in no
event shall the Landlord be responsible for any loss, injury or damage
contemplated by Section 7.07(b), or for any indirect or consequential damages
sustained by the Tenant or others. Without limiting the generality of the
foregoing but subject to the exceptions to the limitation of the liability of
the Landlord set out herein, the Landlord shall not be liable for any injury
or damage to persons or property resulting from fire, explosion, dampness,
falling plaster, falling ceiling tile, failing ceiling fixtures (including
part or all of the ceiling T grid system) and diffuser coverings, or from
steam, gas, electricity, water, rain, flood, snow or leaks from any rentable
premises or from the pipes, sprinklers, appliances, plumbing works, roof,
windows or subsurface of any floor or ceiling of the Complex or from the
street or any other place or by any other cause whatsoever. The Landlord
shall not be liable for any such damage caused by other tenants or persons in
the Complex or by occupants of adjacent property thereto, or the public, or
caused by construction or by any private, public or quasi-public work. All
property of the Tenant kept or stored on the Leased Premises shall be so kept
or stored at the risk of the Tenant only and the Tenant shall indemnify the
Landlord and save it harmless from any claims arising out of any damage to
the same including, without limitation, any subrogation claims by the
Tenant's insurers.
SECTION 7.05 - LANDLORD'S INSURANCE
The Landlord shall at all times throughout the Term carry:
(a) insurance on the Complex (excluding the foundations and
excavations) and the machinery, boilers and equipment
contained therein or servicing the Complex and owned by the
Landlord or the owners of the Complex (specifically excluding
any property with respect to which the Tenant and other
tenants are obliged to insure pursuant to Section 7.01 or
similar sections of their respective leases) against damage by
fire and extended perils or all-risks coverage IN AN AMOUNT
EQUAL TO THE FULL REPLACEMENT COST OF THE SUBJECT MATTER
THEREOF;
(b) public liability and property damage insurance with respect to
the Landlord's operations in the Complex;
(c) loss of rental income insurance, or loss of insurable gross
profits commonly insured against by prudent landlords FOR A
PERIOD OF NOT LESS THAN TWELVE (12) MONTHS, including loss of
all rentals receivable from tenants in the Complex in
accordance with the provisions of their leases, including
basic and additional rentals; and
(d) such other form or forms of insurance as the Landlord or the
Mortgagee reasonably considers advisable.
Such insurance shall be in such reasonable amounts and with such
reasonable deductibles as would be carried by a prudent owner of a reasonably
similar industrial building, having regard to size, age and location WITH A
FINANCIALLY SOLVENT INSURER. Notwithstanding the Landlord's covenant
contained in this Section 7.05, and notwithstanding any contribution by the
Tenant to the cost of insurance premiums provided herein, the Tenant
acknowledges and agrees that no insurable interest is conferred upon the
Tenant under any policies of insurance carried by the Landlord, and the
Tenant has no right to receive any proceeds of any such insurance policies
carried by the Landlord.
SECTION 7.06A - INDEMNIFICATION OF THE LANDLORD
Except as provided in Section 7.07(a) but notwithstanding any other
provision of this Lease, the Tenant agrees to protect, indemnify and save
each of the Landlord and its officers, employees and agents completely
harmless from and against:
(i) any loss (including loss of Basic Rent and Additional Rent),
claims, actions, damages, liability and expenses in connection
with loss of life, personal injury, damage to property or any
other loss or injury whatsoever arising out of this Lease, or
any occurrence in, upon or at the Leased Premises, or the
occupancy or use by the Tenant of the Leased Premises or any
part thereof, or occasioned wholly or in part by any act or
omission of the Tenant or by anyone permitted to be on the
Leased Premises by the Tenant; and
(ii) any Environmental Claim, directly or indirectly incurred,
sustained or suffered by or asserted against the Landlord
and/or its officers, employees and agents caused by or
attributable to, either directly or indirectly, any act or
omission of the Tenant and/or any other person for which the
Tenant is in law responsible prior to or during the Term of
this Lease.
For the purposes of this Lease, "Environmental Claim" means any claims,
losses, costs, expenses, fines, penalties, payments and/or damages (including
without limitation, all reasonable solicitors' fees on a solicitor and his own
client basis) relating to, arising out of, resulting from or in any way
connected with the Release (as such term is defined in Section 6.07 of this
Lease) in, on, over, upon or from the Leased Premises of
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any Hazardous Substance (as such term is defined in Section 6.07 of this
Lease) including, without limitation, all costs and expenses of any
remediation or restoration of the Leased Premises and/or the Lands required
or mandated by the Environmental Law (as such term is defined in Section 6.07
of this Lease).
If the Landlord shall, without fault on its part, be made a party of
any litigation commenced by or against the Tenant, then the Tenant shall
protect, indemnify and hold the Landlord harmless and shall pay all costs,
expenses and reasonable legal fees incurred or paid by the Landlord in
connection with such litigation. The Tenant shall also pay all costs,
expenses and legal fees that may be incurred or paid by the Landlord in
reasonably enforcing the terms, covenants and conditions in this Lease unless
a court of law having jurisdiction shall decide otherwise.
SECTION 7.06B - INDEMNIFICATION OF THE TENANT
NOTWITHSTANDING ANY OTHER TERMS, COVENANTS AND CONDITIONS CONTAINED
IN THIS LEASE EXCEPT SECTION 7.07(b), THE LANDLORD SHALL INDEMNIFY THE TENANT
AND SAVE IT HARMLESS FROM AND AGAINST ANY AND ALL LOSS, CLAIMS, ACTIONS,
DAMAGES, LIABILITIES AND EXPENSES IN CONNECTION WITH LOSS OF LIFE, PERSONAL
INJURY, DAMAGE TO PROPERTY OR ANY OTHER LOSS OR INJURY WHATSOEVER ARISING
FROM OR OUT OF THIS LEASE, OR ANY OCCURRENCE IN, UPON OR AT THE COMPLEX
(EXCLUDING THE LEASED PREMISES SUBJECT TO SECTION 7.04) OCCASIONED WHOLLY OR
IN PART BY ANY ACT OR OMISSION OF THE LANDLORD OR BY ANYONE FOR WHOM THE
LANDLORD IS IN LAW RESPONSIBLE. IF THE TENANT SHALL, WITHOUT FAULT ON ITS
PART, BE MADE A PARTY TO ANY LITIGATION COMMENCED BY OR AGAINST THE LANDLORD,
THEN THE LANDLORD SHALL PROTECT, INDEMNIFY AND HOLD THE TENANT HARMLESS AND
SHALL PAY ALL COSTS, EXPENSES AND REASONABLE LEGAL FEES INCURRED OR PAID BY
THE TENANT IN CONNECTION WITH SUCH LITIGATION. THE LANDLORD SHALL ALSO PAY
ALL REASONABLE COSTS, EXPENSES AND LEGAL FEES (ON A SOLICITOR AND HIS CLIENT
BASIS) THAT MAY BE INCURRED OR PAID BY THE TENANT IN REASONABLY ENFORCING THE
TERMS, COVENANTS AND CONDITIONS IN THIS LEASE.
SECTION 7.07 - LIMITATIONS OF LIABILITY
(a) The Tenant shall not be liable to the Landlord in respect of
any loss, injury or damage insured by the Landlord under
Sections 7.05(a) and (c); and
(b) The Landlord shall not be liable to the Tenant in respect of
any loss, injury or damage to property insured or required to
be insured by the Tenant under Sections 7.01(a)(i), (ii) and
(iv).
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ARTICLE VIII
MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 8.01 - MAINTENANCE AND REPAIRS BY THE TENANT
(a) Subject to Sections 9.01 and 9.02, the Tenant shall at all
times at its sole cost, keep and maintain the Leased Premises
and every part thereof, including all facilities, equipment
and services, in a clean and tidy condition and will not
permit waste paper, garbage, ashes, waste, debris or other
objectionable material to accumulate thereon or therein and
the Tenant will not use any outside garbage or other
containers (other than those approved or designated by the
Landlord) and the Tenant shall arrange for removal and
disposal of waste and garbage at its sole expense. The Tenant,
at its sole cost and expense, shall renew, rebuild, replace,
operate, maintain, paint and keep the Leased Premises and
every part thereof, INCLUDING BUT NOT LIMITED TO all
equipment, fixtures, appurtenances used in or about the Leased
Premises, including plumbing, electrical, heating, cooling,
and other facilities and systems during the Term of this
Lease, in good repair and first class condition, as a careful
and prudent owner would do. Subject to Section 8.03 and in
accordance with Section 8.02, the Tenant shall promptly make
all necessary repairs, structural and non-structural, capital
and non-capital, ordinary and extraordinary, foreseen as well
as unforeseen (excluding only such reasonable wear and tear as
would not be repaired by a careful and prudent owner and
except for repairs to the roof and bearing walls of the Leased
Premises except if caused by the negligent act or negligence
of the Tenant or those for whom the Tenant is in law
responsible).
(b) The Tenant shall examine the Leased Premises before taking
possession thereof and unless the Tenant furnishes the
Landlord with a notice in writing specifying any defect in the
construction of the Leased Premises within THIRTY (30) days
after such taking of possession, the Tenant shall conclusively
be deemed to have examined the Leased Premises, to have agreed
that they are in order, and such taking of possession without
the giving of such notice as aforesaid within such THIRTY (30)
day period is conclusive evidence against the Tenant that at
the time thereof the Leased Premises were in good order and
satisfactory condition, subject to latent defects, if any. The
Tenant agrees that there is no promise, representation or
undertaking by or binding upon the Landlord with respect to
the use of the Leased Premises or any alteration, remodelling
or redecorating of or installation of equipment or fixtures in
the Leased Premises, except such, if any, as are expressly set
forth in this Lease or the Agreement to Lease.
(c) The Tenant acknowledges that it will not enter, nor permit or
suffer any person to enter upon the roof of the building
containing the Leased Premises or make any opening in the roof
without the prior written consent of the Landlord.
(d) The Tenant covenants and agrees that it shall, at its sole
cost and expense, at all times during the Term of the Lease,
obtain and maintain an inspection and maintenance service
contract or contracts in relation to the mechanical systems in
the Leased Premises including, without limitation, the
heating, ventilation and cooling systems, as a prudent owner
would obtain and maintain. Copies of such inspection and
maintenance service contract or contracts will be delivered to
the Landlord as soon as practicable after the obtaining of the
required contract or contracts.
(e) The Tenant covenants and agrees that it shall not allow,
without the prior written consent of the Landlord, first had
and obtained, in the Landlord's sole discretion, any
protrusions from the Leased Premises for any reason
whatsoever, such control to the Landlord to protect the
aesthetics thereof and for the benefit of its own interest and
the interest of other tenants of the Lands and other persons
in or about the Lands. Should, however, such protrusion exist,
the Tenant shall indemnify the Landlord against any loss or
damage caused to any person, firm, corporation or thing as a
result of the same and the Tenant covenants and agrees that it
shall, at the request of the Landlord, remove the same or if
not removed within ten (10) days of request, then the Landlord
shall have the right to remove same and all costs and expenses
incurred shall be immediately payable by the Tenant to the
Landlord as an Additional Service Cost.
(f) In addition to the specific obligations elsewhere in this
Lease reserved and contained on the part of the Tenant to be
observed and performed and without in any way limiting the
generality thereof, the condition, maintenance, operation and
management of the Leased Premises, and other improvements
thereon or therein from time to time, including without
limitation all machinery, equipment and other facilities
therein or thereon, shall be the sole responsibility of the
Tenant, throughout the Term hereof and the Tenant shall make
all payments, foreseen, unforeseen, ordinary and/or
extraordinary, required to be made not only with respect to
the observance and performance of such specific obligations
but also with respect to the general obligation in this clause
contained.
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SECTION 8.02 - LANDLORD'S APPROVAL OF THE TENANT'S REPAIRS
(a) During the Term of this Lease or any renewal or extension
hereof, the Tenant shall not make any repairs, replacements,
Leasehold Improvements or install trade fixtures in any part
of the Leased Premises without first obtaining the Landlord's
written approval, such approval not to be unreasonably
withheld, and in connection therewith the Tenant shall, prior
to commencing any such work, submit to the Landlord:
(i) for its prior approval (NOT TO BE UNREASONABLY
WITHHELD OR DELAYED) details of the proposed work,
including drawings and specifications prepared by
qualified architects or engineers and conforming to
good engineering practice;
(ii) such indemnification against liens, costs, damages
and expenses (including its OUT-OF POCKET costs and
expenses REASONABLY incurred, or which may be
incurred, in reviewing the proposed work and
supervising its completion) and such insurance
coverages as the Landlord REASONABLY requires; and
(iii) evidence satisfactory to the Landlord that the Tenant
has obtained at its expense all necessary consents,
permits, licences and inspections from all
governmental and regulatory authorities having
jurisdiction.
(b) All such repairs, replacements, Leasehold Improvements or
trade fixtures made or installed by the Tenant in the Leased
Premises and approved by the Landlord shall be performed:
(i) with first class materials owned by the Tenant at the
sole cost of the Tenant;
(ii) by competent workmen whose labour union affiliations
are compatible with others employed by the Landlord
and its contractors;
(iii) in a good and workmanlike manner;
(iv) in accordance with the drawings and specifications
approved by the Landlord; and
(v) subject to the reasonable regulations, supervision,
controls and inspection of the Landlord.
(c) If any such repairs, replacements, Leasehold Improvements or
trade fixtures would affect the structure of the Complex, or
any of the electrical, mechanical or other base building
systems or their warranties, such work shall, at the option of
the Landlord, be performed by the Landlord as an Additional
Service. If such would affect such warranties, the LANDLORD
may reasonably refuse to allow such work to be done. Upon
completion thereof, and thereafter, to the extent requiring
ongoing maintenance, repair or replacement, the Tenant shall
pay to the Landlord the Additional Service Cost in respect
thereof. THE COST OF WORK PERFORMED FOR THE TENANT BY OR ON
BEHALF OF THE LANDLORD IN THIS SUB-SECTION (c) SHALL BE
COMPETITIVE WITH COSTS CHARGED FOR SIMILAR OR COMPARABLE WORK
CARRIED OUT BY COMPARABLE BUILDINGS IN THE CITY OF
MISSISSAUGA.
(d) In respect of repairs, alterations or replacements of or to
the Leased Premises thereafter during the Term, the Tenant
shall pay to the Landlord, as Additional Rent, THE
OUT-OF-POCKET ARCHITECTS' AND ENGINEERS' FEES AND COSTS AND
ALL OTHER OUT-OF-POCKET FEES AND COSTS INCURRED BY THE
LANDLORD WITH RESPECT TO SUCH REPAIRS, ALTERATIONS OR
REPLACEMENT OF OR TO THE LEASED PREMISES. In addition, any
cost or expense of the Landlord in providing garbage removal
to the Complex and, if the Landlord's architects and engineers
responsible for the Complex are not retained by the Tenant to
complete any improvements in the Leased Premises affecting the
structure of the Complex or any of the electrical, mechanical
or other base building systems or their warranties, any cost
or expense of the Landlord's architects and engineers in
respect of approval of plans, and supervision and/or
inspection of such work, will each be payable by the Tenant as
Additional Rent upon being invoiced by the Landlord.
SECTION 8.03 - MAINTENANCE AND REPAIRS BY THE LANDLORD
(a) The Landlord agrees with the Tenant to MAINTAIN AND keep in a
good and reasonable state of repair, and consistent with the
general standards of FIRST CLASS industrial buildings of
comparable age in the immediate area of the Complex, but
subject to Sections 9.01 and 9.02, and with the exception of
reasonable wear and tear:
(i) those portions of the Complex consisting of the
courts, concourses, lobbies, landscaped areas,
entrances, PARKING AREAS and other facilities from
time to time provided for common use and enjoyment,
and the exterior portions of all buildings and
structures from time to time forming part of the
Complex and affecting its general appearance;
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(ii) those portions of the Complex (other than the Leased
Premises and premises of other tenants) comprising
the Common Use Equipment, the entrances, stairways,
corridors and lobbies; and
(iii) the structural members or elements of the Leased
Premises, including its foundations, roof and
structural portions of exterior walls, except for
repairs caused by the negligent act or negligence of
the Tenant or those for whom the Tenant is in law
responsible.
(b) Subject to Sections 9.01 and 9.02, the Landlord agrees with
the Tenant to repair Insured Damage.
(c) The Tenant acknowledges and agrees that the Landlord is not
liable for any damages, direct, indirect or consequential, or
for damages for personal discomfort, illness or inconvenience
of the Tenant or the Tenant's servants, clerks, employees,
invitees or other persons by reason of failure of any
equipment, facilities or systems servicing the Complex or of
reasonable delays in the performance of any repairs,
replacements and maintenance for which the Landlord is
responsible pursuant to this Lease and no such delay shall
entitle the Tenant to any compensation or abatement whatsoever
SO LONG AS THE LANDLORD MAKES ALL NECESSARY REPAIRS AND
REPLACEMENTS DILIGENTLY AFTER BECOMING AWARE OF THE NEED FOR
SAME.
(d) If the Tenant refuses or neglects to carry out any repairs
properly required to be carried out by it under this Lease
and to the reasonable satisfaction of the Landlord, the
Landlord may, but shall not be obliged to, make such repairs
without being liable for any loss or damage that may result to
the Tenant's merchandise, fixtures or other property or to the
Tenant's business by reason thereof and upon completion
thereof, the Tenant shall pay to the Landlord the Additional
Service Cost in respect thereof.
SECTION 8.04 - SURRENDER OF THE LEASED PREMISES
At the expiration of the Term or earlier termination of this Lease, the
Tenant shall peaceably surrender and yield up the Leased Premises to the
Landlord in as good condition and repair as the Tenant is required to maintain
the Leased Premises throughout the Term, REASONABLE WEAR AND TEAR EXCEPTED and
the Tenant shall surrender all keys for the Leased Premises to the Landlord at
the place then fixed for the payment of rent and shall inform the Landlord of
all combinations of locks, safes and vaults, if any, in the Leased Premises. The
Tenant shall, however, remove all of its trade fixtures if requested by the
Landlord as provided in Section 8.08 hereof before surrendering the Leased
Premises as aforesaid. The Tenant's obligation under this covenant shall survive
the expiration of the Term or earlier termination of this Lease.
SECTION 8.05 - REPAIR WHERE THE TENANT IS AT FAULT
Save for the limitation of liability contained in Section 7.07(a) but
notwithstanding any other provision of this Lease, if the Complex or any part
thereof, or any equipment, machinery, facilities or improvements contained
therein or made thereto, or the roof or outside walls of the Complex or any
other structural portions thereof require repair or replacement or become
damaged or destroyed by reason of any act, omission to act, neglect or default
of the Tenant or those for whom the Tenant is in law responsible or through any
of them in any way stopping up or damaging the climate control, heating
apparatus, water pipes, drainage pipes or other equipment or facilities or parts
of the Complex, the cost of the resulting repairs, replacements or alterations
shall be an Additional Service Cost to the Tenant.
SECTION 8.06 - TENANT NOT TO OVERLOAD FACILITIES
The Tenant shall not install any equipment which will alter, exceed or
overload the capacity of any utility, electrical or mechanical facilities in the
Leased Premises, and the Tenant will not bring into the Leased Premises or
install any utility, electrical or mechanical facility or service which the
Landlord does not approve. The Tenant agrees that if any changes proposed or
used by the Tenant requires additional utility, electrical or mechanical
facilities, the Landlord may, in its sole discretion, if they are available,
elect to install them in accordance with plans and specifications to be approved
in advance in writing by the Landlord and the cost thereof shall be an
Additional Service Cost to the Tenant.
SECTION 8.07 - TENANT NOT TO OVERLOAD FLOORS
The Tenant shall not bring upon the Complex or the Leased Premises or
any part thereof any machinery, equipment, article or thing that by reason of
its weight, size or use might in the opinion of the Landlord damage the Complex
or the Leased Premises and shall not at any time overload the floors of the
Leased Premises.
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SECTION 8.08 - REMOVAL AND RESTORATION BY TENANT
(a) All Leasehold Improvements shall immediately become the
property of the Landlord upon affixation or installation
without compensation therefor to the Tenant, but the Landlord
is under no obligation to repair, maintain or insure any
Leasehold Improvements. Leasehold Improvements and trade
fixtures shall not be removed from the Leased Premises either
during or at the expiration or earlier termination of the Term
except that:
(i) the Tenant may during the Term in the usual or normal
course of its business and without the prior written
consent of the Landlord remove its trade fixtures,
and provided that the Tenant is not THEN in default
under this Lease; and
(ii) the Tenant shall, immediately prior to the expiration
of the Term and at its own cost, remove all trade
fixtures and repair any damage to the Leased Premises
caused by their installation and removal, failing
which such may be completed by the Landlord as an
Additional Service to the Tenant. THE TENANT SHALL
NOT BE RESPONSIBLE FOR RESTORATION OF THE LEASED
PREMISES OR REMOVAL OF ITS LEASEHOLD IMPROVEMENTS IN
THE LEASED PREMISES AT THE EXPIRY OR EARLIER
TERMINATION OF THIS LEASE OR ANY EXTENSIONS; HOWEVER,
THIS DOES NOT ABSOLVE THE TENANT FROM ITS
RESPONSIBILITY TO REPAIR DAMAGE AND MAINTAIN THE
LEASED PREMISES IN GOOD REPAIR, SUBJECT TO REASONABLE
WEAR AND TEAR, AS REQUIRED BY THE TERMS OF THIS
LEASE.
(b) If the Tenant does not remove its trade fixtures at the
expiration or earlier termination of the Term, the trade
fixtures shall, at the option of the Landlord, become the
property of the Landlord and, as an Additional Service to the
Tenant, may be removed from the Leased Premises and sold or
disposed of by the Landlord in such manner as it deems
advisable.
All property of the Tenant remaining on the Leased Premises THIRTY (30) DAYS
after the termination of the tenancy shall be deemed to have been abandoned by
the Tenant in favour of the Landlord and may be disposed of by the Landlord at
its discretion without prejudice to the rights of the Landlord to claim damages
from the Tenant for failure to remove the same.
SECTION 8.09 - NOTICE BY THE TENANT
The Tenant shall when it becomes aware of same notify the Landlord by
Notice of any damage to or deficiency or defect in any part of the Complex,
including the Leased Premises, any equipment or utility systems or any
installations located therein notwithstanding the fact that the Landlord may
have no obligations with respect to same.
SECTION 8.10 - TENANT TO DISCHARGE ALL LIENS
The Tenant shall at all times during the period that the Tenant is
engaged in the construction or installation of its improvements or has been
given possession of the Leased Premises and throughout the Term promptly pay all
its architects, engineers, contractors, materialmen, suppliers and workmen and
all charges incurred by or on behalf of the Tenant for any work, materials or
services which may be done, supplied or performed at any time in respect of the
Leased Premises and the Tenant shall do any and all things necessary so as to
ensure that no lien is registered against the Complex or any part thereof or
against the Landlord's interest in the Leased Premises and if any lien is made,
filed or registered, the Tenant shall discharge OR VACATE it or cause it to be
discharged forthwith at the Tenant's expense.
If the Tenant fails to discharge or cause any such lien to be
discharged as aforesaid, then in addition to any other right or remedy of the
Landlord, the Landlord may but it shall not be obligated to discharge OR VACATE
the same by paying the amount claimed to be due into Court and the amount so
paid by the Landlord and all costs and expenses, including reasonable legal fees
(on a solicitor and his client basis) incurred as a result of the registration
of any such lien shall be immediately due and payable by the Tenant to the
Landlord as Additional Rent on demand.
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SECTION 8.11 - SIGNS AND ADVERTISING
THE LANDLORD SHALL PERMIT THE TENANT TO INSTALL PROMINENT FASCIA
SIGNAGE ON THE NORTH AND SOUTH SIDES OF THE COMPLEX (AT THE TENANT'S SOLE
EXPENSE) AND SHALL WORK WITH THE TENANT TO ASSIST THE TENANT IN OBTAINING ANY
AND ALL REQUIRED PERMITS FOR SUCH SIGNAGE. THE DESIGN OF THE TENANT'S SIGNAGE
SHALL BE IN ACCORDANCE WITH THE LANDLORD'S SIGN CRITERIA FOR THE COMPLEX AND THE
TENANT'S SPECIFICATIONS AND THE PRECISE LOCATION SHALL BE SUBJECT TO THE
LANDLORD'S APPROVAL, NOT TO BE UNREASONABLY WITHHELD OR DELAYED. ALL SIGNAGE
SHALL BE SUBJECT TO THE APPROVAL OF THE CITY OF MISSISSAUGA. Other than such
identification signs, the Tenant shall not paint, affix or display any sign,
picture, advertisement, notice, lettering or decoration on any part of the
Complex or the Leased Premises for exterior view without the prior written
consent of the Landlord which consent may be unreasonably withheld. Any such
signs shall remain the property of the Tenant and shall be maintained at the
Tenant's sole cost and expense. At the expiration of the Term or earlier
termination of this Lease, the Tenant shall remove any such sign, picture,
advertisement, notice, lettering or decoration from the Leased Premises at the
Tenant's expense and shall promptly repair all damage caused by any such
installation and removal failing which such may be performed by the Landlord as
an Additional Service to the Tenant. The Tenant's obligation to observe and
perform this covenant shall survive the expiration of the Term or earlier
termination of this Lease. In the event that the Landlord provides and installs
a pylon board for the Complex, the Tenant shall be entitled at its expense as an
Additional Service to have its name shown upon such pylon board. The Landlord
shall design the style of such pylon board and shall in its own discretion
determine the location of the same.
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ARTICLE IX
DAMAGE AND DESTRUCTION
SECTION 9.01 - DESTRUCTION OF THE LEASED PREMISES
(a) If the Leased Premises are at any time destroyed or damaged
(including, without limitation, smoke and water damage) as a
result of fire, the elements, accident or other casualty
required to be insured against by the Landlord pursuant to
Section 7.05 hereof or otherwise insured against by the
Landlord, and if as a result of such occurrence:
(i) the Leased Premises are rendered untenantable only in
part, this Lease shall continue in full force and
effect and the Landlord shall, subject to Sections
9.01(b) and 9.02(a) hereof, commence diligently to
reconstruct, rebuild or repair the Leased Premises to
the extent only of its obligations under Section
8.03, and if the damage is such that the portion of
the Leased Premises rendered untenantable is not
reasonably capable of use and occupancy by the Tenant
for the purposes of its business, Rent shall abate
proportionately to the portion of the Leased Premises
rendered untenantable from and after THE DATE OF THE
DAMAGE AND DESTRUCTION and until the Landlord's
repairs have been completed;
(ii) the Leased Premises are rendered wholly untenantable,
this Lease shall continue in full force and effect
and the Landlord shall, subject to Sections 9.01(b)
and 9.02(a) hereof, commence diligently to
reconstruct, rebuild or repair the Leased Premises to
the extent only of its obligations under Section 8.03
and Rent shall abate entirely from and after THE DATE
OF SUCH DAMAGE AND DESTRUCTION and until the
Landlord's repairs have been completed;
(iii) the Leased Premises are not rendered untenantable in
whole or in part, this Lease shall continue in full
force and effect, the Rent and other amounts payable
by the Tenant shall not terminate, be reduced or
abate and the Landlord shall, subject to Sections
9.01(b) and 9.02(a) hereof, commence diligently to
reconstruct, rebuild or repair the Leased Premises to
the extent only of its obligations under Section
8.03.
(b) Notwithstanding anything contained in Section 9.01(a), if the
Leased Premises are damaged or destroyed by any cause
whatsoever, and if, in the opinion of the Landlord reasonably
arrived at, the Leased Premises cannot be reconstructed,
rebuilt or repaired and made fit for the purposes of the
Tenant within one hundred and eighty (180) days of the
happening of the damage or destruction, the Landlord, instead
of reconstructing, rebuilding or repairing the Leased Premises
in accordance with Section 9.01(a), OR THE TENANT may at its
option elect to terminate this Lease by giving to the OTHER
PARTY Notice of termination within forty-five (45) days after
such damage or destruction, and thereupon Rent and other
payments for which the Tenant is liable under this Lease shall
be apportioned and paid to the date of such damage or
destruction, and the Tenant shall immediately deliver up
vacant possession of the Leased Premises to the Landlord in
accordance with the terms of this Lease.
(c) Upon the Tenant being given Notice by the Landlord that the
Landlord's reconstruction, rebuilding or repairs have been
substantially completed, the Tenant shall forthwith complete
all repairs to the Leased Premises which are the Tenant's
responsibility under Section 8.01 and all other work required
to fully restore the Leased Premises for business in every
case at the Tenant's cost and without any contribution to such
cost by the Landlord, whether or not the Landlord has at any
time made any contribution to the cost of supply, installation
or construction of Leasehold Improvements in the Leased
Premises. The Tenant shall diligently complete the Tenant's
repairs within sixty (60) days after notice that the
Landlord's reconstructing, rebuilding or repairs have been
substantially completed.
(d) Nothing in this Section 9.01 requires the Landlord to rebuild
the Leased Premises in the condition and state that existed
before any such occurrence, provided that the Leased Premises
as rebuilt will have reasonably similar facilities and
services to those in the Leased Premises prior to the damage
or destruction having regard, however, to the age of the
Complex at such time.
SECTION 9.02 - DESTRUCTION OF THE COMPLEX
(a) Notwithstanding anything contained in this Lease and
specifically notwithstanding the provisions of Section 9.01
hereof, if all or any part of the Complex is damaged or
destroyed by any cause whatsoever (irrespective of whether the
Leased Premises are damaged or destroyed) and if, in the
opinion of the Landlord reasonably arrived at, such area of
the Complex so damaged or destroyed cannot be rebuilt or made
fit for the purposes of such space within ninety (90) days of
the happening of the damage or destruction; then and so often
as any of such events occur, the Landlord may, at its option
(to be exercised by Notice to the Tenant within forty-five
(45) days
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following any such occurrence), elect to terminate this Lease.
In the case of such election, the Term and the tenancy hereby
created shall expire upon the forty-fifty (45th) day after
such notice is given, without indemnity or penalty payable by,
or any other recourse against the Landlord, and the Tenant
shall, within such forty-five (45) day period, vacate the
Leased Premises and surrender them to the Landlord, with the
Landlord having the right to re-enter and repossess the Leased
Premises discharged of this Lease and to expel all persons and
remove all property therefrom. Rent shall be due and payable
without deduction or abatement subsequent to the destruction
or damage and until the date of termination, unless the Leased
Premises shall have been destroyed or damaged as well, in
which event Section 9.01 shall apply.
(b) If all or any part of the Complex is at any time destroyed or
damaged as set out in Section 9.02(a), and the Landlord does
not elect to terminate this Lease in accordance with the
rights hereinbefore granted, the Landlord shall, following
such destruction or damage, commence diligently to
reconstruct, rebuild or repair, if necessary, that part of the
Complex which was damaged or destroyed, but only to the extent
of the Landlord's responsibilities pursuant to the terms of
the various leases for the premises in the Complex and
exclusive of any tenant's responsibilities set out therein. If
the Landlord elects to repair, reconstruct or rebuild the
Complex or any part thereof, the Landlord may repair,
reconstruct or rebuild according to plans and specifications
and working drawings other than those used in the original
construction of the Complex or any part thereof.
SECTION 9.03 - ABROGATION - INTENTIONALLY DELETED
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ARTICLE X
TRANSFER AND SALE
SECTION 10.01 - ASSIGNING AND SUBLETTING
The Tenant will not enter into, consent to or permit a Transfer without
the prior written consent of the Landlord in each instance, which consent shall
not be unreasonably withheld, but shall be subject to the Landlord's rights
under Section 10.02. Notwithstanding any statutory provision to the contrary, it
shall not be considered unreasonable for the Landlord to take into account the
following factors in deciding whether to grant or withhold its consent:
(a) whether any such Transfer is in violation or breach of any
covenants or restrictions granted by the Landlord to its
Mortgagee, other tenants or occupants or prospective tenants
or occupants in the Complex;
(b) whether in the Landlord's opinion the financial background,
business history and capability of the proposed transferee is
satisfactory;
(c) whether the Landlord has other premises in the Complex which
might be suitable for the needs of the proposed person or
entity to whom the Transfer is being made;
(d) whether the proposed person or entity to whom the Transfer is
being made is an existing tenant in the Complex (i) THAT
REQUIRES EXPANSION PREMISES IN THE COMPLEX AND THE LANDLORD
HAS OTHER PREMISES IN THE COMPLEX SUITABLE FOR THE NEEDS OF
THE PROPOSED TRANSFEREE, AND (ii) WHOSE LEASE OF SPACE IN THE
COMPLEX IS EXPIRING AND THE TENANT HAS THE LEASED PREMISES OR
A PORTION THEREOF AVAILABLE FOR SUBLEASE OR ASSIGNMENT THAT
WOULD BE SUITABLE FOR THE NEEDS OF THE PROPOSED TRANSFEREE;
and
(e) whether any such Transfer provides for Rent which is less than
the Rent payable under this Lease, OR, IF A SUBLETTING, THE
RENT PAYABLE UNDER THE SUBLEASE IS LESS THAN FAIR MARKET RENT
FOR SUBLET PREMISES.
The consent by the Landlord to any Transfer, if granted, shall not
constitute a waiver of the necessity for such consent to any subsequent
Transfer, whether by the Tenant or any sublessee of the Tenant. This prohibition
against a Transfer is construed so as to include a prohibition against any
Transfer by operation of law and no Transfer shall take place or be deemed to
have been consented to or approved by reason of a failure by the Landlord to
give notice to the Tenant within FIFTEEN (15) days as required by Section 10.02.
SECTION 10.02 - LANDLORD'S RIGHT TO TERMINATE
The Tenant shall not effect a Transfer unless:
(a) it shall have received or procured a bona fide written offer
to effect a Transfer which is not inconsistent with, and the
acceptance of which would not breach any provision of this
Lease if this Section 10.02 is complied with and which the
Tenant has accepted subject only to compliance with this
Section 10.02, and
(b) it shall have first requested and obtained the consent in
writing of the Landlord thereto.
Any request for such consent shall be in writing and accompanied by
a true copy of such offer, and the Tenant shall furnish to the Landlord all
information available to the Tenant and requested by the Landlord as to the
responsibility, reputation, financial standing and business of the proposed
person or entity to whom the Transfer is being made. The Landlord shall
within FIFTEEN (15) days after having received such notice and all such
necessary information, notify the Tenant in writing either that:
(i) it consents or does not consent to the Transfer in accordance
with the provisions and qualifications in this Article X, or
(ii) it elects to terminate this Lease in preference to giving such
consent.
If the Landlord elects to terminate this Lease it shall stipulate in
its notice the date of termination of this Lease, which date shall be no less
than thirty (30) days nor more than ninety (90) days following the giving of
such notice of termination. If the Landlord elects to terminate this Lease as
aforesaid, the Tenant shall notify the Landlord in writing within five (5)
days thereafter of the Tenant's intention either to refrain from such
Transfer or to accept the termination of this Lease. If the Tenant fails to
deliver such notice within such period of five (5) days or notifies the
Landlord that it accepts the Landlord's termination, this Lease will thereby
be terminated on the date of termination stipulated by the Landlord in its
notice. If the Tenant advises the Landlord it intends to refrain from such
Transfer, the Landlord's election to terminate this Lease as aforesaid shall
become null and void in such instance.
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SECTION 10.03 - CONDITIONS OF TRANSFER
(a) If there is a permitted Transfer WHICH IS AN ASSIGNMENT, the
Landlord may collect rent from the transferee and apply the
net amount collected to the Rent required to be paid pursuant
to this Lease, but no acceptance by the Landlord of any
payments by the transferee shall be deemed a waiver of the
provisions of Article X hereof or the acceptance of the
transferee as tenant or a release of the Tenant from the
further performance by the tenant of the covenants or
obligations on the part of the Tenant herein contained. Any
consent by the Landlord shall be subject to the Tenant
executing and causing any such transferee to promptly execute
an agreement directly with the Landlord agreeing SAVE AND
EXCEPT FOR PAYMENT OF BASIC RENT IN THE CASE OF A SUBLETTING,
to be bound by all of the terms, covenants and conditions
contained in this Lease as if such transferee had originally
executed this Lease as tenant.
(b) Notwithstanding any such Transfer permitted or consented to by
the Landlord, the Tenant shall be jointly and severally liable
with the transferee under this Lease and shall not be released
from performing any of the terms, covenants and conditions of
this Lease.
(c) The Tenant agrees that if this Lease is ever disclaimed or
terminated in a bankruptcy proceeding relating to a
transferee, or if the Landlord terminates this Lease as a
result of any act or default of any transferee, the Tenant
shall, at the Landlord's option exercised by Notice to the
Tenant, enter into a new lease of the Leased Premises on terms
identical to this Lease for a term commencing on the date
which the Landlord exercises its right to require the Tenant
to enter into such new lease and expiring upon the date of
expiry of this Lease; in such event, the Tenant will accept
the Leased Premises in an "as is" condition.
(d) The Landlord's consent to any Transfer shall be subject to the
condition that the Basic Rent payable by the transferee
thereafter shall be the greater of (i) the Basic Rent payable
hereunder or (ii) the Basic Rent payable under the Transfer
agreement.
(e) Any document evidencing CONSENT TO any Transfer permitted by
the Landlord or setting out any terms applicable to such
Transfer or the rights and obligations of the Tenant or the
transferee thereunder, shall be prepared by the Landlord or
its solicitors, and all reasonable legal and other costs with
respect thereto shall be paid by the Tenant to the Landlord or
its solicitors forthwith upon demand as Additional Rent,
together with an administrative fee payable to the Landlord in
the amount of Three Hundred Dollars ($300).
SECTION 10.04 - NO ADVERTISING OF THE LEASED PREMISES
The Tenant shall not print, publish, post, display or broadcast any
notice or advertisement or otherwise advertise the whole or any part of the
Leased Premises for the purpose of any Transfer and it shall not permit any
broker or other person to do any of the foregoing, unless the complete text and
format of any such notice or advertisement is first approved in writing by the
Landlord WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD. Without in any way
restricting or limiting the Landlord's right to refuse any text or format on
other grounds, any text or format proposed by the Tenant shall not contain any
reference to the Rent of and for the Leased Premises.
SECTION 10.05 - CORPORATE OWNERSHIP
If the Tenant is a corporation or partnership or if the Landlord has
consented to a Transfer to a corporation or a partnership, any actual or
proposed Change of Control in such corporation (other than that occurring as the
result of trading in shares listed upon a recognized stock exchange where such
trading is not for the purpose of acquiring effective control) or partnership
shall be deemed to be a Transfer and subject to all of the provisions of this
Article X.
The Tenant shall make available to the Landlord, or its
representatives, all of its corporate or partnership books and records, as the
case may be, for inspection at all reasonable times, to enable the Landlord to
ascertain whether there has been any Change of Control of the Tenant from time
to time. Similarly, any Indemnifier shall make the same information available to
the Landlord in respect of its records and, if there shall be a Change of
Control of the Indemnifier the Landlord may terminate this Lease upon notice to
the Tenant unless it consents to such Change of Control.
For the purposes of this Section, "Change of Control" means the
transfer or issue by sale, assignment, transmission on death, encumbrance,
issuance from treasury, operation of law or otherwise, of any shares, voting
rights or interest which would result in any change in the identity of the
person or entity exercising, or who might exercise, effective control of the
corporation or partnership and, in the case of a partnership, includes a change
in any of its partners.
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NOTWITHSTANDING THE FOREGOING, THE PROVISIONS OF THIS SECTION 10.05
SHALL NOT APPLY PROVIDED THAT:
(a) THE TENANT IN OCCUPANCY OF THE WHOLE OF THE LEASED PREMISES IS
LOYALTY MANAGEMENT GROUP CANADA INC. OR A PERMITTED TRANSFEREE
PURSUANT TO SECTION 10.07A;
(b) THE TENANT IS NOT IN DEFAULT UNDER THE LEASE; AND
(c) LOYALTY MANAGEMENT GROUP CANADA INC. IS NOT RELEASED FROM ITS
OBLIGATIONS UNDER THE LEASE.
SECTION 10.06 - ASSIGNMENT BY THE LANDLORD
The Landlord, at any time and from time to time, may sell, transfer,
lease, assign or otherwise dispose of the whole or any part of its interest in
the Complex, and at any time and from time to time may enter into any Mortgage
of the whole or any part of its interest in the Complex. If the party acquiring
such interest shall have agreed, so long as it holds such interest, to assume
and to perform each of the covenants, obligations and agreements of the Landlord
under this Lease in the same manner and to the same extent as if originally
named as the Landlord in this Lease, the Landlord shall thereupon be released
from all of its covenants and obligations under this Lease.
SECTION 10.07 - TRANSFER WITHOUT CONSENT
A. NOTWITHSTANDING ANYTHING CONTAINED IN THIS ARTICLE X AND
PROVIDED THAT:
(a) THE TENANT IS LOYALTY MANAGEMENT GROUP CANADA INC.;
(b) THE TENANT IS NOT IN DEFAULT UNDER THE LEASE;
(c) ANY PROPOSED TRANSFEREE DIRECTLY COVENANTS WITH THE LANDLORD
TO BE BOUND BY THE TERMS OF THE LEASE SAVE AND EXCEPT FOR THE
PAYMENT OF BASIC RENT IN THE CASE OF A SUBLETTING;
(d) LOYALTY MANAGEMENT GROUP CANADA INC. IS NOT RELEASED FROM ITS
OBLIGATIONS UNDER THE LEASE;
(e) THE LANDLORD RECEIVES PRIOR NOTICE OF SUCH TRANSFER; AND
(f) THE LANDLORD AND THE TENANT SHALL HAVE EXECUTED THE LEASE
THE TENANT SHALL NOT REQUIRE THE CONSENT OF THE LANDLORD PURSUANT TO
SECTION 10.02 HEREOF WITH RESPECT TO A TRANSFER PROVIDED THE TRANSFEREE
IS AN AFFILIATE (AS SUCH TERM IS DEFINED IN THE ONTARIO BUSINESS
CORPORATIONS ACT) OF THE TENANT. IN THE CASE OF ANY SUCH ASSIGNMENT OR
SUBLETTING UNDER THIS SECTION 10.07A, IF, AS AND WHEN THE TRANSFEREE
CEASES TO BE AN AFFILIATE OF LOYALTY MANAGEMENT GROUP CANADA INC., THE
TENANT SHALL BE DEEMED TO HAVE EFFECTED A TRANSFER AT THAT TIME TO
WHICH THE PROVISIONS OF THIS ARTICLE X SHALL APPLY.
B. NOTWITHSTANDING ANYTHING CONTAINED IN THIS ARTICLE X AND
PROVIDED THAT:
a) THE TENANT IS LOYALTY MANAGEMENT GROUP CANADA INC. OR A
PERMITTED TRANSFEREE PURSUANT TO SECTION 10.07A;
b) THE TENANT IS NOT IN DEFAULT UNDER THE LEASE;
c) LOYALTY MANAGEMENT GROUP CANADA INC. IS NOT RELEASED FROM ITS
OBLIGATIONS UNDER THE LEASE; AND
d) THE LANDLORD AND THE TENANT SHALL HAVE EXECUTED THE LEASE
THE TENANT SHALL NOT REQUIRE THE CONSENT OF THE LANDLORD PURSUANT TO
SECTION 10.02 HEREOF WITH RESPECT TO A TRANSFER PROVIDED THAT THE
TRANSFEREE IS A LENDER ENCUMBERING ALL OR SUBSTANTIALLY ALL OF THE
TENANT'S LEASEHOLD INTERESTS IN CANADA, PROVIDED THAT THE RIGHTS OF
SUCH LENDER TO TRANSFER THIS LEASE SHALL BE SUBJECT TO THE PROVISIONS
OF THIS ARTICLE X.
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ARTICLE XI
ACCESS AND ALTERATIONS
SECTION 11.01 - RIGHT OF ENTRY
The Landlord and its agents have the right to enter the Leased Premises
at all times to examine the same and to make such repairs, alterations, changes,
checks, adjustments, calibrations, improvements or additions to the Leased
Premises or the Complex or any part thereof or systems therein or any adjacent
to the Leased Premises. The Tenant shall not obstruct any pipes, conduits,
ducts, mechanical shafts or electrical equipment so as to prevent reasonable
access thereto.
SECTION 11.02 - RIGHT TO SHOW LEASED PREMISES
The Landlord and its agents have the right to enter the Leased Premises
at all times during Business Hours to show them to prospective purchasers,
lessees or Mortgagees and during the twelve (12) months prior to the expiration
of the Term, the Landlord may place upon the Leased Premises the usual "For
Rent" notices which the Tenant shall permit to remain thereon without
molestation or complaint.
SECTION 11.03 - ENTRY NOT FORFEITURE
No entry into the Leased Premises or anything done therein by the
Landlord pursuant to a right granted by this Lease shall constitute a breach of
any covenant for quiet enjoyment, or (except where expressed by the Landlord in
writing) shall constitute a re-entry or forfeiture, or any actual or
constructive eviction. The Tenant shall have no claim for injury, damages or
loss suffered as a result of any such entry or thing done by the Landlord. The
Rent required to be paid pursuant to this Lease shall not abate or be reduced
due to loss or interruption of business of the Tenant or otherwise while any
repairs, alterations, changes, adjustments, improvements or additions permitted
by this Lease are being made by the Landlord.
SECTION 11.04 - LANDLORD'S COVENANT FOR QUIET ENJOYMENT
The Landlord hereby agrees to perform or cause to be performed all of
the obligations of the Landlord under this Lease, and further agrees that if the
Tenant pays the Basic Rent and Additional Rent and continuously performs all its
obligations under this Lease, the Tenant shall, subject to the terms and
conditions of this Lease, peaceably possess and enjoy the Leased Premises
throughout the Term without any interruption or disturbance from the Landlord or
any other person or persons lawfully claiming by, through or under the Landlord.
SECTION 11.05 - INSPECTION
The Landlord and its agents have the right to enter the Leased Premises
ON REASONABLE PRIOR NOTICE TO THE TENANT to inspect the condition thereof and
where an inspection reveals repairs are necessary that are the obligation of the
Tenant under this Lease, the Landlord may give the Tenant Notice and thereupon
the Tenant will, at the Tenant's sole expense and within THIRTY (30) days of the
giving of such Notice, complete the necessary repairs and replacements, in a
good and workmanlike manner to the satisfaction of the Landlord, acting
reasonably. Provided always that if the Tenant shall not within the TEN (10)
days after the giving of such Notice OR SUCH GREATER LENGTH OF TIME AS MAY BE
REASONABLY NECESSARY IN THE CIRCUMSTANCES, be proceeding diligently with the
execution of the repairs and replacements mentioned in such Notice, it shall be
lawful for the Landlord to enter upon the Leased Premises and execute such
repairs and replacements and the cost thereof shall immediately be due and be
paid by the Tenant to the Landlord as an Additional Service Cost.
Notwithstanding what is hereinbefore set out, should such inspection reveal
repairs which are the obligation of the Tenant and which in the reasonable
exercise of the Landlord's judgment result in an emergency then the Landlord, at
its option, shall immediately and without Notice have the right to enter on and
into the Leased Premises and the Tenant shall pay the reasonable costs involved
immediately upon demand as an Additional Service Cost.
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ARTICLE XII
STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 12.01 - STATUS STATEMENT
(1) Within ten (10) days after request by Notice therefor by the Landlord,
the Tenant shall deliver, in a form supplied by the Landlord, a status statement
or a certificate to the Landlord, or to the Mortgagee, or to any proposed
Mortgagee or purchaser, or as the Landlord may otherwise direct stating (if such
is the case):
(a) that this Lease is unmodified and in full force and effect (or
if there have been modifications, that this Lease is in full
force and effect as modified and identifying the modification
agreements);
(b) the Commencement Date;
(c) the date to which Basic Rent and Additional Rent have been
paid under this Lease;
(d) TO THE BEST OF THE KNOWLEDGE OF THE TENANT (OR THE LANDLORD AS
THE CASE MAY BE) whether there is any other existing or
alleged default by either party under this Lease with respect
to which a notice of default has been served and if there is
any such default, specifying the nature and extent thereof;
(e) whether there are any defences or counterclaims against
enforcement of the obligations to be performed by the Tenant
under this Lease; and
(f) INTENTIONALLY DELETED.
(2) WITHIN TEN (10) BUSINESS DAYS AFTER REQUEST THEREFOR BY NOTICE BY THE
TENANT, THE LANDLORD SHALL DELIVER A STATUS STATEMENT OR CERTIFICATE TO THE
TENANT, OR TO ANY PROPOSED TRANSFEREE, OR AS THE TENANT MAY DIRECT, STATING (IF
SUCH IS THE CASE) THOSE MATTERS SET OUT IN SECTION 12.01 (1) (a) TO (e),
inclusive.
SECTION 12.02 - SUBORDINATION AND ATTORNMENT
SUBJECT TO THE PROVISIONS OF THE FOLLOWING PARAGRAPH OF THIS SECTION
12.02, it is a condition of this Lease and the Tenant's rights granted hereunder
that this Lease and all of the rights hereunder are and shall at all times be
subject and subordinate to any and all Mortgages from time to time in existence
against the Lands. Upon request, the Tenant shall subordinate the Lease and all
of its rights hereunder in such form as the Landlord reasonably requires to any
and all Mortgages, and to all advances made or hereafter to be made upon the
security thereof and, if requested, the Tenant shall attorn to the holder
thereof. Any subordination will provide that the rights of the Tenant under this
Lease shall not be interfered with so long as the Tenant is not in default
hereunder. The form of such subordination shall be as required by the Landlord
or any Mortgagee.
The Landlord shall use reasonable efforts to obtain a non-disturbance
agreement in writing from any Mortgagee. such non-disturbance agreement shall be
provided to the Tenant, provided the Tenant is not then in material default, the
Tenant having been provided sufficient Notice of such default with an adequate
opportunity to rectify same, as provided in the Lease, and shall entitle the
Tenant to remain undisturbed in its possession of the Leased Premises subject to
the terms and conditions of this Lease, notwithstanding the exercise of any and
all of the rights of any such Mortgagee and the Tenant shall not be bound to
subordinate or postpone to any future Mortgage unless a non-disturbance
agreement is provided.
SECTION 12.03 - ATTORNEY - INTENTIONALLY DELETED
SECTION 12.04 - FINANCIAL INFORMATION
ONLY IN THE EVENT OF ARREARS OF RENT, the Tenant shall, upon
request, provide the Landlord with such information as to the Tenant's or any
Indemnifier's financial standing and corporate organization as the Landlord
or the Mortgagee requires. Failure by the Tenant to comply with the
Landlord's request herein shall constitute a default under the terms of this
Lease and the Landlord shall be entitled to exercise all of its rights and
remedies provided for in this Lease.
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SECTION 12.05 - ACKNOWLEDGEMENT OF TITLE
The Tenant acknowledges that its interest under this Lease is
subject to:
(a) covenants, restrictions, easements, agreements and
reservations of record, and any easements, licences,
rights-of-way and cost sharing arrangements and agreements
respecting the same hereafter made in connection with the
provision of access or services to the Complex or otherwise in
connection with the Common Facilities and which may affect the
Landlord's title;
(b) all laws, by-laws, ordinances, regulations and orders of the
City of Mississauga, Province of Ontario and Government of
Canada, and of all statutory commissions, boards and bodies
having jurisdiction over the Leased Premises;
(c) the condition of the Landlord's tide existing at the date
hereof; and
(d) municipal realty taxes, local improvement rates, duties,
assessments, water and sewer rates and other impositions
accrued or unaccrued.
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ARTICLE XIII
DEFAULT
SECTION 13.01 - RIGHT TO RE-ENTER
If and whenever:
(a) the Tenant fails to pay any Basic Rent or Additional Rent or
other sums due hereunder on the day or dates appointed for the
payment thereof (providing the Landlord first gives five (5)
days' Notice to the Tenant of any such failure); or
(b) the Tenant fails to observe or perform any other of the terms,
covenants or conditions of this Lease to be observed or
performed by the Tenant (other than the terms, covenants or
conditions set out below in subparagraphs (c) to (1),
inclusive, for which no Notice shall be required), provided
the Landlord first gives the Tenant ten (10) BUSINESS days'
(or such shorter period of time as is otherwise provided
herein) Notice of any such failure to perform and the Tenant
within such period of ten (10) BUSINESS days (or such shorter
period, as aforesaid) fails to commence diligently and,
thereafter, to proceed diligently to cure any such failure to
perform; or
(c) the Tenant or any agent of the Tenant FRAUDULENTLY falsifies
any report or statement required to be furnished to the
Landlord pursuant to this Lease PROVIDED THE LANDLORD FIRST
GIVES THE TENANT TEN (10) BUSINESS DAYS NOTICE OF ANY SUCH
FAILURE AND THE TENANT WITHIN SUCH TEN (10) BUSINESS DAYS
FAILS TO CURE SUCH REPORT OR STATEMENTS; or
(d) the Tenant or any Indemnifier of this Lease or any person
occupying the Leased Premises or any part thereof or any
licensee, concessionaire or franchisee operating any business
in the Leased Premises becomes bankrupt or insolvent or takes
the benefit of any act now or hereafter in force for bankrupt
or insolvent debtors or files any proposal or makes any
assignment for the benefit of creditors or any arrangement or
compromise; or
(e) a receiver or a receiver and manager is appointed for all or a
portion of the property of the Tenant, any Indemnifier or any
such occupant, licensee, concessionaire or franchisee AND SUCH
APPOINTMENT IS NOT CONTESTED IN GOOD FAITH or a material
adverse change in the financial status of the Indemnifier
occurs; or
(f) any steps are taken or any action or proceedings are
instituted by the Tenant or by any other party including,
without limitation, any court or governmental body of
competent jurisdiction for the dissolution, winding-up or
liquidation of the Tenant or its assets OTHER THAN IN
CONNECTION WITH A BONA FIDE CORPORATE REORGANIZATION OF THE
TENANT; or
(g) the Tenant makes a sale in bulk of any of its assets wherever
situate (other than a bulk sale made pursuant to a permitted
Transfer hereunder and pursuant to the Bulk Sales Act of
Ontario); or
(h) the Tenant abandons or attempts to abandon the Leased
Premises; or
(i) the Leased Premises become and remain vacant for a period of
five (5) consecutive days or are used by any persons other
than such as are entitled to use them hereunder PROVIDED THAT
IF THE TENANT GIVES NO LESS THAN THIRTY (30) DAYS' PRIOR
NOTICE TO THE LANDLORD, SUCH NOTICE STATING THE TENANT'S
BUSINESS REASONS FOR VACATING THE LEASED PREMISES AND
CONTAINING AN ACKNOWLEDGEMENT THAT THE TENANT IS NOT RELEASED
FROM ITS OBLIGATIONS UNDER THE LEASE, THE TENANT MAY SO
VACATE; or
(j) the Tenant purports to make a Transfer, except in a manner
permitted by this Lease; or
(k) this Lease or any of the Tenant's assets IN THE LEASED
PREMISES are taken under any writ of execution AND SUCH TAKING
IS NOT CONTESTED IN GOOD FAITH; or
(l) re-entry is permitted under any other terms of this Lease
then and in every such case, the Landlord, in addition to any other rights or
remedies it has pursuant to this Lease or by law, has the immediate right of
re-entry upon the Leased Premises and it may repossess the Leased Premises and
enjoy them as of its former estate and may expel all persons and remove all
property from the Leased Premises and such property may be removed and sold or
disposed of by the Landlord as it deems advisable or may be stored in a public
warehouse or elsewhere at the cost and for the account of the Tenant, all
without service of notice or resort to legal process and without the Landlord
being considered guilty of trespass or becoming liable for any loss or damage
which may be occasioned thereby.
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SECTION 13.02 - RIGHT TO RE-LET
If the Landlord elects to re-enter the Leased Premises as herein
provided or it takes possession pursuant to legal proceedings or pursuant to any
notice provided for by law, it may either terminate this Lease or it may from
time to time without terminating this Lease, make such alterations and repairs
as are necessary to re-let the Leased Premises or any part thereof for such term
or terms (which may be for a term extending beyond the Term) and at such rent
and upon such other terms, covenants and conditions as the Landlord in its sole
discretion, acting reasonably, considers advisable. Upon each such reletting,
all rent received by the Landlord from such re-letting shall be applied, first,
to the payment of any indebtedness other than Basic Rent or Additional Rent due
hereunder from the Tenant to the Landlord; second, to the payment of any
brokerage fees and legal fees and of costs of such alterations, repairs and
re-letting (including tenant inducements); third, to the payment of Basic Rent
and Additional Rent due and unpaid hereunder; and the residue, if any, to the
extent applicable to any period of time within the Term, shall be held by the
Landlord and applied in payment of future rent as the same becomes due and
payable hereunder. If such rent to be received from such re-letting during any
month is less than that to be paid during that month by the Tenant hereunder,
the Tenant shall pay any such deficiency which shall be calculated and paid
monthly in advance on or before the first day of each and every month. No such
re-entry or taking possession of the Leased Premises by the Landlord shall be
construed as an election on its part to terminate this Lease unless a Notice of
such intention is given to the Tenant. Notwithstanding any such re-letting
without termination, the Landlord may at any time thereafter elect to terminate
this Lease for such previous breach.
SECTION 13.03 - TERMINATION
If the Landlord at any time terminates this Lease for any breach, in
addition to any other remedies it may have, it may recover from the Tenant all
damages it incurs by reason of such breach, including the cost of recovering the
Leased Premises, legal fees (on a solicitor and his client basis) and including
the worth at the time of such termination of the excess, if any, of the amount
of Basic Rent, Additional Rent and charges equivalent to the Basic Rent,
Additional Rent and other charges required to be paid pursuant to this Lease for
the remainder of the stated Term over the then reasonable rental value of the
Leased Premises for the remainder of the stated Term, all of which amounts shall
be immediately due and payable by the Tenant to the Landlord. THE LANDLORD SHALL
USE ALL REASONABLE EFFORTS TO MITIGATE ITS DAMAGES.
SECTION 13.04 - ACCELERATED RENT
In any of the events referred to in Section 13.01, in addition to any
and all other rights available to the Landlord, the full amount of the current
month's instalment of Basic Rent and of all Additional Rent for the current
month, together with the next three (3) months' instalments of Basic Rent and of
all Additional Rent for the next three (3) months, all of which shall be deemed
to be accruing due on a day-to-day basis, shall immediately become due and
payable as accelerated rent, and the Landlord may immediately distrain for the
same, together with any arrears then unpaid.
SECTION 13.05 - EXPENSES
If legal action is brought for recovery of possession of the Leased
Premises, for the recovery of Basic Rent or Additional Rent or any other amount
due under the Lease, or because of the breach of any other terms, covenants or
conditions herein contained on the part of the Tenant to be kept or performed,
and such breach is established, the Tenant shall pay to the Landlord all
expenses incurred therefor, including legal fees (on a solicitor and client
basis).
SECTION 13.06 - WAIVER OF EXEMPTION FROM DISTRESS
The Tenant hereby agrees with the Landlord that notwithstanding
anything contained in Section 30 of R.S.O. 1990, c. L. 7, or any Statute
subsequently passed to take the place of or amend the said Act, none of the
goods and chattels of the Tenant at any time during the continuance of the Term
on the Leased Premises shall be exempt from levy by distress for Basic Rent or
Additional Rent in arrears and the Tenant waives any such exemption. If any
claim is made for such exemption by the Tenant or if a distress is made by the
Landlord, this provision may be pleaded as an estoppel against the Tenant in any
action brought to test the right of the Landlord to levy such distress.
SECTION 13.07 - LANDLORD MAY CURE TENANT'S DEFAULT OR
PERFORM TENANT'S COVENANTS
If the Tenant fails to pay when due any amounts or charges required to
be paid pursuant to this Lease, the Landlord after giving five (5) days' Notice
to the Tenant may, but shall not be obligated to, pay all or any part of the
same. If the Tenant is in default in the performance of any of its covenants or
obligations hereunder (other than the payment of Basic Rent, Additional Rent or
other sums required to be paid pursuant to this Lease), the Landlord may, but
shall not be obligated to, from time to time after giving such Notice as is
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REQUIRED BY THIS LEASE (or without notice in the case of an emergency) having
regard to the circumstances applicable, perform or cause to be performed any of
such covenants or obligations, or any part thereof, and for such purpose may do
such things as may be required, including, without limitation, entering upon the
Leased Premises and doing such things upon or in respect of the Leased Premises
or any part thereof as the Landlord reasonably considers requisite or necessary.
All OUT-OF-POCKET expenses incurred and expenditures made pursuant to this
Section 13.07 including the Landlord's overhead in connection therewith plus a
sum equal to FIFTEEN (15%) thereof shall be paid by the Tenant as Additional
Rent forthwith upon demand.
SECTION 13.08 - ADDITIONAL RENT
If the Tenant is in default in the payment of any amounts or charges
required to be paid pursuant to this Lease, they shall, if not paid when due, be
collectible as Additional Rent forthwith on demand, but nothing herein contained
is deemed to suspend or delay the payment of any amount of money at the time it
becomes due and payable hereunder, or limit any other remedy of the Landlord.
The Tenant agrees that the Landlord may, at its option, apply or allocate any
sums received from or due to the Tenant against any amounts due and payable
hereunder in such manner as the Landlord sees fit. All such monies payable to
the Landlord hereunder shall bear interest at a rate per annum which is THREE
(3) percentage points in excess of the Bank Rate calculated on a daily basis
from the time such sums become due until paid by the Tenant.
SECTION 13.09 - REMEDIES GENERALLY
Mention in this Lease of any particular remedy of the Landlord in
respect of the default by the Tenant does not preclude the Landlord from any
other remedy in respect thereof, whether available at law or in equity or by
statute or expressly provided in this Lease. No remedy shall be exclusive or
dependant upon any other remedy, but the Landlord may from time to time exercise
any one or more of such remedies generally or in combination, such remedies
being cumulative and not alternative. In the event of a breach or threatened
breach by THE LANDLORD or the Tenant of any of the covenants, provisions or
terms hereof, the Landlord OR THE TENANT shall have the right to invoke any
remedy allowed at law or in equity (including injunction).
SECTION 13.10 - HOLDING OVER
If the Tenant shall hold over after the original Term or any
extended term hereof WITHOUT the consent of the Landlord, such holding over
shall be construed to be a tenancy from month to month only and shall have no
greater effect, any custom, statute, law or ordinance to the contrary
notwithstanding. Such month-to-month tenancy shall be governed by the terms
and conditions hereof, notwithstanding any statutory provision or rule of law
to the contrary. During any such period of holding over, the Tenant shall be
required to pay the monthly Basic Rent payable during the month immediately
preceding the expiration or termination of this Lease times ONE HUNDRED AND
FIFTY PERCENT (150%), plus all Additional Rent payable hereunder. The rights
of the Landlord under this section shall be in addition to all other remedies
available to the Landlord under this Lease or otherwise at law or in equity
arising as a result of such holding over.
SECTION 13.11 - NO WAIVER
The failure of the Landlord to insist upon a strict performance of any
of the covenants and provisions herein contained shall not be deemed a waiver of
any rights or remedies that the Landlord may have and shall not be deemed a
waiver of any subsequent breach or default in the covenants and provisoes herein
contained.
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ARTICLE XIV
MISCELLANEOUS
SECTION 14.01 - RULES AND REGULATIONS
The Landlord shall have the right at its discretion to make reasonable
rules and regulations (the "Rules and Regulations"), including without
limitation, those set out in Schedule "C" attached not contrary to the spirit
and intent of this Lease which may from time to time be needful for the safety,
care, cleanliness and proper administration of the Complex including the Leased
Premises, and for the preservation of good order therein. The Rules and
Regulations are hereby made a part of this Lease as if they were embodied
herein, and the Tenant, its agents, invitees, servants, employees and licensees
shall comply with and observe the same. Failure by the Tenant to keep and
observe any of the Rules and Regulations now or from time to time in force
constitutes a default under this Lease in such manner as if the same were
contained herein as covenants. The Landlord reserves the right from time to time
to amend or supplement the Rules and Regulations and Notice of the Rules and
Regulations and amendments and supplements, if any, shall be given to the Tenant
and the Tenant shall thereupon comply with and observe all such Rules and
Regulations, provided that no Rule or Regulation shall contradict any terms,
covenants and conditions of this Lease.
The Landlord is not responsible to the Tenant in the event of
non-observance or violation of any of such Rules and Regulations or of the
terms, covenants or conditions of any other lease of the premises in the Complex
BUT SHALL USE REASONABLE EFFORTS TO enforce any such Rules and Regulations or
terms, covenants or conditions AGAINST ALL TENANTS OF THE COMPLEX.
SECTION 14.02 - SECURITY DEPOSIT
The Landlord acknowledges receipt from the Tenant of the Security
Deposit which shall BE HELD BY THE LANDLORD IN AN INTEREST BEARING ACCOUNT (WITH
INTEREST ACCRUING TO THE BENEFIT OF THE TENANT) AS SECURITY FOR THE FAITHFUL
PERFORMANCE BY THE TENANT OF ALL OF THE TERMS, COVENANTS, CONDITIONS AND
OBLIGATIONS OF THE LEASE BY THE TENANT TO BE KEPT, OBSERVED AND PERFORMED FOR
THE FIRST TWO (2) YEARS OF THE TERM. IF AT ANY TIME DURING THE FIRST TWO (2)
YEARS OF THE TERM, THE BASIC RENT OR ADDITIONAL RENT OR ANY OTHER SUMS PAYABLE
BY THE TENANT TO THE LANDLORD UNDER THE LEASE ARE OVERDUE AND UNPAID, OR IF THE
TENANT FAILS TO KEEP AND PERFORM ANY OF THE TERMS, COVENANTS, CONDITIONS AND
OBLIGATIONS OF THIS LEASE TO BE KEPT, OBSERVED AND PERFORMED BY THE TENANT, THEN
THE LANDLORD AT ITS OPTION MAY APPROPRIATE AND APPLY THE SECURITY DEPOSIT, OR SO
MUCH THEREOF AS IS NECESSARY TO COMPENSATE THE LANDLORD FOR LOSS OR DAMAGE
SUSTAINED OR SUFFERED BY THE LANDLORD DUE TO SUCH BREACH ON THE PART OF THE
TENANT. IF THE SECURITY DEPOSIT, OR ANY PORTION THEREOF, IS APPROPRIATED AND
APPLIED BY THE LANDLORD FOR THE PAYMENT OF OVERDUE BASIC RENT OR ADDITIONAL RENT
OR OTHER SUMS DUE AND PAYABLE TO THE LANDLORD BY THE TENANT UNDER THE LEASE,
THEN THE TENANT SHALL FORTHWITH REMIT TO THE LANDLORD A SUFFICIENT AMOUNT IN
CASH TO RESTORE THE SECURITY DEPOSIT TO THE ORIGINAL AMOUNT OF THE SECURITY
DEPOSIT AND THE TENANT'S FAILURE TO DO SO WITHIN FIVE (5) DAYS AFTER RECEIPT OF
SUCH DEMAND CONSTITUTES A BREACH OF THE LEASE. AT THE EXPIRY OF THE SECOND YEAR
OF THE TERM, AT THE LANDLORD'S OPTION, THE SECURITY DEPOSIT SHALL EITHER BE
APPLIED TO RENT DUE BY THE TENANT IMMEDIATELY FOLLOWING THE EXPIRY OF THE SECOND
YEAR OF THE TERM OR RETURNED TO THE TENANT, PROVIDED THAT IF, AT THE EXPIRY OF
THE SECOND YEAR OF THE TERM, THE TENANT IS IN DEFAULT UNDER THE TERMS OF THE
LEASE, THE LANDLORD SHALL BE ENTITLED TO RETAIN THE SECURITY DEPOSIT UNTIL SUCH
TIME AS THE TENANT IS NO LONGER IN DEFAULT UNDER THE TERMS OF THE LEASE.
SECTION 14.03 - PEST CONTROL
In accordance with Section 5.03, the Tenant shall enter into a service
contract for the control and extermination of pests and vermin providing for
regular inspections and spraying of the Leased Premises in order to control
pests and vermin in accordance with all applicable laws, by-laws, ordinances and
regulations of any governmental or other authority having jurisdiction. All
amounts incurred under such service contract shall be for the Tenant's sole
cost.
SECTION 14.04 - OBLIGATIONS AS COVENANTS
Each obligation or agreement of the Landlord or the Tenant expressed in
this Lease, even though not expressed as a covenant, is considered to be a
covenant for all purposes.
SECTION 14.05 - AMENDMENTS AND SUPPLEMENTARY LEASE PROVISIONS
This Lease shall not be modified or amended except by an instrument in
writing of equal formality herewith and signed by the parties hereto or by their
permitted successors or assigns. Each of the Landlord and Tenant agrees that, if
a Schedule "E" is annexed to this Lease, the terms and provisions thereof shall
be binding upon the parties hereto as part of the Lease.
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SECTION 14.06 - CERTIFICATES
The following certificates shall be conclusive and binding upon the
parties to this Lease in respect of any question of fact or opinion in dispute
with respect to the matters stipulated UNLESS SHOWN TO BE ERRONEOUS IN SOME
MATERIAL RESPECT:
(a) a certificate procured by the Landlord from an INDEPENDENT
architect, professional engineer, quantity surveyor or other
individual qualified in the Landlord's sole opinion, as to the
Rentable Area of the Leased Premises, or the Total Rentable
Area, any question of fact concerning the completion of any
construction or other work either by the Landlord or the
Tenant, the extent to which the completion of any such work
has been delayed by Unavoidable Delay, the time necessary to
complete repairs, the allocation of insurance proceeds,
whether the Complex or any part thereof is being kept in good
repair, order and condition as required by this Lease, the
appropriateness of costs and expenses included in Operating
Costs, the allocation of Taxes to the Leased Premises, the
aggregate of the cost of the Complex and the costs of
additional improvements of a capital nature, the cause of any
destruction or damage, the extent to which rentable premises
in the Complex are incapable of being used for their intended
purposes by reason of any destruction or damage; and
(b) a certificate procured by the Landlord from AN INDEPENDENT
licensed public accountant, who may be the Landlord's auditor,
as to any question of fact or opinion concerning the
computation of Taxes and Operating Costs and the proper amount
of any payment to the Landlord or the Tenant under this Lease.
Any certificate procured by the Landlord shall be prepared using
generally accepted practices and procedures appropriate to such certificate.
SECTION 14.07 - TIME
Time shall in all respects be of the essence of this Lease.
SECTION 14.08 - SUCCESSORS AND ASSIGNS
This Lease and everything contained shall extend to and bind and enure
to the benefit of the Landlord and its successors and assigns and the Tenant and
the Indemnifier, if any, and their respective heirs, executors, administrators
and permitted successors and assigns. No rights shall enure to the benefit of
any transferee unless the provisions of Article X hereof are complied with.
SECTION 14.09 - GOVERNING LAW
This Lease shall be construed and governed by the laws of the Province
of Ontario.
SECTION 14.10 - HEADINGS
The Section numbers, article numbers, headings and table of contents
appearing 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 paragraphs
or articles of this Lease nor in any way affect this Lease.
SECTION 14.11 - ENTIRE AGREEMENT
This Lease and the schedules attached hereto and forming a part hereof
and THOSE PROVISIONS OF THE AGREEMENT TO LEASE SET FORTH IN SECTION 2.03 OF THIS
LEASE set forth all the covenants, promises, agreements, conditions and
understandings between the Landlord and the Tenant concerning the Leased
Premises and there are no covenants, promises, agreements, conditions or
understandings, either oral or written, between them, other than as are herein
and therein set forth; for greater certainty, the Tenant acknowledges that it
has not entered into the Agreement to Lease or this Lease on the basis of any
information contained in the promotional brochure for the Complex. In the event
of a conflict between the provisions of this Lease and the provisions of THOSE
PARAGRAPHS OF THE AGREEMENT TO LEASE SET OUT IN SECTION 2.03, THOSE PARAGRAPHS
OF THE AGREEMENT TO LEASE SET OUT IN SECTION 2.03 SHALL PREVAIL, EXCEPT AS
AFORESAID, THE PROVISIONS OF THE AGREEMENT TO LEASE SHALL MERGE UPON EXECUTION
OF THE LEASE.
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SECTION 14.12 - SEVERABILITY
If any term, covenant or condition of this Lease or the application
thereof to any person or circumstances 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 term,
covenant or condition of this Lease shall be valid and enforced to the fullest
extent permitted by law.
SECTION 14.13 - NO OPTION
The submission of this Lease for examination does not constitute a
reservation of or option for the Leased Premises and this Lease becomes
effective as a lease only upon execution and delivery thereof by Landlord and
Tenant.
SECTION 14.14 - OCCUPANCY PERMIT
Provided further that notwithstanding the Commencement Date of the
Lease as hereinbefore set out, the Tenant shall not be permitted to enter into
possession of the Leased Premises until the Tenant has obtained, at its sole
expense, any required occupancy permit from the proper governmental authority.
The Landlord in its sole discretion may waive this provision, provided further
the Tenant agrees to use its best efforts to obtain same prior to occupancy.
SECTION 14.15 - PLACE FOR PAYMENTS
All payments required to be made by the Tenant herein shall be made to
the Landlord at the Landlord's Address or to such agent or agents of the
Landlord or at such other place IN CANADA as the Landlord shall hereafter from
time to time direct by Notice.
SECTION 14.16 - EXTENDED MEANINGS
The words "hereof", "herein", "hereunder" and similar expressions used
in any section or subsection of this Lease relate to the whole of this Lease and
not to that section or subsection only, unless otherwise expressly provided. The
use of the neuter singular pronoun to refer to the Landlord or the Tenant is
deemed a proper reference, even though the Landlord or the Tenant is an
individual, a partnership, a corporation or a group of two or more individuals,
partnerships or corporations. The necessary grammatical changes required to make
the provisions of this Lease apply in the plural sense where there is more than
one Landlord or Tenant and to either corporations, associations, partnerships or
individuals, males or females, shall in all instances be assumed as though in
each case fully expressed.
SECTION 14.17 - NO PARTNERSHIP OR AGENCY
The Landlord does not in any way or for any purpose become a partner of
the Tenant in the conduct of its business or otherwise or a joint venture or a
member of a joint enterprise with the Tenant, nor is the relationship of
principal and agent created.
SECTION 14.18 - UNAVOIDABLE DELAY
Notwithstanding anything to the contrary contained in this Lease, if
either party hereto is bona fide delayed, or hindered in or prevented from the
performance of, any term, covenant or act required hereunder by reason of
Unavoidable Delay, then performance of such term, covenant or act is excused for
the period of the delay and the party so delayed, hindered or prevented shall be
entitled to perform such term, covenant or act within the appropriate time
period after the expiration of the period of such delay. However, the provisions
of this Section do not operate to excuse the Tenant from the prompt payment of
Basic Rent, Additional Rent or any other payments required by this Lease.
SECTION 14.19 - REGISTRATION
(a) The Tenant hereby covenants and agrees that neither the Tenant
nor anyone on the Tenant's behalf or claiming under the Tenant
shall register this Lease or any assignment or sublease of
this Lease or any document evidencing any interest of the
Tenant in the Lease or the Leased Premises. If the covenant
contained in this Section 14.19(a) is breached, this Lease and
the Term shall, at the option of the Landlord upon Notice to
the Tenant, forthwith become forfeited and terminated and the
Landlord may thereupon re-enter and repossess the Leased
Premises. The Tenant acknowledges that any breach of such
covenant may occasion substantial costs to the Landlord. The
Tenant shall indemnify the Landlord and save it harmless from
and against any loss, claim,
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action, damages, liability and expenses arising in connection
with any breach by the Tenant of such covenant.
(b) Notwithstanding Section 14.19(a), if either party intends to
register a document for the purpose only of giving notice of
this Lease or of any permitted Transfer, then upon request of
such party the Landlord shall cause to be executed a short
form of this Lease ("Short Form"), and the Tenant shall join
therein, solely for the purpose of supporting an application
for registration of notice of this Lease or of any permitted
Transfers. The form of the Short Form and of the application
to register notice of this Lease or of any permitted Transfer
shall:
(i) be prepared by the Landlord or its solicitors at the
Tenant's expense; and
(ii) only describe the registered owner of the Lands, the
Tenant, the Leased Premises, the Commencement Date
and the expiration of the Term, RENEWAL RIGHTS, RIGHT
TO LEASE ADDITIONAL SPACE AND ANY OTHER ESSENTIAL
TERMS A DESCRIPTION OF WHICH MUST BE REGISTERED IN
ORDER FOR PROPER NOTICE THEREOF TO BE PROVIDED AT
LAW.
(c) All costs, expenses and taxes necessary to register or file
the application to register notice of this Lease or of any
permitted Transfer shall be the sole responsibility of the
Tenant, and the Tenant will complete any necessary affidavits
required for registration purposes, as may be required to give
effect to this Section.
(d) Notwithstanding that the Short Form may be executed and
delivered after the execution and delivery of this Lease, none
of the terms of this Lease shall be considered to have been
superseded thereby or no longer in effect, but rather this
Lease shall continue in full force and effect and continue to
enure to the benefit of and be binding upon the parties to
this Lease. To the extent that the terms of the Short Form are
inconsistent with the terms of this Lease, the terms of this
Lease shall govern.
SECTION 14.20 - JOINT AND SEVERAL LIABILITY
The liability to pay Rent and perform all other obligations under this
Lease of each individual, corporation, group, partnership or business
association signing this Lease or otherwise agreeing to be bound by the terms
hereof and of each partner or member of any such group, partnership or business
association, the partners or members of which are by law subject to personal
liability, shall be deemed to be joint and several (including, in any event, any
person who ceases to be a partner or member or any person who becomes a partner
or member, in each case following the execution of this Lease).
SECTION 14.21 - NAME OF COMPLEX
The Landlord may designate, change, alter or remove the name of the
Complex or any part thereof at any time without requiring the Tenant's consent
thereto or incurring any liability to the Tenant thereby.
Any trade name or mark adopted by the Landlord for the Complex shall be
used by the Tenant only in association with its business conducted in or from
the Leased Premises and subject to such limitations, regulations and
restrictions as the Landlord may from time to time impose on its use. The Tenant
will not acquire any rights to or interest in any such trade name or mark and
shall cease all use thereof upon ceasing to be a permitted occupant of the
Leased Premises.
SECTION 14.22 - CHANGES IN THE COMPLEX
This Lease shall affect only the Lands from time to time comprising the
Complex as designated by the Landlord and as such Lands may from time to time be
altered, varied, diminished, enlarged or supplemented by the Landlord. The
Tenant shall, at the request of the Landlord, enter into such further
assurances, releases or other documents as may reasonably be required by the
Landlord to give effect to such alteration, variation, diminution, enlargement
or supplementation, provided such does not unreasonably affect access to the
Leased Premises.
SECTION 14.23 - COMPLIANCE WITH THE PLANNING ACT
It is an expressed condition of this Lease and the Landlord and the
Tenant so agree and declare that the provisions of Section 50(3), R.S.O. 1990,
c. P. 13, and amendments thereto, be complied with if applicable in law. Until
any necessary consent to the Lease is obtained, the term of this Lease and the
Tenant's rights and entitlement granted by this Lease are deemed to extend for a
period not exceeding twenty-one (21) years less one (1) day. The Tenant shall
apply diligently to prosecute such application for such consent forthwith upon
the execution of the Lease by both the Landlord and the Tenant and the Tenant
shall be responsible for all costs, expenses, taxes and levies imposed, charged
or levied as a result of such application and in order to obtain such consent.
The Tenant shall keep the Landlord informed, from time to time, of its progress
in obtaining such
38
<PAGE>
consent and the Landlord shall co-operate with the Tenant in regard to such
application. Notwithstanding the foregoing provisions of this Section 14.23, the
Landlord reserves the right at any time, to apply for such consent in lieu of
the Tenant (on behalf and at the expense of the Tenant) and the Tenant's
application is hereby expressly made subject to any application which the
Landlord intends to make.
39
<PAGE>
ARTICLE XV
IDEMNITY AGREEMENT - INTENTIONALLY DELETED
SECTION 15.01 - INDEMNITY - INTENTIONALLY DELETED
SECTION 15.02 - FURTHER ASSURANCES - INTENTIONALLY DELETED
IN WITNESS WHEREOF the Landlord and the Tenant have executed this Lease.
LANDLORD:- CIBC DEVELOPMENT CORPORATION
By: /s/ Jane McGuire
--------------------------------
Jane McGuire
VP, Finance & Corporate Services
And: /s/ Don Harrison
--------------------------------
Don Harrison
VP Leasing & Business Development
TENANT:- LOYALTY MANAGEMENT
GROUP CANADA INC.
By: /s/ John Scullion
--------------------------------
John Scullion
Chief Operating Officer
And: /s/ Michael Kline
-------------------------------
Michael Kline
Vice President, Legal Services
40
<PAGE>
SCHEDULE "A"
5055 SATELLITE DRIVE, MISSISSAUGA
ALL AND SINGULAR that certain parcel or tract of land and premises,
situate, lying and being in the City of Mississauga, in the Regional
Municipality of Peel, and being composed of the part of Block 8 according to a
Plan registered in the Land Registry Office for the Land Titles Division of Peel
Region as Plan 43M-793 being parts 1 to 12 on Plan 43R-23160, part of PIN
13297-0243.
<PAGE>
SCHEDULE "B"
The Floor Plan is for identification purposes only and is not to be
interpreted as being a representation or warranty on the part of the Landlord
as to the exact location, configuration and layout.
[MAP]
INITIALLED FOR IDENTIFICATION:
CIBC DEVELOPMENT CORPORATION LOYALTY MANAGEMENT GROUP CANADA INC.
[ILLEGIBLE] [ILLEGIBLE]
_________________________________ ____________________________________
[ILLEGIBLE] [ILLEGIBLE]
_________________________________ ____________________________________
<PAGE>
SCHEDULE "C"
RULES AND REGULATIONS
1. The sidewalks, driveways, parking areas, entry passages, fire escapes
and stairways, if any, shall not be obstructed by any of the tenants,
or used by them for any purpose other than ingress and egress to and
from their respective premises. Tenants shall not place or allow to be
placed in the Complex or Common Facilities any waste paper, dust,
garbage, refuse or anything whatever that would tend to make them
unclean or untidy.
2. The water closets or other water apparatus shall not be used for any
purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
therein. Any damage resulting from misuse shall be borne by the Tenant
by whom or by whose agents, servants or employees the same is caused.
Tenants shall not let the water run unless it is in actual use, nor
shall they deface any part of the Complex.
3. No tenant shall do or permit anything to be done in their respective
premises or bring or keep anything therein which will in any way
increase the risk of fire or obstruct or interfere with the rights of
other tenants or violate or act at variance with the laws relating to
fires or with the regulations of any fire department or any board of
health.
4. Tenant, their clerks or servants shall not interfere with other tenants
or those having business with them.
5. Nothing shall be thrown by the tenants, their clerks or servants out of
the windows or doors or down the passages of the Complex.
6. No birds or animals shall be kept in or about the Complex nor shall the
tenants operate or permit to be operated any musical or sound producing
instrument or device inside or outside their respective premises which
may be heard outside their premises, or which may be deemed to be a
nuisance to other tenants of the Complex.
7. No one shall use the Complex or any part thereof for sleeping
apartments or residential purposes or for the storage of personal
effects or articles other than those required for business purposes.
8. All tenants must observe strict care not to allow their windows or
doors to remain open so as to admit rain or snow or so as to interfere
with the heating of the Complex. Any injury or damage caused to the
Complex or its appointments, furnishings, heating and other appliances
or to any other tenant by reason of windows or doors being left open so
as to admit rain or snow or by interferences with or neglect of the
heating appliances or by reason of the tenant or other person or
servant subject to it shall be made good by the tenant in whose
premises the neglect, interference or misconduct occurred.
9. It shall be the duty of the respective tenants to assist and co-operate
with the Landlord in preventing injury to the premises demised to them
respectively.
10. No inflammable oils or other inflammable, dangerous or explosive
materials shall be kept or permitted to be kept in any tenant's
premises. Nothing shall be placed on the outside of window sills or
projections.
11. No bicycles or other vehicles shall be brought within the Complex
except in the parking garage, if any.
12. The parking of cars, shall be subject to the reasonable regulations of
the Landlord.
13. Tenants shall not mark, paint, drill into or in any way deface the
walls, ceilings, partitions, floors or other parts of their respective
premises or the Complex except with the prior written consent of the
Landlord as it may direct, OTHER THAN IN CONNECTION WITH SUCH
DECORATION AS IS USUAL IN THE OCCUPATION OF PREMISES LIKE THE LEASED
PREMISES, OR OTHERWISE IN ACCORDANCE WITH THIS LEASE.
14. The Tenant agrees to surrender to the Landlord on the termination of
the Lease all keys to the said premises.
15. SUBJECT TO PARAGRAPH 5 OF SCHEDULE "E, if the Tenant desires telegraph
or telephone, it shall be the Tenant's responsibility to call Bell or
other private signal connectors and the Landlord reserves the right to
direct the electricians or other workmen as to where and how the wires
are to be introduced, and without such directions no boring or cutting
for wires shall take place. No other wires of any kind shall be
introduced without the written consent of the Landlord.
16. Nothing shall be placed on the outside of windows or projections of the
Leased Premises. No airconditioning equipment shall be placed at the
windows of the Leased Premises without the prior written consent of the
Landlord.
17. All glass, locks and trimmings in or upon the doors or windows of the
Leased Premises shall be kept whole and whenever any part thereof shall
become broken, the same shall be immediately replaced or repaired under
the direction and to the satisfaction of the Landlord, and such
replacements and repairs shall be paid for by the Tenant.
18. No heavy equipment of any kind shall be moved within the Complex
without skids being placed under the same, and without the consent of
the Landlord in writing.
19. Any person entering upon the roof of the Complex does so at his own
risk.
20. No tenant shall be permitted to do cooking or to operate cooking
apparatus except in a portion of the Complex leased for that purpose.
21. The Tenant shall leave the Leased Premises in a condition suitable for
the performance by the Landlord or its janitorial services, if any.
22. The Tenant shall not install or cause to be installed any vending
machines in the Leased Premises SAVE AND EXCEPT ANY VENDING MACHINES
FOR THE EXCLUSIVE USE OF THE TENANT IN THE LEASED PREMISES.
23. THE LANDLORD SHALL PROVIDE THE TENANT ACCESS TO THE LEASED PREMISES
DURING HOURS OUTSIDE THE NORMAL HOURS OF BUSINESS SUBJECT TO THE
LANDLORD'S REASONABLE SECURITY REQUIREMENTS FOR THE COMPLEX.
24. The Landlord reserves the right to close or otherwise restrict the use
of the parking areas after the normal hours of business PROVIDED THAT
THE LANDLORD SHALL NOT MATERIALLY IMPEDE THE TENANT'S ACCESS TO THE
LEASED PREMISES AND ITS USE OF THE PARKING AREAS.
25. The Landlord shall have the right to make such other and further
reasonable rules and regulations as in its judgement may from time to
time be needful for the safety, care, cleanliness and appearance of the
Complex and premises therein, and for the preservation of good order
therein and the same shall be kept and observed by the tenants, their
clerks and servants. The Landlord is not liable to the Tenant for
breaches thereof by other tenants.
<PAGE>
SCHEDULE "D"
ACKNOWLEDGMENT OF COMMENCEMENT DATE
TO: CIBC DEVELOPMENT CORPORATION
(THE "LANDLORD").
AND TO:
-------------------------------------
The undersigned Tenant under a certain lease between the undersigned
and the Landlord dated (the "Lease"), hereby acknowledges and certifies to you
that:
1. The Commencement Date of the Lease was _________________, 19__.
2. We have accepted possession of the Leased Premises pursuant to the
terms of the Lease and are now in possession thereof.
3. The Leased Premises have been erected and delivered in accordance with
the terms of the Lease.
4. The Leased Premises have been fixtured and our normal business
operations are being conducted therein.
5. There has been no violation of any of the terms of the Lease, there is
no set-off of Rent or any other payment under the Lease, and none of
the Rent reserved under the Lease has been prepaid.
6. There is no violation of any of the terms of the Lease either on the
part of the Landlord or the Tenant.
7. The Lease is now in full force and effect in accordance with the terms,
and there are no oral or written modifications, violations or
alterations thereof.
8. We have no knowledge of any assignment of the Lease.
DATED at ___________________ this _____ day of _______________, 19__.
Tenant:
Per:
Title:
(c/s)
Per:
Title:
<PAGE>
SCHEDULE "E"
SUPPLEMENTARY LEASE PROVISIONS
With reference to the Lease dated the 19th day of October, 1998 made
between CIBC Development Corporation, as Landlord, and Loyalty Management Group
Canada Inc., as Tenant, pertaining to Leased Premises at 5055 Satellite Drive,
and with specific reference to Section 14.05 therein, the following
supplementary provisions shall be a part of the Lease:
1. TENANT'S OPTION TO TERMINATE:
The Landlord hereby agrees to grant to the Tenant the one time option
to terminate the Lease with respect to the whole of the Leased Premises (the
"Termination Option") effective the last day of the fifth (5th) year of the Term
(the "Termination Date") provided the Tenant has fulfilled the following
provisions:
(a) the Tenant has provided the Landlord with at least twelve (12)
months' Notice prior to the Termination Date of its intention
to exercise its Termination Option failing which this
Termination Option shall be deemed to be of no further force
or effect; and
(b) the Tenant shall pay to the Landlord an amount equal to $40.00
per square foot of Rentable Area of the Leased Premises, such
amount to be paid to the Landlord by certified cheque on the
Termination Date; and
(c) the Tenant is not THEN in default under the Lease;
(d) the Termination Option as contemplated herein shall apply only
so long as the Tenant is Loyalty Management Group Canada Inc.
or a permitted assignee pursuant to Section 10.07A of this
Lease, it being understood that such Termination Option is
personal to Loyalty Management Group Canada Inc. or a
permitted assignee pursuant to Section 10.07A of this Lease
and may not be transferred to any other assignee, subtenant or
other transferee; and
(e) the Landlord and the Tenant shall execute a surrender of
lease, and any other documents reasonably required by the
Tenant's or Landlord's solicitor upon the Termination Date
provided payment has been made by the Tenant to the Landlord
pursuant to sub-section (b) above; and
(f) the Termination Option as contemplated in this Paragraph 1 of
Schedule "E" is only exercisable once and as detailed herein.
2. TENANT'S OPTION TO RENEW:
(1) The Landlord hereby agrees to extend the Term for a period of
five (5) years (the "Renewal Term") beginning on the expiry of
the Term of the Lease, with respect to the Leased Premises,
subject to the following:
(a) such option shall be exercisable by Notice by the
Tenant delivered to the Landlord not more than twelve
(12) months and not less than nine (9) months prior
to the expiry of the Lease (and failing such timely
exercise by the Tenant such option shall expire and
be of no further force or effect) and shall only be
exercisable if the Tenant is not then in default of
the provisions of this Lease; and
(b) the extension of the Term upon the exercise of such
option shall be upon and subject to the terms of this
Lease except:
(i) there shall be no further renewal option of
the Tenant to extend the Term beyond the
expiration of the Renewal Term;
(ii) the annual amount of Basic Rent per square
foot of Rentable Area payable under Section
2.06 of this Lease throughout the Renewal
Term shall be the then Fair Market Rent for
the Leased Premises; and
(iii) there shall not exist during the Renewal
Term, and no renewal or extension lease
shall contain any reference to any rights to
Landlord's work or leasehold improvement
allowances such as those contained in
Paragraphs 9 and 11 of the Agreement to
Lease or options to acquire further space
such as that contained in Paragraph 3 of
this Schedule "E", such rights being deemed
to have expired with the expiry of the
original Term of this Lease, or as otherwise
therein expressly set out.
<PAGE>
(2) In this Paragraph 2 of Schedule "E", the "then Fair Market
Rent for the Leased Premises" means that annual amount of
basic rent which the Landlord and the Tenant agree to be the
fair market rent then prevailing for the Leased Premises as at
the Renewal Term commencement date, having regard to leasing
commissions, tenant inducements and improved office premises
similar to the Leased Premises which are comparable in size,
location, type and condition and leased for a similar term as
at the Renewal Term commencement date.
(3) If, by the date four (4) months prior to the date upon which
the Renewal Term is to begin, the Landlord and the Tenant have
been unable to agree in writing upon the then Fair Market Rent
for the Leased Premises, the then Fair Market Rent for the
Leased Premises (the "Issue") shall be determined by
arbitration and the following shall apply:
(a) upon Notice by either party to the other, the parties
shall meet and attempt to appoint a single
arbitrator. If either party shall fail to name an
arbitrator, then the arbitrator shall be appointed by
a Judge of the Ontario Court of Justice, General
Division, pursuant to Section 8 of the ARBITRATIONS
ACT (ONTARIO) upon application of the parties. The
provisions of the ARBITRATIONS ACT (ONTARIO) shall
apply to any such application;
(b) the arbitrator shall forthwith hear and determine the
Issue. The decision of the arbitrator, shall be made
within thirty (30) days after the appointment of the
arbitrator, subject to any reasonable delay due to
unforeseen circumstances;
(c) the decision of the arbitrator shall be signed and
shall be final and binding upon the parties hereto;
(d) the arbitrator will have the power to obtain the
assistance of any expert and to act upon such
assistance;
(e) the compensation and expenses of the arbitrator shall
be paid in equal proportions by the parties hereto
unless the arbitrator determines otherwise, except
that each party shall be responsible for its
respective solicitor's fee and witnesses; and
(f) in no event may the award of the arbitrator be lower
than the amount offered by the Tenant to resolve the
Issue nor higher than the amount offered by the
Landlord to resolve the Issue.
(4) If the Issue has not been determined by the commencement date
of the Renewal Term, pending such determination the Tenant
shall pay Basic Rent at the rate specified for the last year
of the Term, and the parties shall readjust as of such date
from such commencement date promptly upon such determination
having been made with interest at the Bank Rate.
(5) This Option to Renew contemplated herein shall apply only so
long as Loyalty Management Group Canada Inc. or a permitted
transferee pursuant to Section 10.07A herein, is in occupation
of the whole of the Leased Premises, it being understood that
such option is personal to Loyalty Management Group Canada
Inc. or a permitted transferee pursuant to Section 10.07A
herein and may not be OTHERWISE transferred to any assignee,
subtenant or other transferee.
3. TENANT'S FIRST RIGHT TO LEASE:
(1) Provided that the Tenant is not THEN in default of the
provisions of the Lease and has not been in default hereunder
on a consistent basis the Landlord hereby grants to the Tenant
a one time right during the Term to lease the premises
immediately adjacent to the Leased Premises (the "Additional
Premises") as identified on Schedule "B" of this Lease as Area
"A" and Area "B" and outlined in blue.
(2) PROVIDED THAT THE TENANT IS NOT THEN IN DEFAULT OF THE
PROVISIONS OF THE LEASE, the Landlord will notify the Tenant
in writing as to the availability of the Additional Premises,
the proposed basic rent (which shall be the then Fair Market
Rent (as defined in Paragraph 2 (2) above) for the Additional
Premises as at the commencement date of the Additional
Premises and the Tenant will have five (5) business days
following receipt of notification from the Landlord within
which to exercise such first right to lease. The term shall be
coterminous with the Term of this Lease.
(3) If, by the date four (4) months prior to the commencement date
for the Additional Premises the Landlord and the Tenant have
been unable to agree in writing upon the then Fair Market Rent
for the Additional Premises, the then Fair Market Rent for the
Additional Premises, shall be determined by arbitration in
accordance with the terms of Paragraph 2 (3) of this Schedule
"E".
(4) If the Fair Market Rent for the Additional Premises has not
been determined by the commencement date of the Additional
Premises pending such determination the Tenant shall pay Basic
Rent in the amount setout in Section 1.01 (10) of this Lease
beginning with that prevailing for the year of the Term during
which the Additional Premises commencement date occurs and
the parties shall readjust
<PAGE>
as of such date from such commencement date promptly upon such
determination having been made with interest at the Bank Rate.
(5) If the Tenant advises the Landlord that it does not wish to
lease the Additional Premises pursuant to this first right to
lease, then the Tenant's first right to lease shall be null
and void and of no further force or effect and the Landlord
shall be entitled to lease any or all of the Additional
Premises without further obligation to the Tenant.
(6) Save as set out in this Paragraph 3 of Schedule "E", the terms
and conditions for such Additional Premises shall be on the
same terms and conditions as the Leased Premises, and the
Landlord shall prepare an addendum to the Lease in respect of
such Additional Premises for signature by the Tenant and the
Landlord if the Tenant does so exercise its first right to
lease.
4. PARKING:
(1) The Landlord grants to the Tenant during the Term and any
renewal thereof a license to park in AT LEAST 200 unreserved
parking spaces IN THE COMPLEX based on the Tenant occupying
40,000 square feet of Rentable Area. It is understood that the
Landlord shall be entitled at any time during the Term or any
renewal thereof to re-allocate not more than 40 of the
above-noted spaces to other tenants of the Complex if so
required in the Landlord's opinion. If during the Term or any
renewal thereof the Tenant leases additional space in the
Complex the Landlord shall make available to the Tenant
additional unreserved parking on a ratio of 1.75 spaces per
1,000 square feet of Rentable Area.
(2) The Tenant agrees to comply with such reasonable parking rules
as may be established from time to time by the Landlord
governing the use of the parking area (the "Parking Rules").
(3) SUBJECT TO SECTION 7.07(a), the Tenant agrees to indemnify the
Landlord against all liabilities, claims, damages or expenses
due to or arising out of any act, omission or neglect by the
Tenant or those form whom it is at law responsible in or about
the parking area or due to or arising out of any breach by
either or any of them of the provisions of the Parking Rules.
The Landlord shall not be liable for any loss, injury or
damage caused to persons using the parking area or to
automobiles, their accessories or their contents or any other
property therein or thereon and the Tenant agrees that such
vehicles as are parked under rights derived from this
Paragraph 4 of Schedule "E", their accessories, contents and
property shall be in the parking area at the sole risk of the
Tenant and agrees to indemnify the Landlord against all
claims, damages and expenses due to or arising out of the
foregoing.
(4) All parking spares allocated to the Tenant pursuant to
Paragraph 4 (1) of this Schedule "E" shall be free of charge
during the Term.
(5) The Tenant acknowledges the existence of an easement in favour
of the City of Mississauga that runs through a portion of the
Lands that is designated by the Landlord for approximately 55
parking spaces. In the event that the City of Mississauga
elects to utilize such portion of the Lands as may be
permitted pursuant to the easement agreement, then the Tenant
acknowledges and agrees that the Landlord shall have the right
to reduce the parking area serving the Complex by up to 55
parking spaces from those existing as at the completion of the
initial construction of the Complex. The Tenant further
acknowledges and agrees that, as a result of the exercise by
the Landlord of its right to reduce the parking areas serving
the Complex, the number of parking spaces made available to
the Tenant may be reduced by up to 20 spaces, being the
Tenant's proportionate share of the 55 parking spaces based
upon the Tenant leasing 40,000 square feet. In the event the
Tenant leases an area of greater than 40,000 square feet (and
has proportionately more parking than outlined above), the
Tenant's proportionate share of the 55 parking spaces shall be
greater than 20 stalls. The Landlord shall not be liable for,
nor shall the Tenant be entitled to, any compensation nor
shall any such reduction be deemed to be a breach of any
covenant for quiet enjoyment contained in this Lease, provided
however, that in not event shall the Landlord reduce the
number of parking spaces allocated to the Tenant to less than
the number required by the zoning bylaws or regulations
governing parking requirement for the Complex.
5. COMMUNICATIONS EQUIPMENT:
The Landlord agrees to grant to the Tenant for and during the Term of
the Lease the non-exclusive license to install Communications equipment (the
"Equipment") in an area on the roof of the Complex to be approved by the
Landlord, for the Tenant's own use only. The Tenant's installation of the
Equipment is subject to the following provisions:
(1) The installation of the Equipment shall be conducted solely at
the expense, risk and option of the Tenant and shall be in
accordance with all requirements of regulatory agencies
(including municipal zoning, building, height control and
other applicable by-laws). The Tenant shall furnish
particulars of the Equipment to be installed to the Landlord,
including drawings which shall be reviewed and approved by the
Landlord. The Landlord shall have rights of approval with
respect to the size, location and method of installation of
the Equipment, such approval not to be unreasonably withheld
or
<PAGE>
delayed. During installation, the Tenant shall take all
reasonable precautions to minimize interference with the
Landlord and other tenants of the Complex and to avoid damage
to any portions of the Complex and shall comply with the
Landlord's directions as to the means by which and times at
which equipment and supplies are to be moved.
(2) It shall be the sole obligation of the Tenant and at the
Tenant's sole expense, to maintain and repair the Equipment in
accordance with the best standards so that it shall be at all
time in good, safe and sound condition, of good appearance,
properly grounded and in compliance with all required
desirable standards of good maintenance. Further, it shall be
the sole obligation and at the Tenant's sole expense, to
repair any and all damage to the Complex caused by the
installation, replacement, repair and removal of the Equipment
failing which such may be completed by the Landlord as an
Additional Service to the Tenant.
(3) The Tenant shall indemnify the Landlord and save it harmless
from all actions, proceedings, costs, claims, demands, losses
and damages of any nature whatsoever for which the Landlord
may become liable or suffer, by reason of or arising directly
or indirectly out of the installation, maintenance, repair,
alteration, removal, use or condition from time to time of the
Equipment or in consequence of damage or interference to
property or injury to or death of persons occasioned thereby.
(4) The Tenant shall ensure that its use and operation of the
Equipment shall not cause or contribute to any interference
with or damage to the effective use or normal operation of any
other existing electrical equipment or apparatus installed or
used in or on the Complex by the Landlord, its tenants or any
other person, firm or corporation whatsoever and that if and
whenever such interference or damage is caused by the Tenant's
Equipment to any such use or operation of such equipment or
apparatus the Tenant shall be responsible for and will
forthwith carry out at its own expense all acts, matters and
things that may be necessary to establish the cause, and if
deemed responsible therefor, to take expedient action to
remedy such situation or condition and thereafter prevent a
recurrence of any such damage or interference as aforesaid.
The Tenant agrees that if it is unable to remedy or prevent a
recurrence of any such damage or interference for which the
Tenant is responsible as aforesaid, the Tenant shall, upon
Notice from the Landlord forthwith remove the Equipment in
accordance with the provisions of this Paragraph 5 of Schedule
"E".
(5) The Tenant shall, immediately prior to the expiration or
sooner termination of the Term and at its own cost, remove the
Equipment and repair any damage to the Complex caused by such
removal, failing which such repairs may be completed by the
Landlord as an Additional Service to the Tenant.
(6) The Tenant shall at its cost and expense insure and keep
insured the Equipment during the Term and any renewal hereof
and during the removal thereof in accordance with Article VII
of this Lease.
(7) The Tenant covenants that it shall comply with the provisions
of Section 8.02 of this Lease with respect to the
installation, replacement, repair and removal of the
Equipment.
(8) There shall be no license fee or other charges associated with
the grant of this license in favour of the Tenant. However,
the Tenant shall pay to the Landlord any taxes, utility costs
or other costs as may be directly attributable to the
Equipment and its erection, installation, operation and
maintenance upon receipt of invoice(s) therefor.
(9) The granting of this license shall apply only so long as
Loyalty Management Group Canada Inc. or a permitted transferee
pursuant to Section 10.07A herein is THE TENANT, it being
understood that the granting of this license is personal to
Loyalty Management Group Canada Inc. or a permitted transferee
pursuant to Section 10.07A and may not be transferred to any
assignee, subtenant or other transferee.
6. ACCESS TO THE LEASED PREMISES:
From and after the ACCESS DATE (AS SUCH TERM IS DEFINED IN PARAGRAPH
11C OF THE AGREEMENT TO LEASE), the Landlord shall permit the Tenant, its
agents, clerks, servants, employees and other persons transacting business with
it to have access to the Leased Premises by the main entrance or entrances to
the Complex and the Leased Premises and to use passages therefrom at all times,
365 days a year, on a 24 hour basis, subject to the Rules and Regulations, and
subject to emergencies.
7. BUSINESS DAYS:
For the purposes of this Lease, "business day" means any day which is
not a Saturday, Sunday or a statutory holiday.
<PAGE>
YONGE CORPORATE CENTRE
OFFICE LEASE
BETWEEN
YCC LIMITED
AND
LONDON LIFE INSURANCE COMPANY
-AND-
LOYALTY MANAGEMENT GROUP CANADA INC.
<PAGE>
YONGE CORPORATE CENTRE
LEASE
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I - PREMISES - TERM AND USE. . . . . . . . . . . . . . . . . . . . . .1
Section 1.01 Grant and Premises . . . . . . . . . . . . . . . . .1
Section 1.02 Term . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.03 Construction of Premises . . . . . . . . . . . . . .1
Section 1.04 Use and Conduct of Business. . . . . . . . . . . . .2
ARTICLE II - RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.01 Covenant to Pay. . . . . . . . . . . . . . . . . . .2
Section 2.02 Net Rent . . . . . . . . . . . . . . . . . . . . . .2
Section 2.03 Payment of Operating Costs . . . . . . . . . . . . .3
Section 2.04 Payment of Taxes . . . . . . . . . . . . . . . . . .3
Section 2.05 Payment of Estimated Taxes and Operating Costs . . .4
Section 2.06 Additional Rent. . . . . . . . . . . . . . . . . . .5
Section 2.07 Rent Past Due. . . . . . . . . . . . . . . . . . . .5
Section 2.08 Utilities. . . . . . . . . . . . . . . . . . . . . .5
Section 2.09 Adjustment of Areas. . . . . . . . . . . . . . . . .5
Section 2.10 Net Lease. . . . . . . . . . . . . . . . . . . . . .5
Section 2.11 Deposit. . . . . . . . . . . . . . . . . . . . . . .6
Section 2.12 Electronic Data Interchange. . . . . . . . . . . . .6
Section 2.13 Additional Rent Estimate . . . . . . . . . . . . . .6
ARTICLE III - CONTROL OF DEVELOPMENT . . . . . . . . . . . . . . . . . . . . .6
Section 3.01 Landlord's Services. . . . . . . . . . . . . . . . .6
Section 3.02 Alterations by Landlord. . . . . . . . . . . . . . .7
ARTICLE IV - ACCESS AND ENTRY. . . . . . . . . . . . . . . . . . . . . . . . .7
Section 4.01 Right of Examination . . . . . . . . . . . . . . . .7
Section 4.02 Right to Show Premises . . . . . . . . . . . . . . .8
Section 4.03 Entry not Forfeiture . . . . . . . . . . . . . . . .8
ARTICLE V - MAINTENANCE, REPAIRS AND ALTERATIONS . . . . . . . . . . . . . . .8
Section 5.01 Maintenance By Landlord. . . . . . . . . . . . . . .8
Section 5.02 Maintenance by Tenant; Compliance with Laws. . . . .9
Section 5.03 Approval of Tenant's Alterations . . . . . . . . . .9
Section 5.04 Repair Where Tenant at Fault . . . . . . . . . . . 10
Section 5.05 Removal of Improvements and Fixtures . . . . . . . 10
Section 5.06 Liens. . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.07 Notice by Tenant . . . . . . . . . . . . . . . . . 11
ARTICLE VI - INSURANCE AND INDEMNITY . . . . . . . . . . . . . . . . . . . . 11
Section 6.01 Tenant's Insurance . . . . . . . . . . . . . . . . 11
Section 6.02 Increase in Insurance Premiums . . . . . . . . . . 13
Section 6.03 Cancellation of Insurance. . . . . . . . . . . . . 13
Section 6.04 Loss or Damage . . . . . . . . . . . . . . . . . . 13
Section 6.05 Landlord's Insurance . . . . . . . . . . . . . . . 13
Section 6.06 Indemnification of the Landlord. . . . . . . . . . 14
Section 6.07 Indemnification of the Tenant. . . . . . . . . . . 14
Section 6.08 Release by the Landlord. . . . . . . . . . . . . . 15
Section 6.09 Release by the Tenant. . . . . . . . . . . . . . . 15
(i)
<PAGE>
ARTICLE VII - DAMAGE AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . 15
Section 7.01 No Abatement . . . . . . . . . . . . . . . . . . . 15
Section 7.02 Damage to Premises . . . . . . . . . . . . . . . . 15
Section 7.03 Right of Termination . . . . . . . . . . . . . . . 16
Section 7.04 Destruction of Building. . . . . . . . . . . . . . 16
Section 7.05 Architect's Certificate. . . . . . . . . . . . . . 17
ARTICLE VIII - ASSIGNMENT, SUBLETTING AND TRANSFERS. . . . . . . . . . . . . 17
Section 8.01 Assignments, Subleases and Transfers . . . . . . . 17
Section 8.02 Landlord's Right to Terminate. . . . . . . . . . . 18
Section 8.03 Conditions of Transfer . . . . . . . . . . . . . . 19
Section 8.04 Permitted Subletting . . . . . . . . . . . . . . . 20
Section 8.05 No Advertising . . . . . . . . . . . . . . . . . . 20
Section 8.06 Assignment By Landlord . . . . . . . . . . . . . . 20
ARTICLE IX - DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.01 Default and Remedies . . . . . . . . . . . . . . . 20
Section 9.02 Distress . . . . . . . . . . . . . . . . . . . . . 21
Section 9.03 Costs. . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.04 Allocation of Payments . . . . . . . . . . . . . . 22
Section 9.05 Survival of Obligations. . . . . . . . . . . . . . 22
ARTICLE X - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION . . . . . . . . . 22
Section 10.01 Status Statement. . . . . . . . . . . . . . . . . 22
Section 10.02 Subordination . . . . . . . . . . . . . . . . . . 22
Section 10.03 Attornment. . . . . . . . . . . . . . . . . . . . 22
ARTICLE XI - GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 23
Section 11.01 Rules and Regulations . . . . . . . . . . . . . . 23
Section 11.02 Delay . . . . . . . . . . . . . . . . . . . . . . 23
Section 11.03 Overholding . . . . . . . . . . . . . . . . . . . 23
Section 11.04 Waiver. . . . . . . . . . . . . . . . . . . . . . 23
Section 11.05 Registration. . . . . . . . . . . . . . . . . . . 23
Section 11.06 Notices . . . . . . . . . . . . . . . . . . . . . 24
Section 11.07 Successors. . . . . . . . . . . . . . . . . . . . 24
Section 11.08 Joint and Several Liability . . . . . . . . . . . 24
Section 11.09 Captions and Section Numbers. . . . . . . . . . . 24
Section 11.10 Extended Meanings . . . . . . . . . . . . . . . . 24
Section 11.11 Partial Invalidity. . . . . . . . . . . . . . . . 24
Section 11.12 Entire Agreement. . . . . . . . . . . . . . . . . 25
Section 11.13 Governing Law . . . . . . . . . . . . . . . . . . 25
Section 11.14 Time of the Essence . . . . . . . . . . . . . . . 25
Section 11.15 Quiet Enjoyment . . . . . . . . . . . . . . . . . 25
ARTICLE XII- SPECIAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . 25
Section 12.01 Leasehold Improvement Allowance . . . . . . . . . 25
Section 12.02 Landlord's Work . . . . . . . . . . . . . . . . . 27
Section 12.03 Tenant's Work . . . . . . . . . . . . . . . . . . 28
Section 12.04 Early Access and Occupancy. . . . . . . . . . . . 28
Section 12.05 Termination Right . . . . . . . . . . . . . . . . 29
Section 12.06 Renewal Options . . . . . . . . . . . . . . . . . 30
Section 12.07 First Refusal Right . . . . . . . . . . . . . . . 31
Section 12.08 Signage . . . . . . . . . . . . . . . . . . . . . 32
Section 12.09 Parking . . . . . . . . . . . . . . . . . . . . . 33
Section 12.10 Irrevocable Letter of Credit. . . . . . . . . . . 34
(ii)
<PAGE>
SCHEDULE "A" - LEGAL DESCRIPTION OF LANDS. . . . . . . . . . . . . . . . . . 35
SCHEDULE "A-1" - LEGAL DESCRIPTION OF LANDS. . . . . . . . . . . . . . . . . 37
SCHEDULE "B" - FLOOR PLAN OF THE PREMISES. . . . . . . . . . . . . . . . . . 39
SCHEDULE "C" - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 40
SCHEDULE "D" - RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . 48
SCHEDULE "E" - TEXT OF IRREVOCABLE LETTER OF CREDIT. . . . . . . . . . . . . 52
</TABLE>
(iii)
<PAGE>
THIS LEASE IS DATED THE 28TH DAY OF MAY, 1997
BETWEEN:
YCC LIMITED
AND
LONDON LIFE INSURANCE COMPANY
(collectively the "Landlord")
-and-
xxxLOYALTY MANAGEMENT GROUP CANADA INC.
(the "Tenant")
ARTICLE I - PREMISES - TERM AND USE
SECTION 1.01 GRANT AND PREMISES
In consideration of the performance by the Tenant of its obligations under this
Lease, the Landlord leases the Premises to the Tenant for the Term. The Premises
are located on the xxxxx xxxxxx 2ND AND 3RD FLOORS of the Building and are shown
outlined in red on the floor plan attached as xxxx xxx xxxx SCHEDULES "B-1" AND
"B-2". THE Rentable Area of the Premises is approximately xxxxx xxxxx xxxx xxx
xxx xxxx xx xxx xx xxxx xxxxxx xxxxxx 73,534 SQUARE FEET.
FROM AND AFTER SEPTEMBER 1, 1998, THE LANDLORD SHALL LEASE TO THE TENANT
ADDITIONAL OFFICE SPACE ("FIRST ADDITIONAL PREMISES") CONTAINING APPROXIMATELY
18,000 SQUARE FEET OF RENTABLE AREA ON THE 4TH FLOOR OF THE BUILDING AS SHOWN
OUTLINED IN RED ON THE FLOOR PLAN ATTACHED HERETO AS SCHEDULE "B-3" FOR AN
AGGREGATE RENTABLE AREA OF APPROXIMATELY 91,534 SQUARE FEET FOR THE BALANCE OF
THE TERM SUCH THAT THE TERM IN RESPECT OF THE FIRST ADDITIONAL PREMISES SHALL BE
CO-TERMINUS WITH THE TERM AND THE PREMISES SHALL FROM AND AFTER SUCH DATE BE
DEEMED TO INCLUDE THE FIRST ADDITIONAL PREMISES. SUBJECT THE PROVISIONS OF THE
LEASE, THE LANDLORD AGREES TO PROVIDE VACANT POSSESSION OF THE FIRST ADDITIONAL
PREMISES ON SEPTEMBER 1, 1998.
SECTION 1.02 TERM
The Term of this Lease is TEN (10) years NIL months, and NIL days from and
including the 1ST day of SEPTEMBER, 1997 to and including the 31ST DAY OF
AUGUST, 2007 (BUT SUBJECT TO SECTION 12.04).
SECTION 1.03 CONSTRUCTION OF PREMISES
The Tenant shall abide by the provisions of this Lease and the tenant leasehold
improvement manual supplied by the Landlord for any construction it proposes to
do prior to or upon occupancy of the Premises, and any Alterations to the
Premises after it takes occupancy (PROVIDED THAT SUCH LEASEHOLD IMPROVEMENT
MANUAL SHALL NOT BE INCONSISTENT WITH THE TERMS OF THIS LEASE). The Tenant
agrees to accept the Premises in their current "as is" condition, subject to any
Landlord's work expressly set out in this Lease. THE LEASEHOLD IMPROVEMENT
MANUAL WILL BE AMENDED TO DELETE FOR THE TENANT'S INITIAL WORK ONLY WITH RESPECT
TO THE PREMISES, THE FIRST ADDITIONAL PREMISES AND, IF APPLICABLE, THE SPECIAL
REFUSAL SPACE ALL LANDLORD'S CONSULTANT FEES, RESTRICTIONS ON WORKING HOURS
(SUBJECT TO LANDLORD'S REASONABLE SECURITY REQUIREMENTS) COSTS OF LOADING DOCK
FACILITIES AND FREIGHT ELEVATOR, COSTS OF EXTRA CLEANING, COSTS OF HOISTING AND
LANDLORD'S SUPERVISION FEES. IN THE EVENT THE TENANT DOES NOT RETAIN THE
LANDLORD'S BASE
-1-
<PAGE>
BUILDING ELECTRICAL ENGINEER, THEN WITH RESPECT TO THE APPROVAL BY THE
LANDLORD'S ELECTRICAL ENGINEER OF THE TENANT'S INITIAL WORK WITH RESPECT TO
THE PREMISES, THE FIRST ADDITIONAL PREMISES AND, IF APPLICABLE, THE SPECIAL
REFUSAL SPACE PURSUANT TO SECTION 12.03, THE TENANT SHALL PAY THE LANDLORD'S
CURRENT SUPERVISION FEE OF ONE THOUSAND, FIVE HUNDRED ($1,500.00) DOLLARS
PLUS ALL APPLICABLE TAXES FOR REVIEW OF THE TENANT'S PLANS AND THE MAXIMUM OF
TWO SITE VISITS. FOR ANY ADDITIONAL REVIEWS OR SITE VISITS, THE TENANT SHALL
PLAY THE LANDLORD'S CURRENT RATE OF SIXTY-FIVE ($65.00) DOLLARS. AFTER
COMPLETION OF THE TENANT'S INITIAL WORK WITH RESPECT TO THE PREMISES, THE
FIRST ADDITIONAL PREMISES AND, IF APPLICABLE, THE SPECIAL REFUSAL SPACE, THE
TENANT SHALL PAY THE LANDLORD'S NORMAL FEES IN CONNECTION WITH ANY
ALTERATIONS.
SECTION 1.04 USE AND CONDUCT OF BUSINESS
The Premises shall be used only as xxxxxxxxxx xxxxxxxGENERAL BUSINESS OFFICES
AND THE BUSINESS OF AN OUT-BOUND AND IN-BOUND CALL CENTRE, INCLUDING THE
PROVISION OF EXISTING TRAVEL SERVICES AS PREVIOUSLY DISCLOSED TO THE LANDLORD
BY THE TENANT and for no other purpose. The Tenant shall conduct its business
in the Premises in a reputable and first class manner. THE LANDLORD
ACKNOWLEDGES THAT THE TENANT MAY USE THE PREMISES DURING THE TENANT'S
BUSINESS HOURS AND OUTSIDE NORMAL BUSINESS HOURS SUBJECT TO THE LANDLORD'S
REASONABLE SECURITY REQUIREMENTS AND PRECAUTIONS FROM TIME TO TIME.
ARTICLE II - RENT
SECTION 2.01 COVENANT TO PAY
xxxxx Except as otherwise expressly provided in this Lease, the Tenant shall pay
Rent from the Commencement Date without prior demand and without any deduction,
abatement, setoff or compensation. If the Commencement Date is not on the first
day of a calendar month, or the period of time from the Commencement Date to the
end of the first Fiscal Year during the Term is less than 12 calendar months, or
the period of time from the last Fiscal Year end during the Term to the end of
the Term is less than 12 calendar months, then Rent for such month and such
periods shall be pro-rated on a per diem basis, based upon a period of 365 days.
xxxx xxx xxxxxx xxxx xxxxxxx xx xxx xxxxxxxx xx xxxx xxxxxx
xxxx xxx xx xxx xxxxxx xxxxxx xx xxxxxxx xxx xxx xxxx xxxxxx xxxxx xxx xxx
xxxxx xx xxx xxxxxxx xxxxxxxx xx xxx xxxx xxx xxx xxxxxxxxxx xxxx xx xx xxx
xxxxxxxx xx xxxxxxxx
SECTION 2.02 NET RENT
The Tenant shall pay Net Rent AS FOLLOWS:
(a) FROM SEPTEMBER 1, 1997 TO AUGUST 31, 1998, (BEING THE FIRST YEAR OF THE
TERM) BOTH INCLUSIVE, THE SUM OF SEVEN HUNDRED AND FIFTY-SEVEN THOUSAND,
FOUR HUNDRED DOLLARS AND TWENTY CENTS ($757,400.20) per annum payable in
equal monthly instalments of SIXTY THREE THOUSAND, ONE HUNDRED AND SIXTEEN
DOLLARS AND SIXTY EIGHT CENTS ($63,116.68) each in advance on the first day
of each calendar month DURING SUCH PERIOD OF THE TERM.
(b) FROM SEPTEMBER 1, 1998 TO AUGUST 31, 2002, (BEING THE NEXT FOUR YEARS OF
THE TERM) BOTH INCLUSIVE, THE SUM OF NINE HUNDRED AND SEVENTY-SEVEN
THOUSAND, NINE HUNDRED DOLLARS AND TWENTY CENTS ($977,900.20) PAYABLE IN
EQUAL MONTHLY INSTALMENTS OF EIGHTY ONE THOUSAND, FOUR HUNDRED AND NINETY
ONE DOLLARS AND SIXTY EIGHT CENTS ($81,491.68) EACH IN ADVANCE ON THE FIRST
DAY OF EACH CALENDAR MONTH DURING SUCH PERIOD OF THE TERM.
(c) FROM SEPTEMBER 1, 2002 TO AUGUST 31, 2007, (BEING THE LAST FIVE YEARS OF
THE TERM) BOTH
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<PAGE>
INCLUSIVE, THE SUM OF ONE MILLION, ONE HUNDRED AND SEVEN THOUSAND, FOUR
HUNDRED AND EIGHT DOLLARS ($1,107,408.00) PER ANNUM PAYABLE IN EQUAL
MONTHLY INSTALMENTS OF NINETY TWO THOUSAND, TWO HUNDRED AND EIGHTY FOUR
DOLLARS ($92,284.00) EACH IN ADVANCE ON THE FIRST DAY OF EACH CALENDAR
MONTH DURING SUCH PERIOD of the Term.
The Net Rent FOR THE PERIOD OF THE TERM SET OUT IN SUBSECTION 2.02(a) is based
on an annual rate of TEN DOLLARS AND THIRTY CENTS ($10.30) per square foot of
Rentable Area of the Premises. THE NET RENT FOR THE PERIOD OF THE TERM SET OUT
IN SUBSECTION 2.02(b) IS BASED ON AN ANNUAL RATE OF TEN DOLLARS AND THIRTY CENTS
($10.30) PER SQUARE FOOT OF THE RENTABLE AREA OF THE PREMISES (OTHER THAN THE
FIRST ADDITIONAL PREMISES) AND TWELVE DOLLARS AND TWENTY-FIVE CENTS ($12.25) PER
SQUARE FOOT OF THE RENTABLE AREA OF THE FIRST ADDITIONAL PREMISES. THE NET RENT
FOR THE PERIOD OF THE TERM SET OUT IN SUBSECTION 2.02(c) IS BASED ON AN ANNUAL
RATE OF TWELVE DOLLARS ($12.00) PER SQUARE FOOT OF THE RENTABLE AREA OF THE
PREMISES (OTHER THAN THE FIRST ADDITIONAL PREMISES) AND TWELVE DOLLARS AND FIFTY
CENTS ($12.50) PER SQUARE FOOT OF THE RENTABLE AREA OF THE FIRST ADDITIONAL
PREMISES. As soon as reasonably possible after completion of construction of the
Premises, the xxxxxxxxxx ARCHITECT shall measure the Net Rentable Area of the
Premises and shall xxxxxxxxxxx CERTIFY TO THE TENANT the Rentable Area of the
Premises and Rent shall be adjusted accordingly.
SECTION 2.03 PAYMENT OF OPERATING COSTS
The Tenant shall pay to the Landlord the Tenant's Proportionate Share of
Operating Costs.
SECTION 2.04 PAYMENT OF TAXES
(a) The Tenant shall pay when due all Business Tax. If the Tenant's Business
Tax is payable by the Landlord to the relevant taxing authority, the Tenant
shall pay the amount thereof to the Landlord or as it directs. If no
separate tax bills for Business Tax are issued with respect to the Tenant
or the Premises, the Landlord may allocate Business Tax charged, assessed
or levied against the Development or the Lands to the Tenant on the basis
of the Tenant's Proportionate Share.
(b) The Landlord shall allocate Taxes between the Total Rentable Area of the
Development and other components of the Development on such basis as the
Landlord, acting equitably, determines from time to time.
(c) The Tenant shall promptly pay to the Landlord or the relevant taxing
authority, as the Landlord may direct, not later than the due date thereof,
its Proportionate Share of the Taxes allocated to the Total Rentable Area
of the Building by the Landlord.
(d) If the Landlord obtains a written statement OR SEPARATE ASSESSMENT from the
assessment or taxing authorities indicating that as a result of any
construction or installation of improvements in the Premises, or any act or
election of the Tenant, the Taxes payable by the Tenant under subsection
2.05(a) do not accurately reflect the Tenant's proper share of Taxes, the
Landlord may require the Tenant to pay such greater or lesser amount as is
determined by the Landlord, acting reasonably. THE LANDLORD SHALL APPLY
THIS PRINCIPLE TO ALL OTHER TENANTS ONLY FOR THE PURPOSE OF DETERMINING THE
TENANT'S SHARE OF TAXES IF THE TENANT'S SHARE OF TAXES IS NOT BASED UPON
SEPARATE ASSESSMENTS.
(e) The Landlord may: contest any Taxes and appeal any assessments with respect
thereto; withdraw any such contest or appeal; and agree with the taxing
authorities on any settlement or compromise with respect to Taxes. The
Tenant will co-operate with the Landlord in respect of any such contest or
appeal and will provide the Landlord with all relevant information,
documents and consents required by the Landlord in connection with any such
contest or appeal. The Tenant will not contest any Taxes or appeal any
assessments related thereto without the Landlord's prior written consent
NOT TO BE UNREASONABLY WITHHELD.
-3-
<PAGE>
(f) The Tenant shall promptly deliver to the Landlord on request, copies of
assessment notices, tax bills and other documents received by the Tenant
relating to Taxes and Business Tax and receipts for payment of Taxes and
Business Tax payable by the Tenant.
(g) Tenant shall on demand, pay to the Landlord or to the appropriate taxing
authority if required by the Landlord, all goods and services taxes, sales
taxes, value added taxes, business transfer taxes, or any other taxes
imposed on the Landlord with respect to Rent or in respect of the rental of
space under this LEASE, whether characterized as a goods and services tax,
sales tax, value added tax, business transfer tax or otherwise. The
Landlord shall have the same remedies and rights with respect to the
payment or recovery of such taxes as it has for the payment or recovery of
Rent under this xxxxxxxx LEASE.
(h) THE LANDLORD ACKNOWLEDGES THAT TO THE BEST OF ITS KNOWLEDGE THAT AS OF
MARCH 24, 1997 THERE ARE NO LEVIES, ASSESSMENTS, TAXES OR CHARGES
ATTRIBUTABLE TO A LOCAL IMPROVEMENT AND THAT ARE IN DISPUTE. THE LANDLORD
FURTHER ACKNOWLEDGES AND CONFIRMS THAT THE RATE PER SQUARE FOOT WITH
RESPECT TO CAPITAL TAX REQUIRED TO BE PAID BY THE TENANT PURSUANT TO THIS
LEASE, SHALL, THROUGHOUT THE TERM, NOT BE GREATER THAN THE RATE PER SQUARE
FOOT FOR CAPITAL TAX REQUIRED TO BE PAID BY ANY OTHER TENANTS IN THE
BUILDING.
(i) SUBJECT TO THE LANDLORD'S STATUTORY AND OTHER LEGAL RIGHTS, THE LANDLORD
SHALL PAY TAXES WHEN DUE.
SECTION 2.05 PAYMENT OF ESTIMATED TAXES AND OPERATING COSTS
(a) The amount of Taxes and Operating Costs may be estimated by the Landlord
for such period as the Landlord determines from time to time NOT EXCEEDING
TWELVE MONTHS (UNLESS THE LANDLORD IS CHANGING ITS FISCAL YEAR), and the
Tenant agrees to pay to the Landlord the amounts so estimated in equal
instalments, in advance, on the first day of each month during such
period. Notwithstanding the foregoing, when bills for all or any portion of
the amounts so estimated are received, the Landlord may bill the Tenant for
the Tenant's Proportionate Share thereof (or the amount determined under
Section 2.04(d)) after crediting against such amounts any monthly payments
of estimated Taxes and Operating Costs previously made by the Tenant and
the Tenant shall pay the Landlord the amounts so billed.
(b) Within xxxxxxxxxxxx xxxxx ONE HUNDRED AND TWENTY (120) DAYS after the end
of the period for which such estimated payments have been made, the
Landlord shall submit to the Tenant a REASONABLY DETAILED STATEMENT (TO
ENABLE REASONABLE VERIFICATION BY THE TENANT AS TO ITS ACCURACY) showing
the calculation of the Tenant's Proportionate Share of Taxes and Operating
Costs together with a report from the Landlord's auditor as to the total
amount of Operating Costs. SUCH STATEMENT SHALL BE DEEMED CERTIFIED CORRECT
BY THE LANDLORD AND CONTAIN REASONABLE DETAILS OF OPERATING COSTS. If:
(i) the amount the Tenant has paid is less than the amounts due, the
Tenant shall pay such deficiency to the Landlord; or
(ii) the amount paid by the Tenant is greater than the amounts due,
the Landlord shall pay such excess to the Tenant.
The obligations contained in this subsection shall survive the expiration
or earlier termination of the Term. Failure of the Landlord to render any
statement of Taxes or Operating Costs shall not prejudice the Landlord's
right to render such statement thereafter or with respect to any other
period. The rendering of any such statement shall also not affect the
Landlord's right to subsequently render an amended or corrected statement
WITHIN THE LESSER OF TWO (2) YEARS AFTER THE END OF EACH FISCAL YEAR OR THE
SALE OF THE DEVELOPMENT BY THE LANDLORD.
-4-
<PAGE>
SECTION 2.06 ADDITIONAL RENT
Except as otherwise provided in this Lease, all Additional Rent shall be payable
by the Tenant to the Landlord within 5 business days after demand.
SECTION 2.07 RENT PAST DUE
All Rent past due shall bear interest from the date on which the same became due
until the date of payment at xxxx 2% per annum in excess of the prime interest
rate for Canadian Dollar demand loans announced from time to time by any
Canadian chartered bank designated by the Landlord.
SECTION 2.08 UTILITIES
(a) The Tenant shall pay to the Landlord, or as the Landlord directs, all gas,
electricity, water, steam and other utility charges applicable to the
Premises (EXCLUDING CHARGES FOR HVAC DURING NORMAL BUSINESS HOURS WHICH ARE
INCLUDED IN OPERATING COSTS) on the basis of the Rentable Area of the
Premises. Charges for utilities shall be payable in advance on the first
day of each month at a basic rate determined by the Landlord's engineers.
xxxxx UNLESS SEPARATELY METERED, THE Landlord shall be entitled to
allocate to the Premises an additional charge, as determined by the
Landlord's engineer, for any supply of utilities to the Premises in excess
of those covered by such basic charge DURING NORMAL BUSINESS HOURS. If any
utility rates or related taxes or charges are increased or decreased during
the Term, such charges shall be equitably adjusted and the decision of the
Landlord, acting reasonably, shall be final and binding with respect to any
such adjustment. THE LANDLORD AGREES THAT DIRECT CHARGES TO OTHER TENANTS
FOR UTILITIES, IF NOT SEPARATELY METERED, WILL BE FAIR AND EQUITABLE HAVING
REGARD TO EACH TENANT'S USAGE.
(b) The Landlord shall have the exclusive right AND OBLIGATION to replace
STANDARD bulbs, tubes and ballasts in the lighting system in the Premises,
on either an individual or a group basis. The Tenant shall pay the
REASONABLE cost of such replacement on the first day of each month or at
the option of the Landlord upon demand. AS OF THE DATE OF THIS LEASE, THE
COST OF A STANDARD LIGHT BULB OR FLUORESCENT TUBE IS $2.04 PER BULB OR TUBE
(PLUS APPLICABLE TAXES).
(c) THE LANDLORD AND TENANT SHALL SHARE EQUALLYxxxx xxx xxxxxx xxxxx xxxx the
cost of installing and maintaining any meters xxxxxxxxxx AND TIMERS USED IN
CONNECTION WITH SUCH METERS INSTALLED FROM AND AFTER THE DATE OF THE LEASE
at the request of the Landlord or the Tenant to measure the usage of
utilities in the Premises.
SECTION 2.09 ADJUSTMENT OF AREAS
The Landlord may from time to time re-measure the Net Rentable Area of the
Premises or re-calculate the Rentable Area of the Premises and may re-adjust the
Net Rent and/or the Tenant's Proportionate Share of Additional Rent accordingly.
The effective date of any such re-adjustment shall: (a) in the case of an
adjustment to the Rentable Area resulting from a change in the aggregate Net
Rentable Area of all office premises on the floor on which the Premises are
situated, be the date on which such change occurred; and (b) in the case of a
correction to any measurement or calculation error, be the date as of which such
error was introduced in the calculation of Rent.
SECTION 2.10 NET LEASE
This Lease is a completely net lease to the Landlord, except as expressly herein
set out. The Landlord is not responsible for any expenses or outlays of any
nature arising from or relating to the Premises, or the use or occupancy
thereof, or the contents thereof or the business carried on therein EXCEPT AS
EXPRESSLY SET OUT HEREIN. The Tenant shall pay all charges, impositions and
outlays of every nature and kind relating to the Premises except as expressly
herein set out.
-5-
<PAGE>
SECTION 2.11 DEPOSIT
The Landlord hereby acknowledges receipt of the Tenant's deposit cheque in
the sum of xxxFORTY SEVEN THOUSAND, FOUR HUNDRED AND SEVENTY-SIX DOLLARS AND
TWENTY-NINE CENTS ($47,476.29) which will be applied without interest against
the first Rent due under this Lease.
SECTION 2.12 ELECTRONIC DATA INTERCHANGE
At the Landlord's request AND UPON THE MUTUAL AGREEMENT OF THE LANDLORD AND
TENANT, BOTH ACTING REASONABLY, the Tenant will participate in an electronic
data interchange ("EDI") system or similar system whereby the Tenant will
authorize its bank, trust company, credit union or other financial institution
to credit the Landlord's bank account each month in an amount equal to the Net
Rent and Additional Rent payable on a monthly basis pursuant to the provisions
of this Lease.
SECTION 2.13 ADDITIONAL RENT ESTIMATE
THE LANDLORD ESTIMATES ADDITIONAL RENT FOR THE LANDLORD'S FISCAL YEAR COMMENCING
NOVEMBER 1, 1996 AND ENDING OCTOBER 31, 1997 TO BE $6.34 PER SQUARE FOOT OF
RENTABLE AREA FOR OPERATING COSTS AND $0.86 PER SQUARE FOOT OF RENTABLE AREA FOR
TENANT HYDRO-ELECTRIC CHARGES. THE LANDLORD'S ESTIMATE FOR TAXES FOR THE
CALENDAR YEAR 1997 IS $6.74 PER SQUARE FOOT OF RENTABLE AREA. THE TENANT
ACKNOWLEDGES THAT THE FOREGOING AMOUNTS ARE ESTIMATES ONLY AND ARE ONLY PROVIDED
FOR BUDGETARY PURPOSES.
ARTICLE III - CONTROL OF DEVELOPMENT
SECTION 3.01 LANDLORD'S SERVICES
(a) The Landlord shall provide climate control to the Premises during Normal
Business Hours to maintain a temperature adequate for normal occupancy,
except during the making of repairs, alterations or improvementsxxx
provided that the Landlord shall have no liability for failure to supply
climate control service when stopped as aforesaid or when prevented from
doing so by repairs, or causes beyond the Landlord's reasonable control.
Any rebalancing of the climate control system (OTHER THAN INITIAL
REBALANCING PRIOR TO THE COMMENCEMENT DATE AS PART OF LANDLORD'S WORK SET
OUT IN SECTION 12.02) in the Premises necessitated by the installation of
partitions, equipment or fixtures by the Tenant or by any use of the
Premises not in accordance with the design standards of such system will be
performed by the Landlord at the Tenant's expense. IN THE EVENT THE TENANT
REQUIRES CLIMATE CONTROL OUTSIDE OF NORMAL BUSINESS HOURS, THE LANDLORD
SHALL, ON REQUEST BY THE TENANT, MAKE SUCH CLIMATE CONTROL AVAILABLE AT A
COST DURING THE WHOLE OF THE TERM, OF FORTY DOLLARS ($40.00) PER HOUR PLUS
APPLICABLE TAXES.
(b) Subject to the Rules and Regulations, the Landlord shall provide elevator
service in the Building during Normal Business Hours for use by the Tenant
in common with others, except when prevented by repairs. The Landlord will
operate at least one passenger elevator in the Building for use by tenants
at all times OR SUCH ADDITIONAL ELEVATORS AS MAY BE REASONABLY REQUIRED.
SUBJECT TO THE RULES AND REGULATIONS, THE LANDLORD SHALL PERMIT THE TENANT
ACCESS AT ALL TIMES TO THE PREMISES BY WAY OF THE MAIN ENTRANCE OR
ENTRANCES OF THE BUILDING AND TO USE AVAILABLE ELEVATORS, STAIRWAYS AND
PASSAGES AT ALL TIMES SUBJECT TO EMERGENCY REPAIR AND THE LANDLORD'S
SECURITY REQUIREMENTS FROM TIME TO TIME.
(c) The Landlord will provide cleaning services in the Building consistent with
the standards of a first class office building.
(d) Subject to Section 2.08, the Landlord shall make available to the Premises
electricity for normal lighting and miscellaneous power requirements and,
in normal quantities gas, water, and other public utilities generally made
available to other leasable premises in the Building
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by the Landlord.
(e) THE LANDLORD REPRESENTS THAT AS OF THE DATE OF THIS LEASE THERE ARE NO
POLYCHLORINATED BIPHENYLS STORED IN THE BUILDING EXCEPT IN ACCORDANCE WITH
ALL APPLICABLE ENVIRONMENTAL PROTECTION LEGISLATION. THE LANDLORD SHALL
COMPLY WITH THE PROVISIONS OF ANY FEDERAL, PROVINCIAL, REGIONAL OR
MUNICIPAL LAWS APPLICABLE TO THE DEVELOPMENT WITH RESPECT TO MAINTAINING A
CLEAN ENVIRONMENT SUBJECT TO THE LANDLORD'S RIGHTS TO APPEAL UNDER ANY SUCH
LAWS.
(f) THE LANDLORD AGREES TO USE REASONABLE COMMERCIAL EFFORTS TO MINIMIZE
OPERATING COSTS HAVING REGARD TO THE LANDLORD'S OBLIGATIONS PURSUANT TO
THIS LEASE AND TO OTHER TENANTS IN THE DEVELOPMENT AND THE FIRST CLASS
NATURE OF THE DEVELOPMENT.
SECTION 3.02 ALTERATIONS BY LANDLORD
The Landlord may:
(a) alter, add to, subtract from, construct improvements to, rearrange, and
build additional buildings in the Development;
(b) construct additional facilities adjoining or near the Development;
(c) build additional storeys on the Building;
(d) relocate the facilities and improvements comprising the Developmentxxxx
xxxxxx xx xxxxx xxx xx xxxxx xx xxx xxxxxx xxxxxxxx EXCLUDING ANY PORTION
OF THE PREMISES:
(e) do such things on, or in the Development as are required to comply with any
laws, by-laws, regulations, orders or directives affecting the Development;
and
(f) do such other things on or in the Development as the Landlord, in the use
of good business judgment AND HAVING REGARD TO THE FIRST CLASS STANDARD OF
THE DEVELOPMENT determines to be advisable;
provided that notwithstanding anything contained in this Section, access to the
Premises shall at all times be available from the elevator lobbies of the
Building.
The Landlord shall not be in breach of its covenant for quiet enjoyment or
liable for any loss, costs or damages, whether direct or indirect, incurred by
the Tenant due to THE LANDLORD EXERCISING ITS RIGHTS IN ACCORDANCE WITH any of
the foregoing.
ARTICLE IV - ACCESS AND ENTRY
SECTION 4.01 RIGHT OF EXAMINATION
The Landlord shall be entitled at all reasonable times (and at any time in case
of emergency) AND ON REASONABLE PRIOR NOTICE (EXCEPT IN CASE OF EMERGENCY) to
enter the Premises to examine them; to make such repairs, alterations or
improvements in the Premises as the Landlord considers REASONABLY necessary xxx
xxx; to have access to underfloor ducts and access panels to mechanical shafts;
to check, calibrate, adjust and balance controls and other parts of the heating
systems; and for any other purpose necessary to enable the Landlord to perform
its obligations or exercise its rights under this Lease. The Tenant shall not
obstruct any pipes, conduits or mechanical or electrical equipment so as to
prevent reasonable access thereto. The Landlord shall exercise its rights under
this Section, to the extent possible in the circumstances, in such manner so as
to minimize interference with the Tenant's use and enjoyment of the Premises.
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SECTION 4.02 RIGHT TO SHOW PREMISES
The Landlord and its agents shall have the right ON REASONABLE PRIOR NOTICE to
enter the Premises at all reasonable times during Normal Business Hours to show
them to prospective purchasers, or Mortgagees or prospective Mortgagees, and,
during the last six months of the Term (or the last six months of any renewal
term if this Lease is renewed), to prospective tenants.
SECTION 4.03 ENTRY NOT FORFEITURE
No entry into the Premises or anything done therein by the Landlord pursuant to
a right granted by this Lease shall constitute a breach of any covenant for
quiet enjoyment, or (except where expressed by the Landlord in writing) shall
constitute a re-entry or forfeiture, or an actual or constructive eviction. The
Tenant shall have no claim for injury, damages or loss suffered as a result of
any such entry or thing, except in the case of ILLEGAL OR willful misconduct by
the Landlord in the course of such entry, but the Landlord shall in no event be
responsible for the acts or negligence of any Persons providing cleaning REPAIR
OR MAINTENANCE services in the Building. LANDLORD SHALL USE COMMERCIALLY
REASONABLE EFFORTS TO ENSURE THAT ALL PERSONS PROVIDING SUCH SERVICES AND ALL OF
ITS EMPLOYEES ARE BONDED OR OTHERWISE INSURED BY WAY OF COMPARABLE COVERAGE.
ARTICLE V - MAINTENANCE, REPAIRS AND ALTERATIONS
SECTION 5.01 MAINTENANCE BY LANDLORD
(a) The Landlord covenants to keep the following in good repair, ORDER AND
CONDITION as a prudent owner IN ACCORDANCE WITH FIRST CLASS OFFICE BUILDING
STANDARDS:
(i) the structure of the xxxxxxxxxx DEVELOPMENT including exterior
walls, WINDOWS and roofs;
(ii) the mechanical, electrical and other base building systems xxx and
WASHROOMS: AND
(iii) the entrance, lobbies, plazas, stairways, corridors, parking areas
and other facilities from time to time provided for use in common by
the Tenant and other tenants of the xxxxxxxxxx DEVELOPMENT.
If such maintenance or repairs are required by law due to the business
carried on by the Tenant (OTHER THAN THE USES PERMITTED UNDER SECTION
1.04), then the full cost of such maintenance and repairs plus a sum equal
to xxxxx 10% of such cost representing the Landlord's overhead, shall be
paid by the Tenant to the Landlord.
(b) The Landlord shall not be responsible for any damages caused to the Tenant
by reason of failure of any equipment or facilities serving the Development
or delays in the performance of any work for which the Landlord is
responsible under this Lease SAVE AND EXCEPT ONLY THE NEGLIGENCE OF THE
LANDLORD. The Landlord shall have the right to stop, interrupt or reduce
any services, systems or utilities provided to, or serving the Development
or Premises to perform repairs, alterations or maintenance or to comply
with laws or regulations, or binding requirements of its insurers, or for
causes beyond the Landlord's reasonable control or as a result of the
Landlord exercising its rights under Section 3.02. The Landlord shall not
be in breach of its covenant for quiet enjoyment or liable for any loss,
cost or damages, whether direct or indirect, incurred by the Tenant due to
any of the foregoing, but the Landlord shall make reasonable BEST efforts
to restore the services, utilities or systems so stopped, interrupted or
reduced AS EXPEDITIOUSLY AS POSSIBLE.
(c) If the Tenant fails to carry out any maintenance, repairs or work required
to be carried out by it under this Lease to the reasonable satisfaction of
the Landlord AND SUCH IS AN EVENT OF DEFAULT, the Landlord may at its
option carry out such maintenance or repairs without any
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liability for any resulting damage to the Tenant's property or business.
The cost of such work, plus a sum equal to xxxxx 10% of such cost
representing the Landlord's overhead, shall be paid by the Tenant to the
Landlord.
SECTION 5.02 MAINTENANCE BY TENANT; COMPLIANCE WITH LAWS
(a) The Tenant shall at its sole cost repair and maintain the Premises
exclusive of base building mechanical and electrical systems, all to a
standard consistent with a first class office building, with the exception
only of those repairs which are the obligation of the Landlord under this
Leasexxx AND subject to Article VII. The Landlord may ON REASONABLE PRIOR
NOTICE (EXCEPT IN CASE OF AN EMERGENCY) enter the Premises at all
reasonable times to view their condition and the Tenant shall maintain and
keep the Premises in good and substantial repair according to notice in
writing. At the expiration or earlier termination of the Term, the Tenant
shall surrender the Premises to the Landlord in as good condition and
repair as the Tenant is required to maintain the Premises throughout the
Term SUBJECT TO ARTICLE VII.
(b) The Tenant shall, at its own expense, promptly comply with all laws,
by-laws, government orders and with all reasonable requirements or
directives of the Landlord's insurers affecting the Premises or their use,
repair or alteration UNLESS SUCH ARE THE LANDLORD'S RESPONSIBILITY UNDER
THIS LEASE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE TENANT
SHALL COMPLY WITH THE PROVISIONS OF ANY FEDERAL, PROVINCIAL, REGIONAL OR
MUNICIPAL LAWS APPLICABLE TO THE TENANT AND THE PREMISES WITH RESPECT TO
MAINTAINING A CLEAN ENVIRONMENT (SUBJECT TO THE TENANT'S RIGHTS TO APPEAL
UNDER ANY SUCH LAWS). ON TERMINATION OF THE LEASE, THE TENANT SHALL LEAVE
THE PREMISES IN A CLEAN AND TIDY CONDITION FREE OF ANY ENVIRONMENTAL
CONTAMINATION THAT DID NOT EXIST AS AT THE BEGINNING OF THE FIXTURING
PERIOD AND THAT RESULTED FROM THE TENANT'S OCCUPATION OR USE OF THE
PREMISES.
SECTION 5.03 APPROVAL OF TENANT'S ALTERATIONS
(a) No Alterations shall be made to the Premises without the Landlord's written
approval. The Tenant shall submit to the Landlord details of the proposed
work including drawings and specifications prepared by qualified architects
or engineers conforming to good engineering practice. THE LANDLORD SHALL
RESPOND TO THE TENANT'S REQUEST FOR APPROVAL WITHIN SEVEN (7) DAYS
FOLLOWING RECEIPT OF ALL REQUIRED DRAWINGS, SPECIFICATIONS AND OTHER
DETAILS. All such Alterations shall be performed:
(i) at the sole cost of the Tenant;
(ii) by contractors and workmen approved by the Landlord IN WRITING, SUCH
APPROVAL NOT TO BE UNREASONABLY WITHHELD OR DELAYED;
(iii) in a good and workmanlike manner;
(iv) in accordance with drawings and specifications approved by the
Landlord, SUCH APPROVAL NOT TO BE UNREASONABLY WITHHELD OR DELAYED;
(v) in accordance with all applicable legal and insurance requirements;
(vi) subject to the reasonable regulations, supervision, control and
inspection of the Landlord; and
(vii) IF THE LANDLORD, ACTING REASONABLY, DETERMINES THAT THE TENANT'S
FINANCIAL ABILITY TO PERFORM OR PAY FOR SUCH ALTERATIONS IS NOT
SATISFACTORY, subject to such indemnification against liens and
expenses as the Landlord reasonably requires.
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The Landlord's reasonable cost of supervising all such work shall be paid
by the Tenant OTHER THAN THE TENANT'S INITIAL WORK CARRIED OUT PURSUANT TO
SECTION 12.03 IN RESPECT OF THE PREMISES, THE FIRST ADDITIONAL PREMISES AND
THE SPECIAL REFUSAL SPACE (IF APPLICABLE).
(b) If the Alterations would affect the structure of the Building or any of the
electrical, plumbing, mechanical, heating, ventilating or air conditioning
systems or other base building systems, such work shall at the option of
the Landlord be performed by the Landlord ON A COMPETITIVE PRICE BASIS at
the Tenant's cost. On completion of such work, the cost of the work plus a
sum equal to xxxxx 10% of said cost representing the Landlord's overhead,
shall be paid to the Landlord. WITH RESPECT TO ALTERATIONS THAT WOULD
AFFECT ANY OF THE ELECTRICAL, PLUMBING, MECHANICAL, HEATING, VENTILATING OR
AIR CONDITIONING SYSTEMS OR OTHER BASE BUILDING SYSTEMS OF THE BUILDING,
THE LANDLORD, DESPITE THE FOREGOING PROVISION OF THIS SECTION 5.03(b) IN
RESPECT OF SUCH SYSTEMS, WILL NOT UNREASONABLY WITHHOLD ITS APPROVAL TO THE
TENANT CARRYING OUT WORK IN ACCORDANCE WITH ANY REASONABLE CRITERIA OF THE
LANDLORD FOR CARRYING OUT SUCH WORK.
(c) If the Tenant installs Leasehold Improvements, or makes Alterations which
depart from the Building standard and which restrict access by the Landlord
to any Building system, or which restrict the installation of the leasehold
improvements of any other tenant in the Building AND SUCH HAVE NOT BEEN
APPROVED BY THE LANDLORD OR REFERRED TO IN ANY PLANS SO APPROVED, then the
Tenant shall be responsible for all costs incurred by the Landlord in
obtaining access to such Building system, or in installing such other
tenant's leasehold improvements.
SECTION 5.04 REPAIR WHERE TENANT AT FAULT
Notwithstanding any other provisions of this Lease but subject to Section xxxxxx
6.08, if the Development is damaged or destroyed or requires repair, replacement
or alteration as a result of the act or omission of the Tenant, its employees,
agents, invitees, licensees, contractors or others for whom it is in law
responsible, the cost of the resulting repairs, replacements or alterations plus
a sum equal to xxxxx 10% of such cost representing the Landlord's overhead,
shall be paid by the Tenant to the Landlord.
SECTION 5.05 REMOVAL OF IMPROVEMENTS AND FIXTURES
All Leasehold Improvements (other than Trade Fixtures) shall immediately upon
their placement become the Landlord's property without compensation to the
Tenant. Except as otherwise agreed by the Landlord in writing, no Leasehold
Improvements shall be removed from the Premises by the Tenant either during or
at the expiry or sooner termination of the Term except that:
(a) the Tenant may, during the Term, in the usual course of its business,
remove its Trade Fixtures, provided xxxxx xxx xxxxxxx THERE is not xxx
xxxxxxx xxxxx xxxx xxxxxxx AN EVENT OF DEFAULT; and
(b) the Tenant shall, at the expiration or earlier termination of the Term, at
its sole cost remove its Trade Fixtures from the Premises, failing which,
at the option of the Landlord, the Trade Fixtures shall become the property
of the Landlord and may be removed from the Premises and sold or disposed
of by the Landlord in such manner as it deems advisable; and
(c) the Tenant shall NOT, at the expiration or earlier termination of the Term,
xxx xxx xxxx xxxxx BE REQUIRED TO remove xxxxxx ANY of xxxxx ITS Leasehold
Improvements in the Premises xxx xxx xxx xx xx xxxx OR restore the
Premises xxx xxx xxxx xx xxx xxxxx xxx xxx x xxx xx xxx xxx xxx xxx xx
xxx xx xxx xxx xxxxx xxxxx xxx xxx xxxxxx xxxxx xxxxxx xxxxxxxx xx xxx
xxxxxxxx xxx xxx xxxxx xxx xxx xxxx xxxxx xx xxxxxxxxx xxxxx xxx
xxxxxxxxxxx xx xxx xxxx xxx xxxxx xxxx xx xxx xxxxxx xxx xxxxxx xxxxxx xx
xxx xx xxxx xxx xxxxx xxx xxxxxx xxxxx xx xxxx xxxx xxxx xx xxxx xxx
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xxxxxxxx xx xxx xxxxx xxx xxxxxx xxxxx xxx xx xxx xxx xxxx xxx xxxx
xxxx xxx xxxxx xxx xx xx xxxx xxxxx xxx xxxx xxxxx xx xxxxxxxxxx xx xxxxxxx
xxxxxx xxx xxxx xxxxx xxx xxxxxx xx xxxxxxx xxxxxxxxxxx xx xxx xxxxx xxxxx
xxx xx xxxxxx xx xxx xx xxx xxxxxxxxxx xxxxxxxx xx xxx xx xxx xxx xxx
xxxx xx xxx xx xxx PROVIDED THAT THE TENANT SHALL LEAVE THE PREMISES IN
GOOD AND SUBSTANTIAL REPAIR AND SHALL REPAIR ALL DAMAGE IN ACCORDANCE WITH
ITS OBLIGATIONS UNDER THE LEASE BUT SUBJECT TO ARTICLE VII.
SECTION 5.06 LIENS
The Tenant shall promptly pay for all materials supplied and work done in
respect of the Premises so as to ensure that no lien is registered against any
portion of the Development or against the Landlord's or Tenant's interest
therein. If a lien is registered or filed, the Tenant shall discharge xxxxxxxx
OR VACATE IT AT ITS EXPENSE AS EXPEDITIOUSLY AS POSSIBLE AND IN ANY EVENT WITHIN
TEN (10) DAYS OF WRITTEN NOTICE FROM THE LANDLORD ADVISING OF SUCH LIEN, failing
which the Landlord may at its option xxxxxx VACATE the lien by paying the amount
claimed to be due into court xxx and the amount so paid and all expenses of the
Landlord including legal fees (on a solicitor and client basis) shall be paid by
the Tenant to the Landlord.
SECTION 5.07 NOTICE BY TENANT
The Tenant shall notify the Landlord of any accident, defect, damage or
deficiency in any part of the Premises or the Development which comes to the
attention of the Tenant, its employees or contractors notwithstanding that the
Landlord may have no obligation in respect thereof.
ARTICLE VI - INSURANCE AND INDEMNITY
SECTION 6.01 TENANT'S INSURANCE
(a) The Tenant shall maintain the following insurance throughout the Term at
its sole cost:
(i) "All Risks" (including flood and earthquake) property insurance with
reasonable deductibles, naming the Landlord, the owners of the
Development and the Mortgagee as xxxxxxxx xxxxxxxx xxx xxx xxxxxx
xxxxx xxx xxxxxxxx xxx xxxx xxx xxx xxxxxxx xxxxx xxx xxxx xxx xx
xxx ADDITIONAL INSURED PARTIES and (except with respect to the
Tenant's TRADE FIXTURES AND chattels) incorporating the Mortgagee's
standard mortgage clause. Such insurance shall insure:
(1) xx xxxxx xxxx xxxxx xx xxx xxxx xxx TENANT'S TRADE FIXTURES,
EQUIPMENT AND LEASEHOLD IMPROVEMENTS for which the Tenant is
legally liable located on or in the Development xxxx in an
amount equal to not less than 90% of the hill replacement
cost thereof, subject to a stated amount co-insurance
clause; and
(2) xxxxxx BUSINESS INTERRUPTION insurance in such amount as
will reimburse the Tenant for loss attributable to all
perils referred to in this paragraph 6.01(a)(i) or resulting
from prevention of access to the Premises.
(ii) Comprehensive general liability insurance which includes the
following coverages:
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owners protective; personal injury; occurrence property damage; and
employers and blanket contractual liability. Such policies shall
contain inclusive limits of not less than $5,000,000, provide for
cross liability, and name the Landlord as an ADDITIONAL insured.
(iii) Tenant's "all risks" legal liability insurance for the replacement
cost value of the Premises;
(iv) Automobile liability insurance on a non-owned form including
contractual liability, and on an owner's form covering all licensed
vehicles operated by or on behalf of the Tenant, which insurance
shall have inclusive limits of not less than $1,000,000; and
(v) Any other form of insurance which the Tenant or the Landlord, acting
reasonably, or the Mortgagee REASONABLY requires from time to time
in form, in amounts and for risks against which a prudent tenant
would insure.
SO LONG AS THE TENANT IS LOYALTY MANAGEMENT GROUP OF CANADA INC., A RELATED
TRANSFEREE OR THE PURCHASER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF
THE TENANT, THE TENANT SHALL BE ENTITLED TO SELF INSURE WITH RESPECT TO
BUSINESS INTERRUPTION INSURANCE PURSUANT TO SECTION 6.01(a)(i)(2) AND
EMPLOYERS AND BLANKET CONTRACTUAL LIABILITY COVERAGE PURSUANT TO SECTION
6.01(a)(ii), BUT SHALL BE DEEMED, FOR THE PURPOSES OF THIS LEASE, TO HAVE
SATISFACTORILY TAKEN OUT SUCH INSURANCE COVERAGE.
(b) All policies referred to in this Section 6.01 shall:
(i) be taken out with insurers reasonably acceptable to the Landlord;
(ii) be in a form reasonably satisfactory to the Landlord;
(iii) IN RESPECT OF PROPERTY INSURANCE UNDER SECTION 6.01(a)(i) AND IN
RESPECT OF INSURANCE UNDER SECTION 6.01(a)(ii) FOR OCCURRENCES ONLY
WITHIN THE PREMISES, be non-contributing with, and shall apply only
as primary and not as excess to any other insurance available to the
Landlord;
(iv) not be invalidated as respects xxxxx ANY interests of the Landlord
or the Mortgagee by reason of any breach of or violation of any
warranty, representation, declaration or condition; and
(v) contain an undertaking by the insurers to notify the Landlord by
registered mail not less than 30 days prior to any material change,
cancellation or termination.
Certificates of insurance xxx xxx xxxxxxxxxxx xxxxxxxx xxxxx or other proof
of insurance as reasonably required by the Landlord, shall be delivered to
the Landlord prior to the Commencement Date and from time to time,
forthwith upon REASONABLE request. If the Tenant fails to take out or to
keep in force any insurance referred to in this Section 6.01 or should any
such insurance not be approved by either the Landlord or the Mortgagee and
should the Tenant not commence to diligently rectify (and thereafter
proceed to diligently rectify) the situation within xxx xxxxxx FIVE (5)
DAYS after written notice by the Landlord to the Tenant (stating, if the
Landlord or the Mortgagee, from time to time, does not approve of such
insurance, the reasons therefor) the Landlord has the right without
assuming any obligation in connection therewith, to effect such insurance
at the sole cost of the Tenant and all outlays by the Landlord shall be
paid by the Tenant to the Landlord without prejudice to any other rights or
remedies of the Landlord under this Lease.
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SECTION 6.02 INCREASE IN INSURANCE PREMIUMS
The Tenant shall not keep or use in the Premises any article which may be
prohibited by any fire insurance policy in force from time to time covering the
Premises or the Building. If:
(a) the IMPROPER conduct of business in, or use or manner of use of the
Premises;
(b) or any acts or omissions of the Tenant in the Development or any part
thereof;
cause or result in any increase in premiums for any insurance carried by the
Landlord with respect to the Development, the Tenant shall pay any such increase
in premiums.
In determining whether increased premiums are caused by or result from the use
or occupancy of the Premises, a schedule issued by the organization computing
the insurance rate on the Development showing the various components of such
rate, shall be conclusive evidence of the items and charges which make up such
rate.
SECTION 6.03 CANCELLATION OF INSURANCE
If any insurer under any insurance policy covering any part of the Development
or any occupant thereof cancels or threatens to cancel its insurance policy or
reduces or threatens to reduce coverage under such policy by reason of the
IMPROPER use of the Premises by the Tenant or by any assignee or subtenant of
the Tenant, or by anyone permitted by the Tenant to be upon the Premises, the
Tenant shall remedy such condition within xxx xxxxxx FIVE (5) DAYS after notice
thereof by the Landlord.
SECTION 6.04 LOSS OR DAMAGE
The Landlord shall not be liable for any death or injury arising from or out of
any occurrence in, upon, at, or relating to the Development or damage to
property of the Tenant or of others located on the Premises or elsewhere in the
Development, nor shall it be responsible for any loss of or damage to any
property of the Tenant or others from any cause, whether or not any such death,
injury, loss or damage results from the negligence of the Landlord, its agents,
employees, contractors, or others for whom it may, in law, be responsible SAVE
AND EXCEPT TO THE EXTENT SUCH LOSS, INJURY OR DAMAGE EXCEEDS INSURANCE PROCEEDS
THE TENANT RECEIVES OR OUGHT TO HAVE RECEIVED UNDER POLICIES OF INSURANCE
REQUIRED TO BE PLACED BY THE TENANT HEREUNDER. Without limiting the generality
of the foregoing, the Landlord, EXCEPT AS AFORESAID shall not be liable for any
injury or damage to Persons or property resulting from fire, explosion, falling
plaster, falling ceiling tile, falling fixtures, steam, gas, electricity, water,
rain, flood, snow or leaks from any part of the Premises or from the pipes,
sprinklers, appliances, plumbing works, roof, windows or subsurface of any floor
or ceiling of the Building or from the street or any other place or by dampness
or by any other cause whatsoever. The Landlord shall not be liable for any such
damage caused by other tenants or Persons on the Development or by occupants of
adjacent property thereto, or the public, or caused by construction or by any
private, public or quasi-public work. All property of the Tenant kept or stored
on the Premises shall be so kept or stored at the risk of the Tenant only and
the Tenant, EXCEPT AS AFORESAID, releases and agrees to indemnify the Landlord
and save it harmless from any claims arising out of any damage to the same
including, without limitation, any subrogation claims by the Tenant's insurers.
SECTION 6.05 LANDLORD'S INSURANCE
The Landlord shall throughout the Term carry:
(a) insurance on the Building ON A 100% REPLACEMENT COST BASIS (excluding the
foundations and excavations) and the machinery, boilers and equipment in or
servicing the Building and owned by the Landlord or the owners of the
Building (excluding any property which the Tenant and other tenants are
obliged to insure under Section 6.01 or similar sections of their
respective
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leases) against xx xxxx xxx xxxxxx "ALL RISKS" PROPERTY INSURANCE
INCLUDING FLOOD, EARTHQUAKE AND COLLAPSE RESULTING FROM INSURED PERILS:
(b) LOSS OF RENTAL INCOME INSURANCE INSURING RENTAL INCOME FOR A PERIOD OF NOT
LESS THAN TWELVE (12) MONTHS:
(c) COMPREHENSIVE GENERAL LIABILITY INSURANCE WHICH INCLUDES THE FOLLOWING
COVERAGES: OWNER'S PROTECTIVE; PERSONAL INJURY; OCCURRENCE PROPERTY DAMAGE;
AND EMPLOYERS AND BLANKET CONTRACTUAL LIABILITY with respect to the
Landlord's operations in the Development xxxxxx IN AN AMOUNT OF NOT LESS
THAN FIVE MILLION ($5,000,000.00) DOLLARS; AND
(d) such other form or forms of insurance as the Landlord or the Mortgagee
reasonably considers advisable.
Such insurance shall be in such reasonable amounts and with such reasonable
deductibles as would be carried by a prudent owner of a reasonably similar
development, having regard to size, age and location. LANDLORD SHALL PROVIDE THE
TENANT WITH CERTIFICATES OF INSURANCE ON REASONABLE REQUEST BY THE TENANT FROM
TIME TO TIME.
Notwithstanding the Landlord's covenant in this Section and notwithstanding any
contribution by the Tenant to the cost of the Landlord's insurance premiums, the
Tenant acknowledges and agrees that:
(i) subject to Section xxxxxx 6.08, the Tenant is not relieved of any
liability arising from or contributed to by its negligence or its
willful act or omissions;
(ii) no insurable interest is conferred upon the Tenant under any insurance
policies carried by the Landlord; and
(iii) the Tenant has no right to receive any proceeds of any insurance
policies carried by the Landlord.
SECTION 6.06 INDEMNIFICATION OF THE LANDLORD
xxxxxxxxxxxxxxxx xxx xxxxx xxxxxxxxx xx xxxx xxxxxx SUBJECT TO SECTION 6.08, the
Tenant shall indemnify the Landlord and save it harmless from all loss
(including loss of Net Rent and Additional Rent) claims, actions, damages,
liability and expense in connection with loss of life, personal injury, damage
to property or any other loss or injury whatsoever arising out of this Lease, or
any occurrence in, upon or at the Premises, or the occupancy or use by the
Tenant of the Premises or any part thereof, or occasioned wholly or in part by
any NEGLIGENT act or omission of the Tenant or by anyone permitted to be on the
Premises by the Tenant EXCEPT TO THE EXTENT SUCH LOSS, INJURY OR DAMAGE WAS
CAUSED BY THE NEGLIGENCE OF THE LANDLORD OR THOSE FOR WHOM THE LANDLORD IS IN
LAW RESPONSIBLE. If the Landlord shall, without fault on its part, be made a
party to any litigation commenced by or against the Tenant, then the Tenant
shall protect, indemnify and hold the Landlord harmless in connection with such
litigation. The Landlord ACTING REASONABLY may, at its option, participate in
xxx xxxxxx xxxxxxxx xxx any litigation or settlement discussions relating to the
foregoing, or any other matter for which the Tenant is required to indemnify the
Landlord under this Lease.
SECTION 6.07 INDEMNIFICATION OF THE TENANT
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE AND SUBJECT TO SECTION
6.09, THE LANDLORD SHALL INDEMNIFY THE TENANT AND SAVE IT HARMLESS FROM ALL
CLAIMS, ACTIONS, DAMAGES, LIABILITIES AND EXPENSES IN CONNECTION WITH LOSS OF
LIFE, PERSONAL INJURY, DAMAGE TO PROPERTY OR ANY OTHER LOSS OR INJURY WHATSOEVER
TO THE EXTENT CAUSED OR OCCASIONED BY ANY NEGLIGENT ACT OR OMISSION OF THE
LANDLORD, OR PERSONS FOR WHOM THE LANDLORD IS IN LAW RESPONSIBLE IN, UPON OR AT
THE COMMON ELEMENTS OF THE BUILDING, EXCEPT TO THE EXTENT SUCH LOSS, INJURY OR
DAMAGES WAS CAUSED
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BY the negligence of the Tenantxxxxxx xxxx xxx xxxxxx
xxxxxxxx xx xxxxxx xxxxxxx xxxx xxx xxxxxx xxxxxx xxx OR PERSONS FOR WHOM
THE TENANT IS IN LAW RESPONSIBLE.
SECTION 6.08 RELEASE BY THE LANDLORD
THE TENANT, AND PERSONS FOR WHOM IT IS IN LAW RESPONSIBLE, ARE NOT RESPONSIBLE
FOR ANY PART OF ANY LOSS OR DAMAGE TO PROPERTY OF THE LANDLORD THAT IS LOCATED
IN, OR AS PART OF THE DEVELOPMENT CAUSED BY ANY OF THE PERILS OR CAUSES FOR
WHICH THE LANDLORD IS REQUIRED UNDER SECTION 6.05 TO MAINTAIN INSURANCE.
SECTION 6.09 RELEASE BY THE TENANT
THE LANDLORD, AND PERSONS FOR WHOM IT IS IN LAW RESPONSIBLE, ARE NOT RESPONSIBLE
FOR ANY PART OF ANY LOSS OR DAMAGE TO PROPERTY OF THE TENANT THAT IS LOCATED IN,
OR AS PART OF THE PREMISES CAUSED BY ANY OF THE PERILS OR CAUSES FOR WHICH THE
TENANT IS REQUIRED UNDER SECTION 6.01 TO MAINTAIN INSURANCE.
ARTICLE VII - DAMAGE AND DESTRUCTION
SECTION 7.01 NO ABATEMENT
If the Premises, the Building or the Development are damaged or destroyed in
whole or in part by fire or any other occurrence, this Lease shall continue in
full force and effect and there shall be no abatement of Rent except as provided
in this Article VII.
SECTION 7.02 DAMAGE TO PREMISES
If the Premises are at any time destroyed or damaged as a result of fire or any
other casualty required to be insured against by the Landlord under this Lease
or otherwise insured against by the Landlord xxxx xxx xxxxxx xx xx xx xxx
xxxxxxxx then the following provisions shall apply:
(a) if the Premises are rendered untenantable only in part, the Landlord shall
diligently repair the Premises to the extent only of its obligations under
Section 5.01 and xxxxx, PROVIDED THE LANDLORD, OR ITS ASSIGNEE OF INSURANCE
PROCEEDS, RECEIVES SUFFICIENT FUNDS UNDER ITS RENTAL INCOME INSURANCE IT IS
REQUIRED TO OBTAIN PURSUANT TO SECTION 6.05(b). Rent shall abate
proportionately to the portion of the Premises rendered untenantable from
the date of destruction or damage until the Landlord's repairs have been
completed AND THE TENANT'S REPAIRS HAVE BEEN COMPLETED SUBJECT TO SECTION
7.02(d);
(b) if the Premises are rendered wholly untenantable, the Landlord shall
diligently repair the Premises to the extent only of its obligations
pursuant to Section 5.01 and xxxxx, PROVIDED THE LANDLORD, OR ITS ASSIGNEE
OF INSURANCE PROCEEDS, RECEIVES SUFFICIENT FUNDS UNDER ITS RENTAL INCOME
INSURANCE IT IS REQUIRED TO OBTAIN PURSUANT TO SECTION 6.05(b). Rent shall
abate entirely from the date of destruction or damage until the Landlord's
repairs have been completed AND THE TENANT'S REPAIRS HAVE BEEN COMPLETED
SUBJECT TO SECTION 7.02(d);
(c) if the Premises are not rendered untenantable in whole or in part, the
Landlord shall diligently perform such repairs to the Premises to the
extent only of its obligations under Section 5.01, but in such
circumstances xxxxx Rent shall not terminate or abate;
(d) upon being notified by the Landlord that the Landlord's repairs have been
substantially completed, the Tenant shall WITHIN NINETY (90) DAYS (AS SUCH
PERIOD MAY BE EXTENDED BY THE DURATION OF ANY DELAY CONTEMPLATED BY SECTION
11.02), diligently perform all repairs to the Premises which are the
Tenant's responsibility under Section 5.02xxx and all other work required
to fully restore the Premises for use in the Tenant's business, in every
case at the
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Tenant's cost and without any contribution to such cost by the
Landlord, whether or not the Landlord has at any time made any contribution
to the cost of supply, installation or construction of Leasehold
Improvements in the Premises;
(e) nothing in this Section shall require the Landlord to rebuild the Premises
in the condition which existed before any such damage or destruction so
long as the Premises as rebuilt will have reasonably similar facilities to
those in the Premises prior to such damage or destruction, having regard,
however, to the age of the Building at such time; and
(f) PROVIDED THE LANDLORD HAS OBTAINED INSURANCE AS REQUIRED PURSUANT TO
SECTION 6.05(a), nothing in this Section shall require the Landlord to
undertake any repairs having a cost in excess of the insurance proceeds
actually received by the Landlord with respect to such damage or
destruction.
SECTION 7.03 RIGHT OF TERMINATION
Notwithstanding Section 7.02, if the damage or destruction which has occurred
in the Premises is such that in the reasonable opinion of the Landlord the
Premises cannot be rebuilt or made fit for the purposes of the Tenant within
xxxx 120 days of the happening of the damage or destruction, the Landlord OR
THE TENANT may, at its option, terminate this Lease on notice to the xxxxx
OTHER given within 30 days after such damage or destruction. If THE DAMAGE
OR DESTRUCTION WHICH HAS OCCURRED IN THE PREMISES IS NOT AS A RESULT OF FIRE
OR ANY OTHER CASUALTY REQUIRED TO BE INSURED AGAINST BY THE LANDLORD UNDER
THIS LEASE OR OTHERWISE INSURED AGAINST BY THE LANDLORD AND THE COST OF
REPAIR IS IN EXCESS OF $100,000.00, THE LANDLORD OR THE TENANT MAY, AT THEIR
OPTION, TERMINATE THIS LEASE ON NOTICE TO THE OTHER GIVEN WITHIN THIRTY (30)
DAYS AFTER SUCH DAMAGE OR DESTRUCTION. BOTH THE LANDLORD AND THE TENANT AGREE
TO ACT IN A COMMERCIALLY REASONABLE MANNER IN EXERCISING THEIR OPTION TO
TERMINATE THIS LEASE PURSUANT TO THE PROVISIONS OF THIS SECTION 7.03 AND
LANDLORD AGREES THAT IT WILL NOT EXERCISE ITS OPTION TO TERMINATE PURSUANT TO
THIS SECTION 7.03 SOLELY TO DEPRIVE THE TENANT OF ITS INTEREST IN THIS LEASE
OR TO TERMINATE THIS LEASE IN A MANNER THAT IN DISCRIMINATORY AGAINST THE
TENANT IN RELATION TO ITS TREATMENT OF OTHER TENANTS IN THE DEVELOPMENT. IF
NO such notice of termination is given, THE LANDLORD SHALL REPAIR AND RENT
SHALL ABATE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 7.02. IF ANY SUCH
NOTICE OF TERMINATION IS GIVEN, Rent shall be apportioned and paid to the
date of such damage or destruction and the Tenant shall immediately deliver
vacant possession of the Premises in accordance with the terms of this Lease
AND ALL PROCEEDS OF TENANT'S INSURANCE WITH RESPECT TO ITS CHATTELS AND TRADE
FIXTURES SHALL BE PAID TO THE TENANT. THE LANDLORD AGREES TO RELEASE ITS
INTEREST IN THE TENANT'S INSURANCE WITH RESPECT TO THE LEASEHOLD IMPROVEMENTS
TO THE EXTENT THAT THE LANDLORD RECEIVES PROCEEDS FROM THE LANDLORD'S
INSURANCE TO COVER THE LOSS OF THE LEASEHOLD IMPROVEMENTS.
SECTION 7.04 DESTRUCTION OF BUILDING
(a) Notwithstanding any other provision of this Lease, if
(i) 35% or more of the Total Rentable Area of the Building is destroyed
or damaged by any cause; or
(ii) 35% or more of the Total Rentable Area of the Development is
destroyed or damaged by any cause; or
(iii) portions of the Building or Lands which affect
access or services essential thereto are damaged or destroyed; and
in the reasonable opinion of the Landlord, cannot be reasonably repaired
within 180 days after the occurrence of the damage or destruction; then,
the Landlord may, by notice to the Tenant given within 30 days of such
damage or destruction, terminate this Lease, in which event neither the
Landlord nor the Tenant shall be bound to repair and the Tenant shall
surrender the
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Premises to the Landlord within 30 days after delivery of its
notice of termination and Rent shall be apportioned and paid to the date on
which the Tenant delivers vacant possession of the Premises, subject to any
abatement to which the Tenant may be entitled under Section 7.02 AND ALL
PROCEEDS OF TENANT'S INSURANCE WITH RESPECT TO ITS CHATTELS AND TRADE
FIXTURES SHALL BE PAID TO THE TENANT. THE LANDLORD AGREES TO RELEASE ITS
INTEREST IN THE TENANT'S INSURANCE WITH RESPECT TO THE LEASEHOLD
IMPROVEMENTS TO THE EXTENT THAT THE LANDLORD RECEIVES PROCEEDS FROM THE
LANDLORD'S INSURANCE TO COVER THE LOSS OF THE LEASEHOLD IMPROVEMENTS. THE
LANDLORD AGREES TO ACT IN A COMMERCIALLY REASONABLE MANNER IN EXERCISING
ITS OPTION TO TERMINATE THIS LEASE PURSUANT TO THE PROVISIONS OF THIS
SECTION 7.04(a) AND LANDLORD AGREES THAT IT WILL NOT EXERCISE ITS OPTION TO
TERMINATE PURSUANT TO THIS SECTION 7.04(a) SOLELY TO DEPRIVE THE TENANT OF
ITS INTEREST IN THIS LEASE OR TO TERMINATE THIS LEASE IN A MANNER THAT IS
DISCRIMINATORY AGAINST THE TENANT IN RELATION TO ITS TREATMENT OF OTHER
TENANTS IN THE DEVELOPMENT.
(b) If the Landlord is entitled to, but does not elect to terminate this Lease
under Section 7.04(a), the Landlord shall, following such damage or
destruction, diligently repair if necessary that part of the Development
damaged or destroyed, but only to the extent of the Landlord's obligations
under the terms of the various leases for premises in the Development and
exclusive of any tenant's responsibilities with respect to such repair. If
the Landlord elects to repair the Development, the Landlord may do so in
accordance with plans and specifications other than those used in the
original construction of the Development.
SECTION 7.05 ARCHITECT'S CERTIFICATE
The certificate of the Architect ADDRESSED TO THE TENANT shall bind the parties
as to:
(a) the percentage of the Total Rentable Area of the Building or the Total
Rentable Area of the Development damaged or destroyed;
(b) whether or not the Premises are rendered untenantable and the percentage of
the Premises rendered untenantable;
(c) the date upon which either the Landlord's or Tenant's work of
reconstruction or repair is completed or substantially completed and the
date when the Premises are rendered tenantable; and
(d) the state of completion of any work of the Landlord or the Tenant.
ARTICLE VIII - ASSIGNMENT, SUBLETTING AND TRANSFERS
SECTION 8.01 ASSIGNMENTS, SUBLEASES AND TRANSFERS
The Tenant shall not enter into, consent to, or permit any Transfer without the
prior written consent of the Landlord in each instance, which consent shall not
be unreasonably withheld OR DELAYED but shall be subject to the Landlord's
rights under Section 8.02. Notwithstanding any statutory provision to the
contrary, it shall not be considered unreasonable for the Landlord to take into
account the following factors in deciding whether to grant or withhold its
consent:
(a) whether such Transfer is in violation or in breach of any covenants or
restrictions made or granted by the Landlord to other tenants or occupants
or prospective tenants or occupants of the Development; SUCH OTHER OR
PROSPECTIVE TENANTS OR OCCUPANTS BEING HEREIN COLLECTIVELY REFERRED TO AS
"OTHER TENANTS" OR INDIVIDUALLY AS "OTHER TENANT";
(b) whether in the Landlord's REASONABLE opinion, the financial background,
business history and FINANCIAL capability of the proposed Transferee is
satisfactory;
(c) WHETHER IN THE LANDLORD'S REASONABLE OPINION, THE SIGNAGE RIGHTS OF THE
TENANT SET OUT
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IN SECTION 12.08 WOULD BE APPROPRIATE OR DESIRABLE FOR THE
PROPOSED TRANSFEREE OR TRANSFEREE (AS THE CASE MAY BE) HAVING REGARD TO ITS
FINANCIAL BACKGROUND, BUSINESS HISTORY AND REPUTATION PROVIDED THAT IF NOT
SO APPROPRIATE OR DESIRABLE, THE TENANT MAY WAIVE ALL OF ITS SIGNAGE RIGHTS
UNDER SECTION 12.08 IF IN SO DOING, CONSENT WILL BE GRANTED; AND
(d) if the Transfer is to an existing tenant of the Landlord OTHER THAN AN
EXISTING TENANT THAT CANNOT BE PHYSICALLY OR REASONABLY ACCOMMODATED BY THE
LANDLORD IN THE DEVELOPMENT.
Consent by the Landlord to any Transfer if granted shall not constitute a waiver
of the necessity for such consent to any subsequent Transfer. xxxxx xxxxxxxxxx
xxxxxxxx xxxxx xxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xx
xxx xxx xxx NO Transfer shall take place by reason of the failure of the
Landlord to give notice to the Tenant within xxxx FIFTEEN (15) days as required
by Section 8.02.
THE LANDLORD REPRESENTS TO THE TENANT THAT AS OF MARCH 26, 1997 THERE ARE NO
EXISTING COVENANTS OR RESTRICTIONS AS DESCRIBED IN SECTION 8.01(a) TO OTHER
TENANTS. LANDLORD SHALL NOT TAKE INTO ACCOUNT THE FACTOR SET OUT IN SECTION
8.01(a) UNLESS ANY SUCH COVENANT OR RESTRICTION IS GRANTED BY THE LANDLORD TO AN
OTHER TENANT OF TWO (2) OR MORE FLOORS WHERE SUCH OTHER TENANT REASONABLY
REQUIRES SUCH COVENANT OR RESTRICTION AND THE LANDLORD ACTING IN A COMMERCIALLY
REASONABLE MANNER GRANTS SUCH COVENANT OR RESTRICTION. THE TENANT ACKNOWLEDGES
THAT AN OTHER TENANT MAY REASONABLY REQUIRE A RESTRICTION OR COVENANT
PROHIBITING THE USE IN THE PREMISES BY A TRANSFEREE OF THE TENANT COMPETING WITH
THE PRINCIPAL USE OF THE OTHER TENANT.
DESPITE THE PROVISIONS OF THIS SUBSECTION 8.01, THE LANDLORD'S CONSENT SHALL BE
PERMITTED WITHOUT THE REMAINING PROVISIONS OF ARTICLE VIII (OTHER THAN THIS
PARAGRAPH) APPLYING FOR A TRANSFER TO ANY RELATED TRANSFEREE PROVIDED THAT: (i)
THE TRANSFEREE AT ALL TIMES REMAINS A RELATED TRANSFEREE OF THE TENANT, (ii) THE
TENANT SHALL HAVE GIVEN PRIOR WRITTEN NOTICE THEREOF TO THE LANDLORD, (iii) THE
TENANT SHALL REMAIN LIABLE UNDER THIS LEASE AND SHALL NOT BE RELEASED FROM
PERFORMING ANY OF THE TERMS OF THIS LEASE, AND (iv) THE RELATED TRANSFEREE SHALL
EXECUTE AN AGREEMENT WITH THE LANDLORD AGREEING THAT THE RELATED TRANSFEREE AND
THE LANDLORD WILL BE BOUND BY ALL OF THE TERMS OF THIS LEASE AS IF THE RELATED
TRANSFEREE HAD ORIGINALLY EXECUTED THIS LEASE AS TENANT.
SECTION 8.02 LANDLORD'S RIGHT TO TERMINATE
If the Tenant intends to effect a Transfer, the Tenant shall give prior notice
to the Landlord of such intent specifying the identity of the Transferee, the
type of Transfer contemplated, the portion of the Premises affected thereby, and
the financial and other terms of the Transfer, and shall provide such financial,
business or other information relating to the proposed Transferee and its
principals as the Landlord or any Mortgagee requires, together with copies of
any documents which record the particulars of the proposed Transfer. The
Landlord shall, within xxxx FIFTEEN (15) days after having received such notice
and all requested information, notify the Tenant either that:
(a) it consents or does not consent to the Transfer in accordance with the
provisions and qualifications of this Article VIII; or
(b) it elects to cancel this Lease as to the whole or part, as the case may be,
of the Premises affected by the proposed Transfer, in preference to giving
such consent.
DESPITE SECTION 8.02(b) THE LANDLORD MAY ONLY EXERCISE ITS ELECTION TO CANCEL
THIS LEASE AS TO THE WHOLE OR PART UNDER SECTION 8.02(b) IF: (i) THE TRANSFER IS
WITH RESPECT TO ALL OF THE PREMISES OR (ii) THE TRANSFER IS A SUBLEASE OF PART
OF THE PREMISES COMPRISED OF NOT LESS THAN ONE (1) FULL FLOOR FOR A TERM
EXPIRING ON OR ONE DAY PRIOR TO THE LAST DAY OF THE TERM.
If the Landlord elects to terminate this Lease it shall stipulate in its notice
the termination date of this
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Lease, which date shall be xxx xxxx xxxx xx xxxx
xxxx xxxx xxxx xx xxxxx THE EFFECTIVE DATE OF THE TRANSFER PROVIDED THAT SUCH
EFFECTIVE DATE SHALL NOT BE LATER THAN ONE (1) YEAR following the giving of
xxxxxx notice of XXXXXXXXXXXXXX THE TRANSFER BY THE TENANT. If the Landlord
elects to terminate this Lease, the Tenant shall notify the Landlord within 10
days thereafter of the Tenant's intention either to refrain from such Transfer
or to accept termination of this Lease or the portion thereof in respect of
which the Landlord has exercised its rights. If the Tenant fails to deliver such
notice within such 10 days or notifies the Landlord that it accepts the
Landlord's termination, this Lease will as to the whole or affected part of the
Premises, as the case may be, be terminated on the date of termination
stipulated by the Landlord in its notice of termination. If the Tenant notifies
the Landlord within 10 days that it intends to refrain from such Transfer, then
the Landlord's election to terminate this Lease shall become void.
SECTION 8.03 CONDITIONS OF TRANSFER
(a) If there is a permitted Transfer, the Landlord may collect rent from the
Transferee and apply the net amount collected to the Rent payable under
this Lease but no acceptance by the Landlord of any payments by a
Transferee shall be deemed a waiver of the Tenant's covenants or any
acceptance of the Transferee as tenant or a release from the Tenant from
the further performance by the Tenant of its obligations under this Lease.
Any consent by the Landlord shall be subject to the Tenant and Transferee
executing an agreement with the Landlord agreeing that the Transferee,
LANDLORD AND TENANT will be bound by all of the terms of this Lease xxxxxx
except in the case of a sublease xxxxxxxxxxxxx xxxx xx xx xxxxx xx xx xx
xxx xxxxxxxxxx xxxxxxxxx xxx xxxxx xx xxxxxxxx IN WHICH EVENT THE
SUBTENANT SHALL BE BOUND BY THE TERMS OF THIS LEASE OTHER THAN RENT, TERM
AND DEFINITION OF PREMISES
(b) Notwithstanding any Transfer permitted or consented to by the Landlord, the
Tenant shall remain liable under this Lease and shall not be released from
performing any of the terms of this Lease.
(c) The Landlord's consent to any Transfer shall be subject to the condition
that:
(i) the net RENT (EXCEPT IN THE CASE OF A SUBLEASE OF PART OF THE
PREMISES IN WHICH CASE THE NET RENTAL RATE SHALL NOT BE LESS THAN
THE FAIR MARKET RATE FOR SUBLEASED PREMISES IN DEVELOPMENTS
COMPARABLE TO THE DEVELOPMENT) and additional rent payable by the
Transferee shall not be less than the Rent payable by the Tenant
under this Lease as at the effective date of the Transfer,
(including any increases provided for in this Lease); and
(ii) if the net and additional rent to be paid by the Transferee under
such Transfer exceeds the Rent payable under this Lease, ONE HALF OF
the amount of such excess shall be paid by the Tenant to the
Landlord, AFTER FIRST DEDUCTING ALL THE TENANT'S COSTS ASSOCIATED
WITH SUCH TRANSFER, INCLUDING, BUT NOT LIMITED TO, LEASEHOLD
IMPROVEMENT ALLOWANCES, BROKER COMMISSIONS, COST OF VACANCY AND
MARKETING EXPENSES, ALL OF WHICH SHALL BE SUPPORTED BY COPY OF
RECEIPTED INVOICES FORWARDED TO THE LANDLORD. If the Tenant receives
from any Transferee, either directly or indirectly, any
consideration other than rent or additional rent for such Transfer,
either in the form of cash, goods or services (other than the
proceeds of any financing as the result of a Transfer involving a
mortgage, charge or similar security interest in this Lease) the
Tenant shall forthwith pay to the Landlord xxxx ONE HALF OF THE
amount equivalent to such consideration AFTER DEDUCTING ASSOCIATED
COSTS AS AFORESAID. The Tenant and the Transferee shall execute any
agreement required by the Landlord to give effect to the foregoing
terms.
(d) Notwithstanding the effective date of any permitted Transfer as between the
Tenant and the Transferee, all Rent for the month in which such effective
date occurs shall be paid in advance by the Tenant so that the Landlord
will not be required to accept partial payments of Rent for
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such month from either the Tenant or Transferee.
(e) Any document evidencing any Transfer permitted by the Landlord, or setting
out any terms applicable to such Transfer or the rights and obligations of
the Tenant or Transferee thereunder, shall be prepared by the XXXXXXX
TENANT or its solicitors and all associated legal costs shall be paid by
the Tenant AND SUCH DOCUMENT SHALL BE SUBJECT TO THE LANDLORD'S REASONABLE
APPROVAL. THE LANDLORD OR ITS SOLICITORS SHALL PREPARE, AT THE TENANT'S
EXPENSE, ANY CONSENT DOCUMENT WITH RESPECT TO SUCH TRANSFER.
SECTION 8.04 PERMITTED SUBLETTING
SO LONG AS THE TENANT IS LOYALTY MANAGEMENT GROUP CANADA INC., A RELATED
TRANSFEREE OR THE PURCHASER OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF THE
TENANT, THE TENANT SHALL HAVE THE RIGHT TO NOT MORE THAN THREE (3) SUBLEASES OF
NOT MORE THAN ONE THOUSAND (1,000) SQUARE FEET OF RENTABLE AREA EACH OF THE
PREMISES PROVIDED THAT:
(a) THE TENANT SHALL HAVE GIVEN PRIOR WRITTEN NOTICE THEREOF TO THE LANDLORD
AND PROVIDED THE LANDLORD WITH A TRUE COPY OF EACH SUCH SUBLEASE,
(b) THE TENANT SHALL REMAIN LIABLE UNDER THIS LEASE AND SHALL NOT BE RELEASED
FROM PERFORMING ANY OF THE TERMS OF THE LEASE, AND
(c) THE TENANT SHALL CAUSE EACH SUCH SUBTENANT TO BE BOUND BY ALL OF THE TERMS
OF THIS LEASE OTHER THAN RENT, TERM AND DEFINITION OF
PREMISES. xxxxxxxxxxxxxx xxxxxx xx xxxxxxxxxxx xxxx xx xx xxxxx xxxxx
xxxxxxxxxxxx xx xxxxxxxxxxxx xxx xxxxxx xx xxxxxxxx xxxxxxxx xx xxxxxxxxx
xx xxxx xxxxxxxxxxxx xx xxxxxxxxxxxx xxxxx xx xxxxx xx xxxx
xxxxxxxxxxxxxxxxxx xxxxxxx xx xxx xx xxxx xxxxxxxxxxxx xx xxxx xxxxxxxx
xxxx xxxx xxxxxxx xxxxxxxx xxxxxxxxx xx xxx xxxxxxxx xx xxxx xxxxxxxxxxxx
xxxx xx xxx xxxxxxx x xxxxxxxxxxx xxxxxxxx xx xxx xxxx xxx xxx xxx
xxxxxxxxxx xx xxx xxxxxxxxxxxxxxxx xx xxxxx xx xxxxxxxxxxx xxxxxxx xxxx
xxxxxx xx xxxxxx xxx xxxxxxxxxx
SECTION 8.05 NO ADVERTISING
The Tenant shall not advertise that the whole or any part of the Premises are
available for a Transfer and shall not permit any broker or other Person to do
so unless the text and format of such advertisement is REASONABLY approved in
writing by the Landlord. No such advertisement shall contain any reference to
the rental rate of the Premises.
SECTION 8.06 ASSIGNMENT BY LANDLORD
The Landlord shall have the unrestricted right to sell, lease, convey or
otherwise dispose of all or any part of the Development or this Lease or any
interest of the Landlord in this Lease. To the extent that the purchaser or
assignee from the Landlord assumes the obligations of the Landlord under this
Lease AND DELIVERS AN UNDERTAKING TO THE TENANT TO BE BOUND BY THE PROVISIONS OF
THIS LEASE, the Landlord shall thereupon and without further agreement be
released from all liability under this Lease.
ARTICLE IX - DEFAULT
SECTION 9.01 DEFAULT AND REMEDIES
If and whenever an Event of Default occurs, then without prejudice to any other
rights which it has pursuant to this Lease or at law, the Landlord shall have
the following rights and remedies, which are cumulative and not alternative:
(a) to terminate this Lease by notice to the Tenant;
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(b) to enter the Premises as agent of the Tenant and to relet the Premises for
whatever term, and on such terms as the Landlord in its discretion may
determine and to receive the rent therefor and as agent of the Tenant to
take possession of any property of the Tenant on the Premises, to store
such property at the expense and risk of the Tenant or to sell or otherwise
dispose of such property in such manner as the Landlord may see fit without
notice to the Tenant; to make alterations to the Premises to facilitate
their reletting; and to apply the proceeds of any such sale or reletting
first, to the payment of any expenses incurred by the Landlord with respect
to any such reletting or sale; second, to the payment of any indebtedness
of the Tenant to the Landlord other than rent; and third, to the payment of
Rent in arrears; with the residue to be held by the Landlord and applied in
payment of future Rent as it becomes due and payable. The Tenant shall
remain liable for any deficiency to the Landlord;
(c) to remedy or attempt to remedy any default of the Tenant under this Lease
for the account of the Tenant and to enter upon the Premises for such
purposes. No notice of the Landlord's intention to perform such covenants
need be given the Tenant unless expressly required by this Lease. The
Landlord shall not be liable to the Tenant for any loss, injury or damage
caused by acts of the Landlord in remedying or attempting to remedy such
default and the Tenant shall pay to the Landlord all REASONABLE expenses
incurred by the Landlord in connection with remedying or attempting to
remedy such default;
(d) to recover from the Tenant all damages, and expenses incurred by the
Landlord as a result of any breach by the Tenant including, if the Landlord
terminates this Lease, any deficiency between those amounts which would
have been payable by the Tenant for the portion of the Term following such
termination and the net amounts actually received by the Landlord during
such period of time with respect to the Premises; AND
(e) to recover from the Tenant the full amount of the current month's Rent
together with the next 3 months' instalments of Rent, all of which shall
accrue on a day-to-day basis and shall immediately become due and payable
as accelerated rent. xxxxxxxxxxx xx xxxx xxxxx xxxxxxx xxxxxxxxx xx
xxxxxxxxxx xxxx xxxxxxxxxxx xxxx xx xxxxxxx xxxx xxx xxxxxxxxxx xxxxxxxxxx
xxxx xx xxxx xxxxxxxxx xxxxxxxxxxx xxxxxxxxxx xx xxxxxxxxxx xxxx xx xx
xxxxxxxx xxxxx xxxx xxxxx xx xxxx xxxx xxxxxxxxxxxx xxxx xxxx xxxx xxxxx xx
xxxx xxxx xx xxxx xxxx xx xxxxxxx xx xxx xxxxxxxx xx xxxx xxxxxxxxxxxxxxxx
xxxxx xxxxx xxxxx xx xx xxxxxxx xxxx xx xxxxxxxxxxxx xxx xxxxxxxx xxxx
xxxxx xx xxxxxxxxxxxxx xxxxxxx xxxxxx
SECTION 9.02 DISTRESS
Notwithstanding any provision of this Lease or any provision of applicable
legislation, xxxxx xxxxx xxxxx xxx xxxxxxxx xx xxx xxxxxx xx xxx xxxxxxxx xx xxx
xxxxx xxx xxx xxxx xxxxx xx xxxxxxx xxxxx THE LANDLORD MAY AT ANY TIME levy by
distress for Rent in arrearsxxxxx xxxxxxxx xxxxxxx xxxx xxxx xxxxx
xxxxxxxxxxxxxxx WITH RESPECT TO ALL THE TENANT'S GOODS, CHATTELS, EQUIPMENT AND
TRADE FIXTURES (OTHER THAN THE TENANT'S FINANCIAL AND PERSONNEL RECORDS AND
OTHER THAN THE TENANT'S DATA BASE) BUT OTHERWISE SUBJECT TO THE PROVISIONS OF
THE LANDLORD AND TENANT ACT (ONTARIO) AS MAY BE AMENDED FROM TIME TO TIME. If
the Landlord makes any claim against the goods and chattels of the Tenant by way
of distress, this provision may be pleaded as an estoppel against the Tenant in
any action brought to test the right of the Landlord to levy such distress.
SECTION 9.03 COSTS
xxxx xxxxxxxx EACH PARTY shall pay to the xxxxxxxxxxxx OTHER PARTY all damages
and costs (including, without limitation, all legal fees on a solicitor and his
client basis) incurred by the xxxxxxxxxx OTHER PARTY in enforcing the terms of
this Lease IF THERE IS AN EVENT OF DEFAULT, or with respect to any matter or
thing which is the obligation of xxxxx xxxxxxx xxxxx xxxxxx
xxxxxxxx xx xx xxxxxxxx xx xxxxxxxxxx xxxxxxxxxxxxx xxxxxxx xx xxxxxxxxxx xx xx
xxxxxxxxxxx xxxxxxxxxxxx SUCH PARTY UNDER THIS LEASE.
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SECTION 9.04 ALLOCATION OF PAYMENTS
xxxxx IF THERE IS AN EVENT OF DEFAULT, THE Landlord may at its option apply sums
received from the Tenant against any amounts due and payable by the Tenant under
this Lease in such manner as the Landlord sees fit.
SECTION 9.05 SURVIVAL OF OBLIGATIONS
If the Tenant has failed to fulfil its obligations under this Lease with respect
to the maintenance, repair and alteration of the Premises and removal of
xxxxxxxxxxxxxxx xxxx fixtures from the Premises during or at the end of the
Term, such obligations and the Landlord's rights in respect thereto shall remain
in full force and effect notwithstanding the expiration or sooner termination of
the Term.
ARTICLE X - STATUS STATEMENT, ATTORNMENT AND SUBORDINATION
SECTION 10.01 STATUS STATEMENT
Within 10 days after written request by EITHER the Landlordxx OR the Tenant,
THE OTHER PARTY shall deliver in a form supplied by the Landlord a statement
or estoppel certificate to the x xxxxxxxx SUCH PARTY as to the status of this
Lease, including as to whether this Lease is unmodified and in full force and
effect (or, if there have been modifications that this Lease is in full force
and effect as modified and identifying the modification agreements); the
amount of Net Rent and Additional Rent then being paid and the dates to which
same have been paid; whether or not there is any existing or alleged default
by either party with respect to which a notice of default has been served and
if there is any such default, specifying the nature and extent thereof; and
any other matters pertaining to this Lease as to which xxxx xxxxxxxxx SUCH
PARTY shall request such statement or certificate.
SECTION 10.02 SUBORDINATION
This Lease and all rights of the Tenant shall be subject and subordinate to
any and all Mortgages and any ground, operating, overriding or underlying
leases, from time to time in existence against the Development or any part
thereof. SUCH SUBORDINATION BY THE TENANT SHALL ONLY BE EFFECTIVE IF THE
MORTGAGEE HAS AGREED TO THE TENANT'S RIGHT TO QUIET ENJOYMENT OF THE PREMISES
WITHOUT INTERRUPTION OR DISTURBANCE FROM OR BY SUCH MORTGAGEE, THE
REQUIREMENT OF THE MORTGAGEE, WHILE IN POSSESSION, TO PERFORM THE LANDLORD'S
OBLIGATIONS UNDER THIS LEASE ARISING DURING THE MORTGAGEE'S PERIOD OF
POSSESSION TOGETHER WITH ANY AND ALL RIGHTS, PRIVILEGES AND BENEFITS TO WHICH
THE TENANT MAY BE ENTITLED UNDER THE TERMS OF THE LEASE DESPITE ANY DEFAULT
BY THE LANDLORD TO THE MORTGAGEE AND SO LONG AS THERE IS NO EVENT OF DEFAULT.
On request, the Tenant shall subordinate this Lease and its rights under this
Lease to any and all such Mortgages and leases and to all advances made under
such Mortgages AND THE LANDLORD SHALL PAY THE MORTGAGEE'S COSTS IN CONNECTION
THEREWITH. The form of such subordination shall be as required by the
Landlord or any Mortgagee or the lessee under any such lease. LANDLORD SHALL
AT THE TENANT'S REQUEST OBTAIN WITHIN SIXTY (60) DAYS OF SUCH REQUEST AN
AGREEMENT AT THE SOLE COST AND EXPENSE OF THE TENANT (NOT TO EXCEED
$10,000.00) FROM EACH EXISTING MORTGAGEE HAVING AN INTEREST IN THE BUILDING
AS OF THE DATE OF THIS LEASE AND WHOSE INTEREST IS PRIOR TO THE TENANT'S
LEASEHOLD INTEREST IN THE BUILDING WHEREBY THE TENANT SHALL HAVE THE RIGHT TO
QUIET ENJOYMENT OF THE PREMISES WITHOUT INTERRUPTION OR DISTURBANCE FROM OR
BY SUCH MORTGAGEE, THE MORTGAGEE WHILE IN POSSESSION SHALL PERFORM THE
LANDLORD'S OBLIGATIONS UNDER THE LEASE ARISING DURING THE MORTGAGEE'S PERIOD
OF POSSESSION TOGETHER WITH ANY AND ALL RIGHTS, PRIVILEGES AND BENEFITS TO
WHICH THE TENANT MAY BE ENTITLED UNDER THE TERMS OF THE LEASE DESPITE ANY
DEFAULT BY THE LANDLORD TO THE MORTGAGEE AND SO LONG AS THERE IS NO EVENT OF
DEFAULT.
SECTION 10.03 ATTORNMENT
The Tenant shall promptly, on request, attorn to any Mortgagee, or to the owners
of the Building and Lands, or the lessor under any ground, operating,
overriding, underlying or similar lease of all or
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substantially all of the Building made by the Landlord or otherwise affecting
the Building and Lands, or the purchaser on any foreclosure or sale proceedings
taken under any Mortgage, and shall recognize such Mortgagee, owner, lessor or
purchaser as the Landlord under this Lease.
xxxxxxxx xxxxx xxxxxxxxxxxxx xxxxxxxxxxxx xxx x xxxxxx x xxxxxxx xxxxxxxxxxxx
xxx xxxxxxxx xxx xxxxx xxx xxxxxxxx xx xxx xxxxxx xxx xxx xxxxxxxxx xx
xxxxxxxxx xxx xxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxx xx xxxxxxxxxxxxx xxxxxxxx xx
xxxx xxxxx xxx xxx xxxxxxxxxxx xxxxxxxxxxxxx xx xxxxxx xx xxx xxxxxxxxx xx xxx
xxxx xxxxx xx xxxxxxx xxxx xxxxxxxxx xxxxxx xx xxxx xxxxx xxxxxxx xx xxx
xxxxxxxxxxxxx
ARTICLE XI - GENERAL PROVISIONS
SECTION 11.01 RULES AND REGULATIONS
The Tenant shall comply with all Rules and Regulations, and amendments
thereto, adopted by the Landlord from time to time including those set out in
Schedule "D". Such Rules and Regulations may differentiate between different
types of businesses in the Building, and the Landlord shall xxxxx xx
xxxxxxxxxxx USE COMMERCIALLY REASONABLE EFFORTS to enforce any Rule or
Regulation or the provisions of any other lease against any other tenant, and
the Landlord shall have no liability to the Tenant with respect thereto.
SECTION 11.02 DELAY
Except as expressly provided in this Lease, whenever the Landlord or Tenant is
delayed in the fulfillment of any obligation under this Lease (other than the
payment of Rent and xxxxxxxxxxxxxx VACATING of the Premises on termination) by
an unavoidable occurrence which is not the fault of the party delayed in
performing such obligation, then the time for fulfillment of such obligation
shall be extended during the period in which such circumstances operate to delay
the fulfilment of such obligation.
SECTION 11.03 OVERHOLDING
If the Tenant remains in possession of the Premises after the end of the Term
with the consent of the Landlord but without having executed and delivered a new
lease or an agreement extending the Term, there shall be no tacit renewal of
this Lease, and the Tenant shall be deemed to be occupying the Premises as a
Tenant from month to month TERMINABLE BY EITHER PARTY ON NOT LESS THAN NINETY
(90) DAYS' WRITTEN NOTICE AND at a monthly Net Rent payable in advance on the
first day of each month equal to xxxxxxxx 150% OF the monthly amount of Net Rent
payable during the last month of the Term, and otherwise upon the same terms as
are set forth in this Lease, so far as these are applicable to a monthly
tenancy.
SECTION 11.04 WAIVER
If either the Landlord or Tenant excuses or condones any default by the other of
any obligation under this Lease, no waiver of such obligation shall be implied
in respect of any continuing or subsequent default.
SECTION 11.05 REGISTRATION
Neither the Tenant nor anyone claiming under the Tenant shall register this
Lease or any Transfer without the prior written consent of the Landlord. If the
Tenant or any permitted Transferee wishes to register a document for the
purposes of giving notice of this Lease or a Transfer, then the Landlord shall,
at the request and expense of the Tenant, execute a notice, caveat or short form
of Lease for the purposes of registration in such form as REASONABLY approved by
the Landlord and without disclosure of any MONETARY terms which the Landlord
does not desire to have disclosed. If the Lands comprise more than one parcel of
land, the Landlord may direct the Tenant or Transferee as to the parcel or
parcels against which registration may be affected PROVIDED SUCH INCLUDE THE
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PREMISES AND ACCESS THERETO.
SECTION 11.06 NOTICES
Any notice, consent or other instrument which may be or is required to be given
under this Lease shall be in writing and shall be delivered in person or sent by
registered mail postage prepaid, addressed: (a) if to the Landlord: c/o The
Cadillac Fairview Corporation Limited, 20 Queen Street West, 5th Floor, Toronto,
Ontario, M5H 3R4, Attention: Executive Vice President, Property Management, with
a copy to the Building Manager and (b) if to the Tenant, at the Premises xxx xx
xxx xxxxxxxxxx xxxxxx xx xxx xxxxxx xxxx, ATTENTION: CHIEF FINANCIAL OFFICER AND
GENERAL COUNSEL. Any such notice or other instrument shall be deemed to have
been given and received on the day upon which personal delivery is made or, if
mailed, then 48 hours following the date of mailing. Either party may give
notice to the other of any change of address WITHIN CANADA and after the giving
of such notice, the address therein specified is deemed to be the address of
such party for the giving of notices. If postal service is interrupted or
substantially delayed, all notices or other instruments shall be delivered in
person.
SECTION 11.07 SUCCESSORS
The rights and liabilities created by this xxxxxxx LEASE extend to and bind the
successors and assigns of the Landlord and the heirs, executors, administrators
and permitted successors and assigns of the Tenant. No rights, however, shall
enure to the benefit of any Transferee unless the provisions of Article VIII are
complied with.
SECTION 11.08 JOINT AND SEVERAL LIABILITY
If there is at any time more than one Tenant or LANDLORD OR more than one Person
constituting the Tenant OR LANDLORD, their covenants shall be considered to be
joint and several and shall apply to each and every one of them. If the Tenant
is or becomes a partnership, each Person who is a member, or shall become a
member, of such partnership or its successors shall be and continue to be
jointly and severally liable for the performance of all covenants of the Tenant
pursuant to this Lease, whether or not such Person ceases to be a member of such
partnership or its successor.
SECTION 11.09 CAPTIONS AND SECTION NUMBERS
The captions, section numbers, article numbers and table of contents appearing
in this xxxxxxxxx LEASE are inserted only as a matter of convenience and in no
way affect the substance of this Lease.
SECTION 11.10 EXTENDED MEANINGS
The words "hereof", "hereto" and "hereunder" and similar expressions used in
this Lease relate to the whole of this Lease and not only to the provisions in
which such expressions appear. This Lease shall be read with all changes in
number and gender as may be appropriate or required by the context. Any
reference to the Tenant includes, where the context allows, the employees,
agents, invitees and licensees of the Tenant and all others over whom the Tenant
might reasonably be expected to exercise control.
SECTION 11.11 PARTIAL INVALIDITY
All of the provisions of this Lease are to be construed as covenants even though
not expressed as such. If any such provision is held or rendered illegal or
unenforceable it shall be considered separate and severable from this Lease and
the remaining provisions of this Lease shall remain in force and bind the
parties as though the illegal or unenforceable provision had never been included
in this Lease.
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SECTION 11.12 ENTIRE AGREEMENT
This Lease and the Schedules and riders, if any, attached hereto, and the
Landlord's leasehold improvement manual, set forth the entire agreement between
the Landlord and Tenant concerning the Premises and there are no agreements or
understandings between them other than as are herein set forth. Subject to
Section 11.01, this Lease and its Schedules and riders may not be modified
except by agreement in writing executed by the Landlord and Tenant.
SECTION 11.13 GOVERNING LAW
This Lease shall be construed in accordance with and governed by the laws of the
Province of Ontario.
SECTION 11.14 TIME OF THE ESSENCE
Time is of the essence of this Lease.
SECTION 11.15 QUIET ENJOYMENT
If xxxx xxxxxx xxxx xxxxx xxxxx xxxxxxxx xxx xx xxx xxxxxxxxxxxx xxxxx xxxx
xxxxxxx xxx xxxxx xxx xxxxx THERE IS no Event of Default, the Tenant shall be
entitled to peaceful and quiet enjoyment of the Premises for the Term without
interruption or interference by the Landlord or any Person claiming through the
Landlord.
ARTICLE XII - SPECIAL PROVISIONS
SECTION 12.01 LEASEHOLD IMPROVEMENT ALLOWANCE
AS AN INDUCEMENT TO ENTER INTO THIS LEASE, THE LANDLORD WILL PAY TO THE TENANT
THE FOLLOWING LEASEHOLD IMPROVEMENT ALLOWANCES FOR THE PURPOSE OF CARRYING OUT
TENANT'S WORK ON THE PREMISES:
(a) FIRST LEASEHOLD IMPROVEMENT ALLOWANCE
WITH RESPECT TO THE PREMISES (OTHER THAN THE FIRST ADDITIONAL PREMISES) THE
LANDLORD WILL PAY TO THE TENANT THE SUM EQUAL TO TWENTY FIVE DOLLARS
($25.00) PER SQUARE FOOT (PLUS APPLICABLE GOODS AND SERVICE TAX) OF THE
RENTABLE AREA OF THE PREMISES (OTHER THAN THE FIRST ADDITIONAL PREMISES).
THE LANDLORD SHALL, ON NOT MORE THAN THREE SEPARATE OCCASIONS WHILE THE
TENANT IS CARRYING OUT ITS LEASEHOLD IMPROVEMENTS WITH RESPECT TO THE
PREMISES (OTHER THAN THE FIRST ADDITIONAL PREMISES) ADVANCE TO THE TENANT
PORTIONS OF THE FIRST LEASEHOLD IMPROVEMENT ALLOWANCE (SUBJECT TO
VERIFICATION OF THE RENTABLE AREA OF THE PREMISES) TO BE PAYABLE WITHIN
TEN BUSINESS DAYS (BEING ANY DAY OTHER THAN SATURDAYS, SUNDAYS OR
STATUTORY HOLIDAYS) FOLLOWING THE DATE OF THE TENANT'S WRITTEN REQUEST
FOR SUCH DRAW (AND SUBJECT TO ALL REQUIRED HOLDBACKS UNDER THE
CONSTRUCTION LIEN ACT (ONTARIO)) SUBJECT TO RECEIPT, REVIEW AND APPROVAL
BY THE LANDLORD OF EACH OF THE FOLLOWING:
(i) DELIVERY OF RECEIPTED INVOICES FOR ALL TENANT'S WORK COMPLETED TO
DATE OF SUCH DRAW REQUEST;
(ii) THE TENANT SATISFYING THE LANDLORD THAT THE VALUE OF THE
CONSTRUCTION MATERIALS AND THE LABOUR THEREFOR IS COMMENSURATE WITH
THE AMOUNTS INVOICED;
(iii) THE STATEMENT FROM THE TENANT'S CONTRACTOR CERTIFYING THAT THE LEVEL
OF WORK HAS BEEN COMPLETED IN RESPECT TO THE CURRENT PROGRESS DRAW;
(iv) AN INVOICE FROM THE TENANT TO THE LANDLORD INCLUDING THE TENANT'S
GOODS AND
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SERVICES TAX REGISTRATION NUMBER. IN LIEU OF RECEIPTED
INVOICES FOR THE PERFORMANCE OF THE TENANT'S WORK, THE LANDLORD
SHALL ACCEPT UNRECEIPTED INVOICES PROVIDED THAT THE TENANT DELIVERS
TO THE LANDLORD, IN ADDITION TO SUCH OTHER REQUIREMENTS SET FORTH IN
THIS SECTION 12.01 A STATUTORY DECLARATION BY THE TENANT'S
CONTRACTOR THAT ALL SUBCONTRACTORS, THEIR EMPLOYEES AND SUPPLIERS
HAVE BEEN PAID, AS WELL AS A DIRECTION TO THE LANDLORD ASSIGNING
PAYMENT TO THE TENANT'S CONTRACTOR AND THE TENANT JOINTLY.
PRIOR TO MAKING THE FINAL ADVANCE OF THE FIRST LEASEHOLD IMPROVEMENT
ALLOWANCE, THE TENANT SHALL PROVIDE EACH OF THE FOLLOWING TO THE LANDLORD:
(v) AS BUILT ARCHITECTURAL, MECHANICAL AND ELECTRICAL DRAWINGS WITH
RESPECT TO THE TENANT'S IMPROVEMENTS TO THE PREMISES (OTHER THAN THE
FIRST ADDITIONAL PREMISES):
(vi) COMPLETION OF ALL OF THE TENANT'S LEASEHOLD IMPROVEMENTS IN
ACCORDANCE WITH PLANS AND SPECIFICATIONS PROVIDED BY THE TENANT TO
THE LANDLORD AND APPROVED BY THE LANDLORD:
(vii) EVIDENCE SATISFACTORY TO THE LANDLORD THAT ALL ACCOUNTS RELATING TO
THE TENANT'S LEASEHOLD IMPROVEMENTS HAVE BEEN PAID AND THAT NO LIENS
HAVE OR MAY BE CLAIMED WITH RESPECT THERETO; AND
(viii) A STATUTORY DECLARATION OF AN OFFICER OF THE TENANT CONFIRMING THAT
THERE ARE NO LIENS REGISTERED AGAINST THE PREMISES OR THE BUILDING
IN RELATION TO THE TENANT'S WORK ON THE PREMISES.
THE LANDLORD SHALL ONLY BE REQUIRED TO PAY THE LESSER OF THE FIRST
LEASEHOLD IMPROVEMENT ALLOWANCE AND THE TOTAL COST OF THE TENANT'S WORK
WITH RESPECT TO THE PREMISES (OTHER THAN THE FIRST ADDITIONAL PREMISES). IN
THE EVENT THE TOTAL COST OF THE TENANT'S WORK WITH RESPECT TO THE PREMISES
(OTHER THAN THE FIRST ADDITIONAL PREMISES) IS LESS THAN THE FIRST LEASEHOLD
IMPROVEMENT ALLOWANCE, THE LANDLORD SHALL CREDIT THE TENANT WITH SUCH
DIFFERENCE AGAINST THE FIRST RENTS DUE UNDER THE LEASE.
(b) SECOND LEASEHOLD IMPROVEMENT ALLOWANCE
WITH RESPECT TO THE FIRST ADDITIONAL PREMISES THE LANDLORD WILL PAY TO THE
TENANT THE SUM EQUAL TO TWENTY FIVE DOLLARS ($25.00) PER SQUARE FOOT (PLUS
APPLICABLE GOODS AND SERVICE TAX) OF THE RENTABLE AREA OF THE FIRST
ADDITIONAL PREMISES. THE LANDLORD SHALL, ON NOT MORE THAN THREE SEPARATE
OCCASIONS WHILE THE TENANT IS CARRYING OUT ITS LEASEHOLD IMPROVEMENTS WITH
RESPECT TO THE FIRST ADDITIONAL PREMISES ADVANCE TO THE TENANT PORTIONS OF
THE SECOND LEASEHOLD IMPROVEMENT ALLOWANCE (SUBJECT TO VERIFICATION OF THE
RENTABLE AREA OF THE FIRST ADDITIONAL PREMISES) TO BE PAYABLE WITHIN TEN
BUSINESS DAYS FOLLOWING THE DATE OF THE TENANT'S WRITTEN REQUEST FOR SUCH
DRAW (AND SUBJECT TO ALL REQUIRED HOLDBACKS UNDER THE CONSTRUCTION LIEN ACT
(ONTARIO)) SUBJECT TO RECEIPT, REVIEW AND APPROVAL BY THE LANDLORD OF EACH
OF THE FOLLOWING:
(i) DELIVERY OF RECEIPTED INVOICES FOR ALL TENANT'S WORK COMPLETED TO
DATE OF SUCH DRAW REQUEST;
(ii) THE TENANT SATISFYING THE LANDLORD THAT THE VALUE OF THE
CONSTRUCTION MATERIALS AND THE LABOUR THEREFOR IS COMMENSURATE WITH
THE AMOUNTS INVOICED;
(iii) THE STATEMENT FROM THE TENANT'S CONTRACTOR CERTIFYING THAT THE LEVEL
OF WORK HAS BEEN COMPLETED IN RESPECT TO THE CURRENT PROGRESS DRAW;
(iv) AN INVOICE FROM THE TENANT TO THE LANDLORD INCLUDING THE TENANT'S
GOODS AND SERVICES TAX REGISTRATION NUMBER. IN LIEU OF RECEIPTED
INVOICES FOR THE
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PERFORMANCE OF THE TENANT'S WORK, THE LANDLORD SHALL
ACCEPT UNRECEIPTED INVOICES PROVIDED THAT THE TENANT DELIVERS TO THE
LANDLORD, IN ADDITION TO SUCH OTHER REQUIREMENTS SET FORTH IN THIS
SECTION 12.01, A STATUTORY DECLARATION BY THE TENANT'S CONTRACTOR
THAT ALL SUBCONTRACTORS, THEIR EMPLOYEES AND SUPPLIERS HAVE BEEN
PAID, AS WELL AS A DIRECTION TO THE LANDLORD ASSIGNING PAYMENT TO
THE TENANT'S CONTRACTOR AND THE TENANT JOINTLY.
PRIOR TO MAKING THE FINAL ADVANCE OF THE SECOND LEASEHOLD IMPROVEMENT
ALLOWANCE, THE TENANT SHALL PROVIDE EACH OF THE FOLLOWING TO THE LANDLORD:
(v) AS BUILT ARCHITECTURAL, MECHANICAL AND ELECTRICAL DRAWINGS WITH
RESPECT TO THE TENANT'S IMPROVEMENTS TO THE FIRST ADDITIONAL
PREMISES;
(vi) COMPLETION OF ALL OF THE TENANT'S LEASEHOLD IMPROVEMENTS IN
ACCORDANCE WITH PLANS AND SPECIFICATIONS PROVIDED BY THE TENANT TO
THE LANDLORD AND APPROVED BY THE LANDLORD;
(vii) THE TENANT PRODUCING EVIDENCE SATISFACTORY TO THE LANDLORD THAT ALL
ACCOUNTS RELATING TO THE TENANT'S LEASEHOLD IMPROVEMENTS HAVE BEEN
PAID AND THAT NO LIENS HAVE OR MAY BE CLAIMED WITH RESPECT THERETO;
AND
(viii) A STATUTORY DECLARATION OF AN OFFICER OF THE TENANT CONFIRMING THAT
THERE ARE NO LIENS REGISTERED AGAINST THE FIRST ADDITIONAL PREMISES
OR THE BUILDING IN RELATION TO THE TENANT'S WORK.
THE LANDLORD SHALL NOT BE REQUIRED TO PAY ANY AMOUNT IN EXCESS OF THE
SECOND LEASEHOLD IMPROVEMENT ALLOWANCE FOR THE TOTAL COST OF THE TENANT'S
WORK WITH RESPECT TO THE FIRST ADDITIONAL PREMISES. IN THE EVENT THE TOTAL
COST OF THE TENANT'S WORK WITH RESPECT TO THE FIRST ADDITIONAL PREMISES IS
LESS THAN THE SECOND LEASEHOLD IMPROVEMENT ALLOWANCE, THE LANDLORD SHALL
CREDIT THE TENANT WITH SUCH DIFFERENCE AGAINST THE NEXT RENTS DUE UNDER THE
LEASE.
SECTION 12.02 LANDLORD'S WORK
THE LANDLORD AGREES TO DELIVER THE PREMISES IN BASE BUILDING CONDITION. FOR
THE PURPOSES OF THIS LEASE, "BASE BUILDING CONDITION" SHALL MEAN THE REMOVAL
OF ALL INTERNAL PARTITIONING, THE INSTALLATION OF T-BAR SUSPENDED CEILING,
FLUORESCENT LIGHT FIXTURES, NEW ACOUSTIC CEILING TILES, HORIZONTAL VENETIAN
BLINDS, DEMISING WALLS AND ONE ENTRANCE DOOR WITH LOCKSET AND TWO SETS OF
KEYS PER FLOOR. IN ADDITION TO THE FOREGOING, THE LANDLORD AGREES TO CARRY
OUT THE FOLLOWING WORK IN A GOOD AND WORKMANLIKE MANNER IN COMPLIANCE WITH
ALL GOVERNMENTAL REQUIREMENTS HAVING JURISDICTION AND USE ITS REASONABLE BEST
EFFORTS TO COMPLETE THE FOLLOWING WORK PRIOR TO JUNE 1, 1997 (OTHER THAN THE
WORK WITH RESPECT TO THE FIRST ADDITIONAL PREMISES WHERE THE LANDLORD SHALL
USE REASONABLE BEST EFFORT TO COMPLETE BY JUNE 1,1998):
(a) DELIVERY OF EXISTING ELECTRICAL POWER TO THE PREMISES,
(b) REPLACE ANY DAMAGED OR STAINED ACOUSTIC CEILING TILES IN THE PREMISES WITH
NEW CEILING TILES IN THE SAME STYLE OF THE EXISTING TILES CURRENTLY
INSTALLED IN THE PREMISES,
(c) PROVIDE AND INSTALL NEW FLUORESCENT FIXTURES COMPLETE WITH NEW DIFFUSERS
AND THE BUILDING'S STANDARD BULBS IN A SUFFICIENT QUANTITY TO PROVIDE AT
LEAST 50-60 FOOT CANDLES OF LIGHT THROUGHOUT THE PREMISES,
(d) REPAIR OR REPLACE ANY DAMAGED OR MISSING HORIZONTAL VENETIAN WINDOW BLINDS
TO ALL EXTERIOR WINDOWS OF THE PREMISES, TO THE BUILDING'S STANDARD,
(e) PROVIDE EMERGENCY AND COMMON AREA LIGHTING TO MEET BUILDING CODE
REQUIREMENTS FOR AN OPEN CONCEPT DESIGN,
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(f) THE PREMISES (INCLUDING THE FIRST ADDITIONAL PREMISES AND, IF APPLICABLE,
THE SPECIAL REFUSAL SPACE) SHALL BE EQUIPPED TO MEET CODE REQUIREMENTS FOR
COMMERCIAL OFFICE SPACE AS AT THE APPLICABLE COMMENCEMENT DATE THEREFOR
OTHER THAN HANDICAP ACCESSIBILITY AND RELATED ITEMS WHICH HANDICAP
ACCESSIBILITY AND RELATED ITEMS, WITHIN THE PREMISES, SHALL BE COMPLETED BY
THE TENANT IF REQUIRED BY SUCH CODE REQUIREMENTS SAVE AS PROVIDED IN
SUBSECTION 12.02(j),
(g) REMOVE AND DISPOSE OF THE FLOOR COVERINGS CURRENTLY SITUATED ON THE FLOOR
OF THE PREMISES,
(h) REPAIR ANY DAMAGED FLOOR SURFACE IN THE PREMISES TO BE READY TO RECEIVE THE
TENANT'S FLOOR COVERINGS,
(i) COMPLY WITH THE ONTARIO BUILDING CODE'S REQUIREMENTS FOR HANDICAPPED
BARRIER FREE ACCESS TO THE BUILDING,
(j) COMPLY WITH THE ONTARIO BUILDING CODE'S REQUIREMENTS FOR HANDICAPPED
BARRIER FREE ACCESS IN THE WASHROOM FACILITIES LOCATED IN THE PREMISES,
(k) DEMISING WALLS AND ENTRANCE/EXIT DOORS FROM THE COMMON AREAS OF THE
BUILDING IN ACCORDANCE WITH DESIGN LAYOUTS AGREED UPON BY THE TENANT AND
THE LANDLORD; AND
(l) REMOVE ALL OF THE EXISTING INTERIOR PARTITIONING AND CLEAN ALL PERIMETER
RADIATOR UNITS, INSIDE AND OUTSIDE.
THE LANDLORD'S WORK SHALL APPLY TO THE PREMISES, TO THE FIRST ADDITIONAL
PREMISES AND, IF APPLICABLE, TO THE SPECIAL REFUSAL SPACE (AS DEFINED IN SECTION
12.07).
SECTION 12.03 TENANT'S WORK
THE TENANT SHALL BE RESPONSIBLE FOR THE INSTALLATION AND COST OF ALL LEASEHOLD
IMPROVEMENTS INCLUDING WITHOUT LIMITATION, ALL INTERNAL PARTITIONS, FIXTURES,
MODIFICATIONS TO THE BUILDING'S SYSTEMS, INSTALLATION OF SPECIAL EQUIPMENT
REQUIRED BY THE TENANT, TELEPHONES, FACSIMILES MACHINES OR OTHER SPECIAL
COMMUNICATION EQUIPMENT SAVE AND EXCEPT ONLY LANDLORD'S WORK AS SET OUT IN
SECTION 12.02 OF THIS LEASE. THE TENANT SHALL SUBMIT TO THE LANDLORD FOUR SETS
OF WORKING DRAWINGS OF ITS PROPOSED IMPROVEMENTS TO THE PREMISES WHICH DRAWINGS
MUST BE APPROVED BY THE LANDLORD IN ACCORDANCE WITH SECTION 5.03. ALL TENANT'S
WORK SHALL BE CARRIED ON IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THIS
LEASE INCLUDING WITHOUT LIMITATION THE REQUIREMENTS OF SECTION 5.03 AND THE
TERMS AND PROVISIONS OF THE TENANT LEASEHOLD IMPROVEMENT MANUAL SUPPLIED BY THE
LANDLORD. PRIOR TO COMMENCING ANY WORK OR INSTALLATION, THE TENANT SHALL APPLY
FOR AND THEREAFTER OBTAIN THE PRIOR WRITTEN APPROVAL OF THE LANDLORD AND SHALL
OBTAIN ALL NECESSARY BUILDING PERMITS AND APPROVALS REQUIRED BY THE CITY OF
NORTH YORK AND COPIES THEREOF HAVE BEEN PROVIDED TO THE LANDLORD. IF THE TENANT
COMMENCES ITS WORK PRIOR TO OBTAINING SUCH PERMITS AND APPROVALS, THE TENANT
SHALL BE LIABLE FOR THE COST OF ALL RECTIFICATION REQUIRED BY THE APPLICABLE
MUNICIPAL OR GOVERNMENTAL AUTHORITIES IN ORDER TO MEET BUILDING CODE
REQUIREMENTS. THE LANDLORD'S APPROVAL SHALL NOT UNREASONABLY WITHHELD OR
DELAYED. THE LANDLORD ACKNOWLEDGES THAT PART OF THE TENANT'S WORK TO BE DONE BY
THE TENANT AT ITS SOLE COST AND EXPENSE INCLUDES THE INSTALLATION OF AN
EMERGENCY BACK UP HEATING, VENTILATING AND AIR CONDITIONING SYSTEM AND
GENERATOR. LANDLORD AGREES THAT SUCH INSTALLATION SHALL BE PERMITTED SUBJECT TO
ITS CONSENT, NOT TO BE UNREASONABLY WITHHELD OR DELAYED AND SUBJECT TO ALL OTHER
REQUIREMENTS UNDER THIS LEASE AND THE LEASEHOLD IMPROVEMENT MANUAL.
SECTION 12.04 EARLY ACCESS AND OCCUPANCY
THE LANDLORD SHALL PERMIT THE TENANT ACCESS TO THE PREMISES (OTHER THAN THE
FIRST ADDITIONAL PREMISES) NOT LATER THAN JUNE 1, 1997 PROVIDED THAT THE TENANT
HAS OBTAINED OR APPLIED FOR ALL REQUIRED APPROVALS IN ACCORDANCE WITH SECTIONS
5.03 AND 12.03 OF THIS LEASE. FROM THE DATE THAT THE LANDLORD PERMITS THE TENANT
ACCESS AND FOR A PERIOD OF NINETY (90) DAYS THEREAFTER (THE "FIXTURING PERIOD"),
THE TENANT SHALL DILIGENTLY CARRY OUT THE TENANT'S WORK IN ACCORDANCE
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WITH THE PROVISIONS OF SECTIONS 5.03 AND 12.03. DURING THE FIXTURING PERIOD,
THE TENANT SHALL NOT BE REQUIRED TO PAY NET RENT, ITS PROPORTIONATE SHARE OF
TAXES, OPERATING COSTS, UTILITIES, HOISTING CHARGES, SECURITY OR OTHER
SPECIAL COSTS PROVIDED THAT THE TENANT SHALL BE BOUND BY AND PERFORM ALL
OTHER OBLIGATION UNDER THIS LEASE. PROVIDED THE TENANT SHALL HAVE COMPLETED
ALL THE TENANT'S WORK IN ACCORDANCE WITH THE PROVISIONS OF THIS LEASE AND THE
TENANT LEASEHOLD IMPROVEMENT MANUAL, THE TENANT SHALL BE PERMITTED TO CARRY
ON BUSINESS IN THE PREMISES DURING THE REMAINDER OF THE FIXTURING PERIOD
(OTHER THAN THE FIRST ADDITIONAL PREMISES). FROM AND INCLUDING THE
COMMENCEMENT DATE, THE TENANT SHALL BEGIN MAKING ALL REQUIRED PAYMENTS OF NET
RENT AND ITS PROPORTIONATE SHARE OF TAXES, OPERATING COSTS AND UTILITIES IN
ACCORDANCE WITH THE PROVISIONS OF THIS LEASE. IN THE EVENT THE LANDLORD HAS
NOT COMPLETED ITS WORK SET OUT IN SECTION 12.02 WITH RESPECT TO THE PREMISES
(OTHER THAN THE FIRST ADDITIONAL PREMISES) ON OR BEFORE JUNE 1, 1997, TO
PERMIT THE TENANT ACCESS ON OR BEFORE SUCH DATE, THE TENANT SHALL BE
PERMITTED ACCESS ON SUCH SUBSEQUENT DATE ON WHICH THE LANDLORD SHALL HAVE
COMPLETED ITS WORK (THE "COMPLETION DATE") AND
(a) THE FIXTURING PERIOD SHALL COMMENCE ON THE COMPLETION DATE AND END ON THE
NINETIETH (90TH) DAY AFTER THE COMPLETION DATE;
(b) THE COMMENCEMENT DATE SHALL BE ON THE DAY NEXT FOLLOWING THE EXPIRY OF THE
FIXTURING PERIOD,
(c) THE DATES FOR THE PAYMENT OF NET RENT IN SECTIONS 2.02(a), (b) AND (c)
SHALL BE POSTPONED FOR CORRESPONDING PERIODS OF TIME AND
(d) THE DATE IN SECTION 12.05(c) AND THE TERMINATION DATE REFERRED TO IN
SECTION 12.05 SHALL BE POSTPONED FOR CORRESPONDING PERIODS OF TIME.
ON OR BEFORE THE COMMENCEMENT DATE, THE LANDLORD AND TENANT SHALL ENTER INTO A
WRITTEN AGREEMENT CONFIRMING SUCH CHANGES AND POSTPONEMENTS (IF ANY) WITH
RESPECT TO THE COMMENCEMENT DATE AND OTHER DATES. SAVE AND EXCEPT AS SET OUT IN
THIS SECTION 12.04, THE TENANT ACKNOWLEDGES THAT IT HAS NO OTHER REMEDY AGAINST
THE LANDLORD WITH RESPECT TO ANY DELAY IN THE COMMENCEMENT OF THE FIXTURING
PERIOD PROVIDED SUCH DELAY DOES NOT EXCEED THIRTY (30) DAYS.
SECTION 12.05 TERMINATION RIGHT
PROVIDED THAT:
(a) THERE IS NOT AN EVENT OF DEFAULT WHICH IN THE REASONABLE OPINION OF THE
LANDLORD IS MATERIAL,
(b) THERE HAS NOT BEEN AN ASSIGNMENT OF THE LEASE EXCEPT TO A RELATED
TRANSFEREE, AND
(c) THE TENANT HAS GIVEN THE LANDLORD WRITTEN NOTICE ON OR BEFORE MARCH 1, 2002
SPECIFYING WHAT PART OF THE PREMISES THE TENANT INTENDS TO SURRENDER (THE
"SURRENDERED PREMISES")
THEN THE TENANT SHALL HAVE THE RIGHT TO SURRENDER TO THE LANDLORD THE
SURRENDERED PREMISES EFFECTIVE ON SEPTEMBER 1, 2002 (THE "TERMINATION DATE"). ON
OR BEFORE THE TERMINATION DATE, THE TENANT SHALL PAY TO THE LANDLORD BY WAY OF
CERTIFIED CHEQUE OR BANK DRAFT A TERMINATION FEE EQUAL TO $30.00 PER SQUARE FOOT
OF THE RENTABLE AREA OF THE SURRENDERED PREMISES AND SHALL EXECUTE THE
LANDLORD'S REASONABLE FORM OF SURRENDER AGREEMENT WITH RESPECT TO THE
SURRENDERED PREMISES WHICH SHALL INCLUDE WITHOUT LIMITATION RECIPROCAL RELEASES.
IN THE EVENT THE SURRENDERED PREMISES CONSTITUTE PART OF A FLOOR, THE LANDLORD
AND TENANT SHALL MUTUALLY AGREE, BOTH ACTING REASONABLY, AS TO THE AREA AND
LOCATION OF SUCH SURRENDERED PREMISES. IN THE EVENT THE LANDLORD AND TENANT HAVE
NOT MUTUALLY AGREED AS TO THE AREA AND LOCATION OF SUCH SURRENDERED PREMISES ON
OR BEFORE THE SIXTIETH (60TH) DAY PRIOR TO THE TERMINATION DATE, EITHER THE
LANDLORD OR THE TENANT MAY BY WRITTEN NOTICE REQUIRE ARBITRATION OF THE ISSUE
WHEREUPON THE PARTIES SHALL JOINTLY APPOINT A SINGLE ARBITRATOR. IF THE PARTIES
ARE UNABLE TO
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AGREE UPON AN ARBITRATOR, EITHER PARTY MAY APPLY TO A JUDGE OF THE ONTARIO
COURT (GENERAL DIVISION) TO MAKE SUCH APPOINTMENT. THE DECISION OF THE
ARBITRATOR SO APPOINTED SHALL BE FINAL AND BINDING UPON THE PARTIES HERETO
WITH NO RIGHT TO APPEAL OR TO SEEK LEAVE TO APPEAL THEREFROM. IT IS
UNDERSTOOD AND AGREED THAT THE ARBITRATOR SHALL BE QUALIFIED BY EDUCATION,
EXPERIENCE AND TRAINING TO MAKE A DECISION ON THE MATTER BEING ARBITRATED.
THE PARTIES COVENANT THAT THEIR DISPUTES SHALL BE SO DECIDED BY ARBITRATION
ALONE AND NOT BY RECOURSE TO ANY COURT OR ACTION OF LAW. THE ARBITRATION
SHALL BE CARRIED OUT PURSUANT TO THE PROVISIONS OF THE ARBITRATIONS ACT S.O.
1991 C.17 AS AMENDED OR REPLACED. THE EXPENSES OF ARBITRATION SHALL BE BORNE
EQUALLY BY THE LANDLORD AND TENANT EXCEPT THAT EACH PARTY SHALL BE
RESPONSIBLE FOR ITS RESPECTIVE SOLICITORS' FEES AND WITNESSES. THE TENANT
SHALL LEAVE THE SURRENDERED PREMISES IN GOOD AND SUBSTANTIAL REPAIR
(REASONABLE WEAR AND TEAR EXCEPTED) AND REPAIR ALL DAMAGE TO THE AREAS
OUTSIDE THE PREMISES RESULTING OR ARISING FROM THE TENANT'S VACATING THE
SURRENDERED PREMISES IN ACCORDANCE WITH ITS OBLIGATIONS UNDER THE LEASE.
SECTION 12.06 RENEWAL OPTIONS
PROVIDED THAT:
(a) THERE IS NOT AN EVENT OF DEFAULT, WHICH IN THE REASONABLE OPINION OF THE
LANDLORD IS MATERIAL,
(b) THERE HAS NOT BEEN AN ASSIGNMENT OF THE LEASE EXCEPT TO A RELATED
TRANSFEREE,
(c) THE TENANT HAS GIVEN WRITTEN NOTICE TO THE LANDLORD NO EARLIER THAN TWELVE
MONTHS AND NO LATER THAN SIX MONTHS PRIOR TO THE EXPIRATION OF THE TERM (OR
THE TERM AS RENEWED, AS THE CASE MAY BE)
THEN THE TENANT SHALL HAVE TWO SUCCESSIVE RIGHTS TO RENEW THE TERM FOR A PERIOD
OF FIVE YEARS EACH, SUCH RENEWALS TO COMMENCE UPON THE EXPIRATION OF THE TERM
(OR THE TERM AS RENEWED, AS THE CASE MAY BE) AND THIS LEASE AND ALL OF ITS TERMS
SHALL CONTINUE IN FULL FORCE AND EFFECT DURING SUCH RENEWAL PERIODS, EXCEPT
THAT:
(d) THE TENANT SHALL NOT BE ENTITLED TO ANY RENT FREE OR RENT REDUCED
PERIODS, LANDLORD'S WORK, LEASEHOLD IMPROVEMENT ALLOWANCES OR OTHER
INDUCEMENTS,
(e) THE TENANT SHALL NOT HAVE ANY FURTHER OPTION TO EXTEND THE TERM FOLLOWING
THE EXERCISE, IF ANY, OF THE FOREGOING TWO RENEWAL OPTIONS,
(f) DURING EACH RENEWAL, THE TENANT SHALL PAY A NET RENT BASED ON THE THEN
CURRENT FAIR MARKET RENT FOR THE PREMISES TAKING INTO ACCOUNT THAT THERE IS
NO BROKERAGE COMMISSION AND THAT THE TENANT IS RECEIVING NO TENANT
INDUCEMENTS AND TAKING INTO CONSIDERATION UNIMPROVED PREMISES SIMILAR TO
THE PREMISES IN AN UNIMPROVED CONDITION WHICH ARE COMPARABLE IN SIZE,
LOCATION, TYPE AND CONDITION FOR TENANTS LEASING SIMILAR PREMISES OF A
SIMILAR SIZE AND TERM. IN THE EVENT THAT SUCH RENT HAS NOT BEEN AGREED UPON
BY THE PARTIES FOUR MONTHS PRIOR TO THE COMMENCEMENT DATE OF THE RENEWAL
TERM, EITHER PARTY MAY BY WRITTEN NOTICE REQUIRE ARBITRATION OF THE ISSUE,
WHEREUPON THE PARTIES SHALL JOINTLY APPOINT A SINGLE ARBITRATOR. IF THE
PARTIES ARE UNABLE TO AGREE UPON AN ARBITRATOR, EITHER PARTY MAY APPLY TO A
JUDGE OF THE ONTARIO COURT (GENERAL DIVISION) TO MAKE SUCH APPOINTMENT. THE
DECISION OF THE ARBITRATOR SO APPOINTED AS TO SUCH FAIR MARKET RENT SHALL
BE FINAL AND BINDING UPON THE PARTIES HERETO WITH NO RIGHT TO APPEAL OR TO
SEEK LEAVE TO APPEAL THEREFROM. THE PARTIES COVENANT THAT THEIR DISPUTES
SHALL BE SO DECIDED BY ARBITRATION ALONE AND NOT BY RECOURSE TO ANY COURT
OR ACTION OF LAW. IN RENDERING ITS DECISION, THE ARBITRATOR SHALL APPLY AND
HAVE REGARD TO THE CRITERIA FOR ESTABLISHING THE FAIR MARKET RENT SET OUT
IN THIS SECTION 12.06. THE ARBITRATION SHALL BE CARRIED OUT PURSUANT TO THE
PROVISIONS OF THE ARBITRATIONS ACT, S.O. 1991 c.17 AS AMENDED OR REPLACED.
THE EXPENSES OF ARBITRATION SHALL BE BORNE EQUALLY BY THE LANDLORD AND THE
TENANT EXCEPT THAT EACH PARTY SHALL BE RESPONSIBLE FOR ITS RESPECTIVE
SOLICITOR'S FEES AND WITNESSES. IT IS UNDERSTOOD AND AGREED THAT THE
ARBITRATOR SHALL BE QUALIFIED BY
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EDUCATION, EXPERIENCE AND TRAINING TO MAKE A DECISION ON THE MATTER BEING
ARBITRATED,
(h) FAILING WRITTEN NOTIFICATION TO THE LANDLORD IN ACCORDANCE WITH THIS
SECTION 12.06, THE TENANT'S RENEWAL OPTIONS SHALL BE NULL AND VOID,
(i) THE LANDLORD MAY, AT ITS OPTION, REQUIRE THE TENANT TO EXECUTE THE
LANDLORD'S FORM OF LEASE RENEWAL AGREEMENT IN ORDER TO CONFIRM ONLY THE NET
RENT PAYABLE DURING EACH OF SUCH RENEWALS,
(j) FOR THE PURPOSES OF CLARITY, THE NET RENT DETERMINED UNDER THIS SECTION
12.06 SHALL BE THE NET RENT UNDER THE LEASE AS AND WHEN RENEWED.
SECTION 12.07 FIRST REFUSAL RIGHT
IN THIS SECTION 12.07:
"REFUSAL SPACE" MEANS ANY OFFICE SPACE ON FLOORS 1, 2, 3, 4 OR 5 OF THE BUILDING
THAT ARE NOT PART OF THE PREMISES OR THE FIRST ADDITIONAL PREMISES AND FROM AND
INCLUDING JUNE 2, 1998, SHALL INCLUDE FOR GREATER CERTAINTY THE SPECIAL REFUSAL
SPACE.
"SPECIAL REFUSAL SPACE" MEANS ANY OFFICE SPACE ON THE 4TH FLOOR OF THE BUILDING
THAT IS NOT PART OF THE FIRST ADDITIONAL PREMISES.
(a) PROVIDED THAT:
(i) THERE IS NOT AN EVENT OF DEFAULT WHICH IN THE REASONABLE OPINION OF
THE LANDLORD IS MATERIAL, AND
(ii) THERE HAS NOT BEEN AN ASSIGNMENT OF THE LEASE EXCEPT TO A RELATED
TRANSFEREE,
THEN, SUBJECT TO THE EXISTING RIGHTS OF EXISTING TENANTS OF THE BUILDING AS
OF MARCH 26, 1997 WITH RESPECT TO THE REFUSAL SPACE AND SPECIAL REFUSAL
SPACE AS ALREADY DISCLOSED BY THE LANDLORD TO THE TENANT IN WRITING, THE
TENANT SHALL HAVE THE RIGHTS SET OUT IN THIS SECTION 12.07.
(b) PROVIDED THE TENANT HAS GIVEN WRITTEN NOTICE TO THE LANDLORD ON OR BEFORE
JUNE 1, 1998 THAT THE TENANT REQUIRES THE SPECIAL REFUSAL SPACE, THE
LANDLORD SHALL LEASE THE SPECIAL REFUSAL SPACE TO THE TENANT COMMENCING
SEPTEMBER 1, 1998 ON THE SAME TERMS AND PROVISIONS AS IN THIS LEASE
INCLUDING THE NINETY (90) DAY FIXTURING PERIOD AND THE LEASEHOLD
IMPROVEMENT ALLOWANCE AS SET OUT IN SECTION 12.01 OF THIS LEASE SAVE AND
EXCEPT THE NET RENT FOR THE SPECIAL REFUSAL SPACE WHICH SHALL BE AS
FOLLOWS:
(i) FROM SEPTEMBER 1, 1998 TO AUGUST 31, 2002, BOTH INCLUSIVE, THE SUM
OF TWO HUNDRED AND TWENTY FIVE THOUSAND DOLLARS ($225,000.00) PER
ANNUM PAYABLE IN EQUAL MONTHLY INSTALLMENTS OF EIGHTEEN THOUSAND
SEVEN HUNDRED AND FIFTY DOLLARS ($18,750.00) EACH IN ADVANCE ON THE
FIRST DAY OF EACH CALENDAR MONTH DURING SUCH PERIOD OF THE TERM. THE
NET RENT FOR SUCH PERIOD OF THE TERM IS BASED ON AN ANNUAL RATE OF
TWELVE DOLLARS AND FIFTY CENTS ($12.50) PER SQUARE FOOT OF THE
RENTABLE AREA OF THE SPECIAL REFUSAL SPACE,
(ii) FROM SEPTEMBER 1, 2002 TO AUGUST 31, 2007, BOTH INCLUSIVE, THE SUM
OF TWO HUNDRED AND THIRTY FOUR THOUSAND DOLLARS ($234,000,000.00)
PER ANNUM PAYABLE IN EQUAL MONTHLY INSTALLMENTS OF NINETEEN THOUSAND
FIVE HUNDRED DOLLARS ($19,500.00) EACH IN ADVANCE ON THE FIRST DAY
OF EACH CALENDAR MONTH DURING SUCH PERIOD OF THE TERM. THE NET RENT
FOR SUCH PERIOD OF THE TERM IS BASED ON AN ANNUAL RATE OF THIRTEEN
DOLLARS ($13.00) PER SQUARE FOOT OF THE RENTABLE AREA OF THE SPECIAL
REFUSAL SPACE,
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IF THE TENANT FAILS TO GIVE SUCH NOTICE ON OR BEFORE JUNE 1, 1998 FOR THE
SPECIAL REFUSAL SPACE, THE TENANT'S RIGHT TO LEASE THE SPECIAL REFUSAL
SPACE PURSUANT TO THIS SUBSECTION 12.07(b) SHALL BE NULL AND VOID AND OF NO
FORCE OR EFFECT WITHOUT PREJUDICE TO THE TENANT'S RIGHTS UNDER SUBSECTION
12.07(c),
(c) IF AT ANY TIME AFTER MARCH 26, 1997 OR DURING THE TERM OR ANY RENEWAL
THEREOF, THE LANDLORD RECEIVES A BONA FIDE THIRD PARTY OFFER (THE "OFFER")
WHICH THE LANDLORD IS PREPARED TO ACCEPT OR HAS ACCEPTED CONDITIONALLY WITH
RESPECT TO ALL OR ANY PART OF THE REFUSAL SPACE, THE LANDLORD WILL GIVE
WRITTEN NOTICE TO THE TENANT OF THE TERMS OF THE OFFER AND OFFER THE SAME
TO THE TENANT ON THE SAME TERMS AS THE OFFER. THE TENANT SHALL HAVE FIVE
BUSINESS DAYS FOLLOWING RECEIPT OF SUCH NOTICE TO ACCEPT SUCH OFFER BY
WRITTEN NOTICE TO THE LANDLORD SAVE AND EXCEPT ONLY THE TERM WHICH SHALL BE
CO-TERMINUS WITH THE TERM AND RENT AND OTHER PAYMENTS SHALL BE PRORATED TO
REFLECT THE TERM REMAINING. IN THE EVENT THE TENANT FAILS TO ACCEPT SUCH
OFFER WITHIN SUCH TIME, THE LANDLORD SHALL BE AT LIBERTY TO ACCEPT THE
OFFER AND THE TENANT'S RIGHT OF FIRST REFUSAL WITH RESPECT TO SUCH PART OF
THE REFUSAL SPACE SET OUT IN THE OFFER SHALL BE NULL AND VOID AND OF NO
FURTHER FORCE OR EFFECT WITHOUT PREJUDICE TO THE TENANT'S RIGHTS UNDER THIS
SUBSECTION 12.07(c) WITH RESPECT TO ANY REMAINING REFUSAL SPACE,
(d) IF AT ANY TIME ON OR BEFORE MAY 26, 1998, THE LANDLORD RECEIVES A BONA FIDE
THIRD PARTY OFFER WITH RESPECT TO THE WHOLE OF THE SPECIAL REFUSAL SPACE
(THE "SPECIAL OFFER") WHICH THE LANDLORD IS PREPARED TO ACCEPT OR HAS
ACCEPTED CONDITIONALLY, THE LANDLORD WILL GIVE WRITTEN NOTICE TO THE TENANT
OF THE TERMS OF THE SPECIAL OFFER AND OFFER THE SAME TO THE TENANT ON THE
SAME TERMS AS THE SPECIAL OFFER. THE TENANT SHALL HAVE FIVE (5) BUSINESS
DAYS FOLLOWING RECEIPT OF SUCH NOTICE TO:
(i) ACCEPT SUCH OFFER BY WRITTEN NOTICE TO THE LANDLORD SAVE AND EXCEPT
ONLY THE TERM WHICH SHALL BE CO-TERMINUS WITH THE TERM AND RENT AND
OTHER PAYMENTS WHICH SHALL BE PRORATED TO REFLECT THE TERM
REMAINING, OR
(ii) GIVE WRITTEN NOTICE TO THE LANDLORD REQUIRING THE LANDLORD TO LEASE
THE SPECIAL REFUSAL SPACE TO THE TENANT IN ACCORDANCE WITH THE
PROVISIONS OF SECTION 12.07(b).
IN THE EVENT THE TENANT FAILS TO ACCEPT SUCH OFFER OR FAILS TO GIVE SUCH
NOTICE WITHIN SUCH TIME, THE LANDLORD SHALL BE AT LIBERTY TO ACCEPT THE
SPECIAL OFFER AND THE TENANT'S RIGHT OF FIRST REFUSAL PURSUANT TO THIS
SECTION 12.07(d) AND THE TENANT'S RIGHTS UNDER SECTION 12.07(b) SHALL BE
NULL AND VOID AND OF NO FURTHER FORCE OR EFFECT WITHOUT PREJUDICE TO THE
TENANT'S RIGHTS UNDER SUBSECTION 12.07(c) WITH RESPECT TO ANY REMAINING
REFUSAL SPACE.
SECTION 12.08 SIGNAGE
IN ADDITION TO THE TENANT'S RIGHTS SET OUT IN PARAGRAPH 12 OF SCHEDULE "D"
(RULES AND REGULATIONS) THE LANDLORD AGREES TO PROVIDE THE TENANT WITH SIGNAGE
ON THE EXISTING PODIUM SIGN AT THE FRONT OF THE BUILDING AT THE TENANT'S SOLE
COST AND EXPENSE. THE LANDLORD WARRANTS THAT AS AT THE DATE OF THIS LEASE, NO
TENANT IN THE BUILDING IS PERMITTED SIGNAGE ON THE FACIA OF THE BUILDING
PURSUANT TO ANY RIGHTS GRANTED BY THE LANDLORD. PROVIDED THAT THE TENANT IS IN
OCCUPANCY AND CARRYING ON BUSINESS ON AT LEAST TWO FULL FLOORS IN THE BUILDING,
THE LANDLORD AGREES THAT THE TENANT SHALL HAVE THE RIGHT OF FIRST REFUSAL TO
ATTACH ITS SIGNAGE AT THE TENANT'S SOLE COST AND EXPENSE ON THE FACIA OF THE
BUILDING IF THE LANDLORD AT ANY TIME IN THE FUTURE GRANTS SUCH RIGHT TO ANY
OTHER PERSON. ALL TENANT'S SIGNAGE SHALL BE INSTALLED AND MAINTAINED IN FULL
COMPLIANCE WITH AND SUBJECT TO ALL APPLICABLE BYLAWS AND OTHER GOVERNMENTAL
REQUIREMENTS AND SHALL BE REMOVED AT THE EXPIRY OR OTHER TERMINATION OF THE TERM
AT THE SOLE COST AND EXPENSE OF THE TENANT AND ALL DAMAGE CAUSED BY SUCH REMOVAL
SHALL BE REPAIRED TO THE REASONABLE SATISFACTION OF THE LANDLORD.
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SECTION 12.09 PARKING
THE LANDLORD AGREES TO MAKE AVAILABLE TO THE TENANT DURING THE TERM, ONE
UNRESERVED, INDOOR PARKING PERMIT FOR THE PARKING FACILITY PROVIDED FOR THE
BUILDING WITHIN THE DEVELOPMENT FOR EACH 750 SQUARE FEET OF RENTABLE AREA LEASED
BY THE TENANT IN THE BUILDING. THE TENANT SHALL PAY PARKING FEES TO THE LANDLORD
(OR TO THE PARKING OPERATOR IF THE LANDLORD SO DIRECTS) THROUGHOUT THE TERM AT
THE PREVAILING RATES BEING CHARGED FOR PARKING PERMITS IN THE PARKING FACILITY
FROM TIME TO TIME. EACH SUCH PAYMENT SHALL BE MADE IN ADVANCE ON THE FIRST DAY
OF EACH MONTH THROUGHOUT THE TERM. THE USE OF EACH PARKING PERMIT BY THE TENANT
IS SUBJECT TO THE FOLLOWING:
(a) ONE VEHICLE SHALL BE SPECIFICALLY DESIGNATED BY THE TENANT FOR EACH
PERMIT;
(b) THE LANDLORD RESERVES THE RIGHT TO MAKE SUCH REASONABLE RULES AND
REGULATIONS WITH RESPECT TO THE USE OF THE PARKING FACILITY PROVIDED FOR
THE BUILDING AS THE LANDLORD DEEMS ADVISABLE FROM TIME TO TIME;
(c) THE USE BY THE TENANT OF THE PARKING FACILITY IS SUBJECT TO THE EXCLUSIVE
CONTROL OF THE LANDLORD;
(d) THE TENANT SHALL USE THE PARKING FACILITY AT ITS SOLE
RISK;
(e) THE USE OF THE PARKING FACILITY AFTER NORMAL BUSINESS HOURS SHALL BE ON
A FIRST COME, FIRST SERVED BASIS.
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SECTION 12.10 IRREVOCABLE LETTER OF CREDIT
ON OR BEFORE THE COMMENCEMENT DATE, THE TENANT SHALL PROVIDE TO THE LANDLORD AN
IRREVOCABLE LETTER OF CREDIT IN THE AMOUNT OF $500,000.00 IN THE FORM ATTACHED
HERETO AS SCHEDULE "E".
IN WITNESS WHEREOF the Landlord and Tenant have signed this Lease under seal.
YCC LIMITED
------------------------------------------------
(Landlord)
Per: [ILLEGIBLE]
-------------------------------------------
Authorized Signature
Per: [ILLEGIBLE]
-------------------------------------------
Authorized Signature
LONDON LIFE INSURANCE COMPANY
------------------------------------------------
(Landlord)
Per: /s/ JONATHAN BUTTON
-------------------------------------------
Authorized Signature
Jonathan Button
Director of Real Estate
Per: /s/ PHILIP GUNN
-------------------------------------------
Authorized Signature
Philip Gunn
Manager of Finance
LOYALTY MANAGEMENT GROUP CANADA INC
------------------------------------------------
(Tenant)
Per: [ILLEGIBLE]
-------------------------------------------
Authorized Signature
Per: [ILLEGIBLE]
-------------------------------------------
Authorized Signature
I/We have authority to bind the corporation
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SCHEDULE "A" - LEGAL DESCRIPTION OF LANDS
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the City of North York, in the Municipality of Metropolitan
Toronto, and being composed of the whole of Lots 124, 125 and 126 and part of
Lots 116, 117, 118, 119, 120, 121, 122, 123, 127, 128, 135, 136, 137, 138, 139,
140 and 141 and part of John Street and the Lane, both as stopped up and closed
by By-law No. 28571 of The Corporation of the City of North York registered in
the Land Registry Office for the Registry Division of Toronto Boroughs as
Instrument Number T.B. 44348, all according to Plan 204 registered in the Land
Registry Office for the Registry Division of Toronto Boroughs, which said lands
are designated as Parts 1 and 2 on a Plan of Survey deposited in the Land
Registry Office for the Land Titles Division of Metropolitan Toronto as Plan
66R-13654.
TOGETHER WITH THE RIGHT OF INGRESS AND EGRESS over, along and upon the following
described lands:
FIRSTLY: Those parts of lots 117, 118 and 119 according to Plan 204 registered
in the Land Registry Office for the Registry Division of Toronto Boroughs,
designated as Part 10 on a Plan of Survey deposited in the Land Registry Office
for the Land Titles Division of Metropolitan Toronto as Plan 66R-13183, as more
fully described in Transfer No. C-29836;
SECONDLY: Those parts of Lots 140 and 141 on said Plan 204 and that part of Lot
11, Concession 1 West of Yonge Street of the Geographic Township of North York
designated as Part 3 on a Plan of Survey deposited in the said Land Titles
Office as Plan 66R-13402, as more fully described in Transfer No. C-29836;
THIRDLY: That part of Lot 12 in Concession 1 West of Yonge Street designated as
Parts 14 and 15 on a Plan of Survey deposited in the said Land Titles Office as
Plan No. 66R-13391, as more fully described in Transfer No. C-29836;
FOURTHLY: That part of John Street on said Plan 204, stopped up and closed by
By-law No. 28571 of the Corporation of the City of North York registered in the
Land Registry Office for the Registry Division of Toronto Boroughs as Instrument
Number T.B. 44348, designated as Part 2 on a Plan of Survey deposited in the
said Land Titles Office as Plan No. 66R-13402, as more fully described in
Transfer No. C-29836;
FIFTHLY: That part of Carson Crescent on Plan 3251, registered in the Land
Registry Office for the Registry Division of Toronto Boroughs, as stopped up and
closed by the said By-law No. 28571 of The Corporation of the City of North York
registered as Instrument No. T.B. 44348 in the Land Registry Office for the
Registry Division of Toronto Boroughs, designated as Parts 8, 9, 10 and 11 on a
Plan of Survey deposited in the said Land Titles Office as Plan No. 66R-13391,
as more fully described in Transfer No. C-29836.
TOGETHER WITH A RIGHT-OF-WAY AND EASEMENT in perpetuity over, along and upon
those parts of Carson Crescent according to said Plan 3251, stopped up and
closed by By-law No. 28571 of The Corporation of the City of North York
registered as Instrument Number T.B. 44348 designated as Parts 2, 3, 4 and 5 on
Plan 66R-13391 for all vehicular and pedestrian traffic, as more particularly
set out in C-29836.
TOGETHER WITH AN EASEMENT in perpetuity over, along and upon said Parts 2, 3, 4
and 5 on Plan 66R-13391 for the purpose of entering, constructing, maintaining,
inspecting, altering and repairing a roadway thereon, as more particularly set
out in C-29836.
TOGETHER WITH A RIGHT-OF-WAY AND EASEMENT in perpetuity at all times over, along
and upon that part of Lot 12 in Concession 1 West of Yonge Street designated as
Part 12 on Plan 66R-13391 for vehicular and pedestrian traffic, as more
particularly set out in C-29836.
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TOGETHER WITH AN EASEMENT in perpetuity over, along and upon said Part 12 on
Plan 66R-13391 for the purpose of entering, constructing, maintaining,
inspecting, altering and repairing a roadway thereon, as more particularly set
out in C-29836.
TOGETHER WITH A TEMPORARY EASEMENT, together with all necessary machinery,
material, vehicles and equipment to enter in, over, along and upon that part of
Carson Crescent according to Plan 3251 in the Municipality of Metropolitan
Toronto registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64), as stopped up and closed by North York By-law 28571
enacted and passed 7/9/82 registered as Instrument No. T.B. 44348 1/10/82 and
designated as Part 1 on Plan 64R-9654 for the purpose of gaining access for
constructing, operating, inspecting, maintaining, repairing, altering,
reconstructing and/or replacing the storm sewers and related appurtenances
incidental thereto in, under and upon that part of Block A according to Plan
3371 and that part of Lot 12 in concession 1 West of Yonge Street designated as
Parts 2 and 3 on Plan 64R-9654 for the term of the earlier of 3 years from
18/1/83 or the completion of construction of the said storm sewer and
appurtenances thereto with the terms and conditions, as more particularly set
out in C-51819.
TOGETHER WITH AN EXCLUSIVE EASEMENT and right in the nature of an easement in
perpetuity in, under, along, upon and across that part of Block A according to
Plan 3371 in the Municipality of Metropolitan Toronto and part of Lot 12 in
Concession 1 West of Yonge Street in the said Municipality of Metropolitan
Toronto registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64), designated as Part 3 on Plan 64R-9654 for the
purposes of constructing, operating, inspecting, maintaining, repairing,
altering, reconstructing and/or replacing an Outfall Storm Sewer to the Don
River and all appurtenances thereto as may be required from time to time,
together with all machinery, materials, vehicles and equipment as may be
necessary for the enjoyment of the said right and easement, as more particularly
set out in C-51820.
TOGETHER WITH A TEMPORARY EASEMENT to enter in, over, along and upon that part
of Block A according to said Plan 3371 designated as Part 2 on Plan 64R-9654
together with all machinery, materials, vehicles and equipment for the purpose
of access in connection with the permanent easement to construct the said
Outfall Storm Sewer and all appurtenances thereto until all construction has
been completed in, upon, under and across the lands in the permanent easement
above described and the lands in the temporary easement above described have
been restored as nearly as possible to their previous condition, as more
particularly set out in C-51820.
TOGETHER WITH A TEMPORARY EASEMENT for installing and maintaining landscaping
in, over and upon part of Lot 11, Concession 1, West of Yonge Street, in the
City of North York and parts of Lots 103, 104 and 105 on Plan 204 (City of North
York) registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64) designated as Part 2 on Plan 64R-10359 deposited in
the said Office, with the rights, terms, conditions and covenants and with the
commencement and expiry dates as more particularly set out in Instrument T.B.
223174 attached to C-187041.
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SCHEDULE "A-1" - LEGAL DESCRIPTION OF LANDS
ALL AND SINGULAR that certain parcel or tract of land and premises situate,
lying and being in the City of North York, in the Municipality of Metropolitan
Toronto, and being composed of the whole of Lots 8, 9, 10, 13, 14, 15, 16, 17,
18, 19, 20, 21, 22, 23 and 24 and part of Lot 7, and part of Carson Crescent, as
stopped up and closed by By-law No. 28571 of The Corporation of the City of
North York, all according to Plan 3251 registered in the Land Registry office
for the Registry Division of Toronto Boroughs, and part of Block A according to
Plan 3371 registered in the said Land Registry Office, and parts of Lots 11 and
12 in Concession 1 West of Yonge Street of the geographic Township of North
York, and the whole of lots 129, 130 and 142 and part of Lots 122, 123, 127,
128, 131, 132, 133, 134, 135, 136, 137, 138, 139, 140 and 141 and part of the
reserve and part of John Street, as stopped up and closed by By-law No. 28571 of
The Corporation of the City of North York, and part of the Five Foot Reserve at
the western end of John Street, as established and laid out as a part of John
Street by By-law No. 28514 of the Corporation of the City of North York, as
stopped up and closed by By-law No. 28571 of The Corporation of the City of
North York, all according to Plan 204 registered in the said Registry Office,
which lands are designated as Part 3 on a Plan of Survey deposited in the Land
Registry Office for the Land Titles Division of Metropolitan Toronto as Plan
66R-13654.
TOGETHER WITH THE RIGHT OF INGRESS AND EGRESS over, along and upon the following
described lands:
FIRSTLY: Those parts of lots 117, 118 and 119 according to Plan 204 registered
in the Land Registry Office for the Registry Division of Toronto Boroughs,
designated as Part 10 on a Plan of Survey deposited in the Land Registry Office
for the Land Titles Division of Metropolitan Toronto as Plan 66R-13183, as more
fully described in Transfer No. C-29836;
SECONDLY: Those parts of Lots 140 and 141 on said Plan 204 and that part of Lot
11, Concession 1 West of Yonge Street of the Geographic Township of North York
designated as Part 3 on a Plan of Survey deposited in the said Land Titles
Office as Plan 66R-13402, as more fully described in Transfer No. C-29836;
THIRDLY: That part of Lot 12 in Concession 1 West of Yonge Street designated as
Parts 14 and 15 on a Plan of Survey deposited in the said Land Titles Office as
Plan No. 66R-13391, as more fully described in Transfer No. C-29836;
FOURTHLY: That part of John Street on said Plan 204, stopped up and closed by
By-law No. 28571 of the Corporation of the City of North York registered in the
Land Registry Office for the Registry Division of Toronto Boroughs as Instrument
Number T.B. 44348, designated as Part 2 on a Plan of Survey deposited in the
said Land Titles Office as Plan No. 66R-13402, as more fully described in
Transfer No. C-29836;
FIFTHLY: That part of Carson Crescent on Plan 3251, registered in the Land
Registry Office for the Registry Division of Toronto Boroughs, as stopped up and
closed by the said By-law No. 28571 of The Corporation of the City of North York
registered as Instrument No. T.B. 44348 in the Land Registry Office for the
Registry Division of Toronto Boroughs, designated as Parts 8, 9, 10 and 11 on a
Plan of Survey deposited in the said Land Titles Office as Plan No. 66R-13391,
as more fully described in Transfer No. C-29836.
TOGETHER WITH A RIGHT-OF-WAY AND EASEMENT in perpetuity over, along and upon
those parts of Carson Crescent according to said Plan 3251, stopped up and
closed by By-law No. 28571 of The Corporation of the City of North York
registered as Instrument Number T.B. 44348 designated as Parts 2, 3, 4 and 5 on
Plan 66R-13391 for all vehicular and pedestrian traffic, as more particularly
set out in C-29836.
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TOGETHER WITH AN EASEMENT in perpetuity over, along and upon said Parts 2, 3, 4
and 5 on Plan 66R-13391 for the purpose of entering, constructing, maintaining,
inspecting, altering and repairing a roadway thereon, as more particularly set
out in C-29836.
TOGETHER WITH A RIGHT-OF-WAY AND EASEMENT in perpetuity at all times over, along
and upon that part of Lot 12 in Concession 1 West of Yonge Street designated as
Part 12 on Plan 66R-13391 for vehicular and pedestrian traffic, as more
particularly set out in C-29836.
TOGETHER WITH AN EASEMENT in perpetuity over, along and upon said Part 12 on
Plan 66R-13391 for the purpose of entering, constructing, maintaining,
inspecting, altering and repairing a roadway thereon, as more particularly set
out in C-29836.
TOGETHER WITH A TEMPORARY EASEMENT, together with all necessary machinery,
material, vehicles and equipment to enter in, over, along and upon that part of
Carson Crescent according to Plan 3251 in the Municipality of Metropolitan
Toronto registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64), as stopped up and closed by North York By-law 28571
enacted and passed 7/9/82 registered as Instrument No. T.B. 44348 1/10/82 and
designated as Part 1 on Plan 64R-9654 for the purpose of gaining access for
constructing, operating, inspecting, maintaining, repairing, altering,
reconstructing and/or replacing the storm sewers and related appurtenances
incidental thereto in, under and upon that part of Block A according to Plan
3371 and that part of Lot 12 in concession 1 West of Yonge Street designated as
Parts 2 and 3 on Plan 64R-9654 for the term of the earlier of 3 years from
18/1/83 or the completion of construction of the said storm sewer and
appurtenances thereto with the terms and conditions, as more particularly set
out in C-51819.
TOGETHER WITH AN EXCLUSIVE EASEMENT and right in the nature of an easement in
perpetuity in, under, along, upon and across that part of Block A according to
Plan 3371 in the Municipality of Metropolitan Toronto and part of Lot 12 in
Concession 1 West of Yonge Street in the said Municipality of Metropolitan
Toronto registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64), designated as Part 3 on Plan 64R-9654 for the
purposes of constructing, operating, inspecting, maintaining, repairing,
altering, reconstructing and/or replacing an Outfall Storm Sewer to the Don
River and all appurtenances thereto as may be required from time to time,
together with all machinery, materials, vehicles and equipment as may be
necessary for the enjoyment of the said right and easement, as more particularly
set out in C-51820.
TOGETHER WITH A TEMPORARY EASEMENT to enter in, over, along and upon that
part of Block A according to said Plan 3371 designated as Part 2 on Plan
64R-9654 together with all machinery, materials, vehicles and equipment for
the purpose of access in connection with the permanent easement to construct
the said Outfall Storm Sewer and all appurtenances thereto until all
construction has been completed in, upon, under and across the lands in the
permanent easement above described and the lands in the temporary easement
above described have been restored as nearly as possible to their previous
condition, as more particularly set out in C-51820.
TOGETHER WITH A TEMPORARY EASEMENT for installing and maintaining landscaping
in, over and upon part of Lot 11, Concession 1, West of Yonge Street, in the
City of North York and parts of Lots 103, 104 and 105 on Plan 204 (City of North
York) registered in the Land Registry Office for the Registry Division of
Toronto Boroughs (No. 64) designated as Part 2 on Plan 64R-10359 deposited in
the said Office, with the rights, terms, conditions and covenants and with the
commencement and expiry dates as more particularly set out in Instrument T.B.
223174 attached to C-187041.
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SCHEDULE "B" - FLOOR PLAN OF THE PREMISES
See Schedules B-1, B-2 and B-3 attached.
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[Logo]
SCHEDULE "B-1"
Floor Plan of 2nd Floor of 4110 Yonge Street, North York, Ontario
[FLOOR PLAN]
LOYALTY MANAGEMENT GROUP CANADA INC. - YONGE CORPORATE CENTRE - 1997
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[Logo]
SCHEDULE "B-2"
Floor Plan of 3rd Floor of 4110 Yonge Street, North York, Ontario
[FLOOR PLAN]
LOYALTY MANAGEMENT GROUP CANADA INC. - YONGE CORPORATE CENTRE - 1997
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SCHEDULE "B-3"
FLOOR PLAN OF THE FIRST ADDITIONAL PREMISES
[FLOOR PLAN]
[Logo]
YONGE TYPICAL FLOOR PLAN
CORPORATE [Legend]
CENTRE
[Illegible]
PHASE TWO
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SCHEDULE "C" - DEFINITIONS
In this Lease and in the Schedules to this Lease:
1. "ADDITIONAL RENT" means all sums of money required to be paid by the Tenant
under this Lease (except Net Rent) TO THE LANDLORD whether or not the same
are designated "Additional Rent"xxx xxx xxxxxxx xx xxx xxxxxxxx xx
xxxxxxxxxxxxx.
2. "ALTERATIONS" means all repairs, replacements, improvements or alterations
to the Premises by the Tenant.
3. "ARCHITECT" means the architect from time to time named by the Landlord
(BUT NOT AN EMPLOYEE).
4. "BUILDING" means the multi-storey building known municipally as 4110 Yonge
Street, North York, Ontario, and generally as Yonge Corporate Centre and
including all premises rented or intended to be rented therein, whether for
office, restaurant, retail, banking or other purposes; and facilities
serving the Building or having utility in connection therewith, as
REASONABLY determined by the Landlord, whether or not located directly
under the Building, which areas and facilities may include, without
limitation, internal malls, sidewalks and plazas, exhibit areas, storage
and mechanical areas, janitor rooms, mail rooms, telephone, mechanical
and electrical rooms, stairways, escalators, elevators, truck and
receiving areas,driveways, parking facilities, loading docks and corridors.
4A. "BUSINESS DAY" MEANS ANY DAY OTHER THAN A SATURDAY, A SUNDAY OR A STATUTORY
HOLIDAY.
5. "BUSINESS TAX" means all taxes (whether imposed on the Landlord or Tenant)
attributable to the personal property, trade fixtures, business, income,
occupancy or sales of the Tenant or any other occupancy of the Premises and
to any SEPARATE ASSESSMENT OF leasehold improvements installed in the
Premises and to the use of the Building or Lands by the Tenant.
6. "CAPITAL TAX" is an amount determined by multiplying each of the
"Applicable Rates" by the "Building Capital" and totalling the products,
"Building Capital" is the amount of capital which the Landlord determines,
without duplication, is invested from time to time by the Landlord, the
owners, or all of them, in doing all or any of the following: acquiring,
developing, expanding, redeveloping and improving the Building. Building
Capital will not be increased by any financing or refinancing except to the
extent that the proceeds are invested directly as Building Capital. An
"Applicable Rate" is the capital tax rate specified from time to time under
any statute of Canada and any statute of the Province of Ontario which
imposes a tax in respect of the capital of corporations. Each Applicable
Rate will be considered to be the rate that would apply if none of the
Landlord or the owners employed capital outside of the Province of Ontario.
7. "CHANGE OF CONTROL" means, in the case of any corporation or partnership,
the transfer or issue by sale, assignment, subscription, transmission on
death, mortgage, charge, security interest, operation of law or otherwise,
of any shares, voting rights or interest which would result in any change
in the effective control of such corporation or partnership unless such
change occurs as a result of trading in the shares of a corporation listed
on a recognized stock exchange in Canada or the United States and then only
so long as the Landlord receives assurances reasonably satisfactory to it
that there will be a continuity of management and of the business
practices of such corporation notwithstanding such Change of Control.
8. "COMMENCEMENT DATE" means the date on which the Term commences under
Section 1.02 OR AS DETERMINED PURSUANT TO SECTION 12.04.
9. "DEVELOPMENT" means the Lands, the Building, the subway tunnel, and all
other buildings,
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structures, improvements, equipment and fixtures and facilities situated
on the Lands from time to time.
10. An "EVENT OF DEFAULT" shall occur whenever:
(a) any Rent xxx xx xxxxxxxxxxxx xxx xx xxx xxxx xx OR ANY OTHER SUMS OF
MONEY REQUIRED TO BE PAID BY THE TENANT UNDER THIS LEASE TO THE
LANDLORD ARE IN ARREARS AND ARE NOT PAID WITHIN FIVE (5) days after
written demand by the Landlord;
(b) the Tenant has breached any of its obligations in this Lease (other
than the payment of Rent) and:
(i) fails to remedy such breach within 15 days (or such shorter
period as may be provided in this Lease); or,
(ii) if such breach cannot be reasonably remedied within 15 days
or such shorter period, the Tenant fails to commence to
remedy such breach within such 15 days or shorter period or
thereafter fails to proceed diligently to remedy such
breach;
in either case after notice in writing from the Landlord;
(c) the Tenant or any Indemnifier becomes bankrupt or insolvent or takes
the benefit of any statute for bankrupt or insolvent debtors or
makes any proposal, assignment or arrangement with its creditors, or
any steps are taken or proceedings commenced by any Person for the
dissolution, winding-up or other termination of the Tenant's
existence or the liquidation of its assets;
(d) a trustee, receiver, receiver/manager or like Person is appointed
with respect to the business or assets of the Tenant or any
Indemnifier AND SUCH APPOINTMENT IS NOT CONTESTED IN GOOD FAITH BY
THE TENANT;
(e) the Tenant makes a sale in bulk of all or a substantial portion of
its assets IN THE PREMISES other than in conjunction with a Transfer
xxxxxxxxx xx xxx xxxxxxxx PERMITTED HEREUNDER;
(f) this Lease or any of the Tenant's assets are taken under a writ of
execution WHICH WRIT IS NOT CONTESTED IN GOOD FAITH BY THE TENANT;
(g) the Tenant purports to make a Transfer other than in compliance with
the provisions of this Lease;
(h) the Tenant abandons or attempts to abandon the Premises or disposes
of its goods so that there would not after such disposal be
sufficient goods of the Tenant on the Premises subject to distress
to satisfy Rent for at least 3 months, or the Premises become vacant
and unoccupied for a period of 10 consecutive days or more without
the consent of the Landlord NOT TO BE UNREASONABLY WITHHELD;
(i) any insurance policies covering any part of the Development or any
occupant thereof are actually or threatened to be cancelled or
adversely changed as a result of any ILLEGAL use or occupancy of the
Premises;
(j) IF AT ANY TIME OR TIMES THERE IS A CHANGE OF CONTROL AND THE
LANDLORD, ACTING IN A COMMERCIALLY REASONABLE MANNER, DETERMINES
THAT THE TENANT OR TRANSFEREE (AS THE CASE MAY BE) IS NOT CARRYING
ON ITS BUSINESS IN A REPUTABLE AND FIRST CLASS MANNER OR DOES NOT
EMPLOY REPUTABLE PERSONNEL, CONTRACTORS AND AGENTS AND THE TENANT
FAILS TO REMEDY SUCH BREACH WITHIN FIFTEEN (15) DAYS
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AFTER NOTICE IN WRITING FROM THE LANDLORD; OR
(k) IF AT ANY TIME OR TIMES THERE IS A SALE OF ALL OR SUBSTANTIALLY ALL
OF THE ASSETS OF THE TENANT (OTHER THAN IN CONNECTION WITH A
TRANSFER TO A RELATED TRANSFEREE) AND THE LANDLORD, ACTING IN A
COMMERCIALLY REASONABLE MANNER, DETERMINES THAT THE TRANSFEREE IS
NOT CARRYING ON ITS BUSINESS IN A REPUTABLE AND FIRST CLASS MANNER
OR DOES NOT EMPLOY REPUTABLE PERSONNEL, CONTRACTORS AND AGENTS AND
THE TENANT FAILS TO REMEDY SUCH BREACH WITHIN FIFTEEN (15) DAYS
FOLLOWING NOTICE IN WRITING FROM THE LANDLORD.
11. "FISCAL YEAR" means (i) the period of time commencing on the Commencement
Date and ending on the last day of the next ensuing December; and (ii)
thereafter the period of time commencing on the first day of January and
ending on the last day of the next ensuing December, or (iii) the fiscal
period NOT EXCEEDING TWELVE (12) MONTHS (UNLESS THE LANDLORD IS CHANGING
ITS FISCAL PERIOD) designated by the Landlord from time to time.
12. "INDEMNIFIER" means the Person, if any, who has executed or agreed to
execute the Indemnity Agreement attached to this Lease as Schedule "E", or
any other indemnity agreement in favour of the Landlord.
13. "LANDLORD" means the party named as landlord on the first page of this
xxxxxxx LEASE, and those for whom it is responsible in law.
14. "LANDS" means the lands situated in the City of North York, in the Province
of Ontario on which the Building is or will be constructed, as more
particularly described in Schedule "A" and Schedule "A-1", or as such lands
may be expanded or reduced from time to time.
15. "LEASE" OR "LEASE" means this document as originally signed, sealed and
delivered or as amended from time to time, which amendments shall be in
writing, signedxxxxxxxxx and delivered by both the Landlord and the Tenant.
16. "LEASEHOLD IMPROVEMENTS" mean leasehold improvements in the Premises
determined according to common law, and shall include, without limitation,
all fixtures, improvements, installations, alterations and additions from
time to time made, erected or installed in the Premises by or on behalf of
the Tenant xxx xxx xxxxxxxxxxxx xxxxxxxx xx xxx xxxx, including signs and
lettering, partitions, doors and hardware however affixed and whether or
not movable, all mechanical, electrical and utility installations and all
carpeting and drapes with the exception only of furniture and equipment not
in the nature of fixtures.
17. "MORTGAGE" means any and all mortgages, charges, debentures, security
agreements, trust deeds, hypothecs or like instruments resulting from
financing, refinancing or collateral financing (including renewals or
extensions thereof) made or arranged by the Landlord of its interest in all
or any part of the Development.
18. "MORTGAGEE" means the holder of, or secured party under, any Mortgage and
includes any trustee for bondholders.
19. "NET RENT" means the annual rent payable by the Tenant under Section 2.02.
20. "NET RENTABLE AREA" means, in the case of premises consisting of part of a
floor, the floor area bounded by the inside surface of the exterior glass,
the Premises side of the corridor or other permanent partitions and the
centre of partitions that separate the premises from adjoining leasable
areas (if any) without deductions for columns or projections but after
making the same exclusions as are made in computing Rentable Area.
21. "NORMAL BUSINESS HOURS" means the hours from 8:00 a.m. to 6:00 p.m. on
Mondays through Fridays and the hours from 8:00 a.m. to 1:00 p.m. on
Saturdays, unless any such day is a
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statutory holiday.
22. "OPERATING COSTS" means (without duplication) any amounts paid or payable
whether by the Landlord or by others on behalf of the Landlord for
maintenance, operation, repair, replacement to and administration of the
Development or allocated by the Landlord to the Development and for
services provided generally to tenants, calculated as if each building
erected on the Lands were 100% occupied by tenants during the Term.
including without limitation:
(a) the cost of insurance which the Landlord is obligated or permitted
to obtain under this Lease;
(b) the cost of security, janitorial, landscaping, window cleaning,
garbage removal and snow removal services;
(c) the cost of heating, ventilating and air-conditioning INCLUDING
OCCUPIED OR OCCUPIABLE PREMISES;
(d) the cost of fuel, steam, water, electricity, telephone and other
utilities used in the maintenance, operation or administration of
the Development, including charges and imposts related to such
utilities to the extent such costs, charges and imposts are not
recovered xxxxx xxxxx xxxxxxxxxxxxx OR RECOVERABLE FROM OTHER
TENANTS IN THE SAME MANNER AS PROVISION FOR RECOVERY FROM THE TENANT
PURSUANT TO THIS LEASE;
(e) ON-SITE management office expenses of operation, and salaries, wages
and other amounts paid or payable for all personnel involved in the
ON-SITE repair, maintenance, operation, on site management,
security, supervision or cleaning of the Development, including
fringe benefits, unemployment and worker's compensation insurance
premiums, pension plan contributions and other employment costs;
(f) auditing, accounting, legal and other professional and consulting
fees and disbursements;
(g) the costs:
(i) of repairing, operating and maintaining the Development and
the equipment serving the Development and of all
replacements and modifications to the Development or such
equipment, including those made by the Landlord in order to
comply with laws or regulations affecting the Development;
(ii) incurred by the Landlord in providing and installing energy
conservation equipment or systems INTENDED TO REDUCE
OPERATING COSTS and life safety systems;
(iii) incurred by the Landlord to make alterations, replacements
or additions to the Development intended to reduce operating
costs, improve the operation of the Development or maintain
its operation as a first class office Development (OTHER
THAN CAPITAL COSTS THAT ARE FOR THE UPGRADING OF THE
BUILDING OR ANY OF ITS COMPONENTS); and,
(iv) incurred to replace machinery or equipment which by its
nature requires periodic replacement;
all to the extent that such costs are fully chargeable in the Fiscal
Year in which they are incurred in accordance with xxxxxxxxx
GENERALLY ACCEPTED accounting principles;
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(h) the cost of the rental of all equipment supplies, tools, materials
and signs;
(i) all REASONABLE costs incurred by the Landlord in contesting or
appealing taxes or related assessments including legal, appraisal
and other professional fees, and administration and overhead costs;
(j) Capital Tax;
(k) depreciation or amortization of the costs referred to in paragraph
22(g) above as determined by the Landlord in accordance with sound
accounting principles, if such costs have not been charged fully in
the Fiscal Year in which they are incurred;
(l) Interest calculated at 2 percentage points above the annual rate of
interest generally announced as being its prime rate for Canadian
dollar demand loans by any Canadian chartered bank designated from
time to time by the Landlord upon the undepreciated or unamortized
balance of the costs referred to in paragraph 22(k); and
(m) a reasonable fee for the administration and management of the
Development applied to the total rents (including additional and
percentage rents) received from tenants of the Development, which
fee shall be comparable to fees charged by property management
companies for managing and administering developments in the City of
North York similar to the Development.
Operating Costs shall exclude or have deducted from them as the case may
be:
(aa) all amounts which otherwise would be included in Operating Costs
which are recovered by the Landlord from tenants (other than under
sections of their leases comparable to Section 2.03 of this Lease);
(bb) such of the Operating Costs as are recovered from insurance
proceeds, warranties or guarantees, to the extent such recovery
represents reimbursements for costs previously included in Operating
Costs;
(cc) interest on debt and capital retirement of debt;
(dd) ground rent payable by the Landlord to the owner of the Lands under
any ground lease of the Lands;
(ee) all amounts which otherwise would be included in Operating Costs
which are directly attributable to the operation of the parking
garage forming part of and serving the Development AND ALL COST OF
REPAIR OR REPLACEMENT TO SUCH PARKING GARAGE CAUSED BY ITS USE BY
CARS OR OTHER VEHICLES;
(ff) commissions and other expenses payable in connection with the
marketing and leasing of the Building including the cost of any
leasehold improvement allowance or other inducement paid to tenants
of the Buildingxxxx
(gg) the amount of any goods and services tax ("G.S.T.") paid or payable
by the Landlord on the purchase of goods and services included in
Operating Costs which may be available to the Landlord as a credit
in determining the Landlord's net tax liability or refund on account
of G.S.T.
(hh) BAD DEBTS AND THE COLLECTION OF LEGAL COSTS ASSOCIATED WITH BAD
DEBTS;
(ii) ANY AMOUNT PAYABLE AS A RESULT OF LANDLORD'S NON-COMPLIANCE WITH ANY
LAW, BY-LAW, REGULATION OR ACT; AND
(jj) COSTS RELATING TO THE REPAIR OR REPLACEMENT OF STRUCTURAL DEFECTS.
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Costs incurred in maintaining and operating the Development may be
attributed by the Landlord to the various components of the Development in
accordance with reasonable and current practices and on a basis consistent
with the nature of the particular costs being attributed, and the costs so
attributed may be allocated to the tenants of such components accordingly.
23. "PERSON" means any person, firm, partnership or corporation, or any group
or combination of persons, firms, partnerships or corporations.
24. "PREMISES" means the premises leased to the Tenant described in Section
1.01 and includes Leasehold Improvements in such premises AND SHALL INCLUDE
WHEN APPLICABLE, THE FIRST ADDITIONAL PREMISES.
25. "PROPORTIONATE SHARE" means a fraction which has as its numerator the
Rentable Area of the Premises and as its denominator the Total Rentable
Area of the Development.
25A. "RELATED TRANSFEREE" MEANS ANY CORPORATION THAT IS A WHOLLY OWNED
SUBSIDIARY OF THE TENANT OR A CORPORATION RESULTING FROM AN AMALGAMATION
UNDER THE ONTARIO BUSINESS CORPORATION ACT BETWEEN THE TENANT AND A
CORPORATION AFFILIATED WITH THE TENANT (WITHIN THE MEANING OF THE SAID
ACT), PROVIDED THAT IF THERE IS A CHANGE OF CONTROL WITH RESPECT TO THE
AMALGAMATED CORPORATION IT SHALL BE SUBJECT TO THE LANDLORD'S RIGHT TO
DETERMINE WHETHER SUCH CHANGE OF CONTROL CONSTITUTES AN EVENT OF DEFAULT
PURSUANT TO SECTION 10(j) OF THIS SCHEDULE "C".
26. "RENT" means the aggregate of Net Rent and Additional Rent.
27. "RENTABLE AREA" means (a) in the case of premises used or intended to be
used for office purposes and occupying an entire floor, the floor area
bounded by the inside surface of the glass on the exterior walls, including
without limitation, washrooms, telephone, electrical and janitorial closets
and elevator lobbies; (b) in the case of premises used or intended to be
used for office purposes and consisting of part of a floor, the area
computed by multiplying the Net Rentable Area of such premises by a
fraction, the numerator of which is the aggregate floor area of the floor
on which the Premises are located (using the measurement method set out in
subparagraph (a)) and the denominator of which is the aggregate Net
Rentable Area of all office premises on such floor; and (c) in the case of
premises used or intended to be used for retail purposes, the Net Rentable
Area thereof. In calculating Rentable Area, stairs, elevator shafts, flues,
stacks, pipe shafts and vertical ducts with their own enclosing walls, any
of which are used in common, shall be excluded but no deductions or
exclusions shall be made for columns and projections necessary for the
Building. The Landlord may for the purpose of calculating the Net Rent and
any Proportionate Share change the fraction referred to in subparagraph (b)
from time to time to reflect the actual ratio of the aggregate floor area
of the floor on which the Premises are located (using the measurement
method set out in subparagraph (a)) to the aggregate Net Rentable Area of
all office premises on such floor.
28. "RULES AND REGULATIONS" means the rules and regulations adopted and
promulgated by the Landlord from time to time pursuant to Section 11.01.
The Rules and Regulations existing as at the Commencement Date are those
set out in Schedule "D".
29. "TAXES" means all taxes, levies, charges, local improvement rates and
assessments whatsoever assessed or charged against the Development or any
part thereof by any lawful taxing authority and including any amounts
assessed or charged in substitution for or in lieu of any such taxes, but
excluding only such taxes as CAPITAL TAX, capital gains taxes, corporate,
income, profit or excess profit taxes to the extent such taxes are not
levied in lieu of any of the foregoing against the Development or the
Landlord in respect thereof. Taxes shall in every instance be calculated on
the basis of the Total Rentable Area of the Building being assessed as
fully leased and operational.
30. "TENANT" means the party named as tenant on the first page of this
xxxxxxxxxxxx LEASE, and those for whom it is responsible in law.
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30A. "TENANT BUSINESS HOURS" MEANS THE HOURS FROM 7:00 A.M. TO 12.00 A.M. ON
MONDAYS THROUGH FRIDAYS AND THE HOURS FROM 9:00 A.M. TO 5:00 P.M. ON
SATURDAYS AND 10:00 A.M. TO 2:00 P.M. ON SUNDAYS UNLESS SUCH DAY IS A
STATUTORY HOLIDAY.
31. "TERM" means the period set out in Section 1.02.
32. "TOTAL RENTABLE AREA OF THE BUILDING" means the aggregate of the Rentable
Areas of each floor in the Building intended for office or retail use as if
each floor is occupied by one tenant, all as determined by the Architect.
The Total Rentable Area of the Building shall:
(a) exclude the main telephone, mechanical, electrical and other utility
rooms and enclosures, public lobbies on the ground floor, and other
public space common to the entire Building; and,
(b) be adjusted by the Architect from time to time to take account of
any structural, functional or other change affecting the same.
33. "TOTAL RENTABLE AREA OF THE DEVELOPMENT" means the aggregate of:
(a) the Total Rentable Area of the Building; and
(b) the total rentable area of all other buildings in the Development,
(other than the free-standing one-storey building on the Lands used
or intended to be used as a restaurant), which areas shall be
calculated and adjusted in the same manner as the Total Rentable
Area of the Building is calculated and adjusted mutatis mutandis
(provided that the total rentable area of such a building shall be
included in the Total Rentable Area of the Development only from and
after the date designated by the Landlord for the opening of such
building).
34. "TRADE FIXTURES" means trade fixtures as determined at common law, but for
greater certainty, shall not include:
(a) heating, ventilating or air conditioning systems, facilities and
equipment in or serving the Premises;
(b) floor coverings affixed to the BASE BUILDING floor of the Premises;
(c) light fixtures;
(d) internal stairways and doors; and,
(e) any fixtures, facilities, equipment or installations installed by or
at the expense of the Landlord pursuant to this Lease or otherwise
REQUIRED FOR THE OPERATION OF THE BUILDING AS OPPOSED TO THE
OPERATION OF THE TENANT'S BUSINESS.
35. "TRANSFER" means an assignment of this Lease in whole or in part, a
sublease of all or any part of the Premises, any transaction whereby the
rights of the Tenant under this Lease or to the Premises are transferred to
another, any transaction by which any right of use or occupancy of all or
any part of the Premises is conferred (EXCEPT PURSUANT TO A GENERAL
SECURITY AGREEMENT) upon anyone, any mortgage, charge or encumbrance of
this Lease or the Premises or any part thereof or other arrangement under
which either this Lease or the Premises become security for any
indebtedness or other obligations and includes any transaction or
occurrence whatsoever (including, but not limited to, expropriation,
receivership proceedings, seizure by legal process and transfer by
operation of law), which has changed or might change the identity of the
Persons having lawful use or occupancy of any part of the Premises.
TRANSFER SHALL NOT INCLUDE A SALE OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS
OF THE TENANT PROVIDED THAT SUCH SALE SHALL BE SUBJECT TO THE LANDLORD'S
RIGHTS TO DETERMINE WHETHER SUCH SALE CONSTITUTES AN EVENT OF DEFAULT
PURSUANT TO SECTION 10(k) OF THIS SCHEDULE "C."
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36. "TRANSFEREE" means the Person or Persons to whom a Transfer is to be made.
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SCHEDULE "D" - RULES AND REGULATIONS
1. LIFE SAFETY
(a) The Tenant shall not do or permit anything to be done in the
Premises, or bring or keep anything therein which will in any way
increase the risk of fire or the rate of fire insurance on the
Building or on property kept therein, or obstruct or interfere with
the rights of other tenants or in any way injure or annoy them or
the Landlord, or violate or act at variance with the laws relating
to fires or with regulations of the Fire Department, or with any
insurance upon the Lands or Building or in any part thereof, or
violate or act in conflict with any statutes, rules and ordinances
governing health standards or with any other statute or municipal
by-law.
(b) No inflammable oils or other inflammable, dangerous or explosive
materials save those approved in writing by the Landlord's insurers
shall be kept or permitted to be kept in the Premises.
2. SECURITY
(a) The Landlord shall permit the Tenant and the Tenant's employees and
all Persons lawfully requiring communication with them to have the
use, during Normal Business Hours in common with others entitled
thereto, of the main entrance and the stairways, corridors,
elevators, escalators, or other mechanical means of access leading
to the Building and the Premises. At times other than during Normal
Business Hours the Tenant and the employees of the Tenant shall have
access to the Building and to the Premises only in accordance with
the Rules and Regulations and shall be required to satisfactorily
identify themselves and to register in any book which may at the
Landlord's option be kept by the Landlord for such purpose. If
identification is not satisfactory, the Landlord is entitled to
prevent the Tenant or the Tenant's employees or other Persons
lawfully requiring communication with the Tenant from having access
to the Building and to the Premises. In addition, the Landlord is
not required to open the door to the Premises for the purpose of
permitting entry therein to any Person not having a key to the
Premises.
(b) The Tenant shall not place or cause to be placed any additional
locks upon any doors of the Premises without the approval of the
Landlord. Two keys PER FLOOR shall be supplied to the Tenant for
each entrance door to the Premises and all locks shall be Building
standard to permit access by the Landlord's master key. If
additional keys are required, they must be obtained from the
Landlord at the cost of the Tenant. Keys or other means of access
for entrance doors to the Building will not be issued without the
written authority of the Landlord. THE TENANT MAY, AT ITS SOLE COST
AND EXPENSE, COORDINATE ITS SECURITY AND CARD ENTRY SYSTEM WITH THE
CARD ENTRY SYSTEM OF THE BUILDING SUBJECT TO THE PRIOR APPROVAL OF
THE LANDLORD WHICH SHALL NOT BE UNREASONABLY WITHHELD OR DELAYED.
3. HOUSEKEEPING
(a) The Tenant shall permit window cleaners to clean the windows of the
Premises during Normal Business Hours.
(b) The Tenant shall not place any debris, garbage, trash or refuse or
permit same to be placed or left in or upon any part of the Lands or
Building outside of the Premises, other than in a location provided
by the Landlord specifically for such purposes, and the Tenant shall
not allow any undue accumulation of any debris, garbage, trash or
refuse in or outside of the Premises. If the Tenant uses perishable
articles or generates wet garbage, the Tenant shall provide
refrigerated storage facilities
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<PAGE>
suitable to Landlord.
(c) The Tenant shall not place or maintain any supplies, or other
articles in any vestibule or entry of the Premises, on the adjacent
footwalks or elsewhere on the exterior of the Premises or elsewhere
on the Lands or Building.
(d) The sidewalks, entrances, passages, escalators, elevators and
staircases shall not be obstructed or used by the Tenant, its
agents, servants, contractors, invitees or employees for any purpose
other than ingress to and egress from the Premises and the Building.
The Landlord reserves entire control of all parts of the Lands and
Building employed for the common benefit of the tenants and without
restricting the generality of the foregoing, the sidewalks,
entrances, corridors and passages not within the Premises,
washrooms, lavatories, air conditioning closets, fan rooms,
janitor's closets, electrical closets and other closets, stairs,
escalators, elevator shafts, flues, stacks, pipe shafts and ducts
and shall have the right to place such signs and appliances therein,
as it deems advisable, provided that ingress to and egress from the
Premises is not unduly impaired thereby.
(e) The Tenant shall not cause or permit: any waste or damage to the
Premises; any overloading of the floors or the utility, electrical
or mechanical facilities of the Premises; any nuisance in the
Premises; or any use or manner of use causing a hazard or annoyance
to other occupants of the Building or to the Landlord.
4. RECEIVING, SHIPPING, MOVEMENT OF ARTICLES
(a) The Tenant shall not receive or ship articles of any kind except
through facilities and designated doors and at hours REASONABLY
designated by the Landlord and under the supervision of the
Landlord.
(b) Hand trucks, carryalls or similar appliances shall only be used in
the Building with the consent of the Landlord and shall be equipped
with rubber tires, slide guards and such other safeguards as the
Landlord requires.
(c) The Tenant, its agents, servants, contractors, invitees or
employees, shall not bring in or take out, position, construct,
install or move any safe, business machinery or other heavy
machinery or equipment or anything liable to injure or destroy any
part of the Building, including the Premises, without first
obtaining the consent in writing of the Landlord. In giving such
consent, the Landlord shall have the right in its sole discretion,
to prescribe the weight permitted and the position thereof, the use
and design of planks, skids or platforms, and to distribute the
weight thereof. All damage done to the Building, including the
Premises, by moving or using any such heavy equipment or other
office equipment or furniture shall be repaired at the expense of
the Tenant. The moving of all heavy equipment or other office
furniture shall occur only by prior arrangement with the Landlord.
The cost of such moving shall be paid by the Tenant. Safes and other
heavy office equipment and machinery shall be moved through the
halls and corridors only in a manner expressly approved by the
Landlord. No freight or bulky matter of any description will be
received into any part of the Building, including the Premises, or
carried in the elevators except during hours approved by the
Landlord.
5. PREVENTION OF INJURY TO PREMISES
(a) It shall be the duty of the Tenant to assist and co-operate with the
Landlord in preventing injury to the Premises.
(b) The Tenant shall not, EXCEPT AS PART OF NORMAL DECORATIONS,
deface or mark any part of the Building, including the Premises,
and shall not drive nails, spikes, hooks or screws into the
walls, floors, ceilings or woodwork of any part of the Building,
including the Premises, or bore, drill or cut into the walls,
floors, ceilings or woodwork of any part of the Building
including the Premises, in any manner or for
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any reason.
(c) If the Tenant desires telegraphic or telephonic connections, the
Landlord, in its sole discretion, may direct the electricians as to
where and how the wires are to be introduced. No gas pipe or
electric wire will be permitted which has not been ordered or
authorized by the Landlord. No outside radio or television antenna
shall be allowed on any part of the Premises without authorization
in writing by the Landlord.
6. WINDOWS
Except for the proper use of approved blinds and drapes, the Tenant shall
not cover, obstruct or affix any object or material to any of the skylights
and windows that reflect or admit light into any part of the Building,
including, without limiting the generality of the foregoing, the
application of solar films.
7. WASHROOMS
(a) The Landlord shall permit the Tenant and the employees of the Tenant
in common with others entitled thereto, to use EXCLUSIVELY the
washrooms on xxxxx EACH WHOLE floor of the Building LEASED BY THE
TENANT AND NON-EXCLUSIVE USE OF WASHROOMS ON EACH PART FLOOR on
which the Premises are situated or, in lieu thereof, those
washrooms designated by the Landlord, save and except when the
general water supply may be turned off from the public main or at
such other times when repair and maintenance undertaken by the
Landlord shall necessitate the non-use of the facilities.
(b) The water closets and other apparatus shall not be used for any
purposes other than those for which they were intended, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown
into them. Any damage resulting from misuse shall be borne by the
Tenant by whom or by whose agents, servants, invitees, or employees
such damage is caused.
8. USE OF PREMISES
(a) No one shall use the Premises for sleeping apartments or residential
purposes, or for the storage of personal effects or articles other
than those required for business purposes.
(b) No cooking or heating of any foods or liquids (other than the
heating of water or coffee in coffee makers xxx xxxxxxxxxxx,
KETTLES. MICROWAVES, FRIDGES) shall be permitted in the Premises
without the written consent of the Landlord.
(c) The Tenant shall not install or permit the installation or use of
any machine dispensing goods for sale in the Premises xxx xxx
xxxxxxxxxxx xx xxxxxxxxxxx (OTHER THAN FOOD OR BEVERAGE MACHINES
FOR THE EMPLOYEES OF THE TENANT) OR THE BUILDING. SUBJECT TO THE
LANDLORD'S REASONABLE PROCEDURES AND SECURITY REQUIREMENTS HAVING
REGARD TO THE FIRST CLASS STANDARD OF THE BUILDING, the delivery
of any food or xxxxxxxxxxx xx xxx xxxxxxxxx ,xxxxxxxx xxx
xxxxxxxxxx xxxxxxxxxxx BEVERAGES TO THE PREMISES DURING AND
OUTSIDE OF NORMAL BUSINESS HOURS SHALL BE PERMITTED.
(d) The Tenant shall not permit or allow any odours, vapours, steam,
water, vibrations, noises or other undesirable effects to emanate
from the Premises or any equipment or installation therein which,
in the Landlord's opinion, are objectionable or cause any
interference with the safety, comfort or convenience of the
Building to the Landlord or the occupants and tenant thereof or
their agents, servants, invitees or employees.
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<PAGE>
9. CANVASSING, SOLICITING, PEDDLING
Canvassing, soliciting and peddling in or about the Development are
prohibited.
10. BICYCLES
No bicycles or other vehicles shall be brought within any part of the
Development without the consent of the Landlord NOT TO BE UNREASONABLY
WITHHELD.
11. ANIMALS AND BIRDS
No animals or birds shall be brought into any part of the Development
without the consent of the Landlord.
12. SIGNS AND ADVERTISING
The Tenant shall SAVE AS PROVIDED IN THE LEASE, not paint, affix, display
or cause to be painted, affixed or displayed, any sign, picture,
advertisement, notice, lettering or decoration on any part of the outside
of the Building or in the interior of the Premises which is visible from
the outside of the Building. The Landlord will prescribe a uniform pattern
and location of identification signs for tenants, to be placed on the
outside of the Premises, and the Tenant shall not paint, affix, display or
cause to be painted, affixed or displayed any sign, picture, advertisement,
notice, lettering or decoration on the outside of the Premises for exterior
view without the written consent of the Landlord. Any such signs shall
remain the property of the Tenant and shall be maintained at the Tenant's
sole cost and expense. At the expiration of the Term or earlier termination
of this Lease, the Tenant shall remove any such sign, picture,
advertisement, notice, lettering or decoration from the Premises at the
Tenant's expense and shall promptly repair all damage caused by any such
removal. The Tenant's obligation to observe and perform this covenant shall
survive the expiration of the Term or earlier termination of the Lease.
13. DIRECTORY BOARD
The Tenant shall be entitled at its expense to have its name shown upon the
directory board of the Building and the Landlord shall design the style of
such identification and shall determine the number of spaces available on
the directory board for each tenant. The DIRECTORY BOARD SHALL BE LOCATED
IN AN AREA DESIGNATED BY THE LANDLORD IN THE MAIN LOBBY OF THE BUILDING.
THE TENANT SHALL BE ENTITLED TO A MAXIMUM OF FOUR NAMES ON SUCH DIRECTORY
BOARD.
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<PAGE>
SCHEDULE "E"
TEXT OF IRREVOCABLE LETTER OF CREDIT
BENEFICIARIES: YCC LIMITED AND LONDON LIFE INSURANCE COMPANY
AMOUNT: $500,000.00
EXPIRY: MAY ,1998
1. WE, [INSERT NAME OF BANK], AT THE REQUEST AND ON ACCOUNT OF LOYALTY
MANAGEMENT GROUP CANADA INC. (THE "APPLICANT") HEREBY ISSUE IN YOUR FAVOUR
OUR IRREVOCABLE STANDBY LETTER OF CREDIT FOR THE ABOVE-MENTIONED AMOUNT,
AVAILABLE FOR PAYMENT ON DEMAND AT OUR COUNTERS AT:
[INSERT ADDRESS OF BANK]
2. THIS STANDBY LETTER OF CREDIT IS ISSUED TO SECURE CERTAIN OBLIGATIONS OF
THE APPLICANT TO YOU PURSUANT TO A LEASE BETWEEN THE APPLICANT AND
YOURSELVES DATED THE DAY OF MAY, 1997 (THE "LEASE") WHEREBY
THE APPLICANT HAS AGREED TO PAY RENT AND PERFORM OTHER COVENANTS AND
AGREEMENTS THEREUNDER WITH RESPECT TO CERTAIN PREMISES IN THE YONGE
CORPORATE CENTRE, NORTH YORK, ONTARIO ALL AS MORE PARTICULARLY SET OUT IN
THE LEASE.
3. ANY DEMAND MADE UPON US IN CONFORMITY WITH THE TERMS AND CONDITIONS OF THIS
STANDBY LETTER OF CREDIT WILL BE HONOURED WITHOUT ENQUIRING WHETHER YOU
HAVE A RIGHT AS BETWEEN YOURSELVES AND THE APPLICANT TO MAKE SUCH DEMAND
AND WITHOUT RECOGNIZING ANY CLAIM OF THE APPLICANT.
4. IN ORDER TO MAKE A DEMAND UNDER THIS STANDBY LETTER OF CREDIT, YOU ARE TO
DELIVER TO US AT SUCH TIME AS A WRITTEN DEMAND FOR PAYMENT IS MADE UPON US,
A CERTIFICATE SIGNED BY YOU INDICATING THE NUMBER OF THIS STANDBY LETTER OF
CREDIT AND CERTIFYING THAT THE APPLICANT HAS FAILED TO MAKE PAYMENT TO YOU
IN ACCORDANCE WITH THE LEASE. THE DEMAND MUST BE ACCOMPANIED BY THE
ORIGINAL OF THIS STANDBY LETTER OF CREDIT FOR ANY ENDORSEMENT OF ANY
PAYMENT THEREON.
5. IT IS EXPRESSLY ACKNOWLEDGED AND AGREED THAT IF, AT ANY TIME, THE DATE
WHICH WOULD OTHERWISE CONSTITUTE AN EXPIRATION DATE IN ACCORDANCE WITH THE
TERMS OF THIS STANDBY LETTER OF CREDIT FALLS ON A DAY OTHER THAN A "BANKING
DAY" ON WHICH WE ARE OPEN FOR BUSINESS AT OUR OFFICES IN [INSERT ADDRESS],
TORONTO, REFERRED TO ABOVE, THE DATE SHALL BE DEEMED TO BE EXTENDED TO THE
NEXT BANKING DAY THEREAFTER.
6. WITHOUT LIMITING THE GENERALITY OF ANY OTHER PROVISION OF THIS STANDBY
LETTER OF CREDIT, IT IS EXPRESSLY ACKNOWLEDGED AND AGREED THAT THE ABILITY
OF YOURSELVES TO MAKE DEMAND FOR, TO RECEIVE AND RETAIN, PAYMENT UNDER THIS
LETTER OF CREDIT SHALL NOT BE AFFECTED, RELEASED, TERMINATED OR IMPAIRED IN
ANY MANNER WHATSOEVER. WE SHALL HONOUR WITHOUT INQUIRING WHETHER YOU HAVE A
RIGHT BETWEEN YOURSELVES AND OUR SAID CUSTOMER TO MAKE SUCH DEMAND AND
WITHOUT RECOGNIZING ANY CLAIM OF OUR SAID CUSTOMER INCLUDING, WITHOUT
LIMITATION, THE BANKRUPTCY OF THE APPLICANT AND/OR ANY PROCEEDINGS,
REORGANIZATIONAL OR OTHERWISE, ENTERED INTO BY THE APPLICANT PURSUANT TO
THE BANKRUPTCY AND INSOLVENCY ACT OR THE COMPANIES' CREDITORS ARRANGEMENT
ACT AND THE EFFECT OF ANY SUCH ACTIONS OR ACTIVITIES ON THE OBLIGATIONS OF
THE APPLICANT AS A MATTER OF LAW
7. IT IS EXPRESSLY ACKNOWLEDGED AND AGREED BY US THAT THE AMOUNT OF THIS
STANDBY LETTER OF CREDIT WILL BE DECREASED AS FOLLOWS:
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<PAGE>
(A) AS OF THE OPENING FOR BUSINESS ON MARCH , 1998,
THE AMOUNT OF THE STANDBY LETTER OF CREDIT WILL BE REDUCED TO
$250,000.00:
(B) AS OF THE OPENING FOR BUSINESS ON APRIL , 1998, THE AMOUNT OF THE
STANDBY LETTER OF CREDIT WILL BE REDUCED TO $125,000.00.
ANY REFERENCE HEREIN TO "THIS STANDBY LETTER OF CREDIT" INCLUDES THIS
LETTER OF CREDIT AS AMENDED FROM TIME TO TIME.
8. PARTIAL DRAWINGS HEREUNDER ARE PERMITTED.
9. WE HEREBY AGREE THAT DRAWINGS UNDER THIS STANDBY LETTER OF CREDIT WILL BE
DULY HONOURED UPON PRESENTATION, PROVIDED ONLY THAT ALL TERMS AND
CONDITIONS OF THE STANDBY LETTER OF CREDIT HAVE BEEN COMPLIED WITH.
10. THIS STANDBY LETTER OF CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND
PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION) INTERNATIONAL CHAMBER OF
COMMERCE, PUBLICATION NO. 500 AND ENGAGES US IN ACCORDANCE WITH THE TERMS
THEREOF.
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<PAGE>
AMENDING AGREEMENT
This agreement is dated as of the 19th day of June, 1997
BETWEEN:
YCC LIMITED AND
LONDON LIFE INSURANCE COMPANY
(hereinafter called the "Landlord")
OF THE FIRST PART
AND
LOYALTY MANAGEMENT GROUP CANADA INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 28th day of May, 1997 (the "Lease") the Landlord
leased to the Tenant for and during the term of ten (10) years
commencing on the 1st day of September, 1997 to and including the 31st
day of August, 2007 (subject to Section 12.04 of the Lease) certain
premises as in the Lease described as the multistorey building known
municipally as 4110 Yonge Street in the City of North York, in the
Municipality of Metropolitan Toronto, in the Province of Ontario;
B. Section 12.04 of the Lease provided that the Landlord and Tenant shall
enter into a written agreement confirming any changes or postponements
with respect to the Commencement Date and other dates; and
C. The Landlord and Tenant have agreed to postpone the Commencement Date
and other dates in accordance with the terms and provisions of section
12.04 of the Lease by reason of the delay in the beginning of the
Fixturing Period from June 1, 1997 to June 19, 1997.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum of TWO
($2.00) DOLLARS now paid by each of the parties to the other (the receipt and
sufficiency of which is hereby acknowledged) and other mutual covenants and
agreements hereby set out, the Landlord and Tenant hereby agree as follows:
1. The Landlord and Tenant hereby acknowledge, confirm and agree that the
foregoing recitals are true and accurate in substance and in fact.
2. The following dates in the Lease are hereby amended as follows:
(a) The Commencement Date in section 1.02 shall be changed
FROM: THE 1ST DAY OF SEPTEMBER, 1997
TO: THE 17TH DAY OF SEPTEMBER, 1997
<PAGE>
Page 2
(b) The last date of the Term set out in section 1.02 shall be changed
FROM: THE 31ST DAY OF AUGUST, 2007
TO: THE 16TH DAY OF SEPTEMBER, 2007
(c) The date referred to in section 12.05(c) shall be changed
FROM: MARCH 1, 2002
TO: MARCH 17, 2002
(d) The Termination Date defined in section 12.05 shall be changed
FROM SEPTEMBER 1, 2002
TO: SEPTEMBER 17, 2002
(e) The date referred to in the definition of"Refusal Space" in section
12.07 shall be changed
FROM: JUNE 2, 1998
TO: JUNE 18, 1998
(f) The date referred to in the first line of section 12.07(b) shall be
changed
FROM: JUNE 1, 1998
TO: JUNE 17, 1998
(g) The period referred to in section 12.07(b)(i) shall be changed
FROM: SEPTEMBER 1, 1998 TO AUGUST 31, 2002
TO: SEPTEMBER 17, 1998 TO SEPTEMBER 16, 2002
(h) The period referred to in section 12.07(b)(ii) shall be changed
FROM: SEPTEMBER 1, 2002 TO AUGUST 31, 2007
TO: SEPTEMBER 17, 2002 TO SEPTEMBER 16, 2007
3. Section 2.02 Net Rent is hereby deleted in it entirety and the following
substituted in its place and stead:
"The Tenant shall pay Net Rent as follows:
(a) From September 17, 1997 to August 31, 1998, (being part of the first
year of the Term) both inclusive, the sum of SEVEN HUNDRED AND
FIFTY-SEVEN THOUSAND, FOUR HUNDRED DOLLARS AND TWENTY CENTS
($757,400.20) per annum payable in equal monthly instalments of SIXTY
THREE THOUSAND, ONE HUNDRED AND SIXTEEN DOLLARS AND SIXTY EIGHT CENTS
($63,116.68) each in advance on the first day of each calendar month
during such period of the Term.
(b) From September 1, 1998 to August 31, 2002, (being the remainder of
the first year and part of the next four years of the Term) both
inclusive, the sum of NINE HUNDRED AD SEVENTY-SEVEN THOUSAND, NINE
HUNDRED DOLLARS AND TWENTY CENTS ($977,900.20) payable in equal
monthly instalments of EIGHTY ONE THOUSAND, FOUR HUNDRED AND NINETY
ONE DOLLARS AND SIXTY EIGHT CENTS ($81,491.68) each in advance on
the first day of each calendar month during such period of the Term.
<PAGE>
Page 3
(c) From September 1, 2002 to September 16, 2002, both inclusive, the
sum of NINE HUNDRED AND EIGHTY-TWO THOUSAND, FOUR HUNDRED DOLLARS
AND TWENTY CENTS ($982,400.20) per annum payable in one instalment
of FORTY THREE THOUSAND, SIXTY FOUR DOLLARS AND TWELVE CENTS
($43,064.12) on the first day of September, 2002.
(d) From September 17, 2002 to September 16, 2007, (being the last five
years of the Term) both inclusive, the sum of ONE MILLION, ONE
HUNDRED AND SEVEN THOUSAND, FOUR HUNDRED AND EIGHT DOLLARS
($1,107,408.00) per annum payable in equal monthly instalments of
NINETY TWO THOUSAND, TWO HUNDRED AND EIGHTY FOUR DOLLARS
($92,284.00) each in advance on the first day of each calendar
month during such period of the Term.
The Net Rent for the period of the Term set out in subsection 2.02(a) is
based on an annual rate of ten dollars and thirty cents ($10.30) per
square foot of Rentable Area of the Premises. The Net Rent for the
period of the Term set out in subsection 2.02(b) is based on an annual
rate of TEN DOLLARS AND THIRTY CENTS ($10.30) per square foot of the
Rentable Area of the Premises (other than the First Additional Premises)
and TWELVE DOLLARS AND TWENTY-FIVE CENTS ($12.25) per square foot of the
Rentable Area of the First Additional Premises. The Net Rent for the
period of the Term set out in subsection 2.02(c) is based on an annual
rate of TEN DOLLARS AND THIRTY CENTS ($10.30) per square foot of the
Rentable Area of the Premises (other than the First Additional Premises)
and TWELVE DOLLARS AND FIFTY CENTS ($12.50) per square foot of the
Rentable Area of the First Additional Premises. The Net Rent for the
period of the Term set out in subsection 2.02(d) is based on an annual
rate of TWELVE DOLLARS ($12.00) per square foot of the Rentable Area of
the Premises (other than the First Additional Premises) and TWELVE
DOLLARS AND FIFTY CENTS ($12.50) per square foot of the Rentable Area of
the First Additional Premises. As soon as reasonably possible after
completion of construction of the Premises, the Architect shall measure
the Net Rentable Area of the Premises and shall certify to the Tenant
the Rentable Area of the Premises and Rent shall be adjusted
accordingly."
4. Except as otherwise provided herein, all defined terms in this amending
agreement shall have the same definitions as in the Lease.
5. The Landlord and Tenant confirm that in all other respects, the terms,
covenants and conditions of the Lease remain unchanged and in full force
and effect except as modified by this amending agreement.
6. This amending agreement shall enure to the benefit of and be binding
upon the parties hereto, their successors and assigns of the Landlord
and the permitted successors and permitted assigns of the Tenant.
<PAGE>
Page 4
IN WITNESS WHEREOF the parties have executed this amending agreement as of the
day and date first above written.
YCC LIMITED
(LANDLORD)
PER: /s/ [Illegible]
------------------------------
AUTHORIZED SIGNATURE
PER: /s/ [Illegible]
------------------------------
AUTHORIZED SIGNATURE
LONDON LIFE INSURANCE COMPANY
(LANDLORD)
PER: /s/ Jonathan Button
------------------------------
AUTHORIZED SIGNATURE
Jonathan Button
Director of Real Estate
PER: /s/ Philip Gunn
------------------------------
AUTHORIZED SIGNATURE
Philip Gunn
Manager of Finance
LOYALTY MANAGEMENT GROUP CANADA INC.
(TENANT)
PER: /s/ [Illegible]
------------------------------
AUTHORIZED SIGNATURE
PER: /s/ [Illegible]
------------------------------
AUTHORIZED SIGNATURE
WE HAVE AUTHORITY TO BIND THE CORPORATION
<PAGE>
LEASE AMENDING AGREEMENT
THIS AGREEMENT is dated the 15TH day of JANUARY, 1998
BETWEEN:
YCC LIMITED AND
LONDON LIFE INSURANCE COMPANY
(hereinafter called the "Landlord")
OF THE FIRST PART
- and -
LOYALTY MANAGEMENT GROUP CANADA INC.
(hereinafter called the "Tenant")
OF THE SECOND PART
WHEREAS:
A. By a lease dated the 28TH day of MAY, 1997, AND SUBSEQUENT LEASE
AMENDING AGREEMENT DATED JUNE 19,1997, (collectively, the "Lease"), the
Landlord leased to the Tenant for and during a term, (the "Term"), of TEN
(10) years, commencing on the 17TH day of SEPTEMBER, 1997 and expiring on the
16TH day of SEPTEMBER, 2007 certain premises, (the "Premises"), comprising a
Rentable Area of approximately SEVENTY-THREE THOUSAND FIVE HUNDRED AND
THIRTY-FOUR (73,534) square feet located on the 2ND AND 3RD floors shown
outlined in red on the plan attached to the Lease as Schedules "B-1 AND B-2",
located at 4110 YONGE STREET, (the "Building"), in the City of TORONTO, in
the Municipality of METROPOLITAN TORONTO, in the Province of ONTARIO.
B. PURSUANT TO SECTION 1.01 AND SECTION 12.07, THE LANDLORD AND TENANT HAVE
AGREED THAT THE FIRST ADDITIONAL PREMISES AND THE SPECIAL REFUSAL SPACE SHALL
BE ADDED TO THE PREMISES AND the lease SHALL BE AMENDED in accordance with
the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the sum
of Two Dollars ($2.00) now paid by each of the Parties to the other (the
receipt and sufficiency whereof is hereby acknowledged), and other mutual
covenants and agreements, the Parties do hereby agree as follows:
1. The Parties hereby acknowledge, confirm and agree that the foregoing
recitals are true in substance and in fact.
2. The Lease is amended as of the 1ST day of AUGUST, 1998, (the "Effective
Date"), as follows:
(a) SECTION 1.01 (GRANT AND PREMISES) IS AMENDED BY DELETING IN THE
FIRST AND LAST LINES OF THE SECOND PARAGRAPH, THE WORDS AND FIGURES
"SEPTEMBER 1, 1998" AND INSERTING IN THEIR PLACE THE WORDS AND
FIGURES "AUGUST 1, 1998".
(b) SECTION 2.02 (NET RENT) OF THE LEASE IS AMENDED AS FOLLOWS:
(i) BY DELETING FROM THE FIRST LINE OF SUBSECTION (a) THE WORDS AND
FIGURES "AUGUST 31, 1998 (BEING THE FIRST YEAR OF THE TERM)" AND
INSERTING IN THEIR PLACE THE WORDS AND FIGURES "JULY 31, 1998";
AND
(ii) BY DELETING FROM THE FIRST LINE OF SUBSECTION (b) THE WORDS AND
FIGURES "SEPTEMBER 1, 1998" AND INSERTING IN THEIR PLACE THE
WORDS AND FIGURES "AUGUST 1, 1998".
(c) SECTION 12.07 (FIRST REFUSAL RIGHT) IS AMENDED AS FOLLOWS:
1. (A) BY DELETING REFERENCE TO THE 4TH FLOOR IN THE FIRST LINE OF
THE FIRST PARAGRAPH AND;
(B) BY DELETING FROM THE FIRST PARAGRAPH, THE WORDS "AND FROM
AND INCLUDING JUNE 2, 1998, SHALL INCLUDE FOR GREATER
CERTAINTY THE SPECIAL REFUSAL SPACE";
2. BY DELETING IN THE FIRST, SECOND AND THIRD LINES OF THE FIRST
PARAGRAPH OF SUBSECTION (b) THE WORDS "PROVIDED THE TENANT HAS
GIVEN WRITTEN NOTICE TO THE LANDLORD ON OR BEFORE JUNE 1, 1998
THAT THE TENANT REQUIRES THE SPECIAL REFUSAL SPACE, THE LANDLORD
SHALL LEASE THE SPECIAL REFUSAL SPACE
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<PAGE>
TO THE TENANT COMMENCING SEPTEMBER 1, 1998" AND INSERTING IN
THEIR PLACE THE WORDS "THE LANDLORD SHALL LEASE TO THE TENANT
AND THE TENANT SHALL LEASE FROM THE LANDLORD THE SPECIAL REFUSAL
SPACE COMMENCING AUGUST 1, 1998";
3. THE LAST PARAGRAPH OF SUBSECTION (b) IS DELETED;
4. BY DELETING IN SUBSECTION (b)(i) THE WORDS AND FIGURES "SEPTEMBER
17, 1998" AND INSERTING IN THEIR PLACE THE WORDS AND FIGURES
"AUGUST 1,1998"; AND
5. BY DELETING SUBSECTION (d).
(h) SCHEDULE "B-4", ATTACHED HERETO AND FORMING A PART OF THIS LEASE
AMENDING AGREEMENT, IS ADDED TO THE LEASE.
3. EXCEPT AS OTHERWISE PROVIDED HEREIN, ALL REFERENCES IN THE LEASE TO THE
"PREMISES" SHALL BE DEEMED TO INCLUDE THE FIRST ADDITIONAL PREMISES AND THE
SPECIAL REFUSAL PREMISES. EACH OF THE PARTIES CONFIRMS THE OBLIGATIONS OF THE
LANDLORD TO PAY THE SECOND LEASEHOLD IMPROVEMENT ALLOWANCES OF $25.00 PER SQUARE
FOOT OF RENTABLE AREA OF THE FIRST ADDITIONAL PREMISES AND THE SPECIAL REFUSAL
SPACE PURSUANT TO THE TERMS AND CONDITIONS SET OUT IN SECTION 12.01(b).
4. The Parties confirm that in all other respects, the terms, covenants and
conditions of the Lease remain unchanged and in full force and effect, except as
modified by this Agreement. It is understood and agreed that all terms and
expressions when used in this Agreement, unless a contrary intention is
expressed herein, have the same meaning as they have in the Lease.
5. This Agreement shall enure to the benefit of and be binding upon the
Parties hereto, the successors and assigns of the Landlord and the permitted
successors and permitted assigns of the Tenant.
IN WITNESS WHEREOF the Parties hereto have duly executed this Agreement as
of the day and year first above written, by affixing their respective corporate
seals under the hands of their proper signing officers duly authorized in that
behalf or by setting their respective hands and seals in their personal
capacity, as the case may be.
YCC LIMITED
------------------------------------------------
(Landlord)
Per: /s/ [Illegible]
--------------------------------------------
Authorized Signature
Per: /s/ [Illegible]
--------------------------------------------
Authorized Signature
LONDON LIFE INSURANCE COMPANY
(Landlord)
Per: /s/ Philip Gunn
--------------------------------------------
Philip Gunn
Manager of Finance
Authorized Signature
Per: /s/ M.E. Snell
--------------------------------------------
M.E. SNELL
DIRECTOR, LEASING
Authorized Signature
LOYALTY MANAGEMENT GROUP CANADA INC.
--------------------------------------------------
(Tenant)
Per: /s/ [Illegible]
--------------------------------------------
Authorized Signature
Per: /s/ [Illegible]
--------------------------------------------
Authorized Signature
I/We have authority to bind the corporation
-2-
<PAGE>
SCHEDULE "B-4"
FLOOR PLAN SHOWING THE SPECIAL REFUSAL PREMISES CROSSHATCHED.
[Floor Plan]
-3-
<PAGE>
DEED OF LEASE
THIRD EDITION 1993(2)
DEED made the 3rd day of August 1999
LANDLORD BOSWELL INTERNATIONAL MARINE (PTE) LIMITED
TENANT FINANCIAL AUTOMATION LIMITED
THE LANDLORD leases to the Tenant and the Tenant takes on lease the premises
described in the First Schedule together with the right to use:
a) The Landlord's fixtures and fittings contained in the premises.
b) The common areas of the property.
c) The car parks described in the First Schedule.
FOR the term from the commencement date and at the annual rent (subject to
review if applicable) as set out in the First Schedule.
THE LANDLORD AND THE TENANT covenant as set out in the Second Schedule.
SIGNED by the Landlord BOSWELL INTERNATIONAL MARINE (PTE) LIMITED
(by affixing its
common seal)
in the presence of: /s/ [ILLEGIBLE]
SIGNED by the Tenant FINANCIAL AUTOMATION LIMITED
in the presence of: /s/ C. Acarram
Authorized Signatory
/s/ [ILLEGIBLE]
<PAGE>
FIRST SCHEDULE
PREMISES: Levels 2(2950.2 FEET SQUARED), 6 (2950.2 FEET SQUARED), 7 & 8
(5,800.22 FEET SQUARED) a total area of 11,700.62 FEET SQUARED of the
Landlord's land and building situated at 18 St Martins Lane,
Auckland and contained in Certificate of Title 1506/26 (as outlined
in red on the attached plan)
CARPARKS: Sixteen (16) car parks
TERM: Six (6) years
COMMENCEMENT DATE: 13 September 1999
FURTHER TERMS: Two (2) terms of two (2) years each
RENEWAL DATES: 13 September 2005 and 13 September 2007 (if renewal
exercised)
FINAL EXPIRY DATE: 12 September 2009 (if renewals exercised)
<TABLE>
<S> <C> <C>
ANNUAL RENT: Premises rent: $131,536.00 pa plus GST
(Subject to review if Sixteen (16) car parks @ $35.00 pw: $29,120.00 pa plus GST
applicable) Annual Rent: $160,656.00 pa plus GST*
</TABLE>
* Pursuant to clause 1.2 the annual rental up to 12 September 2000 shall be
$144,491.00 pa plus GST. From 13 September 2000 the annual rental will be as
above.
MONTHLY PAYMENTS OF RENT: Premises: $10,961.34 plus GST
Car parks: $2,426.67 plus GST
Total: $13,388.00 plus GST
RENT PAYMENT DATES: The 1st day of each month commencing on the 1st day of
October 1999
REVIEW DATES: 13 September 2003, 13 September 2005 and 13 September 2007 (if
renewal exercised)
PROPORTION OF OUTGOINGS: -45.08%
(Clause 3.1) Proportion of Lift expenses -48.35%
DEFAULT INTEREST RATE: 12% per annum
BUSINESS USE: General office and administration.
NAMING RIGHTS: $4,000.00 pa plus GST commencing on the Rent Payment Date.
Monthly payments will be $333.34 plus GST.
IMPROVEMENTS RENT PERCENTAGE: 15%
(Clause 23)
INSURANCE - Full replacement and reinstatement.
<PAGE>
OUTGOINGS
(CLAUSE 3)
1. Rates or levies payable to any local or territorial authority.
2. Charges for water gas electricity telephones and other utilities or
services.
3. Rubbish collection charges.
4. New Zealand Fire Service charges and the maintenance charges in respect of
all fire detection and fire fighting equipment.
5. Such proportion of the Landlord's land tax as the value of the land
forming part of the property bears to the total value of all land included
in the Landlord's assessment for land tax.
6. Insurance premiums and related valuation fees (Clause 9).
7. Service contract charges for air conditioning, lifts and other building
services.
8. INTERIOR Cleaning maintenance and repair charges including charges for
interior repainting, decorative repairs and the maintenance and repair of
building services to the extent that such charges do not comprise part of
the cost of a service maintenance contract, but excluding charges for
structural repairs to the building INCLUDING MINOR REPAIRS TO THE ROOF.
9. The provisioning of toilets and other shared facilities.
10. The cost of ground maintenance i.e. lawns, gardens and planted areas
including plant hire and replacement.
11. Yard and carparking area maintenance and repair charges but excluding
charges for structural repairs to the building.
12. The costs incurred and payable by the landlord in supplying to the
territorial authority a building warrant of fitness and obtaining reports
as required by Section 45 of the Building Act 1991.
13. SECURITY CONTRACT INCLUDING MONITORING FEES AND CALL OUT SERVICE.
14. THE COSTS ASSOCIATED WITH THE IMPLEMENTATION OF AND MAINTENANCE OF A
HEALTH AND SAFETY SYSTEM FOR THE BUILDING.
<PAGE>
SECOND SCHEDULE
TENANT'S PAYMENTS
RENT
1.1 THE Tenant shall pay the annual rent by equal monthly payments in advance
(or as varied pursuant to any rent review) on the rent payment dates.
The first monthly payment (together with rent calculated on a daily basis
for any period from the commencement date of the term of the first rent
payment date) shall be payable on the first rent payment date. All rent
shall be paid without any deductions by direct payment to the Landlord by
AUTOMATIC BANK PAYMENT AUTHORITY or as the Landlord may direct.
1.2 THE TENANT SHALL HAVE A RENT REDUCTION OF 50% ON THE ANNUAL RENTAL OF
LEVEL 2 FOR ONE (1) YEAR SO THAT THE ANNUAL RENTAL PAYABLE UNTIL 12
SEPTEMBER 2000 IS REDUCED BY $16,165.00.
RENT REVIEW
2.1 THE annual rent may be reviewed by the Landlord as follows:
(a) The Landlord shall commence a review by not earlier than three (3)
months prior to a review date or at any time up to the next
following review date giving written notice to the Tenant specifying
the annual rent considered by the Landlord to be the current market
rent as at that review date.
(b) If, by written notice to the Landlord within twenty-eight (28) days
after receipt of the Landlord's notice, the Tenant disputes that the
proposed new annual rent is the current market rent then the new rent
shall be determined in accordance with clause 2.2 BUT the new rent
shall not be less than the annual rent payable during the period of
twelve (12) months immediately preceding the relevant review date.
(c) If the Tenant fails to give such notice (time being of the essence)
the Tenant shall be deemed to have accepted the annual rent specified
in the Landlord's notice.
(d) The annual rent so determined or accepted shall be the annual rent from
the review date or the date of the Landlord's notice if such notice is
given later than three (3) months after the review date.
(e) Pending the determination of the new rent, the Tenant shall pay the
rent specified in the Landlord's notice provided that the rent is
substantiated by a registered valuer's report. Upon determination of
the new rent an appropriate adjustment shall be made.
(f) The rent review at the option of either party may be recorded in a
Deed, the cost of which and the stamp duty thereon shall be payable by
the Tenant.
2.2 IMMEDIATELY following receipt by the Landlord of the Tenant's notice the
parties shall endeavour to agree upon the current market rent, but if
agreement is not reached within fourteen (14) days then the new rent may be
determined either:
(a) By one party giving written notice to the other requiring the new
rent to be determined by arbitration, or
(b) If the parties so agree by registered valuers acting as experts and
not as arbitrators as follows:
(1) Each party shall appoint a valuer and give written notice of
the appointment to the other party within fourteen (14) days of
the parties agreeing to so determine the new rent.
<PAGE>
(2) If the party receiving a notice fails to appoint a valuer
within the fourteen (14) day period then the valuer appointed by
the other party shall determine the new rent and such
determination shall be binding on both parties.
(3) The valuers appointed before commencing their determination shall
appoint an umpire who need not be a registered valuer.
(4) The valuers shall determine the current market rent of the
premises and if they fail to agree then the rent shall be
determined by the umpire.
(5) Each party shall be given the opportunity to make written or
verbal representations to the valuers or the umpire subject to
such reasonable time and other limits as the valuers or the
umpire may prescribe and they shall have regard to any such
representations but not be bound thereby.
When the new rent has been determined the arbitrators or the valuers shall
give written notice thereof to the parties. The notice shall provide as to
how the costs of the determination shall be borne and such provision shall
be binding on the parties.
OUTGOINGS
3.1 THE Tenant shall pay the outgoings in respect of the property which are
specified in the First Schedule. Where any outgoing is not separately
assessed or levied in respect of the premises then the Tenant shall pay
such proportion thereof as specified in the First Schedule or if no
proportion is specified then such fair proportion as shall be agreed or
failing agreement determined by arbitration.
3.2 THE Landlord may vary the proportion of any outgoing to ensure that the
tenant pays a fair proportion of the outgoing.
3.3 IF any outgoing is rendered necessary by another tenant of the property
or that tenant's employees, contractors or invitees causing damage to the
property or by another tenant failing to comply with that tenant's leasing
obligations, then such outgoing shall not be payable by the Tenant.
3.4 THE outgoings shall be apportioned between the Landlord and the Tenant in
respect of periods current at the commencement and termination of the term.
3.5 THE outgoings shall be payable on demand or if required by the Landlord
by monthly instalments on each rent payment date of such reasonable amount
as the Landlord shall determine calculated on an annual basis. Where any
outgoing has not been taken into account in determining the monthly
instalments it shall be payable on demand.
3.6 AFTER the 31st March in each year of the term or such other date in each
year as the Landlord may specify, and after the end of the term, the
Landlord shall supply to the Tenant reasonable details of the actual
outgoings for the year or period then ended. Any over payment shall be
credited or refunded to the Tenant and any deficiency shall be payable to
the Landlord on demand.
3.7 THE Tenant's liability to pay outgoings during the term shall subsist
notwithstanding the end or earlier termination of the term.
3.8 NOTWITHSTANDING any other provision in this lease, but with the exception
of clause 18.2, the Tenant shall only be liable to pay the outgoings
specified in the first schedule.
GOODS AND SERVICES TAX
4.1 THE Tenant shall pay to the Landlord or as the Landlord shall direct
the Goods and Services Tax payable by the Landlord in respect of the rental
and other payments payable by the Tenant hereunder.
<PAGE>
The tax in respect to the rental shall be payable on each occasion when
any rental payment falls due for payment and in respect of any other
payment shall be payable upon demand.
4.2 IF the Tenant shall make default in payment of the rental or other
moneys payable hereunder and the Landlord becomes liable to pay additional
Goods and Services Tax then the Tenant shall on demand pay to the Landlord
the additional tax.
INTEREST ON UNPAID MONEY
5. IF the Tenant defaults in payment of the rent or other moneys payable
hereunder for fourteen (14) days then the Tenant shall pay on demand
interest at the default interest rate on the moneys unpaid from the due
date for payment down to the date of payment.
COSTS
6. THE Tenant shall pay the Landlord's solicitors costs of and incidental
to the stamp duty payable, and the Landlord's legal costs (as between
solicitor and client) of and incidental to the enforcement or attempted
enforcement of the Landlord's rights remedies and powers under this lease.
THE LANDLORD SHALL PAY $500 TOWARDS THE TENANT'S LEGAL COSTS IN RELATION TO
THE PREPARATION OF THIS LEASE.
INDEMNITY
7. THE Tenant shall indemnify the Landlord against all damage or loss
resulting from any act or omission on the part of the Tenant or the
Tenant's employees contractors or invitees. The Tenant shall recompense
the Landlord for all expenses incurred by the Landlord in making good
any damage to the property resulting from any such act or omission. The
Tenant shall be liable to indemnify only to the extent that the Landlord
is not fully indemnified under any policy of insurance.
LANDLORD'S PAYMENTS
OUTGOINGS
8. SUBJECT to the Tenant's compliance with the provisions of Clause 3 the
Landlord shall pay all outgoings in respect of the property not payable by
the Tenant direct. The Landlord shall be under no obligation to minimise
any liability by paying any outgoing or tax prior to receiving payment
from the Tenant.
INSURANCE
9. THE Landlord shall at all times during the term keep and maintain any
buildings on the property insured under a policy of the type shown in the
First Schedule against loss damage or destruction by fire and such other
risks as the Landlord may reasonably determine and such cover may extend
to -
(a) a twelve (12) month indemnity in respect of consequential loss of
rent,
(b) loss damage or destruction of windows and other glass and all the
Landlord's fixtures fittings and chattels, and
(c) adequate public risk cover.
<PAGE>
MAINTENANCE AND CARE OF PREMISES
TENANT'S OBLIGATIONS
10.1 THE Tenant shall (subject to any maintenance covenant by the
landlord) in a proper and workmanlike manner and to the reasonable
requirements of the Landlord:
(a) MAINTAIN THE PREMISES
Keep and maintain the interior of the premises including the
Landlord's fixtures and fittings in the same clean order repair
and condition as they were in at the commencement of this lease
and will at the end or earlier determination of the term quietly
yield up the same in the like clean order repair and condition.
In each case the Tenant shall not be liable for fair wear and
tear arising from reasonable use or damage by fire earthquake
flood storm act of God inevitable accident or any risk against
which the Landlord is insured unless the insurance moneys are
rendered irrecoverable in consequences of any act or default of
the Tenant or the Tenant's agents employees contractors or
invitees.
(b) REPAIR MINOR BREAKAGES
Repair all glass breakages and breakage or damage to all
doors windows light fittings and power points of the premises
and shall keep that portion of the electrical system of the
premises from the switchboard to all power outlets in good
operating condition. This provision shall apply notwithstanding
any other provision in this lease.
(c) PAINTING
Paint and decorate those parts of the interior of the
premises which have previously been painted and decorated when
the same reasonably require repainting and redecoration.
(d) FLOOR COVERINGS
Keep all floor coverings in the premises clean and replace all
worn or damaged floor coverings with floor coverings of similar
quality when reasonably required by the Landlord.
(e) MAKE GOOD DEFECTS
Make good any damage to the property caused by improper
careless or abnormal use by the Tenant or those for whom the
Tenant is responsible.
10.2 WHERE the Tenant is leasing all of the property the Tenant shall:
(a) MAINTAIN YARDS
Keep and maintain any car parks pavings and other sealed or
surfaced areas in good order and repair.
(b) CARE OF GROUNDS
Keep any grounds yards and surfaced areas in a tidy condition
and maintain any garden or lawn areas in a tidy and cared for
condition.
(c) WATER AND DRAINAGE
Keep and maintain the storm or waste water drainage system
including downpipes and guttering clear and unobstructed.
(d) OTHER WORKS
Carry out such works to the property as the Landlord may
require in respect of which outgoings are payable by the Tenant.
10.3 THE Tenant shall not be liable for the maintenance or repair of any
building service the subject of a service maintenance contract but this
clause shall not release the Tenant from any obligation to pay for the
cost of any such contract or charges in respect of any such maintenance
or repair.
<PAGE>
10.4 WHERE the Tenant is obligated to make good damage to the property of
the Landlord then the Landlord shall reimburse the Tenant for the cost
of making good the damage to the extent of any insurance moneys
receivable by the Landlord in respect of such damage.
TOILETS
11. THE toilets sinks and drains shall be used for their designed
purposes only and no substance or matter shall be deposited in them
which could damage or block them.
RUBBISH REMOVAL
12. THE Tenant shall regularly cause all rubbish and garbage to be
removed from the premises and will keep any rubbish bins or containers
in a tidy condition. The Tenant will also at the Tenant's own expense
cause to be removed all trade waste boxes and other goods or rubbish not
removable in the ordinary course by the local authority.
LANDLORD'S MAINTENANCE
13.1 THE Landlord shall keep and maintain THE BUILDING IN A WEATHER PROOF
AND WATERTIGHT CONDITION AND SHALL KEEP AND MAINTAIN THE BUILDING AND
the building services in good order and repair but the Landlord shall
not be liable for any:
(a) Repair or maintenance which the Tenant is responsible to
undertake; or
(b) Want of repair or defect in respect of building services so
long as the Landlord is maintaining a service maintenance
contract covering the work to be done; or
(c) Repair or maintenance which is not reasonably necessary for
the Tenant's use and enjoyment of the premises.
(d) Loss suffered by the Tenant arising from any want of repair
or defect unless the Landlord shall have received notice in
writing thereof from the Tenant and shall not within a
reasonable time thereafter have taken appropriate steps to
remedy the same.
13.2 THE Landlord shall keep and maintain service maintenance contracts for
lifts, airconditioning and at the Landlord's option any other
building services unless it is the obligation of the Tenant to
maintain such contracts.
NOTIFICATION OF DEFECTS
14. THE Tenant shall give to the Landlord prompt notice of any accident
to or defect in the premises of which the Tenant may be aware and in
particular in relation to any pipes or fittings used in connection
with the water electrical gas or drainage services.
LANDLORD'S RIGHT OF INSPECTION
15. THE Landlord and the Landlord's employees contractors and invitees
may at all reasonable times enter upon the premises to view their
condition. If the Landlord shall give the Tenant written notice of any
failure on the part of the Tenant to comply with any of the requirements
of Clause 10 the Tenant shall with all reasonable speed so comply.
LANDLORD MAY REPAIR
16. IF default shall be made by the Tenant in the due and punctual
compliance with any repair notice given pursuant to the previous clause
or in the event that any repairs for which the Tenant is responsible
require to be undertaken as a matter of urgency then without prejudice
to the Landlord's other rights and remedies expressed or implied the
Landlord may be the Landlord's employees and contractors with all
necessary equipment and material at all reasonable times enter upon the
premises to execute such works. Any moneys expended by the Landlord in
executing such works shall be payable by the Tenant to the
<PAGE>
Landlord upon demand together with interest thereon at the default
interest rate from the date of expenditure down to the date of payment.
ACCESS FOR REPAIRS
17. THE Tenant shall permit the Landlord and the Landlord's employees and
contractors at all reasonable times to enter the premises to carry out
repairs to the premises or adjacent premises and to install inspect
repair renew or replace any services where the same are not the
responsibility of the Tenant all such repairs inspections and work to be
carried out with the least possible inconvenience to the Tenant.
USE OF PREMISES
BUSINESS USE
18.1 THE Tenant shall not without the prior written consent of the
Landlord use or permit the whole or any part of the premises to be used
for any use other than the business use. The Landlord's consent shall
not be unreasonably or arbitrarily withheld in respect of any proposed
use.
(a) not in substantial competition with the business of any other
occupant of the property which might be affected by the use
(b) reasonably suitable for the premises and
(c) conforming with all town planning ordinances, provisions and
consents.
If any change in use renders any increased or extra premium payable
in respect of any policy or policies of insurance on the premises the
Landlord as a condition of granting consent may require the Tenant to
pay the increased or extra premium.
18.2 IF any change in use requires compliance with Section 46 of the
Building Act 1991 the Landlord, as a condition of granting consent, may
require the Tenant to comply with Section 46 of the Act and to pay all
compliance costs.
18.3 IF the premises are a retail shop the Tenant shall keep the premises
open for business during usual trading hours and fully stocked with
appropriate merchandise for the efficient conduct of the Tenant's
business.
LEASE OF PREMISES ONLY
19. THE tenancy shall relate only to the premises and the Landlord shall
at all times be entitled to use occupy and deal with the remainder of
the property without reference to the Tenant and the Tenant shall have
no rights in relation thereto other than the rights of use herein
provided.
NEGLECT OF OTHER TENANT
20. THE Landlord shall not be responsible to the Tenant for any act of
default or neglect of any other tenant of the property.
<PAGE>
ADDITIONS AND ALTERATIONS
22.1 THE Tenant shall neither make nor allow to be made any alterations
or additions to any part of the premises without first producing to
the Landlord on every occasion plans and specifications and
obtaining the written consent of the Landlord (not to be unreasonably
or arbitrarily withheld) for that purpose. If the Landlord shall
authorise any alterations or additions the Tenant will at the
Tenant's own expense if required by the Landlord at the end of the
term reinstate the premises. The Tenant will promptly discharge and
procure the withdrawal of any liens of charges of which notice may
be given to the Tenant or the Landlord in respect of any work
carried out by the Tenant.
22.2 THE Tenant, when undertaking any "building work" to the premises (as
that term is defined in the Building Act 1991), shall comply with
all statutory requirements including the obtaining of building
consents and code compliance certificates pursuant to that Act.
COMPLIANCE WITH STATUTES AND REGULATIONS
23.1 THE Tenant shall comply with the provisions of all statutes,
ordinances, regulations and by-laws relating to the use of the
premises by the Tenant or other occupant and will also comply with
the provisions of all licences, requisitions and notices issued by
any competent authority in respect of the premises or their use by
the Tenant or other occupant PROVIDED THAT:
(a) The Tenant shall not be required to make any structural
repairs or alterations other than those required by reason of
the particular nature of the business carried on by the Tenant
or other occupant of the premises or the number or sex of
persons employed on the premises.
(b) The Tenant shall not be liable to discharge the Landlord's
obligations as owner under the Building Act 1991 unless any
particular obligation is the responsibility of the Tenant as
an occupier of the premises.
23.2 If the Landlord is obliged by any such legislation or requirement to
expend moneys on any improvement addition or alteration to the
premises then the Landlord shall be entitled to charge in addition
to the rent an annual sum equal to the Improvements Rent Percentage
of the amount so expended by the Landlord and the monthly payments
of rent shall increase accordingly from the first day of the month
in which such improvement addition or alteration is completed. If
the Landlord would be obliged to expend an unreasonable amount then
the Landlord may determine this lease and any dispute as to whether
or not the amount is unreasonable shall be determined by
arbitration.
NO NOXIOUS USE
24. THE Tenant shall not
(a) bring upon or store within the premises nor allow to be
brought upon or stored within the premises any machinery goods
or things of an offensive noxious illegal or dangerous nature,
or of such weight size or shape as is likely to cause damage
to the building or any surfaced area,
(b) use the premises or allow them to be used for any noisome
noxious illegal or offensive trade or business, or
(c) allow any act or thing to be done which may be or grow to be
nuisance disturbance or annoyance to the Landlord, other
tenants of the property, or any other person, and generally
the Tenant shall conduct the Tenant's business upon the
premises in a clean quiet and orderly manner free from damage
nuisance disturbance or annoyance to any such persons but the
carrying on by the Tenant in a reasonable manner of the
business use or any use to which the Landlord has consented
shall be deemed not to be a breach of this clause.
TENANT NOT TO VOID INSURANCES
25. THE Tenant shall not carry on or allow upon the premises any trade
or occupation or allow to be done any act or thing which
<PAGE>
(a) shall make void or voidable any policy of insurance on
the property or
(b) may render any increased or extra premium payable for
any policy of insurance except where in circumstances in which
any increased premium is payable the Tenant shall have first
obtained the consent of the insurer of the premises and the
Landlord and made payment to the insurer of the amount of any
such increased or extra premium as may be payable but the
carrying on by the Tenant in a reasonable manner of the
business use or of any use to which the Landlord has consented
shall be deemed not to be a breach of this clause.
In any case where in breach of this clause the Tenant has rendered
any insurance less effective or void and the Landlord has suffered
loss or damage thereby the Tenant shall forthwith compensate the
Landlord in full for such loss or damage.
DAMAGE TO OR DESTRUCTION OF PREMISES
TOTAL DESTRUCTION
26. IF the premises or any portion of the building of which the premises
may form part shall be destroyed or so damaged
(a) as to render the premises untenantable then the term shall
at once terminate or
(b) in the reasonable opinion of the Landlord as to require
demolition or reconstruction, then the Landlord may within
three (3) months of the date of damage or destruction give the
Tenant one (1) months written notice to terminate and a fair
proportion of the rent and outgoings shall cease to be
payable according to the nature and extent of the damage.
Any termination pursuant to this clause shall be without prejudice
to the rights of either party against the other.
PARTIAL DESTRUCTION
27.1 IF the premises or any portion of the building of which the premises
may form part shall be damaged but not so as to render the premises
untenantable and
(a) the Landlord's policy or policies of insurance shall not have
been invalidated or payment of the policy moneys refused in
consequence of some act or default of the Tenant and
(b) all the necessary permits and consents shall be obtainable,
THEN the Landlord shall with all reasonable speed expend all the
insurance moneys received by the Landlord in respect of such damage
towards repairing such damage or reinstating the premises and/or the
building but the Landlord shall not be liable to expend any sum of
money greater than the amount of the insurance money received.
27.2 Any repair or reinstatement may be carried out by the Landlord using
such materials and form of construction and according to such plan
as the Landlord thinks fit and shall be sufficient so long as it is
reasonably adequate for the Tenant's occupation and use of the
premises.
27.3 Until the completion of the repairs or reinstatement a fair
proportion of the rent and outgoings shall cease to be payable
according to the nature and extent of the damage.
27.4 If any necessary permit or consent shall not be obtainable or the
insurance moneys received by the Landlord shall be inadequate for
the repair or reinstatement then the term shall at once terminate
but without prejudice to the rights of either party against the
other.
<PAGE>
DEFAULT
DISTRESS
28. THE Landlord may distrain for rent or other moneys payable under
this lease remaining unpaid fourteen (14) days after due date.
RE-ENTRY
29. THE Landlord may re-enter the premises at the time or at any time
thereafter
(a) if the rent shall be in arrear fourteen (14) days after any of
the rent payment dates,
(b) in case of breach by the Tenant of any covenant or agreement on
the Tenant's part herein expressed or implied,
(c) if the Tenant shall make or enter into or endeavor to make or
enter into any composition assignment or other arrangement
with or for the benefit of the Tenant's creditors,
(d) in the event of the insolvency bankruptcy or liquidation of
the Tenant,
(e) if the Tenant shall suffer distress or execution to issue
against the Tenant's property goods or effects under any
judgment against the Tenant in any Court for a sum in excess
of five thousand dollars ($5000.00)
and the term shall terminate on such re-entry but without prejudice
to the rights of either party against the other.
LOSS ON RE-ENTRY
30. UPON re-entry the Landlord may remove from the premises any chattels
in the apparent possession of the Tenant and place them outside the
premises and the Landlord shall not be answerable for any loss
resulting from the exercise of the power of re-entry.
ESSENTIALITY OF PAYMENTS
31.1 FAILURE to pay rent or other moneys payable hereunder on the due
date shall be a breach going to the essence of the Tenant's
obligations under the Lease. The Tenant shall compensate the
Landlord and the Landlord shall be entitled to recover damages from
the Tenant for such breach. Such entitlement shall subsist
notwithstanding any determination of the lease and shall be in
addition to any other right or remedy which the Landlord may have.
31.2 THE acceptance by the landlord of arrears of rent or other moneys
shall not constitute a waiver of the essentiality of the Tenant's
continuing obligation to pay rent and other moneys.
REPUDIATION
32. THE Tenant shall compensate the Landlord and the Landlord shall be
entitled to recover damages for any loss or damage suffered by
reason of any acts or omissions of the Tenant constituting a
repudiation of the lease or the Tenant's obligations under the
lease. Such entitlement shall subsist notwithstanding any
determination of the lease and shall be in addition to any other
right or remedy which the Landlord may have.
REMOVAL OF TENANTS FIXTURES
33. THE Tenant not being in breach may at any time before and will if
required by the Landlord at the end or earlier termination of the
term remove all the Tenant's fixtures and fittings and make good at
the
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Tenant's own expense all resulting damage and if not removed within
seven (7) days of the Landlord's request ownership of the Tenant's
fixtures and fittings passes to the Landlord.
QUIET ENJOYMENT
34. THE Tenant paying the rent and performing and observing all the
covenants and agreements herein expressed and implied shall quietly hold
and enjoy the premises throughout the term without any interruption by
the Landlord or any person claiming under the Landlord.
RENEWAL OF TERM
35. IF the Tenant has not been in breach of this lease and has given to the
Landlord written notice to renew the lease at least three (3) calendar
months before the end of the term then the Landlord will at the cost
of the Tenant renew the lease for the new further term from the renewal
date as follows:
(a) The annual rent shall be agreed upon or failing agreement shall be
determined in accordance with clause 2.2 but such annual rent shall
not be less than the rent payable during the period of twelve (12)
months immediately preceding the renewal date.
(b) Such annual rent shall be subject to review during the further term
on the review dates or if no dates are specified then after the
lapse of the equivalent periods of time as are provided herein for
rent reviews.
(c) The renewed lease shall otherwise be upon and subject to the
covenants and agreements herein expressed and implied except that
the term of this lease plus all further terms shall expire on or
before the final expiry date.
(d) Pending the determination of the renewal rent the Tenant shall pay
the rent proposed by the Landlord provided that the rent is
substantiated by a registered valuer's report. Upon determination
an appropriate adjustment shall be made.
(e) THE TENANT SHALL BE ENTITLED TO RENEW IN RESPECT OF ANY OR ALL FOUR
LEVELS. IN THE EVENT OF PARTIAL RENEWAL, THE RENTAL SHALL ABATE ON
A PRO RATA BASIS, BASED ON THE FLOOR AREAS AND THE LANDLORD AND
TENANT WILL ENTER INTO A DEED OF VARIATION OF LEASE TO RECORD THE
CHANGE IN RENTAL AND FLOOR AREA.
ASSIGNMENT OR SUBLETTING
36.1 THE Tenant shall not assign sublet or otherwise part with the
possession of the premises or any part thereof without first obtaining
the written consent of the Landlord which the Landlord shall give if the
following conditions are fulfilled:
(a) The Tenant proves to the satisfaction of the Landlord that the
proposed assignee or subtenant is (or in the case of a company the
shareholders of the proposed assignee or subtenant are) respectable
responsible and has the financial resources to meet the Tenant's
commitments under this lease.
(b) All rent and other moneys payable have been paid and there is not
any subsisting breach of any of the Tenant's covenants.
(c) In the case of an assignment a deed of covenant in customary form
approved or prepared by the Landlord is duly executed and delivered
to the Landlord.
(d) In the case of an assignment to a company (other than a listed
public company) a deed of guarantee in customary form approved or
prepared by the Landlord is duly executed by the principal
shareholders of that company and (if required by the Landlord) by the
Directors and delivered to the Landlord.
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(e) The Tenant pays the Landlord's proper costs and disbursements in
respect of the approval or preparation and stamping of any deed of
covenant of guarantee and (if appropriate) all fees and charges
payable in respect of any reasonable enquires made by or on behalf
of the Landlord concerning any proposed assignee subtenant or
guarantor.
36.2 WHERE the Landlord consents to a subletting the consent shall extend
only to the subletting and notwithstanding anything contained or implied
in the sublease the consent shall not permit any subtenant to deal with
the sublease in any way in which the Tenant is restrained from dealing
without consent.
36.3 ANY assignment or subletting of the type or in the manner referred to in
Section 109(2) of the Property Law Act 1952 shall be a breach of the
provisions of this lease.
36.4 WHERE any Tenant is an unlisted company then any change in the legal or
beneficial ownership of any of its shares or issue of new capital
whereby in either case there is a change in the effective management or
control of the company is deemed to be an assignment of this lease.
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GENERAL
HOLDING OVER
38. IF the Landlord permits the Tenant to remain in occupation of the
premises after the expiration or sooner determination of the term,
such occupation shall be a monthly tenancy only terminable by
one month's written notice at the rent then payable and otherwise
on the same covenants and agreements (so far as applicable to a
monthly tenancy) as herein expressed or implied.
ACCESS FOR RE-LETTING
39. THE Tenant will at all reasonable times during the period of three
months immediately preceding expiration of the term permit intending
tenants and others with written authority from the Landlord or the
Landlord's agents at all reasonable times to view the premises.
SUITABILITY
40. NO warranty or representation expressed or implied has been or is
made by the Landlord that the premises are now suitable or will
remain suitable or adequate for use by the Tenant or that any use
of the premises by the Tenant will comply with the by-laws or
ordinances or other requirements of any authority having jurisdiction.
WAIVER
41. NO waiver or failure to act by the Landlord in respect of any breach by
the Tenant shall operate as a waiver of another breach.
LAND TRANSFER TITLE OR MORTGAGEE'S CONSENT
42. THE Landlord shall not be required to do any act or thing to enable this
lease to be registered or be required to obtain the consent of any
mortgagee of the premises to this lease and the Tenant will not register
a caveat in respect of the Tenant's interest hereunder.
NOTICE
43. SUBJECT to the provisions of the Property Law Act 1952 any notice to be
given to the Landlord or the Tenant hereunder shall be deemed
sufficiently served if
(a) sent by registered post to the addressee's last known address in New
Zealand, or
(b) in the case of a body corporate sent to its registered office, or
(c) if there is not last known address or registered office, placed
conspicuously on any part of the premises.
Any notice so posted or placed shall be deemed to have been served on
the day following the posting or placing thereof. Anything served or
given by the Landlord shall be valid if served or given under the
hand of the Managing Director, General Manager, Secretary or a director
or other authorised representative of the Landlord.
ARBITRATION
44.1. UNLESS any dispute or difference is resolved by mediation or other
agreement, the same shall be submitted to the arbitration of one
arbitrator who shall conduct the arbitral proceedings in accordance
with the Arbitration Act 1996 and any amendment thereof or any other
statutory provision then relating to arbitration.
44.2 IF the parties are unable to agree on the arbitrator, an arbitrator
shall be appointed, upon request of any party, by the President or
Vice President for the time being of the District Law Society of the
district
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with in which the premises are situated. That appointment shall be
binding on all parties to the arbitration and shall be subject to
no appeal. The provisions of Article 11 of the First Schedule of
the Arbitration Act 1996 are to be read subject hereto and
varied accordingly.
44.3 THE procedures prescribed in this clause shall not prevent the
Landlord from taking proceedings for the recovery of any rent
or other monies payable hereunder which remain unpaid or from
exercising the rights and remedies in the event of such default
prescribed in clauses 28 and 29 hereof.
INTERPRETATION
45 IN this lease
(a) "the Landlord" and the "the Tenant" means where appropriate
the executors, administrators, successors and permitted
assigns of the Landlord and the Tenant
(b) "the property" and the "the building" mean the land and
building(s) of the Landlord which comprise or contain the
premises. Where the premises are part of a unit title
development the words "the property" mean the land and
building(s) comprised in the development.
(c) "the common areas" means those parts of the property the use
of which is necessary for the enjoyment of the premises and
which is shared with other tenants and occupiers.
(d) Whenever words appear in this lease that also appear in the
First Schedule then those words shall mean and include the
details supplied after them in the First Schedule.
(e) Where the context requires or admits, words importing the
singular shall import the plural and vice versa.
46. NAMING RIGHTS
1 THE LANDLORD GRANTS TO THE TENANT THE EXCLUSIVE RIGHT TO NAME THE
BUILDING THROUGHOUT THE TERM SUBJECT TO TERMINATION OF THIS RIGHT
IN ACCORDANCE WITH POINT 9.
2 ANY NAME CHOSEN FOR THE BUILDING BY THE TENANT IS SUBJECT TO APPROVAL
BY THE LANDLORD BUT THIS APPROVAL WILL NOT BE UNREASONABLY WITHHELD
OR DELAYED IN RESPECT OF A NAME WHICH IS APPROPRIATE TO THE IDENTITY
OF THE BUSINESS OF THE TENANT AND WHICH IS NOT OFFENSIVE OR DETRIMENTAL
TO THE LANDLORD OR LIKELY TO CAUSE EMBARRASSMENT TO THE LANDLORD.
HOWEVER IN ANY EVENT THE TENANT MUST COMPLY WITH ALL TERRITORIAL
AUTHORITY REQUIREMENTS RELATING TO THE NAME AND ALL SIGNAGE ON WHICH
IT IS PLACED.
3 ANY SIGN WHICH THE TENANT WISHES TO ERECT ON THE BUILDING TO DISPLAY
THE NAME SIGN OR SIGNS SHALL BE OF A SIZE AND IN THE STYLE AND IN A
LOCATION APPROPRIATE TO THE SIZE OF THE BUILDING AND MUST BE APPROVED
BY THE LANDLORD. FROM TIME TO TIME THE TENANT MAY CHANGE THE STYLE
AND/OR LOCATION OF SUCH SIGNS WITH THE PRIOR WRITTEN APPROVAL OF
THE LANDLORD WHICH APPROVAL WILL NOT BE UNREASONABLY WITHHELD OR
DELAYED.
4 THE NAMING RIGHTS FEE AS SET OUT IN THE FIRST SCHEDULE SHALL BE
REVIEWED ON EACH DATE THAT THE RENT IS REVIEWED ("REVIEW DATE") IN
ACCORDANCE WITH 2.1 OF THIS LEASE ADJUSTED AS NECESSARY TO IN ORDER
TO CALCULATE THE CURRENT MARKET RENT FOR THE RIGHTS.
5 THE TENANT SHALL KEEP ANY SUCH SIGN OR SIGNS IN GOOD ORDER REPAIR AND
CONDITION AND SHALL AT ALL TIMES COMPLY WITH ALL STATUTES, ORDINANCES,
REGULATIONS, BY-LAWS OR OTHER ENACTMENTS OR NOTICES OR ORDERS WHICH MAY
BE GIVEN BY ANY AUTHORITY AFFECTING OR RELATING TO SUCH SIGNS AND WILL
KEEP THE LANDLORD INDEMNIFIED IN RESPECT OF ANY NON-COMPLIANCE.
6 AT OR PRIOR TO THE EXPIRATION OF THE TERM THE TENANT SHALL REMOVE ALL
SIGNS ERECTED OR DISPLAYED ON ANY PART OF THE INTERIOR OR EXTERIOR
OF THE BUILDING AND WILL MAKE GOOD ALL DAMAGE TO THE BUILDING CAUSED
BY SUCH REMOVAL. IF THE TENANT SHALL NOT HAVE EFFECTED SUCH REMOVAL
AND MAKING GOOD ON THE EXPIRATION OF THE TERM THEN THE LANDLORD MAY
REMOVE SUCH SIGNS AS THE TENANT SHALL HAVE FAILED TO
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REMOVE AND THE TENANT SHALL PAY ON DEMAND ALL COSTS AND EXPENSES
INCURRED BY THE LANDLORD IN SO DOING.
7 IT IS ACKNOWLEDGED THAT ANY SIGNS BY THE TENANT ARE ERECTED AT THE
RISK OF THE TENANT IN ALL RESPECTS AND THAT THE TENANT SHALL BE
RESPONSIBLE FOR ALL MAINTENANCE AND SERVICING OF THEM.
8 THE TENANT WILL INDEMNIFY AND KEEP INDEMNIFIED THE LANDLORD AGAINST
ALL ACTIONS, CLAIMS, DEMANDS, LOSSES, DAMAGES, COSTS AND EXPENSES FOR
WHICH THE LANDLORD SHALL OR MAY BECOME LIABLE IN RESPECT OF OR
ARISING FROM THIS NAMING RIGHT.
9 THIS NAMING RIGHT SHALL TERMINATE ON THE EARLIER OF THE DATE OF
TERMINATION OF THIS LEASE OR UPON THE TENANT CEASING TO BE THE
TENANT IN OCCUPATION OF THE BUILDING PROVIDED HOWEVER THAT THE
TENANT SHALL BE ENTITLED TO RENEW THE LEASE IN TERMS OF CLAUSE 35
HEREOF BUT NOT THE NAMING RIGHTS GRANTED HEREIN.
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OFFICE LEASE
THIS LEASE, made as of the 24 day of December, 1986, between Office City,
Inc., 209 East State Street, Columbus, Ohio 43215, an Ohio corporation
hereinafter called the Landlord, and World Financial Network, Inc., a Delaware
corporation, whose address is in care of The Limited, Inc., P.0. Box 16000, 2
Limited Parkway, Columbus, Ohio 43216, hereinafter called the Tenant,
WITNESSETH:
1. GRANT. Landlord's obligations hereunder are contingent upon its
obtaining both a cancellation of the existing lease for the premises with F.W.
Woolworth Co. and the approval of Equitable Life Insurance Co., the mortgagee of
the premises, to a termination of the existing Lease and substitution of the
within Lease as substituted collateral security for the mortgage loan. Subject
to Landlord's satisfying the foregoing contingencies, Landlord hereby leases to
the Tenant, and the Tenant hereby hires and rents from the Landlord the
following described building at 4590 East Broad Street, Columbus, Ohio 43218,
and being more particularly described as follows:
BEING the building formerly occupied by Woolco, containing
approximately 103,161 square feet, more or less, on the first floor of
said building, plus mezzanine (as outlined in red on Exhibit A),
together with a non-exclusive right to use the "Common Areas" of
Landlord's shopping center known as "Airport Commerce Park" in which the
building is located, hereinafter referred to as "premises".
As used herein, "Common Areas" include the parking areas, driveways,
service driveways, service areas, sidewalks, any landscaped areas, shopping
center sign, and parking lot lighting poles and light fixtures of the shopping
center which are collectively referred to as Common Areas.
1
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Landlord shall maintain the Common Areas which shall remain under
Landlord's control and be subject to rearrangement, enlargement or diminution
and to such reasonable rules and regulations as are prescribed by Landlord from
time to time. Tenant, and any employees or agents, shall not fence, block, allow
property to remain in or upon or otherwise obstruct the Common Areas.
Landlord agrees that at all times during the term of this Lease, roadways
and passageways shall be provided for the passage of Tenant's customers by motor
vehicle and on foot between the premises, parking areas, and the public streets,
and highways adjoining the shopping center.
Landlord has previously constructed paved, black-topped parking areas
with painted lines as shown on Exhibit A, sized to accommodate a minimum of 5
standard sized U.S. automobiles for each 1,000 square feet of gross leasable
area within the shopping center which Landlord shall maintain in good condition.
2. USE. The Tenant agrees to use the premises solely for its office and
administrative purposes and related uses, and for no other purpose without
Landlord's prior written consent.
3. TERM. The term of this Lease is one (1) year beginning on the 1st day
of February, 1987, and ending on the last day of January, 1988, unless
terminated earlier, as hereinafter provided, or extended, at the option of
Tenant, for three 1-year renewal periods, as permitted by Section 9, infra.
4. RENT AND CHARGES. As used herein, "Lease Year" shall mean the first 12
months of the term hereof and each successive 12 month period thereafter. Rent
shall commence ninety (90) days after the date Landlord delivers possession of
the premises to the Tenant with all Landlord's work completed*
Without deduction or demand, Tenant will pay Landlord at 209 East State
Street, Columbus, Ohio 43215, or to such
2
* or the date Tenant substantially completes Tenant's work and improvements
in the premises, whichever date is earlier.
<PAGE>
other person or at such other place as the Landlord may designate in writing:
A. Rent: Tenant shall pay Landlord as rent the sum of Three Hundred Nine
Thousand Four Hundred Eighty Three and no/100 Dollars ($309,483.00) per annum
which shall be paid in equal monthly installments, in advance on the first day
of each and every month, in the amount of Twenty Five Thousand Seven Hundred
Ninety and 25/100 Dollars ($25,790.25) each.
B. Tenant's Share of Costs and Expenses: Tenant's share of the applicable
Common Area Charge, insurance and real estate taxes and assessments shall be
determined by multiplying the charges, costs or expenses by a fraction, the
numerator of which is the number of square feet in the premises and the
denominator of which is the total square feet of gross leasable storeroom area
in the shopping center (being the area outlined in green on Exhibit A), but
excluding free-standing, single use buildings the tenants of which maintain the
buildings and pay the real estate taxes attributable thereto. Unless otherwise
stated herein, the calendar year shall be the period of time for which the
applicable costs and expenses shall be determined. If the Commencement Date or
date of termination is other than on the first or last day of the year, then the
Tenant's share for such first or last day of the year shall be apportioned and
adjusted based on the number of days of the term which fall within that calendar
year.
C. Common Area Charge: Throughout the term of this Lease, Tenant shall
pay to Landlord, as a "Common Area Charge", Tenant's share of all costs and
expenses of every kind and nature paid or incurred by Landlord in (a) operating,
maintaining, refurbishing, replacing, improving, repairing and lighting the
Common Areas located in the shopping center which are available for use in
common by occupants of the shopping center and/or their customers and invitees,
(b) operating, maintaining, refurbishing,
3
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repairing, replacing (the yearly depreciation for any replacement costs shall
be chargeable to tenants), improving and lighting the service areas,
garbage and refuse disposal facilities, shopping center maintenance and storage
room, loading area and all other areas and facilities located in the shopping
center which are used in the maintenance and operation of the shopping center,
(c) operating, maintaining, repairing, replacing (the yearly depreciation for
any replacement costs shall be chargeable to tenants) and improving the shopping
center signs and (d) providing security and on- and off-site traffic control.
Such expenses shall include, but not be limited to costs of on-site management
and supervision, cleaning, refurbishing, repairing, maintaining, replacing (the
yearly depreciation for any replacement costs shall be chargeable to tenants)
and improving (but less the amount of any insurance proceeds, or condemnation
awards), lighting, snow and ice removal and control, line painting, landscaping,
providing security, providing public liability, property damage, fire and
extended coverage on the common facilities and such other insurance as Landlord
deems appropriate, total compensation and benefits (including premiums for
worker's compensation and other insurance) paid to or on behalf of on-site
employees; personal property taxes; supplies, fire protection and fire hydrant
charges; water and sewer charges, utility charges, licenses and permit fees;
parking area surcharges or levies, reasonable depreciation of equipment used in
operating, maintaining, refurbishing, repairing, replacing and improving the
Common Areas and service areas and rent paid for the leasing of any such
equipment, and administrative charges equal to fifteen percent (15%) of the
total of all the foregoing items for Landlord's overhead expenses in
administrating the Common Areas and facilities and service areas. Provided
however, that as to the replacement or installation of capital items in or on
the
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common and service areas or of the common facilities, the actual costs and
expenses thereof will be amortized over a five year period following such
replacement or installation, except if Landlord is required under generally
accepted accounting principles to depreciate any such capital items over a
period longer than 5 years in which case such longer period shall be used for
the purposes of this Section.
Notwithstanding that which is contained in the Lease to the contrary,
Landlord's costs for purposes of computing Tenant's Common Area Charge shall
expressly exclude (i) wages, salaries, fees and fringe benefits paid to
administrative or executive personnel or officers or partners of Landlord; (ii)
any charge for depreciation of the shopping center buildings and any interest or
other financing charge for the same; (iii) any charge for Landlord's income
taxes, excess profit taxes, franchise taxes; (iv) all costs relating to
activities for the solicitation of and execution of leases of other space in the
shopping center; (v) the cost of any electric current furnished to any other
leasable area of the shopping center; (vi) the cost of correcting defects in the
original construction of the shopping center; and (vii) to the extent paid for
by insurance, the cost of any repair made by Landlord because of the total or
partial destruction of the Common Areas subsequent to the date of original
construction.
Landlord's books and records compiled with respect to Landlord's Common
Area expenses shall be subject to audit by Tenant. Landlord shall maintain
accurate books and records in accordance with generally accepted accounting
principles (except that the cash basis instead of accrual basis may be used)
for not less than 2 years. Should such an audit indicate that the cost of
operating and maintaining the Common Areas has been overstated by more than 3%
of the actual cost of operating and maintaining said Common Areas (including any
adjustments required to be made under the
5
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Lease) then the Landlord shall be obligated to pay to Tenant the reasonable cost
of such audit together with interest on Tenant's overpayment at the rate of 12%
per annum from the date found to be due until paid. In any event Landlord shall
promptly repay any amount owing to Tenant as a result of an overstatement.
The estimated amount of Tenant's Common Area Charge shall be paid in
monthly installments in advance on the first day of each month in the amount
of $3,008.86. Following the close of Landlord's annual accounting period,
Landlord shall furnish to Tenant a detailed by categories statement of the
actual amount of Tenant's Common Area Charge for such period. If the actual
amount of Tenant's Common Area Charge is less than the total amount
theretofore paid by Tenant for such period, the excess shall be credited
against Tenant's next succeeding payment(s). If the actual amount of Tenant's
Common Area Charge shall exceed the total amount theretofore paid by Tenant
for such period, Tenant shall pay to Landlord, within fifteen (15) days
following receipt of Landlord's statement, the amount shown as due thereon.
D. Taxes and Assessments:
1. Real Estate Taxes and Assessments: Tenant agrees to reimburse Landlord
for Tenant's share of all real estate taxes and assessments, both general and
special, which may be levied or assessed by the lawful taxing authorities
against the land, buildings and all other improvements of the shopping center
and which become due and payable during the term of this Lease. Tenant shall pay
to Landlord monthly, in advance, on the first day of each month the amount of
$3,008.86 for the estimated Tenant's share of taxes. All real estate taxes and
assessments which become due and payable in the years in which this Lease
commences or terminates shall be apportioned and adjusted pro-rata. Tenant's
share of taxes shall be based on the most recently available tax rate and
valuation. If the actual amount of
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Tenant's share of taxes with respect to any tax year, once determined, is less
than the total amount theretofore paid by Tenant for such period, the excess
shall be credited on Tenant's next succeeding payment(s) pursuant to this
subsection or refunded to the Tenant. If the actual amount of Tenant's share of
taxes with respect to any tax year, once determined, shall exceed the total
amount theretofore paid by Tenant for such period, as foresaid, Tenant shall pay
to Landlord the difference between the actual amount paid by Tenant and the
amount due on the basis of such tax bill for such period within fifteen (15)
days after notice thereof from Landlord. A copy of the tax bill submitted by
Landlord to Tenant shall be evidence of the amount of such real estate taxes and
assessments levied or assessed, as well as the items taxed. Such copy of the tax
bill shall be delivered to Tenant within 90 days after the end of each calendar
year. If the commencement date is other than the first day of a calendar month,
then the first monthly payment shall be prorated on a per diem basis.
Notwithstanding anything contained herein to the contrary, Tenant's
obligation hereunder to reimburse Landlord for payment of real estate taxes
shall not include penalties imposed for late payment of any real estate tax or
assessment and shall not include penalties imposed for late payment of any real
estate tax or assessment, shall not include any real estate assessment levied
prior to the commencement date of the term of this Lease. Nothing herein
contained shall be construed to include as a real estate tax any inheritance,
estate, succession, transfer, gift, franchise, corporation, income, net profit
tax or capital levy that is or may be imposed on Landlord.
Notwithstanding anything in this Lease to the contrary, real estate
taxes shall be payable by Tenant on a monthly basis only if Landlord is
obligated to escrow the taxes on a monthly basis by its mortgagee; otherwise,
the same shall be
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paid after the initial payment by Landlord to the governing authority and within
twenty (20) days following receipt by Tenant of written demand therefor from
Landlord.
In regard to any assessment or charge that may be payable in
installments, Tenant's share of taxes shall be determined as if Landlord had
elected to pay the assessment in installments, and Tenant shall be responsible
for only those installments or parts of installments which are payable for the
term of this Lease.
There will be no duplication in charges to the Tenant by reason of the
provision in this Lease setting forth Tenant's obligation to reimburse Landlord
for payment of real estate taxes and any other provision of the Lease.
2. Municipal, County, State or Federal Taxes: Tenant at all times shall
be responsible for and shall pay, before delinquency, all municipal, county,
state or federal taxes assessed against any leasehold interest or any fixtures,
furnishings, equipment, stock-in-trade or other personal property of any kind
owned, installed or used in or on the premises by Tenant.
3. Rental Taxes: Should any governmental taxing authority acting under
any present or future law, ordinance or regulation, levy or assess or impose a
tax, excise and/or assessment (other than an income or corporation franchise
tax) upon or against the rentals payable by Tenant to Landlord, either by way of
substitution for or in addition to any existing tax on land and buildings or
otherwise, Tenant shall be responsible for and shall pay such tax, excise and/or
assessment, or shall reimburse Landlord for the amount thereof, as the case may
be.
E. Fire and Extended Coverage Insurance: Landlord agrees to carry
policies insuring Landlord's improvements upon the shopping center against such
perils or loss as Landlord may deem appropriate (including, but without
limitation, fire, vandalism and malicious mischief and such
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other perils covered by extended coverage endorsements). Landlord's fire and
extended coverage policy shall be in an amount equal to at least eighty
percent (80%) of the replacement cost of such improvements. Tenant agrees to
reimburse Landlord for Tenant's share of the expenses for said insurance which
shall be due and payable in monthly installments payable, in advance, on the
first day of each month, in the amount of $859.68, which is Landlord's
reasonable estimate of Tenant's share of insurance expenses. If the actual
amount of Tenant's share of insurance expenses is less than the total amount
theretofore paid by Tenant for such period, the excess shall be credited on
Tenant's next succeeding payments(s) or refunded to Tenant. If the actual amount
of Tenant's share of insurance expenses shall exceed the total amount
theretofore paid by Tenant for such period, Tenant shall pay to Landlord the
difference between the actual amount paid by Tenant and the amount due for the
actual insurance expenses for such period within ten (10) days after notice
thereof from Landlord. If the commencement date is other than the first day of a
calendar month, then the first monthly payment shall be prorated on a per diem
basis. Any insurance billed to Tenant under this Article 4, section (e) will not
be charged to Tenant under Article 4, section (c).
Within 90 days after the end of each calendar year, Landlord shall
forward to Tenant a statement of the insurance expenses for the year together
with copies of the premium invoices.
F. Maximum Charges for First Year and Subsequent Increases in Estimated
Payments: Landlord agrees that for the first Lease Year, Tenant's share of the
following charges shall not exeed:
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Maximum
Section Charge Amount
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<S> <C> <C>
4C Common Area Charge $37,000.00
4D Taxes and Assessments $37,000.00
</TABLE>
By written notice to Tenant by ordinary mail, Landlord may increase the amount
of the monthly payments subsequent to the
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first Lease Year towards Tenant's share of the charges, costs and expenses
provided in Subsections C through E above if the actual charges, costs and
expenses subsequent to the first Lease Year exceed the amount paid on the
estimated basis.
G. No Duplication of Charges: Notwithstanding anything in this Lease to
the contrary, there will be no duplication in charges to the Tenant by reason of
the provisions in this Lease setting forth Tenant's obligation to reimburse
Landlord for common area expenses, real estate taxes and assessments, insurance
and any other provision herein.
5. MAINTENANCE AND REPAIRS.
A. Tenant's Obligations: The Tenant will take good care of the premises,
building, fixtures and appurtenances, and all alterations, additions and
improvements to either; will repair all damage to the same resulting from the
negligent or willful acts of the Tenant, its employees, agents or invitees; will
suffer no waste or damage, will execute and comply with all laws, rules, orders,
ordinances and regulations at any time issued or in force by any lawful
authority, applicable to the Tenant's use or occupancy of the premises; and will
repair, at or before the end of the term, all damage done by the installation or
removal of office equipment, furniture and property.
Notwithstanding anything contained in this Lease to the contrary, there
shall be no obligation on the part of Tenant to comply with any laws,
directions, rules or regulations of any governmental body, agency, authority or
the like or any insurance company or Board of Fire Underwriters or similar body
which may require structural alterations, structural changes, structural
repairs, or structural additions, unless they are required because of the
particular or peculiar nature of Tenant's use or occupancy of the premises. If
they are required because of the particular or peculiar nature of Tenant's use
and occupancy, Tenant shall have the option of performing the work at its
expense or ceasing use of the
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premises, but remaining liable for rent and other charges through the term
hereof.
B. Landlord's Obligations: At any time or times, the Landlord, either
voluntarily or pursuant to governmental requirement, may, at the Landlord's own
expense, make repairs, alterations or improvements in or to the building or any
part thereof, and, during such operations, may close entrances, doors,
corridors, or other facilities in the building or any part thereof, and may
close, block or otherwise perform work on and make use of any adjacent or nearby
structure, land, street, alley, sidewalk or air space, all without any liability
to the Tenant, its employees, agents or invitees, for any expense, injury, loss,
damage, interference, or annoyance resulting from any such repairs, alterations,
improvements, work or other use in connection therewith or caused thereby.
Landlord shall comply with those laws, directions, rules or
regulations of any governmental body, agency, authority or the like or any
insurance company or Board of Fire Underwriters or similar body which apply
generally to office buildings and are not required because of Tenant's
particular or peculiar use or occupancy and which may require structural
alterations, structural changes, structural repairs, or structural additions.
Notwithstanding anything in this Lease to the contrary, Landlord
shall, at its sole cost and expense, maintain the roof, downspouts and
gutters, foundation, exterior walls, structural parts and members, and other
structural components, the floor slab, underground and otherwise concealed
utility systems of the premises in order and good repair throughout the term
of this Lease except for damage or destruction caused by Tenant, its agents,
employees or contractors. Landlord shall make all repairs, interior and
exterior, resulting from shifting or settling of the foundations (including
notwithstanding any provision to the
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contrary herein replacements of all plate glass and other storefront components
damaged thereby) and any repairs or replacements which require any excavation or
structural work to effectuate the repair, maintenance or replacement, except for
clogged sewer lines.
Landlord shall, at its sole cost and expense, make any repairs to the
premises or the shopping center resulting from the act or omission of Landlord
or its employees, agents, or contractors.
While Landlord shall not be required to pay overtime, time and one-half
or double time therefor, Landlord shall use its best efforts to make any
repairs, additions or alterations in, about or affecting the premises or
adjoining premises, during non-business hours and shall promptly restore the
premises, following any such work or activity. In the event such repairs,
additions or alterations in, about or affecting the premises or adjoining
premises, materially and substantially interfere with Tenant's business
operations for more than 1 day, the Tenant, in addition to any other remedy
which it may have at law hereunder, may cease or continue its business
operations during such impairment, as it desires, with a full abatement of all
rent and other charges payable hereunder until such impairment ceases.
6. ASSIGNMENT AND SUBLETTING. Tenant shall not sell, assign, mortgage, or
transfer this Lease, sublet the premises or any part thereof, or allow any
transfer hereof, or any lien upon the Tenant's interest by operation of law,
without the prior written consent of the Landlord.
Nothing herein contained shall be deemed to limit or restrict the rights
of Tenant to, without Landlord's consent, sublet the premises, or any portion
thereof, or assign this Lease, or any interest therein, to (i) any parent,
subsidiary or affiliated corporation of Tenant (ii) any subsidiary of any parent
of Tenant, (iii) any corporation with which Tenant may merge or consolidate, or
(iv) any corporation acquiring
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all or substantially all of the assets or stock of Tenant.
Any assignment or subletting hereunder shall not release or discharge
Tenant of or from any liability, whether past, present or future, under this
Lease, and Tenant shall continue fully liable thereunder. The assignee shall
assume Tenant's obligations and the subtenant or subtenants shall agree to
comply with and be bound by all of the terms, covenants, conditions, provisions
and agreements of this Lease to the extent of the space sublet, and Tenant shall
deliver to Landlord promptly after execution, an executed copy of each such
assignment and assumption or sublease and an agreement of compliance by each
such subtenant.
Any sale, assignment, mortgage, transfer, or subletting of this Lease by
Tenant which is not in compliance with the provisions of this Section shall be
void and of no effect.
The Landlord may assign this Lease and shall not be liable for
obligations thereafter accruing hereunder; provided that the Landlord's assignee
shall assume the Landlord's obligations hereunder accruing on or after the date
of assumption.
7. ALTERATIONS. The Tenant shall not make any alterations in or additions
to the premises without the Landlord's advance written consent in each instance.
The Landlord's decision to refuse such consent shall be reasonable. If the
Landlord consents to such alterations or additions, before commencement of the
work or delivery of any materials onto the premises or into the building, the
Tenant shall furnish the Landlord with plans and specifications, names and
addresses of contractors, and necessary permits. All additions and alterations
shall be installed in a good, workmanlike manner and only new, high grade
materials shall be used. The Tenant hereby agrees to hold the Landlord harmless
from any and all laibilities of every kind and description which may arise out
of or be connected in any way with said alterations or additions. Before
commencing any
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work in connection with alterations or additions, the Tenant shall furnish
the Landlord with certificates of insurance from all contractors performing
labor or furnishing materials insuring the Landlord against any and all
liabilities which may arise out of or be connected in any way with said
additions or alterations. The Tenant shall pay the cost of all such
alterations and also the cost of decorating the premises occasioned by such
alterations and additions. Upon completing any alterations or additions, the
Tenant shall furnish the Landlord with contractors' affidavits and full and
final waivers of lien covering all labor and materials expended and used
provided Tenant shall not be obligated to provide waivers of lien from any
contractor or materialmen supplying less than $10,000 in goods or services to
the premises and Tenant shall not be obligated to submit waivers of lien from
any contractor if the period for filing liens has elapsed and no lien has
been filed by that contractor. All alterations and additions shall comply
with all insurance requirements and with all ordinances and regulations of
the City of Whitehall or any department or agency thereof, and with the
requirements of all statutes and regulations of the State of Ohio or of any
department or agency thereof. All additions, hardware, non-trade fixtures and
all improvements, including wall and floor coverings, temporary or permanent,
in or upon the premises, whether placed there by the Landlord or the Tenant,
shall become the Landlord's property and shall remain upon the premises at
the termination of this Lease by lapse of time or otherwise without
compensation or allowance or credit to the Tenant.
The term "Trade Fixtures" as used in this Lease shall include but not
be limited to, computer systems, phone banks, removable wall panels,
removable decorations, mirrors, decorative hardware and decorative lighting
fixtures, shelving, signs and personal property.
Notwithstanding anything in this Lease to the contrary,
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Tenant shall be permitted to make non-structural alterations and/or additions
to the premises which in each instance cost less than $75,000 without the
prior consent of Landlord.
8. SIGNS. The Tenant will not permit or suffer any signs,
advertisements or notices to be displayed, inscribed upon or affixed on any
part of the outside of the building except those which have been approved by
Landlord. Landlord agrees Tenant shall have the right to install approved
signs on the exterior walls of the building identifying Tenant's business.
9. OPTIONS TO EXTEND TERM. Landlord hereby grants Tenant three (3)
options to extend the term of this Lease, each for one (1) year, the first of
which, if exercised, shall commence at the end of the term of the Lease
("first option term") and the remaining two on each successive year
thereafter. Each such option term shall be upon the same terms and conditions
as contained in the Lease except as provided herein.
If Tenant shall exercise the option period, it shall give Landlord
written notice at least six (6) months prior to the end of the term or the
immediately preceding option term that it will exercise the option.
All the terms and conditions of the Lease shall apply during each
option term except that such option to extend term shall terminate when
exercised.
10. NOTICES. All notices and demands herein required or permitted
shall be in writing. In every case, when under the provisions of this Lease
it shall be necessary or desirable for the Landlord to serve any notice or
demand on the Tenant, such notice or demand shall be served by registered or
certified mail, postage prepaid, addressed to the attention of Tenant's Real
Estate Department at the address first stated above with copy to The Limited,
Inc., P.O. Box 16000, Columbus, Ohio 43216, Attention, Corporate Real Estate
Department, or to such changed address
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<PAGE>
or addresses which Tenant may designate by Notice to Landlord. Any such
notice or demand to be given to the Landlord, shall, until further notice, be
by registered or certified mail, postage prepaid, addressed to the Landlord
at 209 East State Street, Columbus, Ohio 43215.
11. LANDLORD'S RESERVATIONS. The Landlord reserves the following rights:
(a) During the last ninety (90) days of the term, and if prior to
that time the Tenant vacates the premises, to show the premises for
reoccupancy, and
(b) To take any and all measures, including inspections, repairs,
alterations, additions and improvements to the building, as may be
necessary or desirable for the safety, protection or preservation of the
premises or the building or the Landlord's interests, or as may be
necessary or desirable in the operation of the building.
After reasonable advance written notice, Landlord may enter upon the
premises and may exercise any or all of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of the Tenant's use or
possession and without being liable in any manner to the Tenant.
12. EXCULPATION. To the extent permitted by law, the Tenant releases the
Landlord and the Landlord's agents, servants, and employees, from and waives all
claims for damage to person or property sustained by the Tenant resulting from
the building or any equipment or appurtenance becoming out of repair, or
resulting from any accident in or about the building, or resulting directly or
indirectly from any act or neglect of any tenant or occupant of the shopping
center in which the building is located or of any other person, excepting the
negligence and/or acts or omissions of the Landlord and the Landlord's agents,
servants, and employees. This Section shall apply especially, but not
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<PAGE>
exclusively, to any flooding of the premises, and to damage caused by sprinkling
devices, air conditioning apparatus, water, snow, frost, excessive heat or cold,
falling ceiling, sewage, gas, odors or noise, or the bursting or leaking of
pipes or plumbing fixtures, and shall apply equally whether any such damage
results from the act or neglect of other tenants, occupants or servants of the
shopping center or of any other person except Landlord as provided above, and
whether such damage be caused or result from any thing or circumstance above
mentioned or referred to, or any other thing or circumstance whether of a like
nature or of a wholly different nature. If any such damage, whether to the
premises or to the building or any part thereof, or whether to the Landlord or
to other tenants in the building, results from any act or neglect of the Tenant,
the Landlord may, at the Landlord's option, after 30 days written notice to
Tenant, repair such damage and the Tenant shall, upon demand by the Landlord,
reimburse the Landlord forthwith for the total cost of such repairs. The Tenant
shall not be liable for any damages caused by its act or neglect if the Landlord
or a tenant has recovered the full amount of the damages from insurance, and the
insurance company has waived in writing its rights of subrogation against the
Tenant. All property belonging to the Tenant or any occupant or guest of the
premises shall be there at the sole risk of the owner thereof and the Landlord
shall not be liable for damages thereto or theft or misappropriation thereof,
except if due to the acts, omissions or negligence of the Landlord or its
agents, employees or contractors.
13. HOLDOVER. If the Tenant retains possession of the premises or any
part thereof after the termination of the term by lapse of time or otherwise,
the Tenant shall pay the Landlord rent at the rate of rental specified in
Section 4 for the time the Tenant thus remains in possession. If the tenant
remains in possession of the premises, or any part
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thereof, after the termination of the term by lapse of time or otherwise, such
holding over shall constitute a month to month tenancy. The provisions of this
Section do not preclude the Landlord's rights of reentry or any other right
hereunder.
14. RULES AND REGULATIONS. The Tenant shall observe and comply with any
reasonable rules and regulations promulgated from time to time by the Landlord,
as in the Landlord's judgment are reasonably necessary for the safety, care and
cleanliness of the building or for the preservation of good order therein. Any
changes in rules by Landlord shall be effective upon notice thereof to the
Tenant. The Landlord shall not be liable to the Tenant for violation of such
rules and regulations by any other tenant, its servants, employees, agents,
visitors, customers, invitees, or licensees.
15. LEASE SUBORDINATE. The Landlord's title is and always shall be
paramount to the title of the Tenant, and nothing herein contained shall empower
the Tenant to do any act which shall encumber the title of the Landlord. This
Lease shall be subordinate and subject at all times to the mortgage covering the
premises or which at any time hereafter shall be made, and to all renewals,
modifications, consolidations, or replacements thereof, and to all advances
made, or hereafter to be made, upon the security of any such mortgage, and the
Tenant shall execute such further instruments subordinating this Lease to any
such mortgage as the Landlord shall reasonably request, provided, however, that
any mortgagee shall agree in writing that the Tenant's possession of the
premises will not be disturbed if Tenant is not in default under this Lease.
16. TENANT'S DEFAULT. All rights and remedies of the Landlord herein
enumerated shall be cumulative, and none shall exclude any other right or remedy
allowed by law.
(a) if any voluntary or involuntary petition or
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similar pleading under any section or sections of any bankruptcy act
shall be filed by or against the Tenant, or any voluntary or
involuntary proceeding in any court or tribunal shall be instituted to
declare the Tenant insolvent or unable to pay the Tenant's debts, and in
the case of any involuntary petition or proceeding, the petition or
proceeding is not dismissed within thirty (30) days from the date it is
filed, the Landlord may elect, but is not required, and with or without
notice of such election, and with or without entry or other action by the
Landlord, to forthwith terminate this Lease, and, notwithstanding any
other provision of this Lease, the Landlord shall forthwith upon such
termination be entitled to recover damages in an amount equal to the then
present value of the rent specified in Section 4 for the residue of the
stated term hereof, less the then present value of the fair rental value
of the premises for the residue of the stated term.
(b) If the Tenant defaults in the payment of rent, or in payment
of any sum deemed to be additional rent, under this Lease and the Tenant
does not cure such default within ten (10) days after written notice from
Landlord of such default, or if the Tenant defaults in the prompt and
full performance of any other provision of this Lease, and if the Tenant
does not cure the default within thirty (30) days after demand by
Landlord that the default be cured, unless the default involves a
hazardous condition, which shall be cured forthwith upon the Landlord's
demand, or if the leasehold interest of the Tenant be levied upon under
execution or be attached by process of law and such attachment or levy is
not vacated or dismissed within thirty (30) days, or if the Tenant makes
an assignment for the benefit of creditors, or if a receiver be appointed
for any property of the Tenant, or if the Tenant abandons the premises
and
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ceases paying rent, then and in any such event the Landlord may, if the
Landlord so elects but not otherwise, either forthwith terminate
this Lease and the Tenant's right to possession of the premises, or
without terminating this Lease, forthwith terminate the Tenant's right to
possession of the premises.
(c) Upon any termination of this Lease, whether by lapse of time
or otherwise, or upon any termination of the Tenant's right to possession
without termination of the Lease, the Tenant shall surrender possession
and vacate the premises immediately, and deliver possession thereof to
the Landlord, and hereby grants to the Landlord full and free license to
enter into and upon the premises in such event with or without process of
law and to repossess the premises as of Landlord's former estate and to
expel or remove the Tenant and any others who may be occupying or within
the premises and to remove any and all property therefrom, using such
force as may be necessary, without being deemed in any manner guilty of
trespass, eviction, or forcible entry or detainer, and without
relinquishing the Landlord's rights to rent or any other right given to
the Landlord hereunder or by operation of law.
(d) If the Tenant abandons the premises and ceases paying rent or
otherwise entitles the Landlord so to elect, and the Landlord elects to
terminate the Tenant's right to possession only, without terminating the
Lease, the Landlord may, at the Landlord's option enter into the
premises, remove the Tenant's signs and other evidences of tenancy, and
take and hold possession thereof as in (c) of this Section provided,
without such entry and possession terminating the Lease or releasing the
Tenant, in whole or in part, from the Tenant's obligations to pay the
rent hereunder for the full term, and in any such case the Tenant shall
pay forthwith to
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the Landlord, if the Landlord so elects, a sum equal to the entire amount
of the rent specified in Section 4 for the residue of the stated term
plus any other sums then due hereunder discounted to present value at an
interest rate equal to 10% per annum. Upon and after entry into
possession without termination of the Lease, the Landlord shall use
reasonable efforts to re-rent the premises (or such part thereof as
Landlord deems proper) for the account of the Tenant to any persons,
firm or corporation other than the Tenant for such rent, for such time
and upon such terms as the Landlord in the Landlord's sole discretion
shall determine, and the Landlord shall not be required to obtain consent
of the Tenant for such re-renting, nor to accept any tenant offered by
the Tenant or to observe any instructions given by the Tenant about such
re-renting. Tenant further expressly agrees that Tenant will not
question, in any suit or other proceedings, the Landlord's reasonable
judgment in any matter relating to such re-renting, including, without
limitation, Landlord's efforts to re-rent and/or the terms of such
re-renting. In any such case, the Landlord may make repairs, alterations
and additions in or to the premises to the extent deemed by the Landlord
necessary or desirable and the Tenant shall, upon demand, pay the cost
thereof, together with the Landlord's expense of re-renting. If the
consideration collected by the Landlord upon any such re-renting for the
Tenant's account is not sufficient to pay monthly the full amount of the
rent reserved in this Lease, together with the costs of repairs,
alterations, additions, and the Landlord's expenses, the Tenant shall pay
to the Landlord the amount of each monthly deficiency upon demand; and if
the consideration so collected from any such reletting is more than
sufficient to pay the full amount of the
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rent reserved herein, together with the costs and expenses of the
Landlord, the Landlord, at the end of the stated term of the Lease shall
refund the surplus to the Tenant.
(e) Any and all property which may be removed from the premises by
the Landlord pursuant to the authority of the Lease or of law, to which
the Tenant is or may be entitled, may be handled, removed or stored by
the Landlord at the risk, cost and expense of the Tenant, and the
Landlord shall in no event be responsible for the value, preservation or
safekeeping thereof. The Tenant shall pay to the 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 the
Tenant not removed from the premises or retaken from storage by the
Tenant within thirty (30) days after the end of the term, however
terminated, shall be presumed to have been conveyed by the Tenant to the
Landlord under this Lease as a bill of sale without further payment or
credit by the Landlord to the Tenant.
(f) The Tenant shall pay upon demand all the Landlord's costs,
charges and expenses, including the fees of counsel, agents and others
retained by the Landlord, incurred in enforcing the Tenant's obligations
hereunder or incurred by the Landlord in any litigation, in which the
Tenant causes the Landlord, without the Landlord's fault, to become
involved or concerned, plus interest at the highest non-usurious rate
which Landlord might at such date have charged in making an unsecured
loan of cash funds to Tenant (but in no event to exceed the rate of
twelve per cent (12%) per annum) from the date of payment, which amount
shall be deemed to be additional rent due and payable by the Tenant upon
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demand by Landlord.
17. NO LIENS. The Tenant shall not permit any mechanics' or materialmen's
liens to be filed against the premises, the real property of which the premises
form a part or the Tenant's leasehold interest in the premises. The Landlord
shall have the right at all reasonable times to post and keep posted on the
premises any notices which it deems necessary for protection from such liens. If
any such liens are so filed and not removed by Tenant within 30 days after
notice thereof, the Landlord, even if it is not legally liable therefor, at its
election, may pay and satisfy the same and in such event the sums so paid by the
Landlord, with interest at the non-usurious highest rate which Landlord might at
such date have charged in making an unsecured loan of cash funds to Tenant in
such amount (but in no event to exceed the rate of twelve per cent (12%) per
annum from the date of payment) shall be deemed to be additional rent due and
payable by the Tenant at once without prior notice or demand.
18. CONDEMNATION.
(a) In the event that the whole or any part of the premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use, at
Landlord's option this Lease and the term hereby granted shall forthwith cease
and terminate on the date of the taking of possession by the condemning
authority and the Landlord shall be entitled to receive the entire award without
any payment to Tenant except any award for Tenant's trade fixtures and/or
relocation expenses, the Tenant hereby assigning to the Landlord the Tenant's
interest in the award, if any, and the rent shall be apportioned as of such
date.
(b) In the event that a part of the building shall be so condemned or
taken and if in the reasonable opinion of the Landlord, the building should be
restored in such a way as to alter the premises materially, or the building
should be
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demolished, the Landlord may terminate this Lease without compensation to Tenant
and the term and estate hereby granted by notifying the Tenant of such
termination within sixty (60) days following the date of the taking of
possession by the condemning authority, and this Lease and the term and estate
hereby granted shall expire on the date specified in the notice of termination,
not less than sixty (60) days after the giving of such notice, as fully and
completely as if such date were the date hereinbefore set for the expiration of
the term of this Lease, and the rent shall be apportioned as of such date. In
the event of a partial taking of the premises and this Lease is not terminated
then the rent payable by Tenant hereunder shall be abated in the same proportion
as the portion of the premises taken bears to the total floor area of the
premises prior to the taking.
If by reason of a taking by way of eminent domain of the premises or the
building of which the premises are a part or of other parts of the shopping
center, the premises are rendered substantially unusable for Tenant's business
by reason of diminished access, Tenant may cease its operations until reasonable
access is available, and during such period until accessibility is restored, the
payment of rent and all other charges required hereunder shall abate.
19. DAMAGE OR DESTRUCTION. In the event of damage or destruction of the
premises during the term by fire, the elements, or casualty, Landlord shall
forthwith repair the same, provided such repairs can be made, in the Landlord's
opinion, within one hundred twenty (120) days, but such damage or destruction
shall not anull or void this Lease, except that Tenant shall be entitled to a
proportionate reduction of rent while such repairs are being made, such
proportionate reduction to be based upon the extent that the premises, or part
thereof, may be untenantable. If, in the Landlord's opinion, such repairs cannot
be made within one hundred twenty (120) days, Landlord may, at its option (to be
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<PAGE>
exercised within thirty (30) days after the date of such damage or destruction),
make and complete such repairs as soon as possible thereafter, this Lease
continuing in full force and effect and the rent to be proportionately reduced
as aforesaid in this Section provided. In the event that the Landlord does not
so elect to make such repairs (which cannot be made within said one hundred
twenty (120) day period), this Lease may be terminated at the option of either
party provided, however, Landlord shall not have the right to terminate this
Lease unless Landlord simultaneously terminates the leases of all other tenants
in the shopping center. The Tenant shall be entitled to a proportionate
reduction of rent only if the premises are untenantable as aforesaid and no such
rent reduction shall be allowed by reason of inconvenience, annoyance or injury
to the Tenant's businesses because of such damage or destruction except if same
renders the premises temporarily untenantable, or the necessity of repairing any
portion of the building except if same renders the premises temporarily
untenantable, or the making of such repairs except if same renders the premises
temporarily untenantable, nor shall the Landlord be liable to the Tenant because
of such inconvenience, annoyance or damage.
20. WAIVER OF SUBROGATION. Each party hereto hereby waives all claims for
recovery from the other party for any loss or damage to any of its property
insured under valid and collectible insurance policies, covering loss by fire or
any of the perils insured under the standard extended coverage rider.
21. INDEMNIFICATION. Except for claims caused by or due to the acts,
omissions or negligence of the Landlord, the Tenant agrees to indemnify and save
harmless the Landlord against and from any and all claims by or on behalf of any
person or persons, firm or firms, corporation or corporations, arising from
Tenant's use of the premises or
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<PAGE>
the conduct of its businesses or from any activity, work, or thing done,
permitted or suffered by the Tenant, its servants, contractors, agents and
employees, in or about the premises, and will further indemnify and save the
Landlord harmless against and from any and all claims arising from any breach or
default on the Tenant's part in the performance of any covenant or agreement on
the Tenant's part to be performed, pursuant to the terms of this Lease, arising
from any act or negligence of the Tenant, or any of its agents, contractors,
servants, employees or licensees, and from and against all costs, counsel fees,
expenses and liabilities incurred in connection with any such claim or action or
proceeding brought thereon; and in case any action or proceeding be brought
against the Landlord by reason of any such claim, the Tenant upon notice from
the Landlord covenants to resist or defend at the Tenant's expense such action
or proceeding by counsel reasonably satisfactory to the Landlord, or Tenant's
insurer.
Landlord hereby indemnifies and agrees to save Tenant, its officers,
directors, employees, and agents harmless from and against any and all claims,
suits, proceedings, actions, causes of action, responsibility, liability,
demands, judgments, and executions (hereinafter referred to as "Claims") which
either (i) arise from or are in connection with the possession, use, occupation,
management, repair, maintenance, or control of the Common Areas or any portion
thereof: (ii) arise from, or are in connection with an act or omission of
Landlord, or its employees, agents or contractors in connection with the Common
Areas; (iii) result from any default, breach, violation, or non-performance of
this Lease or any provision of this Lease by Landlord; (iv) result from injury
to any person or property or loss of life sustained in the Common Areas; or (v)
result from occurrences of injury to or death of, any person or damage to
property arising out of any work, construction, reconstruction, restoration,
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maintenance or other work to be done hereunder by Landlord, unless such Claims
are caused by the act or omission of Tenant, or its employees, agent or
contractors.
22. DELIVERY OF POSSESSION. No promise of the Landlord to alter, remodel
or improve the premises or the building and no representation respecting the
condition of the premises or the building has been made by the Landlord to the
Tenant, unless the same is contained herein, or made a part hereof. In the event
of the failure of the Landlord to deliver possession of the premises at the time
of the commencement of the term of this Lease, the Landlord shall not be liable
for any damage caused thereby, nor shall this Lease thereby become void or
voidable, nor shall the term herein specified be in any way extended, but in
such event the term shall begin when the Landlord does deliver possession of the
premises and the Tenant shall not be liable for any rent until the time that
Landlord delivers such possession.
23. LANDLORD'S TITLE AND QUIET ENJOYMENT. Landlord's title to the
premises and the shopping center is good and marketable, free of liens,
encumbrances, (excluding any mortgages) and there are no restrictive covenants,
easements, exclusive use provisions in other tenant's leases, or other
agreements, zoning laws or other ordinaces or regulations which will prevent
the Tenant from occupying the premises for the purpose herein provided, or
prevent the full use of the parking areas and other common areas of the shopping
center or otherwise prevent the shopping center from being developed in
accordance with the general layout shown on Exhibit A or otherwise conflict with
any of the provisions of this Lease.
Landlord has full right and authority to make and enter into this Lease
for the full term granted herein and that no joinder or approval of any other
person or entity is required with respect to Landlord's right and authority to
enter into this Lease except as stated in Section 1 hereof.
Landlord represents and warrants to Tenant that on the
27
<PAGE>
date of delivery of possession of the premises, to Tenant, the premises shall be
free of all violations, orders, or notices of violations of all public or
quasi-public authorities, and that Tenant shall be permitted by authorities
having jurisdiction thereover to occupy the premises for the uses and purposes
herein provided.
The Landlord covenants and agrees that the Tenant on paying said rent and
performing the covenants aforesaid shall and may peaceably and quietly hold and
enjoy the said premises for the term aforesaid, against any person claiming by,
through, or under the Landlord.
24. LANDLORD'S AND TENANT'S IMPROVEMENTS.
A. Landlord covenants and agrees to do and perform the following prior to
the date Tenant takes possession of the premises, weather permitting:
1. Place roof in good and servicable condition - secure and without
leaks,
2. Place existing HVAC in good operating condition,
3. Replace and restore existing landscaping as reasonably necessary, and
4. Comply with any laws, ordinances, or regulations requiring the removal
of asbestos, if any, in the premises except that any asbestos floor tile
need not be removed.
B. Tenant covenants and agrees to do and perform the following:
1. Tenant accepts the premises "as is" except for such work to be
performed by Landlord,
2. Tenant shall submit all plans and specifications for alterations and
improvements to the premises for Landlord's approval which shall not be
unreasonably withheld.
Any work, installation or equipment not called for in the Landlord's
covenants above shall be furnished and performed by and at the expense of
Tenant.
28
<PAGE>
The parties shall endeavor to complete their respective portions of such
work with due diligence, taking into account scarcity of materials, strikes,
lockouts, governmental orders, directives and regulations.
Each party's work shall be done in a good and workmanlike manner and in
compliance with all applicable codes, ordinances and other governmental laws and
regulations. All materials shall be new and of first class quality.
Should Landlord fail to complete all Landlord's work as specified herein
on the date Tenant takes possession of the premises, then Tenant shall have the
right to send Landlord a "punch list" of items which remain to be completed. On
receipt of such punch list, Landlord shall have 14 days to complete the items
designated therein, and should the Landlord fail to do so within said 14 day
period, then Tenant, in addition to any rights it may have hereunder, shall have
the right to complete the punch list items on behalf of the Landlord and to
deduct the entire cost of completion of such items from any and all rents and
other charges due or to become due hereunder.
25. MISCELLANEOUS.
(a) No receipt of money by the Landlord from the Tenant after the
termination of this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the premises
shall renew, reinstate, continue or extend the term of this Lease or affect any
such notice, demand or suit.
(b) No waiver of any default of either party hereunder shall be implied
from any omission by the other to take any action on account of such default if
such default persists or be repeated, and no express waiver shall affect any
default other than the default specified in the express waiver and that only for
the time and to the extent therein stated. The invalidity or unenforceability of
any provision hereof shall
29
<PAGE>
not affect or impair any other provision.
(c) The word "Tenant" wherever used in this Lease shall be construed to
mean "Tenants" if Tenant is more than one person or entity, and the necessary
grammatical changes required to make the provisions hereof apply either to
corporations or individuals, men or women, shall in all cases be assumed as
though in each case fully expressed.
(d) Provisions inserted herein or affixed hereto shall not be valid
unless appearing in the duplicate original hereof held by the Landlord.
(e) Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of the Landlord and the Tenant and their
respective heirs, legal representatives, successors and assigns.
(f) The headings of sections are for convenience only and do not limit or
construe the contents of the sections.
(g) Submission of this instrument for examination does not constitute a
reservation of or option for the premises. The instrument becomes effective as a
lease upon execution and delivery by both Landlord and Tenant.
(h) All amounts other than rent under Section 4 owed by the Tenant to the
Landlord hereinunder shall be deemed to be additional rent and shall be paid
within fifteen (15) days from the date the Landlord renders statements of
account therefor.
(i) The Tenant may occupy the premises prior to the beginning of the term
of this Lease with the Landlord's written consent, and in such case all the
provisions of this Lease shall be in full force and effect as soon as the Tenant
occupies the premises, except for the payment of rent.
(j) At the termination of this Lease by lapse of time or otherwise, the
Tenant shall return the premises in as good condition as when the Tenant took
possession, ordinary wear and loss by fire or other casualty excepted, failing
which the Landlord may restore the premises to such condition and
30
<PAGE>
the Tenant shall pay the cost thereof. Upon request of Landlord, the Tenant
shall remove any floor covering laid by the Tenant, including removal of all
nails, tacks, paper, glue, bases, and other vestiges of the floor covering, and
shall restore the floor surface to the condition existing before such floor
covering was laid. If the Landlord does not require the Tenant to remove the
floor covering from the premises prior to the end of the term, the same shall be
conclusively presumed to belong to and title thereto shall thereby pass to the
Landlord without payment or credit by the Landlord to Tenant.
(k) The Tenant will not use the premises or any part thereof for any
purpose other than the one first above stipulated, or for any purpose deemed by
the Landlord's insurer or by the Landlord to be extra hazardous on account of
fire risk or in violation of any law or legal requirement, or that will increase
the existing rate of insurance on the building unless Tenant pays such
insurance, or cause a cancellation of any insurance policy covering the
building.
26. UTILITIES. Landlord represents to Tenant that there are water and
sewer lines to the premises with capacities sufficient for Tenant's business.
Landlord represents to Tenant that electric service is available to the premises
and that such service is separately metered to the premises. In the event any
utility service to the premises shall be interrupted due to the negligent act or
omission of Landlord, its agents, contractors, or employees, and Tenant is
thereby deprived of reasonable use of the premises, rent and all other charges
payable hereunder shall abate until such services are fully restored and
Landlord shall promptly restore service to the premises.
IN WITNESS WHEREOF, as of the day and year first above stated, this
instrument has been duly executed by the parties
31
<PAGE>
hereto in four (4) counterparts, each of which counterparts shall constitute an
original Lease Agreement all said counterparts together constituting one and the
same Lease Agreement.
Signed and Acknowledged Landlord:
in the presence of the Office City, Inc.
undersigned Witnesses:
/s/ Jeanette M. Heselden By: /s/ Don M. Casto, III
- ------------------------------------ ----------------------------
Don M. Casto, III
Vice President
/s/ Jeanette M. Heselden By: /s/ F. S. Benson, Jr.
- ------------------------------------ ----------------------------
F. S. Benson, Jr.
President
/s/ Marianne H. Bricker
- ------------------------------------
Tenant:
World Financial Network,
Inc.
/s/ [ILLEGIBLE] By: /s/ Jerald M. Dick
- ------------------------------------ ----------------------------
Jerald M. Dick
Vice President
/s/ Elizabeth G. Grim By:
- ------------------------------------ ----------------------------
LANDLORD'S ACKNOWLEDEGMENT
State of Ohio :
SS:
County of Franklin :
BE IT REMEMBERED, that on this 24th day of December, 198_, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Landlord, Office City, Inc., by Don M. Casto
III, its Vice President and F. S. Benson Jr., its President both of whom,
as such officers, acknowledged to me that they signed the foregoing Lease,
pursuant to authority conferred upon them by said corporation, and that the
signing of said Lease was their free and deed as such officers, for and as the
free act and deed of said corporation for the uses and purposes therein set
forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Jeanette M. Heselden
---------------------------------
Notary Public
JEANETTE M. HESELDEN
Notary Public, State of Ohio
My commission expires 7-13-89
32
<PAGE>
TENANT'S ACKNOWLEDGEMENT
State of Ohio :
SS:
County of Franklin :
BE IT REMEMBERED, that on this 31st day of December, 1986, before me,
the subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named World Financial Network, Inc., Tenant in
the foregoing Lease, by Jerald M. Dick its Vice President and by _____________
its ______________ both of whom as such officers, acknowledged to me that
they signed the foregoing Lease pursuant to proper corporate authorization,
and that the signing of said Lease was their free act and deed as such
officers and for and as the free act and deed of said corporation, for the
uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Elizabeth G. Grim
------------------------------
Notary Public
ELIZABETH G. GRIM
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES DEC. 10, 1989
33
<PAGE>
EXHIBIT A
[FLOOR PLAN]
<PAGE>
GUARANTY
FOR VALUE RECEIVED, in consideration for and as an inducement to
Landlord to make the within lease with Tenant, the undersigned guarantees the
full performance and observance of all the covenants, conditions and
agreements therein provided to be kept, performed and observed by Tenant,
without demand or notice of non-payment, non-performance, or non-observance,
all of which the undersigned hereby expressly waives. The undersigned agrees
that the validity of this agreement and the obligations of the guarantor
hereunder shall in nowise be terminated, affected or impaired by reason of
the assertion by Landlord against Tenant of any of the rights or remedies
reserved to Landlord pursuant to the provisions of the within lease.
Undersigned waives notice of acceptance hereof. The undersigned further
agrees that this guaranty shall remain and continue in full force and effect
as to any renewal, modification or extension of this lease. It is further
agreed that in any action or proceeding brought upon any matters whatsoever
arising out of, under, or by virtue of the terms of the lease or this
guaranty that trial by jury shall be waived.
Dated
Witnesses:
/s/ [ILLEGIBLE] THE LIMITED, INC.
- ------------------------------------ -----------------------------------
/s/ Elizabeth G. Grim By: /s/ Jerald M. Dick
- ------------------------------------ --------------------------------
Jerald M. Dick
Its: Vice President
-------------------------------
-------------------------------
<PAGE>
ALLIANCE DATA SYSTEMS
MODIFICATION OF LEASE
This Modification of Lease is made and entered into this 18th day of
August 1999 by and between OFFICE CITY, INC., ("Landlord") and ADS ALLIANCE DATA
SYSTEMS, INC., d/b/s ALLIANCE DATA SYSTEMS ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant previously entered into that certain Office
Lease dated December 24, 1986, Amendment to Lease dated January 19, 1987,
Assignment of Lease dated January 20, 1987, Second Amendment to Office Lease
dated May 11, 1988, Third Amendment to Office Lease dated August 4, 1989 and
Lease Extension dated June 28, 1994 (collectively the "Lease"), pertaining to
certain space more particularly set forth therein, at the Shopping Center to
commonly known as Airport Commerce Park located on 4590 East Broad Street in
Columbus, Ohio 43213 and;
WHEREAS, said Lease, if not extended would terminate January 31, 2000,
and;
WHEREAS, Landlord and Tenant are desirous of extending the Lease in
accordance with the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, do hereby agree as follows:
STATEMENT OF MODIFICATIONS
1. Landlord and Tenant hereby agree to extend the Lease for an additional
period of eight (8) years commencing on February 1, 2000 and terminating
on January 31, 2008.
2. Section 9.b 0ptions to Extend Term is deleted in its entirety.
3. Section 4. Rent and Charges is amended as follows:
SUBSECTION A. Rent is deleted in its entirety and replaced with the
following:
Rent for the period from February 1, 2000 through January 31, 2005 shall
be Four Hundred Thirty-Eight Thousand Four Hundred Thirty-Four and 25/100
Dollars ($438,434.25) per year, payable in advance in equal monthly installments
of Thirty-Six Thousand Five Hundred Thirty-Six and 19/100 Dollars ($36,536.19)
on or before the first day of each month of the extended term.
Rent for the period of February 1, 2005 through January 31, 2008 shall
be Four Hundred Ninety Thousand Fourteen and 75/100 Dollars ($490,014.75) per
year, payable in advance in equal monthly installments of Forty Thousand
Eight Hundred Thirty-Four and 56/100 Dollars (40,834.56) on or before the
first day of each month of the extended term.
SUBSECTION C. Common Area Charge is hereby amended as follows:
1. The first sentence of the fourth paragraph of Section 4.C,
shall be replaced with the following: The estimated amount
of Tenant's Common Area Charge shall be paid in monthly
installments in advance on the first day of each month in
the amount of $859.68.
2. The Common Area Charge shall exclude the items set forth
below which the Tenant hereby agrees to perform, at
Tenant's expense. Not including the premises structure
foundation and roof. Tenant shall pay all costs and
expenses associated with operating, maintaining,
refurbishing, replacing, improving, repairing the areas
highlighted on Exhibit "A" attached hereto in a first
class condition including:
4590 E. Broad Street - Columbus, OH 43213
614/755-5000
<PAGE>
- - The parking field, sidewalks, curbs and loading dock service areas
- - Existing traffic directional signs and pavement striping plus striping of
the parking field
- - Daily control of all exterior areas including garbage and trash removal
and disposal plus weekly mechanical sweeping of sidewalks, dock service
areas, drive lanes and the parking field.
- - The exterior lighting system including light poles, light fixtures,
electric service lines and electric usage
- - Exterior amenities including benches, trash receptacles, ash urns,
recreational furniture and equipment
- - Landscaped areas including plant materials, mulch, mowing, edging,
trimming and weed control
- - Underground utility lines that serve the TENANT'S premise from meters
- - Snow and ice control and removal from sidewalks, dock areas and the
parking field.
Plus TENANT will pay for the following:
- - Pro-rate share of general liability / miscellaneous casualty / umbrella
insurance including the 15% administrative burden
- - Building insurance and property assessments for the premises
- - Pro-rate share of a storm water assessments should the City of Whitehall
initiate and invoice a storm water cost recovery program
SUBSECTION E. Fire and Extended Coverage Insurance is hereby amended
by the addition of the following language:
Tenant will pay the following:
- - Tenant's share of general liability / miscellaneous casualty / umbrella
insurance including the fifteen percent (15%) administrative burden.
- - Building insurance and property tax assessments for the premises.
Except set forth herein, all other terms and provisions of the Lease
shall remain the same and the Landlord and the Tenant hereby ratify and
confirm the terms and provisions of the Lease as amended herein.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Modification
of Lease on the dates indicated below effective as of the date set forth
above.
Signed and acknowledged LANDLORD: OFFICE CITY, INC.
in the presence of:
/s/ [ILLEGIBLE] By: /s/ Frank S. Benson, III
- ------------------------------ ------------------------------
Frank S. Benson, III - President
/s/ [ILLEGIBLE] By: /s/ Don M. Casto, III
- ------------------------------ ------------------------------
Don M. Casto, III - Vice President /
Secretary
STATE OF OHIO
COUNTY OF FRANKLIN
<PAGE>
Before me, a notary public in and for mid County and State, personally
appeared LANDLORD, OFFICE CITY, INC., by Frank S. Benson, III it's President
and by Don M. Casto, III it's Vice President / Secretary who acknowledged the
signing of the foregoing instrument and that the same is the free act and
deed of the Corporation and the free act and deed of them.....
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal, at
Columbus, Ohio, this 1st day of September, 1999.
/s/ [ILLEGIBLE]
-----------------------------
Notary Public
[SEAL]
[ILLEGIBLE]
Signed and acknowledged TENANT: ADS ALLIANCE DATA SYSTEMS, INC.
in the presence of:
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] VP & Treasurer
- ------------------- ---------------------------------------
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] Technical Mgr.
- ------------------- ---------------------------------------
STATE OF OHIO
COUNTY OF FRANKLIN
Before me, a notary public in and for said County and State, personally appeared
the above named TENANT, ADS ALLIANCE DATA SYSTEMS, INC.
By [ILLEGIBLE] Its VP Treasurer
And By [ILLEGIBLE] Its Technical Manager
Who acknowledged that they did sign the foregoing instrument and that the same
is the fee act and deed of said Corporation and the fee act and deed of each of
them personally and as such officers.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal, at
Columbus, Ohio, this 25 day of August, 1999.
/s/ [ILLEGIBLE]
-----------------------------
Notary Public
[ILLEGIBLE]
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT. 14, 1999
<PAGE>
EXHIBIT A
[MAP]
<PAGE>
[LETTERHEAD]
April 20, 1998
CERTIFIED MAIL, RETURN RECEIPT REQUESTED
Office City, Inc.
209 East State Street
Columbus, OH 43215
Dear Sir or Madam:
RE: Office Lease between Office City, Inc., Landlord, [ILLEGIBLE]
World Financial Network National Bank, Tenant,
dated December 24, 1986 for premises located at
4590 E. Broad Street, Columbus, Ohio
This letter is to advise you that the Lease between Office City, [ILLEGIBLE]
Network National Bank dated December 24, 1986 has been a [ILLEGIBLE]
Financial Network National Bank to its affiliate, ADS Alliance Data Systems,
Inc., a Delaware corporation, effective February 1, 1998.
In accordance with Paragraph 6 of the Lease, enclosed is a copy of the executed
Assignment and Assumption Agreement.
You are requested to direct all future correspondence and notices to the
following:
ADS Alliance Data Systems, Inc.
Attn: General Counsel
800 TechCenter Drive
Gahanna, OH 43230
Very truly yours,
/s/ Karen A. Morauski
Karen A. Morauski
Counsel
jlh
<PAGE>
[LETTERHEAD]
July 20, 1994
Mr. Robert N. Johnston
Leasing Representative
Don M. Casto Organization
209 East State Street
Columbus, Ohio 43215
RE: LEASE EXTENSION - 4590 EAST BROAD ST, COLUMBUS OHIO 43213
Dear Bob:
Please acknowledge acceptance of the Lease Extension and "EXHIBIT A" by having
an authorized officer of Office City, Inc. sign the two (2) enclosed original
copies of the notification. Return one signed original copy to Tenant.
Very truly yours,
/s/ Nathan J. Tatum
Nathan J. Tatum
Director of Credit Operations
NJT/mb
Enclosures
<PAGE>
LEASE EXTENSION - 4590 EAST BROAD ST, COLUMBUS OHIO 43213
This memorandum will serve as notice to Office City, Inc. ("Landlord") that
World Financial Network National Bank ("Tenant") has exercised the option to
extend the lease for the facility located at 4590 East Broad Street, Columbus
Ohio 43213 for an additional term of five years, commencing February 1, 1995, to
and including January 31, 2000, at the rental of $386,853.75 per annum.
Said lease is amended by EXHIBIT "A" to this Memorandum which outlines in more
specific terms tenant's expectations of landlord's responsibilities in
performing common area maintenance for leased property.
Said extension of Lease, as amended by EXHIBIT "A", is hereby ratified,
confirmed and executed by the duly authorized officers as of the dates appearing
in the acknowledgment clause below.
Signed and acknowledged in the
presence of the undersigned witnesses:
LANDLORD:
OFFICE CITY, INC.
/s/ Edyth M. Smith By: /s/ Harley C. Schofield
- --------------------------- --------------------------------------
Harley C. Schofield, Asst. Secretary
/s/ Benna S. Waterfield /s/ Don M. Casto III
- --------------------------- ---------------------------------------
Don M. Casto III Vice President
TENANT:
WORLD FINANCIAL NETWORK NATIONAL BANK
/s/ [ILLEGIBLE] By: /s/ Ralph E. Spurgin
- --------------------------- --------------------------------------
Ralph E. Spurgin
President and Chief Executive Officer
/s/ [ILLEGIBLE]
- ---------------------------
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment") is made by
and between World Financial Network National Bank, the assignor ("Lessee") and
ADS Alliance Data Systems, Inc., a Delaware corporation ("Assignee").
WHEREAS, Lessee has entered into that certain Lease dated December 24,
1986 ("Lease") with Office City, Inc. ("Lessor"); and
WHEREAS, the Lease allows Lessee to assign its rights under the Lease to
the Assignee; and
WHEREAS, Lessee wishes to sell, convey, assign and transfer all of its
right, title and interest in and to the Lease to Assignee; and
WHEREAS, Assignee wishes to accept the sale, conveyance, assignment and
transfer of the Lease and to assume all of Lessee's obligations thereunder;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, Lessee and Assignee agree as follows:
1. DEFINITIONS. Except as expressly provided herein, all capitalized
terms contained in this Lease shall have the meanings set forth in the Lease.
The Lease is incorporated herein by this reference.
2. ASSIGNMENT AND ASSUMPTION OF LEASE. On the Effective Date of this
Assignment, Lessee hereby sells, conveys, assigns and transfers all of its
right, title and interest in and to the Lease to Assignee. Assignee hereby
accepts such sale, conveyance, assignment and transfer and hereby assumes all of
Lessee's obligations and responsibilities under the Lease. It is the express
intention of the parties that this assignment shall cause Assignee to be
substituted in the place and stead of Lessee for all purposes relating to the
Lease.
3. FUTURE ASSIGNMENTS OF LEASE BY ASSIGNEE. Assignee agrees, recognizes
and acknowledges that any future assignment by it of the Lease will be subject
to the terms and conditions set forth in the Lease.
4. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants to Assignee that:
(a) It is duly organized and existing under the laws of the
state of its organization;
(b) The execution, delivery and performance of this Assignment have
been duly authorized by all requisite action of Lessee's officers
and directors, and will not violate or breach any provision of
any organizational document or other agreement or instrument to
which Lessee is a party;
Page 1 of 3
<PAGE>
10. FURTHER ASSURANCES. Subject to the terms and conditions hereof, each
party agrees to use its best efforts to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Assignment as expeditiously as
practicable including, without limitation, the performance of such further acts
or the execution and delivery of any additional instruments or documents as any
party may reasonably request from time to time in order to carry out the
purposes of this Assignment and the transactions contemplated hereby. This
Section shall survive the consummation of the transactions contemplated by this
Assignment.
11. TIME OF THE ESSENCE. Time is of the essence with respect to the
performance of all transactions contemplated by this Assignment.
12. EFFECTIVE DATE. The "Effective Date" of this Assignment shall be the
1st day of February, 1998.
IN WITNESS WHEREOF, Lessee and Assignee have executed this Assignment as
of the day and year first above written.
WORLD FINANCIAL NETWORK NATIONAL BANK
--------------------------------------
("LESSEE")
By: /s/ Robert Armiak
----------------------------------
Name: Robert Armiak
Title: Treasurer
Date: February 1, 1998
ADS ALLIANCE DATA SYSTEMS, INC.
--------------------------------------
A DELAWARE CORPORATION ("ASSIGNEE")
By: /s/ Daniel T. Groomes
----------------------------------
Name: Daniel T. Groomes
Title: Executive Vice President
Date: February 1, 1998
Page 3 of 3
<PAGE>
LANDLORD'S ACKNOWLEDGEMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 28th day of July, 1994, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Landlord, Office City, Inc., by Don M.
Casto III and Harley C. Schofield its, Vice President and Asst. Sec., who, as
an officer, acknowledged to me, that he signed the foregoing Lease Extension.
Exhibit "A", pursuant to authority conferred upon him by said corporation,
and that the signing of said instrument was his own free act and deed as such
officer, for and as the free act and deed of said corporation for the uses
and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL) /s/ Edyth M. Smith
------------------------------
NOTARY PUBLIC
EDYTH M. SMITH
[SEAL] NOTARY PUBLIC, STATE OF OHIO
COMMISSION EXPIRES 8-26-95
TENANT'S ACKNOWLEDGMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 21st day of July, 1994, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Tenant, World Financial Network National
Bank, by Ralph E. Spurgin, its President and Chief Executive Officer, who
acknowledged to me, that he signed the foregoing Lease Extension Exhibit "A",
pursuant to authority conferred upon him by said corporation, and that the
signing of said instrument was his own free act and deed as such officer, for
and as the free act and deed of said corporation for the uses and purposes
therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Melissa L. Coyer
------------------------------
NOTARY PUBLIC
MELISSA L. COYER
[SEAL] NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES JULY 18, 1997
<PAGE>
LEASE EXTENSION EXHIBIT "A"
4590 East Broad Street
Columbus, Ohio 43213
I. LANDSCAPING:
A. HOWELL'S TREE & LANDSCAPE SERVICE
- Mulch all planters with grade A mulch annually
- Dormant oil spray in early spring on all trees and existing
junipers
- Spray all trees and junipers in late June or at the
appropriate time for control of bag worms
- Trim all trees to shape and deadwood removal annually.
- Turn beds to keep mulch fresh looking - one (1) time per
month
B. UNITED MANAGEMENT PERSONNEL
- Mow lawn as needed-minimum one (1) time per week
- Hand pick trash from beds and site one (1) time per week
- Edge lawn along Broad Street and Schofield Drive 1 time per
week
II. SWEEPING AND SITE CLEANING
A. CONTRACT SWEEPERS
- Sweep all paved parking areas, including rear drive - two
(2) times/week (broken glass, litter, and other debris). NO
HAND PICKING IS INCLUDED
B. UNITED MANAGEMENT
- Hand pick trash-daily
- Sweep main walk on Broad St. as needed to remove gravel,
salt, and debris
- Truck docks swept and drains cleaned as required - minimum
once per week
III. SNOW REMOVAL/ICE TREATMENT
A. UNITED MANAGEMENT
- Push snow after accumulation of two (2) inches
- Salt if less than two (2) inches or during any icing
condition. Normally done at 3 o'clock a.m. and checked
again after lunch; recheck 8 or 9 o'clock p.m. and repeat
as necessary
- Dock area is included in the above, but is to receive
calcium chloride if temperature is less than 15 degrees
<PAGE>
IV. SITE LIGHTING
A. Establish a light pole numbering system for each to track any
recurring problems with specific parking lot lights.
B. Determine solution to eliminate splice electrical boxes in ground
to avoid shortage caused by wires subject to water.
C. With tenants approval, rewire lighting poles wiring system to
correct any problem, if necessary.
V. ASPHALT WORK / SITE WORK
A. MAIN DRIVE IN FRONT OF BUILDING. Take core samples and water
sample to determine apparent problem with hydrostatic pressure or
other causes for standing water at this location. Consider rework
of sub-base, and milling off existing surface with new overlay in
order to allow roof runoff outlets at the curb to drain properly.
B. MAIN DRIVE FROM BROAD STREET. Take grade level readings of
existing conditions to determine best method of channeling water
to the drain. Some milling of the surface may be required along
with adding curb drains and piping to the nearest storm line to
solve the problem. Also consider removing much of the concrete
divider island and replacing it with striping. Overlay asphalt as
necessary to complete the repair. For the balance of this
driveway, patch and seal cracks as required.
C. Inspect recent overlay areas and determine extent of any major
problems that require additional work. Otherwise, seal hairline
cracks with flexible sealer to keep moisture from penetrating the
surface.
D. MAIN EAST-WEST DRIVE LANE. Identify worst areas, cut out and
patch. Take grade readings to determine if overlay can be done to
allow proper drainage or if milling is needed to bring the surface
in line with the new overlay height.
E. RESTRIPING. Complete annually.
F. SIDEWALKS. Repair, replace sections as requested by tenant in
parking lot, along Broad Street, and in front of the building.
G. TRUCK DOCK. Complete, at landlords sole expense, necessary
adjustments to the grade and slope of the truck docks to meet
code. Such work is to be completed at a date mutually agreed to by
both parties but must be completed no later than November 1, 1994.
NOTE:
CONTRACTOR & UNITED MANAGEMENT PERSONNEL ARE TO LOG IN AND OUT AT FRONT DESK.
PAYMENT TO CONTRACTOR WILL BE BASED ON THE SIGN-IN LOGS.
<PAGE>
THIRD AMENDMENT TO OFFICE LEASE
This Third Amendment to Office Lease made this 4th day of August, 1989,
by and between Office City, Inc., "Landlord", and World Financial Network
National Bank, "Tenant",
WITNESSETH:
WHEREAS, Landlord and Tenant's Assignor, World Financial Network, Inc.,
entered into that certain Office Lease dated December 24, 1986, amended by
Amendment to Office Lease dated January 19, 1987, verified by Lease Verification
dated June 11, 1987, assigned by World Financial Network, Inc. to The Limited
Credit Services, Inc. on May 27, 1987, amended by Second Amendment to Office
Lease dated May 11, 1988, and assigned by The Limited Credit Services, Inc. to
Tenant on May 1, 1989, hereinafter collectively referred to as "Lease"; and
WHEREAS, the parties desire to amend the Lease to give Tenant the right
to contract for the installation of a communication services tower at the leased
premises and to further give Tenant the right to maintain said tower during the
lease term.
NOW, THEREFORE, effective January 1, 1989, the parties amend the Office
Lease as follows:
Section 27. Communication Services Tower is added to the lease and
the following shall be made a part thereof:
Landlord hereby grants Tenant the right to contract for the construction
and installation of a communication systems tower to be approximately sixty feet
(60') high and would be erected at a point approximately ten feet (10') away
from the northwest corner of the building leased to the Tenant. The Tenant shall
be responsible, at its own expense, for the construction, installation,
maintenance, repair and removal of said tower during the term of the Lease. The
Tenant hereby
-1-
<PAGE>
agrees to hold the Landlord harmless from liability for any damages resulting
from the construction, installation, maintenance, repair and removal of the
communication systems tower, except if due to acts, omissions or negligence of
the Landlord or its agents, employees or contractors.
Said Office Lease, as hereby amended, remains in full force and effect
and is hereby ratified and confirmed by the parties.
IN WITNESS WHEREOF, the parties have caused this Third Amendment to
Office Lease to be executed in four (4) counterparts by their respective duly
authorized officers as of the dates appearing in the acknowledgment clauses
below.
Signed and Acknowledged LANDLORD:
in the presence of the Office City, Inc.
undersigned Witnesses:
/s/ [ILLEGIBLE] By: /s/ Don M. Casto, III
- ------------------------ ----------------------------
Don M. Casto, III,
Vice President
/s/ Marianne H. Bricker By: /s/ Harley C. Schofield
- ------------------------ ----------------------------
Harley C. Schofield
Assistant Secretary
TENANT:
World Financial Network National Bank
/s/ Pamela A. Somerville By: /s/ John DeWolf
- ------------------------ ----------------------------
John DeWolf,
Vice President-Real
Estate Counsel
/s/ [ILLEGIBLE] By: /s/ George Sappenfield
- ------------------------ ----------------------------
George Sappenfield
Vice President-Real Estate
------------------------------------
LEGAL FORM APP'D PAS
------------------------------------
AS PER DIGEST
------------------------------------
DIGEST APP'D
------------------------------------
LANDLORD'S ACKNOWLEDGMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 4th day of August, 1989, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Landlord, Office City, Inc., by Don M.
Casto, III, its Vice President, and Harley C. Schofield, its Assistant
Secretary, both of whom, as such officers, acknowledged to me that they signed
the foregoing Third Amendment to Lease, pursuant to authority conferred upon
them by said corporation, and that the signing of said instrument was their free
act and deed as such officers, for and as the free act and deed of said
corporation for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
first above written.
(SEAL) /s/ Marianne H. Bricker
---------------------------------
NOTARY PUBLIC
MARIANNE H. BRICKER
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES 1-28-92
-2-
<PAGE>
TENANT'S ACKNOWLEDGMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 26th of July, 1989, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared World Financial Network National Bank, Tenant in the
foregoing Lease, by John DeWolf, its Vice President-Real Estate Counsel and
George Sappenfield, its Vice President-Real Estate, who as such officers,
acknowledged to me that they signed the foregoing Third Amendment to Office
Lease pursuant to proper corporate authorization, and that the signing of
said instrument was their free act and deed as such officer and for and as
the free act and deed of said corporation, for the uses and purposes therein
set forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Pamela A. Somerville
---------------------------------
NOTARY PUBLIC
PAMELA A. SOMERVILLE
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES FEBRUARY 25, 1993
<PAGE>
LIMITED CREDIT SERVICES
4590 E. BROAD STREET
COLUMBUS, OHIO 43218
April 26, 1989
Don M. Casto Organization
209 E. State Street
Columbus, Ohio 43215
Dear Sir:
On March 1, 1987 Limited Credit Services, Inc. (LCS) World Financial
Network, Inc. (WFN) and Don M. Casto Organization entered into a contract for
the lease on the building on East Broad Street.
We have received permission from an agency of the federal government to
reorganize as a national bank which will be called World Financial Network
National Bank (WFNNB). In order to accomplish this reorganization, we must
assign the contract to WFNNB.
In accordance with Section 6 of the contract references above, we hereby
request your consent to assign, as of May 1, 1989, our rights and
responsibilities under the contract to WFNNB. Failure to object to this
assignment as defined in the contract will act as your consent. It should be
noted that, except for the change in name, you should not observe any
operational changes as a result of this assignment.
If you should have any questions concerning the assignment and your
contractual relationship with (LCS) (WFN)/WFNNB, please feel free to contact me.
Thank you for your cooperation in this matter.
Sincerely,
/s/ Jim Johnson
Jim Johnson
Manager, Building Services
JJ/mb
cc: Robert McAndrew, Limited Corp.
<PAGE>
BILL OF SALE AND ASSIGNMENT
This Bill of Sale and Assignment is executed as of the day of the 1st day
of May, 1989 between LIMITED CREDIT SERVICES, INC., a Delaware corporation
("LCS") and WORLD FINANCIAL NETWORK NATIONAL BANK, a national banking
association and sole stockholder of LCS ("Bank").
W I T N E S S E T H:
WHEREAS, the Board of Directors of LCS and Bank have approved the
dissolution, liquidation and winding up of LCS; and
WHEREAS, LCS is distributing its assets to Bank and Bank is undertaking
to refund the liabilities of LCS.
NOW THEREFORE, the parties hereto agree as follows:
Section 1. ASSETS TRANSFERRED. In cancellation of the shares of LCS owned
by Bank, LCS hereby grants, sells, transfers and delivers to Bank, all of LCS's
right, title and interest in the assets of LCS, to have and to hold forever,
including, without limitation, the following: all stock certificates, stock
ledger books and stock ledgers, minute books and tax returns of LCS, and all tax
refunds and deposits receivable. LCS hereby appoints Bank as its
attorney-in-fact to demand, receive, and collect for its own use and benefit all
debts and obligations now owing to LCS. LCS further authorizes Bank to do all
things legally permissible required to recover and collect such debts and
obligations and to use LCS's name in such manner as Bank may deem necessary for
the collection and recovery of such debts and obligations.
Section 2. REFUNDING OF LIABILITIES. Bank will provide for the refunding
of the liabilities and obligations of LCS, including, without limitation, the
liabilities and obligations of LCS, arising or continuing after the date hereof,
whether matured or unmatured, other than liabilities which by their terms
preclude recourse against LCS.
The parties hereto have executed this instrument as of the day and year
first written above.
LIMITED CREDIT SERVICES, INC.
By: /s/ Timothy B. Lyons
--------------------------------------
Timothy B. Lyons, Vice President
WORLD FINANCIAL NETWORK NATIONAL
BANK
By: /s/ Ralph E. Spurgin
--------------------------------------
Ralph E. Spurgin, President
<PAGE>
SECOND AMENDMENT TO OFFICE LEASE
This Second Amendment to Office Lease made this 11th day of May, 1988,
by and between Office City, Inc., Landlord, and The Limited Credit
Services, Inc., Tenant,
WITNESSETH:
WHEREAS, Landlord and Tenant's Assignor, World Financial Network, Inc.,
entered into that certain Office Lease dated December 24, 1986, amended by
Amendment to Office Lease dated January 19, 1987, verified by Lease Verification
dated June 11, 1987 and assigned by World Financial Network, Inc. to Tenant on
May 27, 1987, hereinafter collectively referred to as "Lease"; and
WHEREAS, the parties desire to amend the Lease to provide for Tenant's
immediate exercise of its options to extend term, grant additional options to
extend, acknowledge Landlord's approval of Tenant's plans and specifications for
Tenant's proposed alterations to the demised premises and give Tenant's approval
of a proposed dedication of a public street by Landlord,
NOW, THEREFORE, effective April 1, 1988 the parties amend the Office
Lease as follows:
1. The typed portion of Section 3 is deleted and the following
substituted therefor:
The term of this Lease is eight (8) years beginning on the 1st day
of February, 1987, and ending on the last day of January, 1995, unless
terminated earlier, as hereinafter provided, or extended, at the option
of Tenant, for one or two five-year option term(s), as permitted by
Section 9, infra.
2.A The first sentence of Section 9 is deleted and the following is
substituted therefor:
Landlord hereby grants Tenant two (2) options to extend the term
of this Lease, each for five (5) years, the first of which, if exercised,
shall commence at the end of the term of the Lease ("first option term")
and the second ("second option term") at the end of the first option
term.
1
<PAGE>
B. The last paragraph of Section 9 is amended by deleting the period and
adding the following at the end of the paragraph:
and instead of the rent set forth in Section 4.A. the annual rent for
each year of the option term(s) shall be as follows:
(a) The annual rent for each year of the first option term shall
be $386,853.75 per annum which shall be paid in equal monthly
installments, in advance on the first day of each and every
month thereof, in the amount of $32,237.81.
(b) The annual rent for each year of the second option term shall
be $490,014.75 per annum which shall be paid in equal monthly
installments, in advance on the first day of each and every month
thereof, in the amount of $40,834.56.
3. Landlord hereby consents to the Tenant's proposed alterations of and
improvements to the demised premises which are shown and described in the latest
revisions, dated 01/13/88, to the plans and specifications for the demised
premises prepared for Tenant by Acock Schlegel Architects and M-E Building
Consultants, consisting of 15 pages.
4. Tenant hereby consents to Landlord's dedicating to the City of
Whitehall, the westerly 60' wide strip of the parking lot of the shopping
center, presently used as an entrance-exit and service driveway, for purposes of
a public road which would extend from East Broad Street to Poth Road.
5. Landlord warrants to Tenant that during the term of this Lease there
shall not be less than 756 parking spaces available in the Shopping Center for
Tenant, the other lessees of the Shopping Center and the respective agents,
employees, customers and invitees of Tenant and the other lessees.
Said Office Lease, as hereby amended, remains in full force and effect
and is hereby ratified and confirmed by the parties.
IN WITNESS WHEREOF, the parties have caused this Second Amendment to
Office Lease to be executed in four (4)
2
<PAGE>
counterparts by their respective duly authorized officers as of the dates
appearing in the acknowledgment clauses below.
Signed and Acknowledged Landlord:
in the presence of the Office City, Inc.
undersigned Witnesses:
/s/ [ILLEGIBLE] By: /s/ Don M. Casto, III
- ------------------------ ----------------------------
Don M. Casto, III, Vice President
/s/ Marianne H. Bricker By: /s/ Harley C. Schofield
- ------------------------ ----------------------------
Harley C. Schofield Assistant
Secretary
Tenant:
The Limited Credit
Services, Inc.
/s/ [ILLEGIBLE] By: /s/ Jerald M. Dick
- ------------------------ ----------------------------
Jerald M. Dick, Vice President
/s/ [ILLEGIBLE]
- ------------------------
LANDLORD'S ACKNOWLEDEGMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 11th day of May, 1988, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Landlord, Office City, Inc., by Don M.
Casto, III, its Vice President, and Harley C. Schofield, its Assistant
Secretary, both of whom, as such officers, acknowledged to me that they
signed the foregoing Second Amendment to Lease, pursuant to authority
conferred upon them by said corporation, and that the signing of said
instrument was their free act and deed as such officers, for and as the free
act and deed of said corporation for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Marianne H. Bricker
---------------------------------
Notary Public
MARIANNE H. BRICKER
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES 1-28-92
LEGAL FORM APP'D [ILLEGIBLE]
------------------------------------
AS PER DIGEST [ILLEGIBLE]
------------------------------------
DIGEST APP'D
------------------------------------
3
<PAGE>
TENANT'S ACKNOWLEDGEMENT
STATE OF OHIO :
SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 9th day of May, 1988, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared The Limited Credit Services, Inc., Tenant in the
foregoing Lease, by Jerald M. Dick its Vice President, who as such officer,
acknowledged to me that he signed the foregoing Second Amendment to Lease
pursuant to proper corporate authorization, and that the signing of said
instrument was his free act and deed as such officer and for and as the free
act and deed of said corporation, for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereinto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
(SEAL)
/s/ Pamela A. Somerville
---------------------------------
Notary Public
PAMELA A. SOMERVILLE
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES FEBRUARY 25,1993
4
<PAGE>
LEASE VERIFICATION
This Verification made this 11th day of June, 1987, by and between OFFICE
CITY, INC., Landlord, and THE LIMITED CREDIT SERVICES, INC., Tenant,
WITNESSETH
WHEREAS, the parties entered into that certain Lease dated December 24,
1986 under which Landlord leased to Tenant Storeroom # 1 of Office City Shopping
Center, and,
WHEREAS, the exact commencement date was not specified in the Lease, but
has now been determined,
NOW, THEREFORE, the parties hereby clarify said Lease by establishing the
"Rent Commencement Date" as May 15, 1987. The term commenced on February 1,
1987, and will end on January 31, 1991, unless the Tenant has and exercises
option(s) to extend the term.
It is further agreed that except for stipulating the aforesaid dates,
this Verification does not in any other way modify, amend or supplement the
Lease which remains in full force and effect.
IN WITNESS WHEREOF, Landlord has caused these presents to be signed and
Tenant has hereby executed the same on the date first stated above.
LANDLORD: OFFICE CITY, INC.
By: /s/ Don M. Casto
------------------------------------
Don M. Casto, III, Vice President
TENANT: THE LIMITED CREDIT
SERVICES, INC.
/s/ Jerald M. Dick
------------------------------------
Jerald M. Dick, Vice President
<PAGE>
ASSIGNMENT OF LEASE
WORLD FINANCIAL NETWORK, INC., a Delaware corporation, hereinafter called
the "Assignor", for the One Dollar ($1.00) and other good and valuable
consideration to it paid, hereby assigns, sets over, transfers, and conveys,
effective as of 20th of Jan, 1987, to THE LIMITED CREDIT SERVICES, INC., a
Delaware corporation, hereinafter called the "Assignee", all of the Assignor's
right, title and interest in and to a certain Lease, dated December 24, 1986 as
amended January 19, 1987, between Assignor, as Tenant and Office City, Inc., as
Landlord, for premises being 103,161 square feet of space known as 4590 East
Broad Street, Columbus, Ohio (the "Lease").
Together with all of the estate, title and interest of the Assignor in
the Lease and in said premises.
The Assignor covenants and agrees that the Lease is in full force and
effect, and that there has been no default in any of the conditions, covenants
and other provisions on the part of said Assignor to be kept and performed.
The Assignee, in consideration of this Assignment, covenants and agrees
to keep and perform all the conditions, covenants and provisions of the Lease to
be kept and performed by the Tenant therein, and to indemnify and save harmless
the Assignor from and against all loss and expense by reason of any default of
the Assignee in respect thereto.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment to be executed on this 27th day of May, 1987.
Signed and acknowledged WORLD FINANCIAL NETWORK, INC.
in the presence of:
/s/ [ILLEGIBLE] By: /s/ Jerald M. Dick
- ------------------------ ----------------------------------
Jerald M. Dick
/s/ [ILLEGIBLE] Its: Vice President
- ------------------------
ASSIGNOR
THE LIMITED CREDIT SERVICES, INC.
/s/ [ILLEGIBLE] By: /s/ Jerald M. Dick
- ------------------------ ----------------------------------
Jerald M. Dick
/s/ [ILLEGIBLE] Its: Vice President
- ------------------------
ASSIGNEE
CONSENT OF LANDLORD AND RELEASE
The Landlord hereby consents to the Assignment of the referenced lease from
World Financial Network, Inc. to The Limited Credit Services, Inc. and releases
World Financial Network, Inc. from liability thereunder as though World
Financial Network, Inc. had never been a party thereto.
OFFFICE CITY, INC.
By: /s/ Don M. Casto, III
-----------------------------------
Don M. Casto, III, Vice President
CONSENT OF GUARANTOR
The undersigned Guarantor of the lease hereby consents to the Assignment and
acknowledges that the Guaranty shall remain in full force and effect.
THE LIMITED, INC.
By: /s/ Jerald M. Dick
-----------------------------------
Jerald M. Dick
Its Vice President
[ILLEGIBLE]
<PAGE>
STATE OF OHIO,
COUNTY OF FRANKLIN, ss:
BEFORE ME, the undersigned authority on this date personally appeared
Jerald M. Dick, Vice President of WORLD FINANCIAL NETWORK, INC., a Delaware
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument and being by me first duly sworn acknowledged to me
that he executed the same as the act and deed of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 28th day of May, 1987.
/s/ Susan T Edwards
----------------------------
NOTARY PUBLIC
SUSAN T EDWARDS, Notary Public
State of Ohio
My Commission Expires April 6 1989
STATE OF OHIO,
COUNTY OF FRANKLIN, ss:
BEFORE ME, the undersigned authority, on this date personally appeared
Jerald M. Dick, Vice President of THE LIMITED CREDIT SERVICES, INC., a Delaware
corporation, known to me to be the person and officer whose name is subscribed
to the foregoing instrument and being by me first duly sworn acknowledged to me
that he executed the same as the act and deed of such corporation for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 28th day of May, 1987.
/s/ Susan T Edwards
----------------------------
NOTARY PUBLIC
SUSAN T EDWARDS, Notary Public
State of Ohio
My Commission Expires April 6 1989
-2-
<PAGE>
AMENDMENT TO OFFICE LEASE
This Amendment to Office Lease made this 19th day of January, 1987, by
and between Office City, Inc., Landlord and World Financial Network, Inc.,
Tenant,
WITNESSETH:
WHEREAS, the parties who entered into that certain Office Lease dated
December 24, 1986, desire to correct inadvertent errors as to length of the term
and number of options to renew,
NOW, THEREFORE, the parties amend the Office Lease effective December 24,
1986, as follows:
1. The typed portion of Section 3 is deleted and the following
substituted therefor:
The term of this Lease is four (4) years beginning on the 1st day
of February, 1987, and ending on the last day of January, 1991, unless
terminated earlier, as hereinafter provided, or extended, at the option
of Tenant, for four 1-year renewal periods, as permitted by Section 9,
infra.
2. The first sentence of Section 9 is deleted and the following
substituted therefor:
Landlord hereby grants Tenant four (4) options to extend the term
of this Lease, each for one (1) year, the first of which, if exercised,
shall commence at the end of the term of the Lease ("first option term")
and the remaining three on each successive year thereafter.
Said Office Lease, as hereby amended, remains in full force and effect
and is hereby ratified and confirmed by the parties.
In Witness Whereof, the parties have caused this Amendment to Office
Lease to be executed in six (6) counterparts by their respective duly authorized
officers as of the dates appearing in the acknowledgment clauses below.
Signed and Acknowledged LANDLORD:
in the Presence Of: OFFICE CITY, INC.
/s/ [ILLEGIBLE] By: /s/ F.S. Benson, Jr.
------------------------ ----------------------------
F.S. Benson, Jr., President
/s/ [ILLEGIBLE] By: /s/ Harley C. Schofield
------------------------ ----------------------------
Harley C. Schofield
Assistant Secretary
1
<PAGE>
TENANT:
World Financial Network, Inc.
/s/ [ILLEGIBLE] By: /s/Jerald M. Dick
------------------------ ----------------------------
VICE PRESIDENT
/s/ [ILLEGIBLE]
------------------------
LANDLORD'S ACKNOWLEDGMENT
STATE OF OHIO :
: SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this 16th day of January, 1987, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named Landlord, Office City, Inc., by F. S.
Benson, Jr., its President and Harley C. Schofield, its Assistant Secretary,
both of whom, as such officers, acknowledged to me that they signed the
foregoing Lease, pursuant to authority conferred upon them by said corporation,
and that the signing of said Lease was their free act and deed as such officers,
for and as the free act and deed of said corporation for the uses and purposes
therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
/s/ Jeanette M. Heselden
------------------------------
Notary Public
JEANETTE M. Heselden
Notary Public State of Ohio
My commission expires 7-13-89
TENANT'S ACKNOWLEDGMENT
STATE OF OHIO :
: SS:
COUNTY OF FRANKLIN :
BE IT REMEMBERED, that on this ____ day of January, 1987, before me, the
subscriber, a Notary Public in and for the aforesaid county and state,
personally appeared the above named World Financial Network Inc., Tenant in the
Foregoing Lease, by Jerald M. Dick its Vice President who as such officer,
acknowledged to me that he signed the foregoing Lease pursuant to proper
corporate authorization, and that the signing of said Lease was his free act and
deed as such officers and for and as the free act and deed of said corporation,
for the uses and purposes therein set forth.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed the
official seal of my office at Columbus in the State of Ohio on the day and year
last above written.
/s/ Elizabeth G. Grim
------------------------------
Notary Public
ELIZABETH G. GRIM
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES DEC. 10, 1989
2
<PAGE>
GUARANTOR'S CONSENT
The Limited, Inc., Guarantor of Tenant's obligations under the above
Office Lease, hereby consents, this 19th day of January, 1987, to the above
Amendment.
THE LIMITED, INC.
By: /s/ Jerald M. Dick
--------------------------------
3
<PAGE>
TABLE OF CONTENTS
STANDARD OFFICE LEASE
ARTICLE 1.00
BASIC LEASE TERMS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.01 Parties 1
Section 1.02 Leased Premises 1
Section 1.03 Term 1
Section 1.04 Fixed Minimum Rent 1
Section 1.05 Notification Addresses 2
Section 1.06 Permitted Use 2
ARTICLE 2.00
RENT
Section 2.01 Fixed Minimum Rent 2
Section 2.02 Operating Expenses 2
Section 2.03 Definition of Operating Expenses 3
Section 2.04 Late Payment Charge 3
Section 2.05 Increase in Insurance Premiums 3
Section 2.06 Security Deposit 3
Section 2.07 Holding Over 3
Section 2.08 Taxes and Assessments 3
ARTICLE 3.00
OCCUPANCY AND USE
Section 3.01 Use 5
Section 3.02 Signs 5
Section 3.03 Compliance with Laws, Rules and Regulations 5
Section 3.04 Warranty of Possession 5
Section 3.05 Inspection 5
ARTICLE 4.00
UTILITIES AND SERVICE
Section 4.01 Utilities 5
Section 4.02 Theft or Burglary 6
Section 4.03 Janitorial Service 6
Section 4.04 Excess Utility Consumption 6
Section 4.05 Window Coverings 6
Section 4.06 Charge for Service 6
ARTICLE 5.00
REPAIRS AND MAINTENANCE
Section 5.01 Lessor Repairs 6
Section 5.02 Lessee Repairs 7
Section 5.03 Request for Repairs 7
Section 5.04 Lessee Damages 7
ARTICLE 6.00
ALTERATIONS AND IMPROVEMENTS
Section 6.01 Construction of Improvements 7
Section 6.02 Detailed Plans and Specifications 8
Section 6.03 Approval of Plans 8
Section 6.04 Construction of Improvements;
Substantial Completion 8
Section 6.05 Lessee's Architect and Correction of Work 9
Section 6.06 Change Orders 9
Section 6.07 Entry Prior to the Completion Date 9
Section 6.08 Lessor's Construction Warranties 10
Section 6.09 Completion of Improvements 10
Section 6.10 Lessee Improvements 12
ARTICLE 7.00
CASUALTY AND INSURANCE
Section 7.01 Substantial Destruction 13
Section 7.02 Partial Destruction 13
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Section 7.03 Property Insurance 13
Section 7.04 Waiver of Subrogation 14
Section 7.05 Insurance Indemnification 14
Section 7.06 Lessor to Hold Harmless 14
ARTICLE 8.00
CONDEMNATION
Section 8.01 Substantial Taking 15
Section 8.02 Partial Taking 15
ARTICLE 9.00
ASSIGNMENT OR SUBLEASE
Section 9.01 Lessor Assignment 16
Section 9.02 Lessee Assignment 16
Section 9.03 Conditions of Assignment 16
Section 9.04 Rights of Mortgagee 17
Section 9.05 Estoppel Certificates 17
ARTICLE 10.00
DEFAULT AND REMEDIES
Section 10.01 Default by Lessee 18
Section 10.02 Remedies for Lessee's Default 18
ARTICLE 11.00
RELOCATION
Section 11.01 Relocation 19
ARTICLE 12.00
DEFINITIONS
Section 12.01 Abandon 19
Section 12.02 Act of God or Force Majeure 19
Section 12.03 Building or Project 19
Section 12.04 Commencement Date 19
Section 12.05 Completion Date 19
ARTICLE 13.00
MISCELLANEOUS
Section 13.01 Waiver 20
Section 13.02 Act of God 20
Section 13.03 Attorney's Fees 21
Section 13.04 Successors 21
Section 13.05 Allocation of Rent 21
Section 13.06 Bankruptcy or Insolvency 21
Section 13.07 Captions 24
Section 13.08 Notice 24
Section 13.09 Submission of Lease 24
Section 13.10 Corporate Authority 24
Section 13.11 Severability 24
Section 13.12 Lessor's Liability 25
Section 13.13 Broker Indemnification 25
Section 13.14 Consent 25
Section 13.15 Hazardous Materials 25
ARTICLE 14.00
AMENDMENT AND LIMITATION OF WARRANTIES
Section 14.01 Entire Agreement 26
Section 14.02 Amendment 26
Section 14.03 Limitation of Warranties 26
ARTICLE 15.00
OTHER PROVISIONS 27
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ARTICLE 16.00
SIGNATURES
ACKNOWLEDGMENTS 27
RULES AND REGULATIONS 28
EXHIBIT A 30
EXHIBIT B 31
EXHIBIT C 32
EXHIBIT D 35
EXHIBIT E 36
EXHIBIT F 37
ADDENDUM TO LEASE
STANDARD OFFICE LEASE 38
</TABLE>
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ARTICLE 1.00 BASIC LEASE TERMS
1.01 PARTIES. THIS LEASE AGREEMENT ("Lease") is entered into by and
between the following Lessor and Lessee: CONTINENTAL ACQUISITIONS, INC., an Ohio
corporation ("Lessor"), 35 North Fourth Street, Suite 100, Columbus, Ohio
43215-3602 and WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.) ("Lessee"), 4590
East Broad Street, Columbus, Ohio 43213.
1.02 LEASED PREMISES. In consideration of the rents, terms, provisions
and covenants of this Lease, Lessor hereby leases, lets and demises to Lessee
the land depicted in the attached Exhibit A which is located north of Shrock
Road in Westerville, Ohio together with a 100,800 (approximate sq. ft.) building
(the "Building") and parking, landscaping and related improvements to be
constructed on the land pursuant to the terms of this Lease (collectively, with
the Building, the parking, landscaping and related improvements to the land
which are to be made pursuant to the terms of this Lease are known as the
"Improvements"). The land depicted in Exhibit A and the Improvements are
hereinafter referred to as the "leased premises". As promptly as possible after
the date hereof, Lessor shall cause a survey of the leased premises to be
prepared of the leased premises and the legal description prepared pursuant to
such survey shall be substituted as Exhibit A to this Lease.
1.03 TERM. Subject to and upon the conditions set forth herein, the
term of this Lease shall commence on the "completion date", which Lessor shall
use its best efforts to establish as January 26, 1991, and shall terminate One
Hundred Twenty (120) months thereafter.
1.04. FIXED MINIMUM RENT. Fixed minimum rent is $54,936.00 per month
for the first sixty (60) months, subject to adjustment as provided in the
following paragraphs of this Section 1.04. Fixed minimum rent for months 61
through 120 shall be 110.7% of the fixed minimum rent for the first 60 months,
as the same shall be adjusted pursuant to this Section 1.04.
Certain of Lessor's costs of construction which were factors in the
determination of the foregoing fixed minimum rent amount for the first sixty
(60) months were based on estimates of the amounts such items will cost or the
amounts of the bids to be received by Lessor from subcontractors to perform such
work. Such estimated items (the "Audit Items") and the estimated costs of such
items (the "Audit Item Estimates") are listed on the attached Exhibit C. Lessor
shall give Nate Tatum or any successor Director of Credit Operations of Lessee
prompt notice (which may be by telephone) of the receipt by Lessor of bids to
perform Audit Items which are subject to being bid (the "Audit Bid Items")
and, as part of such notice, Lessor shall, give to Lessee a recommendation as to
the bid to accept.
Items to notify Lessor of Lessee's preference as to the bid to accept. If the
total amount of the accepted bids for Audit Bid Items plus the actual costs of
other Audit Items shall be different (either less or more) than the sum of the
Audit Item Estimates for the Audit Items as set forth in Exhibit C, the fixed
monthly rent for the first sixty (60) months shall be adjusted by an amount
equal to the product of (a) the net difference between the Audit Item Estimates
for all Audit Items and the actual costs for all Audit Items, multiplied by (b)
.00967. Upon request by Lessee, Lessor shall provide to Lessee reasonable
documentation showing the actual costs to Lessor for any or all of the Audit
Items. Lessee shall have the right to audit Lessor's books and records with
respect to Audit items.
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Attached hereto as Exhibit D is a list of certain additional items of
construction that Lessee has requested that Lessor cause to be performed (the
"Additional Items"). Lessor shall request bids for the performance of the
Additional Items. Lessee shall have the same rights and responsibilities with
respect to notice of and expression of preference as to bids for Additional
Items as Lessee has with respect to Audit Bid Items. The fixed monthly rent for
the first sixty (60) months of the lease shall be increased by the product of
(a) the total of Lessor's actual costs for the Additional Items multiplied by
(b) .01322.
In the event that any Change Orders are approved or requested by Lessee
and the Net Change Order Cost is a positive number (as calculated pursuant to
Section 6.06), the Net Change Order Cost shall be reflected in the fixed minimum
rent as follows: monthly rent for the first sixty (60) months of the Lease shall
be increased by an amount equal to the product of (a) the Net Change Order Cost
multiplied by (b) .00967.
In the event that the Net Change Order Cost is a negative number, the Net
Change Order Cost shall be reflected in the fixed minimum rent as follows:
monthly rent for first sixty (60) months of the Lease shall be decreased by an
amount equal to the product of (a) the Net Change Order Cost multiplied by (b)
.00967.
If Lessee requests Lessor to make additional improvements after
completion of the leased premises, Lessee shall pay the agreed cost of such
requested improvements within thirty (30) days after receipt of an invoice
therefor.
1.05 NOTIFICATION ADDRESSES. (See 13.08).
Lessor's Address: Lessee's Address:
Continental Acquisitions, Inc. World Financial Network National
c/o Continental Real Estate Companies Bank (U.S.)
35 North Fourth Street 4590 East Broad Street
Suite 100 Columbus, Ohio 43213
Columbus, Ohio 43215 Attention: William J. Salamy
Attention: Property Management
1.06 PERMITTED USE. General office and uses incidental thereto
including, without limitation, the operation of a cafeteria for Lessee's
employees and use of the parking lot and building for the occasional
entertainment of employees and guests.
ARTICLE 2.00 RENT
2.01 FIXED MINIMUM RENT. Lessee agrees to pay monthly as fixed minimum
rent during the term of this Lease the amounts of money set forth in Section
1.04 of this Lease, which amounts shall be payable to Lessor at the address
stated in Section 1.05 above. The first monthly installment of rent shall be
due and payable on the date of execution of this Lease by Lessee, and a like
monthly installment shall be due and payable on or before the first day of each
calendar month succeeding the completion date during the term of this Lease;
provided, if the completion date should be a date other than the first day of a
calendar month, the monthly rental set forth above shall be prorated to the end
of that calendar month, and the monthly rental payable on the first day of the
month next succeeding the completion date shall be equal to such prorated
amount. Lessee shall pay, as additional rent, all other sums due and payable
under this Lease on the date set forth herein by which such payments are to be
made.
2.02 OPERATING EXPENSES. Subject to the provisions of Sections 3.03,
5.01, 6.08, 7.02 and 8.02, Lessee shall be responsible for the maintenance of
both the interior and exterior portions of the leased premises and shall pay the
operating expenses associated therewith.
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2.03 DEFINITION OF OPERATING EXPENSES. [Intentionally Omitted.]
2.04 LATE PAYMENT CHARGE. Other remedies for nonpayment of rent
notwithstanding, if the monthly rental payment is not received by Lessor on or
before the tenth (10th) day of the month for which the rent is due, or if any
other payment due Lessor by Lessee is not received by Lessor on or before the
tenth (10th) day following receipt of an invoice or accounting, a late payment
charge of five percent (5%) of such past due amount shall become due and payable
in addition to such amounts owed under this Lease.
2.05 INCREASE IN INSURANCE PREMIUMS. If an increase in any insurance
premiums paid by Lessor for the Building is caused by Lessee's use of the leased
premises in a manner other than as set forth in Section 1.06, or if Lessee
vacates the leased premises and causes an increase in such premiums, then Lessee
shall pay as additional rent the amount of such increase to Lessor.
2.06 SECURITY DEPOSITS. [Intentionally Omitted.]
2.07 HOLDING OVER. In the event that Lessee does not vacate the leased
premises upon the expiration or termination of this Lease, Lessee shall be a
tenant for month to month for the holdover period and all of the terms and
provisions of this Lease shall be applicable during that period, except that,
unless Lessee and Lessor shall be negotiating for a renewal or extension of this
Lease, Lessee shall pay Lessor as fixed minimum rent for the period of such
holdover an amount equal to 150% of the fixed minimum rent which would have been
payable by Lessee had the holdover period been a part of the original term of
this Lease, based on the fixed minimum rent payable for the period immediately
prior to such expiration or termination. Lessee agrees to vacate and deliver
the leased premises to Lessor upon Lessee's receipt of notice from Lessor to
vacate and the expiration of any notice period required by law. The rental
payable during the holdover period shall be payable to Lessor on demand. Except
to the extent provided in the first sentence of this Section 2.07, no holding
over by Lessee, without the consent of Lessor, shall operate to extend the term
of this Lease. In addition to rental due during any holdover period, in the
event Lessee fails to surrender the leased premises upon termination or
expiration of this Lease, then Lessee shall indemnify Lessor against loss or
liability resulting from any delay of Lessee in not surrendering the leased
premises including, but not limited to, any amounts required to be paid to third
parties who had or have a right to occupy the leased premises and were unable to
occupy said premises and any attorneys' fees related thereto. Any fixed minimum
rent paid by Lessee with respect to the holdover period pursuant to the
provisions of this Section 2.07 in excess of the fixed minimum rent that would
have been payable if determined in accordance with the rates in effect
immediately prior to the termination or expiration of the Lease shall be
credited against Lessee's indemnity obligation, if any.
2.08 TAXES AND ASSESSMENTS.
2.08.01 PAYMENT OF TAXES. Lessee shall pay, as the same become
due and payable, all taxes and assessments levied or imposed upon the leased
premises or any part thereof, during the entire term of this Lease (including
any renewals) commencing upon the completion date. Lessor shall provide Lessee
with a copy of all tax bills for the leased premises promptly upon Lessor's
receipt thereof. Lessee shall provide Lessor within ten (10) days after the
date for payment of such taxes and assessments, a receipt showing payment for
such taxes and assessments, unless Lessee shall have protested the same in good
faith and shall have provided for the payment thereof upon the determination of
such protest. If the taxing authority shall commence formal proceedings to
foreclose its lien on the leased premises or to otherwise collect the taxes and
assessments with respect to the leased premises from Lessor, Lessee shall
promptly cause such taxes and assessments to be paid, without
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prejudice to Lessee's right to contest the amount of such taxes and assessments.
Any penalties or interest accruing on such taxes which Lessee is obligated to
pay hereunder shall also be paid by Lessee, unless Lessor shall have failed to
provide Lessee with copies of the tax bill with respect to which the penalties
or interest are due at least 10 days prior to the due date of such taxes, in
which event all penalties and interest with respect to such installment shall be
paid by Lessor.
2.08.02 EXCLUDED TAXES. Notwithstanding anything contained
herein to the contrary, Lessee's obligation hereunder shall not include any
assessment levied prior to the completion date, nor any special assessment
levied in respect of public or quasi-public improvements necessary for the
construction or operation of any property other than the leased premises,
including without limitation, the installation of water or sewer mains or the
construction, paving or widening of public streets or roads for the benefit of
such other property. Nothing herein contained shall be construed to include as
taxes and assessments levied or imposed upon the leased premises any
inheritance, estate, succession, transfer, gift, franchise, corporation, income
or net profit tax that is or may be imposed on Lessor. Taxes and assessments
for the first year of the term and for the last year of the term (including, if
applicable, the first option term or second option term), shall be prorated. If
any assessment or charge is payable in installments, Lessee's obligation in
respect thereof shall be determined as if Lessor had elected to pay the
assessment in installments, and Lessee shall be responsible for only those
installments or parts of installments which would be attributable to the term of
this Lease (including the first or second option term, if exercised). Lessor
shall cause the leased premises to become a separate tax parcel as soon as
practicable after the date hereof and, in all events, prior to the completion
date. If Lessor shall fail to cause the leased premises to become a separate
tax parcel at the time Lessee's obligation to pay taxes shall commence
hereunder, Lessee's obligation to pay such taxes shall be limited to the taxes
based on the value of the Building, and a pro rata share of the taxes based on
the value of the land in the tax parcel, which pro rata share shall be equal to
the product of such taxes based on the value of the land in the tax parcel
multiplied by a fraction, the numerator of which is the area in square feet of
the leased premises and the denominator of which is the area in square feet of
the entire tax parcel.
2.08.03 CONTESTS OF TAXES AND ASSESSMENTS. Lessee shall, at
its expense, upon notice to Lessor, have the right to contest any and all such
real estate taxes and assessments in its own name or in the name of and on
behalf of Lessor. Lessor shall, on the request of Lessee, cooperate in such
contest, except for the cost thereof. If the taxing authority shall commence
formal proceedings to foreclose its lien on the leased premises or to otherwise
collect the taxes and assessments with respect to the leased premises from
Lessor, Lessee shall promptly cause such taxes and assessments to be paid,
together with any penalties and interest thereon (subject to the provisions of
Section 2.08.01) without prejudice to Lessee's right to contest the amount of
such taxes and assessments.
2.08.04 FAILURE TO PAY TAXES. If Lessee fails to pay such
taxes and assessments, Lessor may do so upon thirty (30) days prior written
notice to Lessee (unless Lessee is contesting the amount thereof pursuant to
Section 2.08.03) but shall not be obligated to do so, and such payment made by
Lessor shall be due from Lessee at the time of and along with the monthly
installment of rent for the month next succeeding the month in which such taxes
are paid by Lessor, together with interest at the rate of fifteen percent (15%)
per annum.
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ARTICLE 3.00 OCCUPANCY AND USE
3.01 USE. Lessee agrees that the leased premises shall be used and
occupied only for the purpose as set forth in Section 1.06. Lessee shall occupy
the leased premises and conduct its business in a lawful manner and in a manner
so as not to create a nuisance. Lessee shall neither permit any waste on the
leased premises nor allow the leased premises to be used in any way which would
be extra hazardous on account of fire or which would in any way render void the
fire insurance on the Building.
3.02 SIGNS. No sign of any type or description shall be erected,
placed, or painted on the exterior portions of the leased premises or project
except those signs submitted to Lessor and approved by Lessor in writing.
3.03 COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Lessee, at
Lessee's sole cost and expense, shall comply with all laws, ordinances,
orders, rules and regulations of state, federal, municipal or other agencies
or bodies having jurisdiction over the use, condition or occupancy of the
leased premises. Lessee will comply with the rules and regulations of the
Building or project adopted by Lessor which are set forth and attached to
this Lease. Notwithstanding anything contained in this Lease to the contrary,
there shall be no obligation on the part of Lessee to comply with any of the
laws, directions, rules or regulations referred to which may require
structural alterations, structural changes, structural repairs, or structural
additions; all of which required structural alterations, changes, repairs or
additions shall be the obligation of Lessor unless made necessary by the
negligence or default of Lessee, in which event, Lessee shall comply at its
expense.
3.04 WARRANTY OF POSSESSION. Lessor warrants that it has the right and
authority to execute this Lease, and Lessee, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in this
Lease, shall have quiet possession of the leased premises during the full term
of this Lease as well as any extension or renewal thereof. Lessor shall not be
responsible for the acts or omissions of any third party not claiming by or
through Lessor that may interfere with Lessee's use and enjoyment of the leased
premises.
3.05 INSPECTION. Upon reasonable advance notice to Lessee, Lessor or
its authorized agents shall at any and all reasonable times have the right to
enter the leased premises to inspect the same, to supply any service to be
provided by Lessor, to show the leased premises to prospective purchasers or to
show the leased premises to prospective lessees during the last year of the term
of the Lease, and to repair the leased premises. Lessee hereby waives any claim
for damages for injury or inconvenience to or interference with Lessee's
business, any loss of occupancy or use of the leased premises, and any other
loss occasioned thereby; provided that Lessor shall undertake reasonable efforts
to minimize the disruption to Lessee's business as a result of such entry by
Lessor and if Lessor shall cause physical damage to the leased premises or
Lessee's personal property contained therein as a result of such entry, Lessor
shall promptly repair or replace the same at its own cost and expense. Lessor
shall not, have the right to retain a key to the building on the leased
premises. Lessor shall have the right to use any and all means which Lessor may
deem proper to enter the leased premises in an emergency without liability
therefor. Lessee shall provide Lessor with a list of persons having keys to the
Building and their home telephone numbers.
ARTICLE 4.00 UTILITIES AND SERVICE
4.01 UTILITIES. Lessee shall contract for and pay for all water, gas,
electricity and other utilities services during the term of this Lease which are
required by Lessee. Lessee shall pay all telephone charges for the leased
premises. From and after the time
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Lessee is permitted to occupy the leased premises for installation of its
furniture, fixtures and equipment until Substantial Completion of the January 26
Improvements (as hereinafter defined), Lessor shall continue to pay all utility
charges with respect to the leased premises, but within 10 days after receipt by
Lessee of copies of paid bills for utility services during such period, Lessee
shall reimburse Lessor for one-half of the cost of the utility services during
such period. During the period, if any. after Substantial Completion of the
January 26 Improvements and Substantial Completion of all Improvements, Lessor
shall continue to pay all bills for utility services but within 10 days after
receipt by Lessee of copies of paid bills for utility services during such
period, Lessee shall reimburse Lessor for a portion of the costs for utility
services during such period in an amount equal to the total utilities costs
during such period multiplied by the Partial Completion Fraction (as hereinafter
defined). Upon Substantial Completion of all Improvements, all utilities shall
be transferred into Lessee's name and paid by Lessee.
4.02 THEFT OR BURGLARY. Lessor shall not be liable to Lessee for
losses to Lessee's property or personal injury caused by criminal acts or entry
by unauthorized persons into the leased premises or the Building.
4.03 JANITORIAL SERVICE. Lessee shall contract for and obtain
janitorial services to the leased premises and public areas of the Building at
Lessee's expense with such frequency as Lessee shall deem proper. Lessee shall
keep the leased premises in clean and orderly condition in accordance with
customary practices in Columbus, Ohio for similar office buildings.
4.04 EXCESS UTILITY CONSUMPTION. [Intentionally Omitted.]
4.05 WINDOW COVERINGS. Lessee shall be responsible for the purchase
and installation of window coverings for the Building.
4.06 CHARGE FOR SERVICE. [Intentionally Omitted.]
ARTICLE 5.00
5.01 LESSOR REPAIRS. Except as provided in Section 5.02 hereof, Lessor
shall keep the foundation, the structural soundness of the exterior walls,
structural parts, beams and members, the floors, floor slabs and other
structural components in good repair. Lessor shall make all repairs, interior
and exterior, if caused by shifting or settling of the foundation, footings or
floor slab (including replacements of all plate glass and other components of
the Building damaged thereby). Lessor shall at its own cost and expense without
chargeback to Lessee perform the maintenance and repair obligations set forth in
this Section and in Section 6.08. Except as expressly provided in this Lease,
Lessor shall not be liable to Lessee for any damage or inconvenience, and Lessee
shall not be entitled to any abatement or reduction of rent by reason of
repairs, alterations or additions made by Lessor under this Lease. Lessor shall,
at its own cost and expense without chargeback to Lessee, repair or replace any
damage or injury to all or any part of the leased premises caused by any act or
omission of Lessor or Lessor's agents, employees, invitees, licensees or
visitors. Lessor shall perform all maintenance and repair obligations which are
its responsibility hereunder so as to minimize the disruption of and
interference with Lessee's business. If Lessor shall enter the leased premises
to perform repairs to the Building and the performance of such repairs would
cause a material disruption such that Lessee cannot transact its business,
Lessee may require Lessor to perform such repairs during the period from 10:00
p.m. to 6:00 a.m. and during such additional hours, if any, when Lessee shall
not be conducting its business in the leased premises. If the repairs Lessor is
to perform shall be lengthy in duration, Lessee shall undertake reasonable
efforts, without being required to disrupt its business or make the conduct of
the same materially more
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inconvenient, to enable Lessor to perform all or more of such repairs during
daytime hours. In the event Lessor shall fail to make repairs, maintenance or
replacements required herein within 30 days after notice (except in an emergency
in which case Lessor shall respond immediately upon notice), Lessee shall have
the right, but not the obligation, to make said repairs, maintenance or
replacements on behalf of Lessor, and to bill Lessor for the cost thereof, with
such amount to be paid by Lessor to Lessee within 15 days of the date of
Lessee's bill. If Lessor shall fail to reimburse Lessee for such costs within 15
days, interest shall thereafter accrue on the amounts billed at the rate of 15%
per annum and Lessee, at its option, may withhold amounts equal to such costs
and interest from payments of rent or other payments falling due under this
Lease; provided, however, any notice given or required to be given Lessor under
this Section 5.01 shall also be given to any mortgagee of the leased premises of
whom Lessee has been notified, and Lessee shall have no right of offset until
Lessee has satisfied all of the conditions set forth in the Lease to Lessee's
right of offset and Lessee has given such notice to Lessor's mortgagee, Lessee
agrees to give Lessor prompt written notice of the need for any repair,
maintenance or replacement of which Lessee has actual knowledge. Notwithstanding
any other notice provision in this Lease, notice for repairs, maintenance or
replacements deemed by Lessee to be of an emergency nature can be made in any
reasonable manner calculated to give Lessor actual notice.
5.02 LESSEE REPAIRS. Lessee shall, at its own cost and expense, repair
or replace any damage or injury to all or any part of the leased premises caused
by any act or omission of Lessee or Lessee's agents, employees, invitees,
licensees or visitors and repair or replace damage or injury to any portion of
the leased premises, including but not limited to the roof, interior walls and
partitions, floor surfaces, interior doors and fixtures that Lessor is not
responsible to repair or replace pursuant to Section 5.01 hereof. Lessee shall
maintain the heating, ventilating and air conditioning system at its sole cost
an expense. Lessee shall keep the parking lot, grounds and Interior portions of
the leased premises in a clean and orderly condition and shall maintain the
parking lot, grounds and interior, non-structural portions of the leased
premises in good condition and repair. Lessee shall keep the parking lots clear
of ice and snow in a manner Lessee deems prudent. Lessee shall cause all lawns
to be mowed and all landscaping to be properly maintained. If Lessee fails to
make such repairs or replacements or perform such maintenance, within 15 days
after notice from Lessor, Lessor may, at its option,, make the repairs or
replacements or perform the maintenance, and the reasonable cost of such
repairs, replacements or maintenance shall be charged to Lessee as additional
rent and shall become payable by Lessee with the payment of the rent next due
hereunder together with interest at the rate of 15% per annum.
5.03 REQUEST FOR REPAIRS. Subject to Section 5.01, all requests for
repairs or maintenance that are the responsibility of Lessor pursuant to any
provision of this Lease must be made in writing to Lessor in accordance with
Section 13.08 hereof.
5.04 LESSEE DAMAGES. Lessee shall not allow any damage to be committed
on any portion of the leased premises or Building, and at the termination of
this Lease, by lapse of time or otherwise, Lessee shall deliver the leased
premises to Lessor in as good condition as existed at the commencement date of
this Lease, ordinary wear and tear and damage by fire, casualty or condemnation
excepted. The cost and expense of any repairs necessary to restore the
condition of the leased premises shall be borne by Lessee.
ARTICLE 6.00 ALTERATIONS AND IMPROVEMENTS
6.01 CONSTRUCTION OF IMPROVEMENTS. Lessor shall design and construct
the Improvements in accordance with the Project Summary, the Plans (as
hereinafter defined) and this Lease.
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6.02 DETAILED PLANS AND SPECIFICATIONS. Lessor shall use its best
efforts to develop detailed plans and specifications (the "Plans") as soon as
possible after the date hereof for construction of the improvements. The Plans
shall be consistent with the summary of the construction to be performed by
Lessor attached hereto as Exhibit B (the "Project Summary"), the final terms
agreed to in meetings by Lessor and Lessee, all state, federal, county and
municipal laws, rules, regulations, orders and judgments, (collectively the
"Requirements of Law"), including, without limitation, all zoning and
environmental requirements, and with all easements, restrictions or reservations
affecting the leased premises. As a specific provisions with respect to the
foregoing, as promptly as practicable after execution of this Lease by the
parties hereto, Lessor and Lessee shall prepare and approve detailed plans and
specifications for the construction of the parking lot. Upon completion of the
Plans, the Plans shall be initialed by Lessor and Lessee and shall be attached
to and become a part of this Lease as Exhibit E hereto, or identified in a
written addendum which will be attached to and become part of this Lease as
Exhibit E hereto.
6.03 APPROVAL OF PLANS. No plans, drawings or specifications shall be
deemed to be part of the Plans until approved in writing by Lessee. On or
before August 28, 1990, Lessor, shall submit complete dimensioned architectural,
structural and mechanical drawings for construction of the Improvements. On or
before August 28, 1990, Lessor will submit complete finishing plans for Lessor's
Work in the interior of the Improvements. Lessee agrees to review each phase of
the Plans within five (5) business days after receipt thereof. If Lessee
disapproves of any aspect of the proposed Plans, Lessee shall advise Lessor of
the reasons for such disapproval, and shall review any resubmitted Plans within
three (3) business days after receipt thereof. All of the Plans shall be
subject to the approval of Lessee. Lessor and Lessee mutually agree that they
will exercise good faith judgment in matters involving the preparation and
approval of Plans and Lessor and Lessee further agree that in the interest of
maintaining the work schedule for the project, the Lessor may commence site work
prior to final approval of Plans as provided for in this Section 6.03.
6.04 CONSTRUCTION OF IMPROVEMENTS; SUBSTANTIAL COMPLETION. Promptly
upon Lessee's approval of the Plans, Lessor shall procure, at its own sole cost
and expense, all necessary licenses, permits, approvals and authorizations
required by any applicable Requirement of Law, and shall promptly and diligently
construct the Improvements in good and workmanlike manner, using first class
workmanship and new, first class materials. Lessor shall use its best efforts
to achieve Substantial Completion of the Improvements on or before January 18,
1991. As used herein, "Substantial Completion" means the date when construction
of the Improvements is sufficiently complete, in accordance with the Plans, so
that Lessee can occupy or utilize the Improvements for use as its office and all
service areas required for the operation of the leased premises for its intended
use, including, without limitation, the cafeteria, computer room and restrooms,
shall be fully operational and the CRT terminals, Haworth furniture and
telephone system have been installed and are fully operational. Without limiting
the generality of the foregoing, Substantial Completion shall not be deemed to
have occurred until such time as a certificate of occupancy for the leased
premises has been issued; the leased premises has passed all applicable fire and
safety inspections; all ceilings and lighting are in and operative; the parking
lot and all entrances to the leased premises have been constructed and paved in
accordance with the Plans; all walls and partitions which are Lessor's
responsibility have been erected, with doors installed, and have received final
painting or wall covering excluding striping of the walls by Lessee; all
carpeting and flooring have been installed; all heating, ventilation, air
conditioning, plumbing and electrical systems have been installed and are in
good working condition; debris caused by Lessor's contractors and utility
companies other than the telephone company have been removed, the leased
premises have been cleaned and are in broom-clean condition; and exclusive
possession of the leased premises, free and clear of Lessor's contractors, prior
tenants, occupants, leases or rights of occupancy is available for delivery to
Lessee. From time to time during the preparation of a construction schedule for
the leased premises and during the course
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of construction, Lessor shall provide to Lessee a progress chart showing
approximate target dates for completion of various aspects of the construction
and whether such construction is expected to be completed by such target dates
and shall further advise Lessee in writing no later than ten (10) days after
each calendar month of all delays in construction during the calendar month
which have been occasioned by conditions Lessor deems to be beyond its
reasonable control and which delays would have the result of extending the time
for completion of the Improvements. Notwithstanding anything to the contrary
provided in Section 13.02 of this Lease, the commencement of the Penalty Period
shall not be extended for any delays caused by an act of God or force majeure to
the extent that such delays shall be "made up" later in the same or any
subsequent construction phase. For example, if construction shall be delayed two
days during one phase of construction due to force majeure, but a subsequent
phase of construction shall be completed such that completion of the project is
only one day behind schedule, the commencement of the Penalty Period shall be
extended by only one day.
6.05 LESSEE'S ARCHITECT AND CORRECTION OF WORK. Lessee shall have the
right, at its own expense, to hire an architect ("Lessee's Architect") for the
purpose of reviewing the Plans, monitoring progress of the construction of the
Improvements, or both. Lessor shall give Lessee's Architect access to the
leased premises at all times that work on the Improvements is in progress, and
at all other reasonable times, for the purpose of monitoring the progress of
construction and the compliance of the construction with the Plans.
6.05.01 Subject to the limitations on Lessor's obligation to
repair defects in the leased premises as provided in Sections 5.01 and 6.08,
Lessor shall promptly correct all work which is defective or fails to conform to
the Plans whether observed before or after Substantial Completion and whether or
not fabricated, installed or completed. Lessor shall bear all costs of
correcting such defective work.
6.05.02 Lessor shall bear the cost of repairing all work of
Lessee or separate contractors destroyed or damaged by the performance of
Lessor's obligations to correct its work as provided in this Section 6.05.
6.06 CHANGE ORDERS. A "Change Order" is a written order to Lessor
signed by Lessee issued after acceptance of the Plans, authorizing a change in
the Plans, the Project Summary or the work. The net aggregate increase or
decrease in the cost of constructing the Improvements which results from all
Change Orders is the "Net Change Order Cost," which shall be a positive number
in the event the Change Orders result in a net increase in the cost of
constructing the Improvements, or a negative number if the Change Orders result
in a net decrease. A Change Order signed by Lessor indicates his agreement
therewith, including the adjustment in the Net Change Order Cost. Lessor shall
be under no obligation to approve any Change Order requested by Lessee (a) if
the aggregate of all Net Change Order Costs after giving effect to such Change
Order would result in a net increase of $300,000 or more, or (b) unless Lessee
agrees to modify this Lease to reflect any extended date for Substantial
Completion of the Improvements which Lessor reasonably determines will be
required as a result of the proposed changes. Lessee may order changes in the
work within the general scope of the Plans consisting of additions, deletions or
other revisions, the Net Change Order Cost being adjusted accordingly. All such
changes in the work shall be authorized by Change Order, and shall be performed
under the applicable conditions of the Plans.
6.07 ENTRY PRIOR TO THE COMPLETION DATE. At such time as construction
of the Improvements has progressed to such point that installation of Lessee's
telephone system, fixtures or equipment can be accomplished without unreasonably
interfering with the progress of construction, Lessor shall so notify Lessee,
and Lessee shall thereupon have the right from time to time to enter upon the
leased
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premises for the purpose of making such installations. At such time as Lessee
shall begin to place its personal property in the leased premises, Lessee shall
have the right to cause security personnel to be stationed on the leased
premises at Lessee's cost and expense for the purpose of preventing loss of or
damage to Lessee's property. If Lessee shall desire to install or place
additional personal property on the leased premises prior to the completion
date, Lessor may require the execution and delivery of a reasonable hold
harmless letter or agreement by Lessee as a condition to placing such items on
the leased premises. Any such entry shall be subject to all of the terms and
conditions of this Lease, except that no rent or other charges (except as
otherwise provided in Section 4.01) shall be payable in respect to any time
prior to the Completion Date unless Lessee begins to operate its business in
which event rent shall be payable on a pro rata per diem basis to the
Completion Date. Each party shall use reasonable efforts, and shall cause its
contractors to use reasonable efforts, to coordinate the respective work being
done by them without interfering with work being done by the other.
6.08 LESSOR'S CONSTRUCTION WARRANTIES.
6.08.01 Lessor warrants and represents that the Improvements,
when completed, shall comply with the Plans and all applicable Requirements of
Law. If within one year after the date of Substantial Completion, any of the
work performed by Lessor pursuant to this Article 6.00 is found to be defective
or not in accordance with the Plans, or otherwise not in compliance with other
documents referred to in the preceding sentence, the Lessor shall correct it
after receipt of written notice from Lessee to do so. Lessee shall give notice
of non-complying or defective work within a reasonable time after discovery of
the condition. With respect to Building components, other than the roof, for
which manufacturers', materialmens' and contractors' warranties shall be issued,
Lessor shall assign such warranties to the Lessee promptly upon expiration of
Lessor's one-year construction warranty period. Lessor shall obtain a ten-year
warranty for the roof which shall be issued in the names of Lessor and Lessee.
Lessor shall cause a factory-certified installer to install the roof and shall
permit a factory representative to supervise the installation of the roof.
Lessor shall use its best efforts to secure manufacturers warranties for
Building components so that they may be assignable to Lessee.
6.08.02 Nothing contained in this Section 6.08 shall be
construed to establish a period of limitation with respect to any other
obligation which Lessor might have under the Plans or this Lease, including
Sections 6.08.03 and 7.06 hereof. The establishment of the time period of one
year after the date of Substantial Completion relates only to the specific
obligation of Lessor to correct the work, and has no relationship to the time
within which its obligation to comply with other provisions of this Lease may be
sought to be enforced, nor to the time within which proceedings may be commenced
to establish Lessor's liability with respect to its obligations other than
specifically to correct the work.
6.08.03. In addition to Lessor's repair obligations set forth in
Section 5.01 or elsewhere in this Lease, Lessor shall be responsible for and
repair and replace, at its sole cost and expense, all latent defects in Lessor's
construction of the Improvements which shall be discovered during the two-year
period after Substantial Completion of the Improvements. Lessee shall give
notice of latent defects within a reasonable time after discovery of the same.
If Lessee shall discover a latent defect in Lessor's construction of the
improvements during such two-year period in the course of a repair of the leased
premises by Lessee, Lessee shall give Lessor a reasonable opportunity to inspect
such defect and Lessee shall then be entitled to complete such repair and
require reimbursement of the costs thereof from Lessor pursuant to Section 5.01
of this Lease.
6.09 COMPLETION OF IMPROVEMENTS.
6.09.01 If Lessor shall determine during the course of
construction that it may not be able to accomplish Substantial Completion of all
Improvements in accordance with the Plans on or
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before January 26, 1991, Lessor shall give prompt notice of such determination
to Lessee. Lessor shall thereafter undertake to achieve Substantial Completion
on or before January 26, 1991 of all interior Improvements in the area depicted
in Exhibit F and marked by crosshatching, all exterior Improvements and all
other Improvements designated by Lessee (the "January 26 Improvements"). If
Lessor shall accomplish Substantial Completion of the January 26 Improvements by
January 26, 1991, Lessee shall accept delivery of the January 26 Improvements
and Lessee's obligation to pay fixed minimum rent and additional rent shall
commence on January 26, 1991; provided that the proportion of fixed minimum
rent, taxes and insurance that Lessee shall be obligated to pay for January 1991
and thereafter until all Improvements are substantially completed shall be equal
to the product of the full amounts of such rent, taxes and insurance that would
have been payable by Tenant if all Improvements had been substantially completed
on January 26 multiplied by a fraction (the "Partial Completion Fraction"), the
numerator of which is the area, in square feet, of the floor space of the
interior January 26 Improvements and the denominator of which is the area, in
square feet, of the total floor space within the Building. Lessor shall use its
best efforts to cause the remaining Improvements to be completed by February 9,
1991. After January 26, 1991, Lessor shall cause the uncompleted portion of the
Building to be barricaded off from the January 26 Improvements when appropriate,
and Lessor shall undertake reasonable efforts to minimize disruption of Lessee's
business as a result of Lessor's completion of the balance of the Improvements.
6.09.02 Subject to the provisions of Section 13.02, if
Substantial Completion of the Improvements has not occurred on or before
xxxxxxxxxxxxxxxxxxxxxxx or such other date as may be mutually agreed upon
between Lessor and Lessee, then for the period following the Outside Date
until Substantial Completion (the "Penalty Period"), a penalty (the
"Penalty") equal to the product of the number of days in the Penalty Period
times $1667 (the "Per Diem Penalty") shall accrue. If the January 26
Improvements shall have been substantially completed on or before January 26,
1991, but the remaining Improvements shall not have been completed by the
Outside Date, the per diem penalty shall be equal to the product of the Per
Diem Penalty multiplied by the difference between one and the Partial
Completion Fraction. Lessee shall recover the Penalty by offsetting the
amount of such Penalty against Lessee's obligations to pay fixed minimum rent
and additional rent as provided herein until such time as the amount offset
by Lessee shall equal the amount of the Penalty. Should Substantial
Completion not occur prior to XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX, Lessee
shall have the right to notify Lessor and Lessor's construction lender that
Lessee has elected to complete the construction of the Improvement itself by
giving thirty (30) days advance notice of such election to Lessor and the
construction lender, and the right to give such notice (the "Takeover
Notice") shall extend until June 9, 1991. Promptly upon the expiration of
the 30-day notice period (if Lessor has not caused Substantial Completion to
occur during such period and Lessor's construction lender has not exercised
its right, if any, to complete construction of the Improvements and commenced
the completion of the Improvements), Lessor and Lessor's affiliates shall
assign to Lessee all rights of Lessor or Lessor's affiliates in and to all
contracts which are designated by Lessee for the construction of the
Improvements or for supplying materials for the Improvements. Lessor shall
cause all such contracts to be in a form so that they are assignable by
Lessor to Lessee and so that Lessee shall not have any liability to the other
parties to such contracts except with respect to services provided or
materials delivered after the assignment of the contracts to Lessee. Upon the
effectiveness of the Takeover Notice, Lessee shall have the right to go upon
the leased premises to complete the construction of the Improvements in
accordance with the Plans and such Change Orders as have been previously
approved by Lessee. If Lessee shall complete the construction of the
Improvements pursuant to this Section 6.09.02, Lessor, Lessor's successors
and the architects of Lessor and Lessor's successors
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shall have the same right of inspection as is given to Lessee in Section 6.05,
and Lessee shall promptly and diligently complete the construction of the
Improvements in a good and workmanlike manner and in compliance with all
Requirements of Law, using first class workmanship and new, first class
materials. Notwithstanding anything to the contrary provided in Sections 5.01
and 6.08, Lessor shall not be responsible for the repair of any Improvements and
shall not be deemed to have made any warranties with respect to the Improvements
if Lessee shall complete the construction of the Improvements, except that
Lessor shall be responsible for the repair of Improvements, to the extent
provided in Section 5.01, and shall be deemed to have made the warranties set
forth in Section 6.08 with respect to any and all discrete portions of the
Improvements which were completed by Lessor. Lessor shall cause Lessee to be a
party to the construction loan agreement with Lessor's construction lender,
which loan agreement shall recognize and provide for the foregoing rights of
Lessee and shall provide for the payment of all remaining, unpaid construction
draws to Lessee after Lessee shall have taken over construction of the
Improvements, subject to the same draw requirements as were applicable to
Lessor. If the remaining construction draws shall be insufficient to pay
Lessee's actual, reasonable costs of completion of the Improvements, the excess
of the costs over the remaining loan draws (plus an imputed interest factor on
such unpaid excess costs at the rate of interest Lessor is required to pay on
its construction loan) shall be recoverable by offsetting such amounts against
Lessee's obligations to pay fixed minimum rent and additional rent as provided
herein until such time as the amount offset by Lessee shall equal the amount of
such excess costs plus interest at the foregoing rate. The foregoing right of
offset for excess costs shall be in addition to the right of offset to recover
the Penalty, and the offset for excess costs shall occur before the offset for
the Penalty shall commence. If Lessee shall have completed the construction of
the Improvements, Lessee's obligation to pay rent shall be deemed to have
commenced on the earliest of (a) the date of the issuance of a certificate of
occupancy for the leased premises, (b) the date Lessee shall have commenced the
operation of its business in the leased premises, or (c) the date Lessee should
have been able to commence the operation of its business in the leased premises
if the completion of the construction of the Improvements by Lessee had been
prosecuted with due diligence, subject, however, to force majeure.
6.10 LESSEE IMPROVEMENTS. Lessee shall not make or allow to be made
any alterations or physical additions in or to the leased premises without
first obtaining the written consent of Lessor, which shall not be
unreasonably withheld, provided that Lessee shall be permitted to make
non-structural site alterations or additions to the interior of the Building
which in each instance cost less than $100,000 without the prior written
consent of Lessor and further provided that Lessee shall be permitted to
construct a generator room at the rear of the Building so long as the same is
not visible from Schrock Road and to construct a microwave tower on the
leased premises without the prior written consent of Lessor. Lessee shall
provide Lessor with copies of all plans and specifications for Lessee's
improvements. Lessee warrants and represents that all of Lessee's
improvements shall be in compliance with all laws, ordinances, orders, rules
and regulations of state, federal, municipal or other agencies or bodies
having jurisdiction over the use, condition or occupancy of the leased
premises. Lessee shall cause all of its improvements to be modified to
comply with all such laws promptly upon receipt of notice that such
improvements are not in compliance. Any alterations, physical additions or
improvements to the leased premises made by Lessee shall at once become the
property of Lessor and shall be surrendered to Lessor upon the termination of
this Lease; provided, however, Lessor, at its option, may require Lessee to
remove any physical additions and/or repair any alterations in order to
restore the leased premises to the condition existing at the time Lessee took
possession, all costs of removal and/or alterations to be borne by Lessee.
This clause shall not apply to moveable equipment at the end of the term of
this Lease.
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ARTICLE 7.00 CASUALTY AND INSURANCE
7.01 SUBSTANTIAL DESTRUCTION. If the leased premises should be totally
destroyed by fire or other casualty, or if the leased premises should be damaged
so that rebuilding cannot reasonably be completed within 150 days after the date
of written notification by Lessee to Lessor of the destruction, this Lease may
be terminated by either party hereto by written notice to the other party given
within thirty (30) days after such fire or casualty; provided, however, that if
it shall be Lessor who elects to terminate the Lease, Lessee may prevent the
Lease from being terminated if Lessee shall deliver to Lessor within fifteen
(15) days of receipt by Lessee of Lessor's notice of termination a written
waiver and release of Lessee's right, if any, to cancel the Lease as provided in
Section 15.04 for all or a part of the period in which such right is available
to Lessee and, if necessary, a written exercise of one of renewal options set
forth in Section 15.01 so that the minimum remaining term of this Lease after
giving effect to such notice from Lessee shall be at least five full years.
Lessee shall not have the right to prevent the termination of the Lease by
Lessor if Lessee shall have previously given notice of its election to cancel
the Lease pursuant to Section 15.04 or if Lessee shall have failed to exercise
its option to renew the Lease by the dates specified in Section 15.01.
7.02 PARTIAL DESTRUCTION. If the leased premises should be partially
damaged by fire or other casualty, and rebuilding or repairs can reasonably be
completed within 60 days from the date of written notification by Lessee to
Lessor of the destruction, this Lease shall not terminate. If the leased
premises should be partially damaged by fire or other casualty, and rebuilding
or repairs can reasonably be completed within less than 150 but more than 60
days from the date of written notification by Lessee to Lessor of the
destruction, this Lease shall not terminate unless the damage or destruction
shall occur during the fourth through tenth years of this Lease, the 14th or
15th years of this Lease or the 19th or 20th years of this Lease, in which event
Lessor may terminate this Lease by giving written notice to Lessee within thirty
(30) days after such fire or casualty of Lessor's election to terminate the
Lease. If Lessor shall give such a notice of termination, Lessee shall have the
same right to prevent a termination of the Lease as is provided above in Section
7.01. If the Lease shall not be terminated pursuant to Section 7.01 or 7.02,
Lessor shall at its sole risk and expense proceed with reasonable diligence to
rebuild or repair the Building or other Improvements to substantially the same
condition in which they existed prior to the damage. If the leased premises are
to be rebuilt or repaired and are untenantable in whole or in part following the
damage, the rent payable under this Lease during the period for which the leased
premises are untenantable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances. In the event that Lessor fails to complete
the necessary repairs or rebuilding within a reasonable period of time under the
circumstances after the date of written notification by Lessee to Lessor of the
destruction, Lessee may at its option terminate this Lease by delivering written
notice of termination to Lessor, whereupon all rights and obligations under this
Lease shall cease to exist. If this Lease shall be terminated pursuant to
Section 7.01 or 7.02, the rent shall be abated for the unexpired portion of the
Lease, effective as of the date of the written notification of termination is
given by one party to the other.
7.03 PROPERTY AND LIABILITY INSURANCE. Commencing not later than the
date of Substantial Completion of the Improvements, Lessee shall at all times
during the term of this Lease maintain a policy or policies of insurance with
the premiums paid in advance for fire, lightning, windstorm, hail, explosion,
and extended coverage insurance with the so-called "All Risk" endorsement,
issued by and binding upon some Responsible Insurance Carrier, insuring the
Building against all risk of direct physical loss for the full replacement cost
of the Building structure and its improvements and service equipment as of the
date of the loss (other than excavation
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and foundation costs), with such deductibles as Lessee and its affiliates carry
in the course of their businesses. Lessor shall be named as an additional
insured as its interests may appear with respect to all such property insurance
policies maintained by Lessee with respect to the Building and Improvements and
the holder of any mortgage of whom Lessee has received notice as hereinafter
provided shall also be named as an additional insured pursuant to a standard
mortgagee clause or endorsement. Lessee may self-insure for loss of, or damage
to, Lessee's personal property (including, but not limited to, any furniture,
machinery, goods or supplies) upon or within the leased premises and any trade
fixtures installed or paid for by Lessee upon or within the leased premises.
Commencing not later than the date of Substantial Completion of the
Improvements, Lessee shall procure and keep in effect during the term hereof
with a Responsible Insurance Carrier public liability and property damage
insurance protecting Lessor and Lessee from all causes, including their own
negligence, having minimum limits of liability of One Million and 00/100 Dollars
($1,000,000.00) for damages resulting to one person, Two Million and 00/100
Dollars ($2,000,000.00) for damages resulting from one casualty, and Five
Hundred Thousand and 00/100 Dollars ($500,000.00) for property damage resulting
from any one occurrence, with such deductibles as Lessee and its affiliates
customarily carry in the course of their business. Except as provided in Section
7.06, Lessee shall be responsible for and pay to Lessor or such other person as
Lessor shall direct the amounts of any loss or damage within the deductibles
carried by Lessee with respect to any insurance required to be carried by Lessee
under this Section 7.03. Certificates evidencing all policies to be carried
hereunder by Lessee shall be delivered to Lessor and to the holder of any
mortgage affecting the leased premises on or before the date of Substantial
Completion of the Improvements, provided that Lessee shall have received
reasonable prior written notice of such mortgagee's name and address. At least
ten (10) days prior to the expiration date of any policy, certificates
evidencing the renewal or replacement policy for such insurance shall be
delivered by Lessee to Lessor and such mortgagee. All such policies shall
contain agreements by the insurers that (i) any loss properly payable to Lessor
and to the holder of any mortgage to whom a loss may be payable shall be payable
notwithstanding any act or negligence of Lessee which might otherwise result in
forfeiture of said insurance, and (ii) such policies shall not be cancelled or
modified except upon ten (10) days' prior written notice to each named insured
and loss payee. In the event Lessee shall fail to procure any insurance required
by this Section 7.03 and after ten (10) days' written notice to Lessee of such
failure, Lessor may, at its option, procure the same for the account of Lessee,
and the cost thereof shall be paid to Lessor as additional rent upon receipt by
Lessee of bills therefor. "Responsible Insurance Carrier" means an insurance
company licensed to and authorized to do business in the State of Ohio and rated
in Best's Insurance Guide or any successor thereto (or if there be none, an
organization having a national reputation) as having a general policyholder
rating of at least "A, Class X". Notwithstanding anything to the contrary
hereinabove contained, Lessee, at its option, may include any of the insurance
coverage hereinabove set forth in a general or blanket policy of insurance
provided that any such general or blanket policy shall provide, or the insurer
thereunder shall furnish Lessor with written assurance, that the policy limits
required hereunder are satisfied by such policy and that such coverage and
limits will be not less than that which would be provided under separate
policies even if there is a total loss of all properties covered by the blanket
policy.
7.04 WAIVER OF SUBROGATION. Anything in this lease to the contrary
notwithstanding, Lessor and Lessee hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage which
is covered by insurance provided for hereunder, is required to be covered by
insurance under the provisions of Section 7.03 or is otherwise carried by such
party, regardless of cause or origin, including negligence of Lessor or Lessee
and their agents, officers and employees. Lessor and
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Lessee agree immediately to give their respective insurance companies which have
issued policies of insurance with respect to the leased premises, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed to reflect the waiver of such rights of
subrogation against Lessor and Lessee by the insurer.
7.05 INSURANCE INDEMNIFICATION. Except with respect to events
described in Section 7.06, Lessee shall indemnify, defend and hold Lessor
harmless from and against any and all expenses, liabilities, obligations,
damages, penalties, claims, accidents, costs and expenses, including reasonable
attorneys' fees, paid, suffered or incurred for death or damage or injury to
persons or property in, on or about the leased premises from any cause
whatsoever.
7.06 LESSOR TO HOLD HARMLESS.
7.06.01. CONSTRUCTION. Lessor will indemnify Lessee and save it
harmless from and against any and all expenses, liabilities, obligations,
damages, penalties, claims, accidents, costs and
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expenses, including reasonable attorneys' fees, paid, suffered or incurred for
death or damage or injury to persons or property in whole or in part out of the
design or construction of the Improvements by Lessor or Lessor's agents,
contractors or employees.
7.06.02. BREACH OF LEASE. Lessor will indemnify Lessee and save
it harmless from and against any and all expenses, liabilities, obligations,
damages, penalties, claims, accidents, costs and expenses, including reasonable
attorneys' fees, paid, suffered or incurred for death or damage or injury to
persons or property in whole or in part as a result of any breach by Lessor,
Lessor's agents, independent contractors, servants, employees or licensees of
any covenant or condition of this Lease, including without limitation the
obligation of Lessor to repair the structural portions of the leased premises as
provided in Section 5.01 or as the result of the carelessness, negligence or
improper conduct of Lessor, Lessor's agent, servants and employees, or as a
result of the breach by Lessor of any warranty contained in this Lease.
7.06.03. DEFENSE OF ACTION. In case any action or proceeding is
brought against Lessee by reason of any claim against which Lessor is to
indemnify Lessee pursuant to Section 7.06.01 or 7.06.02, Lessor, upon written
notice from Lessee, will, at Lessor's expense, resist or defend such action or
proceeding.
ARTICLE 8.00 CONDEMNATION
8.01 SUBSTANTIAL TAKING. If all or a substantial part of the leased
premises are taken for any public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain or by purchase in
lieu thereof, and the taking would prevent or materially interfere with the use
of the leased premises for the purpose for which it is being used or if the
total parking spaces on the leased premises shall be less than 675 because of
one or more takings, this Lease shall terminate and the rent shall be abated
during the unexpired portion of this Lease effective on the date physical
possession is taken by the condemning authority; provided that if a portion of
the parking lot shall be taken and the Lease would otherwise terminate pursuant
to the foregoing provisions, Lessor shall have a period of 45 days after such
taking to reconfigure the parking lot or to provide additional parking to Lessee
adjacent to or abutting the leased premises, without any public roadways
intervening between the parcels, so that the total parking spaces exclusively
available to Lessee shall exceed 675. No reconfiguration of the parking lot
shall materially impede access to the streets serving the leased premises or
access to the Building. The parking lot as reconfigured shall be in compliance
with all applicable laws and regulations, including zoning codes. Lessee shall
have no claim to the condemnation award, except that Lessor shall be required to
pay to Lessee out of the proceeds of Lessor's award received as a result of such
taking Lessee's unamortized cost of leasehold improvements, such amortization to
be on a straight-line basis over the scheduled original term of this Lease;
provided that if the award to Lessor for all improvements on the leased premises
shall be less than the combined cost of Lessor's and Lessee's improvements (the
"Total Cost"), Lessee's share of the award for the improvements on the leased
premises shall be equal to the product of the total award for improvements to
the leased premises multiplied by a fraction, the numerator of which is Lessee's
unamortized cost of leasehold improvements and the denominator of which is the
Total Cost. Lessor shall undertake reasonable efforts to cause the condemning
authority to separately value Lessee's Improvements. In addition, Lessee may
make any other claim permitted under Ohio law against the condemning authority,
as long as any award to Lessee shall in no way reduce the award to Lessor.
8.02 PARTIAL TAKING. If a portion of the leased premises shall be
taken for any public or quasi-public use under any governmental law, ordinance
or regulation, or by right of eminent domain or by purchase in lieu thereof, and
this Lease is not terminated as
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provided in Section 8.01 above, Lessor shall at Lessor's sole risk and expense,
restore and reconstruct the Building and other improvements on the leased
premises to the extent necessary to make it reasonably tenantable. The rent
payable under this Lease during the unexpired portion of the term shall be
adjusted to such an extent as may be fair and reasonable under the
circumstances. Except to the extent provided in Section 8.01 for a taking of
Lessee's improvements, Lessee shall have no claim to the condemnation award;
however, Lessee may make any other claim permitted under Ohio law against the
condemning authority, as long as any award to Lessee shall in no way reduce the
award to Lessor.
ARTICLE 9.00 ASSIGNMENT OR SUBLEASE
9.01 LESSOR ASSIGNMENT. Lessor shall have the right to sell, transfer
or assign, in whole or in part, its rights and obligations under this Lease and
in the Building. Any such sale, transfer or assignment shall operate to release
Lessor from any and all liabilities under this Lease arising after the date of
such sale, assignment or transfer.
9.02 LESSEE ASSIGNMENT.
9.02.01 Lessee shall not assign this Lease, or allow it to be
assigned by operation of law or otherwise (including without limitation by
transfer of a majority interest of stock, merger, or dissolution, which transfer
of majority interest of stock, merger or dissolution shall be deemed an
assignment) or mortgage or pledge the same, or sublet the leased premises, in
whole or in part, without the prior written consent of Lessor. No assignee or
sublessee of the leased premises or any portion thereof may assign or sublet the
leased premises or any portion thereof. Notwithstanding anything contained in
this Lease to the contrary, (i) Landlord shall not unreasonably withhold its
consent to any assignment of this Lease or subletting of the entire leased
premises, and (ii) Tenant may assign this Lease or sublet the leased premises,
without Landlord's prior written consent, when such assignment or subletting is
to a parent, subsidiary or other affiliate, or is in connection with a merger or
consolidation or the sale of substantially all of the assets of Tenant to
another corporation. In no event shall any assignment of this Lease or sublease
of all or any portion of the leased premises ever release Lessee or any
guarantor of this Lease from any obligation or liability hereunder.
9.02.02 Notwithstanding anything herein to the contrary, the
transfer, assignment or hypothecation of any stock or interest of Tenant shall
not be deemed an assignment or transfer of this Lease or Tenant's interest in
and to the leased premises within the meaning and provisions of this Section
9.02 so long as the common stock of either Tenant or Tenant's parent is traded
in the over-the-counter market or is listed on a national stock exchange.
9.03 CONDITIONS OF ASSIGNMENT.
9.03.01 If Lessee desires to assign or sublet all or any part
of the leased premises and Lessor's consent to such assignment shall be
required pursuant to Section 9.02, Lessee shall so notify Lessor at least 15
days in advance of the date on which Lessee desires to make such assignment
or sublease. Such written notice shall be accompanied by a copy of the
proposed assignment or sublease and such information as Lessor might request
concerning the proposed sublessee or assignee to allow Lessor to make
informed judgments as to the financial condition, reputation, operations and
general desirability of the proposed sublessee or assignee. Following receipt
of such notice and additional information as Lessor may request, Lessor at
its option may:
(A) consent to the proposed assignment or sublease; or
(B) refuse, after a review of the appropriate documentation, to
consent to the proposed assignment or sublease.
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9.03.02 Lessor shall be deemed to have consented to the
proposed assignment or sublease unless Lessor gives Lessee written notice
providing otherwise within fifteen (15) days after Lessor's receipt of Lessee's
notice of the proposed assignment or sublease.
9.03.03 Upon the occurrence of an event of default, if all or
any part of the leased premises are then assigned or sublet, Lessor, in addition
to any other remedies provided by this Lease or provided by law, may, at its
option, collect directly from the assignee or sublessee all rents becoming due
to Lessee by reason of the assignment or sublease. Any collection directly by
Lessor from the assignee or sublessee shall not be construed to constitute a
novation or a release of Lessee or any guarantor from the further performance of
its obligations under this Lease.
9.04 RIGHTS OF MORTGAGEE. Lessee accepts this Lease subject and
subordinate to any recorded mortgage lien presently existing or hereafter
created upon the Building or project and to all existing recorded restrictions,
covenants, easements and agreements with respect to the Building or project;
provided that, as a condition to Lessee's obligations under this Lease, Lessee
and the holder of any mortgage lien which shall be placed on the leased premises
prior to Substantial Completion of the Improvements shall enter into a
subordination, non-disturbance and attornment agreement on terms mutually
satisfactory within 15 days of the date of the execution of the mortgage by
Lessor, which agreement shall provide, INTER ALIA, that the mortgagee shall not
disturb the tenancy of Lessee, so long as Lessee is not in default of its
obligations under this Lease beyond any applicable notice and cure periods, and
that any undisbursed construction loan proceeds shall be made available for the
purposes set forth in Section 6.09 of this Lease (subject to Lessor's reasonable
requirements). Lessor shall use its best efforts to cause any such mortgagee to
agree that insurance proceeds and condemnation awards shall be used for the
repair and restoration of the leased premises when so provided in Sections 7.02
and 8.02 of this Lease. Lessee agrees to subordinate Lessee's interest under
this Lease to any mortgage lien placed on the leased premises after Substantial
Completion of the Improvements, provided that as a condition to such
subordination Lessee and such mortgagee shall enter into a mutually satisfactory
non-disturbance, subordination and attornment agreement which shall include a
covenant by the mortgagee not to disturb the tenancy of Lessee, so long as
Lessee is not in default of its obligations under this Lease beyond any
applicable notice and cure periods. Lessor shall use its best efforts to cause
any such mortgagee to agree that insurance proceeds and condemnation awards
shall be used for the repair and restoration of the leased premises when so
provided in Sections 7.02 and 8.02 of this Lease. If the interests of Lessor
under this Lease shall be transferred by reason of foreclosure or other
proceedings for enforcement of any first mortgage on the leased premises, Lessee
shall be bound to the transferee (sometimes called the "Purchaser"), under the
terms, covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and effect
as if the Purchaser were Lessor under this Lease, and Lessee agrees to attorn to
the Purchaser, including the first mortgagee under any such mortgage if it be
the Purchaser, as its Lessor.
9.05 ESTOPPEL CERTIFICATES. Lessee agrees to furnish, from time to
time but in no more frequent intervals than twice in any 12 month period, within
ten (10) days after receipt of a request from Lessor or Lessor's mortgagee, a
statement certifying, if accurate, the following: Lessee is in possession of the
leased premises; the leased premises are acceptable; the Lease is in full force
and effect; the Lease is unmodified; Lessee claims no present charge, lien, or
claim of offset against rent; the rent is paid for the current month, but is not
prepaid for more than one month and will not be prepaid for more than one month
in advance; there is no existing default by reason of some act or omission by
Lessor; and such other matters as may be reasonably required by Lessor or
Lessor's mortgagee.
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ARTICLE 10.00 DEFAULT AND REMEDIES
10.01 DEFAULT BY LESSEE. The following shall be deemed to be events of
default by Lessee under this Lease:
(A) Lessee shall fail to pay any installment of rent or any
other payment required pursuant to this Lease within three
days after receipt of written notice of the nonpayment
thereof from Lessor;
(B) Lessee shall fail to comply with any term, provision or
covenant of this Lease, other than the payment of rent, and
the failure is not cured within 30 days after written
notice to Lessee, or within a reasonable time thereafter if
the default is of such a nature that it cannot be cured
within such 30-day period, and Lessee does not thereafter
complete the same with reasonable diligence;
(C) Lessee shall file a petition or be adjudged bankrupt or
insolvent under any applicable federal or state bankruptcy
or insolvency law or admit that it cannot meet its
financial obligations as they become due; or a receiver or
trustee shall be appointed for all or substantially all of
the assets of the Lessee; or Lessee shall make a transfer
in fraud of creditors or shall make an assignment for the
benefit of creditors; or
(D) Lessee shall do or permit to be done any act which results
in a lien being filed against the leased premises or the
Building and/or project of which the leased premises are a
part and Lessee shall fail to cause such lien to be bonded
off or released of record within 30 days after receipt of
notice from Lessor of the filing of the claim of such lien.
10.02 REMEDIES FOR LESSEE'S DEFAULT. Upon the occurrence of any event of
default set forth in this Lease, Lessor shall have the option to pursue any one
or more of the remedies set forth herein without any notice or demand.
(A) Lessor may enter upon and take possession of the leased
premises by process of law and lock out, expel or remove
Lessee and any other person who may be occupying all or any
part of the leased premises without being liable for any
claim for damages, and relet the leased premises on behalf
of Lessee and receive the rent directly by reason of the
reletting. Lessee agrees to pay Lessor on demand any
deficiency that may arise by reason of any reletting of the
leased premises; further, Lessee agrees to reimburse Lessor
for any expenditures made by it in order to relet the
leased premises, including, but not limited to, reasonable
and necessary remodeling and repair costs; provided that if
the term of the new lease upon reletting shall extend
beyond the scheduled expiration date of this Lease,
Lessee's obligation to reimburse Lessor for remodeling
costs shall be prorated and equal to the product of such
reasonable and necessary remodeling costs multiplied by a
fraction, the numerator of which is the unexpired term of
this Lease as of the time of an event of default by Lessee
and the denominator of which is the term of the new lease
entered into by Lessor and the new tenant, without giving
effect to any unexercised options to extend such new lease.
(B) Lessor may enter upon the leased premises without being
liable for any claim for damages, and do whatever Lessee is
obligated to do under the terms of this Lease. Lessee
agrees to reimburse Lessor on
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demand for any expenses which Lessor may incur in
effecting compliance with Lessee's obligations under this
Lease; further, Lessee agrees that Lessor shall not be
liable for any damages resulting to Lessee from effecting
compliance with Lessee's obligations under this Lease
unless caused by the negligence or reckless conduct of
Lessor.
(C) Lessor may terminate this Lease, in which event Lessee
shall immediately surrender the leased premises to Lessor,
and if Lessee fails to surrender the leased premises,
Lessor may, without prejudice to any other remedy which it
may have for possession or arrearages in rent, enter upon
and take possession of the leased premises by process of
law, and lock out, expel or remove Lessee and any other
person who may be occupying all or any part of the leased
premises without being liable for any claim for damages.
Lessee agrees to pay on demand the amount of all loss and
damage which Lessor may suffer by reason of the termination
of this Lease under this section, whether through inability
to relet the leased premises on satisfactory terms or
otherwise.
Notwithstanding any other remedy set forth in this Lease, in the event
Lessor has made rent concessions of any type or character, or waived any fixed
minimum rent, and Lessee fails to take possession of the leased premises on the
commencement or completion date or otherwise defaults at any time during the
term of this Lease, the rent concessions, including any waived fixed minimum
rent, shall be cancel led and the amount of the fixed minimum rent and other
rent that would be due if there were no rent concessions shall be due and
payable immediately as if no rent concessions or waiver of any fixed minimum
rent had ever been granted. A rent concession or waiver of the fixed minimum
rent shall not relieve Lessee of any obligation to pay any other charge due and
payable under this Lease, including without limitation any sum due under Section
2.02 hereof. Notwithstanding anything contained in this Lease to the contrary,
this Lease may be terminated by Lessor only by mailing or delivering written
notice of such termination to Lessee, and no other act or omission of Lessor
shall be construed as a termination of this Lease.
ARTICLE 11.00 RELOCATION
11.01 RELOCATION. [Intentionally omitted.]
ARTICLE 12.00 DEFINITIONS
12.01 ABANDON. [Intentionally omitted.]
12.02 ACT OF GOD OR FORCE MAJEURE. An "act of God" or "force majeure"
is defined for purposes of this Lease as strikes, lockouts, sit-downs, material
or labor restrictions by any governmental authority, unusual transportation
delays, riots, floods, washouts, explosions earthquakes, fire, storms, weather
(including wet grounds or inclement weather which prevents construction), acts
of the public enemy, wars, insurrections and any other cause not reasonably
within the control of Lessor or Lessee, as applicable, and which by the exercise
of due diligence Lessor or Lessee is unable, wholly or in part, to prevent or
overcome.
12.03 BUILDING OR PROJECT. "Building" or "Project" as used in this
Lease means the Building and/or project described in Section 1.02, including the
leased premises and the land upon which the Building or project is situated.
12.04 COMMENCEMENT DATE. [Intentionally omitted.]
12.05 COMPLETION DATE. "Completion Date" shall be the date on which
Substantial Completion (as defined in Section 6.04) of the Improvements erected
and to be erected upon the leased premises
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shall have been accomplished in accordance with the plans and specifications
described in Article 6.00. Subject to the provisions of Section 6.09, the
Completion Date shall constitute the commencement of the term of this Lease for
all purposes, whether or not Lessee has actually taken possession. Lessor shall
use its best efforts to establish the completion date as the date set forth in
Section 1.03. Upon Substantial Completion, Lessee shall deliver to Lessor a
letter accepting the leased premises as suitable for the purposes for which they
are let, subject to punchlist items, and, unless said date is after the date
Lessee takes possession of the leased premises or unless said date is objected
to by Lessor, the date of such letter shall constitute the completion date.
Whether or not Lessee has executed such a letter of acceptance, taking
possession of the leased premises by Lessee shall be deemed to establish
conclusively that the improvements have been completed in accordance with the
plans and specifications, are suitable for the purposes for which the leased
premises are let, and that the leased premises are in good and satisfactory
condition as of the date possession was so taken by Lessee, except for latent
defects and punchlist items, if any. Punchlist items shall be completed within
30 days after preparation of the punchlist or within a reasonable time
thereafter if such items are of such nature that they cannot be completed within
such 30-day period, and Lessor shall complete the same with reasonable
diligence. If Lessor shall fail to complete the punchlist items within the time
period set forth in the preceding sentence, Lessee shall have the same rights
with respect to such items as provided to Lessee in Section 5.01 with respect to
Lessor's failure to make timely repairs that are its responsibility.
ARTICLE 13.00 MISCELLANEOUS
13.01 WAIVER. Failure of Lessor or Lessee to declare an event of
default immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default, but Lessor or Lessee shall have the right to declare the default at any
time and take such action as is lawful or authorized under this Lease. Pursuit
of any one or more of the remedies set forth in Article 10.00 above shall not
preclude pursuit of any one or more of the other remedies provided elsewhere in
this Lease or provided by law, nor shall pursuit of any remedy constitute
forfeiture or waiver of any rent or damages accruing to Lessor or Lessee by
reason of the violation of any of the terms, provisions or covenants of this
Lease. Failure by Lessor or Lessee to enforce one or more of the remedies
provided upon an event of default shall not be deemed or construed to constitute
a waiver or the default or of any other violation or breach of the terms,
provisions and covenants contained in this Lease.
13.02 ACT OF GOD. Neither party shall be required to perform any
covenant or obligation in this Lease, or be liable in damages or for the Penalty
provided in Section 6.09.02, so long as the performance or non-performance of
the covenant or obligation is delayed, caused or prevented by an act of God,
force majeure or by the other party; provided that the Takeover Notice Date as
provided in Section 6.09.02 of this Lease shall not be subject to extension due
to an act of God or force majeure; further provided, that the foregoing
provisions shall not excuse either party from the prompt payment of any charges
or expenses due hereunder, including, without limitation, Lessee's obligation to
pay fixed minimum rent and additional rent. By way of example but not
limitation, it is hereby acknowledged and agreed that any delay in Lessor's
substantially completing the improvements caused by the acts or omissions of
Lessee, including, but not limited to, Lessee's failure to timely install (or
furnish for installation by Lessor, as may be required in this Lease) its
fixtures and furniture, phone switch equipment, kitchen equipment and/or
carpeting, shall be deemed a delay caused by the other party for which the
Outside Date shall be extended accordingly.
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13.03 ATTORNEYS' FEES. If during the term of this Lease, Lessor or
Lessee institutes any action or proceeding against the other relating to the
provisions of this Lease or any default hereunder, the unsuccessful party in
such action or proceeding agrees to reimburse the successful party for the
reasonable expenses of such action, including reasonable attorneys' fees and
disbursements incurred by the successful party, regardless of whether the action
or proceeding is prosecuted to judgment. The term "attorneys' fees" wherever
used in this Lease, shall mean only the reasonable charges for services actually
performed and rendered, of independent, outside legal counsel who are not the
employees of the party in question.
13.04 SUCCESSORS. This Lease shall be binding upon and inure to the
benefit of Lessor and Lessee and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed
that should Lessor's interest in the leased premises cease to exist for any
reason during the term of this Lease, then notwithstanding the happening of such
event this Lease nevertheless shall remain unimpaired and in full force and
effect, and Lessee hereunder agrees to attorn to the then owner of the leased
premises.
13.05 ALLOCATION OF RENT. Lessor and Lessee agree that no portion of
the fixed minimum rent paid by Lessee after the expiration of any period during
which such rent was abated shall be allocated by Lessor or Lessee to such
abatement period, nor is such rent intended by the parties to be allocable to
any abatement period.
13.06 BANKRUPTCY OR INSOLVENCY. It is understood and agreed that the
following shall apply in the event of the bankruptcy or insolvency of Lessee:
(i) If a petition is filed by, or an order for relief is
entered against Lessee under Chapter 7 of the United States
Bankruptcy Code (the "Bankruptcy Code") and the trustee for
Lessee elects to assume this Lease for the purpose of
assigning it, such election or assignment, or both, may be
made only if all of the terms and conditions of
subparagraphs (ii) and (iv) below are satisfied. To be
effective, an election to assume this Lease must be in
writing and addressed to Lessor, and, in Lessor's business
judgment, all of the conditions hereinafter stated, which
Lessor and Lessee acknowledge to be commercially
reasonable, must have been satisfied. If the trustee fails
so to elect to assume this Lease within sixty (60) days
after his appointment, this Lease shall be deemed to have
been rejected, and Lessor shall then immediately be
entitled to possession of the leased premises without
further obligation to Lessee pr the trustee, and this Lease
shall be terminated. Lessor's right to be compensated for
damages in the bankruptcy proceeding, however, shall
survive such termination.
(ii) If Lessee files a petition for reorganization under
Chapters 11 or 13 of the Bankruptcy Code, or if a
proceeding filed by or against Lessee under any other
chapter of the Bankruptcy Code is converted to a Chapter
11 or 13 proceeding, and Lessee's trustee or Lessee as
debtor-in-possession fails to assume this Lease within
sixty (60) days from the date of the filing of such
petition or conversion, then the trustee or the debtor-in-
possession shall be deemed to have rejected this Lease.
To be effective, any election to assume this Lease must be
in writing addressed to Lessor and, in Lessor's business
judgment, all of the following conditions, which Lessor and
Lessee acknowledge to be commercially reasonable, must have
been satisfied:
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(a) The trustee or the debtor-in-possession has cured
all defaults hereunder or, with respect to defaults
that the trustee or debtor-in-possession has not
cured, has provided to Lessor adequate assurance, as
defined in this Subparagraph (ii), that:
(1) The trustee or debtor-in-possession will cure
all monetary defaults under this Lease within
ten (10) days from the date of assumption;
and
(2) The trustee or debtor-in-possession will cure
all non-monetary defaults under this Lease
within thirty (30) days from the date of
assumption.
(b) The trustee or the debtor-in-possession has
compensated Lessor, or has provided Lessor with
adequate assurance, as hereinafter defined, that
within ten (10) days from the date of assumption,
Lessor will be compensated for any pecuniary loss it
has incurred arising from the default of Lessee, the
trustee, or the debtor-in-possession, as recited in
the Lessor's written statement of pecuniary loss
sent to the trustee or debtor-in-possession.
(c) The trustee or the debtor-in-possession has provided
Lessor with adequate assurance of the future
performance of each of Lessee's obligations under
this Lease; provided, however, that:
(1) From and after the data of assumption of this
Lease, the trustee or the debtor-in-
possession shall pay the fixed minimum rent
payable under this Lease in advance in equal
monthly installments on each date that such
fixed minimum rent is payable and shall pay
all additional rent payable hereunder when
due;
(2) The trustee or debtor-in-possession shall
also deposit with Lessor, as security for the
timely payment of rent, an amount equal to
three months fixed minimum rent and other
monetary charges accruing under this Lease;
(3) If not otherwise required by the terms of
this Lease, the trustees or the debtor-in-
possession shall pay in advance, on each day
that any installment of fixed minimum rent is
payable, one-twelfth of Lessee's pro rata
share of operating expenses and other
obligations of Lessee under this Lease; and
(4) The obligations imposed upon the trustee or
the debtor-in-possession will continue for
Lessee after the completion of bankruptcy
proceedings.
(d) For purposes of this subparagraph (ii), "adequate
assurance" means that:
(1) Lessor determines that the trustee or the
debtor-in-possession has, and will continue
to have, sufficient unencumbered assets,
after payment of all secured obligations and
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administrative expenses, to assure Lessor
that the trustee or debtor-in-possession
will have sufficient funds timely to fulfill
Lessee's obligations under this Lease and to
keep the leased premises properly staffed
with sufficient employees to conduct a fully
operational, actively promoted business in
the leased premises; and
(2) An order shall have been entered segregating
sufficient cash payable to Lessee and/or a
valid and perfected first lien and security
interest shall have been granted in property
of Lessee, trustee, or debtor-in-possession
which is acceptable in value and kind to
Lessor, to secure for the benefit of the
Lessor the obligation of the trustee or
debtor-in-possession to cure all monetary and
non-monetary defaults under this Lease within
the time periods set forth above.
(iii) In the event this Lease is assumed by a trustee appointed
for Lessee or by Lessee as debtor-in-possession under the
provisions of subparagraph (ii) above and, thereafter,
Lessee is either adjudicated a bankrupt or files a
subsequent petition for arrangements under Chapter 11 of
the Bankruptcy Code, then Lessor may, at its option,
terminate this Lease and all the Lessee's rights under it,
by giving written notice of Lessor's election so to
terminate.
(iv) If the trustee or the debtor-in-possession has assumed this
Lease, pursuant to subparagraph (i) or (ii) above, the
trustee or debtor-in-possession, as the case may be, may
assign Lessee's interest under this Lease or the estate
created by that interest to another person only if the
intended assignee has provided adequate assurance of future
performance, as defined in this subparagraph (iv), of all
of the terms, covenants, and conditions of this Lease.
(a) For the purposes of this subparagraph (iv),
"adequate assurance of future performance" means
that each of the following conditions has been
satisfied:
(1) The assignee has submitted a current
financial statement, audited by a certified
public accountant, which shows a net worth of
working capital in amounts determined by
Lessor to be sufficient to assure the future
performance by the assignee of the Lessee's
obligations under the Lease;
(2) If requested by Lessor, the assignee has
obtained guarantees of the assignee's
obligations hereunder, in form and substance
satisfactory to Lessor, from one or more
persons who satisfy Lessor's standards of
creditworthiness; and
(3) Lessor has obtained all consents or waivers
from third parties which may be required
under any lease, mortgage, financing
arrangement, or other agreement by which
Lessor is bound, to enable Lessor to permit
such assignment.
(v) When, pursuant to the Bankruptcy Code, the trustee or the
debtor-in-possession is obligated to pay reasonable use and
occupancy charges for the use of
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all or part of the leased premises, it is agreed that
such charges will not be less than the fixed minimum rent
as defined in this Lease, plus additional rent and other
monetary obligations of Lessee included herein.
(vi) Neither Lessee's interest in this Lease nor any estate of
Lessee created in this Lease shall pass to any trustee,
receiver, assignee for the benefit of creditors, or any
other person or entity, or otherwise by operation of law
under the laws of any state having jurisdiction of the
person or property of Lessee, unless Lessor consents in
writing to such transfer. Lessor's acceptance of rent or
any other payments from any trustee, receiver, assignee,
person, or other entity will not be deemed to have waived,
or waive, either the requirement of Lessor's consent or
Lessor's right to terminate this Lease as the result of any
transfer of Lessee's interest under this Lease without such
consent.
13.07 CAPTIONS. The captions appearing 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 any section.
13.08 NOTICE. All rent and other payments required to be made by Lessee
shall be payable to Lessor at the address set forth in Section 1.05 or at any
address within the United States as Lessor may specify to Lessee from time to
time by written notice given in accordance with this Section 13.08. All
payments required to be made by Lessor to Lessee shall be payable to Lessee at
the address set forth in Section 1.05, or at any other address within the United
States as Lessee may specify to Lessor from time to time by written notice given
in accordance with this Section 13.08. Any notice or document required or
permitted to be delivered by the terms of this Lease shall be deemed to be
delivered (whether or not actually received) when deposited in the United States
mail, postage prepaid, certified mail, return receipt requested, addressed to
the parties at the respective, addresses set forth in Section 1.05 or at any
other address within the United States as one party has specified to the other
from time to time by written notice given in accordance with this Section 13.08.
13.09 SUBMISSION OF LEASE. Submission of this Lease to Lessee for
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both Lessor and
Lessee.
13.10 CORPORATE AUTHORITY. Lessee represents that it is not a "tax-exempt
entity" as such term is defined in Section 168(h)(2) of the Internal Revenue
Code of 1986. Each of the persons executing this Lease on behalf of Lessor and
Lessee does hereby personally represent and warrant that Lessor or Lessee, as
applicable, is a duly authorized and existing corporation, that Lessor or
Lessee, as applicable, is qualified to do business in the state in which the
leased premises are located, that the corporation has full right and authority
to enter into this Lease, and that each person signing on behalf of the
corporation is authorized to do so. Lessee further represents and warrants to
Lessor that any and all approvals from any federal, state or local governmental
or quasi-governmental agency or instrumentality (including by way of example but
not limitation, the Comptroller of the Currency) necessary for Lessee to enter
into this Lease have been received by Lessee.
13.11 SEVERABILITY. If any provision of this Lease or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Lease and the application of such provisions to
other persons or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by law.
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13.12 LESSOR'S LIABILITY. If Lessor shall be in default under this
Lease and, if as a consequence of such default, Lessee shall recover a money
judgment against Lessor, such judgment shall be satisfied only out of the right,
title and interest of Lessor in the Building as the same may then be encumbered
and identifiable rents, profits and proceeds therefrom and neither Lessor nor
any person or entity comprising Lessor shall be liable for any deficiency. In
no event shall Lessee have the right to levy execution against any property of
Lessor nor any property or entity comprising Lessor other than its interest in
the Building as herein expressly provided.
13.13 BROKER INDEMNIFICATION. Lessor agrees to indemnify and hold
harmless Lessee from and against any liability or claim, whether meritorious or
not, arising with respect to any broker whose claim arises by, through or on
behalf of Lessor. Lessee agrees to indemnify and hold harmless Lessor from and
against any liability or claim, whether meritorious or not, arising with respect
to any broker whose claim arises by, through or on behalf of Lessee. Lessor
shall pay a broker's commission to George M. Pryor, Jr., Real Estate Broker, in
accordance with the commission agreement between Lessor and George M. Pryor, Jr.
13.14 CONSENT. Wherever provision is made in this Lease or the attached
Exhibits for the approval of a party hereto, such approval shall not be
unreasonably withheld, delayed or conditioned.
13.15. HAZARDOUS MATERIALS.
13.15.01 For purposes of this Lease hazardous materials
("Hazardous Materials") shall include, but shall not be limited to, any
substances, materials or wastes that are regulated by any local governmental
authority, the State of Ohio, or the United States of America because of toxic,
flammable, explosive, corrosive, reactive, radioactive or other properties that
may be hazardous to human health or the environment. Hazardous Materials also
include, without limitation, any materials or substances that are listed in the
United States Department of Transportation Hazardous Materials Table (49 CFR
172.01) as amended from time to time. Subject to the fourth rule and regulation
set forth in the attachment to this Lease, Lessee agrees that it will not use,
handle, generate, treat, store or dispose of, or permit the use, handling,
generation, treatment, storage or disposal of any Hazardous Materials in, on,
under, around or above the leased premises now or at any future time and will
indemnify, defend and save Lessor harmless from any and all actions,
proceedings, claims and losses of any kind, including but not limited to those
arising from injury to any person, including death, damage to or loss of use or
value of real or personal property, and costs of investigation and cleanup or
other environmental remedial work, which may arise in connection with Hazardous
Materials introduced to the leased premises by Lessee or any of its agents,
contractors or employees.
If at any time during the term of this Lease it is determined that
there are any Hazardous Materials located in, on, under, around, or above the
leased premises which are introduced to the leased premises by Lessee or any of
its agents, contractors, or employees, that are subject to any federal, state or
local environmental law, statute, ordinance or regulation, court or
administrative order or decree, or private agreement ("Environmental
Requirements"), including Environmental Requirements requiring special handling
of Hazardous Materials in their use, handling, collection, storage, treatment or
disposal, Lessee shall commence with diligence within thirty (30) days after
receipt of notice of the presence of the Hazardous Materials and shall continue
to diligently take all appropriate action, at Lessee's sole expense, to comply
with all such Environmental Requirements. Failure of Lessee to comply with all
Environmental Requirements shall constitute an event of default under this
Lease.
13.15.02 Lessor represents and warrants to Lessee that Lessor
knows of no Hazardous Materials that have been used, handled, generated,
treated, stored or disposed of in, on, under, around or
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<PAGE>
above the leased premises. Lessor agrees that it will not use, handle, generate,
treat, store or dispose of, or permit the use, handling, generation, treatment,
storage or disposal of any Hazardous Materials in, on, under, around or above
the leased premises now or at any future time and will indemnify, defend and
save Lessee harmless from any and all actions, proceedings, claims and losses of
any kind, including but not limited to those arising from injury to any person,
including death, damage to or loss of use or value of personal property, and
costs of investigation and cleanup or other environmental remedial work, which
may arise in connection with Hazardous Materials introduced to the leased
premises by Lessor or any of its agents, contractors or employees.
If at any time during the term of this Lease it is determined that
there are any Hazardous Materials located in, on, under, around, or above the
leased premises which are introduced to the leased premises by Lessor or any of
its agents, contractors, or employees, that are subject to any federal, state or
local environmental law, statute, ordinance or regulation, court or
administrative order or decree, or private agreement ("Environmental
Requirements"), including Environmental Requirements requiring special handling
of Hazardous Materials in their use, handling, collection, storage, treatment or
disposal, Lessor shall commence with diligence within thirty (30) days after
receipt of notice of the presence of the Hazardous Materials and shall continue
to diligently take all appropriate action, at Lessor's sole expense, to comply
with all such Environmental Requirements.
If Hazardous Materials shall be found in, on, under or above the
leased premises and bringing the leased premises into compliance with all
applicable Environmental Requirements would cause the leased premises to be
rendered untenantable in whole or in part or would prevent Lessee from operating
its business in the leased premises in the normal course and such Hazardous
Materials shall not have been introduced to the leased premises by Lessee or any
of its agents, contractors or employees, and if such untenantability or
inability to operate in the normal course continues for more than 150 days
following the discovery of such Hazardous Materials, then until such
untenantability or inability has ended, Lessee (and Lessor, unless Lessor or any
of its agents, contractors or employees shall have introduced the Hazardous
Materials to the leased premises) shall have the right to terminate this Lease
by written notice to the other at any time after such 150 day period. During
any period when the leased premises is untenantable or Lessee is prevented from
operating its business therein in the normal course due to the presence of
Hazardous Materials and if Lessee has not breached its obligations under Section
13.15.01, fixed minimum rent and other charges payable hereunder shall be abated
in proportion to the floor area of the leased premises so affected.
ARTICLE 14.00 AMENDMENT AND LIMITATION OF WARRANTIES
14.01 ENTIRE AGREEMENT. IT IS EXPRESSLY AGREED BY LESSEE, AS A MATERIAL
CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE, WITH THE
SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE AGREEMENT OF
THE PARTIES; THAT THERE ARE, AND WERE NO VERBAL REPRESENTATIONS, WARRANTIES AND
UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR PROMISES PERTAINING TO THIS LEASE OR
TO THE EXPRESSLY MENTIONED WRITTEN EXTRINSIC DOCUMENTS NOT INCORPORATED IN
WRITING IN THIS LEASE.
14.02 AMENDMENT. THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LESSOR AND LESSEE.
14.03 LIMITATION OF WARRANTIES. LESSOR AND LESSEE EXPRESSLY AGREE THAT
THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY, HABITABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING OUT OF THIS LEASE,
AND THAT THERE ARE NO WARRANTIES WHICH EXTEND BEYOND ThOSE EXPRESSLY SET FORTH
IN THIS LEASE.
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RULES AND REGULATIONS
1. Lessor agrees to furnish Lessee 2 keys without charge.
Additional keys will be furnished at a nominal charge. All keys to leased
premises shall be surrendered to Lessor upon termination of this Lease.
2. Lessee's contractors and installation technicians shall comply
with Lessor's rules and regulations pertaining to construction and
installation. This provision shall apply to all work performed on or about
the leased premises or project, including installation of telephones,
telegraph equipment, electrical devices and attachments and installations of
any nature affecting floors, walls, woodwork, trim, windows, ceilings and
equipment or any other physical portion of the leased premises or project.
3. Lessee shall not at any time occupy any part of the leased
premises or project as sleeping or lodging quarters.
4. Lessee shall not place, install or operate on the leased premises
or in any part of the Building any engine or place or use in or about the leased
premises or project any explosives, gasoline, kerosene, oil, acids, caustics, or
any flammable, explosive or hazardous material without the written consent of
Lessor; provided that Lessee shall be permitted to keep a generator on the
leased premises and fuel to operate the same for the purpose of temporary
generation of electricity during power failures, so long as the storage and use
of such generator and fuel shall be in compliance with all applicable laws,
codes and regulations. Lessee shall also be permitted to keep ordinary cleaning
materials, paints and solvents on the leased premises to the extent reasonably
required for Lessee to perform its maintenance obligations under this Lease.
5. Lessor will not be responsible for lost or stolen personal
property, equipment, money or jewelry from the leased premises or the project
regardless of whether such loss occurs when the area is locked against entry or
not.
6. No dogs, cats, fowl, or other animals shall be brought into or
kept in or about the leased premises or project.
7. Employees of Lessor shall not receive or carry messages for or to
any Lessee or other person or contract with or render free or paid services to
any Lessee or to any of Lessee's agents, employees or invitees.
8. None of the parking, plaza, recreation or lawn areas, entries,
passages, doors, elevators, hallways, stairways or atrium shall be blocked or
obstructed or any rubbish, litter, trash, or material of any nature placed,
emptied or thrown into these areas.
9. The water closets and other fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or by the defacing or injury of any part of the
Building shall be borne by the person who shall occasion it. No person shall
waste water by interfering with the faucets or otherwise.
10. [Intentionally Omitted.]
11. Nothing shall be thrown out of the windows or doors of the
Building or down the stairways or other passages.
12. [Intentionally Omitted.]
13. All responsibility for damage to vehicles or persons is assumed by
the owner of the vehicle or its driver.
14. [Intentionally Omitted.]
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<PAGE>
15. Lessor shall not be liable for any damages from the stoppage of
elevators for necessary or desirable repairs or improvements or delays of any
sort or duration in connection with the elevator service.
16. [Intentionally Omitted.]
17. [Intentionally Omitted.]
18. [Intentionally Omitted.]
19. [Intentionally Omitted.]
-29-
<PAGE>
EXHIBIT "C"
UNITED CREDIT SERVICES
"AUDIT BID ITEMS"
<TABLE>
<CAPTION>
AUDIT ITEMS
AUDIT BID ITEMS ESTIMATES
<S> <C>
EARTHWORK
Includes clear and grub, mass excavation and fill, truck off excess top
soil and unacceptable fill, stripping and re-spreading of topsoil.
$108,180.00
SITE UTILITIES
Includes domestic and fire water service lines to the building, fire
protection line (and hydrants) to the building, sanitary sewer to the
building, storm sewers, root drain laterals to the building, and site gas
service to the building.
$ 84,515.00
LANDSCAPING $ 30,000.00
IRRIGATION $ 25,000.00
INSTALL TENANTS CARPET $ 29,190.00
FURNISH AND INSTALL VINYL WALL BASE $ 8,530.00
FURNISH AND INSTALL VCT $ 5,480.00
</TABLE>
<PAGE>
EXHIBIT "D"
ADDITIONAL ITEMS
Switch room (computer room) work, including mechanical, electrical, fire
suppression and protection, and flooring work, plus architectural and
construction fees for the same.
Painted sidewalk.
Security system.
The cost of all Additional Items provided by Lessor pursuant to this
Exhibit "D" shall be fully amortized over the initial ten (10) year term of the
Lease and paid for by Lessee by means of an increase in the fixed minimum rent
as set forth in Section 1.04 of the Lease. In the event Lessee elects to cancel
this Lease in accordance with Section 15.04 of the Lease Addendum, Lessee shall
pay to Lessor not later than the date the Final Payment is due (as defined in
Section 15.04 of the Lease), in addition to any other payments required to be
made to Lessor by Lessee pursuant to said Section 15.04, the unamortized amount
of such Additional Items as of the Final Payment date.
To the extent Additional Items are of a nature that they can be removed
from the leased premises, Lessee shall be entitled to remove the items listed
above at the end of the Lease term and retain possession thereof, provided (a)
such termination is not the result of Lessee's default hereunder; (b) Lessee
repairs any and all physical damage to the remaining Improvements caused by such
removal; and (c) if applicable, Lessee has paid the sums required by the
preceding paragraph.
-35-
<PAGE>
EXHIBIT "E"
TO BE INSERTED.
-36-
<PAGE>
ADDENDUM TO LEASE DATED JULY 2, 1990
BETWEEN CONTINENTAL ACQUISITIONS, INC. AND
WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.)
SECTION 15.01 RENEWAL OPTION: Provided that at the end of the primary
term of this Lease Lessee is not in default of any of the terms, conditions or
covenants contained in this Lease beyond any applicable cure period, Lessee
(unless Lessee is an assignee or sublessee of the Lease to whom assignment or
subletting of the Lease required the prior consent of Lessor under Section 9.03)
is hereby granted an option to renew this Lease for two (2) additional terms of
five (5) years each on the same terms and conditions contained herein except:
a) the second renewal opt ion term will contain no further renewal
opt ions unless expressly granted by Lessor in writing;
b) the fixed minimum rent for the first renewal term shall be equal
to 110.3% of the fixed minimum rent payable during months 61 through 120
of this Lease, and the fixed minimum rent for the second renewal term
shall be equal to 109.8% of the fixed minimum rent payable during the
first renewal term;
c) rent payments for each renewal term will commence on the first day
of the renewed term; and
d) if Lessee desires to renew this Lease Lessee will notify Lessor of
its intention to renew no later than six (6) months prior to the
expiration date of the original Lease term or six (6) months prior to the
end of the first renewal term.
SECTION 15.02. PROJECT SUMMARY: Attached hereto and made a part hereof
is Exhibit "B" which is a summary of Lessors work for the project.
SECTION 15.03. COMPLETION DATE: [Intentionally Omitted.]
-38-
<PAGE>
SECTION 15.04. CANCELLATION OPTION: Lessor hereby grants to Lessee the
option to cancel this Lease effective at any time after the expiration of the
sixtieth (60th) month from the completion date of this Lease until the
expiration of the one hundred eleventh (111th) month from the completion date of
this Lease provided Lessee (i) gives Lessor at least twelve (12) months prior
written notice specifying therein the effective date of the cancellation (which
effective date shall in no event be prior to the sixtieth (60th) month of the
lease term) and (ii) on the effective date of the cancellation and on the same
day of each month thereafter for the next eight consecutive months pay to Lessor
an amount equal to the monthly fixed minimum rent payable by Lessee for the 61st
through 120th months of the Lease as provided in Section 1.04 of this Lease (the
Buyout Payments). Lessee shall also pay to Lessor a pro rata share of all real
estate taxes and insurance premiums payable by Lessor with respect to the leased
premises during the nine-month period after the effective date of the
cancellation of the Lease (the Cancellation Period') and Lessee shall reimburse
Lessor for all utility charges reasonably incurred by Lessor to maintain the
leased premises in good condition during the Cancellation Period. Lessee shall
reimburse Lessor for any taxes, insurance premiums or utility charges paid by
Lessor during the Cancellation Period upon the later of 15 days of a demand for
payment of the same by Lessor or the due date of the next Buyout Payment.
Lessee shall pay the reasonably estimated taxes, insurance premiums and utility
charges applicable to the balance of the Cancellation Period which have not been
previously paid by Lessee together with the last installment of the Buyout
Payments (the "Final Payment"). Lessor shall prepare and submit to Lessee its
reasonable estimate of the unpaid taxes, insurance premiums and utility charges
for the balance of the Cancellation Period to Lessee at least 10 days prior to
the due date of the Final Payment., Lessee shall also pay together with the
Final Payment the amounts required to be paid by Lessee pursuant to the
provisions of Exhibit "D".
-39-
<PAGE>
SECTION 15.05. HALON LANGUAGE: Lessee acknowledges that during the term
of this Lease, its Halon installation may be legally banned or subject to
mandatory modification or conversion to some other fire protection system.
Lessee agrees that it will not, on the basis of such legal ban or mandatory
modification or conversion, claim frustration of purpose, seek termination of
the Lease, or seek abatement of rent. In addition, Lessee acknowledges and
agrees that Lessee shall, at Lessee's sole cost and expense, (i) comply with any
applicable laws, ordinances, orders, rules and regulations affecting the Halon
installation including any which require the removal, modification or conversion
thereof, and (ii) remove such Halon installation at Lessor's request upon the
termination of this Lease.
-40-
<PAGE>
FIRST AMENDMENT OF LEASE
THIS FIRST AMENDMENT OF LEASE (the "Amendment") is entered into by and
between CONTINENTAL ACQUISITIONS, INC., an Ohio corporation ("Lessor"), and
WORLD-FINANCIAL NETWORK NATIONAL BANK (U.S.) ("Lessee") as of the 11th day of
September, 1990.
WHEREAS, Lessor and Lessee entered into an office lease as of July 2,
1990 providing for the construction and leasing of a 100,800 (approximate)
square foot building on Schrock Road in Westerville, Ohio (the "Lease"); and
WHEREAS, Lessor and Lessee desire to amend the Lease as
hereinafter set forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and contained in the Lease, Lessor and Lessee, intending to be legally bound,
agree as follows:
Section 1. AMENDMENT. The second sentence of Section 6.04 of the Lease
is hereby amended in its entirety to read as follows:
Lessor shall use its best efforts to achieve Substantial Completion of
the Improvements on or before January 26, 1991.
Section 2. CONTINUED EFFECT. Except as amended hereby, the terms
of the Lease remain in full force and effect and are confirmed by the parties
hereto.
LESSOR LESSEE
CONTINENTAL ACQUISITIONS, INC. WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.)
By: Franklin E. Kass By: Ralph E. Spurgin
- ----------------------------- ------------------------------------
Franklin E. Kass, President Ralph E. Spurgin, President and CEO
- ----------------------------- ------------------------------------
(Type Name and Title) (Type Name and Title)
Witness: Witness:
--------------------- ----------------------
Witness: Witness:
--------------------- ----------------------
ACKNOWLEDGMENTS
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this, _______ day of
____________________, 1990, by _____________________ of Continental
Acquisitions, Inc., an Ohio corporation, on behalf of the corporation.
My commission expires:
----------------- -----------------------
Notary Public
STATE OF OHIO )
) SS SEAL
COUNTY OF _______________)
The foregoing instrument was acknowledged before me this _______ day of
__________________________________ , 1990, by
____________________________________________________________ as
___________________________________ of World Financial Network National Bank
(U.S.), a National Banking Association, on behalf of the association.
My commission expires:
---------- --------------------------------
Notary Public
<PAGE>
SECOND AMENDMENT OF LEASE
THIS SECOND AMENDMENT OF LEASE is entered into by and between PARTNERS AT
BROOKSEDGE, an Ohio general partnership ("Lessor"), and WORLD FINANCIAL NETWORK
NATIONAL BANK (U.S.) ("Lessee") as of the 16th day of November, 1990.
WHEREAS, Continental Acquisitions, Inc. ("CAI"), Lessor's predecessor in
interest, and Lessee entered into an office lease as of July 2, 1990 providing
for the construction and leasing of a 100,800 (approximate) square foot building
on Schrock Road in Westerville, Ohio, which lease was amended by a first
amendment of lease between CAI and Lessee dated as of September 11, 1990
(collectively, the lease and the first amendment of lease are herein referred to
as the "Lease"); and
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and contained in the Lease, Lessor and Lessee, intending to be legally bound,
agree as follows:
Section 1. AMENDMENTS.
1.1. SECTION 6.04. The second sentence of Section 6.04 of the
Lease is hereby amended in its entirety to read as follows:
Lessor shall use its best efforts to achieve Substantial Completion of
the Improvements on or before January 26, 1991.
1.2. SECTION 6.09.02. The third sentence from the end of
Section 6.09.02 is hereby amended in its entirety to read as follows:
If the construction draws which are made available to Lessee shall be
insufficient to pay Lessee's actual, reasonable costs of completion of
the Improvements, the excess of the costs over such loan draws (plus an
imputed interest factor on such unpaid excess costs at the rate of
interest Lessor is required to pay on its construction loan) shall be
recoverable by offsetting such amounts against Lessee's obligations to
pay fixed minimum rent and additional rent as provided herein until such
time as the amount offset by Lessee shall equal the amount of such excess
costs plus interest at the foregoing rate.
Section 2. LEGAL DESCRIPTION OF THE LEASED PREMISES. As contemplated in
Section 1.02 of the Lease, Lessor has caused a survey of the leased premises to
be prepared. The legal description prepared pursuant to such survey is attached
hereto as Exhibit A and such description shall be deemed to be substituted as
Exhibit A to the Lease.
Section 3. CONTINUED EFFECT. Except as amended hereby, the terms of the
Lease remain in full force and effect and are confirmed by the parties hereto.
IN THE PRESENCE OF: PARTNERS AT BROOKSEDGE, an Ohio
General Partnership
By: Continental Properties, an Ohio General
Partnership
By:
-------------------------------
Franklin E. Kass
Managing General Partner
- -------------------------
- -------------------------
<PAGE>
By: Nationwide Property Management, Inc.,
an Ohio corporation, a Partner
- ------------------------- By:
---------------------------
Robert J. Woodward, Jr.
Vice President and General
Manager
- -------------------------
WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.)
- ------------------------- By:
--------------------------------------
Its: PRESIDENT & CHIEF EXECUTIVE
OFFICER
- -------------------------
ACKNOWLEDGMENTS
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 16th day of
November, 1990, by Franklin E. Kass, as the managing general partner of
Continental Properties, an Ohio general partnership, a partner of Partners of
Brooksedge, an Ohio general partnership, on behalf of such partnerships.
-------------------------------
Notary Public
WILLIAM F. SIMPSON
ATTORNEY AT LAW
NOTARY PUBLIC STATE OF OHIO
MY COMMISSION HAS NO EXPIRATION DATE
SECTION 147.03 R. C.
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 16th day of
November, 1990, by Robert J. Woodward, as vice president and general manager of
Nationwide Property Management, Inc., an Ohio corporation and a partner of
Partners of Brooksedge, an Ohio general partnership, on behalf of such
corporation and partnership.
-------------------------------------
Notary Public
WILLIAM F. SIMPSON
ATTORNEY AT LAW
NOTARY PUBLIC STATE OF OHIO
MY COMMISSION HAS NO EXPIRATION DATE
SECTION 147.03 R. C.
STATE OF OHIO )
)SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 15th day of
November, 1990, by Ralph E. Spurgin, as president and CEO of World Financial
Network National Bank (U.S.), a National Banking Association, on behalf of the
association.
------------------------------------
Notary Public
MELISSA COYER
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES xxxxxxxxxxxx
-2-
<PAGE>
JOINDER BY GUARANTOR
The undersigned, THE LIMITED, INC., Guarantor ("Guarantor") of the Lease
pursuant to the certain Guarantee dated July 2, 1990 (the "Guarantee") does by
its execution below expressly join the foregoing Subordination, Nondisturbance
and Attornment Agreement and acknowledge and agree as follows (with all defined
terms contained therein to have the same meanings herein):
1. Guarantor does hereby acknowledge, consent to and agree to be
bound by all of the matters set forth in the foregoing Agreement.
2. Guarantor does hereby agree that, from and after the date hereof,
Guarantor shall provide to Mortgagee in the manner and at the address provided
for in paragraph II of the foregoing Agreement any notice given or received by
Guarantor under the terms and conditions of or in connection with the Lease or
the Guarantee.
3. As of the date hereof, Guarantor hereby certifies as follows,
knowing that Mortgagee will rely upon the accuracy of the information contained
herein in making the Loan:
(a) The Lease, as described in the foregoing Agreement, is the Lease
to which the Guarantee is appended and applies;
(b) The Guarantee is presently in full force and effect, has not been
amended, supplemented, extended, renewed, terminated, changed or
assigned in any respect, and no waiver of any provision thereof is
presently in effect;
(c) Guarantor hereby acknowledges and consents to and agrees to be
bound by the Assignment pursuant to which Continental
Acquisitions, Inc., the original "Lessor" under the Lease,
assigned to Lessor all of its rights under the Lease, and further
hereby recognizes Lessor as the "Lessor" under the Lease;
(d) Guarantor has no knowledge of any charge, lien, claim or defense
arising in favor of Lessee or Guarantor under the Lease or the
Guarantee;
(e) To the best knowledge of Guarantor, there are no defaults by
Lessor or Lessee and no existing conditions or events which, with
the giving of notice or the passage of time or both, would
constitute or become defaults of Lessor or Lessee, that have
occurred and presently exist under the Lease; and
10
<PAGE>
(f) There are no actions, whether voluntary or otherwise, pending
against Guarantor under the bankruptcy or insolvency laws of the
United States or any state thereof which would prevent Guarantor
from fulfilling its obligations under the Guarantee.
IN WITNESS WHEREOF, the undersigned Guarantor has caused this
instrument to be executed and delivered by its duly authorized representative
as of this 15th day of November, 1990.
Signed and acknowledged THE LIMITED, INC.
in the presence of:
By:
- ---------------------------------- ------------------------------
Its: EXECUTIVE VICE PRESIDENT, CHIEF
FINANCIAL OFFICER
- ----------------------------------
STATE OF OHIO )
) SS:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 15th day of
November, 1990, by KENNETH B. GILMAN, the EXECUTIVE V.P. AND C.F.O. of THE
LIMITED, INC., an Ohio corporation, on behalf of said corporation.
------------------------------------
Notary Public
MELISSA COYER
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES xxxxxxxxxxxx
This Instrument Prepared By:
VORYS, SATER, SEYMOUR AND PEASE
52 East Gay Street
P. O. Box 1008
Columbus, Ohio 43215
11
<PAGE>
EXHIBIT A
CITY OF WESTERVILLE -- 9.894 ACRE TRACT
Being situated in Quarter Township (2), Township (2) North, Range 17 West of the
United States Military Lands in the City of Westerville, County of Franklin,
State of Ohio and being a part of that land owned by the City of Westerville of
record in Deed Volume 3031 Page 628 and Deed Volume 2509 Page 698 in the
Franklin County Recorder's Office and being more particularly described as
follows:
Beginning at an iron pin in the north right-of-way line of Schrock Road being
North 85deg. 38" 23" West of distance of 70.01 feet from the southwest corner of
the Vinda Ltd. tract of record in O.R. 10634 P. J-12;
thence from the place of beginning North 85deg. 38" 23" West along the north
right-of-way line of Schrock Road a distance of 612.22 feet to a point
referenced by an iron pin North 85deg. 38" 23" West, 20.00 feet;
thence North 37deg. 20" 35" West a distance of 26.61 feet to point referenced
by an iron pin South 10deg. 57" 14" West, 20.00 feet;
thence North 10deg. 57" 14" East a distance of 657.62 feet to an iron pin;
thence North 76deg. 02" 02" East a distance of 321.86 feet to an iron pin;
thence South 22deg. 25" 49" East along a westerly boundary of Foxtrail
Condominium Phase 2 (C.P.B. 35 P. 17) and Vinda Ltd. (O.R. 6834 P. D-17) a
distance of 172.06 feet to an iron pin;
thence South 85deg. 16" 13" East along the southerly boundary of said Vinda
Ltd. a distance of 241.16 feet to an iron pin;
thence South 4deg. 20" 38" West along the westerly boundary of Vinda Ltd. (O.R.
10634 P. J-12) a distance of 225.19 feet to a point in the north right-of-way
line of Wetherby Lane;
thence North 85deg. 39" 22" West a distance of 50.00 feet to a point;
thence South 4deg. 20" 38" West along the west right-of-way line of Crossbrook
Boulevard a distance of 373.98 feet to a point;
12
<PAGE>
thence along the arc of a curve to the right having a delta angle of 90deg.
00" 59",
a radius of 20.00 feet and whose chord bears South 49 21' 04" West a chord
distance of 28.29 feet to the place of beginning, containing 9.894 acres, more
or less, of which 0.863 acres are out of the tract with parcel number 3030 and
9.031 acres are out of the tract with parcel number 1436.
The above description was prepared by Charles J. Destefani, Professional
Surveyor, No. 5666, in June 1990.
13
<PAGE>
July 2, 1990
Mr. Frank Kass
Continental Acquisitions, Inc.
Continental Real Estate Companies
35 North Fourth Street
Suite 100
Columbus, OH 43215
Re: Lease at Schrock Road, Westerville, Ohio with World Financial
Network National Bank ("Lessee")
Dear Mr. Kass:
The purpose of this letter is to confirm that The Limited, Inc. is the
sole shareholder of Lessee.
Very truly yours
Kenneth B. Gilman
Executive Vice President
Chief Financial Officer
<PAGE>
GUARANTEE
For and as a material inducement to CONTINENTAL ACQUISITIONS, INC.
(Lessor) to enter into the foregoing Lease with World Financial Network National
Dank (U.S.) (Lessee) for the leased premises, as defined in the Lease Agreement
and for good and valuable consideration, the undersigned, intending to be
legally bound hereby, does hereby covenant and agree with Lessor, its successors
and assigns, that:
(a) If said Lessee, its Successors or assigns, shall default at any
time during the term granted by said Lease in the payment of Fixed
Minimum Rent, Additional Rental Payments or any other payment(s)
required under the Lease Agreement, or in the Performance of any
of the terms, Covenant. or conditions of said Lease Agreement on
the part of Lessee to be performed thereunder, and if any such
default shall not be remedied by Lessee within any cure period
provided Lessee pursuant to the terms of the Lease, then the
undersigned shall, on demand, pay to Lessor, its successors or
assigns, (i) the said Fixed Minimum Rent, Additional Rental
Payments and all other payments required under the Lease
Agreement, or any arrears thereof; and (ii) all damages that may
arise or be incurred by Lessor in consequence of Lessee's default
under said Lease, including all reasonable attorney' fees that may
be incurred by Lessor in enforcing Lessee's covenants and
agreements thereunder or that may be incurred by Lessor in
enforcing the covenants and agreement of the undersigned
hereunder, upon ten (10) days' notice from Lessor of any such
default or defaults by Lessee, during which period Guarantor shall
have the right to cure or cause Lessee to cure any such default;
(b) The Undersigned may, at Lessor's option, be joined in any action
against or proceeding commenced by Lessor against Lessee in
connection with or based upon said Lease or any term, covenant or
condition thereof, and that recovery may be had against the
undersigned in such action or proceeding against the undersigned
without Lessor, its successors or assigns, first asserting,
prosecuting or exhausting any remedy or claim against Lessee, its
successors or assigns;
(c) This Guarantee shall remain and continue in full force and effect
as to any renewal, extension, modification or amendment of said
Lease;
(d) The validity of this Guarantee and the obligation of the
undersigned hereunder shall in no manner be terminated, affected
or impaired by reason of any action which Lessor may take or fail
to take against Lessee or by reason of any waiver of, or failure
to enforce, any of the rights or remedies reserved to Lessor in
said Lease, or otherwise, or by reason of the bankruptcy or
insolvency of Lessee and whether or not the term of said Lease
shall terminate by reason of said bankruptcy or insolvency.
(e) So long as Lessee is controlled by the undersigned, the
undersigned waives notice of any and all notices or demands which
may be given by Lessor to Lessee, irrespective of whether or not
required to be given to Lessee under the terms of said Lease. If,
at any time during the term of the Lease, Lessee should no longer
be controlled by the undersigned, the undersigned may so notify
Lessor, and thereafter Lessor shall send copies of all notices
given to Lessee to the undersigned simultaneously with the giving
of such notices to Lessee.
(f) Any notice or demand required or permitted to be delivered by the
terms of this Guarantee shall be in writing and shall be deemed to
be delivered (whether or not actually
<PAGE>
received when deposited in the United States Mail, postage
prepaid, return receipt requested, addressed to Lessor and
Lessee at the respected address set forth in Section 1.05
of the Lease Agreement and addressed to the undersigned at
The Limited, Inc., Two Limited Parkway, Columbus, Ohio 43235,
Attention: Kenneth B. Oilman, or at any other address within
the United States as one party has specified to the other
from time to time by written notice given in accordance with this
Subparagraph (f).
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
executed by its duly authorized officer as of this 2nd day of JULY, 1990.
Signed in the presence of: GUARANTOR: LIMITED, INC.,
a Delaware corporation
By:
- ---------------------------- ----------------------------------
Printed Name: KENNETH R. GILMAN
- ---------------------------- Title: CHIEF FINANCIAL OFFICER
<PAGE>
[LETTERHEAD OF CONTINENTAL REAL ESTATE COMPANIES]
January 9, 1996 CERTIFIED RECPT. # P 825 498 059
Limited Credit Services
Attn: William J. Salamy
4590 East Broad Street
Columbus, Ohio 43213
RE: Lease between World Financial Network Bank (The Limited) and
Partners at Brooksedge dated July 2, 1990, for leased premises
at 220 W. Schrock Road, Westerville, Ohio
Dear Mr. Salamy:
Pursuant to Lease Section 1.04, base rent for the leased premises increases
to $832,889.53/yr., which is 110.7% of the fixed minimum rent for the first
60 months, effective February 1, 1996.
Commencing February 1, 1996, please submit the monthly rental payment of
$69,407.46 to:
Partners at Brooksedge
Attn: Accounting
P. O. Box 712
Columbus, Ohio 43215
Please do not hesitate to call me if you have any questions. Thank you.
Sincerely,
/s/ Deborah L. Pair
Deborah L. Pair
Property Management
cc: Lease File
Accounting
<PAGE>
THIRD AMENDMENT OF LEASE
THIS THIRD AMENDMENT OF LEASE (the "Third Amendment") is entered into by
and between PARTNERS AT BROOKSEDGE, an Ohio general partnership ("Lessor"),
and WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.) ("Lessee") as of the 18 day
of February, 1991.
WHEREAS, Continental Acquisitions, Inc. ("CAI"), Lessor's predecessor in
interest, and Lessee entered into an office lease as of July 2, 1990
providing for the construction and leasing of a 100,800 (approximate) square
foot building on Schrock Road in Westerville, Ohio, which lease was amended
by a first amendment of lease between CAI and Lessee dated as of September
11, 1990 and a second amendment of lease between Lessor and Lessee dated as
of November 16, 1990 (collectively, the lease, the first amendment of lease
and the second amendment of lease are herein referred to as the "Lease"); and
WHEREAS, Lessor and Lessee desire to amend the Lease as hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual covenants herein contained
and contained in the Lease, Lessor and Lessee, intending to be legally bound,
agree as follows:
Section 1. COMPLETION DATE. Lessor and Lessee agree that the
"completion date", as defined in Section 1.03 of the Lease, is January 23,
1991 and Lessor and Lessee further agree that the term of the Lease commenced
on January 23, 1991 and will expire on January 31, 2001, subject to earlier
termination or to extension as provided in the Lease.
Section 2. FIXED MINIMUM RENT. Lessor and Lessee acknowledge and agree
that the fixed minimum rent as set forth in the first textual paragraph of
Section 1.04 of the Lease has been adjusted for the cost of Audit Items,
Additional Items and Net Change Order Costs as provided in Section 1.04 of
the Lease. Lessor and Lessee agree that the fixed minimum rent that shall be
payable by Lessee to Lessor for the first 60 months of the Lease term shall
be $62,698.70 per month. The monthly rental payable on February 1, 1991 is
$25,965.55, which consists of the difference between the adjusted monthly
rental as set forth herein and the advance rental payment of $54,936.00 made
by Lessee upon execution of the Lease plus rent for the month of January,
1991 in the amount of $18,202.85 pro rated in accordance with Section 2.01 of
the Lease. Monthly rental in the full adjusted amount of $62,698.70 shall be
due and payable beginning March 1, 1991.
Section 3. CONTINUED EFFECT. Except as amended hereby, the terms of
the Lease remain in full force and effect and are confirmed by the parties
hereto.
IN THE PRESENCE OF: PARTNERS AT BROOKSEDGE, an Ohio
General Partnership
By: Continental Properties, an Ohio
General Partnership, a Partner
/s/ [ILLEGIBLE] By: /s/ Franklin E. Kass
- --------------------------------- ---------------------------------
Franklin E. Kass
Managing General Partner
/s/ [ILLEGIBLE]
- ---------------------------------
By: Nationwide Property Management,
Inc., an Ohio corporation, a Partner
/s/ [ILLEGIBLE] By: /s/ Robert J. Woodward, Jr.
- --------------------------------- ---------------------------------
Robert J. Woodward, Jr.
Vice President and General Manager
/s/ Martha E. Cain
- ---------------------------------
<PAGE>
WORLD FINANCIAL NETWORK NATIONAL
BANK (U.S.)
/s/ [ILLEGIBLE] By: /s/ Ralph E. Spurgin
- --------------------------------- --------------------------------------
Ralph E. Spurgin
Its: President and Chief Executive Officer
/s/ [ILLEGIBLE]
- ---------------------------------
ACKNOWLEDGEMENTS
STATE OF OHIO )
)ss:
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 22nd day of
February, 1991, by Franklin E. Kass, as the managing general partner of
Continental Properties, an Ohio general partnership, a partner of Partners of
Brooksedge, an Ohio general partnership, on behalf of such partnerships.
/s/ David Sheidlower
--------------------------------------
Notary Public
STATE OF OHIO )
)ss: [SEAL]
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 22nd day of
February, 1991, by Robert J. Woodward, as vice president and general manager
of Nationwide Property Management, Inc., an Ohio corporation and a partner of
Partners of Brooksedge, an Ohio general partnership, on behalf of such
corporation and partnership.
/s/ David Sheidlower
--------------------------------------
Notary Public
STATE OF OHIO )
)ss: [SEAL]
COUNTY OF FRANKLIN )
The foregoing instrument was acknowledged before me this 20th day of
February, 1991, by Ralph E. Spurgin, as president and CEO of World Financial
Network National Bank (U.S.), a National Banking Association, on behalf of
the association.
[SEAL] /s/ Mark E. McGrady
--------------------------------------
Notary Public
JOINDER BY GUARANTOR
The undersigned Guarantor of the Lease does hereby consent to the
foregoing Third Amendment and all previous amendments of the Lease and
acknowledges and affirms that the guaranty executed by the Guarantor with
respect to the Lease remains in full force and effect, notwithstanding the
amendments thereto. Guarantor acknowledges and agrees that its guaranty shall
extend to all rental payments and other obligations of Lessee as set forth in
the Third Amendment.
In the presence of: THE LIMITED, INC.
/s/ [ILLEGIBLE] By: /s/ Kenneth B. Gilman
- --------------------------------- ---------------------------------
Kenneth B. Gilman
/s/ [ILLEGIBLE] Its: Executive Vice President
- --------------------------------- ---------------------------------
Chief Financial Officer
<PAGE>
[Letterhead]
January 27, 1999
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
Americana Parkway Warehouse Limited
Attn: Stamford M. Ackley
695 Kenwick Road
Columbus, Ohio 43209
Re: Lease Agreement Dated June 28, 1994 Between Americana Parkway Warehouse
Limited and ADS Alliance Data Systems, Inc. For Lease Premises Located At
6939-6955 Americana Parkway, Columbus, Ohio
Dear Mr. Ackley:
Pursuant to Section 11.01 of the referenced Lease Agreement Lessee has the
option to extend the Lease Term for a period of five years commencing upon the
expiration of the base term by providing Lessor with written notice at least 180
days before the term expiration.
This letter is to serve as Lessor's written notice of Lessee's intent to
exercise the Extension Option provided for in the Lease based on the following
terms.
Current Term Expiration Date: August 31, 1999
Renewal Option Commencement Date: September 1, 1999
Renewal Option Base Rent: $3.00 per square foot as per
your letter on 10/27/98 (see
attachment)
Renewal Option Expiration Date: August 31, 2004
We understand that Renewal Option Base Rent cannot be calculated to the exact
amount until we get closer to August 1999 and the attached letter is a close
estimate. However, we will need to agree in writing upon the new Renewal Option
Base Rent by July 15, 1999.
Lessor's signature below will document Lessor and Lessee's agreement to the
terms above.
Americana Parkway Warehouse Limited ADS Alliance Data Systems, Inc.
By: /s/ Stanford M. Ackley By: /s/ Bruce McClary
-------------------------------- -----------------------------
Title: Managing General Partner Title: Director
---------------------------- ------------------------
Date: February 2, 1999 Date: 1/27/99
----------------------------- ------------------------
cc: Bruce McClary ADS CAD 2
Karen Morauski ADS CAD 4
Bob Roddy DAD 1
<PAGE>
[Letterhead]
April 20, 1998
CERTIFIED MAIL, RETURN RECEIPT REQUESTED
Mr. Stanford M. Ackley
Americana Parkway Warehouse Limited
695 Kenwick Road
Columbus, OH 43209
Dear Mr. Ackley:
RE: Lease Agreement between Americana Parkway
Limited, Lessor, and World Financial Network
Lessee, dated June 28, 1994 for premises lo??
Americana Parkway, Columbus, Ohio.
This letter is to advise you that the Lease Agreement between Parkway Warehouse
Limited and World Financial Network June 28, 1994 has been assigned by World
Financial Network its affiliate, ADS Alliance Data Systems, Inc., a Delaware
co?? February 1, 1998.
You are requested to direct all future correspondence to the following:
ADS Alliance Data Systems, Inc.
Attn: General Counsel
800 TechCenter Drive
Gahanna, OH 43230
Very truly yours,
/s/ Karen A. Morauski
Karen A. Morauski
Counsel
jlh
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment") is made by and
between World Financial Network National Bank, assignor ("Lessee") and ADS
Alliance Data Systems, Inc., a Delaware corporation, ("Assignee").
WHEREAS, Lessee has entered into that certain Lease dated June 28, 1994
("Lease") with Americana Parkway Warehouse Limited, ("Lessor"); and
WHEREAS, the Lease allows Lessee to assign its rights under the Lease to
the Assignee; and
WHEREAS, Lessee wishes to sell, convey, assign and transfer all of its
right, title and interest in and to the Lease to Assignee; and
WHEREAS, Assignee wishes to accept the sale, conveyance, assignment and
transfer of the Lease and to assume all of Lessee's obligations thereunder;
NOW, THEREFORE, in consideration of the terms and conditions set forth
herein, Lessee and Assignee agree as follows:
1. DEFINITIONS. Except as expressly provided herein, all capitalized terms
contained in this Lease shall have the meanings set forth in the Lease. The
Lease is incorporated herein by this reference.
2. ASSIGNMENT AND ASSUMPTION OF LEASE. On the Effective Date of this
Assignment, Lessee hereby sells, conveys, assigns and transfers all of its
right, title and interest in and to the Lease to Assignee. Assignee hereby
accepts such sale, conveyance, assignment and transfer and hereby assumes all of
Lessee's obligations and responsibilities under the Lease. It is the express
intention of the parties that this assignment shall cause Assignee to be
substituted in the place and stead of Lessee for all purposes relating to the
Lease.
3. FUTURE ASSIGNMENTS OF LEASE BY ASSIGNEE. Assignee agrees, recognizes and
acknowledges that any future assignment by it of the Lease will be subject to
the terms and conditions set forth in the Lease.
4. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and warrants
to Assignee that:
(a) It is duly organized and existing under the laws of the state of its
organization;
(b) The execution, delivery and performance of this Assignment have been
duly authorized by all requisite action of Lessee's officers and
directors, and will not violate or breach any provision of any
organizational document or other agreement or instrument to which
Lessee is a party;
Page 1 of 3
<PAGE>
10. FURTHER ASSURANCES. Subject to the terms and conditions hereof, each
party agrees to use its best efforts to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Assignment as expeditiously as
practicable including, without limitation, the performance of such further acts
or the execution and delivery of any additional instruments or documents as any
party may reasonably request from time to time in order to carry out the
purposes of this Assignment and the transactions contemplated hereby. This
Section shall survive the consummation of the transactions contemplated by this
Assignment.
11. TIME OF THE ESSENCE. Time is of the essence with respect to the
performance of all transactions contemplated by this Assignment.
12. EFFECTIVE DATE. The "Effective Date" of this Assignment shall be the
1st day of February, 1998.
IN WITNESS WHEREOF, Lessee and Assignee have executed this Assignment as of
the day and year first above written.
WORLD FINANCIAL NETWORK NATIONAL BANK
("LESSEE")
By: /s/ Robert Armiak
----------------------------------
Name: Robert Armiak
Title: Treasurer
Date: February 1, 1998
ADS ALLIANCE DATA SYSTEMS, INC.
("ASSIGNEE")
By: /s/ Daniel T. Groomes
----------------------------------
Name: Daniel T. Groomes
Title: Executive Vice President
Date: February 1, 1998
Page 3 of 3
<PAGE>
CREDIT OPERATIONS
MEMO
TO: Dan Groomes
FROM: Nate Tatum
DATE: AUGUST 19, 1994
SUBJECT: LCS III Lease
- --------------------------------------------------------------------------------
Attached for your files is a copy of the approved lease for LCS III.
First rental payment due by September 1, 1994 in the amount and to the
address as noted.
<TABLE>
<CAPTION>
MONTHLY RENT LANDLORD
------------ --------
<S> <C>
$13,200.00 Base Rent Americana Parkway Warehouse Limited
$ 3,816.24 Common Area 695 Kenwick Road
--------- Columbus, OH 43209
#17,016.24 Total Attention: Stanford M. Ackley
</TABLE>
Please advise if there are any questions.
Thank you.
NT/bt
<PAGE>
AMERICANA PARKWAY
LEASE AGREEMENT
This Lease Agreement (the "Lease") is made and entered into this 28th day of
June 1994 at Columbus, Ohio, by and between AMERICANA PARKWAY WAREHOUSE LIMITED,
an Ohio limited partnership ("Lessor") and WORLD FINANCIAL NETWORK NATIONAL BANK
(U.S.), a banking corporation organized under the laws of the United States
("Lessee").
ARTICLE I - BASIC LEASE PROVISIONS.
1.01 Definitions. Throughout this Lease Agreement, the following definitions
shall apply:
A. "Building": The term "Building" shall mean a certain 57,600 square foot
structure including appurtenances and fixtures attached thereto located
at 6939-6941-6947-6955 Americana Parkway, Columbus, Ohio.
B. "Premises": The term "Premises" shall mean that portion of the
"Building" leased to the Lessee and more specifically described as Units
6939, 6941, 6947 and 6955 containing approximately 57,600 square feet,
said Premises being more specifically described in Exhibit "A", attached
hereto and incorporated by reference as though fully rewritten herein.
C. "Common Areas": The term "Common Areas" shall include, but not be
limited to, entrances, steps, sidewalks, parking areas, landscaping,
exits, roadways, and other areas as would normally be made available in
common for use with other lessees in the Building if the Building were
occupied by more than one lessee, from time to time, by the Lessor,
including but not limited to a common easement for truck turn around
purposes, in common with the adjacent lot. Lessee and its
<PAGE>
employees and invitees shall have the exclusive right to use such Common
Areas, subject to current easements of record and the rights of the
neighboring property to use the truck turn around area. Lessor shall
not change, alter, decrease or modify any Common Area without the
consent of Lessee. Lessee shall use the Common Areas in accordance with
such reasonable rules and regulations as may, from time to time be made
by Lessor for the general safety, comfort and convenience of Lessor,
occupants and Lessees. Lessee shall cause its customers, employees and
invitees to abide by such rules and regulations.
D. Total Leasable Area in the Project: 57,600 Square Feet.
E. Leasable Area in the Premises: 57,600 Square Feet.
F. Lessee's Prorata Share in relation to that of the Project: 100%.
G. Commencement Date:
(a) the later of (i) the date that Lessor completes its work under
Section 4.01.1; or (ii) the earlier of (A) the later of September 1,
1994 or 60 days after possession of the Premises has been delivered to
Lessee as set forth in Section 2.01.1, other than the office space
described in Section 2.01.1, provided that such 60 days shall not be
extended for the aggregate period or periods of unavoidable delay (as
defined in Section 4.02) in the performance of Lessee's construction
work under Section 4.01, or (B) the first day of the calendar month in
which Lessee has obtained an effective unconditional certificate of
occupancy for the Premises, permitting Lessee's occupancy of the
2
<PAGE>
Premises for the purposes contemplated by this Lease. Lessor and Lessee
estimate that the Commencement Date will occur on or about September 1,
1994.
H. Annual Base Rent: $158,400.00.
1. Additional Rent (Refer to Article III 3.02 and 3.03).
J. Monthly Installments of Base Rent: $13,200.00.
K. Security Deposit: None
L. Brokers: None
M. Addresses for Notices and Payments:
Lessor: Americana Parkway Warehouse Limited
695 Kenwick Road
Columbus, Ohio 43209
Attention: Stanford M. Ackley
Lessee: c/o Limited Credit Services
4590 East Broad Street
Columbus, Ohio 43213
3
<PAGE>
Attention: Director Credit Operations
N. Extension Options: Two (2) option terms, of five (5) years each.
O. Expiration Date: The last day of the sixtieth (60th) full calendar month
after the Commencement Date.
P. Guarantor: The Limited, Inc.
ARTICLE II - GRANT OF LEASEHOLDER INTEREST.
2.01 Term. Lessor, in consideration of the rents and covenants set forth
herein, does hereby lease: let and demise to Lessee, and Lessee does
hereby hire, take and lease from Lessor, on the terms and conditions set
forth herein the Premises, to have and to hold for the term of this
Lease beginning on the date hereof (provided, however, that Lessee's
obligation to pay Base Rent, Additional Rent, and other charges
hereunder shall not begin until the Commencement Date) and ending on the
Expiration Date.
2.02 Early Occupancy.
2.02.1 Beginning on the date hereof, Lessee shall have the right to enter the
Premises for the purpose of performing, or preparing to perform,
Lessee's improvements under Section 4.01, so long as Lessee does not
unreasonably disturb the quiet occupancy of Jim Boucher and/or Buckeye
Parts Services, Inc. (the "Existing Tenant") who currently occupies
approximately 4,800 square feet of the Premises (the "Buckeye Space").
Lessor warrants and represents that: (i) Lessor and the Existing
4
<PAGE>
Tenant have entered into an Option and Early Termination Agreement (the
"Buckeye Agreement"), requiring the Existing Tenant to surrender
possession of the Premises by July 31, 1994 except for 456 square feet,
more or less, of office space, to be vacated by the Existing Tenant on
or before August 31, 1994; (ii) a true and correct copy of the Buckeye
Agreement is attached hereto as Exhibit "D"; and (iii) the Buckeye
Agreement is in full force and effect. Lessor shall use its best efforts
to enforce the Buckeye Agreement. On and after August 1, 1994, Lessee
shall have the right from time to time to relocate the office space of
the Existing Tenant, which currently occupies approximately 458 square
feet of the Buckeye Space, to another part of the Premises, provided
that Lessee pays all costs of such relocation (including the cost of
rerouting the Existing Tenant's telephone lines), telephone service to
the Existing Tenant is not disrupted, and Lessee reasonably coordinates
any such move with the Existing Tenant.
2.02.2 Lessor warrants that no person or entity is in possession of any part of
the Premises, other than the Existing Tenant, except that approximately
51,000 square feet of the Premises is leased to Oak Rubber Company,
which has vacated the Premises but has the legal right thereto until
November 30, 1994, and Lessor has leased out approximately 50 parking
spaces under a month to month lease terminable on 60 days' notice.
Lessor shall use its best efforts to cause Oak Rubber Company and the
lessee of such parking spaces to voluntarily surrender possession of,
and all rights to possession of, the Premises, as soon as possible, and
in any event before July 1, 1994, and to terminate such parking lease
by August 31, 1994, so as to be able to deliver exclusive possession of
(i) the entire Premises to Lessee on or before July 1, 1994, subject to
the rights of the lessee to use of such 50 parking spaces and subject
to the rights of the Existing Tenant, and (ii) the entire Premises to
Lessee, without exception, on or before September 1, 1994. Lessee's
entering into and occupancy of the Premises prior to the Commencement
Date shall be subject to all of the
<PAGE>
terms and conditions of this Lease, other than those requiring Lessee to
pay any Base Rent, Additional Rent, or other expense, other than
utilities actually consumed.
2.03 Intentionally Omitted.
2.04 Lessee's Acceptance of the Premises. Lessor shall not be deemed to have
delivered possession of the Premises to Lessee until Lessor shall have
furnished Lessee with evidence reasonably satisfactory to Lessee that
the lease of the parking spaces has been duly terminated as of August
31, 1994 or earlier, and a written acknowledgement from Oak Rubber Co.
and any other occupants of the Premises (other than the Existing
Tenant), that their respective leases or other rights of occupancy, if
any, have terminated. Upon the Commencement Date, Lessee shall give
Lessor a letter signed by a representative of Lessee acknowledging the
Commencement Date and Expiration Date of this Lease and acknowledging
that Lessee has accepted the Premises for occupancy and that the
condition of the Premises was at the time satisfactory and in
conformity with provisions of this Lease in all respects, except (a)
as set forth in writing by Lessee in a notice sent to Lessor within
Thirty (30) days after the Commencement Date, and (b) latent defects.
Lessee's letter shall become a part of this Lease.
ARTICLE III - RENT AND OPERATING EXPENSES.
3.01 Base Rental. From and after the Commencement Date, Lessee shall pay to
Lessor the Annual Base Rent in consecutive monthly installments of Base
Rent, in advance, on the first day of each and every calendar month
during said term. All sums required to be paid hereunder including Base
Rental and additional rent shall be due and payable on the first day of
each and every month, and in
6
<PAGE>
the event such sums are not paid by the tenth day of the month for which
the same is due, Lessee shall pay to Lessor a late payment penalty of
One Percent (1%) of the unpaid amount and such unpaid amount shall bear
interest at a floating rate of interest per annum equal to the sum of
Four Percent (4%) per annum plus the rate per annum announced from time
to time by Bank One, Columbus, NA as its "prime rate".
3.02 Certain Expenses. It is the intention of the Lessor and the Lessee
that, except as otherwise set forth herein, Lessee shall pay its
Prorata Share (as set forth in Article I 1. 1F hereof) of the
following costs, expenses, and obligations relating to the
maintenance and operation of the Building of which the Premises are a
part and the Common Areas which may arise or become due during the
term of this Lease and after the Commencement Date, and that the
Lessor shall be indemnified by the Lessee against the following
costs, expenses, and obligations:
1. Operating and Maintenance Expenses, consisting of:
(a) Grass cutting, landscaping and fertilizing;
(b) Snow removal;
(c) Parking lot sealing and restriping annually;
(d) Fire suppression sprinkler system maintenance and
repair, and utility costs associated therewith,
(e) Reasonable and necessary repairs to the Premises
required to be made by Lessor under Section 6.01 and
6.02, except the cost of repaving under Section 6.01,
and except any costs in respect of the maintenance,
repair or replacement of the roof; and
(f) Other reasonable operating and maintenance expenses
similar to those set forth on Exhibit "C" to this Lease
or as may reasonably arise in the future.
2. Real Estate Taxes (and assessments, if any, including storm
water drainage charges).
7
<PAGE>
3. Insurance Premiums.
4. Reasonable and customary fees paid to an independent certified
public accountant regarding operation and management of the
Building.
5. Utilities for Common Areas, if any, not billed directly to
Lessee, subject, however, to Lessee's prior written approval.
6. A management fee equal to three percent (3%) of Base Rent and
Additional Rent.
All of the above shall be denominated as Additional Rent, and shall be
paid to the Lessor without notice or demand and without abatement,
deduction, or setoff, except as otherwise set forth in this Lease.
3.03 Calculation and Payment of Additional Rent. Thirty (30) days prior to
the beginning of each calendar year during the term of this Lease,
Lessor shall prepare for the next ensuing calendar year an estimate of
the annual costs and expenses of operating and maintaining the
Building and the Common Areas, real estate taxes, and assessments,
if any, insurance premiums (except for any insurance maintained by
Lessee under Section 6.03), and utility charges for utilities not
directly billed to Lessee and all other such reasonable items
described in Items 1 through 5 of Section 3.02 attributed to the
Building (the "Budget" - a copy of which Budget for calendar year
1994 is attached hereto as Exhibit "B"). Lessee shall and does hereby
agree to pay to Lessor as Additional Rent Lessee's Prorata Share (as
defined in Article I 1.01 F hereof) of such Budget on a monthly basis
[payable One Twelfth (1/12) each month in advance at the same time as
the Base Rent is due]. In the event that the Commencement Date of this
Lease is other than January 1 of any calendar year, then the Lessee
shall pay its Prorata share of the Budget for the calendar year in
which this Lease commences.
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3.03.1 Lessor shall, within Sixty (60) days following the end of each calendar
year of this Lease, provide Lessee with a statement showing, in
reasonable detail, the actual costs and expenses incurred in the
calculation of the Additional Rent pertaining to the preceding calendar
year. In the event said Statement reveals an overpayment by Lessee of
its Prorata Share, Lessor shall credit Lessee with an amount which
represents Lessee's overpayment to Lessee's obligation for the payment
of rental for the month of April. Any excess remaining after such credit
(as well as any overpayment in respect of the final calendar year)
shall be promptly refunded to Lessee. In the event such statement shows
an underpayment by Lessee of its Prorata Share, Lessee shall pay to
Lessor an amount equal to Lessee's underpayment prior to April 1 of
that calendar year. There shall be no duplication of charges to Lessee
under any portion of this Lease.
3.03.2 Lessor warrants that Exhibit "C" represents the actual costs for
calendar year 1993 under Section 3.02.
3.03.3 Lessor's charges for maintenance and operation of the Building and the
Common Areas shall be limited to the reasonable and competitive costs of
performing Lessor's obligations under Section 6.01 and 6.02. All
expenses for maintenance and operation of the Building and the Common
Areas shall be reasonable, competitive, and shall be either on a "time
and materials" basis, or at the reasonable and competitive rate actually
paid by Lessor to the contractor or subcontractor performing such work.
There shall be excluded from the expenses for maintenance and operation
(a) the cost of repaving under Section 6.01, and (b) any costs in
respect of the maintenance, repair or replacement of the roof.
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3.03.4 Lessor shall cause all real estate taxes and assessments to be paid to
the taxing authority before any interest or penalty becomes due thereon.
Lessor shall forward a copy of all tax bills and notices of reassessment
promptly upon receipt. Lessor warrants and represents that Exhibit "E"
is a true and correct copy of the current tax bill for the Building.
(a) Lessee shall, at its expense, upon notice to Lessor, have the right
to contest any and all such real estate taxes and assessments in its own
name or in the name of and on behalf of Lessor. Lessor shall, on the
request of Lessee, cooperate in such contest, except for the cost
thereof.
(b) Nothing herein contained shall be construed to include as taxes and
assessments levied or imposed upon the Premises any inheritance, estate,
succession, transfer, gift, franchise, corporation, income or net profit
tax that is or may be imposed on Lessor. If any assessment or charge is
payable in installments, Lessee's obligation in respect thereof shall be
determined as if Lessor had elected to pay the assessment in
installments, and Lessee shall be responsible for only those
installments or parts of installments which would be attributable to the
term of this Lease (excluding any period prior to the Commencement Date,
but including the first or second Option Term, if exercised). Lessor
warrants and represents that the Premises are a separate tax parcel and
shall remain so during the entire term.
(c) Lessor shall pay, before any interest or penalty becomes due, all
taxes or assessments that are excluded from Lessee's obligation under
this Section 3.03. If Lessor fails to do so, Lessee may,
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but shall not be obligated to, pay all or any part thereof, and Lessor
shall reimburse Lessee therefor upon demand, with interest at the rate
set forth in Section 3.01 from the date of payment by Lessee.
3.03.6 Lessee may, at any time and from time to time, elect to assume any of
the maintenance or operation obligations of the Building or the Common
Areas, at Lessee's sole expense. Lessee shall exercise its election by
written notice to Lessor. Following Lessee's election, the expense of
performing any obligation assumed by Lessee shall no longer be included
in the operating costs payable under Section 3.03. Any such election may
be revoked by Lessee by not less than thirty (30) days' notice to
Lessor, provided that Lessee may not elect to assume, or to cease the
assumption of, the same obligation more than once in any calendar year.
3.04 Lessee Verification. Lessee or its accountants shall have the right to
inspect, at reasonable times and in a reasonable manner, during the One
Hundred Eighty (180) day period following the delivery of Lessor's
statement of the actual amount of Additional Rent, such of Lessor's
books of account and records as pertain to and contain information
concerning such costs and expenses in order to verify the amounts
thereof. If Lessee shall dispute any item or items included in the
determination of Additional Rent and for a particular calendar year, and
such dispute is not resolved by the parties hereto within One Hundred
Eighty (180) days after the statement for such year was delivered to
Lessee, then either party may, within Thirty (30) days after such One
Hundred Eighty (180) days, request that a firm of independent certified
public accountants selected by Lessor and reasonably acceptable to
Lessee render an opinion as to whether or not the disputed item or items
may properly be included in the determination of Additional Rent for
such year; and the opinion of such firm on the matter shall be
conclusive and binding upon the parties hereto. The
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fees and expenses incurred in obtaining such an opinion shall be borne
by the party adversely affected thereby; and if more than one item is
disputed and the opinion adversely affects both parties, the fees and
expenses shall be apportioned accordingly. If Lessee shall not dispute
any item or items included in the determination of Additional Rent for a
particular calendar year within One Hundred Eighty (180) days after the
statement for such year was delivered to it, Lessee shall be deemed to
have approved such statement.
ARTICLE IV - TENANT FINISH IMPROVEMENTS.
4.01 Construction.
4.01.1 Prior to the Commencement Date, and in any event before September 1,
1994, Lessor shall cause the roof to be in sound and watertight
condition (and, if necessary, shall replace the roof), and free of all
leaks; and shall remove and replace the area of deteriorated concrete
floor slabs as recommended by the fourth paragraph on page one of the
"Report of Structural Review" prepared by Lantz Jones & Nebraska, Inc.,
dated May 27, 1994 (the "Structural Report"), a copy of which report is
attached hereto as Exhibit "F".
4.01.2 As soon as practical after the Commencement Date, Lessor shall repair
the exterior spalled areas as referred to by the Structural Report, to
the extent necessary and practical.
4.01.3 Lessee shall construct any required tenant finish improvements to the
Premises in accordance with the floor plan attached to this Lease, made
a part hereof and marked Exhibit "G". Schematic drawings and
specifications and final plans and specifications for such tenant finish
improvements
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shall be prepared by Lessee on the basis of the schematic drawings and
specifications attached hereto as Exhibit "G".
4.02 Completion Date. The time for performance of Lessor's and Lessee's work
in the Premises under Section 4.01 shall be extended by such period
after such date specified in this Lease as shall equal the aggregate
period or periods of delay (hereinafter referred to as "unavoidable
delays"), if any, in construction of the Premises in consequence of any
acts of God, strikes, labor disputes, inability to obtain material or
labor on reasonable terms, governmental laws, regulations or
restrictions, acts of a public enemy, or any cause whatever beyond the
control of the party required to perform such work, including, in the
case of Lessee (but not the Lessor, who expressly hereby assumes the
following risks), failure of the Existing Tenant to vacate the Premises
or any portion thereof within the time permitted by the Buckeye
Agreement, or to cooperate in relocation of its office space, or failure
of Oak Rubber Company to vacate the Premises or any portion thereof by
July 1, 1994. In the event that Lessor has reasonable knowledge or
belief that Lessor's work under Section 4.01.1 will not be fully
completed on or before the date specified in Section 4.01.1, then
Lessor shall give Lessee written notice of such fact, and of the revised
date prior to which such work will be fully completed, subject to such
unavoidable delays, within a reasonably prompt time after Lessor learns
of such fact. Under no circumstances shall Lessor be liable to Lessee in
damages for any delay in commencing or completing the Premises or for a
total failure to complete same.
4.03 Intentionally Omitted.
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4.04 Water Main. The fire protection system for the Premises is supplied by a
common water main located on property adjacent to the Premises (the
"Water Main Property"). As soon as possible, Lessor shall obtain for
Lessee a written instrument, satisfactory to Lessee in form and
substance, from the fee owner of the Water Main Property, permitting
Lessee to continue to use that source of water for the fire protection
system of the Premises throughout the term hereof, together with
evidence reasonably acceptable to Lessee that such joint use is lawful.
Without limiting the right of Lessee to approve the form and substance
of such instrument, Lessee shall have the right to approve the cost, or
the method of allocating cost, of the water service thereunder. If
Lessor has not obtained such instrument before the Commencement Date,
Lessor, at its sole cost, shall cause an alternate source of water for
the fire protection system to be installed in the Premises, and shall
cause any such installation to be completed on or before July 1, 1995.
If Lessor fails so to do, Lessee may cause the installation of such
water source and, if not reimbursed by Lessor within thirty (30) days
after Lessee's demand, Lessee may reimburse itself for the cost thereof,
with interest at the rate for overdue payments of Base Rent, out of
payments of Base Rent and Additional Rent thereafter coming due.
ARTICLE V - LESSEE'S COVENANTS.
5.01 Usage. The Premises shall be used by the named Lessee for office,
mailing and distribution, account processing, warehouse and storage
purposes. Lessee shall not use, occupy, suffer or permit the Premises or
any part thereof to be used or occupied for any other purposes including
those contrary to law, rules, or regulations of any governmental or
public authority (including zoning restrictions). Lessee shall not
undertake any activities or store any material or items within
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the Premises so as to increase the cost of any insurance policy which
Lessor or Lessee is required to maintain on the Building or Premises.
Lessee shall not permit unreasonable noise or offensive odors to emit
from the Premises, suffer waste or injury, nor sell, assign, mortgage or
transfer this Lease or allow or permit any lien upon Lessee's interest
herein by operation of law without prior written consent of Lessor.
Lessee shall procure, at its sole cost and expense, any permit and/or
licenses required for the transaction of Lessee's business in the
Premises. Notwithstanding anything contained in this Lease to the
contrary, there shall be no obligation on the part of Lessee to comply
with any of the laws, directions, rules or regulations referred to which
may require structural alterations, structural changes, structural
repairs, or structural additions, all of which required structural
alterations, changes, repairs or additions shall be the obligation of
Lessor unless made necessary by the negligence or default of Lessee, in
which event, Lessee shall comply at its expense.
5.02 Alterations. Lessee shall make no additions, changes, alterations or
other improvements (the "Work") to the Premises or any electrical or
mechanical facilities, equipment or systems pertaining to the Premises
or Building without the prior written consent of Lessor. Lessor may
impose as a condition of such consent, such reasonable requirements as
Lessor, in its sole discretion, may deem desirable including, without
limitation, the submission of drawings, plans, and specifications for
Lessor's written approval, the obtainment of necessary permits, the
posting of bonds and requirements as to the manner in which and the time
or times at which such Work shall be done. Lessor's consent to
non-structural alterations shall not be unreasonably withheld. In no
event shall any work affect the structure of the Building. Lessee shall
have the right to add exterior lighting to the Building as shown on
Exhibit "H".
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If Lessor consents to the work by Lessee, any contractor selected by
Lessee to do the same must first be approved, in writing, by Lessor.
Lessee shall hold Lessor harmless of and from any cost or liability with
respect to, and shall keep the Premises and Building free from any
mechanic's, materialman's or similar liens placed upon the Lessor. Prior
to the commencement of any such work, Lessee shall give evidence to
Lessor that appropriate insurance satisfactory to Lessor has been
obtained by Lessee and contractors for the protection of Lessor,
including naming Lessor as an additional insured, and its Lessees and
invitees from damage or injury resulting from the work. All such work,
other than trade fixtures or movable items, shall become the property of
Lessor and shall be surrendered with the Premises, as a part thereof, at
the termination of the Lease, whether by lapse of the term, termination
for default or otherwise without compensation, credit or setoff to
Lessee.
5.03 Signs. Lessee will have the right to affix, install, or erect any signs,
graphics, advertisements or notices on any part of the outside or inside
of the Premises or Building of which they are a part, or the Common
Areas, without need to obtain Lessor's approval. All costs of acquiring
and installing such approved sign shall be borne by Lessee. Lessee shall
comply with any and all sign graphics, governmental rules and
regulations. At the end of the term, Lessor may reasonably require
Lessee to remove any signs installed by Lessee and repair any damage
caused by such removal.
5.04 Indemnification and Insurance.
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5.04.1 Subject to Section 6.03.2, Lessee will indemnify, defend and hold the
Lessor harmless against any and all claims, damages, lawsuits, and
judgments for loss, damage, injury and/or occupancy of the Premises
resulting from any injury to person or property of from loss of life in
or about the Premises, except if caused by the negligence, breach of
this Lease, or willful misconduct of Lessor, or any of Lessor's
officers, employees, agents or representatives acting on behalf of
Lessor.
5.04.2 (a) The obligation to indemnify contained in this Section 5.04 or
elsewhere in this Lease is conditioned upon the party claiming the
right to be indemnified (the "Indemnitee"), (i) first promptly
notifying the other (the "Indemnitor") of the claim, damage, lawsuit
or potential judgment (a "Claim") for which indemnity is sought,
provided that delay in notification shall release the Indemnitor only
to the extent of actual prejudice resulting from the delay; (ii)
fully tendering to the Indemnitor the defense of such Claim, and
(iii) otherwise fully complying with all of the terms set forth in
this Section 5.04.2. With respect to the indemnity obligations
undertaken by Lessor and Lessee in this Lease, the Indemnitor shall
at its cost defend or cause to be defended any Claim against the
Indemnitee alleging such acts or omissions and seeking damages which
are payable under the terms of this Lease, even if any of the
allegations of such Claims are groundless, false or fraudulent; but
the Indemnitor may make or cause to be made such investigation and
such settlement of any Claim as the Indemnitor or its insurers shall
deem expedient. Unless the Indemnitor shall decline to so defend, the
Indemnitee shall not, except at its own cost, voluntarily make any
payment, assume any obligation or incur any expense in connection
with any Claim for which indemnity may be sought hereunder. The
Indemnitee shall cooperate with the Indemnitor or its insurer and,
upon the request of the Indemnitor, assist in making settlements in
the conduct of suits, and in enforcing any right of contribution or
indemnity against any person or organization
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(other than an employee of the Indemnitee) who may be liable to the
Indemnitee because of acts or omissions with respect to which indemnity
is afforded under this Lease. The Indemnitee shall attend hearings and
trials and assist in securing and giving evidence and obtaining the
attendance of witnesses.
(b) To the extent of any payment made hereunder the Indemnitor or, if
applicable, its insurer, shall be subrogated to all of the Indemnitee's
rights of recovery therefor, against any person or organization (other
than an employee of the Indemnitee) and the Indemnitee shall execute and
deliver instruments and papers and do whatever else is necessary to
secure such rights. The Indemnities shall do nothing after loss to
prejudice such rights.
(c) Upon the Indemnitee becoming aware of any act or omission which
might reasonably be expected to be the basis of a Claim covered hereby,
written notice shall be given by the Indemnitee or on its behalf to the
Indemnitor as soon as practicable, together with the fullest information
obtainable. If claim or demand is made or suit is brought against the
Indemnitee, the Indemnitee shall immediately forward to the Indemnitor
every demand, notice, summons or other process received by the
Indemnitee or its representative.
5.04.3 Lessee agrees to carry, at its own expense throughout the term of this
Lease, public liability insurance covering the Premises, and Lessee's
use thereof, with the minimum of Five Hundred Thousand Dollars
($500,000.00) on account of bodily injury to or death of one (1) person
and One Million Dollars ($1,000,000.00) on account of bodily injury to
or death of more than one (1) person as a result of any one (1) accident
or disaster, and with One Hundred Thousand Dollars ($100,000.00)
coverage for property damage, with such deductible as Lessee may
typically carry in the course of its business, subject to the reasonable
approval of Lessor's mortgagee. Any
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insurance required to be carried by Lessee hereunder may be effected by
one or more blanket policies, if Lessee so elects. Lessee shall deliver
a Certificate of insurance to Lessor prior to the date of occupancy and
said insurance policy shall list and protect Lessor, and Lessee, as
their interests may appear, and contain an endorsement stating that the
insurer agrees to notify Lessor not less than Ten (10) days in advance
of modification or cancellation thereof
5.04.4 Except to the extent of Lessor's negligence or willful misconduct,
Lessor shall not be liable: for any damage done or by or from the
electrical system, the heating or air conditioning system, the plumbing
and sewer systems in, upon or about the Premises or the Building of
which the Premises are a part, nor for the damages occasioned by water,
snow or ice being upon or coming through the roof, trapdoor, walls,
windows, doors or otherwise, nor for any damage arising from acts of
negligence of co-tenants or other occupants of adjoining or contiguous
property; and furthermore, Lessor shall not be liable for any damage
occasioned by reason the construction of the Premises or for failure to
keep the Premises in repair unless Lessor is obligated to make such
repairs under the terms hereof, and unless notice of the need for
repairs has been given Lessor, a reasonable time has elapsed and Lessor
has failed to make such repairs. Notwithstanding anything contained in
this Lease, Lessor shall not be relieved of its obligation to make
repairs or its liability for failure to do so because of Lessee's
failure to provide notice of the need for a repair when Lessee does not
have actual knowledge of the need and Lessor has actual knowledge of
such a need. In any event, Lessor shall not be liable for any damage to
Lessee's leasehold improvements, fixtures, or merchandise resulting from
fire or other insurable hazards, regardless of the cause thereof, and
Lessee hereby releases Lessor from all liability for such damage.
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5.05 Repairs by Lessee.
5.05.1 Lessee shall keep and maintain the Premises and any fixtures, facilities
or equipment contained therein, in good condition and repair, including,
but not limited to, the heating, air conditioning and ventilation system
serving the Premises (including any portions thereof located outside of
the Premises), that portion of the electrical, plumbing and sewer
systems within and exclusively serving the Premises, any exterior
lighting or electrical fixtures or bulbs, the exterior doors and window
frames, and shall make any replacement thereof, and of all broken and
cracked glass as may become necessary during the term of this Lease or
any renewal or extension thereof, excepting, however, such repairs and
replacements as are the obligations of Lessor under Article VI 6.02
hereof, and excepting any repairs made necessary by reason of damage
due to fire or other casualty covered by standard fire and extended
coverage insurance. Lessee shall also make, at its expense, any
non-structural alterations to the Premises, Building (except the roof)
and Common Areas required by any governmental authority. If Lessee
refuses or neglects to commence or complete repairs within 30 days after
receipt of written notice from Lessor, Lessor may, but shall not be
required to do so, make or complete said repairs and Lessee shall pay
the cost thereof to Lessor upon demand. Lessee shall water the lawn and
plants in the Common Areas as necessary. Lessee will repair any damage
to the roof, structural elements or parking lot caused by Lessee or its
employees or contractors, normal wear and tear excepted.
5.05.2 Lessor warrants and represents that, on the date hereof, the heating,
ventilating and air conditioning systems of the Premises, including all
components thereof, are in good condition and repair.
5.06 Personal Property. Lessee agrees that all personal property of whatever
kind and whichever description that may be at any time in the Premises
shall be kept at Lessee's sole risk or at the risk of those claiming
through Lessee and that Lessor shall not be liable for any damage to or
loss of
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such personal property except if arising from or caused by the
negligence of Lessor. All articles of personal property and all
business and trade fixtures, machinery and equipment not affixed to
real property, furniture and movable partitions owned by Lessee or
installed by Lessee at its expense in the Premises shall be and
remain the property of Lessee and may be removed by Lessee. All other
fixtures shall at option of Lessor become the property of Lessor. In
the event Lessee fails to remove such articles of personal property
and/or business or trade fixtures upon termination of the Lease, the
same shall be deemed abandoned and Lessor may, at its option, keep
the same for its use or remove the same in any manner that Lessor
shall choose, or store said effects at Lessee's expense without
liability of Lessor to Lessee for loss thereof, and Lessee shall pay,
on demand, any and all expenses incurred in such removal, including
court costs and attorney's fees and storage charges on such effects,
or Lessor may, at its option, pursue any other rights or remedies
available to Lessor at law or equity. Lessee shall bear the cost to
repair any damage to the Premises upon termination of the Lease for
any cause whatsoever.
5.07 Inspection. Lessee hereby permits Lessor or Lessor's agents to inspect
or examine the Premises at any reasonable time upon reasonable prior
notice to Lessee, to make such repairs to the Premises that Lessor may
deem desirable or necessary for the safety or preservation of the
Premises and/or the Building, and to permit Lessor or Lessor's agents to
exhibit the Premises to prospective purchasers, and, during the last six
(6) months of the term of this Lease or any renewal term prospective
tenants. Lessee shall exercise its rights under this Section 5.07 so as
not to interfere with Lessee's use and occupancy of the Premises. If
Lessor shall cause physical damage to the Premises or Lessee's personal
property contained therein as a result of such entry, Lessor shall
promptly repair or replace the same at its own cost and expense, and
such cost shall not be
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included in operating and maintenance costs under Section 3.03. Lessor
shall not have the right to retain a key to the Building or the
Premises. Lessor shall have the right to use any and all means which
Lessor may deem proper to enter the Premises in an emergency without
liability therefor. Lessee shall provide Lessor with a list of persons
having keys to the Building and their home telephone numbers.
5.08 Security Deposit. Intentionally omitted.
ARTICLE VI - LESSOR'S COVENANTS.
6.01 Parking Area and Common Areas. Lessor agrees that Lessee and Lessee's
customers, employees and visitors shall have the uninterrupted and
exclusive right throughout the term hereof, to use (but, prior to the
Commencement Date, such rights shall be in common with others entitled
to similar use thereof), the Common Areas, including those roads and
parking areas surrounding and adjacent to the entire Building or within
the Project in which the entire Building is located. Lessee shall not
permit trucks to use the parking area designated for automobile parking.
Lessor shall keep the parking areas free of snow and ice, and shall
seal, stripe and patch the parking areas as needed, but not less often
than annually. The cost thereof shall be included in Additional Rent
under Section 3.03. Lessor shall maintain the landscaping in the Common
Areas as necessary, to consist of mowing the lawn, all necessary
fertilizing and mulching, and pruning trees and shrubs, and replacing
any plants as necessary. The cost thereof shall be included in
Additional Rent under Section 3.03. Lessor, at its own sole cost, shall
cause the parking areas to be repaved not later than August 1, 1995, and
thereafter as necessary, and such cost, except to the extent of damage
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beyond normal wear and tear which damage was caused by Lessee, its
employees and contractors, shall not be included in Additional Rent.
6.02 Repair and Maintenance of Building. Lessor shall keep and maintain in
good order, condition and repair the roof (which shall at all times
be maintained in sound and water-tight condition), gutters,
downspouts, exterior and interior structural walls, foundation and
other structural elements, the Common Areas, and the exterior
portions of the plumbing, and sewer systems serving the Common Areas
and the Building. The cost of all such repairs shall be borne by
Lessee as part of the Additional Rent subject to the terms of Article
III 3.02 above, except for those made to the roof (including, if
necessary, any replacement thereof), and the cost of repaving under
Section 6.01, all of which shall be borne by Lessor, provided that
Lessee shall be responsible for damage caused by Lessee, its
employees and contractors beyond normal wear and tear. Lessor shall
repair, at Lessor's sole cost, and without including the same in the
Additional Rent, any defects in Lessor's construction work under
Section 4.01 Lessor which defects first manifest themselves within
one year after the Commencement Date.
6.02.1 Lessor shall, at its own cost and expense without chargeback to Lessee
as Additional Rent or otherwise, repair or replace any damage or injury
to all or any part of the Premises caused by any act or omission of
Lessor or Lessor's agents, employees, invitees, licensees or visitors.
6.02.2 Lessor shall perform all maintenance and repair obligations which are
its responsibility hereunder so as to minimize the disruption of and
interference with Lessee's business. If Lessor shall enter the Premises
to perform repairs to the Building and the performance of such repairs
would cause a
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material disruption such that Lessee cannot transact its business,
Lessee may require Lessor to perform such repairs during the period from
10:00 p.m. to 6:00 a.m. and during such additional hours, if any, when
Lessee shall not be conducting its business in the Premises. If the
repairs Lessor is to perform shall be lengthy in duration, Lessee shall
undertake reasonable efforts, without being required to disrupt its
business or make the conduct of the same materially more inconvenient,
to enable Lessor to perform all or more of such repairs during daytime
hours.
6.02.3 In the event Lessor shall fail to make repairs, maintenance or
replacements required herein within Thirty (30) days after notice
(except in an emergency in which case Lessor shall respond immediately
upon notice), Lessee shall have the right, but not the obligation, to
make said repairs, maintenance or replacements on behalf of Lessor, and
to bill Lessor for the cost thereof, with such amount to be paid by
Lessor to Lessee within Fifteen (15) days of the date of Lessee's bill.
Notwithstanding any other notice provision in this Lease, notice for
repairs, maintenance or replacements deemed by Lessee to be of an
emergency nature can be made in any reasonable manner calculated to give
Lessor actual notice.
6.03 Casualty Insurance. Lessor shall be responsible for insuring and shall,
at all times during the term of this Lease, carry a policy of insurance
which insures the Building, including the Premises, against loss or
damage by fire or other casualty in an amount not less than eighty
percent (80%) of the replacement cost, or such greater amount as may be
necessary to prevent Lessor from being deemed a co-insurer. Lessor
currently carries coverage for replacement cost with an agreed amount
endorsement, together with rental loss coverage for twelve (12) months
of Base Rent and Additional Rent. Lessor shall not be responsible for,
and shall not be obligated to
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insure against, any loss of or damage to any personal property of Lessee
of which Lessee may have on the Premises or any trade fixtures installed
by or paid for by Lessee on the Premises or any additional improvements
which Lessee may construct on the Premises, as provided in Article V
5.02. Notwithstanding the foregoing, by notice to Lessor, Lessee may,
upon the reasonable consent of Lessor and its mortgagee, elect at any
time and from time to time, to carry the insurance required by this
Section 6.03 for the benefit of Lessor and Lessee.
6.03.1 Lessor shall deliver to Lessee a certificate that the insurance required
by Section 6.03 is in effect, and shall deliver to Lessee a certificate
of renewal coverage not less than ten (10) days before expiration of any
such coverage. Each such certificate or renewal certificate shall
contain an agreement on the part of the carrier that the coverage
provided thereby shall not be canceled, modified or permitted to lapse
without thirty (30) days' prior written notice to Lessee, and shall
contain evidence of the waiver of subrogation required by Section 6.03.2
below. Upon Lessor's failure to deliver any such certificate, Lessee
shall have the right, but not the obligation, to procure insurance for
the account of Lessor. If Lessor fails to reimburse Lessee for the cost
of such insurance within ten (10) days after written demand, Lessee, in
addition to any other right or remedy, may reimburse itself therefor,
with interest as provided in the case of overdue rent, out of the Base
Rent and Additional Rent coming due hereunder.
6.03.2 Each of Lessor and Lessee hereby releases the other from any and all
liability or responsibility to the other or anyone claiming through or
under them by way of subrogation or otherwise for any loss or damage
specifically insured against, or required by the terms hereof to be
insured against, by or on behalf of such party even if such loss or
damage shall have been caused by the fault or
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negligence of the other party, or anyone for whom such party may be
responsible, and each party agrees to cause its insurance policies to
contain a clause pursuant to which the insurer (a) waives all right of
subrogation against the other party for losses covered by such policy
and (b) agrees that such policy shall not be invalidated because the
insured has hereby waived any right of recovery for losses covered by
such policy.
6.04 Liability Insurance. Lessor shall have the right to obtain and maintain
such public liability insurance concerning its ownership and operation
of the Building as is customarily carried by other prudent owners of
similar properties, or as may reasonably be required by Lessor's
mortgagee. The reasonable and competitive cost of any such insurance
shall be included in Additional Rent.
ARTICLE VII - UTILITIES AND OTHER BUILDING SERVICES.
7.01 Services and Utilities. Lessee, at its sole cost and expense, shall
contract for and pay the cost of all utilities serving the Premises,
including, but not limited to electricity, natural gas, water, sewer,
trash collection, security system (if any) and janitorial services.
Lessee, at its sole cost, shall cause all such utility services to be
separately metered for use consumed on the Premises and billed directly
to Lessee. Lessee shall notify Lessor before removing any existing
utility meters from the Premises.
7.02 Additional Services. If Lessee requests any other utilities or building
services in addition to those identified above, Lessor shall use
reasonable efforts to attempt to furnish Lessee with such additional
utilities or Building services. In the event Lessor is able to and does
furnish such
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additional utilities or building services, the cost thereof shall be
borne by Lessee, who shall reimburse Lessor monthly for the same as
provided in Article VII 7.04.
7.03 Interruption of Services. Lessee understands, acknowledges and agrees
that any one or more of the utilities or other building services
identified in Article VII 7.01 may be interrupted by reason of accident,
emergency or other causes beyond Lessor's control, or may be
discontinued or diminished temporarily by Lessor or other persons until
certain repairs, alterations or improvements can be made; that Lessor
does not represent or warrant the uninterrupted availability of such
utilities or building service; and that any such interruption shall not
be deemed an eviction or disturbance of Lessee's right to possession,
occupancy and use of the premises or any part thereof, or render Lessor
liable to Lessee for damages by abatement of rent or otherwise, or
relieve Lessee from the obligation to perform its covenants under this
Lease, except as set forth herein. In the event any utility service to
the Premises shall be interrupted for a period of more than one (1) day
due to Lessor's negligence, then the Base Rent and all other charges
required hereunder shall abate until such services are fully restored.
7.04 Payment for Utilities and Building Services. The cost of all additional
utilities or other building services furnished by Lessor at the request
of Lessee or as a result of Lessee's activities as provided in Article
VII 7.02 shall be borne by Lessee who shall be separately billed
therefor and who shall reimburse and pay Lessor monthly for the same as
additional rent, at the same time the monthly installment of Base Rent
and other Additional Rent is due.
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ARTICLE VIII - DEFAULTS AND REMEDIES.
8.01 Defaults by Lessee. The occurrence of any one or more of the following
events shall be a default and breach of this Lease by Lessee:
A. Lessee shall fail to pay any monthly installment of Base Rent or
Additional Rent or other payment required herein after the same shall be
due and payable, and shall remain unpaid for a period of ten (10) days
after notice from Lessor that the same are due and unpaid.
B. Lessee shall fail to perform or observe any term, condition, covenant or
obligation required to be performed or observed by it under this Lease,
other than the obligations contained within Article VIII 8.01 (A) above,
for a period of Thirty (30) days after written notice thereof from
Lessor; provided, however, that if the term, condition, covenant, or
obligation to be performed by Lessee is of such nature that the same
cannot reasonably be performed within such Thirty (30) day period, such
default shall be deemed to have been cured if Lessee commences such
performance within said Thirty (30) day period and thereafter diligently
undertakes to complete the same.
C. Lessee shall vacate or abandon, or fail to occupy for a period of thirty
(30) days, the Premises or any substantial portion thereof.
D. A trustee or receiver shall be appointed to take possession of
substantially all of Lessee's assets in, on or about the Premises or of
Lessee's interest in this Lease (and Lessee does not regain possession
within Sixty (60) days after such appointment); Lessee makes an
assignment for the benefit of creditors; or substantially all of
Lessee's assets in, on or about the Premises or Lessee's
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interest in this Lease are attached or levied upon under execution (and
Lessee does not discharge the same within Sixty (60) days thereafter).
E. A petition in bankruptcy, insolvency or for reorganization or
arrangement is filed against Lessee pursuant to any federal or state
statute (and, with respect to any such petition filed against it, Lessee
fails to secure a stay or discharge thereof within Sixty (60) days after
the filing of the same).
8.02 Remedies of Lessor. Upon the occurrence of any event of default set
forth in Article VIII 8.01, Lessor shall have the following rights and
remedies, in addition to those allowed by law, any one or more of which
may be exercised without further notice to or demand upon Lessee:
A. Lessor may re-enter the Premises by process of law and cure any default
of Lessee, in which event Lessee shall reimburse Lessor as additional
rent for any cost and expenses which Lessor may incur to cure such
default; and Lessor shall not be liable to Lessee for any loss or damage
which Lessee may sustain by reason of Lessor's action, except to the
extent caused by Lessor's negligence.
B. Lessor may terminate this Lease as of the date of such default, in which
event: (1) neither Lessee nor any person claiming under or through
Lessee shall thereafter be entitled to possession of the Premises, and
Lessee shall immediately thereafter surrender the Premises to Lessor;
(2) Lessor may re-enter the Premises and dispossess Lessee or any other
occupants of the Premises by summary proceedings or other legal process
and may remove their effects, without prejudice to any other remedy
which Lessor may have for possession or arrearages in rent; and (3)
notwithstanding
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the termination of this Lease Lessor may re-let all or any part of the
Premises for a term different from that which would otherwise have
constituted the balance of the term of this Lease and for rent and on
terms and conditions different from those contained herein, whereupon
Lessee shall immediately be obligated to pay to Lessor as liquidated
damages the difference between the rent provided for herein and that
provided for in any Lease covering a subsequent re-letting of the
Premises, for all of Lessor's reasonable and necessary costs and
expenses for preparing the Premises for re-letting, including repairs,
tenant finish improvements, broker's and attorney's fees, and all loss
or damage which Lessor may sustain by reason of such termination,
re-entry and reletting, it being expressly understood and agreed that
the liabilities and remedies specified herein shall survive the
termination of this Lease, and provided that any broker's fees in
respect of such reletting shall be pro-rated by multiplying them by a
fraction (but in no event greater than one), the numerator of which is
the unexpired term of this Lease as of the date of the default by
Lessee, and the denominator of which shall be the term of the new Lease.
Lessor shall use reasonable efforts to mitigate such expenses, any loss
of rent, and any other damages.
C. Lessor may sue for injunctive relief or to recover damages for any loss
resulting from the breach.
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8.03 Limitation of Lessor's Liability. In consideration of the benefits
accruing hereunder, Lessee and all successors and assigns covenant and
agree that, in the event of any actual or alleged failure, breach or
default hereunder by Lessor:
A. The sole and exclusive remedy shall be against the partnership's assets.
B. No partner of the partnership shall be sued or named as a party in any
suit or action (except as may be necessary to secure jurisdiction of the
partnership).
C. No service of process shall be made against any partner of the
partnership (except as may be necessary to secure jurisdiction of the
partnership).
D. No partner of the partnership shall be required to answer or otherwise
plead to any service of process.
E. No judgment will be taken against any partner of the partnership.
F. Any judgment taken against any partner of the partnership may be vacated
and set aside at any time nunc pro tunc.
G. No writ of execution will ever be levied against the assets of any
partner of the partnership.
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H. These covenants and agreements are enforceable both by Lessor and also
by any partner of the partnership
8.04 If during the Term of this Lease, Lessor or Lessee institutes any action
or proceeding against the other relating to the provisions of this Lease
or any default hereunder, the unsuccessful party in such action or
proceeding agrees to reimburse the successful party for the reasonable
expenses of such action, including reasonable attorneys' fees and
disbursements incurred by the successful party, regardless of whether
the action or proceeding is prosecuted to judgment.
8.05 Lessor's Option to Perform Upon Lessee's Default. Upon default by Lessee
and the failure to cure the same within any time, if any, provided for
cure herein, Lessor may, at its option, elect to perform and complete
such condition of default and the amount of such expenditure plus
accrued interest at the rate set forth in Section 3.01 from the time
such expenditure is made until reimbursed, shall immediately become due
and payable to Lessor, and be considered additional rental hereunder.
Such election by Lessor shall not constitute a waiver of said default by
Lessee or affect any right or remedy available by Lessor.
8.06 Lessor's Option to Reinstate Lease. In the event that Lessee has
defaulted in the performance of any or all of the terms and conditions
of this Lease, or this Lease is terminated in any manner provided
herein, the Lessor may, at its option, allow this Lease to be reinstated
upon the receipt and reimbursement by Lessee of all of Lessor's expenses
caused by said default or termination, including, but not limited to,
attorney fees, advertising expenses, maintenance and repair expense and
preparation charges.
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8.07. Arbitration Of Disputes.
8.07.1 Disputed Defaults. In the event that Lessee disputes whether or not
Lessee must cure an alleged default under this Lease after being served
by Lessor with a notice of default, Lessee shall have such grace period
as is provided in this Lease in which to submit the matter to binding
arbitration as set forth below, in which event Lessor's remedies under
Section 8.02, as well as any other right of Lessor to recover possession
of the Premises or to terminate the Lease, shall be stayed pending the
arbitration. In the event that the arbitration results in a finding that
Lessee is required to cure the alleged default, Lessee shall have such
grace period as is provided in the Lease to cure such default,
commencing from the date Lessee receives a copy of the award of the
arbitrator(s); provided, however, that if such default cannot be cured
within such period, the grace period will be extended by the reasonable
period required to cure, provided that Lessee commences the curing of
such default within such period and thereafter diligently prosecutes the
curing of such default. Lessee's rights under this Section 8.07.1 shall
not apply to a default consisting solely of the failure to pay Base
Rent.
8.07.2 Disputed Reimbursement. In the event Lessor disputes any demand for
reimbursement or refund by Lessee, Lessor may within Thirty (30) days
after receipt of Lessee's demand for payment serve a notice on Lessee
that Lessor is submitting the matter to binding arbitration, as set
forth below.
8.07.3 Arbitrators; Award. Any disagreement or controversy described in Section
8.07.1, 8.07.2, or elsewhere in this Lease, may be settled by binding
arbitration to be held, and the award made, in the county where the
Premises are located, pursuant to the then-applicable rules of the
American
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Arbitration Association. In any such arbitration, the arbitrator shall
be: (a) any person selected by the parties to the dispute, if they are
able to so agree within ten (10) days after any party requests the other
to so agree, if not, (b) a three-member arbitration panel, which shall
act by majority vote and which shall consist of one member selected by
each party to the dispute and one member selected by the two members so
selected, who shall act as chairman of the arbitration panel. If the
first two arbitrators are unable to agree on the selection of the third
arbitrator within twenty (20) days after their appointment, the third
arbitrator shall be selected by the American Arbitration Association. If
one party requests the other to agree on a single arbitrator and the
parties have failed to agree on such a single arbitrator, and one of the
parties thereafter shall fail or refuse to appoint a person to the
arbitration panel under clause (b) above within twenty (20) days after
the original request for agreement on a single arbitrator was made, the
arbitration panel shall consist solely of the single arbitrator selected
by the other party. The arbitrator(s) shall apply the substantive law of
the state in which the Premises are located. Any award of the
arbitrator(s) shall state the reasoning on which the award is based.
8.07.4 Failure to Appear. If one of the parties shall fail or refuse to appear
or to present evidence at the arbitration hearing, the arbitrator(s)
shall be authorized to accept the evidence presented by the party in
attendance at the hearing and enter an award based on the evidence
presented. Any costs of arbitration shall be borne by the party against
whom the award is made, including but not limited to the fees of the
arbitrators.
8.07.5 Reimbursement. Lessee may reimburse itself with respect to any matter
described in Section 8.07.2 as follows. Lessor's failure to serve a
demand for arbitration within the period described in
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Section 8.07.2 shall be deemed a waiver of any objection to Lessee's
demand, and Lessee, if not reimbursed by Lessor, may reimburse itself
from, and Lessee shall be entitled to a corresponding credit against,
succeeding Base Rent and other charges, with interest at rate provided
in this Lease from the 10th day after Lessee's initial demand. If Lessor
timely demands arbitration as set forth in Section 8.07.2, Lessee shall
not reimburse itself pending award of the arbitrator(s). If any amount
awarded Lessee in the arbitration is not paid by Lessor within ten (10)
days from the date of award, with interest from the date of the award,
Lessee may thereafter reimburse itself from, and Lessee shall be
entitled to a corresponding credit against, succeeding Base Rent and
other charges, with interest from the date of the award. If any amount
awarded Lessor in the arbitration is not paid by Lessee within ten (10)
days from the date of the award, with interest, from the date of the
award, Lessor may resort to the remedies set forth in this Lease without
further notice, as if no grace period ever existed.
ARTICLE IX - CASUALTY OR OTHER DESTRUCTION OF PREMISES.
9.01 Lessor's Right of Termination. If the Premises or the Building of which
the Premises forms a part, shall be destroyed or damaged by fire,
casualty or other cause so as to render the Premises unfit, in whole or
in part, for Lessee's occupancy and use, and such destruction or damage
can, in the opinion of the Lessor, reasonably be repaired within One
Hundred Eighty (180) days from the happening of said destruction or
damage, Lessor, shall, within Twenty-one (21) days of said occurrence,
so notify Lessee of said fact, including the amount of time that Lessor
estimates will be necessary for the repair, and Lessor shall, unless
Lessee elects to terminate this Lease as set forth below, repair the
same to substantially the same condition which existed immediately prior
to the occurrence of said destruction or damage with all reasonable
diligence and speed. If, during said
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repair period, Lessee shall be unable to use all or any portion of the
Premises, the rent to be paid by Lessee hereunder shall be reduced
proportionately in an amount by which that portion of the Premises of
which Lessee shall be deprived on account of said destruction or damage
and the repair thereof bears to the total area of said Premises. If the
Premises, or the building of which the Premises forms a part, shall be
destroyed or damaged by fire, casualty or other cause, so as to render
the Premises unfit, in whole or in part, for Lessee's occupancy or use,
and said destruction or damage cannot, in the reasonable opinion of
Lessor, reasonably be repaired within One Hundred Eighty (180) days from
the happening of said destruction or damage, the Lessor shall notify
Lessee of such fact (including the amount of time that Lessor estimates
will be necessary for the repair) within Twenty-one (21) days after the
happening of said occurrence and of Lessor's intention to either: (a)
make repairs (and thereby continue said Lease) stating the amount of
time which will be required to make any such repairs, or (b) terminate
this Lease.
9.02 Lessee's Right of Termination. If the Premises cannot reasonably be
repaired within One Hundred Eighty (180) days, and if Lessor shall not
have elected to terminate the Lease under Section 9.01, or if the
Premises cannot reasonably be repaired within eighty (80) days, Lessee
shall have the option within Twenty-one (21) days after receipt of
notice from Lessor under Section 9.01 to elect either: (i) to terminate
this Lease as of the date of the happening of such destruction or
damage, in which event all further liability of Lessee hereunder shall
terminate and all rents paid to Lessor subsequent to said date (and
until Lessee shall vacate said Premises) shall remain the property of
Lessor and Lessee shall thereafter vacate said Premises, or (ii) to
continue this Lease in full force and effect, in which event this Lease
shall be extended by a period of time equivalent to the time from the
happening of such destruction or damage until the Premises are repaired
as hereinbefore
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provided. For purposes of this Article IX, Lessee will be deemed to
have elected to continue this Lease if Lessor shall not have received
written notice to the contrary within said Twenty-one (21) day period
and Lessor shall thereupon proceed to restore the Premises (and/or
the Building of which the Premises forms a part), to the occurrence
of said destruction of damage within the time specified in Lessor's
notice to Lessee. Lessor shall commence its repairs or restoration
within Thirty (30) days after the earlier of the expiration or waiver
of Lessee's right to terminate as set forth above. If Lessor fails to
commence its work within such time, or if Lessor fails to complete
its repairs or restoration within the time set forth in Lessor's
notice under Section 9.01 (subject to unavoidable delays as defined
in Section 4.02), Lessee may, at any time thereafter until such
repairs or restorations have been completed, terminate this Lease by
thirty (30) days' notice to Lessor, with the same effect as in clause
(i) above of this Section 9.02.
9.03 Rent Abatement. If, during the time beginning with the date the Premises
(or the Building of which the Premises forms a part) shall have been so
restored, Lessee shall be unable to use all or any portion of the
Premises, the rent to be paid by Lessee hereunder shall be reduced
proportionately in an amount by which that portion of the Premises of
which Lessee shall be so deprived on account of said destruction or
damage and the repair thereof to the total area of said Premises.
ARTICLE X - GENERAL PROVISIONS.
10.01 Notices. Any notices or demands required or permitted by law or any
provision of this Lease shall be in writing and shall be completed by
mailing such notice to the other party, or any agent designated by him
to receive such notices, by certified or registered mail, return receipt
requested,
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postage prepaid, at the addresses listed in Article I 1.01 M or at
such other or additional address or addresses as either party may
hereafter designate in writing.
10.02 Additional Parties Bound by Provisions. Any person, corporation,
partnership, joint venture, or other entity purchasing or procuring by
any means whatsoever any interest in this Lease shall be bound and
limited to the provisions contained herein. Provided, however, that no
assignment by, from, through or under Lessee in violation of the
provisions contained herein, shall vest in such assigns or other
parties any right, title or interest whatsoever. For the purposes of
interpreting this Paragraph, the permanent mortgagee shall not be
considered a party to the Lease until such time as the mortgagee becomes
the owner of the mortgaged Premises and the Lessor under this Lease.
10.03 Word Genders and Numbers. Whenever words are used herein in any gender,
they shall be construed as though they were used in the gender
appropriate to the context and the circumstances and whenever words are
used herein in the singular or plural form, they shall be construed as
though they were used in the form appropriate to the context and the
circumstances.
10.04 Topic Headings. Headings and captions in this Lease are inserted for
convenience and reference only and in no way define, limit or describe
the scope or intent of this Lease nor constitute any part of this Lease
and are not to be considered in the construction of this Lease.
10.05 Governing Law. This Lease shall be subject to and governed by the law of
the State of Ohio, irrespective of the fact that one or more of the
parties may be or become a resident of a different state.
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10.06 Counterparts. Several copies of this Lease may be executed by all of the
parties. All executed copies constitute one and the same Lease, binding
on all parties.
10.07 Entire Agreement. This Lease contains the entire understanding between
and among the parties and supersedes any prior understanding or
agreements between and among them respecting the subject matter. No
representations, arrangements or understandings except those fully
expressed herein, are or shall be binding upon the parties. No changes,
alterations, modifications, additions, or qualifications to the terms of
this Lease shall be made or be binding unless made in writing and signed
by each of the parties.
10.08 Recording. If either of the parties hereto desires to record this Lease,
Lessor and Lessee agree to execute a Memorandum of this Lease, which
Memorandum of Lease may then be recorded in the office of the County
Recorder of Franklin County, Ohio.
10.09 Holding Over After Term. If Lessee holds over and remains in possession
of said Premises after the term of this Lease or any renewal thereof,
Lessee will from that date forward, unless the parties by written
agreement stipulate to the contrary, be a Lessee from month-to-month at
a rate equal to one hundred twenty-five percent (125%) of the Base
Rental as defined in Article III 3.01 herein, and shall continue to be
liable for all Additional Rent accruing during such period, and on the
remaining terms and conditions as in existence at the time of the
termination of the then existing Lease or any renewal thereof.
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10.10 Laches. Any failure of Lessor to enforce rights or to seek remedies upon
any default of Lessee hereunder, or the delay of said enforcement or the
seeking of remedies shall not prejudice or affect the rights or remedies
of Lessor in the event of any subsequent default or attempted
enforcement at a later date.
10.11 Waiver. No waiver of any condition of legal right or remedy shall be
implied by the failure of Lessor to declare a forfeiture or for any
other reason.
10.12 Estoppel Certificates. The Lessee or Lessor, as the case may be, shall,
within Thirty (30) days after written request of the other, execute,
acknowledge, and deliver to the other, or any proposed mortgagee, or any
proposed purchaser or assignee or sublessee of the real property or any
part thereof, reasonable estoppel certificates requested by the other
from time to time, which estoppel certificates shall show whether the
Lease is in full force and effect and whether any changes may have been
made to the original Lease; whether the term of the Lease has commenced
and full rental is accruing; whether there are any defaults by Lessee or
Lessor and, if so, the nature of such defaults; whether possession has
been assumed and all improvements to be provided by Lessor have been
completed; and whether Base Rent and/or Additional Rent has been paid
more than thirty (30) days in advance and that there are no liens,
charges, or offsets Rentals of any type due or to become due and that
the address shown on such estoppel certificate is accurate.
10.13 Sublease or Assignment.
10.13.1 Subject to Lessor's rights under Section 10.13.2, Lessee shall have the
right at any time to sublet said Premises or any part thereof or assign
this lease without the prior written consent of Lessor. In
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such event, it is hereby mutually agreed that Lessee shall nevertheless
remain fully liable under all of the terms, covenants, and conditions of
this Lease. If this Lease be assigned or if the Premises or any part
thereof be subleased or occupied by anybody other than lessee, Lessor
may collect from the assignee, sublessee, or occupant any rent or other
charges herein reserved, but such collection by Lessor shall not be
deemed a release of Lessee or Guarantor from the performance by Lessee
under this Lease. Any assignee or sublessee or Lessee shall be subject
to all conditions, restrictions, and obligations of Lessee as set forth
herein.
10.13.2 If Lessee desires to assign this Lease or sublet the entire Premises,
except as set forth in Section 10.13.3, Lessee shall give Lessor written
notice thereof with copies of all, related documents and agreements
associated with the assignment or sublease, including without
limitation, the financial statements of any proposed assignee or
subtenant, at least forty-five (45) days prior to the anticipated
effective date of the assignment or sublease. Lessor shall have a period
of thirty (30) days following receipt of such notice and all related
documents and agreements to notify Lessee in writing (a "Termination
Notice") of Lessor's approval or disapproval of the proposed assignment
or sublease, or to notify Lessee that Lessor elects to terminate the
Lease as of the date set forth in the Termination Notice, which shall be
not less than 30 nor more than 60 days from the date of the Termination
Notice, as though such date were the date fixed for the expiration of
the term. Lessee may nullify the Termination Notice, at any time within
fifteen (15) business days after Lessee receives the Termination Notice,
by notifying Lessor in writing that Lessee withdraws its intent to
assign or sublet.
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10.13.3 The provisions of Section 10.13.2, including Lessor's right to
terminate the Lease, shall not apply to any assignment or sublease (i)
to an assignee or subtenant that controls, is controlled by or under
common control with Lessee, or (ii) in connection with a merger or
consolidation affecting Lessee, or the sale of all or substantially all
of the stock of Lessee, or the sale or transfer of substantially all of
the assets of Lessee or of Lessee's credit card processing and/or
payment processing division.
10.14 Transfer of Lessor's Interest. In the event of a conveyance by Lessor of
the Premises, such conveyance shall release Lessor from any liability,
upon any of the covenants or conditions, express or implied, herein
contained in favor of Lessee; and in such event, Lessee agrees to look
solely to the responsibility of the successor in interest of Lessor and
to this Lease for obligations thereafter arising. Upon written notice
from Lessor of such conveyance, Lessee shall acknowledge ownership in
the transferee and attorn and continue in quiet enjoyment of the
Premises. Lessor shall have the right to sell, hypothecate, mortgage,
transfer, sublet or assign this Lease and/or its interests in the
Premises and shall not be liable for obligations thereafter accruing
hereunder.
10.15 Eminent Domain. In the event the Premises or any part thereof or any of
the land of which the Premises is a part shall be taken or condemned for
public purpose by a competent authority, Lessee shall not be entitled to
any part, or all, or the award paid for such taking or condemnation, and
Lessor is to receive the full amount of such award. Lessee hereby
expressly waives any right or claims to all or any part of such award.
Provided, however, anything herein to the contrary notwithstanding,
Lessee shall have the right to claim and recover from the taking of
condemnation authority, but not from Lessor, such compensation as may be
separately awarded or recovered by
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lessee in Lessee's business by reason of the taking or condemnation and
on account of moving expenses or any loss to Lessee for merchandise,
furniture, fixtures and equipment.
In the event that the entire Premises or such part of the Premises so as
to make the Premises unfit for occupancy as originally intended, should
be taken or condemned, then Lessee shall have the option of terminating
this Lease upon giving written notice to Lessor of such election within
Thirty (30) days after possession of the part condemned by such
authority whereupon the possession is so taken. In the event of any such
taking or condemnation which does not result in a termination of this
Lease, as hereinabove provided, Base Rent shall abate to the extent of
any portion of the Premises rendered untenantable.
10.16 Mortgage Subordination. Lessee accepts this Lease subject and
subordinate to any recorded mortgage lien presently existing or
hereafter created upon the Building and to all existing recorded
restrictions, covenants, easements and agreements with respect to the
Building; provided that, as a condition to Lessee's obligations under
this Lease, Lessee and the holder of any mortgage lien which shall be
placed on the Premises prior to the Commencement Date shall enter into a
subordination, non-disturbance and attornment agreement on terms
mutually satisfactory within 15 days of later of the date hereof or the
date of the execution of the mortgage by Lessor, which agreement shall
provide, INTER ALIA that the mortgagee shall not disturb the tenancy of
Lessee, so long as Lessee is not in default of its obligations under
this Lease beyond any applicable notice and cure periods. Lessee agrees
that the form of agreement attached hereto as Exhibit "I" is acceptable
as to the holder of the now-existing mortgage; provided that Lessee
shall have the right to modify any inaccurate representation contained
therein before executing the agreement Lessee agrees to
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subordinate Lessee's interest under this Lease to any mortgage lien
placed on the Premises after Commencement Date, provided that as a
condition to such subordination Lessee and such mortgagee shall enter
into a mutually satisfactory non-disturbance, subordination and
attornment agreement which shall include a covenant by the mortgagee not
to disturb the tenancy of Lessee, so long as Lessee is not in default of
its obligations under this Lease beyond any applicable notice and cure
periods. Lessor shall use its best efforts to cause any such future
mortgagee to agree that insurance proceeds and condemnation awards shall
be used for the repair and restoration of the Premises when so provided
in this Lease. If the interests of Lessor under this Lease shall be
transferred by reason of foreclosure or other proceedings for
enforcement of any first mortgage on the Premises, Lessee shall be bound
to the transferee (sometimes called the "Purchaser"), under the terms,
covenants and conditions of this Lease for the balance of the term
remaining, including any extensions or renewals, with the same force and
effect as if the Purchaser were Lessor under this Lease, and Lessee
agrees to attorn to the Purchaser, including the first mortgagee under
any such mortgage if it be the Purchaser, as its Lessor.
Notwithstanding the foregoing in the event of a foreclosure of any such
mortgage or of any other action or proceeding for the enforcement
thereof, or of any sale thereunder, this Lease will not be barred,
terminated, cut off or foreclosed nor will the rights and possession of
Lessee thereunder be disturbed if Lessee shall not then be in default in
the payment of rental or other sums or be otherwise in default under the
terms of this Lease, and Lessee shall attorn to the purchaser at such
foreclosure, sale or other action or proceeding.
44
<PAGE>
10.17 Surrender of Premises. Upon termination of this Lease, whether by lapse
of time or otherwise, or upon the exercise of Lessor of the power to
re-enter and repossess the Premises without terminating this Lease, as
hereinbefore provided, Lessee shall at once surrender the possession of
the same to Lessor in good order and repair and at once remove all of
Lessee's property therefrom.
10.18 Quiet Enjoyment. Lessor hereby covenants and agrees that if Lessee shall
perform all of the covenants and agreements hereinbefore stipulated to
be performed on Lessee's part, Lessee shall at all times during the
continuance hereof have the peaceable and quiet enjoyment and possession
of the Demised Premises without any manner of let or hindrance from
Lessor or any person or persons lawfully claiming the Premises.
10.19 Invalidity of Any Provision. The invalidity or enforceability of any
particular provision of this Lease shall not affect the other provisions
thereof and this Lease shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
10.20 Amendment of Agreement. This Agreement may be altered or amended only in
writing, signed by both parties.
10.21 Definition of Rent. Any amounts of money to be paid by Lessee to Lessor
pursuant to the provisions of this Lease, whether or not such payments
are denominated "rent" or "additional rent" and whether or not they are
to be periodic or recurring, shall be deemed "rent" or "additional rent"
for purposes of this Lease; and any failure to pay any of the same as
provided in Article VIII 8.01 hereof shall entitle Lessor to exercise
all of the rights and remedies afforded hereby by law for the
45
<PAGE>
collection and enforcement of Lessee's obligation to pay rent. Lessee's
obligation to pay any such rent or additional rent pursuant to the
provisions of this Lease shall survive the expiration or other
termination of this Lease and the surrender of possession of the
Premises after any holdover period.
10.22 Indemnification for Leasing Commissions. Each party hereto shall
indemnify and hold harmless the other party for any and all liability
incurred in connection with the negotiation or execution of this Lease
for any real estate broker's leasing commission or finder's fee which
has been earned by a real estate broker or other person on such party's
behalf except that broker(s) or other person(s) described in Article
I 1.01 L of the Basic Lease Provisions.
10.23 Reasonable Consent. If the consent, approval or permission of either
party is required or desired by the other hereunder, the parties agree
that it shall not unreasonably or arbitrarily withhold or delay such
consent, approval or permission. In the event that any such consent,
approval or permission is specifically withheld, the party denying such
consent shall set forth in writing its reasons for such withholding,
which reasons must be reasonable under the circumstances presented.
10.24 Hazardous Materials.
10.24.1 For purposes of this Lease hazardous materials ("Hazardous Materials")
shall include, but shall not be limited to, any substances, materials
or wastes that are regulated by any local governmental authority, the
State of Ohio, or the United States of America because of toxic,
flammable, explosive, corrosive, reactive, radioactive or other
properties that may be hazardous to human health or the environment.
Hazardous Materials also include, without limitation, any materials or
46
<PAGE>
substances that are listed in the United States Department of
Transportation Hazardous Materials Table (49 CFR 172.01) as amended from
time to time. Except for de minimus quantities used in Lessee's
business, Lessee agrees that it will not use, handle, generate, treat,
store or dispose of, or permit the use, handling, generation, treatment,
storage or disposal of any Hazardous Materials in, on, under, around or
above the Premises now or at any future time.
10.24.2 Lessor represents and warrants to Lessee that Lessor knows of no
Hazardous Materials that have been used, handled, generated, treated,
stored or disposed of in, on, under, around or above the Premises,
except as disclosed in the report of ERM-Midwest, Inc. dated September
1, 1990 addressed to Century Life of America and except for de minimus
quantities used by former tenants in their operation of the Premises.
Lessor agrees that, except for de minimums quantities used in the
maintenance of the Premises, it will not use, handle, generate, treat,
store or dispose of, or permit the use, handling, generation, treatment,
storage or disposal of any Hazardous Materials in, on, under, around or
above the Premises now or at any future time. Lessor will indemnify,
defend and save Lessee harmless from any and all actions, proceedings,
claims and losses of any kind, including but not limited to those
arising from injury to any person, including death, damage to or loss of
use or value of personal property, and costs of investigation and
cleanup or other environmental remedial work, which may arise in
connection with Hazardous Materials introduced to the Premises by Lessor
or any of its agents, contractors or employees.
10.24.3 If at any time during the term of this Lease it is determined that there
are any Hazardous Materials located in, on, under, around, or above the
Premises which are introduced to the Premises by Lessor or any of its
agents, contractors, or employees, that are subject to any federal,
state or local
47
<PAGE>
environmental law, statute, ordinance or regulation, court or
administrative order or decree, or private agreement ("Environmental
Requirements"), including Environmental Requirements requiring special
handling of Hazardous Materials in their use, handling, collection,
storage, treatment or disposal, Lessor shall commence with diligence
within thirty (30) days after receipt of notice of the presence of the
Hazardous Materials and shall continue to diligently take all
appropriate action, at Lessor's sole expense, to comply with all such
Environmental Requirements.
10.24.4 If Hazardous Materials shall be found in, on, under or above the
Premises and bringing the Premises into compliance with all applicable
Environmental Requirements would cause the Premises to be rendered
untenantable in whole or in part or would prevent Lessee from operating
its business in the leased premises in the normal course and such
Hazardous Materials shall not have been introduced to the Premises by
Lessee or any of its agents, contractors or employees, and if such
untenantability or inability to operate in the normal course continues
for more than 150 days following the discovery of such Hazardous
Materials, then until such untenantability or inability has ended,
Lessee (and Lessor, unless Lessor or any of its agents, contractors or
employees shall have introduced the Hazardous Materials to the Premises)
shall have the right to terminate this Lease by written notice to the
other at any time after such 150 day period. During any period when the
Premises is untenantable or Lessee is prevented from operating its
business therein in the normal course due to the presence of Hazardous
Materials and if Lessee has not breached its obligations under Section
10.23.1, Base Rent and other charges payable hereunder shall be abated
in proportion to the floor area of the Premises so affected.
48
<PAGE>
ARTICLE XI - EXTENSION OPTIONS.
11.01 Extension Options. Lessor hereby grants to Lessee the option to extend
the Lease for the number of additional consecutive Option Terms set
forth in Section 1.01N, by written notice to Lessor at least one
hundred eighty (180) days before the end of the Term or extension
period, as the case may be; provided, however, that, if Lessee shall
fail to give any such notice within the aforesaid time limit, Lessee's
right to exercise its option shall nevertheless continue until thirty
(30) days after Lessor shall have given Lessee notice of Lessor's
election to terminate such option and Lessee may exercise such option at
any time until the expiration of said thirty (30) day period, which
notice may be given by Lessor at any time from and after two hundred ten
(210) days before expiration of the term or Option Term, as the case may
be. It is the intention of the parties to avoid forfeiture of Lessee's
rights to extend the term of this Lease for any of the aforesaid Option
Terms; provided that in no event shall Lessee have the right to exercise
the option after expiration of the term or Option Term, as the case may
be. Each Option Term shall be upon all terms and conditions as are
contained in this Lease, except that upon expiration of the last such
Option Term, there shall be no further Option Terms, and except that
Base Rent during the Option Terms shall be as set forth in Section
11.02.
11.02 Base Rent During Option Terms. Base Rent during the First Option Term
shall be the lesser of (a) the Base Rent set forth in Section 1.01H,
plus such amount multiplied by the Percentage Change (as defined below)
between the second month preceding the Commencement Date and the second
month preceding the First Renewal Term, or (b) $202,163.00 per annum;
but in no event less than the Base Rent for the initial term. Base Rent
during the Second Option Term shall be the lesser of (a) the Base Rent
set forth in Section 1.01H, plus such amount multiplied by the
Percentage
49
<PAGE>
Change (as defined below) between the second month preceding the
Commencement Date and the second month preceding the Second Renewal
Term, or (b) $258,016.00 per annum; but in no event less than the Base
Rent for the First Option Term.
11.03 Percentage Change. "Percentage Change" shall mean, for any period, a
fraction, the numerator of which is seventy-five percent (75%) of the
difference between the CPI (as defined below) for the final month of
such period and the CPI for the first month of such period and the
denominator of which is the CPI for the first month of such period.
"CPI" means the Consumer Price Index, All Urban Consumers (CPI-U), U.S.
City Average, All-Items Index (1982-84 = 100) as published by the Bureau
of Labor Statistics, United States Department of Labor. If at any time
during the Term, the United States Bureau of Labor Statistics
discontinues the issuance of such Index, "CPI" shall mean any other
standard nationally recognized cost-of-living index then published by
Prentice-Hall, Inc. or other nationally recognized publisher of similar
statistical information agreed upon by Lessor and Lessee. If any monthly
CPI is not available for use, the CPI as issued and published for the
earliest preceding month shall be used. If the CPI ceases to be
published on a monthly basis, then the shortest stated period for which
it is published shall be used for purposes of this Lease.
11.04 Examples. The following examples are intended solely for purposes of
illustration.
11.04.1 If the CPI for the second month preceding the Commencement Date is 144
and the CPI for the second month preceding the First Option Term is 160,
then
Percentage Change = .75 x (160 - 144)
-----------------
144
= .75x(16) 12 1
-------- --- ---
144 = 144 = 12
Base Rent for First Option Term = 1-1/12 x ($158,400) = $13,200 + $158,400
= 171,600.
50
<PAGE>
11.04.2 If the CPI for the second month preceding the Commencement Date is 144
and the CPI for the second month preceding the First Option Term is 140,
then
Percentage Change = .75 X (140 - 144)
-----------------
140
Since the Percentage Change is less than zero, Base Rent for First
Option Term = $158,400
11.04.3 If the CPI for the second month preceding the Commencement Date is 144
and the CPI for the second month preceding the First Option Term is 480,
then
Percentage Change = .75 X (480 - 144)
-----------------
144
= .75 (336) 252
-------- ---
144 = 144 = 1.75
Base Rent for initial term + (1.75 x Base Rent for the initial term)=
$158,400 + (1.75 x $158,400) = $435,600.
Base Rent for the First Option Term = $202,163.
IN WITNESS WHEREOF, this Lease has been executed and delivered by Lessee
and Lessor as of the date first above stated.
Signed in the presence of: LESSOR
AMERICANA PARKWAY WAREHOUSE LIMITED
/s/ Catherine A. Hankins By /s/ Stanford M. Ackley
- ----------------------------- -----------------------------
Catherine A. Hankins Stanford M. Ackley
Managing General Partner
/s/ David G. Baker
- -----------------------------
David G. Baker
51
<PAGE>
LESSEE
WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.)
/s/ [ILLEGIBLE] By /s/ Ralph E. Spurgin
- ------------------------------- -----------------------------------------
Ralph E. Spurgin
/s/ [ILLEGIBLE] Its President and Chief Executive officer
- ------------------------------- --------------------------------------
STATE OF OHIO
COUNTY OF FRANKLIN, SS:
Before me, a Notary Public, in and for said County, on this day personally
appeared the above named Stanford M. Ackley, Managing General Partner of
AMERICANA PARKWAY WAREHOUSE LIMITED, an Ohio Limited Partnership who
acknowledged before me that he executed the foregoing instrument as the
voluntary act and deed of said Partnership.
Witness my hand and official seal at Franklin County, Ohio, this 27th
day of June, 1994.
/s/ David G. Baker
--------------------------------------------
NOTARY PUBLIC DAVID G. BAKER
ATTORNEY AT LAW
NOTARY PUBLIC - STATE OF OHIO
STATE OF OHIO LIFETIME COMMISSION
COUNTY OF FRANKLIN, SS:
On this 29 day of June, 1994 before me personally appeared Ralph E.
Spurgin, the President/CEO of WORLD FINANCIAL NETWORK NATIONAL BANK (U.S.) ,
a banking corporation organized under the laws of the United States, who
acknowledged that he did sign the foregoing Lease Agreement for and on behalf
of the Corporation, and that the same is his free and voluntary act and deed
for the uses and purposes mentioned therein..
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal on the date and year aforesaid.
/s/ Mary Brewer
[SEAL] --------------------------------------------
NOTARY PUBLIC
52
<PAGE>
EXHIBITS
A: Legal Description
B: Budget
C: 1993 Expenses
D: Buckeye Agreement
E: Tax Bill
F: Structural Report
G: Floor Plan
H: Exterior Lighting
I: Non-Disturbance Agreement
53
<PAGE>
EXHIBIT "A"
Situated in the State of Ohio, County of Franklin, City of Columbus,
being located in Section 24, Township 12, Range 21, Refugee Lands and being
part of that 58.428 acre tract as conveyed to Trojan Enterprises, Inc., by
deed of record in Deed Book 3390, Page 102, all references being to records
of the Recorder's Office, Franklin County, Ohio, and being more particularly
bounded and described as follows;
Beginning at an iron pin at the northwesterly corner of the 3.00 acre
tract as conveyed to the Church of Christ in Christian Union, by deed of
record in Deed Book 3310, Page 424;
thence North 86 DEG. 28' 29" West, with a westerly extension of the
northerly line of said 3.00 acre tract, a distance of 110.04 feet to a point;
thence North 4 DEG. 22' 24" East, a distance of 529.16 feet to a
point in the southerly line of Americana Parkway as the same was dedicated by
the plat of "DEDICATION OF AMERICANA PARKWAY & TUSSING ROAD & EASEMENTS", of
record in Plat Book 55, Page 67;
thence South 85 DEG. 37' 36" East, with the southerly right-of-way
line of said AMERICANA PARKWAY, a distance of 325.00 feet to a point;
thence South 4 DEG. 22' 24" West, a distance of 524.35 feet to a
point;
thence North 86 DEG. 28' 29" West, passing the northeasterly corner
of said 3.00 acre tract at 15.00 feet, a distance of 215.00 feet to the place
of beginning, containing 3.930 acres of land, more or less.
<PAGE>
EXHIBIT B
June 24, 1994
EXHIBIT B - BUDGET 1994/AMERICANA PARKWAY
Additional Rent: Pro-rate share of operating costs
projected to $.79 1/2 per square foot for 1994.
Breakdown is as follows:
<TABLE>
<CAPTION>
Per Year Per Sq. Ft./Year
<S> <C> <C>
Real estate taxes $30,856 $.54/sq. ft.
Operating 6,409 .11
Insurance 3,166 .055
Accounting & Mgmt. 5,366 .09
--------
Total $45,797 DIVIDED BY 57,600 = .795
</TABLE>
These are the projected costs of operation for this building based on past
economic activity. There may be other reasonable operating and maintenance
expenses in the future now unknown to the Lessor.
<PAGE>
EXHIBIT C
WALLACE F. ACKLEY COMPANY
ANALYSIS OF AMERICANA PARKWAY WAREHOUSE
YEAR ENDING 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Gross Owner Mgmt. Prof.
Rents Payment Adv. Cleaning Fee Insc. 5va. Mortgage Repairs Taxes O1IL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January 13,726.59 0.00 123.00 0.00 274.53 0.00 0.00 9,266.00 (59.11) 0.00 1,273.37
February 28,834.88 0.00 143.25 0.00 577.70 0.00 0.00 9,266.00 528.01 0.00 485.66
March 14,152.16 1,300.00 172.86 299.00 283.04 0.00 1,300.00 9,266.00 378.90 0.00 216.81
April 13,536.67 0.00 254.85 67.00 270.73 0.00 0.00 9,266.00 460.00 0.00 273.61
May 13,546.67 13,554.88 327.08 260.57 270.93 0.00 0.00 9,266.00 72.00 13,554.88 252.76
June 13,546.67 0.00 377.03 260.00 270.93 0.00 0.00 9,266.00 925.43 0.00 104.95
July 13,666.25 0.00 349.70 375.57 273.33 0.00 0.00 9,266.00 85.45 0.00 254.59
August 28,157.48 3,166.00 341.12 385.12 563.15 3,166.00 0.00 9,266.00 0.00 0.00 253.87
September 13,735.27 0.00 470.20 70.00 274.71 0.00 0.00 9,266.00 0.00 0.00 115.69
October 1,817.39 0.00 415.85 855.57 36.35 0.00 0.00 9,266.00 0.00 0.00 286.18
November 25,737.96 834.27 a) 492.34 180.57 514.76 0.00 0.00 9,266.00 180.32 0.00 164.16
December 14,019.44 15,426.64 398.80 100.00 280.39 0.00 0.00 9,266.00 681.38 15,426.64 322.09
--------- --------- -------- -------- -------- -------- -------- ---------- -------- --------- --------
Totals: 194,527.43 34,281.79 3,866.08 3,353.40 3,890.55 3,166.00 1,300.00 111,192.00 3,254.38 28,981.52 4,033.74
</TABLE>
<TABLE>
<CAPTION>
Income
from
Escrow Misc. Operations
- ---------------------------------------------
<S> <C> <C> <C>
January 3,000.00 15.00 (166.20)
February 3,000.00 15.00 14,868.26
March 3,000.00 15.00 490.55
April 3,000.00 198.02 (253.54)
May 3,000.00 19.09 78.24
June 3,000.00 0.00 (1,158.67)
July 3,000.00 202.52 (140.91)
August 3,000.00 0.00 14,348.22
September 3,000.00 0.00 538.67
October 3,000.00 0.00 (12,042.56)
November 3,000.00 62.10 12,712.98
December 3,000.00 1,533.64 (1,562.86)
--------- -------- ---------
Totals: 36,000.00 2,060.37 27,711.18
27,711.18
SIGNED BY: AMERICANA PARKWAY WAREHOUSE, LIMITED
STANFORD M ACKLEY, GENERAL PARTNER /s/ Stanford M. Ackley
----------------------
</TABLE>
<PAGE>
WALLACE F. ACKLEY COMPANY
ANALYSIS AMERICANA PARKWAY WAREHOUSE
CLEANING/UTILITY DETAIL
YEAR ENDING 12-31-93
<TABLE>
<CAPTION>
January February March April May June
----------- ------------ --------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Maint. Cleaning 0.00 0.00 0.00 0.00 0.00 0.00
Lawn/Snow 0.00 0.00 299.00 67.00 260.57 760.00
Painting 0.00 0.00 0.00 0.00 0.00 0.00
Pool 0.00 0.00 0.00 0.00 0.00 0.00
----------- ------------ --------- --------- ------- --------
Total 0.00 0.00 299.00 67.00 260.57 760.00
Utilities Electric 438.57 217.06 246.81 263.20 0.00 104.95
Gas 212.39 258.60 0.00 10.41 66.88 0.00
Refuse 0.00 0.00 0.00 0.00 0.00 0.00
Telephone 354.53 0.00 0.00 0.00 0.00 0.00
Waste/Sewer 267.88 0.00 0.00 0.00 185.88 0.00
----------- ------------ --------- --------- ------- --------
Total 1,273.37 485.66 246.81 273.61 252.76 104.95
</TABLE>
<TABLE>
<CAPTION>
July August September October November December
----------- ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Maint. Cleaning 0.00 0.00 0.00 0.00 0.00 0.00
Lawn/Snow 375.57 (125.00) 70.00 615.57 180.57 100.00
Painting 0.00 510.12 0.00 240.00 0.00 0.00
Pool 0.00 0.00 0.00 0.00 0.00 0.00
----------- ---------- ------------ ----------- ------------ ------------
Total 375.57 385.12 70.00 855.57 180.57 100.00
Utilities Electric 254.59 120.21 115.69 83.16 124.86 322.09
Gas 0.00 0.00 0.00 0.00 0.00 0.00
Refuse 0.00 0.00 0.00 0.00 0.00 0.00
Telephone 0.00 0.00 0.00 198.02 0.00 0.00
Water/Sewer 0.00 133.66 0.00 0.00 39.30 0.00
----------- ---------- ------------ ----------- ------------ ------------
Total 254.59 253.87 115.69 286.18 164.16 322.09
Total Cleaning = 3,353.40
Total Utility = 4,033.74
</TABLE>
SIGNED BY: AMERICANA PARKWAY WAREHOUSE, LIMITED
STANFORD M. ACKLEY, GENERAL PARTNER /s/ Stanford M. Ackley
-----------------------
<PAGE>
EXHIBIT D
OPTION AND AGREEMENT FOR EARLY LEASE TERMINATION
The undersigned Lessor and Lessee, who are parties to a Lease for 4,800
square feet of space located at 6941 Americana Parkway Blvd., Reynoldsburg,
Ohio (the "Premises"), hereby agree that, if Lessor notifies Lessee on or
before July 1, 1994 that Lessor has signed a lease with another tenant for
the Premises, Lessee shall vacate the Premises on or before July 31, 1994
and thereafter the Lease shall terminate. In consideration for Lessee's
vacating the Premises early: (i) Lessee shall not be obligated to pay the
$1,100.00 base rent installment due for the month of July, 1994 (but Lessee
shall pay for all utilities consumed on the Premises until it vacates the
Premises); and (ii) Lessor shall pay to Lessee $1,200.00 within five (5) days
after Lessee notifies Lessor that Lessee has vacated the Premises, to help
with Lessee's moving and relocation expenses, which vacation must be on or
before July 31, 1994. If Lessor does not notify Lessee on or before July 1,
1994 as provided above, the Lessor's right under the Lease to terminate in
the future upon 90 days notice shall continue in effect.
IN WITNESS WHEREOF, Lessor and Lessee have signed this Option and
Agreement for Early Lease Termination effective this 14 day of June, 1994.
Lessee will vacate warehouse LESSOR:
by July 31, 1994 and vacate
offices by August 31, 1994. AMERICANA PARKWAY WAREHOUSE LIMITED
If necessary, Lessee will move By: Wallace F. Ackley, Co., Agent
offices within the building By: /s/ William J. Murnane
during the month of August. The -------------------------
cost of installation of the phone William J. Murnane
lines to the new offices will be
the responsibility of the LESSEE:
Lessor's tenant. (Limited)
/s/ Jim Boucher
------------------------------------
Jim Boucher,
dba Buckeye Parts Services, Inc.
[DIAGRAM]
<PAGE>
EXHIBIT E
<TABLE>
<S><C>
- --------------------------------------------------------------------------------------------------
REAL ESTATE TAXES | | |
FOR 2ND HALF OF: 1993 22 |2ND HALF TAXES| MAKE CHECKS PAYABLE TO |
| | BOBBIE M. HALL |
900 Americana Parkway | | FRANKLIN COUNTY TREASURER|
- ------------------------------------| |---------------------------------------------
VALUATIONS |FULL YEAR CURRENT TAXES| |SPECIAL ASSESSMENTS| DIST/PARCEL NUMBER |
L- 74270 |OT- 53218.30 |CT- 15426.64 | | |
B- 540260 |RA- 18936.88CR | | | 540-181266-3 |
T- 614530 |AT- 34281.42 | | |-------------------------
|RB- 3428.14CR | | | |
|CT- 30853.28 | | PAY | |
- -TAX RATES- | | | THIS |-------2ND HALF TAX------|
ORIG 86.6000| | | AMOUNT --> | ****15426.64 |
R.F. .355834| | | | |
- -------------------------------------------------------------------------------------------------
|
54018126630015426640015426643 |
|
AMERICANA PARKWAY MAP 0105A RTG 04701 --------------------------------
WAREHOUSE LIMITED AMERICANA PARKWAY |PAYMENTS MUST BE RECEIVED OR |
R21T12S24 1/242 |HAVE PAYMENTS POSTMARKED BY |
3.930 ACRES | JUN 20, 1994 |
---------------------------------------------------
EFFECTIVE TAX RATE 55.784810 |
4759 COLUMBUS-PICKERINGTON L.S.D. (FAIRFIELD) |
|
RETURN THIS COPY WITH PAYMENT |
|
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE REVERSE FOR ABBREVIATIONS
<PAGE>
EXHIBIT F
REPORT
OF
STRUCTURAL
REVIEW
6939 AMERICANA INDUSTRIAL PARKWAY
PREPARED
BY
LANTZ JONES & NEBRASKA INC.
CONSULTING STRUCTURAL ENGINEERS
MAY 27, 1994
/s/ Paul William Lantz
----------------------
Paul William Lantz P.E.
Project Number 194-192.0
<PAGE>
The building is a one story masonry building with four entrance lobbies on the
east side and nine overhead doors and exit doors on the west side. There are
no openings on the north and south faces of the building.
The roof structural system is metal deck, steel joist and truss girders
supported by steel columns. The bay size is 40 feet by 40 feet. The east and
west walls are bearing walls, which support the steel joist, and the north
and south walls are shear walls, which resist the lateral wind loads, but the
girders are supported on steel columns. The steel joist are 24 inches deep
and are spaced approximately 5'-8" c/c.
The exterior walls of the building are constructed with vertical fluted
concrete masonry units, which are approximately 12 inches thick. The west
wall is 20 feet high to joist bearing and is braced with a steel angle
attached to the bottom chord of the joist at about 18 feet above floor. The
east wall is about 22 feet high to bearing and is braced with a similar angle
at about 20 feet above the floor. The north and south walls extend past the
bar joist and are anchored to the roof structure at the joist bridging
locations. The west wall has 8 x 16 pilasters located approximately 40 ft.
c/c but not uniform. The east wall has large openings at grade, which are
flanked by curved walls and the wall above is supported by steel columns and
lintels. There appeared to be a bracing system above the lobby ceiling, but
the details were not determined. The bracing would be required for lateral
loads and stability of the lintels and the wall. The east wall has no
pilasters.
The floor slab is concrete of undetermined thickness. The finish is
reasonably good and there is some cracking, but not excessive. The slab
control joints are inconsistent and contribute to some of the cracking. The
joints in the slab have not been filled but appear to be in good condition. I
do not know what the use of this space has been, but heavy forklift traffic
could cause wear and deterioration of the joists. There is an area in the
southeast corner of the building where the slab is badly deteriorated. The
concrete has a black color and appears to have been saturated with a chemical,
which has attacked the structure of the concrete. This area of slab must be
removed and replaced.
The exterior walls of the building are in generally good condition. The
masonry units are a beige colored unit. There are some dark stains at various
areas,
1
<PAGE>
which could be mildew caused by moisture penetrating the unit either through
the roof flashing or from the face. The fluted face unit is very difficult to
lay with full bed joints that are tooled to shed water and there are many
areas where rain water will lay on top of a flute until it penetrates the
unit. The curved corner walls and the curved walls flanking the entrances are
laid in stack bond and there are many vertical joint cracks. The joints in
one area have been caulked, apparently as a measure to solve the cracking
problem. The lintel bearing at the south end of the south entrance on the east
face of the building has cracked and moved out of plane about 3/4 inch and
the adjacent control joist shows a distress of about 3/4 inch. This area is
still stable but should be repaired and monitored for future movement. The
two northern entrances show some minor cracking at the lintel bearing points.
The dock wall at the west face of the building has some spalled areas, which
may be caused by vehicle impact but one block face is pushed out, which may
be caused by moisture saturated and freezing during the winter seasons.
The structure of the building is in serviceable condition, the roof structure
feels solid and has little vibration when walking on it. The slab is
serviceable, but the joints should be cleaned and filled if forklift traffic
is considered. The masonry should be sealed and will probably be a continuing
maintenance issue due to the nature of the units in the wall. The structure
of the walls was probably in conformance with building code requirements at
the time of construction, but would require reinforcing to comply with
current codes. I did not note any areas where the strength of the walls was
deficient for the loads imposed.
2
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EXHIBIT "G"
[GRAPHIC]
<PAGE>
EXHIBIT "H"
[GRAPHIC]
<PAGE>
EXHIBIT I
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the ____day of ____, 199_,
by and between ___________________________, ("Tenant"), whose address is _______
____________________________________ and ______________________________________,
("Mortgage"), whose address is ___________________________________, ____________
____________________ ("Mortgagee"), whose post office address is _______________
________________.
PRELIMINARY STATEMENT OF FACTS:
A. Mortgagee is making a loan in the amount of _______________________ and
00/100 Dollars ($______________) to Mortgagor ("Loan") repayment of which is to
be secured by a Mortgage and Security Agreement and Fixture Financing
Statement ("Mortgage") on real estate (the "Premises") more fully described
in Exhibit "A" attached hereto.
B. The Tenant is the present lessee under a lease dated __________ made
by Mortgagor, as Landlord, demising the Premises, (said lease and all
amendments thereto being referred to as the "Lease").
C. As a condition precedent to Mortgagee's disbursement of Loan
proceeds, Mortgagee has required that Tenant subordinate the lease and its
interest in the Premises in all respects to the lien of the Mortgage.
D. In return the Mortgagee is agreeable to not disturbing the Tenant's
possession of the Premises.
E. The Mortgagee is disbursing the Loan proceeds in reliance upon the
agreements contained in this instrument but for which it would not disburse
the Loan.
NOW, THEREFORE, in consideration of the sum of $1.00 and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed as follows:
1. SUBORDINATION. The Lease, and the rights of Tenant in, to or under
the Lease and the Premises, are hereby subjected and subordinated and shall
remain in all respects and for all purposes subject, subordinate and junior
to the Mortgage, and to the rights and interest of the from time to time
holder of the Mortgage.
2. PURCHASE OPTIONS. Any options or rights contained in said Lease to
acquire title to the Premises, including any rights of first refusal, are
hereby made subject and subordinate to the rights of the Mortgagee under the
Mortgage and any acquisition of title to the Premises made by Tenant during
the term of the Mortgage shall be made subordinate and subject to the
Mortgage.
3. TENANT NOT TO BE DISTURBED. So long as Tenant is not in default
(beyond any period given Tenant to cure such default) in the payment of rent
to be paid under the Lease or in the performance of any of the terms,
covenants or conditions of the Lease on Tenants' part to be performed.
Tenant's possession of the Premises and any extensions or renewals thereof
which may be effected in accordance
-1-
<PAGE>
with any renewal rights therefor in the Lease, shall not be diminished or
interfered with by Mortgagee, and Tenant's occupancy of the Premises shall
not be disturbed by Mortgagee during the term of the Lease or any such
extensions or renewals thereof.
4. TENANT NOT TO BE JOINED IN FORECLOSURE UNLESS REQUIRED BY LAW. So
long as Tenant is not in default (beyond and period given Tenant to cure such
default) in the payment of rent to be paid under the Lease or in the
performance of any of the terms, covenants or conditions of the Lease on
Tenant's part to be performed, Mortgagee will not name or join Tenant in any
action or proceeding foreclosing the Mortgage uniess such naming or joinder
is necessary to foreclose the Mortgage and then only for such purpose and not
for the purpose of terminating the Lease.
5. TENANT TO ATTORN TO MORTGAGEE. If the interests of Landlord shall be
transferred to and owned by Mortgagee by reason of foreclosure or other
proceedings brought by it in lieu of or pursuant to a foreclosure, or by any
other manner, and Mortgagee succeeds to the interest of the Landlord under
the Lease, Tenant shall be bound to Mortgagee under all of the terms,
covenants and conditions of the Lease for the balance of the term thereof
remaining, with the same force and effect as if Mortgagee were the Landlord
under the Lease, and Tenant does hereby attorn to Mortgagee as its Landlord,
said attornment to be effective and self-operative immediately upon Mortgagee
succeeding to the interest of the Landlord under the Lease without the
execution of any further instruments on the part of any of the parties
hereto; provided, however, that Tenant shall be under no obligation to pay
rent to Mortgagee until Tenant receives written notice from Mortgagee that it
has succeeded to the interest of the Landlord under the Lease. The respective
rights and obligations of Tenant and Mortgagee upon such attornment to the
extent of the then remaining balance of the term of the Lease shall be and
are the same as now set forth therein; it being the Intention of the parties
hereto for this purpose to incorporate the Lease in this Agreement by
reference with the same force and effect as if set forth at length herein.
6. MORTGAGEE NOT BOUND BY CERTAIN ACTS OF LANDLORD. If Mortgagee shall
succeed to the interest of Landlord under the Lease, Mortgagee shall not be
liable for any act or omission of any prior landlord (including Mortgagor);
nor subject to any offsets or defenses which Tenant might have against any
prior landlord (including Mortgagor); nor bound by any rent which Tenant
might have prepaid for more than the then current Installment; nor bound by
any amendment or modification of the Lease made without its consent. In the
event of a default by the Landlord under the Lease or an occurrence that
would give rise to an offset against rent or claim against Landlord under the
Lease, Tenant will use its best efforts to set off such defaults against
rents currently due Mortgagor; will give Mortgagee notice of such default or
occurrence at the address of Mortgagee as set forth above and will give
Mortgagee such time as is reasonably required to cure such default or rectify
such occurrence, provided Mortgagee uses reasonable diligence to correct the
same. Tenant agrees that notwithstanding any provision of the Lease to the
contrary, it will not be entitled to cancel the Lease, to abate or offset
against the rent, or to exercise any other right or remedy until Mortgagee
has been given notice of default and opportunity to cure such default as
provided herein. In the event the Tenant has paid a security deposit to
Landlord under the Lease, Mortgagee shall not have any liability to the
Tenant for said deposit unless the same has actually been paid over to
Mortgagee and Mortgagee holds the same.
7. ASSIGNMENT OF LEASE. Mortgagor will by a separate Assignment of
Rents or Assignment of Lease ("Assignment") assign its interest in the rents
and payments due under the Lease to Mortgagee as security for repayment of
the Loan. If in the future there is a default by the Mortgagor in the
performance and observance of the terms of the Mortgage, the Mortgagee may,
at its option under the Assignment, require that all rents and other payments
due under the Lease be paid directly to it. Upon notification to
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<PAGE>
that effect by the Mortgagee, the Mortgagor hereby authorizes and directs
Tenant and the Tenant agrees to pay the rent and any payments due under the
terms of the Lease to Mortgagee. The Assignment does not diminish any
obligations of the Mortgagor under the Lease or impose any such obligations
on the Mortgagee.
8. SUCCESSORS AND ASSIGNS. This Agreement and each and every covenant,
agreement and other provisions hereof shall be binding upon the parties
hereto and their successors and assigns, including without limitation each
and every from time to time holder of the Lease or any other person having an
interest therein and shall inure to the benefit of the Mortgagee and its
successors and assigns. As used herein, the words "successors and assigns"
shall include the heirs, administrators and representatives of any natural
person who is a party to this Agreement.
9. CHOICE OF LAW. This Agreement is made and executed under and in all
respects is to be governed and construed by the laws of the State of
Minnesota.
10. CAPTIONS AND HEADINGS. The captions and headings of the various
sections of this Agreement are for convenience only and are not to be
construed as confining or limiting in any way the scope or intent of the
provisions hereof. Whenever the context requires or permits, the singular
shall include the plural, the plural shall include the singular and the
masculine, feminine and neuter shall be freely interchangeable.
11. NOTICES. Any notice which any party hereto may desire or may be
required to give to any other party shall be in writing and the mailing
thereof by certified mail, or equivalent, to the addresses as set forth
above, or to such other places any party hereto may subsequently by notice in
writing designate shall constitute service of notice hereunder.
12. CERTIFICATION OF TENANT. Tenant certifies to Mortgagee as follows:
(a) Tenant has accepted delivery of the Premises described in the Lease
and has entered into occupancy thereof;
(b) Tenant has not entered into any agreement providing for the
discounting, advance payment, abatement or offsetting of rents and no
rent has been paid for more than one installment in advance;
(c) The Lease represents the entire agreement between the parties as to
the leasing, is in full force and effect, and has not been modified,
supplemented or amended in any way;
(d) Tenant has fully inspected the premises and found the same to be as
required by the Lease, in good order and repair, and all conditions
under the Lease to be performed by the Landlord have been satisfied;
including but not limited to payment to Tenant of any Landlord
contributions for Tenant improvements;
(e) The primary term of the Lease commenced on__________, and continues
to __________, and contains __________renewal option(s) of__________
year(s) each;
(f) Minimum annual rent payable (exclusive of percentage rental, tenants
share of operating expenses and Tenant's share of taxes, if any) is
____________________________________
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<PAGE>
________ ($____________) Dollars payable in monthly installments of
_______________ ($____________) Dollars each and commenced on
_______________ and are paid to ______________:
(g) As of this date, the Landlord is not in default under any of the
terms, conditions, provisions or agreements of the Lease and Tenant
has no offsets, claims or defenses against the Landlord with respect
to the Lease;
(h) Tenant has not assigned or sublet its interest under the Lease;
(i) Tenant has paid a security deposit of ________________ ($__________)
to Landlord.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement
to be executed as of the date first above written.
TENANT: ________________________________________
By:_____________________________________
Its:____________________________________
MORTGAGOR: ________________________________________
By:_____________________________________
Its:____________________________________
MORTGAGEE: ________________________________________
By _____________________________________
Its ____________________________________
-4-
<PAGE>
STATE OF )
) ss.
COUNTY OF ______________)
The foregoing instrument was acknowledged before me this _____ day of
_________________, 1994, by _____________________, the _______________________
of ________________________________, a ___________________ on behalf of the
_______________________.
______________________________________
Notary Public
STATE OF )
) ss.
COUNTY OF ______________)
The foregoing instrument was acknowledged before me this _____ day of
_________________, 1994, by _____________________, the _______________________
of ________________________________, a ___________________ on behalf of the
_______________________.
______________________________________
Notary Public
STATE OF )
) ss.
COUNTY OF ______________)
The foregoing instrument was acknowledged before me this _____ day of
_________________, 1994, by _____________________, the _______________________
of ________________________________, a ___________________ on behalf of the
_______________________.
______________________________________
Notary Public
-5-
<PAGE>
EXHIBIT A
TO
SUBORDINATION AND ATTORNMENT AGREEMENT
-6-
<PAGE>
LEASE AGREEMENT
EXECUTED BY AND BETWEEN
MORRISON TAYLOR II, LTD. - LESSOR
AND
ADS ALLIANCE DATA SYSTEMS, INC. - LESSEE
<PAGE>
LEASE AGREEMENT
By this Lease Agreement (hereafter referred to as the "Lease") dated this
18th day of June, 1998 (the "Effective Date"), by and between, MORRISON
TAYLOR II, LTD., an Ohio Limited Liability Company organized under the laws
of the State of Ohio (hereafter referred to as the "Lessor") and ADS ALLIANCE
DATA SYSTEMS, INC., a corporation organized under the laws of the State of
Delaware hereafter referred to as the "Lessee"), Lessor hereby leases unto
Lessee, and Lessee accepts and leases from Lessor the Premises as hereinafter
described for the term, the rent, and subject to the conditions and covenants
hereinafter provided.
In consideration thereof, the parties covenant and agree as follows:
1. DEFINITIONS
Unless the context otherwise specifies or requires, the following terms shall
have the following meanings herein specified.
(a) The term "REAL PROPERTY" shall mean a certain tract of real
estate commonly known as 775 Taylor Road, Gahanna, Ohio 43230
the legal description of which is attached hereto and marked
as Exhibit "A".
(b) The term "BUILDING" shall mean a 1 story office building
containing approximately 54,615 leasable square feet of space,
more or less, as located upon the Real Property as hereinabove
defined.
(c) The term "PREMISES" shall mean 32,255 leaseable square feet of
space located within the Building as outlined upon the diagram
attached hereto and marked a Exhibit "B", together with the
non-exclusive right to use the Common Areas located within the
Building and upon the Real Property.
(d) The term "REAL ESTATE TAXES AND ASSESSMENTS" shall mean
all real estate taxes and any special assessments
accruing during the term of the Lease, or any taxes
which shall be levied in lieu of such taxes on the
gross rentals of the Building, but shall not include
any penalties or interest payable by reason of failure
to pay such taxes and assessments, except to the extent
that such penalties or interest have been assessed as a
<PAGE>
result of Lessee's failure to timely pay real estate taxes
and assessments as set forth in Section 5 herein. To this
end, Lessor and Lessee each acknowledge that pursuant to
the Ohio Supreme Court, the method for financing school
systems within the State of Ohio is currently under review
and is expected to be substantially revised and modified.
To the extent such modification impacts real estate taxes
and assessments, the parties agree that any alternative tax
established in lieu thereof or in substitution relating to
the ownership, management or leasing of real property
thereof shall be deemed to be part of the real estate taxes
and assessments for the purposes of the above-described
definition.
(e) The term "COMMON AREAS" shall mean all areas, space,
equipment, improvements, and facilities located upon
the Real Property and in or near the Building provided
by the Lessor for the common or joint use and benefit
of the occupants of the Building, their agents,
employees, servants, and invitees, including but not
limited to the parking areas, driveways, entrances,
exits, sidewalks, ramps, corridors, halls, restrooms,
lobbies and landscaped areas.
(f) The term "COMMON WALKWAY" shall mean the walkway which
connects the Building to the building commonly known as 800
TechCenter Drive, Gahanna, Ohio.
(g) The term "ADJACENT PROPERTY LEASE" shall mean that
certain lease agreement entered into by and between
Morrison Taylor, Ltd., a limited liability company
organized under the laws of the State of Ohio and an
office and place of business located at 1533 Lake Shore
Drive, Suite 50, Columbus, Ohio 43204 and Lessee dated
July 1, 1997 and generally relating to a certain parcel
of real estate and the building and improvements
constructed thereof commonly known as 800 TechCenter
Drive, Gahanna, Ohio 43230.
2. INITIAL TERM
The term of this Lease shall commence on the 13th day of July, 1998 (hereafter
the "Commencement Date") and shall expire (unless
2
<PAGE>
sooner terminated pursuant to provisions contained herein) on the 31st day of
August, 2007 for a term of approximately 9 years and 49 days. Lessee and its
specialized subcontractors (i.e., telephone and/or computer installation
people) shall have the right to enter the Premises prior to the Commencement
Date for the purpose of getting the space ready for occupancy; provided the
same shall not obstruct Lessor or its contractors from timely completion of
construction. In the event the Premises are not ready for occupancy on the
Commencement Date, except as set forth below, this Lease shall not be void,
or voidable, nor shall Lessor be liable to Lessee for any damages resulting
therefrom, and provided the delay is not occasioned by acts or omissions of
the Lessee, the Base Rent and Additional Rent, as hereafter provided, shall
be waived and abated for the period between the Commencement Date and the
date the Premises are ready for occupancy, provided, however, the Expiration
Date shall not be extended as a result of any such delays.
As used herein, the term "ready for occupancy" shall mean that (i) the
Building and all improvements on the Real Property necessary to obtain a
certificate of occupancy for the Premises have been substantially completed
in accordance with the plans and specifications therefor, (ii) a certificate
of occupancy for the Premises has been issued by the City of Gahanna, and
(iii) Lessor has notified Lessee in writing at least seven (7) days in
advance that the Premises will be ready for occupancy on that date.
Acceptance of possession of the Premises by Lessee shall not relieve Lessor
of its obligation to complete the Premises in accordance with the Plans and
Specifications.
3. BASE RENT
The Lessee shall pay to the Lessor as annual Base Rent, in legal tender at
the Lessor's address at 1533 Lake Shore Drive, Columbus, Ohio 43204, or such
other address as may be designated by Lessor the annual sum of:
Annual Monthly
------ -------
Year 1-9 $306,422.50 $25,535.20
promptly on the first day of every calendar month of the term, beginning on
the Commencement Date, unless the Premises are not ready for occupancy on
such date, in which case the first payment shall be due and payable upon the
date the Premises are ready for occupancy and shall be prorated, for such
partial month.
The Base Rent shall be payable without demand, the same being hereby waived.
3
<PAGE>
4. ADDITIONAL RENT
In addition to the Base Rent, Lessee shall pay to Lessor as additional rent
(herein sometimes called "Additional Rent"), in the manner provided for in
Section 5 below in United States dollars, during the term, Lessee's Pro Rata
Share (defined below) of all Operating Costs (defined below) relating to the
Building and the Real Property. For purposes of this Lease: (i) except as set
forth in the last paragraph of this Section, "Lessee's Pro Rata Share" shall
be the percentage which the leasable square footage of the Premises bears to
the total leasable square footage of the Building, which Lessor and Lessee
agree to be 59.06%; (ii) Base Rent and Additional Rent are sometimes herein
referred to collectively hereinafter as "Rent"; and (iii) "Operating Costs"
shall include, but not be limited to, all of the following:
(a) all Real Estate Taxes and Assessments becoming due
during the term or this Lease;
(b) all expenses relating to all insurance maintained by Lessor
relating to the Building and the Real Property including,
without limitation, all risk/hazard insurance, flood
insurance, rent loss insurance, fire and extended coverage
insurance, and comprehensive public liability insurance,
including umbrella coverage in amounts and with insurance
companies acceptable to Lessor;
(c) landscaping and lawn care, and snow removal;
(d) maintenance and repair of the Building (including but not
limited to electrical, plumbing, heating, air conditioning and
mechanical equipment and the necessary tools and equipment
associated therewith) or the Real Property and all parking
areas and access drives, sidewalks and grounds;
(e) improvements, including capital improvements, or repairs
undertaken to maintain the value and condition of the Building
and Real Property as a first class facility or to comply with
all applicable laws, ordinances, or orders;
(f) reasonable costs of operating personnel including salaries and
related benefits, auditor fees, attorney fees and management
fees; and
(g) all taxes, fees, or assessments not described within
subparagraph (a) herein [such as personal property taxes for
equipment used to service the Building, fees charged by any
owners' association and similar
4
<PAGE>
assessments(s)], excluding income taxes assessed against and
payable by Lessor, unless assessed in lieu of Real Estate
Taxes and Assessments.
All Operating Costs shall be determined on an accrual basis. Operating Costs
relating to capital improvements or capital repairs shall be amortized over
the useful life of the capital improvement or capital repair as determined by
Lessor.
Notwithstanding the foregoing, the total expenses computed for determining
the Operating Costs relating to the Premises shall not include any expenses
charged to another tenant in the Building because of such tenant's
disproportionate consumption of any utilities (as determined by Lessor) or
such tenant's intentional or negligent damage to the Building or Real
Property or such tenant's breach of its lease agreement with Lessor.
During any calendar year, or portion thereof in which less than 95% of the
total leasable square footage of the Building is leased, Lessor may
artificially increase (e.g. gross-up) all Operating Costs which vary with the
level of occupancy (to the extent there are any Operating Costs that very
with the level of occupancy of the Building) for the Building for that
calendar year or portion thereof to reflect what such Operating Costs would
have been had the Building been fully leased. The intent of the foregoing is
that Lessee shall be responsible for its Pro Rata Share of all such Operating
Costs relating to the Premises based upon the ratio of the Operating Costs
relating to the Premises as to the entire Building. Accordingly, assuming it
was the Lessor's responsibility to provide janitorial services and only 50%
of the total leasable square footage of the Building was leased during a
calendar year, the Lessor could artificially increase the expenditures
undertaken to provide the janitorial services to reflect that which would
have been expended if 100% of the total leasable square footage of the
Building had been leased, and thereafter assessed to each of the tenants in
the Building there Pro Rata Share of such Operating Costs.
Anything herein to the contrary notwithstanding, Lessee's Pro Rata Share of
the cost of repairing and maintaining the Common Walkway shall be %100.
Anything herein to the contrary notwithstanding, it is the intention of
Lessor and Lessee that Lessee provide its own janitorial services to the
Premises and that all utilities that access the Premises and are utilized by
Lessee shall be separately metered to Lessee and paid directly by Lessee. In
the in event for whatever reason during the term of this Lease and renewals
thereto Lessor shall be required to provide janitorial services or shall
incur any expenses, bills, charges or the like for gas, electricity, water,
sewage, trash disposal, telephone, etc. which related to Lessee's use of the
same, Lessee shall pay
5
<PAGE>
its Lessee's Pro Rata Share of the same and the same shall be included as
Additional Rent.
Anything herein to the contrary notwithstanding Lessee agrees to pay Lessee's
Pro Rata Share of all bills and charges for gas, electricity, water, sewage,
trash disposal, telephone and other utility services used solely with respect
to the Common Areas, including for example parking lot lighting expenses, etc.
Anything herein to the contrary notwithstanding, Lessee shall under no
circumstances be required to pay any monies nor shall there be any charges
included as Operating Costs for expenses relating to the interior of any
other tenants space located within the Building excepting only as the same
may relate to any building service lines which service the Building generally
and which may run through or are located within such other tenant space.
Operating Costs shall further, not include, any charges or expenses
associated with the leasing of the other tenant space within the Building or
the termination of a lease or the eviction of a tenant from the other tenant
space within the Building.
5. OPERATING COSTS BUDGET
Additional Rent shall be paid by Lessee to Lessor in accordance with this
Section. Prior to the Commencement Date, Lessor shall provide to Lessee an
estimate of the total projected Operating Costs and Lessee's Pro Rata Share
thereof for the Building and Real Property for the balance of the calendar
year in which the Commencement Date occurs. For each calendar year
thereafter, Lessor shall deliver to Lessee not later than the first day of
each such calendar year an estimate of the total projected Operating Costs
and Lessee's Pro Rata Share thereof for the Building and Real Property for
that calendar year. Lessee shall pay in advance on or before the first day of
each calendar month during the term at the time and in the manner of payment
for the Base Rent described above, its Pro Rata Share of such projected
Operating Costs in equal monthly installments.
Within 90 days following the end of each calendar year, Lessor shall prepare
an accounting of the actual Operating Costs so incurred for that year and
shall deliver that accounting to Lessee. Lessee may, upon reasonable notice
to Lessor and during normal business hours, review the books and records of
Lessor for the purpose of reviewing such Operating Costs.
For purposes of reconciling the projected Operating Costs actually paid by
Lessee versus the actual Operating Costs incurred by Lessor for each year
which related to the Premises, if Lessee's Pro Rata Share of such actual
costs exceeds the amount paid by Lessee for Additional Rent pursuant to this
Section (the "Deficiency"), Lessee shall pay to Lessor the Deficiency within
30 days after notice from Lessor to Lessee
6
<PAGE>
detailing an accounting of the Deficiency and requesting payment of the
Deficiency. In the event the amounts actually paid by Lessee for Additional
Rent exceeds Lessee's Pro Rata Share of such actual Operating Costs incurred
by Lessor for that year which relate to the Premises (the "Excess"), Lessor
shall pay to Lessee the Excess within 30 days after completing such
accounting. In no event shall either party be required to pay any interest on
any over-payment or under-payment made under this Section. Lessor's and
Lessee's obligations under this Section shall survive the expiration or
termination of this Lease.
6. CONSTRUCTION AND COMPLETION OF THE PREMISES
Lessor agrees to construct the Building, the other improvements on the Real
Property (including the Common Areas), in substantial compliance with
marketing materials and drawings which have been delivered to Lessee and to
construct the tenant improvements within the Premises in compliance with the
tenant fixturing plans and specifications prepared by Lessor's architect and
approved by Lessee on or before the Commencement Date. Lessee shall not do
anything, or fail to do anything, that will cause a delay in the completion
of the construction of the Building and related improvements to the Real
Property and the tenant improvements to be constructed within the Premises,
or that will increase the costs of such construction (except to the extent
addressed within the next following paragraph). In the event as a result of
Lessee's failure to cooperate or comply with this Section, completion is
delayed beyond the Commencement Date, such delay shall not create an
abatement of Base Rent or Additional Rent for the period of delay caused by
Lessee.
Lessee shall be entitled to a tenant improvement allowance in the amount of
$516,080.00. To the extent that tenant improvements exceed this amount,
Lessee shall reimburse Lessor within thirty (30) days after invoice therefor
accompanied by such supporting documentation as Lessee may reasonably require.
Relative to the construction of the tenant improvements Lessor shall endeavor
to provide Lessee with the opportunity to review and approve and bids which
Lessor receives for the construction of the same; provided, however,: (i) the
failure of Lessee to affirmatively review or approve any one or more of the
bids received for the construction of the tenant improvements within two
business days following the delivery of the same to Lessee by Lessor shall
constitute the approval of the same; and (ii) Lessee shall be responsible for
any delays or increased costs arising as a result of a determination made by
Lessee not to accept a bid presented to Lessee as recommended by Lessor for
acceptance.
7
<PAGE>
7. FORCE MAJEURE
In the event the Lessor shall be delayed or hindered or prevented in the
performance of any obligations required under the Lease by reasons of strike,
lockouts, inability to procure labor or materials, failure of power, fire or
other acts of God, restrictive governmental laws or regulations, riots,
insurrection, war or any other reason not within the reasonable control of
Lessor, then the performance of such obligations shall be excused for a
period of such delay and the period for the performance of any such act shall
be extended for a period equivalent to the period of any such delay. Anything
herein to the contrary notwithstanding Lessor agrees to complete the
construction of the Building, the other improvements on the Real Property
(including the Common Areas) and the tenant improvements within the Premises
by not later than the 1st day of December, 1998; provided, however, such
dates shall be extended by any delays arising as a result of the action or
inactions of Lessee including the failure of Lessee to timely review or
approve bids for the completion of the tenant improvements.
8. ASSIGNMENT BY LESSOR
If Lessor shall sell, assign, transfer or convey the Real Property and/or
Building, such sale, assignment, conveyance or transfer shall be subject to
this Lease, and provided the assignee assumes all of Lessor's obligations
under this Lease, Lessee shall look to the assignee or transferee of Lessor's
interest in this Lease for the performance of Lessor's obligations hereunder,
and the Lessor shall from and after such assignment or transfer be relieved
and discharged from any and all liabilities and obligations under this Lease.
Lessor shall send notice to Lessee of any such sale, assignment, transfer, or
conveyance at least thirty (30) days prior to the date that the next Base
Rent shall be due.
9. MAINTENANCE
During the term of this Lease, Lessee shall maintain the interior of the
Premises in a first class condition except for damage occasioned by the act
of Lessor, its employees, agents or invitees; provided, however, Lessee shall
not be excused from its obligations to maintain the Premises as a result of
the act of Lessor or its employees, agents or invitees if the same is subject
to insurance coverages maintained by Lessee (or insurance coverages that
would normally and customarily be carried by a lessee).
Notwithstanding anything to the contrary contained herein (except the
application of Sections 4 and 5 herein relating to the assessment and payment
of Operating Costs including those costs associated with the following),
Lessor shall be solely
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responsible for maintenance and repair of the Common Areas, the exterior of
the Building including the roof, foundation and all structural elements of
the Building; provided, however, Lessee shall be responsible to reimburse
Lessor for the costs associated with the same in accordance with the terms
and conditions as generally set forth within Sections 4 and 5 herein, and the
following sentence. In the event it becomes necessary to replace the roof,
foundation or structural elements or make any major repair to the roof,
foundation or structural elements, the cost of which would normally be
amortized under generally acceptable accounting principles, for the purpose
of this Section 9, the cost of such replacement or repair shall be amortized
over the estimated useful life of the replacement or the repair as
reasonably determined by the outside accountants for Lessor, and Lessee shall
only be obligated to pay that portion of the cost of the replacement or
repair attributable to the remainder of the then applicable term, and upon
exercise of a subsequent renewal term, that renewal term. Further, Lessor
shall warrant all improvements on the Premises (exclusive of tenant
improvements constructed by Lessee) for a term of one year after the
Commencement Date and shall make all repairs resulting from defective design,
workmanship or materials during that period. Further, Lessor shall, at the
request of Lessee, process any warranty claims under applicable warranties.
10. QUIET ENJOYMENT
So long as the Lessee shall observe and perform the covenants and agreements
binding on it hereunder, the Lessee shall, at all times during the term
herein granted, peacefully and quietly have and enjoy possession of the
Premises and the Common Areas without any encumbrance and hindrance.
11. CERTAIN RIGHTS RESERVED TO THE LESSOR
The Lessor reserves the following rights:
(a) On reasonable prior notice to the Lessee, to exhibit the
Premises to any prospective purchaser, mortgagee, or assignee
of any mortgage secured by the Premises at any time during the
term and to prospective tenants during the last year of the
term.
(b) At any time in the event of an emergency, to take any
and all measures, including inspections, repairs,
alterations, additions and improvements to the Premises
as may be necessary for the safety, protection or
preservation of the Premises provided Lessor shall have
first provided Lessee with such notice as is reasonable
under the
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circumstances and Lessee shall have failed to take action
with respect to such emergency. Relative to the same,
Lessor shall use reasonable efforts to minimize disturbance
of Lessee, its employees, agents, and invitees.
12. ESTOPPEL CERTIFICATES
Lessee and Lessor shall, within ten (10) days after written request of the
other, execute, acknowledge, and deliver to the other or to the other's
mortgagee, proposed mortgagee, or proposed purchaser of the Premises or any
part thereof or proposed assignee of this Lease or successor in interest,
reasonable estoppel certificates requested by the other party from time to
time, which estoppel certificates shall show whether the Lease is in full
force and effect and whether any changes may have been made to the original
Lease; whether the term of the Lease has commenced and full rental is
accruing; whether there are any defaults by Lessor or Lessee and, if so, the
nature of such defaults; whether possession has been assumed and all
improvements to be provided by Lessor have been completed; whether Base Rent
and/or Additional Rent has been paid more than thirty (30) days in advance;
whether there are any liens, charges, or offsets against Rentals of any type
due or to become due; and whether the address shown on such estoppel
certificate is accurate, and such other matters reasonably requested.
13. WAIVER OF CERTAIN CLAIMS BY LESSEE
(a) All personal property belonging to the Lessee or any occupant
of the Premises that is in or on any part of the Premises
shall be there at the risk of the Lessee or of such other
person only, and the Lessor, its agents and employees shall
not be liable for the theft or misappropriation thereof.
(b) Lessor shall not be liable for any damage or loss to
fixtures, equipment, merchandise or other personal
property of Lessee or any occupant of the Premises or
any part thereof located anywhere in the Premises
caused by fire, leak or flow of water, explosion,
sewer backup, breakage, leakage, obstruction, or other
defect of the pipes, sprinklers, wires, plumbing, air
conditioning or lighting fixtures, acts of God, public
enemies, injunction, riot, strike, insurrection, war,
court order, steam, rain or from any cause beyond
Lessor's control, or any other insurable hazards except
to the extent covered by the warranty of Lessor set forth
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in Section 9 hereof, and Lessee does hereby expressly release
Lessor of and from such liability for such damages or loss.
(c) Lessor shall not be liable for any damage or loss
resulting from business interruption at the Premises
arising out of or incident to the occurrence of any of
the perils which can be covered by a business
interruption insurance policy except to the extent
covered by the warranty of Lessor set forth in Section
9 hereof, and Lessee hereby expressly releases Lessor
of and from such liability for such damages or loss.
(d) Nothing contained within this Section shall release Lessor
from the intentional misconduct and/or fraudulent conduct of
Lessor or any duties or obligations required to be performed
by Lessor pursuant to law.
14. WAIVER OF CERTAIN CLAIMS BY LESSOR
Lessee shall not be liable for any damage to the Building and any other
improvements located upon the Real Property and owned by Lessor, or any part
thereof caused by fire or other insurable hazards, regardless of the cause
thereof (except to the extent the same is the result of the negligent act(s)
of Lessee), and Lessor hereby expressly releases Lessee of and from any and
all liability for such damages or loss.
15. MUTUAL WAIVER OF SUBROGATION
Any waiver of claims and/or release described within this Lease shall not be
limited to the liability of the parties to each other; it shall also apply to
the liability of any person claiming through or under the parties pursuant to
a right of subrogation or otherwise. The waiver of claims or release shall
not apply to loss or damage to property of a party unless the loss or damage
occurs when the applicable insurance policy of the party contains a clause or
endorsement to the effect that the release will not adversely affect or
impair the policy or prejudice the rights of the insured to recover under the
policy. In the event an insurance company is unwilling to include such a
clause or endorsement in a policy carried by a party, the party required to
carry the insurance shall give notice in writing to the other party of the
unwillingness of the insurance company to provide such clause or endorsement
in the policy. In such event, the party whose insurance company is unwilling
to include such a clause or endorsement in the policy shall take immediate
action to assure that insurance is obtained through a company that is willing
to include such a clause or endorsement in the policy.
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16. INDEMNIFICATION
Lessee indemnifies Lessor, each member of Lessor, and each employee and agent
of Lessor, against any loss, liability, or damages incurred in connection
with or arising from: (i) the use or occupancy of the Premises by Lessee or
any person claiming under Lessee; (ii) any activity, work, or thing done or
permitted to be done by Lessee in or about the Premises; (iii) any acts,
omissions, or negligence of Lessee or any person claiming under Lessee; (iv)
any breach, violation, or non-performance by Lessee or any person claiming
under Lessee of any term, covenant, or provision of this Lease, or any law,
ordinance, or governmental requirement of any kind; or (v) (except for loss
which is proximately caused by or results proximately from the negligence or
intentional misconduct of Lessor, Lessor's employees and agents), any injury
or damage to person, property, or business of Lessee, its employees, agents,
or any other person entering upon the Premises under the express or implied
invitation of Lessee.
Lessee shall defend any lawsuits with respect to claims for loss, liability
or damages against which the indemnity provided above applies, and shall pay
any judgments which result from the lawsuits. "Lawsuits" includes arbitration
proceedings and administrative proceedings, and all other governmental and
quasi-governmental proceedings. "Liabilities" includes the fees and
disbursements of attorneys and witnesses.
Lessor indemnifies Lessee, each shareholder, director or officer of Lessee,
and each employee and agent of Lessee, against any loss, liability, or
damages incurred in connection with or arising from: (i) the use or occupancy
of the Premises by Lessor or any person claiming under Lessor; (ii) any
activity, work, or thing done or permitted to be done by Lessor in or about
the Premises; (iii) any acts, omissions, or negligence by Lessor or any
person claiming under Lessor; (iv) any breach, violation or non-performance
by Lessor or any person claiming under Lessor of any term, covenant or
provision of this Lease, or governmental requirement of any kind; or (v)
(except for loss which is proximately caused by or results proximately from
the negligence or intentional misconduct of Lessee, Lessee's employees and
agents) any injury or damage to person, property, or business of Lessor, its
employees, agents, or any other person entering upon the Premises under the
express or implied invitation of Lessor.
Lessor shall defend any lawsuits with respect to claims for loss, liability
or damages against which the indemnity provided above applies, and shall pay
any judgments which result from the lawsuits. "Lawsuits" includes arbitration
proceedings and administrative proceedings, and all other governmental and
quasi-governmental proceedings. "Liabilities" includes the fees and
disbursements of attorneys and witnesses.
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Lessee agrees to the extent it is required to obtain insurance pursuant to
this Lease, all such policies shall contain a broad form contractual
liability endorsement obligating its insurance carrier to comply with the
terms of this Section.
17. LIABILITY INSURANCE
Lessee shall maintain comprehensive public liability insurance with combined
single limits of not less than $1,000,000.00 for injuries or damages
occurring in or about the Premises. Lessor shall be named as an "additional
insured" under such policy. Evidence of such insurance shall be provided on
the date Lessee takes occupancy of the Premises.
18. FIRE AND EXTENDED COVERAGE INSURANCE
Lessor shall maintain during the term a fire and extended coverage insurance
policy with respect to the Building, and as applicable, the Real Property.
The coverage limits shall not be less than the reasonable estimate of the
cost of replacing the Building and Real Property as applicable. The cost of
replacing the Building and Real Property, as applicable, means the cost of
replacing damage to the same as reasonably determined by Lessor with new
materials of like kind and quality, except for foundation, footings, and
other building elements customarily excluded from applicable coverages.
Lessee shall reimburse Lessor for the costs of maintaining the insurance
under this Section 18 as Additional Rent as set forth in Sections 4 and 5
hereof.
19. HOLDING OVER
If the Lessee retains possession of the Premises or any part thereof after
the expiration of the term of the Lease, the Lessee shall pay the Lessor Base
Rent at one and one-quarter the monthly rate in effect immediately prior to
the termination of the term for the time the Lessee remains in possession. In
addition thereto, Lessee shall be liable to Lessor for all damages,
incidental, consequential, indirect and direct, sustained by reason of the
Lessee's retention of possession. The provisions of this Section do not
exclude the Lessor's rights of reentry or any other right provided hereunder
or available at law or in equity. No such holding-over shall be deemed to
constitute a renewal or extension of the term hereof; however, all other
provisions of this Lease shall remain in full force and effect.
20. ASSIGNMENT AND SUBLETTING
The Lessee shall not, without the Lessor's prior written consent, which
consent shall not be unreasonably withheld as long as the assignment or
sublease is to an entity of similar financial strength, (a) assign, convey,
mortgage, pledge, encumber or
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otherwise transfer (whether voluntarily or otherwise) this Lease or any
interest under it; (b) allow any transfer by operation of law; (c) sublet the
Premises or any part thereof; or (d) permit the use or occupancy of the
Premises or any part thereof by anyone other than the Lessee.
If this Lease is assigned or if the Premises or any part thereof be sublet or
occupied by anybody other than the Lessee, with the consent of Lessor as
stated above, Lessor may, after default by Lessee, collect rent from the
assignee, subtenant or occupant, and apply the net amount collected to the
Base Rent and/or Additional Rent herein reserved, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of any of
Lessee's covenants contained in this Lease or the acceptance of such
assignee, subtenant or occupant as Lessee, or a release of Lessee from
further performance by Lessee of covenants on the part of Lessee herein
contained.
In the event a sublease or assignment is made with the Lessor's prior written
consent, as herein provided, Lessee shall pay Lessor a charge of $350.00 as
reimbursement for necessary legal and accounting services required by Lessor
to accomplish such assignment or subletting. Said amount shall be deemed to
be Additional Rent under the terms of this Lease.
Notwithstanding any other provision hereof to the contrary, Lessee may assign
its rights under this Lease or sublease all or any part of the Premises to a
parent, subsidiary or affiliate without the consent of Lessor and without
paying any assignment fee, provided Lessee shall not be relieved from
liability hereunder as a result of such assignment or sublease, and Lessee
shall not thereafter dissolve or sell substantially all of its assets without
establishing reasonable reserves to meet its obligations under this Lease.
Further, notwithstanding any other provision hereof to the contrary, in the
event Lessee were to exercise its rights under this Section to assign or
sublet all of the Premises over unto another person or entity (except for a
person or entity which is a parent, subsidiary or affiliate of Lessee),
Lessee shall (except as set forth to the contrary in the last sentence of
this paragraph) as a condition of such assignment or subletting remove the
Common Walkway at Lessee's cost and expense and restore that portion of the
Real Property to a condition substantially similar to the condition of the
portion of the Real Property immediately contiguous thereto. The preceding
condition shall not be applicable if contemporaneous with the assignment or
subletting of this Lease, the lease agreement entered into by and between
Morrison Taylor, Ltd. and Lessee for the real property and improvements which
are adjacent to the Real Property and are commonly known as 800 TechCenter
Drive, Gahanna, Ohio (the "Adjacent Property Lease") is also sublet or
assigned to the
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same person or entity to which this Lease is so sublet or assigned.
Further, notwithstanding any other provision hereof to the contrary, in the
event Lessee were to assign or sublet its interest in the Adjacent Property
Lease (except for an assignment or subletting to a parent, subsidiary or
affiliate of Lessee), Lessee shall remove the Common Walkway as located upon
the Real Property unless Lessee convinces both Lessor and the landlord under
the Adjacent Property Lease to not require Lessee to remove such Common
Walkway, which without requiring either Lessor or the landlord under the
Adjacent Property Lease to consent to the same, shall require at a minimum
that: (i) Lessee pay Base Rent and Operating Costs on its continued use of
the same (in theory to both the Lessee and the landlord under the Adjacent
Property Lease as to their respective ownership of the Common Walkway); and
(ii) Lessee reconfirming its obligation to remove such Common Walkway at
Lessee's expense at the request of either Lessor or the landlord under the
Adjacent Property Lease. The preceding shall not be applicable if
contemporaneous with the assignment or subletting of the Adjacent Property
Lease, this Lease is also sublet or assigned to the same person or entity to
which the Adjacent Property Lease is so sublet or assigned.
Anything herein to the contrary notwithstanding in the event Lessee were to
exercise its rights under this Section to assign or sublet all of the
Premises or in the event Lessee were to assign or sublet its interest in the
Adjacent Property Lease, but in either such case continue to desire utilize
the Common Walkway or to maintain the right to continue to utilize the Common
Walkway upon the expiration of a sublease, Lessee shall not be required to
remove the same provided Lessee ratifies and reaffirms as part of the
assignment or subletting described above its obligation to remove the Common
Walkway upon expiration or termination of this Lease or Adjacent Property
Lease.
21. CONDITION OF PREMISES
On the expiration or termination of the Lease, Lessee shall return the Premises
"broom clean" and in as good condition as when the Lessee took possession,
ordinary wear and tear and loss by fire or other insured casualty excepted.
22. USE OF PREMISES
Lessee shall use the Premises for general office and related purposes and for
no other purposes.
Lessee shall comply with all laws and ordinances, and all rules and
regulations of all governmental authorities at any time in force, applicable
to the Premises or to the Lessee's use thereof, and to this end and without
limitation Lessee expressly covenants
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not to bring (or allow to be brought) into the Premises or upon the Real
Property any substances which have been defined as "hazardous" or "toxic"
substances under any applicable federal and/or state law, rule and/or
regulation, except for Hazardous Substances stored, treated, generated,
transported, processed, handled, produced or disposed of in the normal
operation of the Premises as an office building in strict accordance with all
Environmental Laws.
23. DAMAGE OR DESTRUCTION
If the Premises or any substantial part of the Premises and Common Areas is
damaged or destroyed by fire or other casualty, such that the damage cannot
be replaced or repaired within One Hundred Eighty (180) days thereafter,
either party may by written notice to the other, terminate this Lease, which
termination shall be effective as of the date of such damage.
If as a result of fire or other casualty the Premises add Common Areas are
made partially or completely untenable, and the Lease is not terminated as
provided above, this Lease shall remain in full force and effect and the Base
Rent and Additional Rent shall abate during such time as the Premises are
untenable; provided, however, if Lessee occupies part of the space, Base Rent
and Additional Rent shall be abated by an amount determined by multiplying
the Base Rent and Additional Rent by a fraction of the numerator of which is
the leasable space which cannot be occupied and the denominator of which is
the total leasable square footage within the Premises.
Unless this Lease is terminated as hereinabove provided, this Lease shall
remain in full force and effect and Lessor shall proceed with due diligence
to restore, repair, and replace the Premises to substantially the same
condition as it was in as of the Commencement Date. Lessor shall be under no
duty to restore any alterations, improvements or additions made by the Lessee
or by Lessor at Lessee's request after the Commencement Date, unless the same
are covered by proceeds of insurance designated for the same and available to
Lessor in which case Lessor shall restore the same. In all cases, due
allowances in the completion of the repairs shall be given to the Lessor for
any reasonable delays caused by adjustment of insurance loss, strikes, labor
difficulties, inability to obtain supplies or materials or any cause beyond
Lessor's control.
24. EMINENT DOMAIN
(a) In the event that title to all of the Real Property, or
a portion of the Real Property containing a part of the
Building shall be condemned or taken in any manner for any
public or quasipublic use, this Lease and the
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term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title in the name of
the condemning authority and the Lessor and Lessee shall be
entitled to participate in any award based upon their
respective interest therein, if any. Without limitation,
Lessee shall be entitled to make a claim for and
participate in any part of an award made for the taking, of
personal property or fixtures belonging to Lessee, for the
interruption of or damage to Lessee's business, for
Lessee's moving expenses, and for the value of the
remaining term of the Lease.
(b) In the event that title to a portion of the Real
Property containing no portion of the Building shall be
so condemned or taken and provided the same does not
reduce the number of parking spaces available to Lessee
by more than five percent (5%), this Lease shall remain
in full force and effect without rent abatement,
apportionment, or other alteration whatsoever, and
Lessor shall be entitled to receive any award paid by
the condemning authority, the Lessee hereby assigning
to Lessor the Lessee's interest therein, if any. If
however, such taking reduces the number of parking
spaces available to Lessee by more than five percent
(5%), and Lessor cannot provide reasonably suitable
alternative parking within thirty (30) days thereafter,
then Lessee shall have the right to cancel this Lease
upon written notice to Lessor exercised within ten (10)
days following the day Lessor acknowledges in writing
its inability to provide reasonably suitable
alternative parking, or the expiration of the thirty
(30) day period described above, whichever shall first
occur. In such event, Lessor and Lessee shall be
entitled to participate in any award as set forth in
Section 24(a) hereof.
(c) For the purpose of this Section, a sale to a public or
quasi-public authority under threat of condemnation shall
constitute a vesting of title and shall be construed as a
taking by such condemning authority.
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25. LESSOR'S REMEDIES
All rights and remedies of the Lessor herein enumerated shall be cumulative, and
none shall exclude any other right or remedy allowed by law or in equity. In
addition to the other remedies provided in this Lease, the Lessor shall be
entitled to the restraint by injunction without bond of the violation or
attempted violation of any of the covenants, agreements or conditions of this
Lease.
(a) If the Lessee shall: (i) apply for or consent to the
appointment of a receiver or trustee of the Lessee or of all
or a substantial part of its assets; (ii) file a voluntary
petition in bankruptcy or admit in writing its inability to
pay its debts as they come due; (iii) make a general
assignment for the benefit of creditors; (iv) file a petition
or an answer seeking reorganization or arrangement with
creditors or to take advantage of any insolvency law; or (v)
file an answer admitting the material allegations of a
petition filed against the Lessee in any bankruptcy,
reorganization or insolvency proceeding, or if an order,
judgment or decree shall be entered by any court of competent
jurisdiction adjudicating the Lessee a bankrupt or insolvent
or approving a petition seeking reorganization of the Lessee
or appointing a receiver or trustee of the Lessee or of all or
a substantial part of its assets, then in any of such events,
the Lessor may give to the Lessee a notice of intention to end
the term of this Lease specifying a day not earlier than ten
(10) days thereafter, and upon the giving of such notice the
term of this Lease and all right, title and interest of the
Lessee hereunder shall expire as fully and completely on the
day so specified as if that day were the date herein
specifically fixed for the expiration of the term.
(b) If Lessee fails to pay any installment of Base Rent
and/or Additional Rent within five days after the same
is due, Lessee shall pay Lessor a charge of $250.00 to
defer Lessor's additional administrative costs
associated with the same. Lessee shall pay in addition
to the $250.00 charge described in the immediately
preceding sentence, interest on the unpaid
installment(s) of Base Rent and/or
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Additional Rent at 4% over the Prime Rate of Interest as
described within the WALL STREET JOURNAL or the maximum amount
allowed by law (if such a limitation does so exist), whichever
is less, (the "Default Rate") from the date such
installment(s) was due. If Lessee fails to pay Base Rent
and/or Additional Rent on the date the same is due, and if
such default continues for a period of twenty (20) days after
receipt of written notice of such default, or in the event
Lessee fails to cure any other default in this Lease within 30
days after receipt of notice to cure the same, or in the event
Lessee shall default under Adjacent Property Lease and fail to
cure such default as provided within the Adjacent Property
Lease, then Lessor may terminate this Lease or terminate
Lessee's possession under the Lease without terminating the
Lease and endeavor to relet the same. Nothing herein shall
relieve Lessee of its obligation to pay Base Rent and
Additional Rent.
(c) Upon termination of this Lease, Lessee shall surrender the
Premises and deliver possession thereof to Lessor. If Lessee
fails to vacate the Premises, Lessor may obtain possession of
the Premises in the manner provided or allowed by law.
(d) If the Lessor elects, without terminating the Lease, to
endeavor to relet the Premises, the Lessor may, at the
Lessor's option, enter into the Premises, remove the
Lessee's signs and other evidence of tenancy, and take
and hold possession thereof as provided in paragraph
(c) of this Section provided, without such entry and
possession terminating the Lease or releasing the
Lessee in whole or in part, from the Lessee's
obligation to pay the Base Rent and/or Additional Rent
hereunder for the full term as hereinafter provided.
Upon and after entry into possession without termination
of the Lease, the Lessor may relet the Premises or
any part thereof for the account of the Lessee at the fair
market rents for which there shall exist for the
purpose of establishing the same a rebuttable
presumption that the rents as agreed to by Lessor upon
such re-rental of the Premises are, in fact, fair
market rents
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(it being the intent of the later portion
of this sentence to place the burden on the defaulting
Lessee to establish that the rents as agreed to by the
non-defaulting Lessor are not fair market rentals,
rather than placing the burden on the non-defaulting
Lessor to establish that the same are fair market
rents). If the rents collected by Lessor upon such
reletting are not sufficient to pay monthly the full
amount of the Base Rent and Additional Rent due
hereunder plus the costs of reletting the same,
including advertising, leasing commissions, attorney
fees and the costs of retrofitting the tenant
improvements, Lessee shall pay to Lessor the amount of
the deficiency in full on demand as the same accrue.
To this end, it is agreed that the Lessor can collect
immediately any costs of reletting once such costs
are incurred, including advertising, leasing
commissions, attorney fees, and the costs of
retrofitting the tenant improvements; the Lessor will
not be required to defer collection of the same after
such expenses are incurred.
(e) Any property of Lessee not removed from the Premises
within thirty (30) days after the Premises are vacated
by Lessee shall be deemed abandoned by Lessee and may
be retained by Lessor as its property or disposed of in
such manner as Lessor may see fit. Any and all
property removed by Lessor by authority of this Lease
or law which belongs to Lessee shall be removed and/or
stored at the risk and expense of Lessee.
(f) In the event of a default by Lessee, and the expiration of any
cure period provided for herein, in addition to any other
remedies provided herein, Lessor may require Lessee to remove
the Common Walkway and in the event Lessee fails to remove the
same, Lessor may remove such Common Walkway at Lessee's sole
cost and expense.
26. LESSEE'S REMEDIES
If Lessor defaults in the performance of any covenant required to be performed
by Lessor under the terms of this Lease, or if the landlord under the Adjacent
Property Lease defaults in the performance of any obligations required to be
performed by the
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landlord under the terms and conditions of the Adjacent Property Lease and
the tenant under this Lease and the Adjacent Property Lease are the same
entities, Lessee may serve upon Lessor and if requested by Lessor's lender(s)
upon Lessor's lender's(s') written notice specifying the default and
requiring performance by the Lessor within a period of time set forth in the
notice, which shall not be less than thirty (30) days after receipt of said
notice, except in the case of emergency. In the event that Lessor shall not
have remedied the default within the time set forth in the notice, Lessee may
by written notice to Lessor, at its sole option, cure Lessor's default and
Lessor shall immediately reimburse Lessee for the expenses thereof with
interest at the Default Rate. Further, if the default by Lessor is the
failure to maintain the foundation, structure or roof as required under
Section 9 hereof, and provided that except in the case of emergency, Lessee
includes within the written notice specified in the default described within
the first sentence of this Section, a written report by a structural engineer
of recognized responsibility located within the Columbus metropolitan
marketplace specifying in detail the nature and extent of the proposed
deficiency and the proposed plan for modifying or correcting such deficiency,
and Lessor thereafter fails to submit within such thirty (30) day period a
written objection to such proposal supported by an opinion of a structural
engineer of recognized responsibility located within the Columbus
metropolitan marketplace, Lessee may offset the expense thereof with interest
at the Default Rate against Base Rent and Additional Rent thereafter
accruing. However, if any default shall occur which cannot, with due
diligence be cured within a period of thirty (30) days, and Lessor prior to
the expiration of thirty (30) days from and after the giving of notice as
aforesaid, commences to eliminate the causes of such default and proceeds
diligently and with reasonable dispatch to take all steps and to do all work
required to cure such default, then Lessee shall not have the right to
declare the Lease terminated by reason of such default.
27. SUBORDINATION OF LEASE
This Lease is and shall be subject to and subordinate to any and all
mortgages now existing upon or that may be hereafter placed upon the Building
and/or the Real Property and to all advances made or to be made thereon and
all renewals, modifications, consolidations, replacements or extensions
thereof and the lien of any such mortgages to the full extent of all sums
secured thereby. This provision shall be self-operative and no further
instrument of subordination shall be necessary to effectuate such
subordination and the recording of any such mortgage shall have preference
and precedence and be superior and prior in lien to this Lease, irrespective
of the date of recording. In confirmation of such subordination, Lessee shall
on request of Lessor or the holder of any such mortgage execute and deliver
to
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Lessor within ten (10) days any instrument that Lessor or such holder may
reasonably request provided the same contains language substantially similar
to that set forth within the next following paragraph, and to this end Lessee
acknowledges that such instrument may also require certain additional
affirmative obligations be undertaken by Lessee not heretofore set forth
within this Lease and not inconsistent with the terms of this Lease such as
the obligation of Lessee to notify the mortgage company granting the
non-disturbance agreement described in the next following sentence in the
event of a default by Lessor under this Lease.
Notwithstanding the foregoing in the event of a foreclosure of any such mortgage
or of any other action or proceeding for the enforcement thereof, or of any sale
thereunder, this Lease will not be barred, terminated, cut off or foreclosed nor
will the rights and possession of Lessee thereunder be disturbed if Lessee shall
not then be in default in the payment of rental or other sums or be otherwise in
default under the terms of this Lease, and Lessee shall attorn to the purchaser
at such foreclosure, sale or other action or proceeding.
28. NOTICES AND CONSENTS
All notices, demands, requests, consents or approvals which may or are
required to be given by either party to the other shall be in writing and
shall be given personally with return receipt requested or by United States
Certified or Registered Mail, postage prepaid, return receipt requested. Such
notice shall be deemed given on the date inscribed on the return receipt.
Such notice shall be directed: (a) if for the Lessee, to the Lessee at the
Building with a copy to the attention of Bruce McClary at 220 West Schrock
Road, Westerville, Ohio 43081, or at such other place as the Lessee may from
time to time designate by notice to the Lessor; or (b) if for the Lessor, to
1533 Lake Shore Drive, Suite 50, Attention: Robert C. White, Columbus, Ohio,
43204, or at such other place as the Lessor may from time to time designate
by notice to the Lessee. All consents and approvals provided for herein must
be in writing to be valid. If the term Lessee as used in this Lease refers to
more than one person, any notice, consent, approval, request, bill, demand or
statement, given as aforesaid to any one of such persons shall be deemed to
have been duly given to Lessee.
29. NO ESTATE IN LAND
This contract and Lease shall create the relationship of landlord and tenant
between Lessor and Lessee; no estate shall pass out of Lessor except that of
the tenancy described herein; and Lessee shall have only the rights of
enjoyment stated herein of property vested in the Lessor which rights are not
subject to levy and sale.
22
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30. INVALIDITY OF PARTICULAR PROVISIONS
If any clause or provision of this Lease is or becomes illegal, invalid, or
unenforceable because of present or future laws or any rule, decision, or
regulation of any governmental body or entity, the intention of the parties
hereto is that the remaining parts of this Lease shall not be affected
thereby.
31. MISCELLANEOUS TAXES
Lessee shall pay prior to delinquency all taxes assessed against or levied
upon its occupancy of the Premises, or upon the fixtures, furnishings,
equipment, and all other personal property of Lessee located in the Premises,
if nonpayment thereof shall give rise to a lien on the real estate, and when
possible Lessee shall cause said fixtures, furnishings, equipment and other
personal property to be assessed and billed separately from the property of
Lessor. In the event any or all of Lessee's fixtures, furnishings, equipment
and other personal property, or upon Lessee's occupancy of the Premises,
shall be assessed and taxed with the property of Lessor, Lessee shall pay to
Lessor its share of such taxes within ten (10) days after delivery to Lessee
by Lessor of a statement in writing setting forth the amount of such taxes
applicable to Lessee's fixtures, furnishings, equipment or personal property.
32. BROKERAGE
Lessee and Lessor each represent to the other that they have not dealt with
any broker or agent in connection with this transaction except The Daimler
Group, Inc., whose commission shall be paid by Lessor, and each agrees to
hold the other harmless from any claim for any other commission made by a
party claiming to have worked with the other.
33. SPECIAL STIPULATIONS
(a) No receipt of money by the Lessor from the Lessee after
the termination of this Lease or after the service of
any notice or after the commencement of any suit, or
after final judgment for possession of the Premises
shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand or suit or
imply consent for any action for which Lessor's consent
is required.
(b) No waiver of any default of the Lessee or Lessor hereunder
shall be implied from any omission by the Lessor or Lessee to
take any action on account of such default if such default
persists or be repeated, and no
23
<PAGE>
express waiver shall affect any default other than
the default specified in the express waiver and that only for
the time and to the extent therein stated.
(c) All of the covenants of the Lessee hereunder shall be deemed
and construed to be "conditions" as well as covenants" as
though the words specifically expressing or importing
covenants and conditions were used in each separate instance.
(d) This Lease shall not be recorded by either party
without the consent of the other. However, on the
request of either party Lessor and Lessee agree to make
and execute a Memorandum of Lease in recordable form so
as to give public notice of the execution of the within
Lease, and a statement therein as to the date of
commencement of the within Lease which shall not
disclose the terms of rental hereunder.
(e) Neither party has made any representations or promises, except
as contained herein, or in some further writing signed by the
party making such representation or promise.
(f) Each provision hereof shall extend to and shall, as the case
may require, bind and inure to the benefit of the Lessor and
the Lessee and their respective heirs, legal representatives,
successors, and assigns.
(g) If because of any act or omission of Lessee, a mechanics lien
is filed against the Lessor or the real estate, Lessee shall
hold Lessor harmless therefrom.
(h) This Lease shall not be binding until signed by both parties.
(i) No acceptance by Lessor of a lesser sum than the Base
Rent, Additional Rent or any other charge then due
shall be deemed other than on account of the earliest
installment of such rent or charge due, nor shall any
endorsement or statement on any check or any letter
accompanying any check or payment as rent or other
charge be deemed an accord and satisfaction, and Lessor
may accept such check or payment without prejudice to
24
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Lessor's right to recover the balance of such
installment or charge or other monies owing by Lessee
or pursue any other remedy in this Lease provided.
34. LIMITATION OF LESSOR'S LIABILITY
(a) The individual members of Lessor shall have no personal
liability with respect to any of the provisions of this
Lease or any obligation arising from, or in connection
with this Lease. If Lessor or any successor in
interest shall be a joint venture or a partnership, the
members of the joint venture or the partnership shall
have no personal liability with respect to any
provisions of this Lease or any obligation arising from
or in connection with this Lease.
(b) If Lessee shall assert a claim against Lessor and Lessor is
the owner of the Building and Real Property at the time the
claim is asserted, Lessee shall look solely to Lessor's
ownership interest in the Building and Real Property and the
proceeds available from fire insurance policies maintained by
Lessor for satisfaction of all remedies of any award of
damages.
35. FINANCIAL STATEMENTS
Upon reasonable request, but no more frequently than once each year, the Lessee
shall provide financial statements to Lessor and/or Lessor's lending
institution. Lessor shall endeavor to keep the financial statements provided
pursuant to this Section confidential and shall not distribute such statements
to any person or entity without Lessee's prior written consent except Lessor
shall be entitled to submit the same to a prospective purchaser or lender,
provided such prospective purchaser or lender agrees to use the same only for
their respective internal purposes.
36. HAZARDOUS SUBSTANCES
(a) Lessor and Lessee hereby covenant and agree that the following
terms shall have the following meanings:
(i) "ENVIRONMENTAL LAWS" mean all federal, state, and
local laws, statutes, ordinances, and codes
relating to the use, storage, treatment,
generation, transportation, processing, handling,
production, or disposal of any Hazardous Substance
and the rules, regulations, policies, guidelines,
interpretations, decisions, orders, and directives
with respect thereto.
25
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(ii) "HAZARDOUS SUBSTANCE" means, without limitation,
any flammable explosives, radioactive materials,
asbestos, urea formaldehyde foam insulation,
polychlorinated biphenyls, petroleum and petroleum
based products, methane, hazardous materials,
hazardous wastes, hazardous or toxic substances,
or related materials, as defined in the
Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C.
Sections 9601, ET SEQ.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections
1801, et sea.), the Toxic Substances Control Act, as
amended (15 U.S.C. Sections 2601, ET SEQ.), or any
other applicable Environmental Law.
(iii) "INDEMNITEE" means Lessor, its respective successors
and assignees, its respective partners, officers,
directors, employees, agents, representatives,
contractors and subcontractors, and any subsequent
owner of the Real Property and Building who acquires
title thereto from or through Lessor.
(iv) "RELEASE" has the same meaning as given to that term
in the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended
(42 U.S.C. Sections 9601, et seq.), and the
regulations promulgated thereunder.
(b) Lessee covenants and agrees with Lessor as follows:
(i) Lessee shall keep, and shall cause all occupants
of the Premises to keep the Premises, free of all
Hazardous Substances, except for Hazardous
Substances stored, treated, generated,
transported, processed, handled, produced, or
disposed of in the normal operation of the
Premises as an office building, in accordance with
all Environmental Laws.
(ii) Lessee shall comply with, and shall cause all
occupants of the Premises to comply with all
Environmental Laws.
(iii) Lessee shall promptly provide Lessor with a copy of
all notifications which it gives or receives with
respect to any past or present Release of any
Hazardous Substance or the threat of such a Release
on, at, or from the Premises or any property adjacent
to or within the immediate vicinity of the Premises.
26
<PAGE>
(iv) Lessee shall undertake and complete all
investigations, studies, sampling, and testing for
Hazardous Substances reasonably required by Lessor
and, in accordance with all Environmental Laws,
all removal and other remedial actions necessary
to contain, remove, and clean up all Hazardous
Substances that are determined to be present at
the Premises (if as a result of the actions or
inactions of Lessee or any occupant of the
Premises) in violation of any Environmental Laws.
(v) Lessor shall have the right, but not the obligation,
to cure any violation by Lessee of the Environmental
Laws and Lessor's cost and expense to so cure shall
be the responsibility of Lessee under this Lease
Agreement.
(c) Lessee covenants and agrees, at its sole cost and
expense, to indemnify, defend, and save harmless
Indemnitee from and against any and all damages,
losses, liabilities, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits,
actions, proceedings, costs, disbursements, and/or
expenses (including, without limitation, reasonable
attorneys' and experts' fees and expenses) of any kind
or nature whatsoever which may at any time be imposed
upon, incurred by, asserted, or awarded against
Indemnitee arising out of the actions or inactions of
Lessee or any occupant of the Premises, but not arising
out of the actions or inactions of other tenants of the
Building not occupying the Premises, and (i) the
storage, treatment, generation, transportation,
processing, handling, production, or disposal of any
Hazardous Substance by Lessee, (ii) the presence of any
Hazardous Substance or a Release of any Hazardous
Substance or the threat of such a Release at or from
the Premises, (iii) human exposure to any Hazardous
Substance, (iv) a violation of any Environmental Law,
or (v) a material misrepresentation or inaccuracy in
any representation or warranty or material breach of or
failure to perform any covenant made by Lessee herein
(collectively, the "Indemnified Matters").
The Liability of Lessee to Indemnitee here under shall in no
way be limited, abridged, impaired, or otherwise affected by
(i) the release, expiration, or termination of this Lease
Agreement, (ii) the invalidity or unenforceability of any of
the terms or provisions contained in this Lease Agreement,
(iii) any exculpatory provisions of this Lease Agreement, (iv)
any applicable statute of limitations, (v) the assignment of
this Lease Agreement by Lessor or Lessee,
27
<PAGE>
(vi) the sale, transfer, or conveyance of all or part of
the Real Property and Building, (vii) the dissolution or
liquidation of Lessee, (viii) the death or legal incapacity
of Lessee, (ix) the release or discharge, in whole or in
part, of Lessee in any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition,
liquidation, or similar proceeding, or (x) any other
circumstances which might otherwise constitute a legal or
equitable release or discharge, in whole or in part, of
Lessee under this Lease Agreement.
The foregoing indemnity shall be in addition to any and all
other obligations and liabilities Lessee may have to Lessor
at common law.
(d) Lessor represents and warrants to Lessee, that to the
best of Lessor's knowledge, as of the Effective Date of
this Lease Agreement and based solely upon Lessor's
review of a Phase One Environment Report for the Real
Property and the Building, the Real Property and the
Building are free of all Hazardous Substances, except
for Hazardous Substances stored, treated, generated,
transported, processed, handled, produced, or disposed
of in accordance with all Environmental Laws.
(e) Lessor covenants and agrees, at its sole costs and
expense, to indemnify, defend, and save harmless
Lessee, its respective successors, assignees, officers,
directors, employees, agents, representatives and
contractors, from and against any and all damages,
losses, liabilities, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits,
actions, proceedings, costs, disbursements, and/or
expenses (including, without limitation reasonable
attorneys and experts' fees and expenses) of any kind
or nature whatsoever which may at any time be imposed
upon, incurred by, asserted, or awarded against Lessee
and/or its respective successors, assignees, officers,
directors, employees, agents, representatives and
contractors arising out of the actions or inactions of
the Lessor and (i) the storage, treatment, generation,
transportation, processing, handling, or disposal of
any Hazardous Substance by Lessor (ii) the presence of
any Hazardous Substance or a Release of any Hazardous
Substance or the threat of such Release at or from the
Real Property by Lessor (iii) human exposure to any
Hazardous Substance, (iv) a violation of any
Environmental Law, or (v) a material misrepresentation
or inaccuracy in any representation or warranty or
material breach of or failure to perform any covenant
made by Lessor herein. Anything herein to the contrary
28
<PAGE>
notwithstanding under no circumstances shall the
actions of any other tenant, occupant, visitor or the
like to the Real Property be considered to be the
actions of Lessor.
The Liability of Lessor to Lessee, its respective successors,
assignees, officers, directors, employees, agents,
representatives and contractors hereunder shall in no way be
limited, abridged, impaired, or otherwise affected by the
release, expiration, or termination of this Lease Agreement.
The foregoing indemnity shall be in addition to any and all
other obligations and liabilities Lessor may have to Lessee at
common law.
37. LEASE CANCELLATION
Provided Lessee is not then in default hereunder, Lessee will have a one time
option to cancel the Lease at the end of the fifth lease year. In order to
exercise the one time lease cancellation, the Lessee will give Lessor written
notice twelve months prior to the anniversary of the fifth lease year. In
addition to notifying the Lessor at least twelve months before the end of the
fifth lease year, Lessee must pay a cancellation fee equal to twelve (12) months
of Base Rent. If Lessee does not give Lessor written notice twelve months prior
to the end of the fifth lease year the lease cancellation right will terminate.
In the event Lessee elects to exercise the right to cancel the Lease as set
forth within this Section 37, and in the event the Adjacent Property Lease
remains in full force and effect following the cancellation of this Lease, then
Lessee shall remove at Lessee's sole cost and expense the Common Walkway, and
shall restore the same to a condition substantially similar to the real property
immediately contiguous to such Common Walkway. Further, in the event Lessee
elects pursuant to the Adjacent Property Lease to exercise the right to cancel
the Adjacent Property Lease as set forth therein, and in the event this Lease
remains in full force and effect following the cancellation of the Adjacent
Property Lease, then Lessee shall remove at Lessee's sole cost and expense the
Common Walkway, and shall restore the same to the conditions substantially
similar to the real property immediately contiguous to such Common Walkway.
38. RENEWAL OPTION
In the event Lessee is not in default in the payment of Base Rent or Additional
Rent or otherwise in material default of any of the terms, covenants, or
conditions of this Lease, the Lessee may elect to renew this Lease for three (3)
additional terms of five (5) years. The option period shall commence on the day
following the Expiration Date and shall continue for a term of five (5)
29
<PAGE>
years thereafter. The Base Rent for the renewal terms of this Lease shall be 1st
Renewal (Years 10-14) Base Rent $10.25 per square foot, 2nd Renewal (Years
15-19) Base Rent $11.00 per square foot, 3rd Renewal (Years 20-24) Base Rent
$11.75 per square foot.
In order to exercise the renewal options, Lessee must give Lessor notice in
writing of its election to exercise such option not less than one hundred eighty
(180) days prior to the Expiration Date.
39. REMOVAL OF COMMON WALKWAY
Anything herein to the contrary notwithstanding, in the event pursuant to the
terms of this Lease, Lessee is required to remove the Common Walkway, the
removal of the Common Walkway shall include the restoration of the area
previously improved by the Common Walkway to a condition similar to the
immediately surrounding real property (i.e. appropriately landscaped to match
existing conditions).
IN WITNESS WHEREOF, the undersigned have hereto set their hands.
SIGNED AND ACKNOWLEDGED LESSOR:
IN THE PRESENCE OF: MORRISON TAYLOR II, LTD.
[ILLEGIBLE] /s/Robert C. White
- -------------------------- -------------------------
Witness to Lessor By: Robert C. White
Its: President
[ILLEGIBLE]
- --------------------------
Witness to Lessor
LESSEE:
ADS ALLIANCE DATA SYSTEMS, INC.
/s/Mary Brewer /s/ Robert P. Armiak
- -------------------------- ------------------------------
Witness to Lessee By: ROBERT P ARMIAK, TREASURER
--------------------------
Its:--------------------------
/s/John [ILLEGIBLE]
- --------------------------
Witness to Lessee
30
<PAGE>
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 24th day of June, 1998, before me, the
---- ----
subscriber, a Notary Public in and for said County and State, personally
appeared MORRISON TAYLOR II, LTD., by Robert C. White, its President and
executed the foregoing instrument, and acknowledged such execution thereof to be
his and its free and voluntary act and deed for the uses and purposes mentioned
therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Mary Brewer
--------------------------
Notary Public
[SEAL]
[SEAL]
STATE OF OHIO
COUNTY OF Franklin SS:
---------------
BE IT REMEMBERED, that on this 18th day of June, 1998, before me, the
---- ----
subscriber, a Notary Public in and for said County and State, personally
appeared ADS ALLIANCE DATA SYSTEMS, INC., by Robert Armiak, its Treasurer, and
------------- ---------
executed the foregoing instrument, and acknowledged such execution thereof to
be his and its free and voluntary act and deed for the uses and purposes
mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/Mary Brewer
-------------------------
Notary Public
[SEAL]
31
<PAGE>
EXHIBIT A
August 8, 1997
DESCRIPTION OF 6.139 ACRE TRACT (OFFICENTER 2, PHASE 11)
EAST OF MORRISON ROAD, ON SOUTH SIDE OF TAYLOR ROAD,
GAHANNA, OHIO, FOR
THE DAIMLER GROUP, INC.
Situated in the State of Ohio, County of Franklin, City of Gahanna, in Lot
Number Five (5), Quarter Township 3, Township 1 North, range 16 West, United
States Military Lands, and being a portion of an original 220.064 acre tract
of land conveyed to Andre M. Buckles by deed of record in Deed Book 3700,
Page 120, Recorder's Office, Franklin County, Ohio, and bounded and described
as follows:
Beginning, for reference, at a point at the intersection of the centerline of
Taylor Road (50 feet wide) with the southwest right-of-way line of Morrison
Road and the northeast limited access right-of-way line of Interstate Route
270, in the north line of said Lot No. 5, at the northwest corner of a 5.745
acre tract of land conveyed as Parcel No. 1200 WD to State of Ohio by deed of
record in Deed Book 3255, Page 555, Recorder's Office, Franklin County, Ohio,
and at a corner of a 34.634 acre tract of land conveyed as Parcel No. 1200 WL
to State of Ohio by deed of record in Deed Book 3255, Page 559, Recorder's
Office, Franklin County, Ohio, all as shown upon Sheet 16 of 28 of Ohio
Department of Transportation right-of-way plans for FRA-270-28.30 N;
thence S 85DEG. 47' 21" E along the centerline of Taylor Road, along a portion
of the north line of said Lot No. 5, along the north line of said 5.745 acre
tract and along a portion of the north line of said original 220.064 acre
tract a distance of 1,799.14 feet to a point (passing a point at the
northeast corner of said 5.745 acre tract at 530.13 feet), the first said
point being N 85DEG. 59' 46" W a distance of 1,338.33 feet and N 85DEG. 47' 21"
W a distance of 1,913.04 feet from Franklin County Monument No. 1164 found in
the centerline of Taylor Road;
thence S 4DEG. 12' 39" W perpendicular to the centerline of Taylor Road,
perpendicular to the north line of said Lot No. 5 and perpendicular to the
north line of said original 220.064 acre tract a distance of 25.00 feet to a
3/4-inch I.D. iron pipe set in the south right-of-way line of Taylor Road and
at the true place of beginning of the tract herein intended to be described;
thence S 85DEG. 47' 21" E along the south right-of-way line of Taylor Road and
parallel with and 25.00 feet southerly by perpendicular measurement from the
centerline of Taylor Road, from the north line of said Lot No. 5 and from the
north line of said original 220.064 acre tract a distance of 600.93 feet to a
3/4-inch I.D. iron pipe set at the northwest corner of a 4.453 acre tract of
land conveyed out of said original 220.064 acre tract to BHJ Holding A/S by
deed of record in Official Record 29926, Page F 08, Recorder's Office,
Franklin County, Ohio;
Page 1 of 2
<PAGE>
August 8, 1997
thence S 2DEG. 50' 20" W along the west line of said 4.453 acre tract a distance
of 445.00 feet to a 3/4-inch I.D. iron pipe set at the southwest corner of
said 4.453 acre tract and at a corner of a 6.910 acre tract of land conveyed
out of said original 220.064 acre tract to Techcenter II, Ltd., by deed of
record in Instrument 199708110068127, Recorder's Office, Franklin County,
Ohio;
thence N 79DEG. 47' 09" W along a north line of said 6.910 acre tract a distance
of 43.82 feet to a 3/4-inch I.D. iron pipe set at the northwest corner of
said 6.910 acre tract and at the northeast corner of an 8.699 acre tract of
land conveyed out of said original 220.064 acre tract to Morrison Taylor,
Ltd. by deed of record in Official Record 34402, Page G 17, Recorder's
Office, Franklin County, Ohio;
thence N 85DEG. 56' 18" W along a portion of the north line of said 8.699 acre
tract a distance of 568.01 feet to a 3/4-inch I.D. iron pipe set;
thence N 4DEG. 12' 39" E perpendicular to the south right-of-way line of Taylor
Road a distance of 441.77 feet to the true place of beginning;
containing 6.139 acres of land more or less and being subject to all
easements and restrictions of record.
The above description was prepared by Kevin L. Baxter, Ohio Surveyor No.
7697, of C.F. Bird & R.J. Bull, Inc., Consulting Engineers & Surveyors,
Columbus, Ohio, from an actual field survey performed under his supervision
in July, 1997. Basis of bearings is the centerline of Taylor Road, being
assumed at S 85DEG. 47' 21" E, and all other bearings are based upon this
meridian.
/s/ Kevin L. Baxter
- -------------------------
Kevin L. Baxter
Ohio Surveyor #7697
[SEAL]
[SEAL]
Page 2 of 2
<PAGE>
EXHIBIT B
[MAP]
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
(a) The Tenant shall not exhibit, sell, or offer for sale on the Premises
or in the Building any article of thing except those articles and
things essentially connected with the stated use of the Premises
without the advance written consent of the Landlord, which consent
shall not be unreasonably withheld.
(b) The Tenant will not make or permit to be made any use of the
Premises or any part thereof which would violate any of the covenants,
agreements, terms, provisions, and conditions of this Lease or which
directly or indirectly is forbidden by public law, ordinance, or
governmental regulation or which may be dangerous to life, limb, or
property, or which may invalidate or increase the premium cost of any
policy or insurance carried on the Building or Real Property or
covering its operation, or which will suffer or permit the Premises or
any part thereof to be used in any manner or anything to be brought
into or kept therein which, in the judgment of Landlord, shall in any
way impair or tend to impair the character, reputation or appearance
of the Building or Real Property as a high quality office building,
or which will impair or interfere with any of the services performed
by Landlord for the Building and Real Property.
(c) Except with respect to signage as described in the Lease, the Tenant
shall not display, inscribe, print, paint, maintain, or affix on any
place in or about the Building or on the Real Property any notice,
legend, direction, figure, or advertisement, except on the doors of
the Premises and on the Directory Board, and then only such name(s)
and matter, and in such color, size, place, and materials as shall
first have been approved by the Landlord, which approval shall not be
unreasonably withheld. The listing of any name other than that of
Tenant, whether on the doors of the Premises, on the Building
directory, or otherwise, shall not operate to vest any right or
interest in this Lease or in the Premises or be deemed to be the
written consent of Landlord, it being expressly understood that any
such listing is a privilege extended by Landlord revocable at will by
written notice to Tenant.
(d) No additional locks or similar devices shall be attached to any door or
window without Landlord's prior written consent, which consent shall
not be unreasonably withheld. All keys must be returned to the Landlord
at the expiration or termination of this Lease.
<PAGE>
(e) The Tenant shall not make any structural alterations, improvements,
or additions to the Premises without the Landlord's advance written
consent in each and every instance which consent shall not be
unreasonably withheld. In the event Tenant desires to make any
alterations, improvements, or additions, Tenant shall first submit
to Landlord plans and specifications therefor and obtain Landlord's
written approval thereof prior to commencing any such work. All
alterations, improvements, or additions, whether temporary or
permanent in character, made by Landlord or Tenant in or upon the
Premises shall become Landlord's property and shall remain upon the
Premises at the termination of this Lease without compensation to
Tenant (excepting only Tenant's movable office furniture, trade
fixtures, office and professional equipment), unless Landlord
requires Tenant to remove such items which must be removed at
Tenant's cost by no later than the earlier of the termination of
this Lease and such items shall be removed without damage to the
Landlord's property. Any damage caused by or resulting from the
removal of Tenant's office furniture, trade fixtures, and office and
professional equipment, or alterations, improvements, or additions
removed at Landlord's request, may be repaired by the Landlord at
Tenant's cost and expense.
(f) All persons entering or leaving the Building after hours on Monday
through Friday or at any time on Saturdays, Sundays or holidays may
be required to do so under such regulations at the Landlord may
reasonably impose. The Landlord may exclude or expel any peddler.
(g) Unless the Landlord gives advance written consent, the Tenant shall
not install or operate any steam or internal combustion engine,
boiler, machinery, refrigerating or heating device or air
conditioning apparatus in or about the Premises, or carry on any
mechanical business therein, or use the Premises for housing
accommodations or lodging or sleeping purposes, or do any cooking
therein except microwave, or use any illumination other than
electric light, or use or permit to be brought into the Building any
inflammable fluids such as gasoline, kerosene, naptha and benzine,
or any explosives, radioactive materials, or other articles deemed
extra hazardous to life limb or property. The Tenant shall not use
the Premises for any illegal or immoral purpose.
(h) The Tenant shall cooperate fully with the Landlord to assure the
effective operation of the Building's heating and air conditioning
system.
(i) The Tenant shall not contract for any work or service which might
involve the employment of labor incompatible with the employees of
contractors doing work or performing services by or on behalf of the
Landlord.
<PAGE>
(j) The sidewalks, halls, passages, exits, and entrances shall not be
obstructed by the Tenant or used for any purpose other than for
ingress and egress from its Premises. The roof is not for the use of
the general public and the Landlord shall in all cases retain the
right to control and prevent access thereto.
(k) Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance in the Premises, or permit or suffer the
Premises to be occupied or used in a manner offensive or
objectionable to the Landlord or other occupants of the Building by
reason of noise, odors, and/or vibrations, or interfere in any way
with other tenants or those having business therein, nor shall any
animals be brought in or kept in or about the Real Property.
(l) Tenant shall see that the doors and windows, if operable, of the
Premises are closed and securely locked before leaving the Building
and must observe strict care and caution that all water faucets or
water apparatus are entirely shut off before Tenant or Tenant's
employees leave the Building, and that all electricity shall
likewise be carefully shut off so as the prevent waste or damage.
Tenant agrees that the Premises are to be used for office purposes
only in connection with Tenant's business and for no other purpose
whatsoever without the advance express written consent of Landlord,
which consent shall not be unreasonably withheld.
In addition to all other liabilities for breach of any covenant the Tenant
shall pay to the Landlord an amount equal to any increase in insurance
premiums payable by the Landlord or any other tenant in the Building caused
by such breach of these Rules and Regulations.
<PAGE>
LEASE TERM AGREEMENT
THIS LEASE TERM AGREEMENT is dated as of the 17th day of July, 1998, by and
between Morrison Taylor Il, Ltd. ("Lessor"), and ADS Alliance Data Systems,
Inc. ("Lessee").
WITNESSETH:
WHEREAS, Lessor and Lessee entered into a Lease dated June 18, 1998,
("Lease") which provided for an initial lease term of 9 years and 44 days
("Initial Lease Term");
WHEREAS, the Initial Lease Term was to commence on a date which could not be
specified with exactness within the Lease because it was in part conditioned
upon the date the construction of the leased premises was completed and/or
upon completion of any improvements to the leased premises;
WHEREAS, Lessor and Lessee now desire to specify the exact commencement date
of the Initial Lease Term;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, Lessor and Lessee hereto agree and provide as follows:
1. LEASE COMMENCEMENT DATE. It is hereby agreed the Lease
Commencement Date as set forth in the Lease shall be July
17, 1998, and the expiration of the initial term of the
Lease shall be August 31, 2007.
IN WITNESS WHEREOF, the undersigned have caused this Lease Term Agreement to
be executed.
SIGNED AND ACKNOWLEDGED LESSOR:
IN THE PRESENCE OF: MORRISON TAYLOR II, LTD.
/s/ Shannxx DXXXXXXX /s/ Robert C. White
- ------------------------- ------------------------------
Witness to Lessor By: Robert C. White
Its: President
/s/ Denise M. Damon
- -------------------------
Witness to Lessor
LESSEE:
ADS ALLIANCE DATA SYSTEMS,
INC.
/s/ Catherine J Burnett /s/ Robert P. Armiak
- ------------------------- -----------------------------
Witness to Lessee By: Robert P. Armiak
Its: Treasurer
/s/ Mary Brewer
- -------------------------
Witness to Lessee
<PAGE>
ACKNOWLEDGEMENTS
STATE OF OHIO
SS
COUNTY OF FRANKLIN
BE IT REMEMBERED, that on this 15th day of July, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared Morrison Taylor II, Ltd., by Robert C. White, its President, and
executed the foregoing instrument, and acknowledged such execution thereof to
be his and its free and voluntary act and deed for the uses and purposes
mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Denise M. Damon
---------------------------
Notary Public
[Seal]
STATE OF OHIO
SS
COUNTY OF FRANKLIN
BE IT REMEMBERED, that on this 30th day of July, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared ADS Alliance Data Systems, Inc., by Robert Armiak, its Treasurer,
and executed the foregoing instrument, and acknowledged such execution
thereof to be his and its free and voluntary act and deed for the uses and
purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Mary Brewer
-------------------------
Notary Public
[Seal]
<PAGE>
THE DAIMLER GROUP, INC.
----------------------------------------------------------------
[Logo] 1533 LAKE SHORE DRIVE - COLUMBUS, OHIO 43204-4891 - 614/488-4424 -
FAX 614/488-060
July 14, 1998
Mr. Bruce McClary
ADS Alliance Data Systems, Inc.
220 West Schrock Road
Westerville, Ohio 43081
Re: Morrison Taylor II, Ltd. - 775 Taylor Road Lease Agreement
Dear Mr. McClary:
The Daimler Group, Inc. and Morrison Taylor II, Ltd. would like to thank you
for selecting 775 Taylor Road, Columbus, Ohio as the new home for your
offices.
Since you have now taken occupancy of the space, the following matters under
the Lease can be finalized:
- - TERM OF LEASE - The Lease term will begin on July 17, 1998, and will
expire on August 31, 2007. In that respect, please execute the
attached Lease Term Agreements and return two originals to my
attention.
- - RENTAL OBLIGATION - Per the Lease, Base and Additional Rents
(reimbursements for operating expenses) are due commencing July 17,
1998. Rental payments, are due on the first of the month and are
payable to MORRISON TAYLOR II, LTD., C/O OHIO EQUITIES, INC., 395 E.
BROAD STREET, SUITE 100, COLUMBUS, OHIO 43215.
The monthly rental obligations for the remainder of 1998 are:
<TABLE>
<CAPTION>
Base Additional
Rent Rent Total
---- -------- -----
<S> <C> <C> <C>
July $12,355.74 1,171.55 13,527.29
August - December 25,535.20 2,419.13 27,954.33
</TABLE>
Additional Rent, excluding items paid directly by ADS Alliance Data
Systems, Inc. such as utilities, janitorial services, etc. for 1998
is projected to be $.90 per square foot and has been calculated on
your space size of 32,255 square feet. Please note that you will not
be provided with monthly invoices for your rent payments. This is
the only notice you will receive regarding your 1998 rental
obligations.
- ------------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT - CONSTRUCTION MANAGEMENT
<PAGE>
Mr. McClary
July 14, 1998
Page 2
- - PROPERTY MANAGER - Ohio Equities, Inc. is the property manager of
the building. Please call Ken Vaughn at (614) 224-0353 should you
have any problems with the building or your space.
- - INSURANCE COVERAGE - Paragraph 7 of the Lease Agreement specifies
certain minimum comprehensive public liability and property damage
insurance coverages that must be maintained. In addition, this
section requires that Morrison Taylor Il, Ltd. be named as an
additional insured under your policies. PLEASE HAVE YOUR INSURANCE
AGENT FORWARD THE APPROPRIATE CERTIFICATE TO US reflecting your
compliance with this section of the Lease.
- - ESTOPPEL CERTIFICATE - Per Paragraph 19 of the Lease Agreement, an
executed Estoppel Certificate is due upon request of Lessor. As such,
when necessary, we will request you to execute such a certificate.
Please acknowledge receipt of and agreement with this letter by signing and
returning the enclosed copy of this letter along with two of the Lease Term
Agreements.
Thank you for your assistance.
Sincerely, Agreed and accepted this
30 day of July, 1998.
/s/ John A. Derzon -------------------------
John A. Derzon
Vice President - Marketing
JAD/smd By: /s/ Robert P. Armiak
market/alliance/moveinltr 775 taylor ----------------------
Its: Robert P. Armiak
----------------------
Treasurer
Enclosures
cc: Herman Ziegler
Ken Vaughn
Cindy Robson
Dave Ward
Lease File
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "First Amendment") is dated this
18 day of June, 1998 (the "Effective Date") by and between MORRISON TAYLOR,
LTD., a limited liability company organized under the laws of the State of
Ohio and having an office and place of business located at 1533 Lake Shore
Dr., Suite 50, Columbus, Ohio 43204 ("Lessor") and ADS ALLIANCE DATA SYSTEMS,
INC., a corporation organized under the laws of the State of Delaware and
having an office and place of business located at 800 TechCenter Drive,
Gahanna, Ohio 43230 ("Lessee").
BACKGROUND INFORMATION
On July 1, 1997, Lessor and Lessee entered into a certain lease agreement for
a certain tract of real estate and the improvements constructed thereon,
commonly known as 800 TechCenter Drive, Gahanna, Ohio 43230 (the "Original
Lease").
Lessee has subsequent to the execution of the Original Lease and
contemporaneous with the execution of this First Amendment entered into a
certain lease agreement for a certain parcel of real estate and improvements
constructed thereon commonly known as 775 Taylor Road which property is
immediately adjacent to and contiguous to the real property which is the
subject of the Original Lease Agreement (the "Adjacent Property Lease
Agreement").
As a condition of the execution of the Adjacent Property Lease Agreement, the
Landlord under the Adjacent Property Lease Agreement required that both the
Adjacent Property Lease Agreement and the Original Lease Agreement contain
provisions that provide that in the event Lessee were to default under either
lease agreement, the same shall constitute a default under the other lease
agreement (i.e. that the lease agreements contain a cross-default provision).
Lessor and Lessee have agreed to the same.
NOW, THEREFORE, in consideration of the promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. CROSS-DEFAULT. In the event Lessee were to default under the terms
and conditions of the Adjacent Property Lease Agreement, the same
shall constitute an event of default under the Original Lease as if
the same were set forth within Section 25 of the Original Lease. In
the event that the landlord under the Adjacent Property Lease were
to default under the terms and conditions of the Adjacent Property
Lease Agreement, and the tenant under the Adjacent Property Lease
Agreement and the Original Lease are the same, the same shall
constitute an event of default by Lessor under the Original Lease as
if the same were set forth in Section 26 of the Original Lease.
<PAGE>
2. ASSIGNMENT OR SUBLETTING BY LESSEE/REMOVAL OF COMMON WALKWAY. In the
event Lessee were to assign or sublet the Premises over unto any
other person or entity (except for an assignment or subletting to a
parent, subsidiary or affiliate of Lessee), Lessee shall (except to
the extent provided to the contrary in the last sentence of this
paragraph) as a condition precedent to such assignment or subletting
remove the common walkway constructed by Lessee upon the Real
Property which common walkway connects the Building with the
building which is located upon the real property which is contiguous
and immediately and adjacent to the Real Property which real
property is commonly known as 775 Taylor Road, Gahanna, Ohio 43230.
The preceding condition precedent shall not be applicable if
contemporaneous with the assignment or subletting of the Original
Lease, the Adjacent Property Lease Agreement is also sublet or
assigned to the same person or entity to which the Original Lease is
so sublet or assigned.
Anything herein to the contrary notwithstanding in the event Lessee
were to be required to remove the Common Walkway as located upon
Real Property as described above, Lessee may be relieved from such
obligation if Lessee ratifies and reaffirms in writing at the time
of the subletting or assignment as described above, its obligation
to remove the Common Walkway as located upon Real Property upon the
expiration or termination of either the Adjacent Property Lease
Agreement or the Original Lease which ever shall occur.
3. ASSIGNMENT OR SUBLETTING OF ADJACENT PROPERTY LEASE
AGREEMENT/REMOVAL OF COMMON WALKWAY. In the event Lessee were to
assign or sublet its interest in the Adjacent Property Lease
Agreement (except for an assignment or subletting to a parent,
subsidiary or affiliate of Lessee), Lessee shall remove the common
walkway as located upon the Real Property. The preceding shall not
be applicable if contemporaneous with the assignment or subletting
of the Adjacent Property Lease Agreement, the Original Lease is also
sublet or assigned to the same person or entity to which the
Adjacent Property Lease Agreement is so sublet or assigned.
Anything herein to the contrary notwithstanding in the event Lessee
were to be required to remove the Common Walkway as located upon
Real Property as described above, Lessee may be relieved from such
obligation if Lessee ratifies and reaffirms in writing at the time
of the subletting or assignment as described above, its obligation
to remove the Common Walkway as located upon Real Property upon the
expiration or termination of either the Adjacent Property Lease
Agreement or the Original Lease which ever shall occur.
4. ADDITIONAL REMEDY IN THE EVENT OF DEFAULT. In the event of any
uncured default by the Lessee, in addition to any other remedies
provided herein, Lessor may require Lessee to remove the common
walkway (as is described in Section 2 above) and in
<PAGE>
the event Lessee fails to remove the same, Lessor may remove such
common walkway at Lessee's sole cost and expense.
5. MODIFICATION TO LEASE CANCELLATION. In the event Lessee were to
exercise its rights to cancel the Original Lease, as set forth in
Section 37 of such document, and the Adjacent Property Lease Agreement
shall continue to exist from and after the cancellation of the
Original Lease, then Lessee shall remove the common walkway from the
Real Property. Further, in the event Lessee were to exercise its
rights to cancel the Adjacent Property Lease Agreement, then
notwithstanding the fact that the Original Lease may continue to exist
from and after the cancellation of the Adjacent Property Lease
Agreement, Lessee shall remove the common walkway from the Real
Property.
6. REMOVAL OF COMMON WALKWAY. The removal of the common walkway as set
forth herein shall include the restoration of the area previously
improved by the common walkway to a condition similar to the
immediately surrounding real property (i.e. appropriately landscaped to
match existing conditions).
7. NO OTHER CHANGES. Lessor and Lessee agree that no further
changes to the Original Lease are contemplated by this First
Amendment.
8. RATIFICATION. Lessor and Lessee hereby ratify and reaffirm
all of the terms and conditions of the Original Lease except
as modified by this First Amendment.
IN WITNESS WHEREOF, the undersigned have hereto set their hands.
Signed and Acknowledged LESSOR:
in the Presence of: MORRISON TAYLOR LTD.
/s/ Shannon Dauberman /s/ Robert C. White
- ------------------------------ ----------------------------
Witness to Lessor By: Robert C. White
Its: President
/s/ Denise M. Damon
- ------------------------------
Witness to Lessor
<PAGE>
LESSEE:
ADS ALLIANCE DATA SYSTEMS, INC.
/s/ Mary Brewer /s/ Robert P. Armiak
- ------------------------------ -------------------------------
Witness to Lessee By: ROBERT P. ARMIAK
----------------------------
Its: TREASURER
---------------------------
/s/ [Illegible]
- -------------------------------
Witness to Lessee
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 24th day of June, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared MORRISON TAYLOR, LTD., by Robert C. White, its President and
executed the foregoing instrument, and acknowledged such execution thereof to
be his and its free and voluntary act and deed for the uses and purposes
mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Denise M. Damon
-------------------------------
Notary Public
[SEAL]
<PAGE>
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 18 day of June, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared ADS ALLIANCE DATA SYSTEMS, INC., by ROBERT ARMIAK, its TREASURER,
and executed the foregoing instrument, and acknowledged such execution
thereof to be his and its free and voluntary act and deed for the uses and
purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Mary Brewer
-------------------------------
Notary Public
daimler\alliance\1stamd.003
[SEAL]
<PAGE>
LEASE AGREEMENT
EXECUTED BY AND BETWEEN
MORRISON TAYLOR, LTD. - LESSOR
AND
ADS ALLIANCE DATA SYSTEMS, INC. - LESSEE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. DEFINITIONS .........................................................1
2. INITIAL TERM ........................................................2
3. BASE RENT ...........................................................3
4. OPERATING, MAINTENANCE, TAXES, AND OTHER EXPENSES ...................4
5. TAXES AND ASSESSMENTS................................................5
6. CONSTRUCTION AND COMPLETION OF THE PREMISES..........................6
7. FORCE MAJEURE........................................................7
8. ASSIGNMENT BY LESSOR.................................................7
9. MAINTENANCE .........................................................7
10. QUIET ENJOYMENT ....................................................10
11. CERTAIN RIGHTS RESERVED TO THE LESSOR ..............................10
12. ESTOPPEL CERTIFICATES ..............................................10
13. WAIVER OF CERTAIN CLAIMS BY LESSEE .................................11
14. WAIVER OF CERTAIN CLAIMS BY LESSOR .................................12
15. MUTUAL WAIVER OF SUBROGATION .......................................12
16. INDEMNIFICATION ....................................................12
17. LIABILITY INSURANCE ................................................14
18. FIRE AND EXTENDED COVERAGE INSURANCE ...............................14
19. HOLDING OVER .......................................................15
20. ASSIGNMENT AND SUBLETTING ..........................................15
21. CONDITION OF PREMISES ..............................................16
22. USE OF PREMISES ....................................................16
23. DAMAGE OR DESTRUCTION ..............................................16
24. EMINENT DOMAIN .....................................................17
<PAGE>
25. LESSOR'S REMEDIES...................................................18
26. LESSEE'S REMEDIES...................................................21
27. SUBORDINATION OF LEASE..............................................22
28. NOTICES AND CONSENTS................................................23
29. NO ESTATE IN LAND...................................................23
30. INVALIDITY OF PARTICULAR PROVISIONS ................................24
31. MISCELLANEOUS TAXES.................................................24
32. BROKERAGE...........................................................24
33. SPECIAL STIPULATIONS................................................24
34. LIMITATION OF LESSOR'S LIABILITY....................................26
35. FINANCIAL STATEMENTS................................................26
36. HAZARDOUS SUBSTANCES................................................26
37. LEASE CANCELLATION..................................................29
38. RENEWAL OPTION......................................................30
</TABLE>
EXHIBIT A - LEGAL DESCRIPTION
EXHIBIT B - PREMISES
ii
<PAGE>
LEASE AGREEMENT
By this Lease Agreement (hereafter referred to as the "Lease") dated this 1st
day of July, 1997 (the "Effective Date"), by and between, MORRISON TAYLOR, LTD.,
an Ohio Limited Liability Company organized under the laws of the State of Ohio
(hereafter referred to as the "Lessor") and ADS ALLIANCE DATA SYSTEMS, INC., a
corporation organized under the laws of the State of Delaware hereafter referred
to as the "Lessee"), Lessor hereby leases unto Lessee, and Lessee accepts and
leases from Lessor the Premises as hereinafter described for the term, the rent,
and subject to the conditions and covenants hereinafter provided.
In consideration thereof, the parties covenant and agree as follows:
1. DEFINITIONS
Unless the context otherwise specifies or requires, the following terms shall
have the following meanings herein specified.
(a) The term "REAL PROPERTY" shall mean a certain tract of real estate
commonly known as 800 TechCenter Drive, Gahanna, Ohio 43230 the legal
description of which is attached hereto and marked as Exhibit "A".
(b) The term "BUILDING" shall mean a 1 story office building containing
approximately 54,615 leasable square feet of space, more or less, as
outlined on the diagram attached hereto and marked as Exhibit "B,"
located upon the Real Property as hereinabove defined.
(c) The term "PREMISES" shall mean the Real Property, the Building and all
other improvements on the Real Property.
(d) The term "REAL ESTATE TAXES AND ASSESSMENTS" shall mean all real
estate taxes and any special assessments accruing during the term of
the Lease, or any taxes which shall be levied in lieu of such taxes on
the gross rentals of the Premises, but shall not include any penalties
or interest payable by reason of failure to pay such taxes and
<PAGE>
assessments, except to the extent that such penalties or interest have
been assessed as a result of Lessee's failure to timely pay real
estate taxes and assessments as set forth in Section 5 herein. To this
end, Lessor and Lessee each acknowledge that pursuant to the Ohio
Supreme Court, the method for financing school systems within the
State of Ohio is currently under review and is expected to be
substantially revised and modified. To the extent such modification
impacts real estate taxes and assessments, the parties agree that any
alternative tax established in lieu thereof or in substitution
relating to the ownership, management or leasing of real property
thereof shall be deemed to be part of the real estate taxes and
assessments for the purposes of the above-described definition.
2. INITIAL TERM
The term of this Lease shall commence on the 1st day of September, 1997
(hereafter the "Commencement Date") and shall expire (unless sooner terminated
pursuant to provisions contained herein) on the 31st day of August, 2007 for a
term of 10 years. Lessee and its specialized subcontractors (i.e., telephone
and/or computer installation people) shall have the right to enter the Premises
prior to the Commencement Date for the purpose of getting the space ready for
occupancy; provided the same shall not obstruct Lessor or its contractors from
timely completion of construction. In the event the Premises are not available
for occupancy on the Commencement Date, except as set forth below, this Lease
shall not be void, or voidable, nor shall Lessor be liable to Lessee for any
damages resulting therefrom, and provided the delay is not occasioned by acts or
omissions of the Lessee, the Base Rent, and obligation to pay Real Estate Taxes
and Assessments and other expenses, as hereafter provided, shall be waived and
abated for the period between the Commencement Date and the date the Premises
are available for occupancy, and the Expiration Date shall be extended by the
time period necessary to assure that the term shall be for the period described
above. Notwithstanding, if the Commencement Date does not begin on the first of
the month, the term shall be extended to allow the expiration date to end on the
last day of the month.
2
<PAGE>
Notwithstanding the foregoing or any other provision hereof to the contrary, in
the event the Premises are not available for occupancy within ten (10) weeks
after the later of: (i) June 20, 1997 or (ii) the Effective Date, except as a
result of delay caused by Lessee or force majeure under Section 7 hereof, Lessor
shall pay to Lessee the sum of $1,000 per day for each day after that date that
the Premises is not ready for occupancy, and if the Premises are not available
for occupancy by November 30, 1997, except as a result of delay caused by Lessee
or force majeure under Section 7 hereof, Lessee shall have the option, at any
time thereafter until the Premises are available for occupancy, to terminate
this Lease by written notice to Lessor, in which event this Lease shall
terminate as of the date of such notice and shall be void in all respects except
that Lessor shall pay to Lessee all amounts required to be paid under this
paragraph for failure to make the Premises ready for occupancy through the
effective date of termination of this Lease. The dates by which the Premises
must be available for occupancy may be extended by the mutual agreement of the
parties in the event of a change in the plans or scope of work requested by
Lessee.
As used herein, the term "ready for occupancy" shall mean that (i) the Building
and all improvements on the Real Property have been substantially completed in
accordance with the plans and specifications therefor, (ii) a certificate of
occupancy for the Building has been issued by the City of Gahanna, and (iii)
Lessor has notified Lessee in writing at least seven (7) days in advance that
the Premises will be ready for occupancy on that date. Acceptance of possession
of the Premises by Lessee shall not relieve Lessor of its obligation to complete
the Premises in accordance with the Plans and Specifications.
3. BASE RENT
The Lessee shall pay to the Lessor as annual Base Rent, in legal tender at the
Lessor's address at 1533 Lake Shore Drive, Columbus, Ohio 43204, or such other
address as may be designated by Lessor the annual sum of:
<TABLE>
<CAPTION>
Annual Monthly
------ -------
<S> <C> <C>
Year 1 $294,921.00 $24,576.75
Years 2-6 $488,804.25 $40,733.69
Years 7-10 $532,496.25 $44,374.69
</TABLE>
promptly on the first day of every calendar month of the term, beginning on the
Commencement Date, unless the Premises are not
3
<PAGE>
available for occupancy on such date, in which case the first payment shall be
due and payable upon the date the Premises are available for occupancy and shall
be prorated, for such partial month.
The Base Rent shall be payable without demand, the same being hereby waived.
4. OPERATING, MAINTENANCE, TAXES, AND OTHER EXPENSES
(a) Subject to the provisions of Sections 5 and 18 hereof, in addition to
Base Rent, Lessee shall pay to Lessor each month as additional rent an
amount reasonably estimated by Lessor as being necessary to pay when
due each real estate tax bill for which Lessee is responsible under
Section 5 hereof and each premium of fire and extended coverage
insurance for which Lessee is responsible under Section 18 hereof,
with such amounts being spread over the number of months covered by
such tax bill or premium invoice in equal installments. Such estimates
shall be based upon the most recent tax bill and insurance premium
invoice. Lessor shall pay all real estate tax bills and insurance
premiums before the same are due without penalty and without lapse of
coverage. In the event the amount of additional rent paid by Lessee
hereunder is insufficient to pay a particular tax bill or premium
invoice, Lessor shall provide Lessee with notice of the deficiency,
and Lessee shall pay the amount of the deficiency within thirty (30)
days after receipt of such notice and copies of the applicable tax
bill or premium invoice. In the event the amount of additional rent is
in excess of that needed to pay the next due real estate tax bill and
invoice for insurance premium, the excess shall be applied to the next
due additional rent payments and in the event of an excess upon
termination of this Lease, the amount of such excess shall be paid by
Lessor to Lessee within thirty (30) days after the date of
termination.
4
<PAGE>
(b) In addition, except as specifically set forth herein to the
contrary, Lessee agrees to pay all of the expenses related to the
operation of the Premises including but not limited to:
(1) Cost of any utilities for providing lighting and electrical
service to the Premises, heating and cooling for the
Building, water and sewer service for the Building;
(2) Landscaping, lawn care, fertilization, snow removal,
janitorial service and trash removal;
(3) Maintenance and repairs of the Premises (including but not
limited to electrical, plumbing, heating, air conditioning
and mechanical equipment and the necessary tools and
equipment associated therewith), parking areas and access
drives, sidewalks and grounds, but exclusive of the roof,
foundation and structural elements of the Building, the
expenses for which shall be paid as set forth in Section 9
herein;
(4) Any and all taxes or other fees or assessments not described
within paragraph (a) herein (such as personal property taxes
for equipment used to service the Building, fees charged by
any Owners Association and similar assessments), except for
income taxes properly assessed against and payable by
Lessor.
Such expenses shall be paid directly by Lessee to the respective vendor or
service provider with the exception of real estate taxes and assessments which
shall be paid to Lessor in accordance with Section 5 hereof.
5. TAXES AND ASSESSMENTS
Lessee shall be responsible for paying through additional rent in accordance
with the procedure set forth in Section 4 hereof all real estate taxes and
installments of assessments related to the
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Premises relating to real estate tax bills relating to periods during the term
of this Lease, without regard to the date the real estate tax bills are due and
payable. Lessor shall provide Lessee with a copy of each real estate tax bill no
later than fifteen (15) days after receipt of the tax bill. Lessee shall not be
responsible for the payment of any penalty or interest on taxes or assessments
as long as Lessee makes the additional rent payments set forth in Section 4
herein.
If the Premises are not a separate tax parcel, Lessor shall take such steps as
are necessary to have the same created as a separate tax parcel.
With the consent of Lessor, which consent shall not be unreasonably withheld,
Lessee shall have the right in its own name, or in Lessor's name where
appropriate, but at its own cost and expense, to contest the amount or legality
of any real property taxes, personal property taxes, assessments, impositions or
all other claims and charges which it is obligated to pay hereunder and make
application for the reduction thereof, or any assessment upon which the same may
be based, and the Lessor agrees at the request of the Lessee to execute or join
in the execution of any instruments or documents necessary in connection with
such contest or application. If the Lessee shall contest such tax assessment, or
other imposition and if as a result of such contest the time for paying such tax
or assessment is delayed, the time within which the Lessee shall be required to
pay the same to Lessor shall be similarly extended.
In no event shall Lessee be liable for payment of any income, estate or
inheritance taxes imposed upon Lessor or the estate of Lessor with respect to
the Premises. Lessee shall not pay any income, franchise or excise or excess
profits tax levied upon or assessed against Lessor.
6. CONSTRUCTION AND COMPLETION OF THE PREMISES
Lessor agrees to construct the Building, the other improvements on the Real
Estate, and the tenant improvements within the Building in compliance with plans
and specifications prepared by Lessor's architect and approved by Lessee on or
before the Commencement Date. Lessee shall not do anything, or fail to do
anything, that will cause a delay in the completion of the construction of the
Building and improvements, or that will increase the costs of such construction.
In the event as a result of Lessee's failure to cooperate or comply with this
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Section, completion is delayed beyond the Commencement Date, such delay shall
not create an abatement of Base Rent for the period of delay caused by Lessee.
Lessee shall be entitled to a tenant improvement allowance in the amount of
$873,840. To the extent that tenant improvements exceed this amount, Lessee
shall reimburse Lessor within thirty (30) days after invoice therefor
accompanied by such supporting documentation as Lessee may reasonably require.
Further, Lessee shall have the right to review and approve all bids for tenant
improvements. To this end, Lessee expressly acknowledges and agrees that should
Lessee desire to review and approve any bid for tenant improvement work and
should the same take more than one (1) day that the same shall act to postpone
the occurrence of the penalty set forth within Section 2 herein by one day for
each day in excess of one day that such approval is not given or refused so long
as the approval is obtained within three days (and if it is not obtained within
three days the same shall act to postpone the occurrence of the penalty set
forth in Section 2 herein by an amount equal to the actual delay in completion
caused by such failure to approve the same), it being agreed that the time frame
for completing the construction of the tenant improvement work does not include
review time for Lessee in excess of the aforementioned. In the event Lessee
refuses to approve a bid for tenant improvements, Lessee shall be entitled to
contract directly for such tenant improvement work and be reimbursed by Landlord
for the cost thereof up to the total of any remaining balance of the tenant
improvement allowance. Lessee acknowledges that should Lessee elect to contract
for the completion of certain tenant improvement work that the same will cause
an extension of the occurrence of the penalty as set forth within Section 2
herein to include any subsequent delays in completion of the tenant improvement
work caused as a result of the need to reschedule work around the work to be
completed by the Lessee.
7. FORCE MAJEURE
In the event the Lessor shall be delayed or hindered or prevented in the
performance of any obligations required under the Lease by reasons of strike,
lockouts, inability to procure labor or materials, failure of power, fire or
other acts of God, restrictive governmental laws or regulations, riots,
insurrection, war or any other reason not within the reasonable control of
Lessor, then the performance of such obligations shall be excused for a period
of such delay and the period for the
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performance of any such act shall be extended for a period equivalent to the
period of any such delay.
8. ASSIGNMENT BY LESSOR
If Lessor shall sell, assign, transfer or convey the Real Property and/or
Building, such sale, assignment, conveyance or transfer shall be subject to this
Lease, and provided the assignee assumes all of Lessor's obligations under this
Lease, Lessee shall look to the assignee or transferee of Lessor's interest in
this Lease for the performance of Lessor's obligations hereunder, and the Lessor
shall from and after such assignment or transfer be relieved and discharged from
any and all liabilities and obligations under this Lease. Lessor shall send
notice to Lessee of any such sale, assignment, transfer, or conveyance at least
thirty (30) days prior to the date that the next Base Rent shall be due.
9. MAINTENANCE
During the term of this Lease, Lessee shall maintain the Premises (exclusive of
roof, foundation and structural elements of the Building which shall be the
responsibility of Lessor subject to the terms hereafter set forth) as a first
class office building except for damage occasioned by the act of Lessor, its
employees, agents or invitees; provided, however, Lessee shall not be excused
from its obligation to maintain the Premises as a result of the act of Lessor or
its employees, agents or invitees if the same is subject to insurance coverages
maintained by Lessee (or insurance coverages that would normally and customarily
be carried by a lessee).
Upon completion of the Building, Lessor shall conditionally assign to Lessee all
warranties and guarantees related to the roof of the Building. Lessor shall be
solely responsible for the maintenance and repair of the roof of the Building
during the first year of the lease term. Thereafter, during the initial term of
this Lease, Lessee shall be responsible for performing all routine maintenance
and repairs to maintain the roof in good order and condition utilizing a roofing
contractor reasonably approved by Lessor that will not jeopardize any roof
warranty with respect to the roof, and Lessor shall be responsible for
replacement of the roof, unless such replacement is caused by the failure of
Lessee to perform routine maintenance hereunder. In the event that Lessor is
required during the first year of the initial term of this Lease to replace the
roof, Lessee shall
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reassign the roof related warranties and guaranties to Lessor, and Lessor shall
replace the roof in accordance therewith. In the event that Lessor is required
during the initial term of this Lease to replace the roof after the first lease
year, Lessee shall reassign the roof related warranties and guaranties to Lessor
and shall reimburse Lessor for the costs of such replacement up to a total
amount of $13,653.75 during the term of the Lease, and Lessor shall pay all
costs of repair and replacement in excess of such amount. Lessee shall pay
Lessor any amount it is required to pay hereunder to reimburse Lessor for the
costs of repair or replacement of the roof within thirty (30) days of request
for payment accompanied by copies of all invoices necessary to support the
requested payment. Anything herein to the contrary notwithstanding, Lessee shall
be responsible for performing all routine maintenance to maintain the roof in
good order and condition as set forth above during any and all renewal terms,
and Lessor shall be responsible for replacement of the roof during any and all
renewal terms, subject to Lessee reimbursing Lessor for all costs of the same in
accordance with general terms and conditions as set forth within Section 4
herein, and the following sentence. In the event during any renewal term it
becomes necessary to replace the roof or make any major repair to the roof, the
cost of which would normally be amortized under generally acceptable accounting
principles, for the purpose of this Section 9, the cost of such replacement or
repair shall be amortized over the estimated useful life of the roof or the
repair as reasonably determined by the outside accountants for Lessor and Lessee
shall only be obligated to pay that portion of the cost of the replacement or
repair attributable to the remainder of the then applicable renewal term, and
upon exercise of a subsequent renewal term, that renewal term.
In the event that Lessor and Lessee are unable to agree upon whether repair or
replacement is the appropriate activity relative to a problem with the roof,
either party may provide written notice to the other of such inability to agree,
and if the parties are still not in agreement within seven (7) days thereafter,
each party shall select an independent roofing contractor who shall make a
recommendation regarding repair or replacement within thirty (30) days after the
expiration of such seven (7) day period. If the two roofing contractors cannot
agree upon a recommendation, they shall mutually select a third contractor who
shall make a recommendation of repair or replacement which shall be controlling
on the parties. If either party does not select a roofing contractor or such
contractor
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does not timely submit its recommendation, the recommendation of the other
contractor shall be controlling. Each party shall pay all costs and fees of the
roofing contractor selected by it and the parties shall equally share the costs
and fees of the third contractor.
Notwithstanding anything to the contrary contained herein, Lessor shall be
solely responsible for maintenance and repair of the foundation and all
structural elements of the Building; provided, however, during any renewal term
of this Lease, Lessee shall be responsible to reimburse Lessor for the costs
associated with the same in accordance with the terms and conditions as
generally set forth within Section 4 herein, and the following sentence. In the
event during any renewal term it becomes necessary to replace the foundation or
structural elements or make any major repair to the foundation or structural
elements, the cost of which would normally be amortized under generally
acceptable accounting principles, for the purpose of this Section 9, the cost of
such replacement or repair shall be amortized over the estimated useful life of
the replacement or the repair as reasonably determined by the outside
accountants for Lessor and Lessee shall only be obligated to pay that portion of
the cost of the replacement or repair attributable to the remainder of the then
applicable renewal term, and upon exercise of a subsequent renewal term, that
renewal term. Further, Lessor shall warrant all improvements on the Premises
(exclusive of tenant improvements constructed by Lessee) for a term of one year
after the Commencement Date and shall make all repairs resulting from defective
design, workmanship or materials during that period. Further, Lessor shall, at
the request of Lessee, process any warranty claims under applicable warranties.
10. QUIET ENJOYMENT
So long as the Lessee shall observe and perform the covenants and agreements
binding on it hereunder, the Lessee shall, at all times during the term herein
granted, peacefully and quietly have and enjoy possession of the Premises
without any encumbrance and hindrance.
11. CERTAIN RIGHTS RESERVED TO THE LESSOR
The Lessor reserves the following rights:
(a) On reasonable prior notice to the Lessee, to exhibit the Premises to
any prospective purchaser, mortgagee, or assignee of any
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mortgage secured by the Premises at any time during the term and to
prospective tenants during the last year of the term.
(b) At any time in the event of an emergency, to take any and all
measures, including inspections, repairs, alterations, additions and
improvements to the Premises as may be necessary for the safety,
protection or preservation of the Premises provided Lessor shall have
first provided Lessee with such notice as is reasonable under the
circumstances and Lessee shall have failed to take action with respect
to such emergency. Relative to the same, Lessor shall use reasonable
efforts to minimize disturbance of Lessee, its employees, agents, and
invitees.
12. ESTOPPEL CERTIFICATES
Lessee and Lessor shall, within ten (10) days after written request of the
other, execute, acknowledge, and deliver to the other or to the other's
mortgagee, proposed mortgagee, or proposed purchaser of the Premises or any part
thereof or proposed assignee of this Lease or successor in interest, reasonable
estoppel certificates requested by the other party from time to time, which
estoppel certificates shall show whether the Lease is in full force and effect
and whether any changes may have been made to the original Lease; whether the
term of the Lease has commenced and full rental is accruing; whether there are
any defaults by Lessor or Lessee and, if so, the nature of such defaults;
whether possession has been assumed and all improvements to be provided by
Lessor have been completed; whether Base Rent has been paid more than thirty
(30) days in advance; whether there are any liens, charges, or offsets against
Rentals of any type due or to become due; and whether the address shown on such
estoppel certificate is accurate, and such other matters reasonably requested.
13. WAIVER OF CERTAIN CLAIMS BY LESSEE
(a) All personal property belonging to the Lessee or any occupant of the
Premises that is in or on any part of the Premises shall be there at
the risk of the Lessee or of such other person only, and the Lessor,
its agents and
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employees shall not be liable for the theft or misappropriation
thereof.
(b) Lessor shall not be liable for any damage or loss to fixtures,
equipment, merchandise or other personal property of Lessee or any
occupant of the Premises or any part thereof located anywhere in the
Premises caused by fire, leak or flow of water (including water from
the elevator system), explosion, sewer backup, breakage, leakage,
obstruction, or other defect of the pipes, sprinklers, wires,
plumbing, air conditioning or lighting fixtures, acts of God, public
enemies, injunction, riot, strike, insurrection, war, court order,
steam, rain or from any cause beyond Lessor's control, or any other
insurable hazards except to the extent covered by the warranty of
Lessor set forth in Section 9 hereof, and Lessee does hereby expressly
release Lessor of and from such liability for such damages or loss.
(c) Lessor shall not be liable for any damage or loss resulting from
business interruption at the Premises arising out of or incident to
the occurrence of any of the perils which can be covered by a business
interruption insurance policy except to the extent covered by the
warranty of Lessor set forth in Section 9 hereof, and Lessee hereby
expressly releases Lessor of and from such liability for such damages
or loss.
(d) Nothing contained within this Section shall release Lessor from the
fraudulent conduct of Lessor or any duties or obligations required to
be performed by Lessor pursuant to law.
14. WAIVER OF CERTAIN CLAIMS BY LESSOR
Lessee shall not be liable for any damage to the Premises or any part thereof
caused by fire or other insurable hazards, regardless of the cause thereof
(except to the extent the same is the result of the negligent act(s) of Lessee),
and Lessor hereby
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expressly releases Lessee of and from any and all liability for such damages or
loss.
15. MUTUAL WAIVER OF SUBROGATION
Any waiver of claims and/or release described within this Lease shall not be
limited to the liability of the parties to each other; it shall also apply to
the liability of any person claiming through or under the parties pursuant to a
right of subrogation or otherwise. The waiver of claims or release shall not
apply to loss or damage to property of a party unless the loss or damage occurs
when the applicable insurance policy of the party contains a clause or
endorsement to the effect that the release will not adversely affect or impair
the policy or prejudice the rights of the insured to recover under the policy.
In the event an insurance company is unwilling to include such a clause or
endorsement in a policy carried by a party, the party required to carry the
insurance shall give notice in writing to the other party of the unwillingness
of the insurance company to provide such clause or endorsement in the policy. In
such event, the party whose insurance company is unwilling to include such a
clause or endorsement in the policy shall take immediate action to assure that
insurance is obtained through a company that is willing to include such a clause
or endorsement in the policy.
16. INDEMNIFICATION
Lessee indemnifies Lessor, each partner of Lessor, and each employee and agent
of Lessor, against any loss, liability, or damages incurred in connection with
or arising from: (i) the use or occupancy of the Premises by Lessee or any
person claiming under Lessee; (ii) any activity, work, or thing done or
permitted to be done by Lessee in or about the Premises; (iii) any acts,
omissions, or negligence of Lessee or any person claiming under Lessee; (iv) any
breach, violation, or non-performance by Lessee or any person claiming under
Lessee of any term, covenant, or provision of this Lease, or any law, ordinance,
or governmental requirement of any kind; or (v) (except for loss which is
proximately caused by or results proximately from the negligence or intentional
misconduct of Lessor, Lessor's employees and agents), any injury or damage to
person, property, or business of Lessee, its employees, agents, or any other
person entering upon the Premises under the express or implied invitation of
Lessee.
Lessee shall defend any lawsuits with respect to claims for loss, liability or
damages against which the indemnity provided above
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applies, and shall pay any judgments which result from the lawsuits. "Lawsuits"
includes arbitration proceedings and administrative proceedings, and all other
governmental and quasi-governmental proceedings. "Liabilities" includes the fees
and disbursements of attorneys and witnesses.
Lessor indemnifies Lessee, each partner of Lessee, and each employee and agent
of Lessee, against any loss, liability, or damages incurred in correction with
or arising from: (i) the use or occupancy of the Premises by Lessor or any
person claiming under Lessor; (ii) any activity, work, or thing done or
permitted to be done by Lessor in or about the Premises; (iii) any acts,
omissions, or negligence by Lessor or any person claiming under Lessor; (iv) any
breach, violation or non-performance by Lessor or any person claiming under
Lessor of any term, covenant or provision of this Lease, or governmental
requirement of any kind; or (v) (except for loss which is proximately caused by
or results proximately from the negligence or intentional misconduct of Lessee,
Lessee's employee and agents) any injury or damage to person, property, or
business of Lessor, its employees, agents, or ANY OTHER PERSON ENTERING upon the
Premises under the express or implied, invitation of Lessor.
Lessor shall defend any lawsuits with respect to claims for loss, liability or
damages against which the indemnity provided above applies, and shall pay any
judgments which result from the lawsuits. "Lawsuits" includes arbitration
proceedings and administrative proceedings, and all other governmental and
quasi-governmental proceedings. "Liabilities" includes the fees and
disbursements of attorneys and witnesses.
Lessee agrees to the extent it is required to obtain insurance pursuant to this
Lease, all such policies shall contain a broad form contractual liability
endorsement obligating its insurance carrier to comply with the terms of this
Section.
17. LIABILITY INSURANCE
Lessee shall maintain comprehensive public liability insurance with limits of
not less than $1,000,000.00 for bodily injury and $100,000.00 per claim for
property damage for injuries or damages occurring in or about the Premises.
Lessor shall be named as an "additional insured" under such policy. Evidence of
such insurance shall be provided on the date Lessee takes occupancy of the
Premises.
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18. FIRE AND EXTENDED COVERAGE INSURANCE
Lessor shall maintain during the term a fire and extended coverage insurance
policy with respect to the Building, and as applicable, the Real Property. The
coverage limits shall not be less than the reasonable estimate of the cost of
replacing the Building and Real Property as applicable. The cost of replacing
the Building and Real Property, as applicable, means the cost of replacing
damage to the same as reasonably determined by Lessor with new materials of like
kind and quality, except for foundation, footings, and other building elements
customarily excluded from applicable coverages. Lessee shall reimburse Lessor
for the costs of maintaining the insurance under this Section 18 as additional
rent as set forth in Section 4 hereof.
Notwithstanding the foregoing, if Lessee reasonably determines that it will be
less expensive to Lessee to obtain and maintain the insurance required under
this Section 18 directly from an insurance carrier, and provided Lessor is named
as an "insured" and such insurance coverage is comparable or better than the
insurance coverage maintained by Lessor as determined by Lessor in its
reasonable discretion and is obtained through an insurance carrier reasonably
acceptable to Lessor and Lessee provides all information relating to the same,
including specimen copies of the insurance policy(ies) to Lessor not later than
30 days prior to the proposed effective date of coverage, upon at least thirty
(30) days prior written notice to Lessor, Lessee may obtain the insurance
required under this Section 18 directly at its sole cost, and the additional
rent provided for in Section 4 hereof shall be reduced by deleting any amounts
for insurance premiums therefrom.
19. HOLDING OVER
If the Lessee retains possession of the Premises or any part thereof after the
expiration of the term of the Lease, the Lessee shall pay the Lessor Base Rent
at one and one-quarter the monthly rate in effect immediately prior to the
termination of the term for the time the Lessee remains in possession. In
addition thereto, Lessee shall be liable to Lessor for all damages, incidental,
consequential, indirect and direct, sustained by reason of the Lessee's
retention of possession. The provisions of this Section do not exclude the
Lessor's rights of reentry or any other right provided hereunder or available at
law or in equity. No such holding-over shall be deemed to constitute a
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renewal or extension of the term hereof; however, all other provisions of this
Lease shall remain in full force and effect.
20. ASSIGNMENT AND SUBLETTING
The Lessee shall not, without the Lessor's prior written consent, which consent
shall not be unreasonably withheld as long as the assignment or sublease is to
an entity of similar financial strength, (a) assign, convey, mortgage, pledge,
encumber or otherwise transfer (whether voluntarily or otherwise) this Lease or
any interest under it; (b) allow any transfer by operation of law; (c) sublet
the Premises or any part thereof; or (d) permit the use or occupancy of the
Premises or any part thereof by anyone other than the Lessee.
If this Lease is assigned or if the Premises or any part thereof be sublet or
occupied by anybody other than the Lessee, with the consent of Lessor as stated
above, Lessor may, after default by Lessee, collect rent from the assignee,
subtenant or occupant, and apply the net amount collected to the Base Rent
herein reserved, but no such assignment, subletting, occupancy or collection
shall be deemed a waiver of any of Lessee's covenants contained in this Lease or
the acceptance of such assignee, subtenant or occupant as Lessee, or a release
of Lessee from further performance by Lessee of covenants on the part of Lessee
herein contained.
In the event a sublease or assignment is made with the Lessor's prior written
consent, as herein provided, Lessee shall pay Lessor a charge of $350.00 as
reimbursement for necessary legal and accounting services required by Lessor to
accomplish such assignment or subletting. Said amount shall be deemed to be
additional rent under the terms of this Lease.
Notwithstanding any other provision hereof to the contrary, Lessee may assign
its rights under this Lease or sublease all or any part of the Premises to a
parent, subsidiary or affiliate without the consent of Lessor and without paying
any assignment fee, provided Lessee shall not be relieved from liability
hereunder as a result of such assignment or sublease, and Lessee shall not
thereafter dissolve or sell substantially all of its assets without establishing
reasonable reserves to meet its obligations under this Lease.
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21. CONDITION OF PREMISES
On the expiration or termination of the Lease, Lessee shall return the Premises
"broom clean" and in as good condition as when the Lessee took possession,
ordinary wear and tear and loss by fire or other insured casualty excepted.
22. USE OF PREMISES
Lessee shall use the Premises for general office and related purposes and for no
other purposes.
Lessee shall comply with all laws and ordinances, and all rules and regulations
of all governmental authorities at any time in force, applicable to the Premises
or to the Lessee's use thereof, and to this end and without limitation Lessee
expressly covenants not to bring (or allow to be brought) into the Premises any
substances which have been defined as "hazardous" or "toxic" substances under
any applicable federal and/or state law, rule and/or regulation, except for
Hazardous Substances stored, treated, generated, transported, processed,
handled, produced or disposed of in the normal operation of the Premises as an
office building in strict accordance with all Environmental Laws.
23. DAMAGE OR DESTRUCTION
If the Premises or any substantial part of the Premises is damaged or destroyed
by fire or other casualty, such that the damage cannot be replaced or repaired
within One Hundred Eighty (180) days thereafter, either party may by written
notice to the other, terminate this Lease, which termination shall be effective
as of the date of such damage.
If as a result of fire or other casualty the Premises are made partially or
completely untenable, and the Lease is not terminated as provided above, this
Lease shall remain in full force and effect and the Base Rent shall abate during
such time as the Premises are untenable; provided, however, if Lessee occupies
part of the space, Base Rent shall be abated by an amount determined by
multiplying the Base Rent by a fraction of the numerator of which is the
leasable space which cannot be occupied and the denominator of which is the
total leasable square footage within the Premises.
Unless this Lease is terminated as hereinabove provided, this Lease shall remain
in full force and effect and Lessor shall proceed with due diligence to restore,
repair, and replace the
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Premises to substantially the same condition as it was in as of the Commencement
Date. Lessor shall be under no duty to restore any alterations, improvements or
additions made by the Lessee or by Lessor at Lessee's request after the
Commencement Date, unless the same are covered by proceeds of insurance
designated for the same and available to Lessor in which case Lessor shall
restore the same. In all cases, due allowances in the completion of the repairs
shall be given to the Lessor for any reasonable delays caused by adjustment of
insurance loss, strikes, labor difficulties, inability to obtain supplies or
materials or any cause beyond Lessor's control.
24. EMINENT DOMAIN
(a) In the event that title to all of the Premises, or a portion of the
Premises containing a part of the Building shall be condemned or taken
in any manner for any public or quasipublic use, this Lease and the
term and estate hereby granted shall forthwith cease and terminate as
of the date of vesting of title in the name of the condemning
authority and the Lessor and Lessee shall be entitled to participate
in any award based upon their respective interest therein, if any.
Without limitation, Lessee shall be entitled to make a claim for and
participate in any part of an award made for the taking of personal
property or fixtures belonging to Lessee, for the interruption of or
damage to Lessee's business, for Lessee's moving expenses, and for the
value of the remaining term of the Lease.
(b) In the event that title to a portion of the Real Property containing
no portion of the Building shall be so condemned or taken and provided
the same does not reduce the number of parking spaces available to
Lessee by more than five percent (5%), this Lease shall remain in full
force and effect without rent abatement, apportionment, or other
alteration whatsoever, and Lessor shall be entitled to receive any
award paid by the condemning authority, the Lessee hereby assigning to
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Lessor the Lessee's interest therein, if any. If however, such taking
reduces the number of parking spaces available to Lessee by more than
five percent (5%), and Lessor cannot provide reasonably suitable
alternative parking within thirty (30) days thereafter, then Lessee
shall have the right to cancel this Lease upon written notice to
Lessor exercised within ten (10) days following the day Lessor
acknowledges in writing its inability to provide reasonably suitable
alternative parking, or the expiration of the thirty (30) day period
described above, whichever shall first occur. In such event, Lessor
and Lessee shall be entitled to participate in any award as set forth
in paragraph 24(a) hereof.
(c) For the purpose of this Section, a sale to a public or quasi-public
authority under threat of condemnation shall constitute a vesting of
title and shall be construed as a taking by such condemning authority.
25. LESSOR'S REMEDIES
All rights and remedies of the Lessor herein enumerated shall be cumulative, and
none shall exclude any other right or remedy allowed by law or in equity. In
addition to the other remedies provided in this Lease, the Lessor shall be
entitled to the restraint by injunction without bond of the violation or
attempted violation of any of the covenants, agreements or conditions of this
Lease.
(a) If the Lessee shall: (i) apply for or consent to the appointment of a
receiver or trustee of the Lessee or of all or a substantial part of
its assets; (ii) file a voluntary petition in bankruptcy or admit in
writing its inability to pay its debts as they come due; (iii) make a
general assignment for the benefit of creditors; (iv) file a petition
or an answer seeking reorganization or arrangement with creditors or
to take advantage of any insolvency law; or (v) file an answer
admitting the material allegations
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of a petition filed against the Lessee in any bankruptcy,
reorganization or insolvency proceeding, or if an order, judgment or
decree shall be entered by any court of competent jurisdiction
adjudicating the Lessee a bankrupt or insolvent or approving a
petition seeking reorganization of the Lessee or appointing a receiver
or trustee of the Lessee or of all or a substantial part of its
assets, then in any of such events, the Lessor may give to the Lessee
a notice of intention to end the term of this Lease specifying a day
not earlier than ten (10) days thereafter, and upon the giving of such
notice the term of this Lease and all right, title and interest of the
Lessee hereunder shall expire as fully and completely on the day so
specified as if that day were the date herein specifically fixed for
the expiration of the term.
(b) If Lessee fails to pay any installment of Base Rent within five days
after the same is due, Lessee shall pay Lessor a charge of $250.00 to
defer Lessor's additional administrative costs associated with the
same. Lessee shall pay in addition to the $250.00 charge described in
the immediately preceding sentence, interest on the unpaid
installment(s) of Base Rent at 4% over the Prime Rate of Interest as
described within the WALL STREET JOURNAL or the maximum amount allowed
by law (if such a limitation does so exist), whichever is less, (the
"Default Rate") from the date such installment(s) was due. If Lessee
fails to pay Base Rent on the date the same is due, and if such
default continues for a period of twenty (20) days after receipt of
written notice of such default, or in the event Lessee fails to cure
any other default in this Lease within 30 days after receipt of notice
to cure the same, then Lessor may terminate this Lease or terminate
Lessee's possession under the Lease without terminating the Lease and
endeavor to
20
<PAGE>
relet the same. Nothing herein shall relieve Lessee of its obligation
to pay Base Rent.
(c) Upon termination of this Lease, Lessee shall surrender the Premises
and deliver possession thereof to Lessor. If Lessee fails to vacate
the Premises, Lessor may obtain possession of the Premises in the
manner provided or allowed by law.
(d) If the Lessor elects, without terminating the Lease, to endeavor to
relet the Premises, the Lessor may, at the Lessor's option, enter into
the Premises, remove the Lessee's signs and other evidence of tenancy,
and take and hold possession thereof as provided in paragraph (c) of
this Section provided, without such entry and possession terminating
the Lease or releasing the Lessee in whole or in part, from the
Lessee's obligation to pay the Base Rent hereunder for the full term
as hereinafter provided. Upon and after entry into possession without
termination of the Lease, the Lessor may relet the Premises or any
part thereof for the account of the Lessee at the fair market rents
for which there shall exist for the purpose of establishing the same a
rebuttable presumption that the rents as agreed to by Lessor upon such
re-rental of the Premises are, in fact, fair market rents (it being
the intent of the later portion of this sentence to place the burden
on the defaulting Lessee to establish that the rents as agreed to by
the non-defaulting Lessor are not fair market rentals, rather than
placing the burden on the non-defaulting Lessor to establish that the
same are fair market rents). If the rents collected by Lessor upon
such reletting are not sufficient to pay monthly the full amount of
the Base Rent due hereunder plus the costs of reletting the same,
including advertising, leasing commissions, attorney fees and the
costs of retrofitting the tenant improvements, Lessee shall pay to
Lessor the amount of the deficiency in full on demand as
21
<PAGE>
the same accrue. To this end, it is agreed that the Lessor can collect
immediately any costs of reletting once such costs are incurred,
including advertising, leasing commissions, attorney fees, and the
costs of retrofitting the tenant improvements; the Lessor will not be
required to defer collection of the same after such expenses are
incurred.
(e) Any property of Lessee not removed from the Premises within thirty
(30) days after the Premises are vacated by Lessee shall be deemed
abandoned by Lessee and may be retained by Lessor as its property or
disposed of in such manner as Lessor may see fit. Any and all property
removed by Lessor by authority of this Lease or law which belongs to
Lessee shall be removed and/or stored at the risk and expense of
Lessee.
26. LESSEE'S REMEDIES
If Lessor defaults in the performance of any covenant required to be performed
by Lessor under the terms of this Lease, Lessee may serve upon Lessor and if
requested by Lessor's lender(s) upon Lessor's lender's(s') written notice
specifying the default and requiring performance by the Lessor within a period
of time set forth in the notice, which shall not be less than thirty (30) days
after receipt of said notice, except in the case of emergency. In the event that
Lessor shall not have remedied the default within the time set forth in the
notice, Lessee may by written notice to Lessor, at its sole option, cure
Lessor's default and Lessor shall immediately reimburse Lessee for the expenses
thereof with interest at the Default Rate. Further, if the default by Lessor is
the failure to maintain the foundation, structure or roof as required under
Section 9 hereof, and provided that except in the case of emergency, Lessee
includes within the written notice specified in the default described within the
first sentence of this Section, a written report by a structural engineer of
recognized responsibility located within the Columbus metropolitan marketplace
specifying in detail the nature and extent of the proposed deficiency and the
proposed plan for modifying or correcting such deficiency, and Lessor thereafter
fails to submit within such thirty (30) day period a written objection to such
proposal supported by an opinion of a
22
<PAGE>
structural engineer of recognized responsibility located within the Columbus
metropolitan marketplace, Lessee may offset the expense thereof with interest at
the Default Rate against Base Rent and additional rent thereafter accruing.
However, if any default shall occur which cannot, with due diligence be cured
within a period of thirty (30) days, and Lessor prior to the expiration of
thirty (30) days from and after the giving of notice as aforesaid, commences to
eliminate the causes of such default and proceeds diligently and with reasonable
dispatch to take all steps and to do all work required to cure such default,
then Lessee shall not have the right to declare the Lease terminated by reason
of such default.
27. SUBORDINATION OF LEASE
This Lease is and shall be subject to and subordinate to any and all mortgages
now existing upon or that may be hereafter placed upon the Building and/or the
Real Property and to all advances made or to be made thereon and all renewals,
modifications, consolidations, replacements or extensions thereof and the lien
of any such mortgages to the full extent of all sums secured thereby. This
provision shall be self-operative and no further instrument of subordination
shall be necessary to effectuate such subordination and the recording of any
such mortgage shall have preference and precedence and be superior and prior in
lien to this Lease, irrespective of the date of recording. In confirmation of
such subordination, Lessee shall on request of Lessor or the holder of any such
mortgage execute and deliver to Lessor within ten (10) days any instrument that
Lessor or such holder may reasonably request provided the same contains language
substantially similar to that set forth within the next following paragraph, and
to this end Lessee acknowledges that such instrument may also require certain
additional affirmative obligations be undertaken by Lessee not heretofore set
forth within this Lease and not inconsistent with the terms of this Lease such
as the obligation of Lessee to notify the mortgage company granting the
non-disturbance agreement described in the next following sentence in the event
of a default by Lessor under this Lease.
Notwithstanding the foregoing in the event of a foreclosure of any such mortgage
or of any other action or proceeding for the enforcement thereof, or of any sale
thereunder, this Lease will not be barred, terminated, cut off or foreclosed nor
will the rights and possession of Lessee thereunder be disturbed if Lessee shall
not then be in default in the payment of rental or other
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sums or be otherwise in default under the terms of this Lease, and Lessee shall
attorn to the purchaser at such foreclosure, sale or other action or proceeding.
28. NOTICES AND CONSENTS
All notices, demands, requests, consents or approvals which may or are required
to be given by either party to the other shall be in writing and shall be given
personally with return receipt requested or by United States Certified or
Registered Mail, postage prepaid, return receipt requested. Such notice shall be
deemed given on the date inscribed on the return receipt. Such notice shall be
directed: (a) if for the Lessee, to the Lessee at the Building, or at such other
place as the Lessee may from time to time designate by notice to the Lessor; or
(b) if for the Lessor, to 1533 Lake Shore Drive, Suite 50, Attention: Robert C.
White, Columbus, Ohio, 43204, or at such other place as the Lessor may from time
to time designate by notice to the Lessee. All consents and approvals provided
for herein must be in writing to be valid. If the term Lessee as used in this
Lease refers to more than one person, any notice, consent, approval, request,
bill, demand or statement, given as aforesaid to any one of such persons shall
be deemed to have been duly given to Lessee.
29. NO ESTATE IN LAND
This contract and Lease shall create the relationship of landlord and tenant
between Lessor and Lessee; no estate shall pass out of Lessor except that of the
tenancy described herein; and Lessee shall have only the rights of enjoyment
stated herein of property vested in the Lessor which rights are not subject to
levy and sale.
30. INVALIDITY OF PARTICULAR PROVISIONS
If any clause or provision of this Lease is or becomes illegal, invalid, or
unenforceable because of present or future laws or any rule, decision, or
regulation of any governmental body or entity, the intention of the parties
hereto is that the remaining parts of this Lease shall not be affected thereby.
31. MISCELLANEOUS TAXES
Lessee shall pay prior to delinquency all taxes assessed against or levied upon
its occupancy of the Premises, or upon the fixtures, furnishings, equipment, and
all other personal property of Lessee located in the Premises, if nonpayment
thereof shall
24
<PAGE>
give rise to a lien on the real estate, and when possible Lessee shall cause
said fixtures, furnishings, equipment and other personal property to be assessed
and billed separately from the property of Lessor. In the event any or all of
Lessee's fixtures, furnishings, equipment and other personal property, or upon
Lessee's occupancy of the Premises, shall be assessed and taxed with the
property of Lessor, Lessee shall pay to Lessor its share of such taxes within
ten (10) days after delivery to Lessee by Lessor of a statement in writing
setting forth the amount of such taxes applicable to Lessee's fixtures,
furnishings, equipment or personal property.
32. BROKERAGE
Lessee and Lessor each represent to the other that they have not dealt with any
broker or agent in connection with this transaction except The Daimler Group,
Inc. and Carey Leggett Realtors, whose commissions shall be paid by Lessor, and
each agrees to hold the other harmless from any claim for any other commission
made by a party claiming to have worked with the other.
33. SPECIAL STIPULATIONS
(a) No receipt of money by the Lessor from the Lessee after the
termination of this Lease or after the service of any notice or after
the commencement of any suit, or after final judgment for possession
of the Premises shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand or suit or imply consent for
any action for which Lessor's consent is required.
(b) No waiver of any default of the Lessee or Lessor hereunder shall be
implied from any omission by the Lessor or Lessee to take any action
on account of such default if such default persists or be repeated,
and no express waiver shall affect any default other than the default
specified in the express waiver and that only for the time and to the
extent therein stated.
(c) All of the covenants of the Lessee hereunder shall be deemed and
construed to be "conditions" as well as covenants" as though
25
<PAGE>
the words specifically expressing or importing covenants and
conditions were used in each separate instance.
(d) This Lease shall not be recorded by either party without the consent
of the other. However, on the request of either party Lessor and
Lessee agree to make and execute a Memorandum of Lease in recordable
form so as to give public notice of the execution of the within Lease,
and a statement therein as to the date of commencement of the within
Lease which shall not disclose the terms of rental hereunder.
(e) Neither party has made any representations or promises, except as
contained herein, or in some further writing signed by the party
making such representation or promise.
(f) Each provision hereof shall extend to and shall, as the case may
require, bind and inure to the benefit of the Lessor and the Lessee
and their respective heirs, legal representatives, successors, and
assigns.
(g) If because of any act or omission of Lessee, a mechanics lien is
filed against the Lessor or the real estate, Lessee shall hold Lessor
harmless therefrom.
(h) This Lease shall not be binding until signed by both parties.
(i) No acceptance by Lessor of a lesser sum than the Base Rent or any
other charge then due shall be deemed other than on account of the
earliest installment of such rent or charge due, nor shall any
endorsement or statement on any check or any letter accompanying any
check or payment as rent or other charge be deemed an accord and
satisfaction, and Lessor may accept such check or payment without
prejudice to Lessor's right to recover the balance of such installment
or charge or other monies owing by Lessee or pursue any other remedy
in this Lease provided.
26
<PAGE>
34. LIMITATION OF LESSOR'S LIABILITY
(a) The individual partners of Lessor shall have no personal liability
with respect to any of the provisions of this Lease or any obligation
arising from, or in connection with this Lease. If Lessor or any
successor in interest shall be a joint venture or a partnership, the
members of the joint venture or the partnership shall have no personal
liability with respect to any provisions of this Lease or any
obligation arising from or in connection with this Lease.
(b) If Lessee shall assert a claim against Lessor and Lessor is the owner
of the Premises at the time the claim is asserted, Lessee shall look
solely to Lessor's ownership interest in the Premises for satisfaction
of all remedies of any award of damages.
35. FINANCIAL STATEMENTS
Upon reasonable request, but no more frequently than once each year, the Lessee
shall provide financial statements to Lessor and/or Lessor's lending
institution.
36. HAZARDOUS SUBSTANCES
(a) Lessor and Lessee hereby covenant and agree that the following terms
shall have the following meanings:
(i) "ENVIRONMENTAL LAWS" mean all federal, state, and local laws,
statutes, ordinances, and codes relating to the use, storage,
treatment, generation, transportation, processing, handling,
production, or disposal of any Hazardous Substance and the rules,
regulations, policies, guidelines, interpretations, decisions,
orders, and directives with respect thereto.
(ii) "HAZARDOUS SUBSTANCE" means, without limitation, any flammable
explosives, radioactive materials, asbestos, urea formaldehyde
foam insulation, polychlorinated biphenyls, petroleum and
petroleum based products, methane, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials, as
defined in the Comprehensive Environmental Response, Compensation
27
<PAGE>
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601,
ET SEQ.), the Hazardous Materials Transportation Act, as amended
(49 U.S.C. Sections 1801, et sea.), the Toxic Substances Control
Act, as amended (15 U.S.C. Sections 2601, ET SEQ.), or any other
applicable Environmental Law.
(iii) "INDEMNITEE" means Lessor, its respective successors and
assignees, its respective partners, officers, directors,
employees, agents, representatives, contractors and
subcontractors, and any subsequent owner of the Real Property and
Building who acquires title thereto from or through Lessor.
(iv) "RELEASE" has the same meaning as given to that term in the
Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended (42 U.S.C. Sections 9601, et seq.), and
the regulations promulgated thereunder.
(b) Lessee covenants and agrees with Lessor as follows:
(i) Lessee shall keep, and shall cause all occupants of the Premises
to keep the Premises, free of all Hazardous Substances, except
for Hazardous Substances stored, treated, generated, transported,
processed, handled, produced, or disposed of in the normal
operation of the Premises as an office building, in accordance
with all Environmental Laws.
(ii) Lessee shall comply with, and shall cause all occupants of the
Premises to comply with all Environmental Laws.
(iii) Lessee shall promptly provide Lessor with a copy of all
notifications which it gives or receives with respect to any past
or present Release of any Hazardous Substance or the threat of
such a Release on, at, or from the Premises or any property
adjacent to or within the immediate vicinity of the Premises.
(iv) Lessee shall undertake and complete all investigations, studies,
sampling, and testing for Hazardous Substances reasonably
required by Lessor
28
<PAGE>
and, in accordance with all Environmental Laws, all removal and
other remedial actions necessary to contain, remove, and clean up
all Hazardous Substances that are determined to be present at the
Premises (if as a result of the actions or inactions of Lessee or
any occupant of the Premises) in violation of any Environmental
Laws.
(v) Lessor shall have the right, but not the obligation, to cure any
violation by Lessee of the Environmental Laws and Lessor's cost
and expense to so cure shall be the responsibility of Lessee
under this Lease Agreement.
(c) Lessee covenants and agrees, at its sole cost and expense, to
indemnify, defend, and save harmless Indemnitee from and against any
and all damages, losses, liabilities, obligations, penalties, claims,
litigation, demands, defenses, judgments, suits, actions, proceedings,
costs, disbursements, and/or expenses (including, without limitation,
reasonable attorneys' and experts' fees and expenses) of any kind or
nature whatsoever which may at any time be imposed upon, incurred by,
asserted, or awarded against Indemnitee arising out of the actions or
inactions of Lessee or any occupant of the Premises, and (i) the
storage, treatment, generation, transportation, processing, handling,
production, or disposal of any Hazardous Substance by Lessee, (ii) the
presence of any Hazardous Substance or a Release of any Hazardous
Substance or the threat of such a Release at or from the Premises,
(iii) human exposure to any Hazardous Substance, (iv) a violation of
any Environmental Law, or (v) a material misrepresentation or
inaccuracy in any representation or warranty or material breach of or
failure to perform any covenant made by Lessee herein (collectively,
the "Indemnified Matters").
The Liability of Lessee to Indemnitee here under shall in no way be
limited, abridged, impaired, or otherwise affected by (i) the release,
expiration, or termination of this Lease Agreement, (ii) the
invalidity or unenforceability of any of the terms or provisions
contained in this Lease Agreement, (iii) any exculpatory provisions of
this Lease Agreement, (iv) any applicable statute of limitations, (v)
the
29
<PAGE>
assignment of this Lease Agreement by Lessor or Lessee, (vi) the sale,
transfer, or conveyance of all or part of the Real Property and
Building, (vii) the dissolution or liquidation of Lessee, (viii) the
death or legal incapacity of Lessee, (ix) the release or discharge, in
whole or in part, of Lessee in any bankruptcy, insolvency,
reorganization, arrangement, readjustment, composition, liquidation,
or similar proceeding, or (x) any other circumstances which might
otherwise constitute a legal or equitable release or discharge, in
whole or in part, of Lessee under this Lease Agreement.
The foregoing indemnity shall be in addition to any and all other
obligations and liabilities Lessee may have to Lessor at common law.
37. LEASE CANCELLATION
Provided Lessee is not then in default hereunder, Lessee will have a one time
option to cancel the Lease at the end of the sixth lease year. In order to
exercise the one time lease cancellation, the Lessee will give Lessor written
notice twelve months prior to the anniversary of the sixth lease year. In
addition to notifying the Lessor at least twelve months before the end of the
sixth lease year, Lessee must pay a cancellation fee equal to twelve (12) months
of base rent If Lessee does not give Lessor written notice twelve months prior
to the end of the sixth lease year the lease cancellation will go away.
38. RENEWAL OPTION
In the event Lessee is not in default in the payment of Base Rent or additional
rent or otherwise in material default of any of the terms, covenants, or
conditions of this Lease, the Lessee may elect to renew this Lease for three (3)
additional terms of five (5) years. The option period shall commence on the day
following the Expiration Date and shall continue for a term of five (5) years
thereafter. The Base Rent for the renewal terms of this Lease shall be 1st
Renewal (Years 11-15) Base Rent $10.25 per square foot, 2nd Renewal (Years
16-20) Base Rent $11.00 per square foot, 3rd Renewal (Years 21-25) Base Rent
$11.75 per square foot.
In order to exercise the renewal options, Lessee must give Lessor notice in
writing of its election to exercise such option not
30
<PAGE>
less than one hundred eighty (180) days prior to the Expiration Date.
IN WITNESS WHEREOF, the undersigned have hereto set their hands.
SIGNED AND ACKNOWLEDGED LESSOR:
IN THE PRESENCE OF: MORRISON TAYLOR LTD.
/s/ Denise M. Damon /s/ Robert C. White
- --------------------------- ---------------------------
Witness to Lessor By: Robert C. White
Its: President
[Illegible]
- ---------------------------
Witness to Lessor
LESSEE:
ADS ALLIANCE DATA SYSTEMS, INC.
[Illegible] /s/ Daniel T. Groomes
- --------------------------- ---------------------------
Witness to Lessor By: Daniel T. Groomes
------------------------
Its: VP FINANCE
-----------------------
[Illegible]
- ---------------------------
Witness to Lessor
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 3rd day of July, 1997, before me, the subscriber,
a Notary Public in and for said County and State, personally appeared MORRISON
TAYLOR, LTD., by Robert C. White, its President and executed the foregoing
instrument, and acknowledged such execution thereof to be his and its free and
voluntary act and deed for the uses and purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
31
<PAGE>
/s/ Denise M. Damon
-----------------------------------
[SEAL] DENISE M. DAMON
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES FEB. 27, 2000
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 1st day of July, 1997, before me, the subscriber,
a Notary Public in and for said County and State, personally appeared ADS
ALLIANCE DATA SYSTEMS, INC., by Daniel T. Groomes, its VP Finance, and executed
the foregoing instrument, and acknowledged such execution thereof to be his and
its free and voluntary act and deed for the uses and purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Margaret Carpenter Delfino
-------------------------------
Notary Public
[SEAL] MARGARET CARPENTER DELFINO
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES NOV. 29, 1999
32
<PAGE>
EXHIBIT "A"
February 6, 1997
DESCRIPTION OF 8.699 ACRE COMBINING TRACT (OFFICENTER 2, PHASE 7)
& PROPOSED TECHCENTER DRIVE, GAHANNA, OHIO
FOR THE DAIMLER GROUP, INC.
Situated in the State of Ohio, County of Franklin, City of Gahanna, in Lot
Number Five (5), Quarter Township 3, Township 1 North, Range 16 West, United
States Military Lands, and being all of a 7.319 acre tract of land conveyed
to Andre M. Buckles, Trustee, by deed of record in Official Record 33961,
Page A 19, Recorder's Office, Franklin County, Ohio, and being all of a 1.380
acre tract of land conveyed to Andre M. Buckles, Trustee, by deed of record
in Official Record__, Page __, Recorder's Office, Franklin County, Ohio, and
bounded and described as follows:
Beginning, for reference, at a point at the intersection of the centerline of
Taylor Road (50 feet wide) with the southwest right-of-way line of Morrison
Road and the northeast limited access right-of-way line of Interstate Route
270, in the north line of said Lot No. 5, at the northwest corner of a 5.745
acre tract of land conveyed as Parcel No. 1200 WD to State of Ohio by deed of
record in Deed Book 3255, Page 555, Recorder's Office, Franklin County, Ohio,
and at a corner of a 34.634 acre tract of land conveyed as Parcel No. 1200 WL
to State of Ohio by deed of record in Deed Book 3255, Page 559, Recorder's
Office, Franklin County, Ohio, all as shown upon Sheet 16 of 28 of Ohio
Department of Transportation right-of-way plans for FRA-270-28.30 N;
thence S 85 DEG. 47' 21" E along the centerline of Taylor Road, along a
portion of the north line of said Lot No. 5, along the north line of said
5.745 acre tract and along a portion of the north line of said original
220.064 acre tract a distance of 1,506.38 feet to a point (passing a point at
the northeast corner of said 5.745 acre tract at 530.13 feet);
thence S 4 DEG. 12' 39" W perpendicular to the centerline of Taylor Road,
perpendicular to the north line of said Lot No. 5 and perpendicular to the
north line of said original 220.064 acre tract a distance of 25.00 feet to a
3/4-inch I.D. iron pipe set in the south right-of-way line of Taylor Road and
at the northeast corner of a 4.716 acre tract of land conveyed out of said
original 220.064 acre tract to Morrison Taylor, Ltd., by
<PAGE>
deed of record in Official Record 28006, Page I 13, Recorder's Office,
Franklin County, Ohio;
thence continuing S 4 DEG. 12' 39" W along a portion of an east line of said
4.716 acre tract a distance of 392.61 feet to a 3/4-inch I.D. iron pipe set
at a corner of a 4.563 acre tract of land conveyed out of said original
220.064 acre tract to Morrison Taylor, Ltd., by deed of record in Official
record 30635, Page A 01, Recorder's Office, Franklin County, Ohio;
thence S 85 DEG. 47' 21" E parallel with the south right-of-way line of
Taylor Road and along a north line of said 4.563 acre tract a distance of
77.11 feet to a 3/4-inch I.D. iron pipe set at a corner of said 4.563 acre
tract;
thence S 31 DEG. 56' 18" E along a portion of the northeast line of said
4.563 acre tract a distance of 61.46 feet to a 3/4-inch I.D. iron pipe set at
a northwest corner of said 7.319 acre tract and at the true place of
beginning of the tract herein intended to be described;
thence S 85 DEG. 56' 18" E along a north line of said 7.319 acre tract and
along the north line of said 1.380 acre tract a distance of 747.41 feet to a
3/4-inch I.D. iron pipe set at the northeast corner of said 1.380 acre tract
(passing a 3/4-inch I.D. iron pipe set at a northeast corner of said 7.319
acre tract and at the northwest corner of said 1.380 acre tract at 684.38
feet);
thence S 4 DEG. 03' 42" W along the east line of said 1.380 acre tract a
distance of 619.67 feet to a 3/4-inch I.D. iron pipe set at the southeast
corner of said 1.380 acre tract and in a north line of said 7.319 acre tract;
thence S 83 DEG. 36' 12" E along a portion of a north line of said 7.319 acre
tract a distance of 116.99 feet to a 3/4-inch I.D. iron pipe set at a
northeast corner of said 7.319 acre tract;
thence S 6 DEG. 23' 48" W along an east line of said 7.319 acre tract a
distance of 50.00 feet to a 3/4-inch I.D. iron pipe set at the southeast
corner of said 7.319 acre tract;
thence N 83 DEG. 36' 12" W along a south line of said 7.319 acre tract and
along a north line of an 8.643 acre tract of land conveyed out of said
original 220.064 acre tract to Morrison Taylor, Ltd. by deed of record in
Official Record 33808, Page F
2
<PAGE>
11, Recorder's Office, Franklin County, Ohio, a distance of 253.10 feet to a
3/4-inch I.D. iron pipe set at a point of curvature (passing a 3/4-inch I.D.
iron pipe set at the northeast corner of said 8.643 acre tract at 60.00 feet);
thence northwesterly along a curved south line of said 7.319 acre tract,
along a curved north line of said 8.643 acre tract and with a curve to the
right, data of which is: radius = 255.00 feet and delta = 31 DEG. 39' 54", a
chord distance of 139.14 feet bearing N 67 DEG. 46' 15" W to a 3/4-inch I.D.
iron pipe set at the point of tangency;
thence N 51 DEG. 56' 18" W along a south line of said 7.319 acre tract and
along a north line of said 8.643 acre tract a distance of 60.92 feet to a
3/4-inch I.D. iron pipe set at a point of curvature;
thence westerly along a curved south line of said 7.319 acre tract, along a
curved north line of said 8.643 acre tract and with a curve to the left, data
of which is: radius = 253.24 feet and delta = 70 DEG. 00' 00", a chord
distance of 290.51 feet bearing N 86 DEG. 56' 18" W to a 3/4-inch I.D. iron
pipe set at the point of tangency;
thence S 58 DEG. 03' 42" w along a south line of said 7.319 acre tract and
along a north line of said 8.643 acre tract a distance of 242.41 feet to a
3/4-inch I.D. iron pipe set in the curved northeast right-of-way line of
Morrison Road, An the curved northeast line of said 5.745 acre tract, at the
southwest corner of said 7.319 acre tract and at the northwest corner of said
8.643 acre tract;
thence northwesterly along the curved northeast right-of-way line of Morrison
Road, along a portion of the curved northeast line of said 5.745 acre tract,
along the curved west line of said 7.319 acre tract and with a curve to the
left, data of which is: radius = 3,524.04 feet and sub-delta = 0 DEG. 58'
32", a sub-chord distance of 60.01 feet bearing N 30 DEG. 58' 09" W to a
3/4-inch I.D. iron pipe set at a northwest corner of said 7.319 acre tract
and at the southernmost corner of said 4.563 acre tract;
thence N 58 DEG. 03' 42" E along a north line of said 7.319 acre tract and along
the southeast line of said 4.563 acre tract a distance of 479.00 feet to a
3/4-inch I.D. iron pipe set at a corner of said 7.319 acre tract and at the
easternmost corner of said 4.563 acre tract;
3
<PAGE>
thence N 31 DEG. 56' 18" W along a west line of said 7.319 acre tract and
along a portion of the northeast line of said 4.653 acre tract a distance of
498.76 feet to the true place of beginning;
containing 8.699 acres of land more or less and being subject to all easements
and restrictions of record.
The above description was prepared by Richard J. Bull, Ohio Surveyor No. 4723,
of C.F. Bird & R.J. Bull, Inc., Consulting Engineers & Surveyors, Columbus,
Ohio, from an actual field survey performed under his supervision in January,
1997. Basis of bearings is the centerline of Taylor Road, being assumed at S
85 DEG. 47' 21" E, and all other bearings are based upon this meridian.
- ----------------------------
Richard J. Bull
Ohio Surveyor #4723
4
<PAGE>
[FLOOR PLAN]
<PAGE>
TENANT CERTIFICATE
THIS CERTIFICATE is given as of September 8, 1998 by ADS Alliance Data Systems,
Inc. ("Tenant") for the benefit of USG Annuity & Life Company, its Parent,
Subsidiary, or Affiliated Company ("Lender"), whose address is 604 Locust
Street, Des Moines, Iowa 50309.
RECITALS
A. Tenant is a lessee under a certain lease dated July 1, 1997 (the
"Lease") with Morrison Taylor, Ltd., ("Borrower")
B. Lender has made, or intends to make, a mortgage loan to be secured by a
mortgage or deed of trust from Borrower for the benefit of Lender (the
"Mortgage") encumbering the real property and the improvements described in the
Mortgage (collectively, the "Property"), wherein the premises covered by the
Lease (the "Demised Premises") is located.
C. Borrower and Lender have executed, or will execute, an Assignment of
Leases and Rents (the "Assignment"), pursuant to which the Lease is assigned to
Lender and Lender grants the right to Borrower to collect all rents and other
sums payable under the Lease ("Rents") until the revocation of such right by
Lender, at which time all Rents are to be paid to Lender.
D. Lender and Borrower have requested the execution of this Certificate by
Tenant as a condition to Lender releasing $130,000 currently held in escrow by
Lender.
Tenant certifies to Lender as follows:
(a) Tenant took possession of the Demised Premises on or about
September 1, 1997, and commenced paying rent on September 1,
1997;
(b) The term of the Lease commenced on September 1, 1997, and
terminates on August 1, 2007 and there have been no amendments to
the Lease, except for a First Amendment to Lease Agreement which
is attached to this Certificate;
(c) The amount of the last rental payment (excluding expense
reimbursements) was $ 40,733.69 and the rental period for which
such payment was made was for the month ending September 30,
1998;
(d) The improvements described in the Lease have been accepted by the
Tenant and have been constructed, to the best of Tenant's
knowledge, in accordance with the plans and specifications
therefor;
(e) The Lease is in full force and effect, no advance rentals have
been paid, and Tenant has no unsatisfied claims against Borrower;
and
(f) Tenant has no option or other right to purchase all or any
portion of the Property.
TENANT: ADS Alliance Data Systems, Inc.
-------------------------------
By /s/ Bruce L. McClary
---------------------------------
Name Bruce L. McClary
-------------------------------
Title Director of Operations
------------------------------
<PAGE>
TENANT CERTIFICATE
AND MUTUAL RECOGNITION AGREEMENT
THIS AGREEMENT is entered into as of December 12, 1997, between ADS Alliance
Data Systems, Inc.("Tenant"), Morrison Taylor, Ltd. ("Borrower"), and USG
Annuity & Life Company, its Parent, Subsidiary, or Affiliated Company,
("Lender"), whose address for notices is 604 Locust Street, Des Moines, Iowa
50309, Attn: Managing Director.
RECITALS
A. Tenant is the lessee and Borrower is the lessor under a certain lease
dated July 1, 1997 (the "Lease").
B. Lender has made, or intends to make, a mortgage loan to be secured by a
mortgage or deed of trust from Borrower for the benefit of Lender (the
"Mortgage") encumbering the real property and the improvements described in the
Mortgage (collectively, the "Property"), wherein the premises covered by the
Lease (the "Demised Premises") is located.
C. Borrower and Lender have executed, or will execute, an Assignment of
Leases and Rents (the "Assignment"), pursuant to which the Lease is assigned to
Lender and Lender grants the right to Borrower to collect all rents and other
sums payable under the Lease ("Rents") until the revocation of such right by
Lender, at which time all Rents are to be paid to Lender.
D. Lender has requested the execution of the two Agreements contained
herein by Borrower and/or Tenant as a condition to Lender making the requested
mortgage loan or consenting to the Lease.
E. Tenant acknowledges that Tenant will benefit by entering into an
agreement with Lender concerning Tenant's relationship with any purchaser or
transferee of the Property in the event of foreclosure of the Mortgage or a
transfer of the Property by deed in lieu of foreclosure.
PART ONE - TENANT CERTIFICATE
Tenant certifies to Lender as follows:
(a) Tenant took possession of the Demised Premises on or about
September 1, 1997, and commenced paying rent on September 1,
1997;
(b) The term of the Lease commenced on September 1, 1997, and
terminates on August 31, 1997 and there have been no amendments
to the Lease;
(c) The amount of the last rental payment (excluding expense
reimbursements) was $24,576.75 and the rental period for which
such payment was made was for the month ending December 31, 1997;
(d) The improvements described in the Lease have been accepted by the
Tenant and have been constructed, to the best of Tenant's
knowledge, in accordance with the plans and specifications
therefor;
(e) The Lease is in full force and effect, no advance rentals have
been paid, and Tenant has no unsatisfied claims against Borrower;
and
(f) Tenant has no option or other right to purchase all or any
portion of the Property.
TENANT: ADS Alliance Data Systems, Inc.
-------------------------------
By /s/ Daniel T. Groomes
--------------------------------
Name Daniel T. Groomes
------------------------------
Title VP Finance
-----------------------------
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
This First Amendment to Lease Agreement (the "First Amendment") is dated this
18 day of June, 1998 (the "Effective Date") by and between MORRISON TAYLOR,
LTD., a limited liability company organized under the laws of the State of
Ohio and having an office and place of business located at 1533 Lake Shore
Dr., Suite 50, Columbus, Ohio 43204 ("Lessor") and ADS ALLIANCE DATA SYSTEMS,
INC., a corporation organized under the laws of the State of Delaware and
having an office and place of business located at 800 TechCenter Drive,
Gahanna, Ohio 43230 ("Lessee").
BACKGROUND INFORMATION
On July 1, 1997, Lessor and Lessee entered into a certain lease agreement for a
certain tract of real estate and the improvements constructed thereon, commonly
known as 800 TechCenter Drive, Gahanna, Ohio 43230 (the "Original Lease").
Lessee has subsequent to the execution of the Original Lease and contemporaneous
with the execution of this First Amendment entered into a certain lease
agreement for a certain parcel of real estate and improvements constructed
thereon commonly known as 775 Taylor Road which property is immediately adjacent
to and contiguous to the real property which is the subject of the Original
Lease Agreement (the "Adjacent Property Lease Agreement").
As a condition of the execution of the Adjacent Property Lease Agreement, the
Landlord under the Adjacent Property Lease Agreement required that both the
Adjacent Property Lease Agreement and the Original Lease Agreement contain
provisions that provide that in the event Lessee were to default under either
lease agreement, the same shall constitute a default under the other lease
agreement (i.e. that the lease agreements contain a cross-default provision).
Lessor and Lessee have agreed to the same.
NOW, THEREFORE, in consideration of the promises contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1 CROSS-DEFAULT. In the event Lessee were to default under the terms and
conditions of the Adjacent Property Lease Agreement, the same shall
constitute an event of default under the Original Lease as if the same were
set forth within Section 25 of the Original Lease. In the event that the
landlord under the Adjacent Property Lease were to default under the terms
and conditions of the Adjacent Property Lease Agreement, and the tenant
under the Adjacent Property Lease Agreement and the Original Lease are the
same, the same shall constitute an event of default by Lessor under the
Original Lease as if the same were set forth in Section 26 of the Original
Lease.
<PAGE>
2. ASSIGNMENT OR SUBLETTING BY LESSEE/REMOVAL OF COMMON WALKWAY. In the event
Lessee were to assign or sublet the Premises over unto any other person
or entity (except for an assignment or subletting to a parent, subsidiary
or affiliate of Lessee), Lessee shall (except to the extent provided to the
contrary in the last sentence of this paragraph) as a condition precedent
to such assignment or subletting remove the common walkway constructed by
Lessee upon the Real Property which common walkway connects the Building
with the building which is located upon the real property which is
contiguous and immediately and adjacent to the Real Property which real
property is commonly known as 775 Taylor Road, Gahanna, Ohio 43230. The
preceding condition precedent shall not be applicable if contemporaneous
with the assignment or subletting of the Original Lease, the Adjacent
Property Lease Agreement is also sublet or assigned to the same person or
entity to which the Original Lease is so sublet or assigned.
Anything herein to the contrary notwithstanding in the event Lessee were to
be required to remove the Common Walkway as located upon Real Property as
described above, Lessee may be relieved from such obligation if Lessee
ratifies and reaffirms in writing at the time of the subletting or
assignment as described above, its obligation to remove the Common Walkway
as located upon Real Property upon the expiration or termination of either
the Adjacent Property Lease Agreement or the Original Lease which ever
shall occur.
3. ASSIGNMENT OR SUBLETTING OF ADJACENT PROPERTY LEASE AGREEMENT/REMOVAL OF
COMMON WALKWAY. In the event Lessee were to assign or sublet its interest
in the Adjacent Property Lease Agreement (except for an assignment or
subletting to a parent, subsidiary or affiliate of Lessee), Lessee shall
remove the common walkway as located upon the Real Property. The preceding
shall not be applicable if contemporaneous with the assignment or
subletting of the Adjacent Property Lease Agreement, the Original Lease is
also sublet or assigned to the same person or entity to which the Adjacent
Property Lease Agreement is so sublet or assigned.
Anything herein to the contrary notwithstanding in the event Lessee were to
be required to remove the Common Walkway as located upon Real Property as
described above, Lessee may be relieved from such obligation if Lessee
ratifies and reaffirms in writing at the time of the subletting or
assignment as described above, its obligation to remove the Common Walkway
as located upon Real Property upon the expiration or termination of either
the Adjacent Property Lease Agreement or the Original Lease which ever
shall occur.
4. ADDITIONAL REMEDY IN THE EVENT OF DEFAULT. In the event of any uncured
default by the Lessee, in addition to any other remedies provided herein,
Lessor may require Lessee to remove the common walkway (as is described in
Section 2 above) and in
<PAGE>
the event Lessee fails to remove the same, Lessor may remove such common
walkway at Lessee's sole cost and expense.
5. MODIFICATION TO LEASE CANCELLATION. In the event Lessee were to exercise
its rights to cancel the Original Lease, as set forth in Section 37 of such
document, and the Adjacent Property Lease Agreement shall continue to exist
from and after the cancellation of the Original Lease, then Lessee shall
remove the common walkway from the Real Property. Further, in the event
Lessee were to exercise its rights to cancel the Adjacent Property Lease
Agreement, then notwithstanding the fact that the Original Lease may
continue to exist from and after the cancellation of the Adjacent Property
Lease Agreement, Lessee shall remove the common walkway from the Real
Property.
6. REMOVAL OF COMMON WALKWAY. The removal of the common walkway as set forth
herein shall include the restoration of the area previously improved by the
common walkway to a condition similar to the immediately surrounding real
property (i.e. appropriately landscaped to match existing conditions).
7. NO OTHER CHANGES. Lessor and Lessee agree that no further changes to the
Original Lease are contemplated by this First Amendment.
8. RATIFICATION. Lessor and Lessee hereby ratify and reaffirm all of the terms
and conditions of the Original Lease except as modified by this First
Amendment.
IN WITNESS WHEREOF, the undersigned have hereto set their hands.
Signed and Acknowledged LESSOR:
in the Presence of: MORRISON TAYLOR LTD.
[Illegible] /s/ Robert C. White
- --------------------------- ---------------------------
Witness to Lessor By: Robert C. White
Its: President
/s/ Denise M. Damon
- ---------------------------
Witness to Lessor
<PAGE>
LESSEE:
ADS ALLIANCE DATA SYSTEMS, INC.
/s/ Mary Brewer /s/ Robert P Armiak
- --------------------------- ---------------------------------
Witness to Lessee By:
----------------------------
Its: ROBERT P ARMIAK, TREASURER
---------------------------
[Illegible]
- --------------------------
Witness to Lessee
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 24th day of June, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared MORRISON TAYLOR, LTD., by Robert C. White, its President and executed
the foregoing instrument, and acknowledged such execution thereof to be his and
its free and voluntary act and deed for the uses and purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Denise M. Damon
--------------------------------
Notary Public
[SEAL] DENISE M. DAMON
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES FEB. 27, 2000
<PAGE>
STATE OF OHIO
COUNTY OF FRANKLIN SS:
BE IT REMEMBERED, that on this 18 day of June, 1998, before me, the
subscriber, a Notary Public in and for said County and State, personally
appeared ADS ALLIANCE DATA SYSTEMS, INC., by Robert Armiak, its Treasurer,
and executed the foregoing instrument, and acknowledged such execution
thereof to be his and its free and voluntary act and deed for the uses and
purposes mentioned therein.
IN TESTIMONY THEREOF, I have hereunto signed my name and affixed my official
seal on the day and year aforesaid.
/s/ Mary Brewer
------------------------------
Notary Public
[SEAL] MARY BREWER
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES JUNE 30, 1999
<PAGE>
TENANT CERTIFICATE
AND MUTUAL RECOGNITION AGREEMENT
THIS AGREEMENT is entered into as of December 12, 1997, between ADS
Alliance Data Systems, Inc.("Tenant"), Morrison Taylor, Ltd. ("Borrower"),
and USG Annuity & Life Company, its Parent, Subsidiary, or Affiliated
Company, ("Lender"), whose address for notices is 604 Locust Street, Des
Moines, Iowa 50309, Attn: Managing Director.
RECITALS
A. Tenant is the lessee and Borrower is the lessor under a certain lease
dated July 1, 1997 (the "Lease").
B. Lender has made, or intends to make, a mortgage loan to be secured by a
mortgage or deed of trust from Borrower for the benefit of Lender (the
"Mortgage") encumbering the real property and the improvements described in the
Mortgage (collectively, the "Property"), wherein the premises covered by the
Lease (the "Demised Premises") is located.
C. Borrower and Lender have executed, or will execute, an Assignment of
Leases and Rents (the "Assignment"), pursuant to which the Lease is assigned to
Lender and Lender grants the right to Borrower to collect all rents and other
sums payable under the Lease ("Rents") until the revocation of such right by
Lender, at which time all Rents are to be paid to Lender.
D. Lender has requested the execution of the two Agreements contained
herein by Borrower and/or Tenant as a condition to Lender making the requested
mortgage loan or consenting to the Lease.
E. Tenant acknowledges that Tenant will benefit by entering into an
agreement with Lender concerning Tenant's relationship with any purchaser or
transferee of the Property in the event of foreclosure of the Mortgage or a
transfer of the Property by deed in lieu of foreclosure.
PART ONE - TENANT CERTIFICATE
Tenant certifies to Lender as follows:
(a) Tenant took possession of the Demised Premises on or about
September 1, 1997, and commenced paying rent on September 1,
1997;
(b) The term of the Lease commenced on September 1, 1997, and
terminates on August 31, 1997 and there have been no amendments
to the Lease;
(c) The amount of the last rental payment (excluding expense
reimbursements) was $24,576.75 and the rental period for which
such payment was made was for the month ending December 31,
1997;
(d) The improvements described in the Lease have been accepted by the
Tenant and have been constructed, to the best of Tenant's
knowledge, in accordance with the plans and specifications
therefor;
(e) The Lease is in full force and effect, no advance rentals have
been paid, and Tenant has no unsatisfied claims against Borrower;
and
(f) Tenant has no option or other right to purchase all or any
portion of the Property.
TENANT: AM Alliance Data Systems, Inc.
By /s/ Daniel T. Groomes
------------------------------
Name Daniel T. Groomes
----------------------------
Title VP Finance
---------------------------
<PAGE>
PART TWO - MUTUAL RECOGNITION AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, Tenant,
Borrower and Lender, and their successors and assigns, agree as follows:
1. Tenant and Borrower agree for the benefit of Lender that:
(a) Tenant shall not pay any rent more than one month in advance;
(b) Tenant and Borrower will not enter into any agreement for the
cancellation, amendment or modification of the Lease without
Lender's prior written consent;
(c) Tenant will not terminate the Lease because of a default by
Borrower unless Tenant shall have first given Lender written
notice and a reasonable opportunity to cure such default; and
(d) Tenant, upon receipt of notice from Lender that it has revoked
the license granted to Borrower to collect Rents, shall pay to
Lender all Rents then or thereafter due under the Lease, and any
such payments to Lender shall be credited against the Rents as if
made to Borrower.
2. The Lease is hereby subordinated in all respects to the Mortgage and to
all renewals, modifications and extensions thereof, but the parties hereto agree
that a foreclosure proceeding shall not affect the Lease or the obligations of
Tenant thereunder except as otherwise provided herein.
3. Borrower, Tenant and Lender agree that the fee title to the Property and
the leasehold estate created by the Lease shall not merge but shall remain
separate and distinct, notwithstanding the union of said estates either in
Borrower, Tenant, Lender or any third party by purchase, assignment or
otherwise.
4. If the interests of Borrower in the Property are acquired by Lender:
(a) If Tenant shall not then be in default under the Lease, the Lease
shall not terminate or be terminated and the rights of Tenant
thereunder shall continue in full force and effect except as
provided in the Lease or this Agreement and except that the
Mortgage will govern with respect to the disposition of proceeds
of insurance policies or condemnation or eminent domain awards;
(b) Tenant shall be bound to Lender under all of the terms, covenants
and conditions of the Lease for the balance of the term thereof;
and
(c) Lender shall be bound to Tenant under all of the terms, covenants
and conditions of the Lease provided, however, that Lender shall
not be:
(i) Liable for any act or omission of Borrower or any prior
landlord;
(ii) Subject to any offsets or defenses which Tenant might have
against Borrower or any prior landlord;
(iii) Liable for the return of any security deposit;
(iv) Bound to Tenant subsequent to the date upon which Lender
transfers its interest in the Demised Premises to any third
party;
(v) Liable to Tenant under any indemnification provisions set
forth in the Lease or for any damages Tenant may suffer as a
result of any false representation set forth in the Lease,
the breach of any warranty set forth in the Lease, or any
act of, or failure to act by any party other than Lender; or
(vi) Bound by any option or other right to purchase all or any
portion of the Property.
<PAGE>
The provisions of this paragraph shall be effective and self-operative
immediately upon Lender succeeding to the interests of Borrower without the
execution of any other instrument.
5. This Agreement may not be modified orally or in any other manner except
by an agreement in writing signed by the parties hereto or their respective
successors in interest.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TENANT: ADS Alliance Data Systems, Inc.
--------------------------------
By /s/ Daniel T. Groomes
---------------------------
Name Daniel T. Groomes
------------------------
Its VP Finance
------------------------
BORROWER: Morrison Taylor, Ltd.
-----------------------------
By /s/ Robert C. White
---------------------------
Name Robert C. White
------------------------
Its President
------------------------
LENDER: USG ANNUITY & LIFE COMPANY, an
Oklahoma corporation
By: Equitable Investment Services,
Inc., its Agent
By
-------------------------
Name: Robert H. Kunnen
Its: Managing Director
<PAGE>
COMMERCIAL LEASE AGREEMENT
WATERVIEW PARKWAY, L.P.
(LANDLORD)
AND
ADS ALLIANCE DATA SYSTEMS, INC.
(TENANT)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
1. PREMISES, TERM, AND INITIAL IMPROVEMENTS....................................... 1
2. BASE RENT, SECURITY DEPOSIT AND ADDITIONAL RENT................................ 1
3. TAXES.......................................................................... 2
4. LIMITED LANDLORD OBLIGATIONS................................................... 3
5. MAINTENANCE AND REPAIR OBLIGATIONS............................................. 3
6. ALTERATIONS.................................................................... 4
7. SIGNS.......................................................................... 4
8. UTILITIES...................................................................... 4
9. INSURANCE...................................................................... 4
10. DESTRUCTION OF OR DAMAGE TO PROPERTY........................................... 5
11. LIABILITY, INDEMNIFICATION, WAIVER OF SUBROGATION AND NEGLIGENCE CLAIMS........ 5
12. USE............................................................................ 6
13. LANDLORD'S LIMITED RIGHT OF ACCESS............................................. 6
14. ASSIGNMENT AND SUBLETTING...................................................... 6
15. CONDEMNATION................................................................... 8
16. SURRENDER OF PREMISES; HOLDING OVER............................................ 8
17. QUIET ENJOYMENT................................................................ 8
18. EVENTS OF DEFAULT.............................................................. 9
19. REMEDIES....................................................................... 9
20. LANDLORD'S LIABILITY........................................................... 10
21. MORTGAGES...................................................................... 10
22. ENCUMBRANCES................................................................... 10
23. MISCELLANEOUS.................................................................. 10
24. NOTICES........................................................................ 11
25. HAZARDOUS WASTE................................................................ 12
26. WAIVER OF LANDLORD'S LIEN...................................................... 12
27. ADDITIONAL PARKING AREA........................................................ 12
28. TENANT IMPROVEMENT FINANCING................................................... 12
29. EXISTING EQUIPMENT............................................................. 12
</TABLE>
i
<PAGE>
LIST OF DEFINED TERMS
---------------------
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
AAA................................................................................. 3
Affiliate........................................................................... 10
AS-IS............................................................................... 1
Base Rent........................................................................... 1
Building............................................................................ 1
Building Systems.................................................................... 3
Building's Structure................................................................ 4
Casualty............................................................................ 5
Claimant............................................................................ 10
Closing............................................................................. 10
Commencement Date................................................................... 1
Construction Schedule............................................................... 5
Dresser............................................................................. 1
Environmental Law................................................................... 12
Event of Default.................................................................... 9
Expansion Amendment................................................................. B-1
Expansion Amendment Lease Term...................................................... B-1
Expansion Discussion Documents...................................................... B-1
Expansion Discussion Work........................................................... B-1
Expansion Extension................................................................. B-1
Expansion Notice.................................................................... B-1
Expansion Plans and Specifications.................................................. B-1
Expansion Space..................................................................... B-1
Expansion Work...................................................................... B-1
Hazardous Substances................................................................ 12
including........................................................................... 10
Indemnified Parties................................................................. 5
Land................................................................................ 1
Landlord............................................................................ 1
Landlord's Mortgagee................................................................ 10
Law................................................................................. 10
Laws................................................................................ 10
Lease............................................................................... 1
Lease Year.......................................................................... 1
Loss................................................................................ 5
Market Rent......................................................................... C-1
Mortgage............................................................................ 10
MSDS................................................................................ 12
Pass-Through Expense Statement...................................................... 2
Pass-Through Expenses............................................................... 2
Permitted Activities................................................................ 12
Permitted Materials................................................................. 12
Permitted Transfer.................................................................. 7
Permitted Transferee................................................................ 7
Peterson............................................................................ 11
Preliminary Expansion Plans and Specification....................................... B-1
Premises............................................................................ 1
Primary Lease....................................................................... 10
Remaining Work...................................................................... 1
rent................................................................................ 2
Security Deposit.................................................................... 1
Signage............................................................................. 4
SNDA................................................................................ 10
Substantial Damage.................................................................. 5
Taking.............................................................................. 8
Taxes............................................................................... 2
Ten-Year Mortgage Money Rate........................................................ B-2
Tenant.............................................................................. 1
Tenant Party........................................................................ 10
Term................................................................................ 1
Termination Date.................................................................... B-2
the date hereof..................................................................... 11
Total Expansion Costs............................................................... B-2
Transfer............................................................................ 6
Unrecorded Lease.................................................................... F-1
</TABLE>
ii
<PAGE>
LEASE AGREEMENT
---------------
This Lease Agreement (this "LEASE") is entered into by WATERVIEW PARKWAY,
L.P., a Texas limited partnership ("LANDLORD"), and ADS ALLIANCE DATA SYSTEMS,
INC., a Delaware corporation ("TENANT").
1. PREMISES. TERM. AND INITIAL IMPROVEMENTS.
(a) Landlord leases to Tenant, and Tenant leases from Landlord, the
real property described on EXHIBIT A (the "LAND"), along with the building
containing 61,750 rentable square feet and other improvements located on the
Land, and all Building Systems (as defined below) (the "BUILDING"), subject to
the terms and conditions in this Lease. The Land and Building are herein
collectively called the "PREMISES." In connection with its use of the Premises,
Tenant shall have the right to use the easements and appurtenances related to
the Premises. Landlord and Tenant stipulate that the number of rentable square
feet for the Building stated herein shall be binding upon them, subject to
changes thereto caused by Casualty (defined below), Taking (defined below),
expansion, or other similar event Landlord hereby conditionally assigns all of
the warranties with respect to the Building Systems, provided that Tenant may
not amend or modify any terms or conditions of such warranties and such
assignment shall be ineffective upon the occurrence of an Event of Default.
(b) The Lease term shall be 120 months, beginning on the Commencement
Date (defined below) (the "TERM", which defined term shall include all renewals
and extensions of the Term); however, if the Commencement Date is not the first
day of a calendar month, then the Term shall end on the last day of the
120-month period that begins with the first day of the first full calendar month
of the Term. The "COMMENCEMENT DATE" shall be the date of Landlord's acquisition
of the Premises from Dresser Industries, Inc. ("DRESSER"). If Landlord has not
acquired the Premises from Dresser by July 30, 1997, then this Lease shall
automatically terminate.
(c) Tenant hereby accepts the Premises in its "AS-IS" condition, and
Landlord shall have no obligation to perform any work therein (including
demolition of any improvements existing therein or construction of any
tenant-finish-work or other improvements therein) and shall not be obligated to
reimburse Tenant or provide any allowance for any cost relating to the
demolition of improvements therein. Whenever Tenant is required by any Law to
obtain a certificate of occupancy for any portion of the Premises, Tenant shall,
at is expense and prior to occupying such portion of the Premises or conducting
its business therein, obtain and deliver to Landlord a certificate of occupancy
for such portion of the Premises from the appropriate governmental authority.
2. BASE RENT. SECURITY DEPOSIT AND ADDITIONAL RENT.
(a) Tenant shall pay to Landlord "BASE RENT", in advance, without
demand, deduction or (except as specifically provided herein) set off, equal to
the following amounts for the following months of the Term:
Lease Year Monthly Base Rent
---------- -----------------
1 through 5 $57 478.96
6 through 10 $66,123.96
As used herein, the term "LEASE YEAR" shall mean the twelve-month period
beginning with the Commencement Date and each twelve-month period thereafter;
however, if the Commencement Date is not the first day of a calendar month, the
first Lease Year shall be the period beginning with the Commencement Date and
ending at the expiration of the twelve-month period that begins with the first
day of the first full calendar month of the Term. The first monthly installment
of Base Rent, plus the other monthly charges set forth in Section 2.(c), shall
be due on the Commencement Date; thereafter, monthly installments of Base Rent
shall be due on the first day of each calendar month following the Commencement
Date. If the Term begins on a day other than the first day of a month or ends on
a day other than the last day of a month, the Base Rent and additional rent for
such partial month shall be prorated.
(b) Tenant shall deposit with Landlord on the date hereof $57,478.96
(the "SECURITY DEPOSIT"), which shall be held by Landlord to secure Tenant's
obligations under this Lease; however, the Security Deposit is not an advance
rental deposit or a measure of Landlord's damages for an Event of Default
(defined below). In the event Tenant fails to perform any one or more of its
obligations under this Lease, then, after Landlord has given Tenant the notice
and cure period for such failure set forth in Section 19 below, Landlord may use
any portion of the Security Deposit to satisfy Tenant's unperformed obligations
hereunder, without prejudice to any of Landlord's other remedies. If so used,
Tenant shall pay Landlord an amount that will restore the Security Deposit to
its original amount upon request in connection with any waiver of a Tenant
default or modification of this Lease, Landlord may require that Tenant provide
Landlord with an additional amount to be held as part of the Security Deposit
The Security Deposit shall be Landlord's property. Within 30 days after the
expiration or earlier termination of this Lease, Landlord must provide Tenant
with an accounting for the Security Deposit, which accounting must include all
previous deductions from and replenishments of the Security Deposit as well as
Landlord's estimate of the maintenance and repair costs Landlord will incur in
performing Tenant's obligations under this Lease which were not performed in
accordance with the terms of this Lease (the "REMAINING WORK"). Landlord must
return to Tenant the balance of such Security Deposit that will not bc applied
to Tenant's unperformed obligations, together with such accounting, within 30
days after the expiration or earlier termination of this Lease. To the extent
the actual cost to perform Tenant's unperformed obligations is less than the
amount deducted as an estimate of the cost to perform Tenant's unperformed
obligations, Landlord must return such excess to Tenant within 120 days after
the expiration or earlier termination of this Lease. The foregoing requirements
concerning an accounting and return of the Security Deposit shall apply to any
person who succeeds to the interest of
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Landlord during the Term, even if such person does not receive the Security
Deposit from the previous landlord or any other person.
(c) Tenant shall pay, as additional rent, all costs incurred by
Landlord for the cost of insurance maintained by Landlord under Section 9.(b),
including that portion of the premiums under any blanket or umbrella insurance
policy maintained by Landlord as may be reasonably allocated to the Premises by
Landlord ("PASS-THROUGH EXPENSES"). On the first day of each month, Tenant
shall pay to Landlord an amount equal to 1/12 of Landlord's estimate of the
annual Pass-Through Expenses. The initial monthly payments of Pass-Through
Expenses are based upon Landlord's estimate of the Pass-Through Expenses for the
year in question, and shall be increased or decreased annually to reflect the
projected actual Pass-Through Expenses for that year. Within 90 days after the
end of each calendar year, Landlord shall deliver to Tenant a statement setting
forth the amount of Pass-Through Expenses for such calendar year and the amount
Tenant has paid in respect thereof for such calendar year, together with
evidence of the cost of such Pass-Through Expenses (the "PASS-THROUGH EXPENSE
STATEMENT"). If Tenant's total payments in respect of Pass-Through Expenses for
any year are less than the Pass-Through Expenses for that year, Tenant shall pay
the difference to Landlord within ten days after Landlord's request therefor; if
such payments are more than such Pass-Through Expenses, Landlord shall pay the
difference to Tenant when Landlord delivers to Tenant the Pass-Through Expense
Statement The amounts of the initial monthly installments of Base Rent and
Pass-Through Expenses are as follows:
Base Rent $57,478.96
Pass-Through Expenses 560.00
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Total initial monthly payment $58,038.96
(d) If any payment required of Tenant under this Lease is not paid
when due, Landlord may charge Tenant a fee equal to 5% of the delinquent payment
to reimburse Landlord for its cost and inconvenience incurred as a consequence
of Tenant's delinquency.
(e) All payments and reimbursements required to be made by Tenant
under this Lease shall constitute "Rent" (herein so called).
3. TAXES
(a) Tenant shall pay all taxes, assessments and governmental charges
whether federal, state, county, or municipal and whether they are imposed by
taxing or management districts or authorities presently existing or hereafter
created (collectively, "TAXES") that accrue against the Premises and deliver to
Landlord receipts from the applicable taxing authority or other evidence
acceptable to Landlord to verify the payment thereof at least 30 days before
such Taxes become delinquent If, during the Term, there is levied, assessed or
imposed on Landlord a capital levy or other tax directly on the rent or a
franchise tax, assessment, levy or charge measured by or based, in whole or in
part, upon rent (other than federal, state, or local income taxes), then all
such taxes, assessments, levies or charges, or the part thereof so measured or
based, shall be included within the term "Taxes".
(b) Tenant shall (1) before delinquency pay all taxes levied or
assessed against any personal property, fixtures or alterations placed in the
Premises and (2) deliver to Landlord receipts from the applicable taxing
authority or other evidence acceptable to Landlord to verify that such taxes
have been paid at least ten days before such Taxes become delinquent If any such
taxes are levied or assessed against Landlord or Landlord's property and (A)
Landlord pays them or (B) the assessed value of Landlord's property is increased
thereby and Landlord pays the increased taxes, then Tenant shall pay to Landlord
such taxes within ten days after Landlord's request therefor.
(c) Tenant may, at its expense, contest the validity or amount of any
Taxes in accordance with Law, in which event the payment thereof may be
deferred, as permitted by Law, during the pendency of such contest, if
diligently prosecuted. Within 15 days before any contested Taxes become due,
Tenant shall deposit with Landlord an amount sufficient to pay such contested
item (together with any interest, fees, and penalties that may accrue during any
such contest), which amount shall be applied to the payment of such items when
the amount thereof shall be finally determined. Nothing herein, however, shall
permit any Taxes to remain unpaid for any interval that would permit the
Premises, or any part thereof, to be sold or seized by any governmental
authority for the nonpayment of Taxes. If at any time, in the reasonable
judgment of Landlord, it shall become necessary to do so, Landlord may, after
written notice to Tenant, under protest, if so requested by Tenant, apply the
amounts so deposited or so much thereof as may be required to prevent a sale or
seizure of the Premises or foreclosure of any lien created thereon to secure
payment of such unpaid Taxes. Tenant shall pay all penalties, interest, and fees
assessed because of Tenant's failure to pay Taxes when due, and Tenant shall
indemnify, defend, and hold harmless Landlord from and against any costs,
liability, or damage incurred by Landlord arising out of or attributable to
Tenant's failure to pay Taxes when due. If required by Law, Landlord shall join
in any contest proceedings brought by Tenant, at Tenant's expense.
(d) If Tenant fails timely to deliver evidence of the payment of the
amounts required to be paid by Tenant under this Section 3, then Landlord may
pay such amounts, if unpaid, in which case, Tenant shall reimburse to Landlord
all amounts so paid within ten days after Landlord delivers to Tenant written
notice thereof.
(e) If, after the date hereof, a material adverse change occurs in
Tenant's financial condition or if an Event of Default occurs, then, at
Landlord's option, Tenant shall pay to Landlord a sum equal to 1/12th of the
annual Taxes payable under this Lease on the first day of each month during the
Term. Landlord shall hold such payments in a non-interest bearing account. All
such monthly payments of Taxes shall be based on Landlord's reasonable estimate
of the Taxes due for the year in question, and any deficiency of funds in the
escrow account shall be paid by Tenant to Landlord upon demand. If an Event of
Default occurs, Landlord may apply any funds in the escrow account to the
satisfaction of any unperformed obligation of Tenant under this Lease.
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4. LIMITED LANDLORD OBLIGATIONS. Except as provided in Section 5.(b),
Landlord shall not be required to maintain, repair or perform any other
obligations with respect to the Premises. Except as specifically provided
elsewhere in this Lease, Tenant's obligation to pay rent hereunder shall be
absolute and net of all expenses incurred in connection with the operation,
maintenance, ownership and management of the Premises.
5. MAINTENANCE AND REPAIR OBLIGATIONS.
(a) TENANT'S OBLIGATIONS. Except for those items described in Section
5.(b) below as being Landlord's responsibility to maintain, repair or replace,
Tenant shall maintain all parts of the Premises in good condition and repair.
Such obligation includes, without limitation, all electrical, plumbing, heating,
ventilation, and air conditioning, life-safety lighting and other mechanical
systems and equipment (collectively, the "BUILDING SYSTEMS"), the roof, and
skylights, windows, plate glass, doors, and partitions. If any portion of the
Premises cannot be fully repaired or restored, then Tenant shall promptly
replace such portion of the Premises, regardless of whether the benefit of such
replacement extends beyond the Term; provided, however, that in no event will
Tenant be responsible for replacing the roof membrane or roof support system,
which is Landlord's responsibility under the terms of Section 5.(b) below.
Without limiting the generality of the foregoing, Tenant shall perform the
following obligations:
(1) Tenant shall maintain the parking areas, driveways, alleys,
landscaping and grounds surrounding the Premises in a clean and sanitary
condition, consistent with the operation of a first-class office building,
including prompt maintenance, repairs and replacements of(A) the exterior
of the Building (including painting), but not the items set forth in
Section 5.(b) below, (B) sprinkler systems and sewage lines, (C) pavement
curbs, and sidewalks, and (D) any other items normally associated with the
foregoing.
(2) Tenant shall maintain the Building Systems in good repair
and condition and in accordance with Law and with such equipment
manufacturers' suggested operation/maintenance service program; such
obligation shall include replacement of all equipment necessary to maintain
such equipment and systems in good working order. At least 14 days before
the end of the Term, Tenant shall deliver to Landlord a certificate from an
engineer reasonably acceptable to Landlord certifying that the Building
Systems are then in good repair and working order.
(b) LANDLORD'S OBLIGATIONS. Landlord's maintenance obligations are
limited to maintaining, repairing and replacement of the foundation and
structural members of the exterior walls of the Building and replacement of the
Building's roof support system and roof membrane. Landlord shall not be
responsible (I) for any such work until Tenant delivers to Landlord written
notice of the need therefor, or (2) for alterations to such items required by
Law because of Tenant's use of the Premises (which alterations shall be
performed by Tenant). Landlord's liability for any such item shall be limited to
the cost of performing such word If there is a dispute as to whether the roofs
support system or membrane is required to be replaced, then Landlord and Tenant
shall mutually appoint an engineer with at least five years experience in
evaluation of commercial building roof systems, who will determine whether
replacement of the roofs support system or membrane is required. The
determination of such engineer shall be binding on Landlord and Tenant If
Landlord and Tenant cannot agree on such an engineer, then either Landlord or
Tenant may request the Dallas division of the American Arbitration Association
(the "AAA") to appoint an engineer with the requirements listed above to
determine whether replacement of the roofs support system or membrane is
required. The appointment by the AAA and decision of such engineer shall be
binding on Landlord and Tenant Landlord shall be in default under this Lease if
Landlord fails to perform any of its obligations within 30 days after receiving
from Tenant written notice specifying such failure; however, if such failure
cannot reasonably be cured within such 30-day period, but Landlord begins to
cure such failure within such 30-day period, Landlord thereafter diligently
pursues the curing thereof to completion, and such failure is cured within 120
days after Tenant first delivered to Landlord written notice thereof, then
Landlord shall not be in default hereunder. If Landlord fails to perform its
obligations within the time periods specified in the previous sentence, then
Tenant may perform such work and offset the costs thereof from the next due
installment of Base Rent and other amounts due under this Lease. Tenant's right
to perform work under this Section 5.(b) is subject to the following conditions:
(1) all such work shall be performed in a good and workmanlike
manner and in accordance with Law;
(2) except in an emergency, all such work shall be performed in
accordance with plans and specifications approved by Landlord (which
approval shall not be unreasonably withheld), whose approval shall be
deemed given if Landlord fails to disapprove with specific objections any
submitted plans and specifications within three business days after Tenant
delivers such plans to Landlord;
(3) all such work shall be performed by contractors which
maintain commercial liability insurance in an amount not less than
$l,000,000 per occurrence (which insurance [except in the case of an
emergency] names Landlord as an additional insured) and, except in an
emergency, which contractors are reasonably acceptable to Landlord;
Landlord's approval shall be deemed given if Landlord fails to disapprove
any contractor within three business days after Tenant delivers to Landlord
a request for its consent thereto and if Landlord disapproves a contractor,
Landlord must deliver to Tenant a list of at least five (5) contractors
whose principal offices are in the Dallas - Fort Worth area who are
acceptable to Landlord and if Landlord fails to do so, such disapproval
will be deemed to be approval; and
(4) Tenant delivers to Landlord "as-built" plans of the work
performed by Tenant.
(c) Tenant may, at its option and expense, engage a third party
manager reasonably acceptable to Landlord to monitor and administer Tenant's
maintenance and repair obligations under this Lease. For purposes hereof, any
Affiliate of Trammell Crow Company shall be acceptable to Landlord. Waterview
Parkway, L.P.
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("WATERVIEW") (or an Affiliate thereof) shall monitor Landlord's
performance of its obligations hereunder and correspond with Landlord in
connection therewith at no additional cost to Tenant
6. ALTERATIONS. Landlord hereby expressly consents to Tenant making
alterations and installing equipment to the Premises substantially as described
in or shown on EXHIBIT G attached to and made a part of this Lease for all
purposes and to installing a security system in the Premises. Tenant shall not
make any other alterations, additions or improvements to the Premises which
affect the Building Systems or the Building's Structure (defined below) without
the prior written consent of Landlord which consent cannot be unreasonably
withheld or delayed and which will be deemed given if not withheld in accordance
with the terms of this Section 6 within 30 days after the date upon which Tenant
delivers the items described in the next succeeding sentence. Landlord shall not
be required to notify Tenant of whether it consents to any such alteration,
addition or improvements until it has received plans and specifications therefor
prepared by a licensed engineer which are sufficiently detailed to allow
construction of the work depicted thereon to be performed in a good and
workmanlike manner. If Landlord disapproves of any plans and specifications,
Landlord must notify Tenant in writing of such disapproval and must state in
reasonable detail those items of which Landlord does not approve and the changes
Tenant must make before Landlord will approve such plans and specifications for
such alterations. If Tenant revises the plans and specifications in accordance
with Landlord's requirements, Landlord will not be permitted to object to any
item shown in reasonable detail on the preceding draft of the plans and
specifications or to those items Tenant altered in accordance with Landlord's
comments. Landlord's approval of any plans and specifications shall not be a
representation that the plans or the work depicted thereon will comply with Law
or be adequate for any purpose, but shall merely be Landlord's consent to
performance of the work. Upon completion of any alteration, addition, or
improvement, Tenant shall deliver to Landlord accurate, reproducible as-built
plans therefor. Tenant may erect shelves, bins, machinery and trade fixtures and
install equipment provided that such items do not overload or adversely affect
the Building's Structure or the Building System& Unless Landlord specifies in
writing, all alterations, additions, and improvements shall be Landlord's
property when installed in the Premises; provided, however, that Tenant may
remove the UPS system, related batteries and the emergency generator described
on EXHIBIT G (the "BACKUP EQUIPMENT") from the Premises and Tenant's security
system. All work performed by a Tenant Party in the Premises (including that
relating to the installations, repair, replacement, or removal of any item)
shall be performed in accordance with Law and in a good and workmanlike manner,
and so as not to damage or alter the Building's Structure or the Building
Systems. when used herein, the term "BUILDING'S STRUCTURE" shall mean the roof
exterior walls, load-bearing columns, and foundation of the Building. Upon
completion of any alteration, additional improvement to the Premises, Tenant
shall deliver to Landlord "as-built" plans and specifications therefor.
7. SIGNS. Tenant shall not place, install or attach any signage,
decorations, or advertising media (collectively, the "SIGNAGE") to the Premises
(a) without obtaining Landlord's prior written approval, which shall not be
unreasonably withheld or delayed and which will not be deemed necessary for
signs incorporating Tenant's then. existing logo or substantially similar to
Tenant's signs in any other location in the United States, or (b) which would
violate any Laws. Tenant shall repair, paint, and/or replace any portion of the
Premises damaged or altered as a result of its Signage when it is removed
(including, without limitation, any discoloration of the Building). Landlord
shall not be required to notify Tenant of whether it consents to any sign until
it (1) has received detailed, to-scale drawings thereof specifying design,
material composition, color scheme, and method of installation. Landlord's
consent to any signs will be deemed given if Landlord does not withhold its
consent in accordance with the terms of this Section 7 within 30 days after the
date upon which Tenant delivers the items described in the immediately preceding
sentence. If Landlord disapproves of any sign, Landlord must notify Tenant in
writing of such disapproval and must state in reasonable detail those items of
which Landlord does not approve and the changes Tenant must make before Landlord
approves such signs. If Tenant revises its sign plans in accordance with
Landlord's requirements, Landlord will not be permitted to object to any item
shown in reasonable detail on the preceding draft of the sign plans or to those
items Tenant altered in accordance with Landlord's comments.
8. UTILITIES. Tenant shall obtain and pay for all water, gas,
electricity, heat, telephone, sewer, sprinkler charges and other utilities and
services used at the Premises, together with any taxes, penalties, surcharges,
maintenance charges, and the like pertaining to the Tenant's use of the
Premises. Landlord shall not be liable for any interruption or failure of
utility service to the Premises. If Tenant fails to pay any such amounts when
due, Landlord may do so, in which case, Tenant shall reimburse Landlord for all
amounts paid by Landlord within ten days after Landlord's request therefor.
9. INSURANCE. (a) Tenant shall maintain (1) workers' compensation
insurance (with a waiver of subrogation endorsement reasonably acceptable to
Landlord) and commercial general liability insurance (with contractual liability
endorsement), including personal injury and property damage in the amount of
$1,000,000 per occurrence combined single limit for personal injuries and death
of persons and property damage occurring in or about the Premises, plus umbrella
liability coverage of at least $5,000,000 per occurrence, and (2) all risk
insurance covering (A) the replacement cost of all alterations, additions,
partitions and improvements installed in the Premises, (B) the replacement cost
of all of Tenant's personal property in the Premises, and (C) loss of profits in
the event of an insured peril damaging the Premises. Such policies shall (I)
name Landlord, Landlord's agents, Landlord's Mortgagee's and their respective
Affiliates (defined below), as additional insureds (and as loss payees on the
fire and extended coverage insurance), (ii) be issued by an insurance company
with at least a Best's B rating and which does not have any insurance policy
which exceeds one percent (1%) of the adjusted policyholders' surplus, (iii)
provide that such insurance may not be cancel led unless 30-days' prior written
notice is first given to Landlord and Landlord's Mortgagee, (iv) be delivered to
Landlord by Tenant before the Commencement Date and at least 15 days before each
renewal thereof and (v) provide primary coverage to Landlord when the claim is
for a matter covered by Tenant's indemnity set forth in Section 11 below and any
policy issued to Landlord is similar or duplicate in coverage, in which case
Landlord's policy shall be excess over Tenant's policies.
(b) Landlord shall maintain insurance covering the risk of direct
physical losses for the Building's shell in the amount of its full replacement
cost, with a deductible amount not to exceed $50,000, including rent loss
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insurance. Such insurance shall be issued by an insurance company with at least
a Best's B rating and which does not have any insurance policy which exceeds one
percent (1%) of the adjusted policyholders' surplus, endorsed to provide that
the underwriter thereof shall have no subrogation rights against Tenant.
10. DESTRUCTION OF OR DAMAGE TO PROPERTY.
(a) SUBSTANTIAL DAMAGE. In the event the Premises are damaged or
destroyed by fire or other casualty, Tenant must give Landlord written notice of
the occurrence of such fire or other casualty (a "CASUALTY") Within 30 days
after Tenant notifies Landlord of the occurrence of such damage or destruction,
Landlord must deliver to Tenant a realistic construction schedule, prepared by a
reputable general contractor selected by Landlord, setting forth such general
contractor's estimated time periods to complete key portions of the repair and
restoration, and to fully complete such repair and restoration (the
"CONSTRUCTION SCHEDULE"). If the Construction Schedule indicates that the repair
and restoration will not be substantially completed within eight months after
the restoration plans have been approved by Tenant (such damage being herein
termed "SUBSTANTIAL DAMAGE"), then either Landlord or Tenant may terminate this
Lease by written notice to the other at any time within 30 days after Landlord
delivers the Construction Schedule to Tenant. Such termination shall be
effective as of the date set forth in such notice, which date cannot be less
than 30 days after the date of such notice nor more than 90 days after the date
of such notice. In the event neither Landlord nor Tenant terminates this Lease
as a result of such fire or other Casualty, but Landlord fails to substantially
complete such repair and restoration as provided under Section 10.(c) within
eight months after the restoration plans have been approved by Tenant (or such
longer period as specified in the Construction Schedule) plus additional days of
delay in obtaining substantial completion caused by force majeure or by a Tenant
Party's acts or omissions, then Tenant may terminate this Lease by delivering
written notice to Landlord, specifying a termination date no later than 60 days
after the date of such notice, at any time after the end of the applicable time
period but before the substantial completion of such repair and restoration. If
(1) Landlord is required to apply a substantial amount of the insurance proceeds
to reduce the balance of any debt secured by a mortgage on the Premises, or (2)
the damage is not of a type covered or required to be covered by Landlord's
insurance, then Landlord may terminate this Lease by delivering written notice
to Tenant thereof, effective as the date specified in such notice, which date
shall not be earlier than 60 days after the date of such notice. Landlord must
exercise the termination rights specified in the previous sentence, if at all,
within 60 days after the occurrence of the Casualty in question.
(b) DAMAGE DURING THE LAST LEASE YEAR. In the event a material
portion of the Premises is damaged or destroyed by fire or other Casualty, and
neither Landlord nor Tenant is entitled to terminate this Lease in accordance
with Section 10.(a) above, but the remainder of the Term is less than 12 months,
either Landlord or Tenant may terminate this Lease by written notice to the
other within 30 days after the occurrence of such damage or destruction;
provided, however, that if Landlord exercises such right and there is an renewal
Term outstanding, Tenant may override Landlord's termination right by exercising
the next available option within 30 days after Landlord delivers written notice
to Tenant advising Tenant of its intention to terminate this Lease. Any
termination under this Section 10.(b) is effective as of the date set forth in
such notice, which date cannot be less than 30 days after the date of such
notice nor more than 90 days after the date of such notice. As used in this
Section 10.(b), a "material portion of the Premises" means damage or destruction
whose repair costs equal or exceed 10% of the value of the Building before such
destruction.
(c) RESTORATION AFTER DAMAGE OR DESTRUCTION: RENT ABATEMENT. In the
event neither panty terminates or is entitled to terminate this Lease under
Sections 10.(a) and 10.(b) above, then Landlord must diligently begin to repair
and restore the Building's shell and the other portions of the Premises, to
substantially the same condition they were in as of the date of such fire or
other Casualty, and (1) Tenant shall pay to Landlord the deductible amount
applicable to such damage or destruction under Landlord's insurance policy and
Tenant's insurance policy, (2) all insurance proceeds payable in respect of
improvements to the Premises under Tenant's insurance policy shall be paid to
Landlord for application to the repair work, and (3) to the extent Tenant's
insurance is insufficient to repair and restore such improvements, Tenant shall
pay to Landlord for the costs thereof in advance; it being understood that
Landlord's obligation to repair and restore the Premises shall be limited to
insurance proceeds paid and payments made by Tenant in respect thereof, provided
that Landlord maintains the insurance required under Section 9.(b). During such
repair and restoration, the Base Rent and other charges under this Lease will
abate in an amount that is fair and equitable under the circumstances, taking
into account, among other things, the extent to which Tenant closes down all or
a portion of its operations until such repair and restoration has been completed
and the nature and extent of the interference with Tenant's business operations
as a result of such casualty as well as the repair and restoration process.
11. LIABILITY. INDEMNIFICATION. WAIVER OF SUBROGATION AND NEGLIGENCE
CLAIMS.
(a) Subject to Section 11.(b), Tenant shall indemnify, defend, and
hold harmless Landlord, its successors, assigns, agents, employees, contractors,
partners, directors, officers and affiliates (collectively, the "INDEMNIFIED
PARTIES") from and against all fines, suits, losses, costs, liabilities, claims,
demands, actions and judgments of every kind or character (1) arising from
Tenant's failure to perform its covenants hereunder, (2) recovered from or
asserted against any of the Indemnified Parties on account of any Loss (defined
below) to the extent that any such Loss may be incident to, arise out of; or be
caused, either proximately or remotely, wholly or in part, by a Tenant Panty or
any other person entering upon the Premises under or with a Tenant Party's
express or implied invitation or permission, (3) arising from or out of the
occupancy or use by a Tenant Party or arising from or out of any occurrence in
the Premises, howsoever caused, or (4) suffered by, recovered from or asserted
against any of the Indemnified Parties by a Tenant Party (defined below), EXCEPT
TO THE EXTENT LANDLORD'S NEGLIGENCE CAUSED SUCH LOSS OR DAMAGE.
(b) Landlord shall not be liable to Tenant or those claiming by,
through, or under Tenant for any injury to or death of any person or persons or
the damage to or theft destruction, loss, or loss of use of any property or
inconvenience (a "LOSS") caused by casualty, theft, fire, third parties, or any
other matter (including Losses arising through repair or alteration of any part
of the Building, or failure to make repairs, or from any other cause), EXCEPT TO
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THE EXTENT LANDLORD'S NEGLIGENCE CAUSED SUCH LOSS IN WHOLE OR IN PART. Each of
Landlord and Tenant waives any claim it might have against the other for any
damage to or theft, destruction, loss, or loss of use of any property, to the
extent the same is insured against under any insurance policy maintained by it
that covers the Premises, Landlord's or Tenant's fixtures, personal property,
leasehold improvements, or business, or is required to be insured against by it
under the terms hereof, REGARDLESS OF WHETHER THE NEGLIGENCE OR FAULT OF THE
OTHER PARTY CAUSED SUCH LOSS: HOWEVER, LANDLORD'S WAIVER SHALL BE INAPPLICABLE
TO ANY DEDUCTIBLE AMOUNT MAINTAINED UNDER LANDLORD'S INSURANCE POLICIES.
12. USE. Tenant may use the Premises solely for office uses, light
fabrication and assembly, or manufacturing laboratory as those uses are defined
in the Dallas Development Code and High Technology uses and Geological Research
and Development as these uses are defined below:
HIGH TECHNOLOGY means as a process or related to a process for data
transmission, numeric computation, word processing, graphics display
and analysis, biologic or chemical research and analysis as any of
these may pertain to any consumer, business, or government good, be it
a service or a product using electronics or quasi-electronics rather
than mechanical means.
QUASI-ELECTRONICS means including fibre-optics, laser technology, and
microwaves which may be manufactured or transmitted by other than
electronic means.
GEOLOGICAL RESEARCH AND DEVELOPMENT means the study of the earth's
elements and development and manufacture of products for the study of
the earth's elements so long as the development and manufacturing
process does not cause noxious odors, noise, or other hazards to the
environment or to persons living within 50 miles of the facility.
Under no circumstances will Tenant be obligated to occupy or operate for
business at the Premises, it being understood and agreed that Tenant may at any
time cease occupying or operating at all or a part of the Premises.
Tenant shall not use the Premises to receive, store or handle any product,
material or merchandise that is explosive or highly inflammable or hazardous.
Tenant shall be solely responsible for complying with all Laws applicable to
Tenant's specific use, occupancy, and condition of the Premises. Tenant shall
not permit any objectionable or unpleasant odors, smoke, dust, gas, light, noise
or vibrations to emanate from the Premises; nor take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Landlord or any other person; nor permit the Premises to be used for any purpose
or in any manner that would void the insurance thereon.
13. LANDLORD'S LIMITED RIGHT OF ACCESS. Landlord acknowledges that because
of the extremely high value and sensitivity of the equipment in the Premises, as
well as the information processed by such equipment, Landlord cannot have, and
does not have, a free right of access to the Premises and is not entitled to
have a key to the Premises. Except in the case of an emergency (defined as an
event which poses the immediate threat of injury or death to persons or
significant damage to property), Landlord (together with prospective and
existing mortgagees, prospective purchasers, and [during the last six months of
the Term] prospective tenants) may only enter the Premises after notice to
Tenant (which may be made by telephone as long as Landlord's representative
speaks to the facilities manager for the Building) and while representatives
designated by the facilities manager are present Such representatives shall be
available to accompany Landlord and any prospective or existing mortgagee,
prospective purchaser, or (during the last six months of the Term) prospective
tenant within forty-eight hours after Landlord gives notice to Tenant of its
desire to enter the Premises. Such entry must be made in a manner designed to
minimize to the extent reasonably possible the operations and business conducted
at the Premises (however, Landlord shall not be required to enter the Premises
after normal business hours). In order to allow Landlord to deal with
emergencies while preserving Tenant's right to control access to the Premises,
Tenant will provide a list of names, addresses, telephone, and pager numbers for
employees or consultants whom Landlord may contact at any time when an emergency
occurs and who will be available to the Premises within two (2) hours after
Landlord makes contact with such persons. Tenant may make changes to such list
from time to time and deliver notice of such changes to Landlord and such new
list will replace or add to, as specified in such notice, any list previously in
Landlord's possession. Unless, in Landlord's good faith, reasonable judgment,
the nature of the emergency makes it imprudent to delay entry into the Premises,
Landlord must use every effort to contact every person on the list until someone
can arrive at the Premises and must not enter the Premises until the earlier of
(a) one (1) hour after Landlord has contacted every person on the list and been
unable to obtain a commitment from any person on such list that such person will
arrive at the Premises within two (2) hours after such contact, (b) two (2)
hours after Landlord makes contact with at least one (1) person on such list and
such person agrees to arrive at the Premises within two (2) hours after such
contact, or (c) when a person on such list arrives at the Premises and
accompanies Landlord into the Premises. During the last six months of the Term,
Landlord may erect a sign on the Premises indicating that the Premises are
available for lease. Otherwise, Landlord may not erect any signs on the
Premises.
14. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, without the prior written consent of Landlord
(which shall not be unreasonably withheld or delayed), (1) assign, transfer, or
encumber this Lease or any estate or interest herein, whether directly or by
operation of law, (2) permit any other entity to become Tenant hereunder by
merger, consolidation, or other reorganization, (3) if Tenant is an entity other
than a corporation whose stock is publicly traded, permit the transfer of an
ownership interest in Tenant so as to result in a change in the current control
of Tenant unless such transfer occurs in connection with a public offering of
stock of Tenant on a nationally recognized securities exchange (any such public
offering shall not be considered a Transfer hereunder), (4) sublet any portion
of the Premises, (5) grant any license, concession, or other right of occupancy
of any portion of the Premises, or (6) permit the use of the Premises by any
parties other than Tenant (any of the events listed in Sections 14.(a)(I)
through 14.(a)(6) being a "TRANSFER"). Landlord
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may withhold its consent, in its sole discretion, to any such Transfer to (I)
any governmental agency, (ii) any party which will use hazardous materials in
the Premises (other than those customarily used and stored in space which is
used for office space), or (iii) any party whose use of the Premises will, in
Landlord's engineer's judgment, overload the Building's Structure or any
Building System; however, as a condition to withholding its consent under
clause (iii) of this sentence, Landlord must deliver to Tenant written notice
objecting to the proposed transferee setting forth in reasonable detail the
reason for such objection within ten days after Tenant has delivered to
Landlord written notice requesting such consent together with such
information as may be reasonably necessary for Landlord to evaluate the
effect of the proposed transferee's use on the Building's Structure and
Building Systems. If Tenant requests Landlord's consent to a Transfer, then
Tenant shall provide Landlord with a written description of all terms and
conditions of the proposed Transfer, and the following information about the
proposed transferee: name and address; reasonably satisfactory information
about its proposed use of the Premises; financial statements of the
transferee for its most recently ended fiscal year and fiscal quarter and a
credit report from Dunn and Bradstreet for the transferee (or, if
unavailable, other credit information reasonably acceptable to Landlord); and
at least two references from the proposed transferee's bank. If Landlord
fails to notify Tenant that it disapproves of a Transfer within ten days
after Tenant has delivered to Landlord written notice requesting such consent
together with the information specified in the previous sentence, then
Landlord shall be deemed to have approved of the Transfer in question. Tenant
shall reimburse Landlord for its reasonable attorneys' fees and other
expenses incurred in connection with considering any request for its consent
to a Transfer. If Landlord consents to a proposed Transfer, then the proposed
transferee shall deliver to Landlord a written agreement whereby it expressly
assumes the Tenant's obligations hereunder (however, any transferee of less
than all of the space in the Premises shall be liable only for obligations
under this Lease that are properly allocable to the space subject to the
Transfer, and only to the extent of the rent it has agreed to pay Tenant
therefor) arising from and after the date of such Transfer (however, in the
case of a merger, consolidation, other similar business arrangement, or sale
of all or substantially all of Tenant's assets, the Transferee must assume
all of Tenant's obligations hereunder, regardless of when they accrued). No
transfer shall release Tenant from performing the obligations of the "Tenant"
under this Lease, but rather Tenant and its transferee shall be jointly and
severally liable therefor. Landlord's consent to any Transfer shall not waive
Landlord's rights as to any subsequent Transfers. If an Event of Default
occurs while the Premises or any part thereof are subject to a Transfer, then
Landlord, in addition to its other remedies, may collect directly from such
transferee all rents becoming due to Tenant and apply such rents against
Tenant's rent obligations. Tenant authorizes its transferees to make payments
of rent directly to Landlord upon receipt of notice from Landlord to do so.
(b) Landlord may, within 30 days after submission of Tenant's written
request for Landlord's consent to a Transfer, cancel this Lease (or, as to a
subletting or assignment, cancel as to the portion of the Premises proposed to
be sublet or assigned) as of the date the proposed Transfer was to be effective.
If Landlord cancels this Lease as to any portion of the Premises, then this
Lease shall cease for such portion of the Premises and Tenant shall pay to
Landlord all rent accrued through the cancellation date relating to the portion
of the Premises covered by the proposed Transfer. Thereafter, Landlord may lease
such portion of the Premises to the prospective transferee (or to any other
person) without liability to Tenant. The termination right set forth in this
Section 14.(b) shall not apply to Permitted Transfers or to any other Transfer
to which Landlord specifically consents in writing.
(c) If no Event of Default exists, all compensation received by
Tenant for a Transfer in respect of the interval in question that exceeds the
Base Rent and the Pass-Through Expenses allocable to the portion of the Premises
covered thereby for the same interval shall be payable as follows:
(1) first, to Tenant until Tenant has received an amount equal
to all actual, third-party, out-of-pocket costs incurred by Tenant in
connection with such Transfer (including, without limitation, brokerage
commissions, attorneys' fees and expenses, tenant-finish-work, and other
tenant inducements); and
(2) thereafter, 50% to Landlord and 50% to Tenant.
If an Event of default exists, all such excess compensation shall be payable to
Landlord. Tenant shall hold all amounts it receives which are payable to
Landlord in trust and shall deliver all such amounts to Landlord within ten days
after Tenant's receipt thereof.
(d) Notwithstanding the foregoing, Tenant may Transfer all or part of
its interest in this Lease or all or part of the Premises to the following types
of entities (a "PERMITTED TRANSFEREE") without the written consent of Landlord
(a "PERMITTED TRANSFER", provided that the Premises will continue to be used
only for the Permitted Use and the conditions set forth below are satisfied:
(1) an Affiliate of Tenant;
(2) any entity in which or with which Tenant, or its corporate
successors is merged or consolidated, in accordance with applicable
statutory provisions governing merger and consolidation of such entities,
so long as (A) Tenant's obligations hereunder are assumed by the entity
surviving such merger or created by such consolidation; and (B) the
surviving or created entity will, immediately after such transaction, have
an unsecured debt rating of at least BBB as established by Standard &
Poor's Corporation;
(3) any entity acquiring all or substantially all of Tenant's
assets if such entity's unsecured credit rating immediately after such
acquisition is at least BBB as established by Standard & Poor's
Corporation;
(4) any entity whose unsecured debt rating is at least BBB as
established by Standard & Poor's Corporation and whose use of the Premises
would not involve any use described in clauses (ii) or (iii) of Section
14.(a); or
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(5) any sublessee provided that, after giving effect to such
sub lease, the aggregate portion of the Premises that would then be subject
to either a sublease or partial assignment of this Lease to persons other
than those described in clauses (1), (2), (3) or (4) does not exceed 25% of
the rentable area of the Premises and the sublessee is not a governmental
agency or a person whose use of the Premises would involve matters
described in clauses (ii) or (iii) of Section 14.(a).
Tenant shall promptly notify Landlord of any such Permitted Transfer. Any
Transfer by a Permitted Transferee described in clause (5) above shall require
Landlord's prior written consent Any Transfer by a Permitted Transferee
described in clauses (1) through (4) above to Mother Permitted Transferee shall
not require Landlord's consent, but shall require prompt notification to
Landlord thereof; all other Transfers by any such Permitted Transferee shall
require Landlord's written consent.
15. CONDEMNATION. If a material portion of the Premises is taken for any
public or quasi-public use by right of eminent domain or private purchase in
lieu thereof (a "TAKING"), then Tenant may terminate this Lease by delivering to
Landlord written notice thereof within 30 days after the Taking, in which case
rent shall be abated during the unexpired portion of the Term, effective on the
date of such Taking. If this Lease is not terminated because of a Taking, then
rent payable during the unexpired portion of the Term shall be reduced to such
extent as may be fair and reasonable under the circumstances, and Landlord shall
repair any damage to the Premises caused by the Taking, to the extent of the
award actually received by Landlord (less than the cost incurred in connection
with the receiving of such award and any amounts payable to a Landlord's
Mortgagee). Landlord shall notify Tenant of the amount Landlord receives in
connection with any such Taking within 30 days after such amount is finally
determined. If such amounts are insufficient to fully restore the Premises, then
Tenant may, at its sole option and without obligation to do so, fund the extra
amounts necessary to fully restore the Premises. All compensation awarded for
any Taking shall be the property of Landlord, and Tenant assigns any interest it
may have in any such award to Landlord; however, Landlord shall have no interest
in any award made to Tenant for loss of business or goodwill or for the taking
of Tenant's fixtures, personal property, or other improvements that Tenant is
entitled to remove from the Premises at the end of the Term, if a separate award
for such items is made to Tenant For purposes of this Section 15, the phrase "a
material portion of the Premises Is taken" shall mean a Taking which affect the
interior space of the Building, reduces the number of parking spaces available
for Tenant's use to less than one space per 333 rentable square feet in the
Building or permanently denies access to the Premises from publicly-dedicated
roads; however, in the case of removed parking spaces, Landlord may, within 180
days after such Taking, construct additional parking on the Land so that the
number of parking spaces on the Land shall be at least one space per 333
rentable square feet in the Building, in which case, Tenant shall not be
entitled to terminate this Lease because of such Taking. If Landlord elects to
construct additional parking spaces, then it must deliver to Tenant written
notice thereof with in 30 days after the Taking.
16. SURRENDER OF PREMISES: HOLDING OVER.
(a) No act by Landlord shall be an acceptance of a surrender of the
Premises, and no agreement to accept a surrender of the Premises shall be valid
unless it is in writing and signed by Landlord. At the end of the Term or the
termination of Tenant's right to possess the Premises, Tenant shall (1) deliver
to Landlord the Premises with all improvements located thereon, other than the
Backup Equipment and Tenant's security system, in good repair and in working
order, reasonable wear and tear (subject however to Tenant's maintenance
obligations) and damage by casualty or condemnation excepted, (2) deliver to
Landlord all keys to the Premises, and (3) remove all signage placed on the
Premises by or at Tenant's request All fixtures, alterations, additions, and
improvements (whether temporary or permanent) shall be Landlord's property and
shall remain on the Premises except as provided in the next two sentences.
Tenant may remove all the Backup Equipment as well as Tenant's security system
and all unattached fixtures, furniture, and personal property placed in the
Premises by Tenant Additionally, Tenant shall remove such alterations,
additions, improvements, fixtures, equipment, wiring, furniture, and other
property as Landlord may request unless Landlord has specifically approved in
writing the installation thereof and did not indicate to Tenant in writing, when
such approval was granted, that Tenant would have to remove the item at the end
of the Term. All work required of Tenant under this Section 16.(a) shall be
coordinated with Landlord and be done in a good and workmanlike manner, in
accordance with all Laws, and so as not to damage the Building. Tenant shall, at
its expense, repair all damage caused by any work performed by Tenant under this
Section 16.(a).
(b) If Tenant remains in possession of the Premises after the
expiration of the Term without the execution of a new lease or of an agreement
extending the Term, but Tenant and Landlord are engaged in negotiations for a
new lease or extension, then, Tenant will be deemed to be occupying the Premises
as a Tenant from month to month, subject to all of the terms of this Lease as
may be applicable to a month to month tenancy, and at the Base Rent and other
charges provided for in the last preceding year, prorated on a monthly basis.
If, however, Landlord has delivered notice to Tenant that it does not wish to
continue or does not wish to begin negotiations, as the case may be, then,
effective as of the later of 90 days after the date Landlord delivers such
notice to Tenant or the expiration date of the Term, Tenant must vacate the
Premises. If Tenant does not do so, then Tenant shall be a holdover tenant and
during the holdover period Tenant must pay as Base Rent an amount equal to two
hundred percent (200%) of the Base Rent provided for in the last preceding year,
plus other rent which would be due during such holdover period if this Lease
were still in effect Additionally, Tenant shall defend, indemnify, and hold
harmless Landlord from any damage, liability and expense (including attorneys'
fees and expenses) incurred because of such holding over. No payments of money
by Tenant to Landlord after the Term shall reinstate, continue or extend the
Term, and, except as set forth above, no extension of the Term shall be valid
unless it is in writing and signed by Landlord and Tenant.
17. QUIET ENJOYMENT. Provided Tenant has fully performed its obligations
under this Lease, Tenant shall peaceably and quietly hold and enjoy the Premises
for the Term, without hindrance from Landlord or any parry claiming by, through,
or under Landlord, but not otherwise.
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18. EVENTS OF DEFAULT. Each of the following events shall constitute an
"EVENT OF DEFAULT" under this Lease:
(a) Tenant fails to pay any rent when due and such failure continues
for a period of ten days after Landlord has delivered to Tenant written notice
thereof
(b) The filing of a petition by or against Tenant or any guarantor of
Tenant's obligations hereunder (1) in any bankruptcy or other insolvency
proceeding; (2) seeking in any relief under any debtor relief Law; (3) for the
appointment of a liquidator, receiver, trustee, custodian, or similar official
for all or substantially all of Tenant's property or for Tenant's interest in
this Lease; or (4) for reorganization or modification of Tenant's capital
structure (however, if any such petition is filed against Tenant, then the
filing of such petition shall not constitute an Event of Default, unless it is
not dismissed within 45 days after the filing thereof.
(c) Tenant fails to comply with any term, provision or covenant of
this Lease (other than those listed in this Section 18), and such failure
continues for 30 days after written notice thereof to Tenant; however, if such
default is not susceptible of being cured within such 30-day period, then an
Event of Default shall not occur hereunder if Tenant begins to cure such default
within 30.day period, thereafter diligently pursues such cure, and such default
is cured within 120 days after Landlord initially delivered to Tenant written
notice of such default.
19. REMEDIES.
(a) Upon any Event of Default, Landlord may, in addition to all other
rights and remedies afforded Landlord hereunder or by Law, take any of the
following actions:
(1) Terminate this Lease by giving Tenant written notice
thereof, in which event, Tenant shall pay to Landlord the sum of (A) all
rent accrued hereunder through the date of termination, and (B) all amounts
due under Section 19.(b) and (C) an amount equal to (I) the total rent that
Tenant would have been required to pay for the remainder of the Term
discounted to present value at a per annum rate equal to the "Discount
Rate" as published on the date this Lease is terminated by The Wall Street
Journal, Southwest Edition, in its listing of"Money Rates," minus (ii) the
then present fair rental value of the Premises for such period, similarly
discounted; or
(2) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (A) all rent and other amounts accrued
hereunder to the date of termination of possession, (B) all amounts due
from time to time under Section 19.(b) as and when due, and (C) all rent
and other sums required hereunder to be paid by Tenant during the remainder
of the Term, as they come due under this Lease, diminished by any net sums
(i.e., after deducting all costs incurred in connection with such reletting
that were not paid [or are not required to be paid] by Tenant under Section
19.(b)(4)) thereafter received by Landlord through reletting the Premises
during such period. Landlord shall use reasonable efforts to relet the
Premises on such terms and conditions as Landlord may reasonably determine
(including a term different than the Term, rental concessions, and
alterations to, and improvement of, the Premises); however, in determining
whether Landlord shall have used reasonable efforts to relet the Premises,
Landlord shall not be obligated to relet the Premises to any person whose
unsecured debt rating is less than BBB as established by Standard & Poor's
Corporation. Tenant's obligations hereunder shall not be diminished because
of Landlord's failure to relet the Premises or to collect rent due for a
reletting except to the extent required by Law. Tenant shall not be
entitled to the excess of any consideration obtained by reletting over the
rent due hereunder. Reentry by Landlord in the Premises shall not affect
Tenant's obligations hereunder for the unexpired Term; rather, Landlord
may, from time to time, bring action against Tenant to collect amounts due
by Tenant, without the necessity of Landlord's waiting until the Term ends.
Unless Landlord delivers written notice to Tenant expressly stating that it
has elected to terminate this Lease, all actions taken by Landlord to
exclude or dispossess Tenant of the Premises shall be deemed to be taken
under this Section 19.(a)(2). If Landlord elects to proceed under this
Section 19.(a)(2), it may at any time elect to terminate this Lease under
Section 19.(a)(1).
Additionally, Landlord may perform Tenant's un performed obligations hereunder.
(b) Tenant shall pay to Landlord all costs incurred by Landlord
(including court costs and reasonable attorneys' fees and expenses) in (I)
obtaining possession of the Premises, (2) removing and storing Tenant's or any
other occupant's property after the 15-day period specified in Section 19.(c)
expires, (3) repairing, restoring, or otherwise putting the Premises into
condition required under Section 16.(a), (4) if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting all or any part of the
Premises (excluding brokerage commissions, cost of tenant finish work,
allowances, and other expenses customarily amortized in base rent), (5)
performing Tenant's obligations which Tenant failed to perform, (6) if this
Lease is terminated, the product obtained by multiplying the aggregate brokerage
commissions incurred by Landlord in connection with this Lease by a fraction
whose numerator is the number of calendar months (including partial calendar
months) during the period beginning with the termination date and ending on the
scheduled expiration date of the initial Term applicable to such space (or, if a
renewal Term is in effect, the scheduled expiration date of the renewal Term
applicable to such space) and whose denominator is the number of calendar months
in the initial Term or, if a renewal Term is in effect, the number of months in
the renewal Term (however, if the calculation is being made for a renewal Term,
then only those costs incurred in respect of the renewal Term will be included),
and (7) enforcing, or advising Landlord of, its rights, remedies, and recourses.
Landlord's acceptance of rent following an Event of Default shall not waive
Landlord's rights regarding such Event of Default. Landlord's receipt of rent
with knowledge of any default by Tenant hereunder shall not be a waiver of such
default, and no waiver by Landlord of any provision of this Lease shall be
deemed to have been made unless set forth in writing and signed by Landlord. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive
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Landlord's rights regarding any future violation of such term or violation of
any other term. If Landlord repossesses the Premises pursuant to the
authority herein granted, then Landlord shall have the right to (A) keep in
place and (except for Tenant's equipment) use or (B) (subject to Section
19.(c)) remove and store, at Tenant's expense, all of the furniture,
fixtures, equipment and other property in the Premises, including that which
is owned by or leased to Tenant at all times before any foreclosure thereon
or repossession thereof by any lessor thereof or third party having a lien
thereon. After the 15-:lay period specified in Section 19.(c) expires,
Landlord may relinquish possession of all or any portion of such furniture,
fixtures, equipment and other property to any person (a "CLAIMANT") who
presents to Landlord a copy of any instrument represented by Claimant to have
been executed by Tenant (or any predecessor of Tenant) granting Claimant the
right under various circumstances to take possession of such furniture,
fixtures, equipment or other property, without the necessity on the part of
Landlord to inquire into tic authenticity or legality of the instrument.
Landlord may, at its option and without prejudice to or waiver of any rights
it may have, (I) require that its representatives escort Tenant to the
Premises to retrieve any personal belongings of Tenant and/or its employees
or (ii) obtain a list from Tenant of the personal property of Tenant and/or
its employees, and make such property available to Tenant and/or Tenant's
employees; however, Tenant first shall pay in cash all costs and estimated
expenses to be incurred in connection with the removal of such property and
making it available. The rights of Landlord herein stated are in addition to
any and all other rights that Landlord has or may hereafter have at law or in
equity, and Tenant agrees that the rights herein granted Landlord are
commercially reasonable.
(c) Notwithstanding anything contained in this Lease to the contrary,
in recognition of the enormous intrinsic value of, and value in connection with
Tenant's business of, Tenant's equipment at the Premises, Tenant at all times
will have access to the Premises for the purpose of servicing, having access to,
or removing such equipment until such time as such equipment is removed in
accordance with this Section 19.(c) or the third to last sentence of Section
19.(b). For a period of 15 days following the expiration or termination of this
Lease, Landlord cannot disturb or move any of Tenant's equipment under any
circumstances, even if Landlord has terminated Tenant's right to possess the
Premises or terminated this Lease; after such 15-day period, all items not so
removed shall, at the option of Landlord, be deemed abandoned by Tenant and may
be appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant and without any obligation to account for such items,
and Tenant shall pay for the cost incurred by Landlord in connection therewith.
20. LANDLORD'S LIABILITY. Liability of Landlord to Tenant for any
default by Landlord, shall be limited to actual, direct, but not consequential,
damages therefor and shall be recoverable only from the interest of Landlord in
the Building and the Land, any insurance or condemnation proceeds, and rent
derived from the Building and the Land, and neither Landlord nor Landlord's
owners shall have any personal liability therefor.
21. MORTGAGES. This Lease shall be subordinate to any deed of trust,
mortgage, or other security instrument (a "MORTGAGE"), or any ground lease,
master lease, or primary lease (a "PRIMARY LEASE"), that now or hereafter covers
all or any part of the Premises (the mortgagee under any Mortgage or the lessor
under any Primary Lease is referred to herein as "LANDLORD'S MORTGAGE").
However, as a condition to such subordination, the Landlord's Mortgagee must
execute, acknowledge, and deliver to Tenant a subordination, non-disturbance,
and attornment agreement in the same form as EXHIBIT E hereto (which may have
non-substantive changes thereto to reflect changes in factual matters) or, at
Landlord's option, another form whose form and substance are acceptable to
Tenant (an "SNDA"), Tenant shall execute, acknowledge, and deliver an SNDA
within ten days after Landlord's request therefor. Notwithstanding the
subordination provided herein, any Landlord's Mortgagee may subordinate its
Mortgage or Primary Lease (as the case may be) to this Lease. Tenant shall
execute such documentation as the Landlord's Mortgagee may reasonably request
evidencing the subordination of this Lease to such Landlord's Mortgagee's
Mortgage or Primary Lease or, if the Landlord's Mortgagee so elects, the
subordination of such Landlord's Mortgagee's Mortgage or Primary Lease to this
Lease. If at the closing of Landlord's acquisition of the Premises ("CLOSING"),
an SNDA has not deposited into escrow, whose delivery is subject only to the
consummation of the Closing, then either Landlord or Tenant may terminate this
Lease before Closing occurs. Landlord represents and warrants that after giving
effect to Closing, the only Mortgage on the Premises will be held by Principal
Commercial Advisors, Inc. and there will be no Primary Lease affecting the
Premises.
22. ENCUMBRANCES. Tenant has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind Landlord's property or the interest of Landlord or
Tenant in the Premises or to charge the rent for any claim in favor of any
person dealing with Tenant, including those who may furnish materials or perform
labor for any construction or repairs. Tenant shall pay or cause to be paid all
sums due for any labor performed or materials furnished in connection with any
work performed on the Premises by or at the request of Tenant. Tenant shall give
Landlord immediate written notice of the placing of any lien or encumbrance
against the Premises.
23. MISCELLANEOUS.
(a) Words of any gender used in this Lease shall include any other
gender, and words in the singular shall include the plural, unless the context
otherwise requires. The captions inserted in this Lease are for convenience only
and in no way affect the interpretation of this Lease. The following terms shall
have the following meanings: "LAWS" shall mean all federal, state, and local
laws, rules, and regulations; all court orders, governmental directives, and
governmental orders; and all restrictive covenants affecting the Property, and
"LAW" shall mean any of the foregoing; "AFFIANTS" shall mean any person or
entity which, directly or indirectly, controls, is controlled by, or is under
common control with the party in question; "TENANT PARTY" shall include Tenant,
any assignees claiming by, through, or under Tenant, any subtenants claiming by,
through, or under Tenant, and any of their respective agents, contractors,
employees, and invitees; and "INCLUDING" means including without limitation.
(b) Landlord may transfer and assign, in whole or in part, its rights
and obligations in the Premises, in which case Landlord shall have no further
liability hereunder, except to account for the Security Deposit
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if it is not transferred to the transferee or assignee. Each party shall
furnish to the other, promptly upon demand, a corporate resolution, proof of
due authorization by partners, or other appropriate documentation evidencing
the due authorization of such party to enter into this Lease.
(c) Except for Tenant's monetary obligations and Landlord's and
Tenant's obligations to maintain insurance, whenever a period of time is herein
prescribed for action to be taken by Landlord or Tenant, neither Landlord nor
Tenant shall be liable or responsible for, and there shall be excluded from the
computation for any such period of time, any delays due to strikes, riots, acts
of God, shortages of labor or materials, war, governmental laws, regulations, or
restrictions, or any other causes of any kind whatsoever, which are beyond the
control or anticipation of Landlord or Tenant.
(d) Tenant shall, from time to time, within ten days after request of
Landlord, deliver to Landlord, or Landlord's designee, a certificate of
occupancy for the Premises, financial statements for itself and an estoppel
certificate stating that this Lease is in full effect, the date to which rent
has been paid, the unexpired Term and such other factual matters pertaining to
this Lease as may be reasonably requested by Landlord.
(e) This Lease constitutes the entire agreement of the Landlord and
Tenant with respect to the subject matter of this Lease, and contains all of the
covenants and agreements of Landlord and Tenant with respect thereto. Landlord
and Tenant each acknowledge that no representations, inducements, promises or
agreements, oral or written, have been made by Landlord or Tenant, or anyone
acting on behalf of Landlord or Tenant, which are not contained herein, and any
prior agreements, promises, negotiations, or representations not expressly set
forth in this Lease are of no effect This Lease may not be altered, changed or
amended except by an instrument in writing signed by both parties hereto.
(f) All obligations of Tenant hereunder not fully performed by the
end of the Tenn shall survive, including, without limitation, all payment
obligations with respect to Taxes and insurance and all obligations concerning
the condition and repair of the Premises.
(g) If any provision of this Lease is illegal, invalid or
unenforceable, then the remainder of this Lease shall not be affected thereby,
and in lieu of each such provision, there shall be added, as a part of this
Lease, a provision as similar in terms to such illegal, invalid or unenforceable
clause or provision as may be possible and be legal, valid and enforceable.
(h) All references in this Lease to "the date hereof' or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.
(i) Landlord and Tenant each warrant to the other that it has not
dealt with any broker or agent in connection with this Lease other than Peterson
Realty Group ("PETERSON"), whose commission shall be paid by Landlord in
accordance with that Commission Agreement-Lease dated June 12, 1997. Tenant and
Landlord shall each indemnify the other against all costs, attorneys' fees, and
other liabilities for commissions or other compensation claimed by any broker or
agent, other than Peterson, claiming the same by, through, or under the
indemnifying party.
(j) If and when included within the term "Tenant," as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying an individual at a specific address within the continental United
States for the receipt of notices and payments to Tenant All parties included
within the terms "Landlord" and "Tenant," respectively, shall be bound by
notices given in accordance with the provisions of Section 24 to the same effect
as if each had received such notice.
(k) The terms and conditions of this Lease are confidential and
Tenant shall not disclose the terms of this Lease to any third party except as
may be required by law or to enforce its rights hereunder, provided however,
that, after Closing, Tenant may record a memorandum of this Lease, in form of
EXHIBIT F hereto, in the Real Property Records of Dallas County, Texas.
(l) Tenant shall pay interest on all past-due rent from the date due
until paid at the maximum lawful rate. In no event, however, shall the charges
permitted under this Section 23.(l) or elsewhere in this Lease, to the extent
they are considered to be interest under applicable Law, exceed the maximum
lawful rate of interest.
24. NOTICES. Each provision of this instrument or of any applicable Laws
and other requirements with reference to the sending, mailing or delivering of
notice or the making of any payment hereunder shall be deemed to be complied
with when and if the following steps are taken:
(a) All rent shall be payable to Landlord at the address for Landlord
set forth below or at such other address as Landlord may specify from time to
time by written notice delivered in accordance herewith. Tenant's obligation to
pay rent shall not be deemed satisfied until such rent has been actually
received by Landlord.
(b) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address set forth below, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered upon the earlier to occur of
(1) tender of delivery (in the ease of a hand-delivered notice), or (2) three
days after being deposited in the United States Mail, postage prepaid, Certified
Mail, in each case, addressed to the parties hereto at the respective addresses
set out below, or at such other address as they have theretofore specified by
written notice delivered in accordance herewith. If Landlord has attempted to
deliver notice to Tenant at Tenant's
11
<PAGE>
address reflected on Landlord's books but such notice was returned or
acceptance thereof was refused, then Landlord may post such notice in or on
the Premises, which notice shall be deemed delivered to Tenant upon the
posting thereof
25. HAZARDOUS WASTE. The term "HAZARDOUS SUBSTANCES," as used in this
Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "ENVIRONMENTAL LAW," which term shall
mean any Law relating to health, pollution or protection of the environment.
Tenant hereby agrees that (a) no activity will be conducted on the Premises that
will produce any Hazardous Substances, except for such activities that are part
of the ordinary course of Tenant's business activities (the "PERMITTED
ACTIVITIES") provided such Permitted Activities are conducted in accordance with
all Environmental Laws; (b) the Premises will not be used in any manner for the
storage of any Hazardous Substances except for any temporary storage of such
materials that are used in the ordinary course of Tenant's business (the
"PERMITTED MATERIALS") provided such Permitted Materials are properly stored in
a manner and location satisfying all Environmental Laws; (c) no portion of the
Premises will be used as a landfill or a dump; (d) Tenant will not install any
underground tanks of any type; and (e) no Tenant Party will bring or knowingly
permit any Hazardous Substances to be brought onto the Premises, except for the
Permitted Materials, and if so brought thereon, the same shall be immediately
removed by Tenant, with proper disposal, and all required cleanup procedures
shall be diligently undertaken pursuant to all Environmental Laws. If at any
time during or after the Term, the Premises are found to be so contaminated or
subject to any such condition that were not shown to be present in inspections
conducted at or before Closing, Tenant shall defend, indemnify and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the Premises by Tenant. Tenant will maintain on the Premises a list of all
materials stored at the Premises for which a materials safety data sheet (an
"MSDS") was issued by the producers or manufacturers thereof, together with
copies of the MSDS for such materials, and shall deliver such list and MSDS
copies to Landlord upon Landlord's request therefor. Tenant shall remove all
Permitted Materials from the Premises in a manner acceptable to Landlord before
Tenant's right to possess the Premises is terminated. If Landlord determines in
good faith that it is likely that there are environmental problems at the
Premises, Landlord must notify Tenant of such fact and arrange with Tenant for a
time at which Landlord may enter the Premises and conduct environmental
inspections and tests therein as it may require from time to time, provided that
Landlord shall use reasonable efforts to minimize, to the extent reasonably
possible, the interference with Tenant's business. Such inspections and tests
shall be conducted at Landlord's expense, unless they reveal (1) the presence of
Hazardous Substances (other than Permitted Materials) which were not shown to be
present in inspections conducted at the time of Closing or (2) Tenant or any
other Tenant Party has not complied with the requirements set forth in this
Section 25, in which case Tenant shall reimburse Landlord for tie reasonable
cost thereof within ten days after Landlord's request there for.
26. WAIVER OF LANDLORD'S LIEN. Any fixtures, signs, equipment (including,
without limitation, Tenant's mainframe computer), and other personal property of
Tenant affixed to or located in the Premises remain the property of Tenant, and
Landlord waives and acknowledges that it has no liens, whether constitutional,
statutory or consensual, upon any of Tenant's fixtures, signs, equipment or
other personal property. Landlord agrees that Tenant has the right to remove at
any time any and all of its trade fixtures, equipment, signs, and other personal
property which it may have stored or installed in the Premises. Landlord hereby
covenants and agrees that before removing any fixtures, equipment, signs, or
other personal property from the Premises, it will give any lender of whom
Tenant has given Landlord notice 30 days notice and opportunity to remove such
items, provided such lender agrees to pay rent for the Premises until such time
as such items are removed.
27. ADDITIONAL PARKING AREA. Tenant may construct an additional parking
lot on the Land, subject to the following requirements:
(a) the parking lot must be located within the area shown on EXHIBIT
H; and
(b) the parking lot must be constructed (1) using similar materials
and in a similar manner to the existing parking lot on the Land, (2) in
accordance with all applicable Law, and (3) in a good and workmanlike manner;
Once constructed, the parking lot will be considered part of the Premises and
subject to all of Tenant's obligations concerning the Premises, including,
without limitation, the terms of Section 5.(a).
28. TENANT IMPROVEMENT FINANCING. Landlord shall use reasonable efforts to
assist Tenant in finding lenders for the financing of up to $1,500,000 for
Tenant's initial improvements to the Premises and for equipment Tenant's
inability to obtain such financing, however, shall not affect Tenant's
obligations under this Lease.
29. EXISTING EQUIPMENT. If Tenant installs the Backup Equipment, then
Tenant shall store in the Building the existing generator, UPS system, and
related equipment and deliver them to Landlord in their present condition at the
end of the Term or, if earlier, the termination of Tenant's right to possess the
Premises.
TENANT ACKNOWLEDGES THAT (1) IT HAS INSPECTED AND ACCEPTS THE PREMISES IN
AN "AS IS, WHERE IS" CONDITION, (2) LANDLORD HAS MADE NO WARRANTY,
REPRESENTATION, COVENANT, OR AGREEMENT WITH RESPECT TO THE MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF THE PREMISES, (3) THE PREMISES ARE IN GOOD
AND SATISFACTORY CONDITION, (4) NO REPRESENTATIONS AS TO THE REPAIR OF THE
PREMISES, NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES HAVE BEEN MADE
BY LANDLORD, AND (5) THERE ARE NO REPRESENTATIONS OR WARRANTIES, EXPRESSED,
IMPLIED OR STATUTORY, THAT EXTEND BEYOND THE DESCRIPTION OF THE PREMISES.
12
<PAGE>
Executed by Tenant on July 16, 1997.
TENANT: ADS ALLIANCE DATA SYSTEMS, INC.
By: James E. Andersen
--------------------------------
Name: James E. Andersen
------------------------------
Title: Executive Vice President
-----------------------------
Address: 5001 Spring Valley Road
West Tower, Suite 650
Dallas, Texas 75244
Telephone: 972-960-5100
Fax: 972-960-5162
with a copy to: Carolyn Melvin
ADS Alliance Data Systems, Inc.
4590 East Broad Street
Columbus, Ohio 43213
Telephone: 614-755-5000
Fax: 614-863-5965
Executed by Landlord on July 16, 1997.
LANDLORD: WATERVIEW PARKWAY, L.P.
By: 1996 DFW Office, Inc., its general partner
By: [illegible]
--------------------------------------
Name: [illegible]
------------------------------------
Title: Executive Vice President
-----------------------------------
Address: 2200 Ross Avenue, Suite 3700
Dallas, Texas 75201
Telephone: (214) 979-6300
Fax: (214) 979-6326
with a copy to: Greg L. Arrell
Vinson & Elkins L.L.P.
2001 Ross Avenue, Suite 3700
Dallas, Texas 75201
Telephone: (214) 220-7798
Fax: (214) 999-7798
<PAGE>
EXHIBIT A
BEING a 410,021 square feet (9.4128 acres) tract of land situated in the
John Clay Survey, Abstract No. 313, Dallas County, Texas, L50 being all of Lot
1, Block A/8735, Dresser Addition, an addition to the City of Dallas according
to the plat thereof recorded in Volume 81203, Page 0275, Deed Records, Dallas
County, Texas, and being more particularly described as follows:
BEGINNING at a 5/8" iron rod set for corner in the west line of Waterview
Road (80' public R.O.W.) at the northeast corner of U.T.D. Synergy Park Phase
II, as recorded by plat in Volume 86051, Page 3744, Deed Records, Dallas County,
Texas.
THENCE WEST departing the said west line of Waterview Road, a distance of
569.26 feet to a 5/8" iron rod set for corner in the east line of that certain
tract of land conveyed to Texas A&M University in Volume 72221, Page 2873, Deed
Records, Dallas County, Texas, at the northwest corner of said U.T.D. Synergy
Park Phase II;
THENCE N00 12' 12'W along the west line of said Texas A&M University
tract, a distance of 610.00 feet to a 1/2" iron rod found for corner at the
southwest corner of U.T.D. Synergy Park Phase I, as recorded by plat in Volume
85245, Page 4873, Deed Records, Dallas County, Texas.
THENCE EAST departing the east line of said Texas A&M University tract and
along the south line of said U.T.D. Synergy Park Phase I, a distance of 700.00
feet to a 3/8" iron rod found for corner in the aforementioned west line of
Waterview Road;
THENCE along the said west line of Waterview Road the following:
500 12'12'E a distance of 223.02 feet to a 5/8" iron rod set for corner at
the beginning of a curve to the right which has a central angle of 30 12'
12', a radio of 600.00 feet, and a chord which bears S14 53'54'W - 312.64
feet;
Along said curve to the right, an arc distance of 316.29 feet to a 5/8"
iron rod set for corner at the end of said curve;
S30 00'00"W a distance of 97.96 feet to the POINT OF BEGINNING and
containing 410,021 square feet or 9.4128 acres of land.
<PAGE>
EXHIBIT B
EXPANSION OPTION
1. EXERCISE OF OPTION. Provided that (a) no Event of Default then exists,
(b) there has been no material adverse change in Tenant's financial condition,
comparing the time the Lease is executed and the time that Tenant exercises the
expansion option, and (c) Tenant is not in default under its covenants with its
then-current lenders, if any (which defaults have not been waived in writing by
such lenders), Tenant may elect to expand the Building once by up to 35,000
square feet (but not less than 15,000 square feet) by delivering to Landlord
written notice thereof not later than 12 months before the end of the Term (the
"EXPANSION NOTICE"), specifying the expansion area's size and location on the
Land, which location may be in one or both of the areas shown on EXHIBIT H (the
"EXPANSION SPACE").
2. PRELIMINARY APPROVAL. Within 30 days after Tenant delivers the
Expansion Notice to Landlord, Landlord shall prepare and submit to Tenant for
its review (a) preliminary plans and outline specifications (the "EXPANSION
DISCUSSION DOCUMENTS") for Landlord and Tenant's preliminary conception of the
construction of the shell and interior of the Expansion Space (the "EXPANSION
DISCUSSION WORK"), (b) preliminary cost estimates for performing the Expansion
Discussion Work, (c) preliminary rents for the Expansion Space (based upon the
formula outlined in Paragraph 5 below), and (d) a preliminary construction
schedule, showing the anticipated dates of various phases of the construction
(including the dates of substantial completion and full completion). Tenant must
notify Landlord whether it approves of the submitted Expansion Discussion
Documents, the preliminary cost estimates, the preliminary rents, and the
preliminary construction schedule within 14 days after Landlord delivers them to
Tenant If Tenant disapproves of such Expansion Discussion Documents, preliminary
cost estimates, preliminary rents, or preliminary construction schedule. Then
Tenant must notify Landlord of that fact, specifying in detail the reasons for
such disapproval. In such event, Landlord shall amend the submitted Expansion
Discussion Documents (to the extent it approves such amendments), and, if
required by such amendments to the Expansion Discussion Documents, amend the
preliminary cost estimates, preliminary rents, or preliminary construction
schedule, as the case may be, and deliver them to Tenant for its review within
ten days after receiving Tenant's notice disapproving the submitted Expansion
Discussion Documents, preliminary cost estimates, preliminary rents, or
preliminary construction schedule. Landlord and Tenant must repeat this process
(using the same time periods) until both of them have approved the Expansion
Discussion Documents, the preliminary cost estimates, the preliminary rents, and
the preliminary construction schedule. At any time until the Expansion
Discussion Documents, the preliminary cost estimates, the preliminary rents, and
the preliminary construction schedule have been approved by Landlord and Tenant,
Tenant may rescind its election to expand by written notice to Landlord. If such
election is rescinded as provided in this paragraph, Tenant shall pay to
Landlord all reasonable costs incurred by Landlord prior to the date of such
rescission and an administrative fee of $3,000.00 to cover Landlord's overhead
cost in connection therewith.
3. FINAL APPROVAL. Within 30 days after Tenant and Landlord have approved
the Expansion Discussion Documents, the preliminary cost estimates, the
preliminary rents, and the preliminary construction schedule, Landlord shall
prepare and deliver to Tenant detailed plans and specifications for the
Expansion Space (the "PRELIMINARY EXPANSION PLANS AND SPECIFICATION"), which
must be based upon the approved Expansion Discussion Documents (including,
without limitation, working drawings, construction drawings, and electrical,
plumbing and mechanical drawings), estimated cost estimates, estimated rents,
and estimated construction schedule. Tenant may only object to those matters
shown on the Preliminary Expansion Plans and Specifications which are
inconsistent with or are additions to the approved Expansion Discussion
Documents. Tenant must deliver notice of its objections to Landlord within 14
days after Landlord delivers such items to Tenant and Landlord must respond
within ten days after Tenant delivers such notice to Landlord. Landlord and
Tenant must repeat this process (using the same time periods) until both of them
have approved the Preliminary Expansion Plans and Specifications. The
Preliminary Expansion Plans and Specifications, as finally approved, are
referred to in this Agreement as the "EXPANSION PLANS AND SPECIFICATIONS" and
the work shown on such Expansion Plans and Specifications is referred to as the
"EXPANSION WORK." After the final Expansion Plans and Specifications have been
approved by Landlord and Tenant, Landlord shall enter into a guaranteed maximum
price construction contract or, at Tenant's option, another form of contract
with a general contractor for the performance of the Expansion Work. Before
entering into such contract, however, Landlord and Tenant must consent to the
terms thereof At any time before the Expansion Plans and Specifications and the
general contract have been approved, Tenant may rescind its expansion election.
If Tenant rescinds such election and the final cost estimates or final rents
exceed the approved preliminary cost estimates or approved preliminary rents,
respectively, by more than 15% or the final construction schedule provides for a
substantial completion date that is more than two months later than the
substantial completion date set forth in the approved preliminary construction
schedule, then Tenant must pay to Landlord all reasonable costs incurred by
Landlord before such rescission and an administrative fee of $3,000 to cover
Landlord's overhead costs in connection therewith. If Tenant rescinds such
election under any circumstances other than those set forth in the immediately
preceding sentence, then Tenant shall pay to Landlord all reasonable cost
incurred by Landlord before such rescission and-an administrative charge of
$15,000 to cover Landlord's overhead cost in connection therewith.
4. EXPANSION AMENDMENT. Contemporaneously with the execution of the
general contract, Tenant and Landlord must execute an amendment to the Lease (an
"EXPANSION AMENDMENT") which will (a) extend the term of this Lease until ten
years after substantial completion of the Expansion Space Work (the "EXPANSION
AMENDMENT LEASE TERM") (the period beginning with the day after the expiration
date of the initial ten-year Term (or, if the expansion option is exercised
during a renewal Term, the expiration date of the renewal Term) and ending on
the expiration date of the Expansion Amendment Lease Term is herein called the
"EXPANSION EXTENSION"), (b) provide that the Base Rent (1) for the Expansion
Space equals the Base Rent calculated as provided below in Paragraph 5, and (2)
for the existing Premises, (A) during the original ten-year Term or (if the
expansion option is exercised during a renewal Term) the renewal Term (i.e.,
before giving effect to the Expansion), the monthly Base Rent due for such space
under the terms of this Lease, and (B) for the first five-year period of the
Expansion Extension (or part thereof), the monthly Base Rent
B-1
<PAGE>
shall be 115% of the monthly Base Rent in effect for the initial Premises
during the last month of the initial ten.year Term, and for the next
five-year period of the Expansion Extension (or part thereof) the monthly
Base Rent shall be 115% of the monthly Base Rent in effect for the initial
Premises during the initial five years of the Expansion Extension, and (c)
provide for a construction exhibit requiring Landlord to perform the
Expansion Work in a good and workmanlike manner and in accordance with all
Laws.
5. CALCULATION OF EXPANSION SPACE BASE RENT. The annual Base Rent for
the Expansion Space will be determined as follows: (a) in the case of the
first five years of Expansion Space Lease Term, an amount equal to (1) the
Total Expansion Costs (defined below), times (2) the sum of (A) a mortgage
constant rate equal to the Ten-Year Mortgage Money Rate (defined below) at
the time in question and (B) 300 basis points or (if Tenant's unsecured debt
rating at the time of such election is A or better as established by Standard
& Poor's Corporation) 250 basis points; and (b) in the case of the final five
years of the Expansion Amendment Lease Term, 115% of the annual Base Rent
rate for the initial five years of the Expansion Amendment Lease Term. For
example, if the Ten-Year Mortgage Money Rate were 8.0%, the add on factor is
300 basis points (so that 8% + 3% = 11%), and the Total Expansion Cost for
the Expansion Space in question were $3,000,000, then the annual Base Rent
for such Expansion Space during the first five years of the Expansion
Amendment Lease Term for such Expansion Space would be $330,000 (calculated
as follows: $3,000,000 X .11 = $330,000), and $379,500 for the final five
years of the Expansion Space Lease Term.
"TOTAL EXPANSION COSTS" means all soft and hard costs incurred in
connection with the design and construction of the improvements for the
Expansion Space in question, including, without limitation, all
architecture, engineering, contractors, market leasing commissions,
development fees (not to exceed 4% of total construction costs), brokerage
and legal fees and expense, any interest expense, tax and insurance
payments incurred during such construction process, and any loan or
mortgage fees, and any other costs, fees or expenses incurred with the
construction of the Expansion Space.
"TEN-YEAR MORTGAGE MONEY RATE" means the mortgage constant (i.e., the
amount of annual debt service, expressed as a percentage of the loan
amount, that is necessary to pay interest and the entire principal over the
amortization period) at the time such determination is being made
associated with mortgage loans made available by the following
institutional lenders for permanent loans for properties similar to the
Premises which are leased to tenants having a credit rating similar to
Tenant's credit rating at the time in question, with an amortization
schedule of 25 years and a maturity date often years: Metropolitan Life
Insurance Company; Prudential Life Insurance Company; and The Principal
Financial Group. If however, any of such institutional lenders are not
providing permanent financing for properties similar to the Premises, then
Landlord may substitute another institutional lender therefor.
6. TERMINATION OF EXPANSION SPACE. If the Expansion Work is not
substantially completed such that Tenant may use the Expansion Space for its
intended purpose within nine months after the date set forth for substantial
completion in the development schedule approved by Landlord and Tenant, plus the
number of days of delay caused by force majeure events and the number of days of
delay caused by the actions of Tenant Parties (the "TERMINATION DATE"), then
Tenant may terminate this Lease by delivering written notice thereof to Landlord
before the earlier of (a) ten days after the Termination Date or (b) the date
the Expansion Space is substantially completed. Should Landlord desire to extend
the period of time for performance for delays caused by Tenant Parties or force
majeure, then it must, within ten days after discovery of the cause for such
delay, deliver written notice to Tenant specifying the cause of such delay and
the anticipated duration of such delay. Landlord's failure to deliver such
notice will be deemed a waiver of the right to extend such time period for such
reason. If Landlord fails to provide the Expansion Discussion Documents, the
Preliminary Expansion Plans and Specifications, or requested modifications
thereof as provided in Paragraphs 2 and 3 of this Exhibit and such failure
continues for a period of 15 days after Tenant has delivered to Landlord written
notice thereof, then Tenant may cause the preparation of such plans,
specifications, and modifications and deduct the cost thereof from its
obligation to pay Base Rent under this Lease (in which case, such costs shall be
deemed to have been paid by Landlord to the extent Tenant deducts such amount
from Base Rent).
7. COMPLIANCE WITH LAWS: CONSTRUCTION FINANCING. Landlord's obligations
to construct any of the Expansion Space provided in this Exhibit shall be
subject to (a) all then applicable Laws and (b) Landlord's obtaining financing
acceptable to Landlord for the construction of the Expansion Space at
commercially reasonable rates. Accordingly, if any Law would prohibit
construction of the Expansion Space or if Landlord cannot obtain such financing,
then Landlord shall have no obligation to construct the Expansion Space.
Landlord shall use commercially reasonable and diligent efforts to obtain
approval of the proposed expansion under applicable Law and to obtain such
financing. If Landlord is unable to obtain such financing within 45 days after
the Expansion Plans and Specifications have been finally approved, Landlord
shall promptly notify Tenant thereof and Tenant's election to expand the
Premises shall terminate, in which case, Tenant shall pay to Landlord all
reasonable costs incurred by Landlord before such termination, but shall not be
obligated to pay to Landlord any administrative charge for overhead costs in
connection therewith.
8. LANDLORD'S APPROVAL. Landlord's approval of the matters described
under this Exhibit shall not be unreasonably withheld. If Landlord disapproves
any matter, it must notify Tenant in reasonable detail of the reasons for such
disapproval.
B-2
<PAGE>
EXHIBIT C
EXTENSION OPTIONS
Provided no Event of Default exists and Tenant is, or Tenant and Tenant's
subtenants are, occupying the entire Premises at the time of such election,
Tenant may renew this Lease for two additional periods of five years each on the
same terms provided in this Lease (except as set forth below), by delivering
written notice of the exercise thereof to Landlord not sooner than 14 months,
nor later than II months, before the expiration of the Term. On or before the
commencement date of the extended Term in question, Landlord and Tenant shall
execute an amendment to this Lease extending the Term on the same terms provided
in this Lease, except as follows:
(a) The Base Rent payable for each month during each such extended Term
shall be the prevailing rental rate for renewal of existing leases in the
vicinity of the Premises, at the commencement of such extended Term, for
space of equivalent quality, size, utility and location, with the length of
the extended Term and the credit standing of Tenant to be taken into
account (the "MARKET RENT"). Within ten days after Tenant delivers notice
of the exercise of such renewal option, Landlord must deliver to Tenant a
statement setting forth the rent Landlord believes constitutes Market Rent.
Within ten days after the date upon which Landlord delivers such notice,
Tenant must either (1) accept such Market Rent, or (2) deliver to Landlord
a statement setting forth the rent Tenant believes constitutes Market Rent.
If Tenant delivers an alternate statement to Landlord, then Tenant and
Landlord shall attempt to agree upon Market Rent within 30 days. If, at the
end of such 30-:lay period, Tenant and Landlord have been unable to agree
upon a Market Rent figure, then Landlord and Tenant must, within ten days
after such 30-day period, each appoint an outside consultant (who must be
either a broker or a real estate appraiser and who must be familiar with
the market for buildings such as the Premises and active in the market for
at least ten years) and the outside consultants must consult together for
at least ten days to determine the Market Rent If the outside consultants
reach an agreement, then the Market Rent upon which they agree will be
binding upon all parties. If they are unable to reach an agreement, then
each of them must prepare its own statement of Market Rent, must appoint a
third consultant (who must meet the requirements set forth above), and
deliver their statements to such third consult, all within ten days after
the expiration of the ten-day consulting period. The third consultant must
prepare its report within 20 days after being appointed and the statement
of the third consultant will be binding upon all parties. Landlord and
Tenant will each pay for the cost of its own consultant. If it is necessary
to appoint the third consultant, then Landlord and Tenant will divide the
cost of such consultant equally. If either party fails to appoint a
consultant within the time period set forth above, then such panty will be
deemed to have appointed the consultant of the other party. If either
party's consultant fails to meet or issue a report within the time period
specified, then such party's consultant will be deemed to have agreed with
the findings of the other party's consultant At such time as the Market
Rate is finally determined, Tenant will be entitled to rescind its exercise
of such option by written notice to Landlord, which notice must be
delivered within 30 days after the date upon which the Market Rate is
finally determined.
(b) Tenant shall have no further renewal options unless expressly
granted by Landlord in writing.
(c) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances (e.g.,
moving allowance, construction allowance, and the like) or other tenant
inducements.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises without
Landlord's written consent, or (3) Tenant fails to timely exercise its option
under this Exhibit, time being of the essence with respect to Tenant's exercise
thereof.
C-1
<PAGE>
EXHIBIT D
[Intentionally omitted]
D-1
<PAGE>
Record and return to:
Mark M. Sloan
Thompson & Knight, P.C.
1700 Pacific Ave., Suite 3300
Dallas, Texas 75201
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of July, 1997, by
and between PRINCIPAL COMMERCIAL ADVISORS, INC., an Iowa corporation, with its
principal office at 11050 Roe Avenue, Suite 200, Overland Park Kansas 66211
(hereinafter called "Mortgagee"), WATERVIEW PARKWAY, L.P., a Texas limited
partnership, with its principal office at 2200 Ross Avenue, 3700 Texas Commerce
Tower, Dallas, Texas 75201 (hereinafter called "Lessor") and ADS ALLIANCE DATA
SYSTEMS, INC., a Delaware corporation, having its principal office at 4590 E.
Broad Street, Columbus, Ohio 43213 (hereinafter called "Lessee");
W I T N E S S E T H:
WHEREAS, Lessee has by a written lease dated July __, 1997 (hereinafter
called the "Lease") leased from Lessor all or part of certain real estate and
improvements thereon located in the City of Dallas, Texas, as more
particularly described in EXHIBIT A attached hereto (the "Demised Premises");
and
WHEREAS, Lessor is encumbering the Demised Premises as security for a loan
(the "Loan") from Mortgagee to Lessor (the "Mortgage"); and
WHEREAS, Lessee, Lessor and Mortgagee have agreed to the following with
respect to their mutual rights and obligations pursuant to the Lease and the
Mortgage;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) paid by
each party to the other and the mutual covenants and agreements herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. Lessee's interest in the Lease and all rights of Lessee thereunder,
including any purchase option, if any, shall be and are hereby declared subject
and subordinate to the Mortgage upon the Demised Premises and its terms, and the
term "Mortgage" as used herein shall also include any amendment, supplement,
modification or renewal thereof. Notwithstanding the foregoing, Mortgagee shall
allow insurance proceeds and condemnation
-1-
<PAGE>
awards to be used to rebuild, restore and/or repair the Demised Premises in
accordance with (he terms and conditions of the Lease, provided that (I)
Lessee is not then in default under the Lease (after the expiration of any
applicable grace or cure period) and (ii) neither Lessor nor Lessee have the
right to terminate the Lease on account of such casualty or condemnation or,
in the event either Lessor or Lessee have the right to terminate the Lease on
account of such casualty or condemnation, then such party shall have waived
such right with respect to such casualty or condemnation.
2. In the event of any foreclosure of the Mortgage or any conveyance in
lieu of foreclosure, provided that the Lessee shall not then be in default
beyond any grace or cure period under the Lease and that the Lease shall then be
in full force and effect, then Mortgagee shall neither terminate the Lease nor
join Lessee in foreclosure proceedings, nor disturb Lessee's possession, and the
Lease shall continue in full force and effect as a direct lease between Lessee
and Mortgagee.
3. After the receipt by Lessee of notice from Mortgagee of any
foreclosure of the Mortgage or any conveyance of the Demised Premises in lieu of
foreclosure, Lessee will thereafter attorn to and recognize Mortgagee or any
purchaser from Mortgagee at any foreclosure sale or otherwise as its substitute
lessor on the terms and conditions set forth in the Lease.
4. Lessee shall not prepay any of the rents under the Lease more than one
month in advance except with the prior written consent of Mortgagee.
5. In the event Mortgagee shall become the owner of the Demised Premises
as a result of a foreclosure sale or other transfer, Mortgagee shall not be
liable for damage for any act or omission of the Lessor (although Mortgagee will
be obligated to perform all of Lessor's obligations under the Lease even if the
need for an obligation arose before the effective date of the foreclosure or
other transfer), nor shall Mortgagee be subject to any offsets or deficiencies
which Lessee may be entitled to assert against the Lessor as a result of any act
or omission of Lessor occurring prior to Mortgagee's obtaining possession of the
Demised Premises if Lessee has not given Mortgagee written notice of such act or
omission giving rise to such right of offset and the same time period as Lessor
is entitled to under the Lease in which to cure such act or omission.
6. The Lease may not be amended, altered, or terminated without the prior
written consent of Mortgagee. Mortgagee agrees that it will not unreasonably
withhold its consent to any requested amendment or modification of the Lease
which does not (I) reduce the rent payable by Lessee under the Lease, (ii)
shorten the term of the Lease, or (iii) materially increase the obligations of
Lessor under the Lease. In the event Mortgagee does not respond to a request for
its consent to any amendment or modification of the Lease within thirty (30)
days after the requesting party delivers the request for approval, then
Mortgagee shall be deemed to have approved such amendment or modification.
-2-
<PAGE>
7. So long as the Loan is outstanding, Lessee will provide Mortgagee with
the same evidence of payment of taxes and insurance (if Lessee is obligated for
such payments under the Lease) as the Lessor may be entitled under the Lease. In
addition, Lessee will give Mortgagee the same notices, including without
limitation notices of default, and thereafter the same right to cure any
defaults or take any action as the Lessor may be entitled under the Lease,
without the obligation to cure such defaults or take such action.
8. If the Lease is canceled or terminated for any reason, if any purchase
option contained in the Lease is exercised, or if Lessee is required to pay to
Lessor any payment in excess of one calendar month in advance, including, but
not limited to lease termination or purchase option payments, refunds of any
type, prepayments of rents, litigation settlements or settlements of past due
rents (all of which shall be referred to herein collectively as "Extraordinary
Rental Payments"), Lessor and Lessee will notify Mortgagee and Lessor consents
to Lessee remitting and Lessee agrees to remit any Extraordinary Rental Payments
to Mortgagee directly and immediately. Subject to the rights of Mortgagee
contained herein, nothing in this paragraph shall constitute a waiver by the
Lessee of its rights against the Lessor under the Lease or limit the rights of
the Lessee to maintain any action at law or equity against the Lessor provided
that such action does not reduce the term of the Lease or the rental obligations
herein referred to during the term of the Lease.
9. So long as the Loan is outstanding, Mortgagee or its designee shall
have the same right as Lessor under the Lease to enter upon the Property to
visit or inspect the Property, at such reasonable times as Mortgagee or its
designee may request.
10. There shall be no merger of the Lease or the leasehold estate created
thereby with any other estate in the Property, including without limitation the
fee estate, by reason of the same person or entity acquiring or holding,
directly or indirectly, the Lease and said leasehold estate and any such other
estate.
11. If Mortgagee shall become the owner of the Demised Premises or the
Demised Premises shall be sold by reason of non-judicial or judicial foreclosure
or other proceedings brought to enforce the Mortgage or the Demised Premises
shall be conveyed by deed in lieu of foreclosure, Lessee agrees to pay all rents
directly to Mortgagee or other purchaser of the Demised Premises, as the case
may be, in accordance with the Lease immediately upon notice of Mortgagee or
such purchaser, as the case may be, succeeding to Lessor's interest under the
Lease, and Mortgagee's or such other purchaser's agreement that Mortgagee (or
such other purchaser, as the case may be) is bound by all of the obligations of
Lessor under the Lease, subject to the terms of this Agreement.
12. Lessee acknowledges that the Mortgage and the Assignment of Leases and
Rents in favor of Mortgagee permit the Mortgagee to require Lessee to pay the
rents and other amounts due under the Lease to the Mortgagee in the event Lessor
defaults under the Mortgage. Accordingly, Lessee agrees, subject to the
limitations set forth in this Paragraph, that if the Mortgagee notifies Lessee
of a default under the Mortgagee and demands that the Lessee
-3-
<PAGE>
pay its rent and other sums due under the Lease directly to Mortgagee, the
Lessee will honor such demand beginning with the payment next due after
fifteen (15) days have expired after such notice of default. Notwithstanding
the foregoing, the Lessee will only be obligated to honor one (1) such demand
by the Mortgagee and the Lessee's obligation to make any such payments will
extend to no more than three (3) consecutive monthly payments unless the
Mortgagee has begun diligent, good faith efforts towards the foreclosure of
its lien against the Demised Premises under the Mortgage, is actively
pursuing such efforts, and provides Lessee with written proof of such efforts
within such three (3) month period, in which case Lessee's obligation to make
such payments will extend for an additional three (3) months to a total of
six (6) consecutive monthly payments. Thereafter, the Lessee agrees to
deposit all rents and other amounts due in an escrow account to be released
to the recipient designated by order of a court of competent jurisdiction or
in accordance with written instructions from the Mortgagee and Lessor which
have been approved by the Lessee, or, to Mortgagee upon the consummation of a
foreclosure of the Demised Premises under the Mortgage. Lessor hereby
releases and discharges the Lessee of and from any liability to Lessor
resulting from the Lessee's payment to the Mortgagee in accordance with the
terms of this Agreement.
13. If Lessee is a corporation or partnership, Lessee will preserve and
keep in force and effect its corporate or partnership existence and all licenses
or permits necessary to the proper conduct of its business during the Term of
the Lease.
14. The Lease and this certificate have been duly authorized, executed and
delivered by the Lessee and constitute legal, valid and binding instruments
enforceable against Lessee in accordance with their respective terms, except as
such terms may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally.
15. This Agreement and its terms shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
including without limitation, any purchaser at any foreclosure sale.
16. This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, and such counterparts when taken together shall
constitute but one agreement.
17. All information, notices or requests provided for or permitted to be
given or made pursuant to this Agreement shall be deemed to be an adequate and
sufficient notice if given in writing and service is made by either (I)
registered or certified mail, postage prepaid, in which case notice shall be
deemed to have been received three (3) business days following deposit to the
mail; or (ii) nationally recognized overnight air courier, next day delivery,
prepaid, in which case such notice shall be deemed to have been received one (I)
business day following delivery to such courier. All notices shall be addressed
to the addresses set forth below, or to such other addresses as may from time to
time be specified in writing by Lessee or Mortgagee to the other:
-4-
<PAGE>
If to Mortgagee:
Principal Commercial Advisors, Inc.
11050 Roe Avenue, Suite 200
Overland Park, Kansas 66211-1216
Loan No. 100106
With copy to:
Mark M. Sloan
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
If to Lessee:
ADS Alliance Data Systems, Inc.
4590 B. Broad Street
Columbus, Ohio 43213
Attention: Carolyn Melvin
With copy to:
Harriet Anne Tabb
Tabb & Associates
8333 Douglas Avenue, Suite 1250
Dallas, Texas 75225
If to Lessor:
c/o Trammell Crow Dallas/Fort Worth, Inc.
2200 Ross Avenue
3700 Texas Commerce Tower
Dallas, Texas 75201
With copy to:
Bryant W. Burke
Vinson & Elkins L.L.P.
2001 Ross Avenue
3700 Trammell Crow Center
Dallas, Texas 75201-2975
-5-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been fully executed under seal on
the day and year first above written.
MORTGAGEE:
PRINCIPAL COMMERCIAL ADVISORS, INC.,
an Iowa corporation
By:______________________________
Name:_______________________
Title:______________________
By:_____________________________
Name:______________________
Title:_____________________
LESSOR:
WATERVIEW PARKWAY, L.P., a Texas limited
partnership
By: 1996 DFW Office, Inc., a Delaware
corporation, its General Partner
By:_______________________________
Name:________________________
Title: ______________________
LESSEE:
ADS ALLIANCE DATA SYSTEMS, INC., a Delaware
corporation
By:______________________________
Name:_______________________
Title:______________________
-6-
<PAGE>
THE STATE OF KANSAS )
)
COUNTY OF JOHNSON )
This instrument was acknowledged before me on July ____, 1997 by
______________________________ of Principal Commercial Advisors, Inc., an Iowa
corporation, on behalf of said corporation.
______________________________
Notary Public, State of Kansas
_____________________________
(printed name)
My commission expires:
___________________________
THE STATE OF KANSAS )
)
COUNTY OF JOHNSON )
This instrument was acknowledged before me on July ______, 1997 by
_____________________________ of Principal Commercial Advisors, Inc., an Iowa
corporation, on behalf of said corporation.
______________________________
Notary Public, State of Kansas
______________________________
(printed name)
My commission expires:
__________________________
-7-
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on July ________, 1997 by
____________________________ of ADS Alliance Data Systems, Inc., a Delaware
corporation, on behalf of said corporation.
______________________________
Notary Public, State of Texas
______________________________
(printed name)
My commission expires:
_______________________________
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on July ______, 1997 by
____________________________ of 1996 DFW Office, Inc., a
Delaware corporation, on behalf of said corporation in its capacity as General
Partner of Waterview Parkway, L.P., a Texas limited partnership.
______________________________
Notary Public, State of Texas
______________________________
(printed name)
My commission expires:
___________________________
-8-
<PAGE>
EXHIBIT F
AFTER RECORDING,
RETURN TO:
Harriet Anne Tabb
Tabb & Associates
8333 Douglas Avenue
Suite 1250
Dallas, Texas 75225
MEMORANDUM OF LEASE
This Memorandum of Lease is made and entered into as of, although not
necessarily on, July _____, 1997, by and between WATERVIEW PARKWAY, L.P., a
Texas limited partnership whose address is 2200 Ross Avenue, Suite 3700, Dallas,
Texas, 75201 ("LANDLORD") and ADS ALLIANCE DATA SYSTEMS, INC., a Delaware
corporation, whose address is 5001 Spring Valley, Suite 650, West Tower, Dallas,
Texas, 75244, with a copy to ADS Alliance Data Systems, Inc., 4590 East Broad
Street, Columbus, Ohio, 43213, Attn: Carolyn Melvin ("TENANT").
1. LEASED PREMISES. Landlord has leased to Tenant the land described on
EXHIBIT A attached to and made a part of this Memorandum of Lease for all
purposes (the "LAND") and the Building, other improvements, and all electrical,
plumbing, heating, ventilation, and air conditioning, life.safety lighting and
other mechanical systems and equipment located on the Land (the "BUILDING"). The
Land and the Building together are referred to as the Premises. Additionally,
Tenant has been granted the right to use all easements and appurtenances related
to the Premises.
2. UNRECORDED LEASE. This Memorandum of Lease is made upon all of the
terms, covenants, and conditions set forth in that certain unrecorded lease by
and between Landlord and Tenant, made to be effective as of the same effective
date as this Memorandum of Lease (the "UNRECORDED LEASE"). All of the terms,
covenants, and conditions of the Unrecorded Lease are made a part of and as
though fully set forth in this Memorandum of Lease.
3. COMMENCEMENT DATE/TERM/OPTIONS TO EXTEND. The Unrecorded Lease
commences on the effective date of this Memorandum of Lease and continues until
July 31, 2007. Tenant has two (2) five (5) year options to extend the term of
the Unrecorded Lease.
4. INTERPRETATION. Landlord and Tenant have entered into this Memorandum
of Lease in order that third parties may have notice of the existence of the
Unrecorded Lease. This Memorandum of Lease is not a summary of the Unrecorded
Lease. In the event of a conflict between this Memorandum of Lease and the
Unrecorded Lease, the Unrecorded Lease controls.
5. TERMINATION. This Memorandum of Lease automatically terminates upon
the expiration or earlier termination of the Unrecorded Lease. At such time as
the Unrecorded Lease expires or is terminated, Landlord may record an affidavit
stating that die Unrecorded Lease has expired or terminated as of a particular
date and the recording of such affidavit will operate to terminate this
Memorandum of Lease. Such document must be in the form of an affidavit, must
include tie statement that an individual is swearing to such facts based on his
or her own knowledge, and must be notarized with a jurat as well as an
acknowledgment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of
Lease as of the date first set forth above.
LANDLORD: WATERVIEW PARKWAY, LP., a Texas limited partnership
By: 1996 DFW Office, Inc., a Delaware corporation, its
general partner
By:__________________________________________
Name:________________________________________
Title:_______________________________________
TENANT: ADS ALLIANCE DATA SYSTEMS, INC., a Delaware corporation
By:_________________________________________
Name:_______________________________________
Title:______________________________________
F-1
<PAGE>
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on July _______, 1997, by
______________________ of 1996 DFW Office, Inc., a Delaware corporation,
general partner of Waterview Parkway, L.P., a Texas limited partnership, on
behalf of said corporation and limited partnership.
_____________________________
Notary Public, State of Texas
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on July _______ 1997, by
______________________________ of ADS Alliance Data Systems, Inc., a Delaware
corporation, on behalf of said corporation.
_____________________________
Notary Public, State of Texas
F-2
<PAGE>
Exhibit G
14 July 1997
Mr. Drew Peterson
Peterson Reality Group
5001 LBJ Freeway, Suite 875
Dallas, Texas 75244
Re: Alliance Data Systems
Dear Drew,
The following list represents base building equipment which were identified in
our limited survey as needing immediate or potential future replacement during
the course of the lease term:
A. Chillers number One and Two
B. Cooling tower
C. Emergency Generator
D. Refrigerated air drier for the tri-plex air compressor
E. UPS system and batteries
F. New or relamped and reballasted recessed fluorescent light fixtures
G. Additional air supply or new HVAC unit(s) to the east wing
H. The addition of electric unit heaters in return air plenum of the east wing
I. Chilled water pumps and condenser water pumps
J. Temperature control air compressor
K. Built up air handling unit fans
L. Factory fabricated air handling units
M. Computer room variable air volume boxes
N. Provide new, or supplement existing, life safety systems
O. Provide energy management system
P. Provide new, or supplement existing, security system
I have not included in this list fixtures and equipment not normally associated
with leasehold improvements such as the telephone switch, furnishings,
computers, peripheral devices and associated hardware and software, and postal
equipment.
Tenant must install each piece of replacement equipment in one of the following
areas: (I) the area where the equipment being replaced is currently located,
(ii) another area within the building, or (iii) the outside screened equipment
area. Tenant must not place any replacement equipment on the roof or outside of
the building (except within the screened equipment area), unless Tenant is
putting the replacement equipment in such location because that is where the
equipment being replaced is currently located.
Please call me if you have any questions.
Sincerely,
Benso Hlavaty Paret
Page 1 of 3
<PAGE>
[FLOOR PLAN]
SPACE PLAN - OPTION D (8X8 CUBICLES)
20 OFFICES
109 8X8 CUBICLES
- ----------------
129 TOTAL
FURNITURE LAYOUT
EAST WING FLOOR PLAN
Page 2 of 3
<PAGE>
[FLOOR PLAN]
SPACE PLAN - OPTION D (8X8 CUBICLES)
4 OFFICES
46 8X8 CUBICLES (INCLUDES PC/LAN RCVG)
- ----------------
50 TOTAL
FURNITURE LAYOUT
WEST WING FLOOR PLAN
Page 3 of 3
<PAGE>
[BUILDING LAYOUT]
ALLIANCE DATA SYSTEMS
17201 WATERVIEW PARKWAY
DALLAS, TEXAS
EXHIBIT H
<PAGE>
AFTER RECORDING, RETURN TO:
Harriet Anne Tabb
Tabb & Associates
8333 Douglas Avenue
Suite 1250
Dallas, Texas 75225
MEMORANDUM OF LEASE
This Memorandum of Lease is made and entered into as of, although not
necessarily on, July _____, 1997, by and between WATERVIEW PARKWAY, L.P., a
Texas limited partnership whose address is 2200 Ross Avenue, Suite 3700,
Dallas, Texas, 75201 ("LANDLORD") and ADS ALLIANCE DATA SYSTEMS, INC., a
Delaware corporation, whose address is 5001 Spring Valley Road, West Tower,
Suite 650, Dallas, Texas, 75244, with a copy to ADS Alliance Data Systems,
Inc., 4590 East Broad Street, Columbus, Ohio, 43213, Attn: Carolyn Melvin
("TENANT").
1. LEASED PREMISES. Landlord has leased to Tenant the land described on
EXHIBIT A attached to and made a part of this Memorandum of Lease for all
purposes (the "LAND") and the Building, other improvements, and all electrical,
plumbing, heating, ventilation, and air conditioning, life.safety lighting and
other mechanical systems and equipment located on the Land (the "BUILDING"). The
Land and the Building together are referred to as the Premises. Additionally,
Tenant has been granted the right to use all easements and appurtenances related
to the Premises.
2. UNRECORDED LEASE. This Memorandum of Lease is made upon all of the
terms, covenants, and conditions set forth in that certain unrecorded lease by
and between Landlord and Tenant, made to be effective as of the same effective
date as this Memorandum of Lease (the "UNRECORDED LEASE"). All of the terms,
covenants, and conditions of the Unrecorded Lease are made a part of and as
though fully set forth in this Memorandum of Lease.
3. COMMENCEMENT DATE/TERM/OPTIONS TO EXTEND. The Unrecorded Lease
commences on the effective date of this Memorandum of Lease and continues until
July 31, 2007. Tenant has two (2) five (5) year options to extend the term of
the Unrecorded Lease.
4. INTERPRETATION. Landlord and Tenant have entered into this Memorandum
of Lease in order that third parties may have notice of the existence of the
Unrecorded Lease. This Memorandum of Lease is not a summary of the Unrecorded
Lease. In the event of a conflict between this Memorandum of Lease and the
Unrecorded Lease, the Unrecorded Lease controls.
5. TERMINATION. This Memorandum of Lease automatically terminates upon
the expiration or earlier termination of the Unrecorded Lease. At such time as
the Unrecorded Lease expires or is terminated, Landlord may record an affidavit
stating that the Unrecorded Lease has expired or terminated as of a particular
date and the recording of such affidavit will operate to terminate this
Memorandum of Lease. Such document must be in the form of an affidavit, must
1
<PAGE>
include tie statement that an individual is swearing to such facts based on his
or her own knowledge, and must be notarized with a jurat as well as an
acknowledgment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Memorandum of
Lease as of the date first set forth above.
LANDLORD: WATERVIEW PARKWAY, LP., a Texas limited partnership
By: 1996 DFW Office, Inc., a Delaware corporation, its
general partner
By: /s/ Thomas O. McNearny
-----------------------------------------
Thomas O. McNearny, III, Executive Vice
President
TENANT: ADS ALLIANCE DATA SYSTEMS, INC., a Delaware corporation
By: /s/ James E. Anderson
--------------------------------------
Name: James E. Anderson
--------------------------------------
Title: Ex. VP
--------------------------------------
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on July 16th, 1997, by Thomas
O. McNearny, Executive Vice President of 1996 DFW Office, Inc., a Delaware
corporation, general partner of Waterview Parkway, L.P., a Texas limited
partnership, on behalf of said corporation and limited partnership.
/s/ Shirley Fryman
[SEAL] -----------------------------
Notary Public, State of Texas
2
<PAGE>
THE STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
This instrument was acknowledged before me on July 16th 1997, by James
E. Anderson Ex V.P. of ADS Alliance Data Systems, Inc., a Delaware
corporation, on behalf of said corporation.
/s/ Shirley Fryman
[SEAL] ------------------------------
Notary Public, State of Texas
3
<PAGE>
EXHIBIT A
BEING a 410,021 square feet (9.4128 acres) tract of land situated in the
John Clay Survey, Abstract No. 313, Dallas County, Texas, L50 being all of
Lot 1, Block A/8735, Dresser Addition, an addition to the City of Dallas
according to the plat thereof recorded in Volume 81203, Page 0275, Deed
Records, Dallas County, Texas, and being more particularly described as
follows:
BEGINNING at a 5/8" iron rod set for corner in the west line of
Waterview Road (80' public R.O.W.) at the northeast corner of U.T.D. Synergy
Park Phase II, as recorded by plat in Volume 86051, Page 3744, Deed Records,
Dallas County, Texas.
THENCE WEST departing the said west line of Waterview Road, a distance
of 569.26 feet to a 5/8" iron rod set for corner in the east line of that
certain tract of land conveyed to Texas A&M University in Volume 72221, Page
2873, Deed Records, Dallas County, Texas, at the northwest corner of said
U.T.D. Synergy Park Phase II;
THENCE N00DEG.12'12"W along the west line of said Texas A&M
University tract, a distance of 610.00 feet to a 1/2" iron rod found for
corner at the southwest corner of U.T.D. Synergy Park Phase I, as recorded by
plat in Volume 85245, Page 4873, Deed Records, Dallas County, Texas.
THENCE EAST departing the east line of said Texas A&M University tract
and along the south line of said U.T.D. Synergy Park Phase I, a distance of
700.00 feet to a 3/8" iron rod found for corner in the aforementioned west
line of Waterview Road;
THENCE along the said west line of Waterview Road the following:
S00DEG.12'12"E a distance of 223.02 feet to a 5/8" iron rod set for
corner at the beginning of a curve to the right which has a central angle
of 30DEG.12'12", a radius of 600.00 feet, and a chord which
bears S14DEG.53'54"W - 312.64 feet;
Along said curve to the right, an arc distance of 316.29 feet to a 5/8"
iron rod set for corner at the end of said curve;
S30DEG.00'00"W a distance of 97.96 feet to the POINT OF BEGINNING and
containing 410,021 square feet or 9.4128 acres of land.
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
among
ALLIANCE DATA SYSTEMS CORPORATION
and
THE SEVERAL PURCHASERS
NAMED IN SCHEDULE I HERETO
Dated as of July 12, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. PURCHASE AND SALE OF THE PREFERRED SHARES..............................................................2
SECTION 1.01 Issuance, Sale and Delivery of the Preferred Shares...........................2
SECTION 1.02 Closing Date..................................................................2
II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................2
SECTION 2.01 Organization, Qualifications and Corporate Power..............................2
SECTION 2.02 Authorization of Agreements, Etc..............................................3
SECTION 2.03 Validity......................................................................4
SECTION 2.04 Capital Stock; Subsidiaries and Investments...................................4
SECTION 2.05 Financial Statements; Absence of Undisclosed
Liabilities; No Material Adverse Change.......................................5
SECTION 2.06 Governmental Approvals........................................................6
SECTION 2.07 Third Party Approvals; Consents...............................................6
SECTION 2.08 Litigation, Etc...............................................................6
SECTION 2.09 Compliance with Laws..........................................................6
III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......................................................6
SECTION 3.01 Authorization.................................................................6
SECTION 3.02 Validity......................................................................7
SECTION 3.03 Investment Representations....................................................7
IV. CONDITIONS PRECEDENT...................................................................................8
SECTION 4.01 Conditions Precedent to the Obligations of the Purchasers.....................8
SECTION 4.02 Conditions Precedent to the Obligations of the Company.......................10
V. MISCELLANEOUS.........................................................................................10
SECTION 5.01 Survival of Agreements.......................................................10
SECTION 5.02 Brokerage....................................................................10
SECTION 5.03 Parties in Interest..........................................................10
SECTION 5.04 Notices......................................................................11
SECTION 5.05 Law Governing................................................................11
SECTION 5.06 Entire Agreement; Modifications..............................................11
SECTION 5.07 Counterparts.................................................................11
</TABLE>
<PAGE>
INDEX TO EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<S> <C>
A Form of Restated Certificate of
Incorporation of the Company
B Form of Shareholders Agreement Amendment
SCHEDULE DESCRIPTION
I Purchasers/Purchase Price of Preferred Shares
</TABLE>
ii
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"), dated as of July
12, 1999, among ALLIANCE DATA SERVICES CORPORATION, a Delaware corporation
(the "COMPANY"), and the several purchasers named in Schedule I hereto (each
hereinafter referred to individually as a "PURCHASER", and collectively, as
the "PURCHASERS").
WHEREAS, the Company is party to a Stock Purchase Agreement (the
"ACQUISITION AGREEMENT"), dated as of June 8, 1999, among the Company, SPS
Payment Systems, Inc., a Delaware corporation (the "Seller"), SPS Commercial
Services, Inc., a Delaware corporation and wholly-owned subsidiary of the
Seller ("COMMERCIAL SERVICES"), and ADS Network Services, Inc., a Delaware
corporation and wholly-owned subsidiary of the Seller (together with
Commercial Services, the "SELLER SUBSIDIARIES"), pursuant to which the
Company has agreed to acquire (the "ACQUISITION") from the Seller all of the
issued and outstanding shares of capital stock of each of the Seller
Subsidiaries;
WHEREAS, subject to the terms and conditions set forth herein, in order
to finance, in part, the Acquisition, the Company wishes to issue, sell and
deliver to the Purchasers on the Closing Date (as defined in Section 1.02) an
aggregate 120,000 shares (the "PREFERRED SHARES") of its Series A Cumulative
Convertible Preferred Stock, $0.01 par value ("SERIES A PREFERRED STOCK"),
which Preferred Shares shall initially be convertible into 80,000,000 shares
of Common Stock, par value $.01 per share, of the Company ("COMMON STOCK"),
and the Purchasers, severally, wish to purchase the Preferred Shares;
WHEREAS, in connection with the sale of the Preferred Shares pursuant to
this Agreement, the Company desires to amend and restate its Certificate of
Incorporation by filing a Restated Certificate of Incorporation with the
Secretary of State of the State of Delaware substantially in the form of
Exhibit A hereto (the "RESTATED CERTIFICATE OF INCORPORATION") in order to
(i) authorize the issuance of up to 120,000 shares of Series A Preferred
Stock and (ii) increase the number of authorized shares of Common Stock to
600,000,000 shares;
WHEREAS, certain of the Purchasers are party to an Amended and Restated
Stockholders Agreement, dated as of August 30, 1996 and amended as of July
24, 1998 and further amended as of August 31, 1998 (as so amended, the
"EXISTING STOCKHOLDERS AGREEMENT"), among the Company (which is known in the
Existing Stockholders Agreement by its former name, "World Financial Network
Holding Corporation"), Limited Commerce Corp., a Delaware corporation, WCAS
Capital Partners II, L.P., a Delaware limited partnership, Welsh, Carson,
Anderson & Stowe VI, L.P., a Delaware limited partnership, Welsh, Carson,
Anderson & Stowe VII, L.P., a Delaware limited partnership, Welsh, Carson,
Anderson & Stowe VIII, L.P., a Delaware limited partnership, WCAS Information
Partners, L.P., a Delaware limited partnership, and the several other
investors signatory thereto; and
WHEREAS, the parties to this Agreement wish to further amend (such
amendment, the "STOCKHOLDERS AGREEMENT AMENDMENT") the Existing Stockholders
Agreement to set forth certain restrictions upon the transfer of the
Preferred Shares, include the Common Stock
<PAGE>
issuable upon conversion of the Preferred Shares in such agreement and join
each of the Purchasers who are not already party to such agreement as parties
thereto (as so amended, the STOCKHOLDERS AGREEMENT").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF THE PREFERRED SHARES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE PREFERRED SHARES.
(a) Subject to the terms and conditions set forth herein, on the Closing
Date the Company shall issue, sell and deliver to each Purchaser, and each
Purchaser, acting severally and not jointly, shall purchase from the Company,
the number of Preferred Shares set forth opposite the name of such Purchaser
on Schedule I hereto under the caption "Preferred Shares". On the Closing
Date, the Company shall issue certificates in definitive form, registered in
the name of each such Purchaser, evidencing the Preferred Shares being
purchased by him, her or it hereunder.
(b) As payment in full for the Preferred Shares being purchased by him,
her or it hereunder, and against delivery thereof as aforesaid, on the
Closing Date, each Purchaser, acting severally and not jointly, shall pay to
the Company, by wire transfer of immediately available funds to an account
designated by the Company, the amount set forth opposite the name of each
such Purchaser on Schedule I hereto under the caption "Purchase Price of
Preferred Shares".
SECTION 1.02 CLOSING DATE. The closing of the sale and purchase of the
Preferred Shares contemplated by Section 1.01 shall take place at the offices
of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New
York, New York 10111, as soon as practicable (but in no event later than
October 15, 1999) after the satisfaction or waiver of each of the conditions
to the obligations of the parties set forth in Sections 4.01 and 4.02 hereof,
or at such other date and time as may be mutually agreed upon among the
Purchasers and the Company (such date and time of the closing being herein
called the "CLOSING DATE").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
SECTION 2.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. The
Company and each of its Subsidiaries (as hereinafter defined) is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the
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<PAGE>
corporate power and authority and all material licenses, permits and
authorizations necessary to own, lease and/or operate its properties and
assets and to carry on its businesses as now being conducted, and is duly
qualified and is in good standing as a foreign corporation, and authorized to
do business in all jurisdictions in which the conduct of its business or the
ownership or operation of its properties or assets makes such qualification
or authorization necessary and in which the failure to be so qualified would
have a material adverse effect on the business, properties, assets,
liabilities, results of operations, prospects or financial condition of the
Company or such Subsidiary. The Company has the corporate power and authority
to execute and deliver this Agreement and the Stockholders Agreement
Amendment, to perform the transactions contemplated by this Agreement and the
Stockholders Agreement, and, upon the filing of the Restated Certificate of
Incorporation, to issue, sell and deliver the Preferred Shares and the shares
of Common Stock from time to time issuable upon conversion of the Preferred
Shares ("CONVERSION SHARES"). For purposes of this Agreement, the term
"SUBSIDIARY", when used with respect to the Company, shall mean any
corporation or other business entity or association, a majority of whose
outstanding securities having the right generally to vote for the election of
directors or otherwise direct the actions of such entity or association is at
the time owned, directly or indirectly, by the Company and/or one or more
other Subsidiaries of the Company.
SECTION 2.02 AUTHORIZATION OF AGREEMENTS, ETC.
(a) Except as described in Schedule 2.02(a) hereto, each of (i) the
execution and delivery by the Company of this Agreement and the Stockholders
Agreement Amendment and the performance by the Company of its obligations
hereunder and under the Stockholders Agreement, (ii) the issuance and sale by
the Company of the Preferred Shares and the issuance by the Company of the
Conversion Shares upon the conversion of the Preferred Shares and (iii) the
filing of the Restated Certificate of Incorporation have been duly authorized
by all requisite corporate action and will not (A) violate (x) any provision
of law, any order of any court or other agency of government, (y) the
Certificate of Incorporation or By-laws of the Company or the Certificate or
Articles of Incorporation, By-laws and/or other organizational documents of
any Subsidiary, or (z) any provision of any material indenture, note,
agreement or other instrument to which the Company or any of its Subsidiaries
or any of their respective properties or assets is bound, or (B) conflict
with, result in a breach of, or constitute (with due notice or lapse of time
or both) a default under any material indenture, note, agreement or other
instrument to which the Company or any of its Subsidiaries or any of their
respective properties or assets is bound, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever (a
"LIEN") upon any of the properties or assets of the Company or any of its
Subsidiaries.
(b) The issuance of the Preferred Shares has been duly authorized by the
Company and, when sold and paid for in accordance with this Agreement, the
Preferred Shares will be validly issued, fully paid and nonassessable. The
Conversion Shares have been duly reserved for issuance upon conversion of the
Preferred Shares, and will be validly issued and outstanding, fully paid and
nonassessable shares of Common Stock when issued in accordance with this
Agreement and the Restated Certificate of Incorporation. The issuance, sale
and
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<PAGE>
delivery of the Preferred Shares to the Purchasers hereunder is not, and the
issuance, sale and delivery of the Conversion Shares to the Purchasers upon
conversion of the Preferred Shares will not be, subject to any preemptive
rights of stockholders of the Company or to any right of first refusal, right
of first offer or other similar right (contractual or otherwise) in favor of
any person (other than preemptive rights of stockholders party to the
Existing Shareholders Agreement, as to which waivers will have been obtained
on or prior to the Closing Date).
SECTION 2.03 VALIDITY. This Agreement has been, and the Stockholders
Agreement Amendment will be, duly executed and delivered by the Company and
this Agreement constitutes, and the Stockholders Agreement will constitute,
when executed and delivered by the Company as provided in this Agreement, the
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws from time to time in effect affecting the enforcement of
creditors' rights generally and to general equitable principles.
SECTION 2.04 CAPITAL STOCK; SUBSIDIARIES AND INVESTMENTS.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 450,000,000 shares of Common Stock, of which 427,431,940 shares
are issued and outstanding, fully paid and non-assessable, and no other
shares of capital stock have ever been issued. On the Closing Date, after the
filing of the Restated Certificate of Incorporation, the authorized capital
stock of the Company will consist of 600,000,000 shares of Common stock and
120,000 shares of Series A Preferred Stock. Schedule 2.04(a) sets forth a
complete and accurate list of all of the record owners of capital stock of
the Company and also reflects the fully-diluted Common Stock ownership of the
Company. None of the outstanding shares of capital stock of the Company were
issued in violation of any preemptive rights of stockholder of the Company or
any right of first refusal or right of first offer or similar right in favor
of any person and, except as contained in the Existing Shareholders
Agreement, no such rights exist. The number of shares of Common Stock
issuable upon conversion of all outstanding securities of the Company
convertible into Common Stock, and the number of shares of Common Stock
issuable upon exercise of outstanding warrants and options to purchase Common
Stock will not be affected by the transactions contemplated by this Agreement.
(b) Except as set forth on Schedule 2.04(b), neither the Company nor any
of its Subsidiaries holds of record or beneficially, or has any right or
obligation to acquire, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into or exchangeable for capital
stock of any other corporation or entity or (ii) any participating interest
in any partnership, joint venture or other non-corporate business enterprise.
The total authorized capital stock and par value of each of the Company's
Subsidiaries and the total issued and outstanding shares of capital stock of
each of such Subsidiary is set forth on Schedule 2.04(b). All of the issued
and outstanding shares of the capital stock of each of the Company's
Subsidiaries are duly
4
<PAGE>
and validly issued, fully paid and nonassessable and are owned of record and
beneficially by the Company, and except as set forth on Schedule 2.04(b) no
such shares are subject to any Liens.
(c) Other than as set forth in Schedule 2.04(c), (i) no subscription,
warrant, option, convertible security or other right (contingent or other) to
purchase or acquire any shares of any class of capital stock of the Company
or any of its Subsidiaries is authorized or outstanding and (ii) there is not
any commitment of the Company or any of its Subsidiaries to issue any shares,
warrants, options or other such rights or to distribute to holders of any
class of such entity's capital stock any evidences of indebtedness or assets.
Neither the Company nor any of its Subsidiaries has any obligation
(contingent or other) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof. To the best of the Company's
knowledge, other than as set forth on Schedule 2.04(c), there are no
stockholders agreements, registration rights agreements or other agreements
(whether or not the Company is a party thereto) relating to the voting or
transfer of the Company's securities.
SECTION 2.05 FINANCIAL STATEMENTS; ABSENCE OF UNDISCLOSED LIABILITIES;
NO MATERIAL ADVERSE CHANGE.
(a) The Company has delivered to the Purchasers true and complete copies
of the audited consolidated balance sheets of the Company as of December 31,
1998 and January 31, 1998 and the related statements of operations, changes
in stockholders' equity and cash flows for the eleven months ended December
31, 1998 and the year ended January 31, 1998, each certified by Deloitte &
Touche, LLP, the independent public accountants of the Company. Such
financial statements and the related notes thereto are in accordance with the
books and records of the Company and its Subsidiaries, and present fairly, in
all material respects, the consolidated financial position of the Company and
its Subsidiaries, as of such dates and the consolidated results of their
operations for the respective periods then ended in accordance with generally
accepted accounting principles, consistently applied.
(b) Except as set forth in Schedule 2.05(b) hereto, as of the date
hereof Closing Date neither the Company nor any of its Subsidiaries has any
material obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise to the Company or any Subsidiary, whether due or to
become due and regardless of when asserted) other than: (i) liabilities set
forth or reflected on the audited balance sheet as of December 31, 1998 (or
the related notes thereto) referred to in (a) above and (ii) liabilities and
obligations which have arisen December 31, 1998 in the ordinary course of
business and consistent with past practice (none of which is a liability
arising from breach of contract, breach of warranty, tort, infringement or
lawsuit).
(c) There has been no material adverse change in the business,
properties, assets, liabilities, results of operations, prospects or
financial condition of the Company and its Subsidiaries, taken as a whole,
since December 31, 1998.
5
<PAGE>
SECTION 2.06 GOVERNMENTAL APPROVALS. Other than filings required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
filing of the Restated Certificate of Incorporation with the Secretary of
State of Delaware, and subject to the accuracy of the representations and
warranties of the Purchasers set forth in Article IV hereof, no registration
or filing with, or consent or approval of, or other action by, any federal,
state, foreign or other governmental agency or instrumentality is or will be
necessary for the valid execution and delivery of this Agreement or the
Stockholders Agreement Amendment or the performance of this Agreement or the
Stockholders Agreement or the issuance, sale and delivery of the Preferred
Shares or the Conversion Shares.
SECTION 2.07 THIRD PARTY APPROVALS; CONSENTS. Except as set forth on
Schedule 2.07 hereto, no permit, consent, approval, authorization of,
declaration to or filing with, any third party is required in connection with
the execution and delivery of this Agreement or the Stockholders Agreement
Amendment or the performance of this Agreement or the Stockholders Agreement
or the filing of the Restated Certificate of Incorporation or the issuance of
the Preferred Shares and/or the Conversion Shares.
SECTION 2.08 LITIGATION, ETC. Except as set forth on Schedule 2.08
hereto, there are no actions, suits, proceedings, orders, investigations or
claims pending or, to the best of the Company's knowledge, threatened against
or affecting the Company or any of its Subsidiaries, at law or in equity, or
before or by any governmental department, commission, board, bureau, agency
or instrumentality which (i) if adversely determined, could reasonably be
expected to have a material adverse affect on the business, properties,
assets, liabilities, results of operations, prospects or condition (financial
or other) of the Company and its Subsidiaries, taken as a whole or (ii) which
seek to enjoin or prevent the consummation of the transactions contemplated
by this Agreement. Neither the Company nor any of its Subsidiaries is subject
to any judgment, order or decree of any court or other (foreign or domestic)
governmental agency.
SECTION 2.09 COMPLIANCE WITH LAWS. Neither the Company nor any of its
Subsidiaries has violated any law or any governmental regulation or
requirement which violation would reasonably be expected to have a Material
Adverse Effect, and the Company has not received notice of any such violation.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants to
the Company as follows:
SECTION 3.01 AUTHORIZATION. The execution, delivery and performance by
such Purchaser of this Agreement and the Stockholders Agreement Amendment and
the purchase and receipt of the Preferred Shares being purchased by such
Purchaser, have been duly authorized by
6
<PAGE>
all requisite action on the part of such Purchaser, and will not violate any
provision of law, any order of any court or other agency of government
applicable to such Purchaser, the governing instrument of such Purchaser, or
any provision of any material indenture, agreement or other instrument by
which such Purchaser or any of such Purchaser's properties or assets are
bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such material indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of such Purchaser.
SECTION 3.02 VALIDITY. This Agreement and the Stockholders Agreement
Amendment have been duly executed and delivered by such Purchaser and this
Agreement and the Stockholders Agreement each constitutes the legal, valid
and binding obligation of such Purchaser, enforceable against such Purchaser
in accordance with its terms, subject, as to enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally and to general equity principles.
SECTION 3.03 INVESTMENT REPRESENTATIONS. Such Purchaser is acquiring the
Preferred Shares being purchased by him, her or it hereunder for his, her or
its own account for the purpose of investment and not with a view to or for
sale in connection with any distribution thereof. Such Purchaser further
represents that he, she or it understands that (i) the Preferred Shares have
not been registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act pursuant to Section 4(2)
thereof, (ii) the Preferred Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or is
exempt from such registration, (iii) the Preferred Shares will bear a legend
to such effect, and (iv) the Company will make a notation on its transfer
books to such effect. Such Purchaser further understands the exemption from
registration afforded by Rule 144 under the Securities Act depends on the
satisfaction of various conditions and that, if applicable, Rule 144 affords
the basis of sales of the Preferred Shares only in limited amounts under
certain conditions.
Such Purchaser further represents and warrants to the Company that he,
she or it has had full opportunity to have access to and to examine the
facilities, personnel and records of the Company, that he, she or it is
capable of evaluating independently the prospects of the Company and has made
such an evaluation in connection with his, her or its investment in the
Preferred Shares being purchased by such Purchaser and had adequate financial
means to bear the risk of his, her or its investment in the Company.
7
<PAGE>
ARTICLE IV.
CONDITIONS PRECEDENT
SECTION 4.01 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASERS.
The obligations of each Purchaser hereunder are, at his, her or its option,
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on the date hereof and on
the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of such date, and the
Company shall have certified to such effect to the Purchasers in writing.
(b) PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions contained herein required to be performed or
complied with by it prior to or on the Closing Date, and the Company shall
have certified to such effect to the Purchasers in writing.
(c) ALL PROCEEDINGS TO BE SATISFACTORY; WAIVERS AND CONSENTS. All
corporate and other proceedings to be taken by the Company, and all waivers
and consents to be obtained by the Company in connection with the
transactions contemplated hereby (I.E., waivers and consents in respect of
all agreements listed on Schedule 2.07), shall have been taken or obtained by
the Company and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchasers and their counsel.
(d) CONSUMMATION OF TRANSACTIONS. On the Closing Date, (i) each of the
other Purchasers and the Company shall have consummated the transactions
contemplated hereby with respect to such parties and (ii) each of the
conditions precedent to the Company's obligations under the Acquisition
Agreement shall have been satisfied and not waived (unless waived with the
consent of the Purchasers), and the Company shall have certified to such
effect to the Purchasers in writing (it being understood and agreed that
simultaneously with the closing of the transactions contemplated by this
Agreement, the Company shall consummate the Acquisition in accordance with
the material terms set forth in the Acquisition Documents (as hereinafter
defined).
(e) AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION OF THE
COMPANY. On or prior to the Closing Date, the Restated Certificate of
Incorporation shall have been duly approved by the shareholders and Board of
Directors of the Company and duly filed with the Secretary of State of the
State of Delaware and the Purchasers and their counsel shall have received
evidence of such filing which is reasonably satisfactory to them.
8
<PAGE>
(f) STOCKHOLDERS AGREEMENT AMENDMENT. On the Closing Date, the Company
and each of the other parties thereto (other than the Purchasers) shall have
executed and delivered the Stockholders Agreement Amendment.
(g) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the
Purchasers shall have received copies of the following supporting documents:
(i) (1) copies of the Certificate of Incorporation of the
Company and all amendments thereto, certified as of a recent
date by the Secretary of State of the State of Delaware and
(2) a certificate of said Secretary dated as of a recent
date as to the due incorporation and good standing of the
Company and listing all documents of the Company on file
with said Secretary;
(ii) a certificate of the Secretary of the Company dated the
Closing Date and certifying: (1) that attached thereto is a
true and complete copy of the Bylaws of the Company as in
effect on the date of such certification; (2) that attached
thereto is a true and complete copy of resolutions adopted
by the Board of Directors of the Company authorizing the
execution and delivery of this Agreement and the
Shareholders Agreement Amendment, the performance of this
Agreement and the Shareholders Agreement, the filing of the
Restated Certificate of Incorporation, the issuance of the
Preferred Shares and the Conversion Shares and the
reservation of shares of Common Stock for issuance upon
conversion of the Preferred Shares, and that all such
resolutions are still in full force and effect and are all
the resolutions adopted by the Board of Directors of the
Company in connection with the transactions contemplated by
this Agreement; (3) that attached thereto is a true and
complete copy of resolutions adopted by the shareholders of
the Company authorizing the filing of the Restated
Certificate of Incorporation and that all such resolutions
are still in full force and effect and are all the
shareholder resolutions adopted in connection with the
transactions contemplated by this Agreement; (4) that,
except for the filing of the Restated Certificate of
Incorporation, the Certificate of Incorporation of the Buyer
has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause
(i)(2) above; (5) attached thereto is a true and correct
copy of the Acquisition Agreement together with all
exhibits, annexes, schedules and other material documents
executed or delivered in connection with the Acquisition
(collectively, the "ACQUISITION DOCUMENTS") and (5) as to
the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Shareholders Agreement
Amendment and/or any certificate or instrument furnished
pursuant hereto;
9
<PAGE>
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as
the Purchasers or their counsel may reasonably request.
All such supporting documents shall be satisfactory in form and
substance to the Purchasers and their counsel.
SECTION 4.02 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligations of the Company hereunder are, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on the Closing Date, with
the same effect as though such representations and warranties had been made
on and as of such date.
(b) PERFORMANCE. Each Purchaser shall have performed and complied with
all agreements and conditions contained herein required to be performed or
complied with by him, her or it prior to or on the Closing Date.
(c) SHAREHOLDER CONSENT. The requisite percentage of shareholders of the
Company shall have approved the filing of the Restated Certificate of
Incorporation.
ARTICLE V.
MISCELLANEOUS
SECTION 5.01 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance of the Preferred Shares pursuant
hereto, and all statements contained in any certificate or other instrument
delivered by the Company hereunder shall be deemed to constitute
representations and warranties made by the Company.
SECTION 5.02 BROKERAGE. Each party hereto shall indemnify and hold
harmless the other against and or in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 5.03 PARTIES IN INTEREST. All covenants and agreements contained
in this Agreement by or on behalf of any of the parties hereto shall bind and
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not.
10
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SECTION 5.04 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by first
class registered mail, postage prepaid,
if to the Company, to it at:
17655 Waterview Parkway
Dallas, Texas 75252
Attention: General Counsel
if to any Purchaser to him, her or it at:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022-6815
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other parties hereto.
SECTION 5.05 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 5.06 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof
and may not be modified or amended except in writing.
SECTION 5.07 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[signature pages follow]
11
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Michael Beltz
--------------------------------
Name: Michael Beltz
Title: EVP
WELSH, CARSON, ANDERSON
& STOWE VIII, L.P.
By: WCAS VIII Associates, LLC,
its General Partner
By
--------------------------------
Name:
Title: Managing Member
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
its General Partner
By
--------------------------------
Name:
Title: General Partner
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By
--------------------------------
Name:
Title:
WELSH, CARSON, ANDERSON
& STOWE VIII, L.P.
By: WCAS VIII Associates, LLC,
its General Partner
By /s/ Robert A. Minicucci
--------------------------------
Name: Robert A. Minicucci
Title: Managing Member
WCAS INFORMATION PARTNERS, L.P.
By: WCAS Info Partners,
its General Partner
By /s/ Thomas E. McInerney
--------------------------------
Name: Thomas E. McInerney
Title: General Partner
<PAGE>
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
James B. Hoover
Laura M. VanBuren
Robert A. Minicucci
Anthony J. de Nicola
Paul B. Queally
Lawrence B. Sorrel
Priscilla A. Newman
Rudolph E. Rupert
D. Scott Mackesy
By /s/ Laura M. VanBuren
--------------------------------
Laura M. VanBuren
Individually and as Attorney-in-Fact
/s/ Kenneth Melkis
----------------------------------
Kenneth Melkis
/s/ David F. Bellet
----------------------------------
David F. Bellet
/s/ John Almeida
----------------------------------
John Almeida
/s/ Sean Traynor
----------------------------------
Sean Traynor
/s/ Jonathan M. Rather
----------------------------------
Jonathan M. Rather
<PAGE>
SCHEDULE I
PURCHASERS / PURCHASE PRICE OF PREFERRED SHARES
<TABLE>
<CAPTION>
PURCHASER PREFERRED SHARES PURCHASE PRICE
OF PREFERRED SHARES
<S> <C> <C>
Welsh, Carson, Anderson 113,886 $113,886,000
& Stowe VIII, L.P.
WCAS Information Partners, L.P. 420 $420,000
Patrick J. Welsh 1,182.022 $1,182,022
Russell L. Carson 1,052.312 $1,052,312
Bruce K. Anderson 1,308.696 $1,308,696
Richard H. Stowe 322.658 $322,658
Andrew M. Paul 298.299 $298,299
Thomas E. McInerney 518.824 $518,824
Laura M. VanBuren 20.560 $20,560
James B. Hoover 35.435 $35,435
Robert A. Minicucci 433.283 $433,283
Anthony J. de Nicola 124.932 $124,932
Paul B. Queally 79.080 $79,080
Lawrence B. Sorrel 56.915 $56,915
Priscilla A. Newman 11.383 $11,383
Rudolph E. Rupert 56.915 $56,915
D. Scott Mackesy 14.229 $14,299
<PAGE>
Kenneth Melkis 100.000 $100,000
David F. Bellet 28.457 $28,457
Sean Traynor 10.000 $10,000
John Almedia 20.000 $20,000
Jonathan M. Rather 20.000 $20,000
------ -------
Totals: 120,000 $120,000,000
</TABLE>
<PAGE>
SCHEDULE 2.02(a)
AUTHORIZATION AGREEMENTS
None
<PAGE>
SCHEDULE 2.04(a)
<TABLE>
<CAPTION>
ALLIANCE DATA SYSTEMS CORPORATION REVISED 7/12/99 STOCK LEDGER
SHAREHOLDER ISSUE DATE # of SHARES TOTAL SHARES % of FULLY DILUTED % OF OWNERSHIP
COMMON SHARES ISSUED SHARES
<S> <C> <C> <C> <C> <C>
Limited Commerce 8/29/98 110,000,000
Corp 8/30/98 21,788,572
8/31/98 181,818
131,970,390 29.3437842 30.57518214
WCAS VII L.P. 8/29/98 110,115,170
8/30/98 (48,828,370 - 21,788,572)=
29,297,022
7/24/96 21,889,833 161,302,025 35.88571056 37.73747582
WCAS VIII L.P. 7/24/96 84,454,546 84,454,546 14.33155036 15.07948751
WCAS Information 8/29/96 & 8/30/96 622,110
Partners LP 7/24/96 364,007 986,117 0.21926437 0.230707373
Patrick J. Welsh 11/15/90 1,000,010
8/30/96 -100,000
8/30/96 -100,000
8/30/96 -100,000
8/30/96 183,240
7/24/95 862,667 1,745,917 0.388295867 0.405466667
Carol Ann Welsh FBO
Eric Welsh U/A dtd
11/26/84 8/30/96 100,000
100,000 0.022235127 0.023395538
Carol Ann Welsh FBO
Randall Welsh U/A dtd
11/26/84 8/30/96 100,000
100,000 0.022235127 0.023395538
Carol Ann Welsh FBO
Jennifer Welsh U/A dtd
11/26/84 8/30/96 100,000
100,000 0.022235127 0.023395538
Russell L. Carson 8/29/96 849,970
8/30/96 140,484
7/24/96 830,717 1,821,171 0.40483969 0.426072745
Bruce K. Anderson 8/29/96 1,000,010
8/30/96 305,400
8/29/97 -45,000
7/24/96 953,948 2,214,358 0.49236532 0.518080957
Richard H. Stowe 8/29/96 399,960
8/30/96 91,620
7/24/96 68,450 560,030 0.124523363 0.131022028
Andrew M. Paul 8/29/96 199,950
8/30/96 81,080
7/24/96 277,458 538,518 0.119740163 0.125859181
Thomas E. McInerney 8/29/96 399,960
8/30/96 91,620
7/24/96 432,096 823,678 0.205360534 0.2160XXXXX85
Laura Van Buren 8/29/96 20,020
8/30/96 6,108
7/24/96 9,108 35,234 0.007834325 0.006243164
James B. Hoover 8/29/96 40,040
8/30/96 12,216
7/24/96 9,130 61,386 0.013649256 0.014361585
Robert A. Miniccuci 8/29/96 350,020
8/30/96 51,080
7/24/98 318,367 729,467 0.162197916 0.170662726
Anthony J. de Nicola 8/29/98 124,960
8/30/98 24,432
7/24/98 63,705 213,097 0.047362388 0.049655189
Welsh Carson Anderson &
Stowe VI L.P. 8/29/96 49,999,950
49,999,950 11.11755253 11.69775707
WCAS Capital Partners
II LP 8/29/96 2,142,857
272,727 2,415,584 0.537108177 0.58568882
WCAS Capital Partners
II LP 9/15/96 5,900,000
5,900,000 1.31187251 1.360338715
Paul B. Qually 8/30/96 21,378
7/24/96 106,879 128,257 0.028518107 0.030006415
Page 1
<PAGE>
STOCK LEDGER
IRA FBO David F.
Ballett OLISC as
Custodian IRA
Rollover Account 8/30/96 122,160 122,160 0.027162432 0.028579969
David F. Ballett 7/24/96 45,456 45,456 0.010106677 0.010834482
Kristie M. Anderson 8/29/97 15,000
15,000 0.003335269 0.003509331
Daniel B. Anderson 8/29/97 15,000
15,000 0.003335269 0.003509331
Mark B. Anderson 8/29/97 15,000
15,000 0.003335269 0.003509331
Lawrence Sorrel 7/24/96 90,908 90,908 0.020213732 0.021266649
Priscilla Newman 7/24/96 16,162 18,182 0.004042701 0.004253777
Rudolph Rupert 7/24/96 90,909 90,909 0.020213732 0.021268649
D. Scott Mackesy 7/24/96 22,727 22,727 0.008063377 0.005317104
M. Carol Smith 6/25/97 45,000 45,000 0.010005807 0.010527992
Nathan J. Teburn 8/11/97 16,875 16,875 0.003752176 0.003947997
Wayne E. Denton 12/6/97 33,750 33,750 0.007504355 0.007895984
Ralph E. Spurgin 4/8/95 450,000 450,000 0.100058073 0.105279919
Don J. Herron 7/29/96 1,250 1,250 0.000277838 0.000292444
Kathleen S. Burgan 9/20/96 45,000 45,000 0.010005807 0.010527992
The Laurel Canyon
Trust, Betty M.
Jones, Trustee 9/25/96 56,250 56,250 0.012507259 0.01315000
Jay Looney 4/1/99 2,500 2,500 0.000555878 0.01315999
Patrick J. Sullivan 4/12/99 43,750 43,750 0.009727968 0.010235548
Richard F. McMichael 5/17/99 2,500 2,500 0.000555878 0.010235546
Treasury Shares 0 0 0
TOTAL ISSUED AND
OUTSTANDING SHARES 427,431,940 100%
TOTAL UNISSUED
SHARES 22,588,080
TOTAL AUTHORIZED
SHARES 450,000,000 450,000,000
STOCK WARRANTS AND
EMPLOYEE STOCK
OPTION PLAN:
JCP Telecom Systems,
Inc. Stock Warrants 1,503,759
1,503,759 0.334362728
ADSC Employee Stock Exercised & issued
Option Plan - shares (-45,000 -
6,270,000 + 10,875 - 33,750 -
6,730,000 + 450,000 - 1,250 -
6,500,000 = 45,000 - 58,250 -
21,500,000 as of 2,500 - 43,750 - 20,803,125 4.825801325
12/1/98 2,500)
TOTALLY FULLY
DILUTED SHARES 449,738,824 100%
REMAINING UNISSUED
UNALLOCATED
AUTHORIZED SHARES 261,176
TOTAL AUTHORIZED
SHARES 450,000,000 450,000,000
450,000,000
</TABLE>
Page 2
<PAGE>
SCHEDULE 204(b)
All subsidiaries are 100% owned by Alliance Data Systems Corporation. All
shares of the U.S. subsidiaries and 65% of the shares of non U.S. subsidiaries
have been pledged as collateral pursuant to the credit agreement with J. P.
Morgan dated July 24, 1998.
<TABLE>
<CAPTION>
TOTAL ISSUED AND
TOTAL AUTHORIZED OUTSTANDING SHARES ALL SHARES
SUBSIDIARY CAPITAL STOCK PAR VALUE OF CAPITAL STOCK OWNED BY
- ---------- ---------------- --------- ------------------ ----------
<S> <C> <C> <C> <C>
ADS Alliance Data Systems, Inc. 1,000 $ 1.00 10 shares ADSC
World Financial Network National Bank 1,000,000 $100.00 175,000 shares ADSC
Harmonic Systems Incorporated 1,000 $ .01 100 shares ADSC
Harmonic Technology Licensing, Inc. 50,000 $ .01 1,000 shares Harmonics
Systems
Incorporated
Loyalty Management Group, Inc. unlimited No par 1,000 shares ADSC
LMG Travel Services Ltd. unlimited No par 1 share Loyalty
Management
Group, Inc.
Alliance Data Systems
(New Zealand) Limited 402,325 $ 1.00 402,325 ordinary shares ADSC
4,827,900 $ 1.00 4,827,900 preference shares ADSC
ADS Reinsurance Ltd. 120,000 $ 1.00 120,000 shares ADSC
</TABLE>
<PAGE>
SCHEDULE 2.04(c)
21,500,000 shares have been allocated to the Alliance Data Systems Employee
Stock Option Plan
696,875 shares have been issued pursuant to the Alliance Data Systems
Employee Stock Option Plan
Options are issued and outstanding to acquire 20,386,375 shares under the
Alliance Data Systems Employee Stock Option Plan
Right To Participate In Co Sale Agreement between Welsh Carson Anderson &
Stowe VII, L.P., WCAS Capital Partners II, L.P., and JCP Telecom Systems, Inc.
dated January 24, 1996
Stock Purchase Warrant to Purchase Common Stock of World Financial Network
Holding Corporation issued to JCP Telecom Systems, Inc. dated August 30, 1996
(1,503,759 shares reserved for issuance)
Stockholders Agreement dated as of January 31, 1996 among World Financial
Network Holding Corporation, Limited Commerce Corp., Welsh, Carson, Anderson &
Stowe VII, L.P. and the several investors named in Annex I hereto
Amended and Restated Stockholders Agreement dated as of August 30, 1996 among
World Financial Network Holding Corporation, Limited Commerce Corp., Welsh,
Carson, Anderson & Stowe VII, L.P. and the several other WCAS Investors named in
Annex I hereto, as amended in the Amendment to Amended and Restated Stockholders
Agreement dated July 24, 1998 and the Amendment to Amended and Restated
Stockholders Agreement dated as of August 31, 1998
<PAGE>
SCHEDULE 2.05(b)
MATERIAL OBLIGATIONS OR LIABILITIES
None
<PAGE>
EXHIBIT B
FORM OF STOCKHOLDERS AGREEMENT AMENDMENT
See Tab 3
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
dated as of August 30, 1996
among
WORLD FINANCIAL NETWORK HOLDING CORPORATION,
LIMITED COMMERCE CORP.,
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
and
THE SEVERAL OTHER WCAS INVESTORS NAMED IN ANNEX I HERETO
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions...................................................2
ARTICLE II
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
SECTION 2.1 General Restrictions..........................................7
SECTION 2.2 Restrictive Legend............................................8
SECTION 2.3 Rights of First Refusal.......................................9
SECTION 2.4 Tag-along Rights.............................................10
SECTION 2.5 Improper Transfer............................................13
SECTION 2.6 Preemptive Rights............................................13
SECTION 2.7 Termination..................................................13
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 Demand Registration..........................................14
SECTION 3.2 Piggy-Back Registration......................................15
SECTION 3.3 Reduction of Offering........................................15
SECTION 3.4 Registration Procedures......................................16
SECTION 3.5 Registration Expenses........................................19
SECTION 3.6 Indemnification by the Issuer................................19
SECTION 3.7 Indemnification by Selling Holders...........................20
SECTION 3.8 Conduct of Indemnification Proceedings ......................21
SECTION 3.9 Contribution.................................................22
SECTION 3.10 Participation in Underwritten Registrations..................23
SECTION 3.11 Current and Periodic Reports.................................24
SECTION 3.12 Holdback Agreements..........................................24
ARTICLE IV
CORPORATE GOVERNANCE; COVENANTS
SECTION 4.1 Composition of the Board.....................................24
SECTION 4.2 Action by the Board..........................................25
SECTION 4.3 Consent of the Board of Directors............................26
SECTION 4.4 Charter and Bylaws...........................................28
SECTION 4.5 Information..................................................28
SECTION 4.6 Non-Solicitation.............................................29
i
<PAGE>
SECTION 4.7 Protection of the Business; Investment Opportunities.........29
SECTION 4.8 Capital Commitments..........................................30
SECTION 4.9 Termination..................................................31
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Headings.....................................................31
SECTION 5.2 No Inconsistent Agreements...................................31
SECTION 5.3 Entire Agreement; Amendments; No Waivers.....................31
SECTION 5.4 Notices......................................................32
SECTION 5.5 Applicable Law...............................................32
SECTION 5.6 Severability.................................................32
SECTION 5.7 Successors, Assigns, Transferees.............................32
SECTION 5.8 Counterparts; Effectiveness..................................33
SECTION 5.9 Fees and Expenses............................................33
SECTION 5.10 Recapitalization, etc........................................33
SECTION 5.11 Remedies.....................................................33
SECTION 5.12 Jurisdiction.................................................33
Annex I -- WCAS Investors
Exhibit A - Form of Agreement to be Bound
ii
<PAGE>
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of August __,
1996 among World Financial Network Holding Corporation (the "Issuer"),
Limited Commerce Corp. ("Limited Commerce"), Welsh, Carson, Anderson & Stowe
VII, L.P. ("WCAS VII") and the several investors named in Annex I hereto
(collectively with WCAS VII, the "WCAS Investors").
WHEREAS, the Issuer, Limited Commerce and WCAS VII are parties to
the WFN Stock Purchase Agreement (as defined below) pursuant to which certain
WCAS Investors are the holders of an aggregate of 60% of the outstanding
Common Stock, par value $.01 per share, of the Issuer, after giving effect to
such sale from the Issuer and Limited Commerce;
WHEREAS, the Issuer, Limited Commerce and certain of the WCAS
Investors are parties to a Stockholders Agreement, dated as of January 31,
1996 (the "Original Agreement");
WHEREAS, the Issuer and Business Services Holdings, Inc., a Delaware
corporation ("BSH"), have entered into an Agreement and Plan of Merger dated as
of August __, 1996 pursuant to which BSH has been merged (the "Merger") with and
into the Issuer, and shares of BSH Common Stock and BSH Preferred Stock (as
defined in said Agreement and Plan of Merger) have been converted into the right
to receive WFN Common Stock;
WHEREAS, the Issuer, Limited Commerce and the WCAS Investors have
entered into a Securities Purchase Agreement dated as of August __, 1996 (as the
same may be amended or modified from time to time, the "1996 Securities Purchase
Agreement") whereby (i) the WCAS Investors have agreed to sell, and Limited
Commerce has agreed to purchase, shares of Common Stock and Notes (as each such
term is defined therein) and (ii) Limited Commerce has agreed to assume certain
obligations of certain WCAS Investors under Section 1.04 of the BSH Securities
Purchase Agreement (as defined below);
WHEREAS, the parties to the Original Agreement desire to amend and
restate the Original Agreement in order to reflect the rights and obligations of
the Issuer, Limited Commerce and the WCAS Investors after giving effect to the
transactions contemplated by the Merger Agreement and the 1996 Securities
Purchase Agreement and to confirm the restrictions contained in the Original
Agreement on the sale, assignment, transfer, encumbrance or other disposition of
the Common Stock and the provision of certain rights and obligations relating to
the Common Stock, all as more particularly set forth herein;
NOW THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. (a) The following terms, as used herein, have
the following meanings:
"Affiliate", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, such
Person. For purposes of this definition, "control" (including, with correlative
meaning, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.
"BSH Securities Purchase Agreement" means the Securities Purchase
Agreement dated as of January 24, 1996 among BSH and the several Purchasers
named in Schedule I and Schedule II thereto, as the same may be amended or
modified from time to time.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized by law to close.
"Commission" means the Securities and Exchange Commission and any
successor having similar powers.
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Issuer.
"Competitor" means any Person which competes, directly or
indirectly, with any operations of Parent or any of its Subsidiaries, as such
operations exist as of the date hereof.
"Convertible Securities" means securities convertible into or
exercisable for Issuer equity securities.
"Credit Card Processing Agreement" means each Credit Card Processing
Agreement in effect from time to time between the Issuer and Limited Commerce or
one of its Affiliates which is a party thereto, as the same may be modified or
amended from time to time.
"Debt" means, with respect to any Person, at any date, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes
2
<PAGE>
or other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all obligations of such Person
as lessee under leases which are capitalized in accordance with generally
accepted accounting principles, (v) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person, and
(vi) all Debt of others guaranteed by such Person.
"Duly Endorsed" means duly endorsed in blank by the Person or Persons
in whose name a stock certificate is registered or accompanied by a duly
executed stock assignment separate from the certificate with the signature(s)
thereon guaranteed by a commercial bank or trust company or a member of a
national securities exchange or of the National Association of Securities
Dealers, Inc.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles.
"Holder" means each Person (other than the Issuer) who shall be a party
to this Agreement, whether in connection with the transactions contemplated by
WFN Stock Purchase Agreement, the Merger Agreement, the 1996 Securities Purchase
Agreement or otherwise, so long as such Person shall "beneficially own" (as such
term is defined in Rule 13d-3 under the Exchange Act) any shares of Common
Stock.
"Incurrence" means the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or responsible for the payment of, any
Debt.
"Issuer Board" means the Board of Directors of the Issuer.
"Lien" means, with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim of
any kind in respect of such property or asset.
"Merger Agreement" means the Agreement and Plan of Merger dated as of
August , 1996 between the Issuer and BSH, as the same may be amended or modified
from time to time.
"Parent" means The Limited, Inc., a Delaware corporation.
3
<PAGE>
"Permitted Transferee" means (i) in the case of Limited Commerce,
Parent or any Subsidiary of Parent and (ii) in the case of a WCAS Investor
listed on Annex I hereto, if such WCAS Investor is an individual, such
individual's spouse or lineal descendants, or a trust for the benefit of same.
"Person" means an individual, partnership, corporation, trust, joint
stock company, association, joint venture, or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Processing Business" means the business of processing private label or
bank credit card transactions initiated by consumers primarily for the retail
industry (it being understood that a Person shall be deemed to be engaged in the
private label or bank credit card processing business if such Person performs
any one or more of the following functions: (i) transaction authorization, (ii)
data capture, (iii) statement preparation, (iv) credit extension and (v) related
customer and merchant services); PROVIDED that a Person outside North America
shall not be deemed to be engaged in the Processing Business unless at least 50%
of such Person's operations are of the type described in this paragraph.
"Public Offering" means any primary or secondary public offering of
equity securities of the Issuer pursuant to an effective registration statement
under the Securities Act other than pursuant to a registration statement on Form
S-4 or Form S-8 or any successor or similar form.
"Qualified Public Offering" shall mean an underwritten Public Offering
of Common Stock of the Issuer in which the aggregate price paid by the public
shall be at least $30 million.
"Registrable Securities" means the Common Stock held by Limited
Commerce, the WCAS Investors and the respective Transferees of Limited Commerce
or any WCAS Investor and any capital stock for which Common Stock is exchanged
or into which it is converted; PROVIDED that such securities shall cease to be
Registrable Securities when (x) a registration statement relating to such
securities shall have been declared effective by the Commission, and such
securities shall have been disposed of pursuant to such effective registration
statement, or (y) such securities are sold under circumstances in which all of
the applicable conditions of Rule 144 (or any similar provisions then in effect)
under the Securities Act are met or such shares may be sold pursuant to Rule
144 (k).
"Registration Expenses" means all (i) registration and filing fees,
(ii) fees and expenses of compliance with securities
4
<PAGE>
or blue sky laws (including reasonable fees and disbursements of a qualified
independent underwriter, if any, counsel in connection therewith and the
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
internal expenses of the Issuer (including, without limitation, all salaries and
expenses of officers and employees performing legal or accounting duties), (v)
fees and disbursements of counsel for the Issuer, (vi) customary fees and
expenses for independent certified public accountants retained by the Issuer
(including the expenses of any comfort letters), (vii) fees and expenses of any
special experts retained by the Issuer in connection with such registration,
(viii) reasonable fees and expenses of (A) one counsel for Limited Commerce and
its Permitted Transferees and (B) one counsel for the WCAS Investors and their
Permitted Transferees, (ix) fees and expenses of listing the Registrable
Securities on a securities exchange or on the NASDAQ National Market System, (x)
rating agency fees, (xi) reasonable fees and expenses of counsel for the
Underwriter, (xii) reasonable fees and expenses of the Underwriter (excluding
discounts or commissions relating to the distribution of the Registrable
Securities) and (xiii) out-of-pocket expenses of the Issuer.
"Related Business" means (i) the business of providing one or more
processing functions (as set forth in the definition of "Processing Business")
for private label or bank credit card transactions initiated by consumers in
particular consumer markets other than retail and (ii) the business of providing
data base management services primarily for retailers.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Holder" means Limited Commerce or any Transferees of Limited
Commerce or any WCAS Investor or any Transferees of any WCAS Investor who
propose to Transfer Registrable Securities pursuant to Article III.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which a majority of the capital stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are at the time directly
or indirectly owned by such Person.
"Third Party" means a prospective purchaser of Common Stock from a
Holder in an arm's-length transaction where such Purchaser is not the Issuer or
an Affiliate of the Issuer.
5
<PAGE>
"Underwriter" means a securities dealer who purchases any Registrable
Securities as a principal in connection with a distribution of such Registrable
Securities and not as part of such dealer's market-making activities.
"Voting Securities" means any class or series of capital stock and any
bond, debenture or other obligation of the Issuer or WFN having the right to
vote generally on matters voted on by the stockholders of the Issuer or WFN, as
the case may be.
"WFN" means World Financial Network National Bank, a national banking
association and a wholly owned subsidiary of the Issuer.
"WFN Board" means the Board of Directors of WFN.
"WFN Stock Purchase Agreement" means the Stock Purchase Agreement dated
as of October 24, 1995 among the Issuer, Limited Commerce and WCAS VII, as the
same may be amended or modified from time to time.
(b) Each of the following terms is defined in the Section opposite such
term:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Additional Shares 5.1
BSH Preamble
Charter Documents 4.4
Demand Registrant 3.1
Demand Registration 3.1
Effective Date 5.9
Existing Portfolio Company 4.7
Indemnified Party 3.8
Indemnifying Party 3.8
Issuer Preamble
Limited Commerce Preamble
Merger Preamble
Nominee 4.1
Offer 2.3
Offer Notice 2.3
Offer Price 2.3
Offered Stock 2.3
Offeree Holder 2.3
Offering Holder 2.3
Original Agreement Preamble
Piggy-Back Registration 3.2
Preemptive Rights Notice 2.6
Registration Request 3.1
Sale Date 2.4
6
<PAGE>
1996 Securities Purchase Preamble
Agreement
Tag-along Notice 2.4
Tag-along Notice Date 2.4
Tag-along Notice Period 2.4
Tag-along Offer 2.4
Tag-along Offer Notice 2.4
Tag-along Offeree 2.4
Tag-along Purchaser 2.4
Tag-along Ratio 2.4
Transfer 2.1
Transferee 2.1
Transferring Party 2.4
WCAS VII Preamble
WCAS Investors Preamble
</TABLE>
ARTICLE II
RIGHTS AND OBLIGATIONS WITH
RESPECT TO TRANSFER
SECTION 2.1 GENERAL RESTRICTIONS. (a) No Holder shall, directly or
indirectly, transfer, sell, assign, pledge, hypothecate, encumber or otherwise
dispose of any Common Stock to any Person (any such act being referred to as a
"Transfer", with the term "Transferee" to mean any transferee in a Transfer)),
except (i) in compliance with all applicable federal and state securities laws
and (ii) as expressly permitted by this Agreement.
(b) The WCAS Investors shall be permitted to Transfer any or all of
their Common Stock after January 31, 1998 (i) in a Public Offering upon exercise
of the Registration Rights provided for in Article III, subject to Section 3.2,
or (ii) subject to Sections 2.3 and 2.4 and with the consent of Limited
Commerce, to a Third Party; provided that any Transferee pursuant to clause (ii)
shall have agreed in writing to be bound (through execution of an agreement
substantially in the form of Exhibit A hereto) by the terms of this Agreement
applicable to Holders.
(c) The WCAS Investors shall be permitted to Transfer any or all of
their Common Stock after January 31, 2000, subject to Sections 2.3 and 2.4, to
any Person other than a Competitor; provided that any Transferee pursuant to
this paragraph shall have agreed in writing to be bound (through execution of an
agreement substantially in the form of Exhibit A hereto) by the terms of this
Agreement applicable to Holders.
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(d) Limited Commerce shall be permitted to Transfer any or all of its
Common Stock after January 31, 1998 (i) in a Public Offering upon exercise of
the registration rights provided for in Article III, subject to Section 3.2, or
(ii) subject to Sections 2.3 and 2.4, and with the consent of WCAS VII, to a
Third Party; provided that any Transferee pursuant to clause (ii) shall have
agreed in writing to be bound (through execution of an agreement substantially
in the form of Exhibit A hereto) by the terms of this Agreement applicable to
Holders.
(e) Limited Commerce shall be permitted to Transfer any or all of its
Common Stock after January 31, 2000, subject to Sections 2.3 and 2.4, to any
Person; provided that any Transferee pursuant to this paragraph shall have
agreed in writing to be bound (through execution of an agreement substantially
in the form of Exhibit A hereto) by the terms of this Agreement applicable to
Holders.
(f) Notwithstanding any other provision of this Agreement to the
contrary, any Holder may at any time Transfer any or all shares of Common Stock
to one or more of its Permitted Transferees so long as (i) such Permitted
Transferee shall have agreed in writing to be bound (through execution of an
agreement substantially in the form of Exhibit A hereto) by the terms of this
Agreement applicable to Holders and (ii) the Transfer to such Permitted
Transferee is not in violation of any applicable federal or state securities
laws.
SECTION 2.2 RESTRICTIVE LEGEND. (a) For so long as this Agreement
remains in effect, each certificate representing Common Stock owned by any
Holder shall include a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT, DATED AS OF AUGUST , 1996, A COPY OF WHICH
MAY BE OBTAINED FROM WORLD FINANCIAL NETWORK HOLDING CORPORATION.
(b) If any shares of Common Stock shall cease to be Registrable
Securities, the Issuer shall, upon the written request of the holder thereof,
issue to such holder a new certificate evidencing such shares without the first
sentence of the legend required by Section 2.2(a) endorsed thereon. If any
shares of Common Stock cease to be subject to any restrictions on Transfer set
forth in this Agreement, the Issuer shall, upon the written request of the
Holder thereof, issue to such Holder a new
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certificate evidencing such shares without the second sentence of the legend
required by Section 2.2(a) endorsed thereon.
SECTION 2.3 RIGHTS OF FIRST REFUSAL. (a) No Holder (each an "Offering
Holder") will Transfer any Common Stock pursuant to Section 2.1(b) (ii), 2.1(c),
2.1(d) (ii) or 2.1(e) without first giving Limited Commerce (in the case of
transfers by any WCAS Investor or any of its Permitted Transferees) or WCAS VII
(in the case of any transfer by Limited Commerce or any of its Permitted
Transferees) (each an "Offeree Holder") prior notice thereof (an "Offer Notice")
and the opportunity (as hereinafter provided) to purchase all but not less than
all such Common Stock (the "Offered Stock") at a cash price (the "Offer Price")
equal to the sum of the amount of any cash plus the fair market value of any
other consideration offered by the prospective purchaser or other transferee
pursuant to a bona fide offer to purchase. The Offer Notice shall constitute an
offer (the "Offer") by an Offering Holder to sell the Offered Stock to the
Offeree Holder at the Offer Price and shall state the identity of the purchaser
or the Transferee and the terms of the proposed Transfer.
(b) The Offer may be accepted within 45 days of receipt by the Offeree
Holder of the Offer Notice and, if accepted, such acceptance shall constitute
the Offeree Holder's binding agreement to purchase the Offered Stock by the
later of (i) the date 30 days after such acceptance or (ii) the date by which
the prospective purchaser or Transferee would have been obligated to purchase
the Offered Stock. If the Offer is not accepted or the Offered Stock is not
purchased as contemplated above, the Offering Holder may Transfer the Offered
Stock to such prospective purchaser or Transferee at a price not less than the
Offer Price and on substantially the same terms as described in the Offer
Notice. If the Transfer to such prospective purchaser or Transferee is not
consummated as contemplated above within 30 days after the expiration of the
45-day offer period or earlier irrevocable rejection of the Offer or failure to
purchase the Offered Stock after acceptance of the Offer, no Transfer may be
made by the Offering Holder without again complying with this Section 2.3.
Notwithstanding the foregoing, if the purchase and sale of the Offered Stock is
subject to any prior regulatory approval, the time periods specified above
within which such purchase and sale must be consummated shall be extended until
the expiration of five Business Days after all such approvals shall have been
received.
(c) If the consideration offered by the prospective purchaser or
Transferee includes non-cash consideration, the Offeree Holder and Offering
Holder shall negotiate in good faith with a view to agreeing upon the fair
market value of such non-
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cash consideration. If, despite such good faith negotiations, the Offering
Holder and Offeree Holder are unable to agree on such fair market value within
15 days following receipt by the Offeree Holder of the Offer Notice, each of the
Offering Holder and the Offeree Holder shall, at its own expense, retain an
investment banking firm of national reputation to determine such fair market
value. If such two investment banking firms do not make substantially similar
determinations and neither determination is acceptable to both the Offering
Holder and the Offeree Holder, then such investment banking firms shall, at the
equally shared expense of the Offering Holder and the Offeree Holder, retain a
third investment banking firm of national reputation to select between the two
determinations, which selection shall be binding upon each party. If a
determination under this subsection (c) is required, the deadline for acceptance
provided for in this Section 2.3 shall be postponed until the fifth Business Day
after the date of such determination.
(d) The rights of Limited Commerce and the WCAS Investors under this
Section 2.3 are transferable to any Permitted Transferee of Limited Commerce or
any WCAS Investor, as the case may be, that executes an agreement substantially
in the form of Exhibit A hereto.
SECTION 2.4 TAG-ALONG RIGHTS. (a) Except as provided in Section
2.4(e), if any Holder ("Transferring Party") proposes to sell or otherwise
dispose of any of its Common Stock pursuant to Section 2.1(b) (ii), 2.1(c),
2.1(d) (ii) or 2.1(e) to any Third Party (a "Tag-along Purchaser") pursuant
to a bona fide offer to purchase (a "Tag-along Offer"), the Transferring
Party shall provide written notice (the "Tag-along Offer Notice") of such
Tag-along Offer to the Issuer and the Issuer shall promptly provide written
notice (the effective date of such notice being the "Tag-along Notice Date")
of such Tag-along Offer to such other Holder and its Permitted Transferees
(the "Tag-along Offeree"), the Tag-along Ratio (as defined below), the
consideration per share of Common Stock and other material terms and
conditions of the Tag-along Ratio (as defined below), the consideration per
share of Common Stock and other material terms and conditions of the
Tag-along Offer and, in the case of a Tag-along Offer in which the
consideration payable for Common Stock consists in part or in whole of
consideration other than cash, such information relating to such
consideration as the Tag-along Offeree may reasonably request as being
necessary for such Tag-along Offeree to evaluate such non-cash consideration,
it being understood that such request shall not obligate the Transferring
Party to deliver any information to such Tag-along Offeree not provided to
the Transferring Party by the Tag-along Purchaser.
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Each Tag-along Offeree shall have the right, exercisable as set forth
below, to accept the Tag-along Offer for up to the number of shares of Common
Stock determined pursuant to Section 2.4(b). The consideration per share paid to
any Tag-along Offeree shall be not less than the highest price paid per share to
the Transferring Party in respect of its Common Stock. Each Tag-along Offeree
that desires to accept the Tag-along Offer shall provide the Transferring Party
with written revocable notice (a "Tag-along Notice") (specifying, subject to
Section 2.4(b), the number of Common Stock which such Tag-along Offeree desires
to sell) within 45 days after the Tag-along Notice Date, and shall
simultaneously provide a copy of such Tag-along Notice to the Issuer, and the
Issuer shall forward a copy of each such Tag-along Notice to the Transferring
Party and each other Tag-along Offeree. Such Tag-along Notice may be withdrawn
or modified at any time until the expiration of 45 days after the Tag-along
Notice Date (the "Tag-along Notice Period"). At the expiration of the Tag-along
Notice Period, the most recent Tag-along Notice shall become irrevocable and
binding, and shall constitute an irrevocable acceptance of the Tag-along Offer
by the Tag-along Offeree for the Common Stock specified therein.
As soon as practicable after the expiration of the Tag-along Notice
Period, the Transferring Party shall notify the Issuer and each accepting
Tag-along Offeree of the number of shares of Common Stock such Tag-along Offeree
is obligated to sell or otherwise dispose of pursuant to the Tag-along Offer,
such number to be calculated in accordance with Section 2.4(b). The Transferring
Party shall notify the Issuer and each accepting Tag-along Offeree of the
proposed date of any sale ("Sale Date") pursuant to this Section 2.4 no less
than five days prior to the Sale Date, and each accepting Tag-along Offeree
shall deliver to the Transferring Party the Duly Endorsed certificate or
certificates representing the Common Stock to be sold or otherwise disposed of
pursuant to such offer by such Tag-along Offeree, together with a limited
power-of-attorney authorizing the Transferring Party to sell or otherwise
dispose of such Common Stock pursuant to the terms of the Tag-along Offer and
all other documents required to be executed in connection with such Tag-along
Offer, no less than two days prior to the Sale Date.
(b) Each Tag-along Offeree shall have the right to sell, pursuant to
any Tag-along Offer, a number of shares of Common Stock less than or equal to
the product of the total number of Common Stock offered to be sold by the
Transferring Party or offered to be purchased by the Tag-along Purchaser as set
forth in such Tag-along Offer multiplied by a fraction (the "Tag-along Ratio"),
the numerator of which is the number of Common Stock then held by such Tag-along
Offeree and the denominator of which shall be an amount equal to the total
number of
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shares of Common Stock then held by all Tag-along Offerees exercising rights
under this Section 2.4 PLUS the total number of shares of Common Stock then
held by the Transferring Party. The number of shares of Common Stock sold by
each Tag-along Offeree in a Tag-along Offer shall be equal to the lesser of
the number of shares of Common Stock calculated pursuant to the formula set
forth in this Section 2.4(b) and the number of shares of Common Stock
specified in such Tag-along Offeree's Tag-along Notice in respect of such
Tag-along Offer. If at the termination of the Tag-along Notice Period any
Tag-along Offeree shall not have accepted the Tag-along Offer, such Tag-along
Offeree will be deemed to have waived any and all of its rights under this
Section 2.4 with respect to the sale of other disposition of any of its
Common Stock pursuant to such Tag-along Offer and no Common Stock held by any
such Tag-along Offeree will be included in such Tag-along Offer.
(c) The Transferring Party shall have 45 days from the termination of
the Tag-along Notice Period in which to consummate the sale contemplated by the
Tag-along Offer to the Tag-along Purchaser at the price and on the terms set
forth in the Tag-along Offer Notice; PROVIDED that if the purchase and sale of
such Common Stock is subject to any prior regulatory approval, the time period
during which such purchase and sale may be consummated shall be extended until
the expiration of five Business Days after all such approvals shall have been
received. If, at the end of the period set forth in this Section 2.4(c) the
Transferring Party has not completed the sale contemplated by the Tag-along
Offer Notice, all the restrictions on sale or other disposition contained in
this Agreement with respect to Common Stock owned by the Transferring Party
shall again be in effect.
(d) Within one Business Day after the consummation of the sale or other
disposition of the Common Stock pursuant to the Tag-along Offer, the
Transferring Party shall notify the Tag-along Offeree thereof, shall remit to
each of the Tag-along Offerees the total sales price specified in the Tag-along
Offer Notice of the Common Stock of such Tag-along Offeree sold or otherwise
disposed of pursuant thereto, and shall furnish such other evidence of such sale
(including the time of completion) and the terms thereof as may be reasonably
requested by the Tag-along Offeree.
(e) Notwithstanding anything contained in this Section 2.4, there shall
be no liability on the part of a Transferring Party to any Tag-along Offeree if
the same of Common Stock pursuant to Section 2.4(c) is not consummated for
whatever reason. Whether to effect a sale of Common Stock pursuant to this
Section 2.4 by a Transferring Party is in the sole and absolute discretion of
the Transferring Party.
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(f) Each Tag-along Offeree shall be required to bear its proportionate
share of any escrows, holdbacks or adjustments in purchase price under the terms
of the purchase agreement relating to such Tag-along Offer; PROVIDED that the
amount borne by any Tag-along Offeree shall not exceed the net proceeds received
by such Tag-along Offeree for the Common Stock sold by it pursuant to such
Tag-along Offer.
SECTION 2.5 IMPROPER TRANSFER. (a) Any attempt to Transfer any Common
Stock not in compliance with this Agreement shall be null and void and neither
the Issuer nor any transfer agent of the Issuer shall register, or otherwise
recognize in the Issuer's stock records, any such improper Transfer.
SECTION 2.6 PREEMPTIVE RIGHTS. If the Issuer shall, other than (i)
pursuant to any employee incentive arrangement, (ii) upon conversion of
Convertible Securities of the Issuer outstanding on January 31, 1996, (iii) in a
Public Offering, (iv) as a dividend on or other distribution in respect of all
outstanding shares of Common Stock, (v) pursuant to Sections 1.03 and 1.04 of
the BSH Securities Purchase Agreement or (vi) in connection with any merger,
acquisition or other business combination, issue any of its equity securities or
Convertible Securities, each Holder shall have the right to purchase for cash
the number or amount of such equity securities or Convertible Securities on the
same terms and at the same price as the issue price of such equity security or
Convertible Security so that, after the issuance of all such equity securities
or Convertible Securities, such Holder would, in the aggregate, hold the same
proportional interest of such equity securities (or, in the case of Convertible
Securities, to be outstanding upon conversion or exercise of all such
Convertible Securities) as is held by it prior to the issuance of any such
additional equity securities or Convertible Securities. Upon consummation of any
issuance by the Issuer subject to the provisions of this Section 2.6, the Issuer
shall promptly deliver written notice (a "Preemptive Rights Notice") of such
issuance to the other Holders. Each Holder's right to purchase securities under
this Section 2.6 with respect to any issuance of securities shall terminate 15
days after the delivery of the Preemptive Rights Notice.
SECTION 2.7 TERMINATION. The provisions of Article II shall terminate
and be of no further force and effect from and after the date of the
consummation of a Qualified Public Offering.
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ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 DEMAND REGISTRATION. (a) REQUEST FOR REGISTRATION. At any
time after the consummation of a Public Offering, Limited Commerce, any WCAS
Investor or any other Holder to which rights under this Section 3.1 have been
transferred or assigned (a "Demand Registrant") may make a written request (the
"Registration Request") for registration (a "Demand Registration") under the
Securities Act of Registrable Securities having a value (determined in the good
faith judgment of Limited Commerce (in the case of a Registration Request by
Limited Commerce or any Transferee of Limited Commerce) or WCAS VII (in the case
of a Registration Request by any WCAS Investor or any Transferee of any WCAS
Investor)) of not less than $10 million (or, if less, all of the Registrable
Securities then owned by such Demand Registrant). The Registration Request will
specify the number of shares of Registrable Securities proposed to be sold and
will also specify the intended method of disposition thereof; PROVIDED that the
Issuer shall not be obligated to effect (i) more than two Demand Registrations
for the WCAS Investors and their Transferees in the aggregate, (ii) more than
two Demand Registrations for Limited Commerce and its Transferees in the
aggregate or (iii) a Demand Registration if counsel to the Issuer delivers to
the Demand Registrant a written opinion in form and substance satisfactory to
the Demand Registrant to the effect that registration under the Securities Act
is not necessary in order for the Demand Registrant to sell the Registrable
Securities in the manner contemplated by the Demand Registrant and, following
such sale, the Transferee (assuming such Transferee is not the Issuer or an
affiliate of the Issuer within the meaning of the Securities Act) will be free
to resell such Registrable Securities without restriction and without
registration under the Securities Act.
(b) EFFECTIVE REGISTRATION. For purposes of Section 3.1(a), a
registration of Registrable Securities will not count as a Demand Registration
until it has become effective under the Securities Act.
(c) UNDERWRITING. If the Demand Registrant so elects, the offering of
Registrable Securities pursuant to a Demand Registration shall be in the form of
an underwritten offering. The Board of Directors shall select the book-running
managing Underwriter in connection with such offering, and Limited Commerce and
the WCAS Investors (taken as a group) may each select one additional investment
banking firm to serve as co-managing underwriter in connection with the
offering.
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(d) BEST EFFORTS OF THE ISSUER. The Issuer will use its best efforts to
effect the registration and the sale of Registrable Securities in accordance
with the intended method of disposition thereof as quickly as practicable in
connection with any Registration Request.
SECTION 3.2 PIGGY-BACK REGISTRATION. If the Issuer proposes to file a
registration statement under the Securities Act with respect to an offering of
its Registrable Securities (i) for its own account (other than a registration
statement on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission)), or (ii) for the account of any holders of its capital stock, then
the Issuer shall give written notice of such proposed filing to Limited
Commerce, the WCAS Investors and all Transferees of Limited Commerce or any WCAS
Investor to which Limited Commerce or such WCAS Investor shall have transferred
any of its rights under this Section 3.2 (a "Piggyback Holder") as soon as
practicable (but in any event not less than 20 days before the anticipated
filing date), and such notice shall offer such Piggyback Holders the opportunity
to register any and all shares of Registrable Securities owned by such Piggyback
Holders. If such Holders wish to register securities of the same class or series
as the Issuer or such holders, such registration shall be on the same terms and
conditions as the registration of the Issuer's or such holders' securities (a
"Piggy-Back Registration"). No registration effected under this Section 3.2
shall relieve the Issuer of its obligations to effect Demand Registrations to
the extent required by Section 3.1 hereof.
SECTION 3.3 REDUCTION OF OFFERING.
(a) If a Demand Registration involves an underwritten Public Offering
and the managing Underwriter shall advise the Issuer and the Selling Holders
that, in its view, (i) the number of shares of Common Stock requested to be
included in such registration (including Common Stock which the Issuer proposes
to be included) or (ii) the inclusion of some or all of the shares of Common
Stock owned by the Holders, in either case, exceeds the greatest number of
shares of Common Stock which can be sold without having an adverse effect on
such offering, including the price at which such shares of Common Stock can be
sold (the "Maximum Offering Size"), the Issuer will include in such
registration, in the priority listed below, up to the Maximum Offering Size:
(i) first, all shares of Common Stock requested to be registered by
the Selling Holders (allocated, if necessary for the offering not to exceed
the Maximum Offering Size, pro rata among such entities on the basis of the
relative
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number of shares of Registrable Stock requested to be registered);
(ii) second, all Registrable Stock requested to be included in such
registration by any other Holder (allocated, if necessary for the offering
not to exceed the Maximum Offering Size, pro rata among such other Holders
on the basis of the relative number of shares of Registrable Stock
requested to be included in such registration); and
(iii) third, any Common Stock proposed to be registered by the Issuer.
(b) If a registration pursuant to Section 3.2 involves an
underwritten Public Offering (other than in the case of an underwritten
Public Offering requested by any Demand Registrant in a Demand Registration,
in which case the provisions with respect to priority of inclusion in such
offering set forth in Section 3.3(a) shall apply) and the managing
Underwriter advises the Issuer that, in its view, the number of shares of
Common Stock which the Issuer and the selling Holders intend to include in
such registration exceeds the Maximum Offering Size, the Issuer will include
in such registration, in the following priority, up to the Maximum Offering
Size:
(i) first, so much of the Common Stock proposed to be registered by
the Issuer as would not cause the offering to exceed the Maximum Offering
Size; and
(ii) second, all Registrable Stock requested to be included in such
registration statement by any Holder pursuant to Section 3.2 or otherwise
(allocated, if necessary for the offering not to exceed the Maximum
Offering Size, pro rata among such entities on the basis of the relative
number of shares of Registrable Stock requested to be so included).
SECTION 3.4 REGISTRATION PROCEDURES. Whenever the Issuer is required to
effect the registration of Registrable Securities pursuant to Section 3.1 or 3.2
hereof, the Issuer will use its best efforts to effect the registration and the
sale of such Registrable Securities in accordance with the intended method of
disposition thereof as quickly as practicable, and in connection with any such
Registration Request:
(a) The Issuer will as expeditiously as possible prepare and file with
the Commission a registration statement on any form for which the Issuer
then qualifies or which counsel for the Issuer shall deem appropriate and
which form shall be available for the sale of the Registrable Securities to
be registered thereunder in accordance
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with the intended method of distribution thereof, and use its best efforts
to cause such filed registration statement to become and remain effective
for a period of not less than 120 days; PROVIDED that in the case of a
Demand Registration, if the Issuer shall furnish to any Selling Holder a
certificate signed by either its Chairman, Chief Executive Officer or
President stating that in his good faith judgment it would materially
adversely affect the Issuer or its shareholders for such a registration
statement to be filed as expeditiously as possible, the Issuer shall have a
period of not more than 120 days within which to file such registration
statement measured from the date of receipt of the Registration Request in
accordance with Section 3.1.
(b) The Issuer will, if requested, prior to filing a registration
statement or prospectus or any amendment or supplement thereto, furnish to
any Selling Holder and each Underwriter, if any, drafts of such documents
proposed to be filed, and thereafter furnish to the Selling Holders and
such Underwriter, if any, such number of copies of such registration
statement, each amendment and supplement thereto (in each case including
all exhibits thereto and documents incorporated by reference therein), the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as any Selling Holders or
such Underwriter may reasonably request in order to facilitate the sale of
the Registrable Securities.
(c) After the filing of the registration statement, the Issuer will
promptly notify any Selling Holders of any stop order issued or threatened
by the Commission and take all reasonable actions required to prevent the
entry of such stop order or to remove it if entered.
(d) The Issuer will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of
such jurisdictions in the United States as any Selling Holders reasonably
(in light of their intended plan of distribution) request and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Issuer and do any and all other acts and
things that may be reasonably necessary or advisable to enable the Selling
Holders to consummate the disposition of their Registrable Securities;
PROVIDED, that the Issuer will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any
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such jurisdiction other than taxation arising with respect to the
registration of securities or (iii) consent to general service of process
in any such jurisdiction.
(e) At any time when a prospectus relating to the sale of Registrable
Securities is required to be delivered under the Securities Act, the Issuer
will immediately notify the Selling Holders of the occurrence of any event
requiring the preparation of a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading and
promptly make available to the Selling Holders and the Underwriters any
such supplement or amendment. The Selling Holders agree that, upon receipt
of any notice from the Issuer of the happening of any event of the kind
described in the preceding sentence, the Selling Holders will forthwith
discontinue the offer and sale of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until receipt
of the copies of such supplemented or amended prospectus and, if so
directed by the Issuer, the Selling Holders will deliver to the Issuer all
copies, other than permanent file copies then in the possession of the
Selling Holders, of the most recent prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the issuer
shall give such notice, the Issuer shall extend the period during which
such registration statement shall be maintained effective as provided in
Section 3.4(a) hereof by the number of days during the period from and
including the date of the giving of such notice to the date when the Issuer
shall make available to the Selling Holders such supplemented or amended
prospectus.
(f) The Issuer will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the disposition
of such Registrable Securities.
(g) The Issuer will make available for inspection by any Selling
Holder and any Underwriter participating in any disposition pursuant to a
registration statement being filed by the Issuer pursuant to this Article
III any attorney, accountant or other professional retained by any such
Shareholder or Underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the
Issuer's (collectively, the "Records") as shall be reasonably requested by
any such Person, and
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cause the Issuer's officers, directors and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(h) The Issuer will furnish to the Selling Holders and to each
Underwriter, if any, a signed counterpart, addressed to the Selling Holders
or such Underwriter, of (i) an opinion or opinions of counsel to the Issuer
and (ii) a comfort letter or comfort letters from the Issuer's independent
public accountants, each in customary form and covering such matters as are
customarily covered by opinions and comfort letters, as the Selling Holders
or the managing Underwriter therefor reasonably request.
(i) The Issuer will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its securityholders, as soon as reasonably practicable, an earnings
statement covering a period of 12 months, beginning within three months
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act.
(j) The Issuer will use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar
securities issued by the Issuer are then listed.
The Issuer may require any Selling Holder, and each Selling Holder
agrees, to furnish promptly in writing to the Issuer such information regarding
such Selling Holder, the plan of distribution of the Registrable Securities and
other information as the Issuer may from time to time reasonably request or as
may be legally required in connection with such registration.
SECTION 3.5 REGISTRATION EXPENSES. Registration Expenses incurred in
connection with any registration made or requested to be made pursuant to this
Article III will be borne by the Issuer, whether or not any such registration
statement becomes effective.
SECTION 3.6 INDEMNIFICATION BY THE ISSUER. The Issuer agrees to
indemnify and hold harmless each Selling Holder, its officers, directors and
agents, and each Person, if any, who controls each such Selling Holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities (as amended
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or supplemented if the Issuer shall have furnished any amendments or supplements
thereto) or any preliminary prospectus, or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information furnished in writing to the Issuer by or on behalf of any such
Selling Holder expressly for use therein; PROVIDED that with respect to any
untrue statement or omission or alleged untrue statement or omission made in any
preliminary prospectus, or in any prospectus, as the case may be, the indemnity
agreement contained in this paragraph shall not apply to the extent that any
such loss, claim, damage, liability or expense results from the fact that a
current copy of the prospectus (or, in the case of a prospectus, the prospectus
as amended or supplemented) was not sent or given to the Person asserting any
such loss, claim, damage, liability or expense at or prior to the written
confirmation of the sale of the Registrable Stock concerned to such Person if it
is determined that the Issuer has provided such prospectus and it was the
responsibility of such Selling Holder to provide such Person with a current copy
of the prospectus (or such amended or supplemented prospectus, as the case may
be) and such current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect giving rise to such
loss, claim, damage, liability or expense. The Issuer also agrees to indemnify
any Underwriters of the Registrable Securities, their officers and directors and
each Person who controls such Underwriters on substantially the same basis as
that of the indemnification of the Selling Holders provided in this Section 3.6.
SECTION 3.7 INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder
agrees, severally but not jointly, to indemnify and hold harmless the Issuer,
its officers, directors and agents and each Person, if any, who controls the
Issuer within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act to the same extent as the foregoing indemnity from the
Issuer to such Selling Holder, but only with reference to information related to
such Selling Holder furnished in writing by or on behalf of such Selling Holder
expressly for use in any registration statement or prospectus relating to the
Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each Selling Holder also agrees to indemnify and hold
harmless Underwriters of the Registrable Securities, their officers and
directors and each Person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Issuer provided in this Section
3.7.
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SECTION 3.8 CONDUCT OF INDEMNIFICATION PROCEEDINGS. In case any
proceeding (including any governmental investigation) shall be instituted
involving any Person in respect of which indemnity may be sought pursuant to
Section 3.6 or 3.7, such Person (the "Indemnified Party") shall promptly notify
the Person against whom such indemnity may be sought (the "Indemnifying Party")
in writing and the Indemnifying Party upon request of the Indemnified Party
shall retain counsel reasonably satisfactory to the Indemnified Party to
represent the Indemnified Party and any others the Indemnifying Party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to the proceeding; PROVIDED that the failure of any Indemnified
Party so to notify the Indemnifying Party shall not relieve the Indemnifying
Party of its obligations hereunder except to the extent that the Indemnifying
Party is materially prejudiced by such failure to notify. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are incurred. In the case of any such separate firm for the
Indemnified Parties, such firm shall be designated in writing by the Indemnified
Parties. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Party shall have requested an Indemnifying Party to reimburse the Indemnified
Party for fees and expenses of counsel as contemplated by the third sentence of
this paragraph, the Indemnifying Party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 business days after receipt by such
Indemnifying Party of the aforesaid request and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such request
prior to the date of such settlement, unless the Indemnifying Party has
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contested such reimbursement obligation and provides reasonable assurances that
such payment can be made upon resolution of such dispute. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect any
settlement of any pending or threatened proceeding in respect of which any
Indemnified Party is or could have been a party and indemnity could have been
sought hereunder by such Indemnified Party, unless such settlement (x) includes
an unconditional release of such Indemnified Party from all liability arising
out of such proceeding and (y) provides that such Indemnified Party does not
admit any fault or guilt with respect to the subject matter of such proceeding.
SECTION 3.9 CONTRIBUTION. (a) If the indemnification provided for
herein is for any reason unavailable to the Indemnified Parties in respect of
any losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Issuer and the
Selling Holders on the one hand and the Underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Issuer and such Selling Holders on the one hand and the Underwriters on the
other from the offering of the securities, or if such allocation is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits but also the relative fault of the Issuer and the
Selling Holders on the one hand and of the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations and (ii) as between the Issuer on the one hand and any Selling
Holder on the other, in such proportion as is appropriate to reflect the
relative fault of the Issuer and of such Selling Holder in connection with such
statements or omissions, as well as any other relevant equitable considerations.
The relative benefits received by the Issuer and the Selling Holders on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Issuer
and such Selling Holders bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the prospectus. The relative fault of the Issuer and the
Selling Holders on the one hand and of the Underwriters on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Issuer and any Selling
Holder or by the Underwriters. The
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relative fault of the Issuer on the one hand and any Selling Holder on the other
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(b) The Issuer and each Selling Holder agree that it would not be just
and equitable if contribution pursuant to this Section 3.9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 3.9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Selling Holder
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities of such Selling Holder were
offered to the public (less underwriters' discounts and commissions) exceeds the
amount of any damages which such Selling Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
SECTION 3.10 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any underwritten registration hereunder unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
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SECTION 3.11 CURRENT AND PERIODIC REPORTS. The Issuer covenants that it
will file any reports required to be filed by it under the Securities Act and
the Exchange Act. Upon the request of Limited Commerce or the WCAS Investors,
the Issuer will deliver to Limited Commerce or the WCAS Investors, a written
statement as to whether it has complied with such requirements.
SECTION 3.12 HOLDBACK AGREEMENTS. If and to the extent requested by the
Issuer, in the case of a non-underwritten public offering, and if and to the
extent requested by the managing Underwriter or Underwriters, in the case of an
underwritten public offering, the Holders agree not to effect, except as part of
such registration, any public sale or distribution of the issue being registered
or a similar security of the Issuer, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant to
Rule 144, during the 14 days prior to, and during the 120-day period beginning
on, the effective date of such registration statement.
ARTICLE IV
CORPORATE GOVERNANCE; COVENANTS
SECTION 4.1 COMPOSITION OF THE BOARD. (a) The Issuer Board shall
consist of five members. WCAS VII shall be entitled, but not required, to
designate three members of the Issuer Board, and Limited Commerce shall be
entitled, but not required, to designate two members of the Issuer Board. Each
Holder entitled to vote for the election of directors to the Board agrees that
it will vote all of its Voting Securities or execute consents, as the case may
be, and take all other necessary action (including causing the Issuer to call a
special meeting of stockholders) in order to ensure that the composition of the
Board is as set forth in this Section 4.1(a). Notwithstanding the foregoing, if,
pursuant to the terms of the Issuer's 6 1/4% Redeemable Exchangeable Preferred
Stock (the "Preferred Stock"), the holders thereof are entitled to elect one
member of the Issuer Board, WCAS VII shall be entitled, but not required, to
expand the size of the Issuer Board to seven members (including the member
elected by the holders of the Preferred Stock) and designate one additional
member of the Issuer Board. The term of the additional member of the Issuer
Board designated by WCAS VII pursuant to the immediately preceding sentence
shall expire simultaneously with the expiration of the term of the member of the
Issuer Board designated by the holders of the Preferred Stock, and the Issuer
Board shall thereupon consist of five members as contemplated by the first two
sentences of this Section 4.1(a); PROVIDED that the right of WCAS VII to enlarge
the Issuer Board and to designate one additional member shall be reinstated in
accordance with, and
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subject to the provisions of this Section 4.1(a), at any subsequent time at
which the holders of the Preferred Stock are entitled to elect one member of the
Issuer Board.
(b) Each Holder and the Issuer agrees that if, at any time, it is
entitled to vote for the removal of directors of the Issuer, it will not vote
any of its Voting Securities in favor of the removal of any director who shall
have been designated or nominated pursuant to Section 4.1(a) unless such removal
shall be for Cause or the Person entitled to designate or nominate such director
shall have consented to such removal in writing. Removal for "Cause" shall mean
removal of a director because of such director's (a) willful and continued
failure to substantially perform his duties with the Issuer in his established
position, (b) willful conduct which is significantly injurious to the Issuer,
monetarily or otherwise, or (c) conviction for, or a guilty plea to, a felony.
(c) If, as a result of death, disability, retirement, resignation,
removal (with or without Cause) or otherwise, there shall exist or occur any
vacancy on the Issuer Board:
(i) the Person entitled under Section 4.1(a) to designate or nominate
such director whose death, disability, retirement, resignation or removal
resulted in such vacancy may designate another individual (the "Nominee")
to fill such capacity and serve as a director of the Issuer; and
(ii) each Holder then entitled to vote for the election of the Nominee
as a director of the Issuer agrees that it will vote all of its Voting
Securities, or execute a written consent, as the case may be, in order to
ensure that the Nominee be elected to the Issuer Board.
SECTION 4.2 ACTION BY THE BOARD. A quorum of the Issuer Board shall
consist of four directors (or, at any time at which the holders of the Preferred
Stock are entitled to elect a member of the Issuer Board, five directors). All
actions of the Issuer Board shall require the affirmative vote of at least a
majority of the directors at a duly convened meeting of the Issuer Board at
which a quorum is present or the unanimous written consent of the Issuer Board;
PROVIDED that, in the event there is a vacancy on either such Board of Directors
and an individual has been nominated to fill such vacancy, the first order of
business shall be to fill such vacancy.
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SECTION 4.3 CONSENT OF THE BOARD OF DIRECTORS.
(a) From and after January 31, 1996 through January 31, 1998, the
Issuer shall not, and shall not permit any of its Subsidiaries to, take any
action regarding any of the following matters without the affirmative vote of at
least one member of the Issuer Board designated by Limited Commerce:
(i) appointment or removal of the Chief Executive Officer (or
Person with comparable duties) of the Issuer;
(ii) the Incurrence by the Issuer or any Subsidiary of the Issuer
of Debt where, after giving effect to such Incurrence, the
Issuer would have a consolidated ratio of Debt to equity in
excess of 1.5 to 1.0 excluding securitized Debt and Debt
issued upon the exchange of Preferred Stock;
(iii) any transaction with any Affiliate of the Issuer or any
Subsidiary of the Issuer other than (A) transactions that are
at least as favorable to the Issuer or any Subsidiary of the
Issuer, as the case may be, as could have been obtained on an
arm's-length basis with a Person who is not an Affiliate of
the Issuer or any Subsidiary of the Issuer, as the case may be
(as determined in the good faith judgment of the Issuer Board)
or (B) the transactions contemplated by the Credit Card
Processing Agreement;
(iv) entry into any line of business other than the Processing
Business or a Related Business;
(v) issuance or sale of any capital stock of the Issuer or any
Subsidiary of the Issuer, whether publicly or privately, other
than, in the case of Issuer, (A) to or for the benefit of
employees of Issuer any Subsidiary of the Issuer pursuant to
stock option plans or other employee compensation or benefit
arrangements, (B) upon conversion of Convertible Securities of
the Issuer outstanding on January 31, 1996, (C) as a dividend
on or other distribution in respect of all outstanding shares
of Common Stock or (D) except as provided in clause (viii)
below, in connection with any merger, acquisition or other
business combination;
(vi) the declaration or payment, whether directly or indirectly, of
any dividend or any distribution on
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its capital stock or to the holders of its capital stock that
would impair the capital of the Issuer or any Subsidiary of
the Issuer; or
(vii) the purchase or other acquisition (by merger, business
combination or otherwise) of assets with a fair market value
in excess of $10,000,000, except for any such purchase or
acquisition the consideration for which is being funded out of
the Remaining Capital Commitments (as defined in Section 4.8)
of the WCAS Investors and Limited Commerce.
(b) From and after the date hereof, the Issuer will not, and will not
permit any of its Subsidiaries to, take any action regarding any of the
following matters without the affirmative vote of at least one member of the
Issuer Board designated by Limited Commerce:
(i) any consolidation, combination or merger of the Issuer with or
into any other Person, other than any such consolidation,
combination or merger if, after the consummation thereof, the
WCAS Investors (taken as a group) constitute the largest
stockholder of the surviving entity and designees of the WCAS
Investors constitute a majority of the Board of Directors (or
similar governing body of such surviving entity);
(ii) the sale, assignment, transfer or lease of all or
substantially all of the assets of the Issuer;
(iii) the dissolution of the Issuer; or
(iv) the voluntary bankruptcy of the Issuer or any Subsidiary of
the Issuer.
(c) Unless earlier terminated in accordance with the terms of this
Agreement, the rights granted to Limited Commerce pursuant to Sections 4.1, 4.2
and 4.3 shall terminate at such time as Limited Commerce (i) shall have sold to
Persons other than Permitted Transferees at least 50% of the shares of Common
Stock owned by it as of the date hereof or (ii) Limited Commerce and its
Permitted Transferees (taken as a group) shall own less than 5% of the Common
Stock outstanding; provided that the requirement that at least one member of the
Issuer Board designated by Limited Commerce vote in favor of any matter referred
to in Section 4.3(b)(i) before the Issuer or any of its Subsidiaries may take
any action with respect to such matter shall terminate on January 31, 2000.
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SECTION 4.4 CHARTER AND BYLAWS. (a) The Issuer's Certificate of
Incorporation and Bylaws, each in the form in which it is in effect on the date
hereof (the "Charter Documents"), are attached as Exhibits A and B hereto.
(b) The Issuer agrees not to amend, or permit the amendment of, the
Charter Documents or the Certificate of Incorporation or Bylaws of any
Subsidiary of the Issuer in a way that would be material and adverse to the
rights of the Holders hereunder without the written consent of the Holders
holding at least 66 2/3% of the Common Stock then outstanding.
SECTION 4.5 INFORMATION. (a) For so long as Limited Commerce and its
Permitted Transferees (taken as a group), or the WCAS Investors and their
Permitted Transferees (taken as a group) own at least 5% of the Common Stock
then outstanding, the Issuer shall deliver to Limited Commerce and/or the WCAS
Investors, as the case may be, the following information:
(i) as promptly as practicable but not later than 90 days after the
end of the Issuer's fiscal year, audited financial statements for such
fiscal year;
(ii) as promptly a practicable but not later than 30 days after the
end of each quarter, the Issuer's unaudited financial statements for such
month; and
(iii) from time to time such additional information regarding the
financial position or business of the Issuer and its Subsidiaries as
Limited Commerce or the WCAS Investors may reasonably request.
(b) The Issuer agrees to provide all members of the Issuer Board with
unaudited financial statements for each fiscal month of the Issuer within 30
days after the end of such month.
(c) Limited Commerce and the WCAS Investors agree that they will keep
all confidential information received by them in strictest confidence and will
limit the dissemination of such information to those persons who reasonable
require access to such information; PROVIDED that Limited Commerce and the WCAS
Investors may disseminate such information without restriction to the extent
required to satisfy the safe harbor provided by Rule 144(c) (2) in conjunction
with Rule 15c2-11(a) (5) (i)-(xiv) and (xvi) under the Exchange Act. The term
"confidential information" does not include (i) any information that is or
becomes publicly available through no fault of Limited Commerce and the WCAS
Investors, (ii) information that is in or comes into the possession of Limited
Commerce and the WCAS Investors on a nonconfidential basis from a person other
than the Issuer or any
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of its Affiliates and (iii) any information that is required to be disclosed by
Limited Commerce and the WCAS Investors under compulsion of law.
SECTION 4.6 NON-SOLICITATION. For so long as Limited Commerce and its
Permitted Transferees (taken as a group) own at least 5% of the outstanding
Common Stock, none of the WCAS Investor or any Affiliate of any WCAS Investor
shall, without the prior written approval of Limited Commerce, directly or
indirectly solicit any Person who is an employee of the Issuer or any Affiliate
of the Issuer at any time on or after the date of this Agreement to terminate
his or her relationship with the Issuer or any Affiliate of the Issuer; PROVIDED
that the foregoing shall not apply to persons hired as a result of the use of an
independent employment agency (so long as the agency was not directed to solicit
such person) or as a result of the use of a general solicitation (such as an
advertisement) not specifically directed to employees of the Issuer or any
Affiliate of the Issuer; PROVIDED, FURTHER, that the provisions of this Section
4.6 (i) shall not apply to the activities of officers or employees of companies
in which any WCAS Investor has invested in the ordinary course of business and
(ii) shall not prohibit any WCAS Investor from assisting any such officer or
employee in evaluating the qualifications of any employee contacted without the
intervention of such WCAS Investor.
SECTION 4.7 PROTECTION OF THE BUSINESS; INVESTMENT OPPORTUNITIES. (a)
WCAS VII hereby covenants and agrees that neither WCAS VII nor any Affiliate of
WCAS VII shall, directly or indirectly, invest in any Processing Business other
than the Issuer; PROVIDED that this Section 4.7(a) shall not (i) apply to
investments by WCAS VII or any of its Affiliates in securities of another entity
which constitute, in the aggregate, less than 5% of the outstanding shares of
such entity entitled to vote generally in the election of directors or similar
persons, (ii) apply to any Transferee of WCAS VII where the relevant Transfer is
effected in accordance with the terms of this Agreement, (iii) prohibit WCAS VII
or any Affiliate of WCAS VII from investing in any Person engaged in the
Processing Business where such Processing Business is ancillary to another
existing business of such WCAS Investor or any such Affiliate, as the case
maybe, and constitutes less than 10% of the total gross revenues of such
business and (iv) prohibit WCAS VII or any Affiliates of WCAS VII from investing
in any Person engaged in the Processing Business where Limited Commerce has
blocked the acquisition of such Processing Business by the Issuer or any
Subsidiary of the Issuer in accordance with the exercise of Limited Commerce's
rights under Section 4.3(a).
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(b) WCAS VII agrees to present to the Issuer Board investment
opportunities in the Processing Business or any Related Business that come to
the attention of WCAS VII or any Affiliate of WCAS VII for the purpose of
allowing the Issuer Board to consider pursuing those opportunities it considers
appropriate.
(c) Notwithstanding any provisions of this Section 4.7 to the contrary,
the provisions of this Section 4.7(i) shall not restrict the investment
activities of any Existing Portfolio Company and (ii) shall not apply to
investment opportunities in the healthcare industry. For purposes of the
foregoing, an "Existing Portfolio Company" shall mean any Person in which WCAS
VII or any other investment fund managed by Welsh, Carson, Anderson & Stowe or
any of its Affiliates shall have made an investment on or prior to the date
hereof in the ordinary course of such fund's business.
(d) Unless earlier terminated in accordance with the terms hereof, the
provisions of this Section 4.7 shall terminate on the earliest to occur of (i)
the date on which Limited Commerce and its Permitted Transferees shall own less
than 5% of the Common Stock outstanding, (ii) the date on which Limited Commerce
shall have sold to Persons other than Permitted Transferees at least 50% of the
shares of Common Stock owned by it as of the date hereof and (iii) the fourth
anniversary of the Closing Date.
SECTION 4.8 CAPITAL COMMITMENTS. The WCAS Investors and their
Permitted Transferees (as a group) and Limited Commerce and its Permitted
Transferees (as a group) shall be obligated, upon not less than 15 days'
written notice from the Issuer, to contribute an amount in cash equal to its
or their Remaining Capital Commitment to fund any acquisition approved by the
Issuer Board. For purposes of this Section 4.8, the term "Remaining Capital
Commitment" shall mean (i) in the case of the WCAS Investors and their
Permitted Transferees (as a group), an amount equal to $75 million MINUS all
amounts theretofore contributed to the Issuer pursuant to this Section 4.8 and
(ii) in the case of Limited Commerce and its Permitted Transferees, $50
million MINUS all amounts theretofore contributed to the Issuer pursuant to
this Section 4.8. It is hereby acknowledged and agreed that, as of the date
of this Agreement, the WCAS Investors have heretofore contributed an
aggregate $________________ to the Issuer pursuant to this Section 4.8, and
Limited Commerce has heretofore contributed an aggregate $_______________ to
the Issuer pursuant to this Section 4.8. It is further acknowledged and
agreed that, for purposes of calculating the Remaining Capital Commitment of
any person or entity under this Section 4.8, (i) any amounts actually
contributed pursuant to Section 1.04 of the 1996 Securities Purchase
Agreement shall be deemed to constitute contribu-
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tions pursuant to this Section 4.8 and (ii) until such time as the final amount
of any contribution pursuant to such Section 1.04 of the 1996 Securities
Purchase Agreement is determined, the maximum amounts that may be required to be
contributed by such person or entity pursuant to said Section 1.04 shall be
deemed to have heretofore been contributed to the Issuer pursuant to this
Section 4.8. Unless earlier terminated in accordance with the terms hereof, the
provisions of this Section 4.8 shall terminate on January 31, 1998.
SECTION 4.9 TERMINATION. Unless earlier terminated in accordance with
the terms hereof, the provisions of Article IV shall terminate and be of no
further force or effect upon the consummation of a Qualified Public Offering.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not control or affect the meaning or
construction of any provisions hereof.
SECTION 5.2 NO INCONSISTENT AGREEMENTS. The Issuer is not a party to
and will not hereafter enter into any agreement with respect to its securities
which is inconsistent with, or otherwise grant rights superior to, the rights
granted to Limited Commerce under this Agreement. Each of the Issuer, Limited
Commerce and the WCAS Investors represents that it is not and agrees that it
will not become a party to any other agreement relating to the voting of Voting
Securities.
SECTION 5.3 ENTIRE AGREEMENT; AMENDMENTS; NO WAIVERS. (a) This Amended
and Restated Stockholders Agreement contains the entire agreement among the
parties hereto with respect to the subject matter hereof and supersedes (i) the
Original Agreement, (ii) the Registration Rights Agreement dated as of January
24, 1996 among BSH, the WCAS Investors party thereto and JCP Telecom Systems,
Inc. and (iii) all other prior written agreements and negotiations and oral
understandings, if any, with respect to such subject matter. This Agreement may
be amended but only in a writing signed by the Issuer, the WCAS Investors and
Limited Commerce. Any provision hereof may be waived but only in a writing
signed by the party against which such waiver is sought to be enforced.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude
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any other or further exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies herein provided shall be cumulative and
not exclusive of any rights or remedies provided by law.
SECTION 5.4 NOTICES. Any notice, request, instruction or other document
to be given hereunder by any party hereto to another party hereto shall be in
writing (including telecopier or similar writing) and shall be given to such
party at its address, or telecopier number set forth on its signature page or,
in the case of a Transfer, to the address, or telecopier number of the party
executing the written agreement pursuant to Sections 2.1 hereof, or to such
other address as the party to whom notice is to be given may provide in a
written notice to the party giving such notice, a copy of which written notice
shall be on file with the Secretary of the Issuer. Each such notice, request or
other communication shall be effective (i) if given by telecopy, which such
telecopy is transmitted to the telex or telecopy number specified in its
signature page and the appropriate answerback or confirmation, as the case may
be, is received, (ii) if given by mail, 72 hours after such communication is
deposited in the mails with first class postage prepaid addressed as aforesaid
or (iii) if given by any other means, when delivered at the address specified in
this Section 5.4.
SECTION 5.5 APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.
SECTION 5.6 SEVERABILITY. The invalidity or unenforceability of any
provisions of this Agreement in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Agreement in such
jurisdiction or the validity, legality or enforceability of this Agreement,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 5.7 SUCCESSORS, ASSIGNS, TRANSFEREES. (a) The provisions of
this Agreement shall be binding upon and accrue to the benefit of the parties
hereto and their respective heirs, successors and permitted assigns. Neither
this Agreement nor any provision hereof shall be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and permitted assigns.
(b) This Agreement shall not be assignable or otherwise transferable by
any party hereto, except that any Person acquiring shares of Common Stock who is
required by the terms of this Agreement to become a party hereto shall execute
and deliver
32
<PAGE>
to the Issuer an agreement to be bound (substantially in the form of Exhibit A)
by this Agreement and shall thenceforth be a "Holder", and any Holder who ceases
to beneficially own any Shares shall cease to be bound by the terms hereof
(other than Sections 3.6, 3.7, 3.8 and 3.9 and the confidentiality obligations
set forth in Section 4.4.
SECTION 5.8 COUNTERPARTS; EFFECTIVENESS. This Agreement may be
executed in any number of counterparts, each of which shall be an original
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party hereto
shall have received a counterpart hereof signed by the other parties hereto
and the closings under both the 1996 Securities Purchase Agreement and the
Merger Agreement shall have occurred (the "Effective Date").
SECTION 5.9 FEES AND EXPENSES. Except as otherwise set forth in the WFN
Stock Purchase Agreement, the 1996 Securities Purchase Agreement and the Merger
Agreement, all fees and expenses incurred by any party hereto in connection with
the preparation of this Agreement and the transactions contemplated hereby and
all matters related thereto shall be borne by the party incurring such fees or
expenses.
SECTION 5.10 RECAPITALIZATION, ETC. If any capital stock or other
securities are issued in respect of, or in exchange or substitution for, any
Common Stock by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the Common Stock or any other change in capital
structure of the Issuer, appropriate adjustments shall be made with respect to
the relevant provisions of this Agreement so as to fairly and equitably
preserve, as far as practicable, the original rights and obligations of the
parties hereto under this Agreement.
SECTION 5.11 REMEDIES. The parties hereby acknowledge that money
damages would not be adequate compensation for the damages that a party would
suffer by reason of a failure of any other party to perform any of the
obligations under this Agreement. Therefore, each party hereto agrees that
specific performance is the only appropriate remedy under this Agreement and
hereby waives the claim or defense that any other party has an adequate remedy
at law.
SECTION 5.12. JURISDICTION. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in connection
with, any of the Transaction Documents may be brought against any of the parties
in the
33
<PAGE>
United States District Court for the Southern District of New York or any
state court sitting in The City of New York, Borough of Manhattan, and each of
the parties hereby consents to the exclusive jurisdiction of such court (and of
the appropriate appellate courts) in any such suit, action or proceeding and
waives any obligation to venue laid therein. Process in any such suit, action or
proceeding may be served on any party anywhere in the world, whether within or
without the State of New York. Without limiting the foregoing, the parties agree
that service of process upon such party at the address referred to in Section
5.4, together with written notice of such service of such party, shall be deemed
effective service of process upon such party.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
WORLD FINANCIAL NETWORK HOLDING
CORPORATION
By /s/ Ralph E. Spurgin
--------------------------------
Title:
LIMITED COMMERCE CORP.
By
------------------------------
Title:
WELSH, CARSON, ANDERSON & STOWE
VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By
------------------------------
Title: General Partner
WELSH, CARSON, ANDERSON & STOWE
VI, L.P.
By: WCAS VI Partners, L.P.,
General Partner
By
------------------------------
Title: General Partner
35
<PAGE>
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By
------------------------------
Title: General Partner
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners,
General Partner
By
------------------------------
Title: General Partner
WCA MANAGEMENT CORPORATION
By
------------------------------
Title:
--------------------------------
Patrick J. Welsh
--------------------------------
Russell L. Carson
--------------------------------
Bruce K. Anderson
--------------------------------
Richard H. Stowe
36
<PAGE>
--------------------------------
Andrew M. Paul
--------------------------------
Thomas E. McInerney
--------------------------------
Laura VanBuren
--------------------------------
James B. Hoover
--------------------------------
Robert A. Minicucci
--------------------------------
Anthony J. deNicola
--------------------------------
David Bellet
37
<PAGE>
ANNEX I
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
WCAS CAPITAL PARTNERS II, L.P.
WCAS INFORMATION PARTNERS, L.P.
WCA MANAGEMENT CORPORATION
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura M. VanBuren
James B. Hoover
Robert E. Minicucci
Anthony J. deNicola
David Bellet
38
<PAGE>
EXHIBIT A
FORM OF AGREEMENT TO BE BOUND
[DATE]
To the Parties to the
Stockholders Agreement
dated as of _________ __, 1996
Dear Sirs:
Reference is made to the Amended and Restated Stockholders Agreement
dated as of _________ __, 1996 (the "Stockholders Agreement"), by and among WFN
Holdings, Inc. (the "Issuer"), Limited Commerce, Inc. ("Limited Commerce"),
Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") and the several investors
named in Annex I of the Stockholders Agreement (collectively with WCAS VII, the
"WCAS Investors"). Capitalized terms not defined herein have the meanings
assigned to them in the Stockholders Agreement.
In consideration of the covenants and agreements contained in the
Stockholders Agreement and the transfer of the common stock, par value $.01 per
share, of the Issuer (the "Common Stock") to the undersigned by [Transferor],
the undersigned hereby confirms and agrees to be bound by all of the
provisions thereof.
[The undersigned acknowledges that it is a condition to an effective
pledge of the Common Stock under the Stockholders Agreement that the pledgee
agree, and the undersigned hereby confirms and agrees, that upon foreclosure of
such pledge, the undersigned will take the Common Stock subject to all of the
restrictions applicable to the transferor under the Stockholders Agreement.] *
- ----------------------
* Include in the case of a pledge.
<PAGE>
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT, dated July 24, 1998, to AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT, dated as of August 30, 1996 (the "Original Agreement"), among
Alliance Data Systems Corporation (known in the Original Agreement as World
Financial Network Holding Corporation) (the "Issuer"), Limited Commerce Corp.
("Limited Commerce"), Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII"),
Welsh, Carson, Anderson & Stowe VIII, L.P. ("WCAS VIII") and the several
investors named on Annex I hereto (collectively with WCAS VII and WCAS VIII, the
"WCAS Investors"), certain of whom were also parties to the Original Agreement
(sometimes referred to herein collectively with WCAS VII as the "Original WCAS
Investors")
WHEREAS, the Original Agreement was entered into by the Issuer, Limited
Commerce and the Original WCAS Investors except for WCAS VIII (the "Original
Investors");
WHEREAS, the Issuer, WCAS VII, WCAS VIII and the remaining WCAS
Investors have entered into a Common Stock Purchase Agreement dated as of the
date hereof (the "Purchase Agreement"), whereby the WCAS Investors have agreed
to purchase an aggregate 90,909,091 shares of Common Stock (the "Shares"), par
value $.01 per share, of the Issuer;
WHEREAS, the Issuer and the Original Investors desire to amend the
Original Agreement to include the Shares in such agreement;
WHEREAS, each of WCAS VII and WCAS VIII, pursuant to their respective
partnership agreements, has agreed to use its reasonable best efforts to conduct
its affairs and activities in such a manner so that it will qualify as a
"venture capital operating company" within the meaning of the United States
Department of Labor's "plan asset" regulations (29 C.F.R Section 2510.3-101)
and the rules and regulations of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and in connection with said qualification,
each of WCAS VII and WCAS VIII desires to obtain directly such management
rights (which may be exercised by WCAS VII or WCAS VIII, as the case may be,
solely for its own benefit and own account) as are sufficient to permit each
of WCAS VII and WCAS VIII to qualify as a "venture capital operating company"
with respect to its investment in the Issuer; and
<PAGE>
WHEREAS, the parties hereto desire to provide such management rights to
WCAS VII and WCAS VIII;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein
without definition shall have the meanings ascribed to them in
the Original Agreement.
SECTION 2. THE SHARES. The Shares to be purchased by WCAS VII and WCAS
VIII pursuant to the Stock Purchase Agreement shall for all purposes be deemed
"Common Stock" and "Registrable Securities" under the Original Agreement.
SECTION 3. AMENDMENT OF SECTION 4.1 OF THE ORIGINAL AGREEMENT. Section
4.1 of the Original Agreement is hereby amended in its entirety to read as
follows:
"SECTION 4.1 COMPOSITION OF THE BOARD. (a) The Issuer Board shall
consist of five members. WCAS VII shall be entitled, but not required,
to designate two members of the Issuer Board, WCAS VIII shall be
entitled, but not required, to designate one member of the Issuer
Board, and Limited Commerce shall be entitled, but not required, to
designate two members of the Issuer Board. The right to designate a
member or members of the Issuer Board shall belong solely to, and shall
be exercised exclusively by, the respective Holder to whom such right
has been granted herein for its own benefit and account. Each Holder
entitled to vote for the election of directors to the Board agrees that
it will vote all of its Voting Securities or execute consents, as the
case may be, and take all other necessary action (including causing the
Issuer to call a special meeting of stockholders) in order to ensure
that the composition of the Board is as set forth in this Section
4.1(a). Notwithstanding the foregoing, if, pursuant to the terms of the
Issuer's 6 1/4% Redeemable Exchangeable Preferred Stock (the "Preferred
Stock"), the holders thereof are entitled to elect one member of the
Issuer Board, WCAS VII shall be entitled, but not required, to expand
the size of the Issuer Board to seven members (including the member
elected by the holders of the Preferred Stock) and designate one
additional member of the Issuer Board. The term of the additional
member of the Issuer Board designated by WCAS VII pursuant to the
immediately preceding sentence shall expire simultaneously with the
expiration of the
<PAGE>
term of the member of the Issuer Board designated by the holders of the
Preferred Stock, and the Issuer Board shall thereupon consist of five
members as contemplated by the first two sentences of this Section
4.1(a); PROVIDED that the right of WCAS VII to enlarge the Issuer Board
and to designate one additional member shall be reinstated in
accordance with, and subject to the provisions of this Section 4.1(a),
at any subsequent time at which the holders of the Preferred Stock are
entitled to elect one member of the Issuer Board.
"(b) Each director designated pursuant to Section 4.1(a) shall have the
right to serve as a member of any and all committees of the Issuer
Board. The appointment and removal of a designated director shall be by
written notice from the designating stockholder to the Issuer, and
shall take effect upon the delivery of written notice thereof at the
Issuer's principal office or at any meeting of the Issuer Board.
"(c) Each of WCAS VII and WCAS VIII shall have the right to appoint a
representative to attend as an observer (i) each and every meeting of
the Issuer Board and each subsidiary thereof and (ii) each and every
meeting of any committee of any such board. The appointment and removal
of such representatives shall be by written notice from WCAS VII or
WCAS VIII, as the case may be, to the Issuer and shall take effect upon
the delivery of written notice thereof to the Issuer at its principal
office or at any meeting of the Issuer Board.
"(d) In addition to the rights et forth in Section 4.5 hereto, each of
WCAS VII and WCAS VIII shall have the right to receive, within a
reasonable time after its written request therefor, any information
relating to the Issuer or any subsidiary thereof as WCAS VII or WCAS
VIII in its respective sole discretion reasonably deems appropriate,
including without limitation: (i) financial information and statements,
including balance sheets and profit and loss and cash flow statements
of the Issuer and its subsidiaries; (ii) on an annual basis or, if so
requested, more frequently, budgets and cash flow forecasts and
projections of the Issuer and its subsidiaries; and (iii) such
additional financial or other information as WCAS VII or WCAS VIII may
reasonably request. Each of WCAS VII and WCAS VIII shall be entitled,
at all reasonable times, to have
<PAGE>
access to the premises, books and records of the Issuer and its
subsidiaries.
"(e) Each of WCAS VII and WCAS VIII shall have the right to meet on a
regular basis with the management personnel of the Issuer and its
subsidiaries from time to time and upon reasonable notice for the
purpose of consulting with, rendering advice, recommendations and
assistance to, and influencing, the management of such companies or
obtaining information regarding them or their operations, activities
and prospects, and expressing its views thereon.
"(f) If United States ERISA counsel for either WCAS VII or WCAS VIII
reasonably concludes that the rights granted to WCAS VII or WCAS VIII,
as the case may be, in this agreement should be altered in order to
preserve the qualification of WCAS VII or WCAS VIII as a "venture
capital operating company," or otherwise to ensure that the assets of
WCAS VII or WCAS VIII are not considered "plan assets" for purposes of
ERISA, the Issuer agrees (and each other party hereto likewise agrees)
to amend this agreement to effect any such alteration, PROVIDED that no
such alteration would have a material adverse effect on the business
operations or prospects of the Issuer and its subsidiaries taken as a
whole.
"(g) The Issuer shall use all reasonable efforts to take such further
action as may be necessary or advisable in order to give full effect to
the rights being granted hereunder to WCAS VII and WCAS VIII.
"(h) Each Holder and the Issuer agrees that if, at any time, it is
entitled to vote for the removal of directors of the Issuer, it will
not vote any of its Voting Securities in favor of the removal of any
director who shall have been designated or nominated pursuant to
Section 4.1(a) unless such removal shall be for Cause or the Person
entitled to designate or nominate such director shall have consented to
such removal in writing. Removal for "Cause" shall mean removal of a
director because of such director's (a) willful and continued failure
to substantially perform his or her duties with the Issuer in his or
her established position, (b) willful conduct which is significantly
injurious to the Issuer, monetarily or
<PAGE>
otherwise, or (c) conviction for, or a guilty plea to, a felony.
"(i) If, as a result of death, disability, retirement, resignation,
removal (with or without Cause) or otherwise, there shall exist or
occur any vacancy on the Issuer Board:
(i) the Person entitled under Section 4.1(a) to designate or
nominate such director whose death, disability, retirement,
resignation or removal resulted in such vacancy may designate another
individual (the "Nominee") to fill such capacity and serve as a
director of the Issuer; and
(ii) each Holder then entitled to vote for the election of the
Nominee as a director of the Issuer agrees that it will vote all of
its Voting Securities, or execute a written consent, as the case may
be, in order to ensure that the Nominee be elected to the Issuer
Board."
SECTION 4. APPLICABLE LAW. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to conflicts of law principles.
SECTION 5. ORIGINAL AGREEMENT. Except as amended or modified
pursuant to this Amendment, the terms of the Original Agreement shall remain in
full force and effect.
SECTION 6. SEVERABILITY. The invalidity or unenforceability of
any provisions of this Amendment in any jurisdiction shall not affect the
validity, legality or enforceability of the remainder of this Amendment in such
jurisdiction or the validity, legality or enforceability of this Amendment,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 7. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts, each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Robert A. Minicucci
------------------------------
Title:
WELSH, CARSON, ANDERSON & STOWE
VIII, L.P.
By: WCAS VIII Partners, L.P.,
General Partner
By /s/ Anthony J. deNicola
------------------------------
Title: General Partner
WELSH, CARSON, ANDERSON & STOWE
VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By /s/ Anthony J. deNicola
------------------------------
Title: General Partner
WELSH, CARSON, ANDERSON & STOWE
VI, L.P.
By: WCAS VI Partners, L.P.,
General Partner
By /s/ Anthony J. deNicola
-------------------------------
Title: General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By /s/ [Illegible]
-------------------------------
Title: General Partner
<PAGE>
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners,
General Partner
BY /s/ Anthony J. deNicola
-------------------------------
Title: General Partner
/s/ Patrick J. Welsh
---------------------------------
Patrick J. Welsh
/s/ Russell L. Carson
---------------------------------
Russell L. Carson
/s/ Bruce K. Anderson
---------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
---------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
---------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
---------------------------------
Thomas E. McInerney
/s/ Laura VanBuren
---------------------------------
Laura VanBuren
/s/ James B. Hoover
---------------------------------
James B. Hoover
<PAGE>
/s/ Robert A. Minicucci
---------------------------------
Robert A. Minicucci
/s/ Anthony J. deNicola
---------------------------------
Anthony J. deNicola
/s/ David Bellet
---------------------------------
David Bellet
/s/ Paul B. Queally
---------------------------------
Paul B. Queally
LIMITED COMMERCE CORP.
By
------------------------------
Title:
<PAGE>
/s/ Lawrence Sorrel
----------------------------------
Lawrence Sorrel
/s/ Priscilla Newman
----------------------------------
Priscilla Newman
/s/ Rudolph Rupert
----------------------------------
Rudolph Rupert
/s/ D. Scott Mackesy
----------------------------------
D. Scott Mackesy
<PAGE>
WAIVER AND CONSENT
The undersigned, parties to that certain Amended and Restated
Stockholders Agreement, dated as of August 30, 1996 (the "Agreement"), among
Alliance Data Systems Corporation, then known as World Financial Network Holding
Corporation (the "Company"), Limited Commerce Corp. ("Limited"), Welsh, Carson,
Anderson & Stowe VII, L.P. ("WCAS VII") and the Several Other WCAS Investors
Named in Annex I Thereto, do hereby waive certain rights granted to them in
Section 2.6 of the Agreement as such rights relate to the transactions
contemplated by that certain Securities Purchase Agreement for the purchase of
(i) an aggregate of 5,900,000 shares of the Company's Common Stock and (ii) the
Company's 10% Subordinated Note in the principal amount of $52,000,000 by WCAS
Capital Partners III, L.P.
Dated: September , 1998
LIMITED COMMERCE CORP.
By: /s/ [ILLEGIBLE]
------------------------
Title:
<PAGE>
AMENDMENT TO AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of
August 31, 1998 (the "Amendment"), amending the Amended and Restated
Stockholders Agreement dated as of August 30, 1996, as amended (as so
amended, the "Original Agreement"), among Alliance Data Systems Corporation
(known in the Original Agreement as World Financial Network Holding
Corporation) (the "Issuer"), Limited Commerce Corp. ("Limited Commerce"),
WCAS Capital Partners II, L.P. ("WCAS CP II"), Welsh, Carson, Anderson &
Stowe VII, L.P. ("WCAS VII"), and the several other investors named as
parties thereto (collectively with Limited Commerce, WCAS CP II and WCAS VII,
the "Investors"), certain of whom were also parties to the Original Agreement.
WHEREAS, the Issuer, Limited Commerce, WCAS CP II and WCAS VII have
entered into an Amendment to Securities Purchase Agreement dated as of the
date hereof (the "Amendment to Securities Agreement") pursuant to which,
among other things, the Issuer has agreed to issue and deliver to WCAS CP II
and Limited Commerce an aggregate 454,545 shares of Common Stock (the "Common
Shares"), par value $.01 per share, of the Issuer in consideration of the
agreement by WCAS CP II and Limited Commerce to change the maturity of the
10% Subordinated Notes due January 24, 2002 of the Company held by WCAS CP II
and Limited Commerce Corp. from January 24, 2002 to October 25, 2005; and
WHEREAS, the Issuer and the Investors desire to amend the Original
Agreement to include the Common Shares in such agreement;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO ORIGINAL AGREEMENT. The Common Shares to be
acquired by WCAS CP II and Limited Commerce pursuant to the Amendment to
Securities Agreement shall for all purposes be deemed "Common Stock" and
"Registrable Securities" under the Original Agreement.
SECTION 2. CONSENT. Each of the Investors hereby consents to the
issuance of the Common Shares to WCAS CP II and Limited Commerce and hereby
waives any preemptive right or other right it may have to purchase,
participate in or otherwise acquire any such shares of Common Stock.
<PAGE>
SECTION 3. APPLICABLE LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.
SECTION 4. ORIGINAL AGREEMENT. Except as amended or modified
pursuant to this Amendment, the terms of the Original Agreement shall remain in
full force and effect.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Amendment in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Amendment in such
jurisdiction or the validity, legality or enforceability of this Amendment,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 6. COUNTERPARTS: EFFECTIVENESS. This Amendment may
be executed in any number of counterparts, each of which shall be
an original with the same effect as if the signatures thereto and
hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ [ILLEGIBLE]
--------------------------------
LIMITED COMMERCE CORP.
By /s/ [ILLEGIBLE]
--------------------------------
WELSH, CARSON, ANDERSON & STOWE
VIII, L.P.
By WCAS VIII Associates LLC,
General Partner
By /s/ Laura VanBuren
--------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE
VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By /s/ Laura VanBuren
--------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE VI,
L.P.
By WCAS VI Partners, L.P.,
General Partner
By /s/ Laura VanBuren
--------------------------------
General Partner
3
<PAGE>
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General
Partner
By /s/ Laura VanBuren
--------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners, General
Partner
By /s/ Laura VanBuren
--------------------------------
General Partner
Attorney-in-Fact
PATRICK J. WELSH
RUSSELL L. CARSON
BRUCE K. ANDERSON
RICHARD H. STOWE
ANDREW M. PAUL
THOMAS E. MCINERNEY
JAMES B. HOOVER
By /s/ Laura VanBuren
--------------------------------
Laura VanBuren, Attorney-in-Fact
/s/ Laura VanBuren
--------------------------------
Laura VanBuren
/s/ Robert A. Minicucci
----------------------------------
Robert A. Minicucci
4
<PAGE>
/s/ Anthony J. deNicola
----------------------------------
Anthony J. deNicola
/s/ David Bellet
----------------------------------
David Bellet
/s/ Paul B. Queally
----------------------------------
Paul B. Queally
/s/ Lawrence Sorrel
----------------------------------
Lawrence Sorrel
/s/ Priscilla Newman
----------------------------------
Priscilla Newman
/s/ Rudolph Rupert
----------------------------------
Rudolph Rupert
/s/ D. Scott Mackesy
----------------------------------
D. Scott Mackesy
5
<PAGE>
AMENDMENT TO AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of
JULY 12, 1999 (this "Amendment"), amending the Amended and Restated Stockholders
Agreement, dated as of August 30, 1996 and amended as of July 24, 1998 and
further amended as of August 31, 1998 (as so amended, the "Original Agreement"),
among Alliance Data Systems Corporation (known in the Original Agreement as
World Financial Network Holding Corporation), a Delaware corporation (the
"Issuer"), Limited Commerce Corp., a Delaware corporation, WCAS Capital Partners
II, L.P., a Delaware limited partnership, Welsh, Carson, Anderson & Stowe VI,
L.P., a Delaware limited partnership, Welsh, Carson, Anderson & Stowe VII, L.P.,
a Delaware limited partnership, Welsh, Carson, Anderson & Stowe VIII, L.P., a
Delaware limited partnership ("WCAS VIII"), WCAS Information Partners, L.P., a
Delaware limited partnership ("WCAS IP"), and the several other investors party
thereto (collectively, the "Investors").
WHEREAS, the Issuer, WCAS VIII, WCAS IP and the other purchasers named
on Schedule I thereto (together with WCAS VIII and WCAS IP, the "Purchasers")
have entered into a Preferred Stock Purchase Agreement, dated as of July 12,
1999, pursuant to which, among other things, the Issuer has agreed to issue and
deliver to the Purchasers an aggregate 120,000 shares of its Series A Cumulative
Convertible Preferred Stock, par value $.01 per share (the "Preferred Shares"),
which are initially convertible into shares of Common Stock, par value $.01 per
share, of the Issuer ("Common Stock); and
WHEREAS, the Issuer and the Investors desire to amend the Original
Agreement to set forth certain restrictions upon the transfer of the Preferred
Shares, include the shares of Common Stock from time to time issuable upon
conversion of the Preferred Shares in such agreement and join each of the
Purchasers who are not already party to such agreement as parties thereto.
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO ORIGINAL AGREEMENT. (a) All shares of Common
Stock from time to time issued upon conversion of the Preferred Shares shall for
all purposes be deemed "Common Stock" and "Registrable Securities" under the
Original Agreement.
(b) The definition of Permitted Transferee contained in the Original
Agreement is hereby amended to include on Annex I thereof each of the Purchasers
(to the extent not already
<PAGE>
included on said Annex).
SECTION 2. CONSENTS. Each of the Investors hereby consents to (i) the
issuance of the Preferred Shares (and the shares of Common Stock issuable upon
conversion thereof) and hereby waives any preemptive right or other right it may
have to purchase, participate in or otherwise acquire any such shares and (ii)
the amendment and restatement of the Certificate of Incorporation of the Issuer
in the form attached hereto as Annex A.
SECTION 3. RESTRICTIONS ON TRANSFER. (a) Each Purchaser signatory
hereto agrees to be bound, with respect to the transfer of his, her or its
Preferred Shares, by the transfer restrictions set forth in Sections 2.1(a),
2.1(b)(ii), 2.1(c)(ii), 2.1(f), 2.3, 2.5 and 2.7 of the Original Agreement (in
each case substituting the words "Series A Cumulative Convertible Preferred
Stock of the Issuer" for references to "Common Stock" appearing in said
sections).
(b) For so long as the Preferred Shares continue to be subject to the
transfer restrictions set forth in (a) above, each certificate evidencing
Preferred Shares shall include a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS SECURITY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD
EXCEPT IN COMPLIANCE THEREWITH. THE SHARES REPRESENTED BY THIS
SECURITY ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS
SET FORTH IN THE AMENDMENT, DATED AS OF JULY 12, 1999, TO THE
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT DATED AS OF AUGUST
30, 1996, A COPY OF WHICH MAY BE OBTAINED FROM ALLIANCE DATA
SYSTEMS CORPORATION."
SECTION 4. APPLICABLE LAW. This Amendment shall be governed
by and construed in accordance with the laws of the State of New
York, without regard to conflicts of law principles.
SECTION 5. ORIGINAL AGREEMENT. Except as amended or modified
pursuant to this Amendment, the terms of the Original Agreement
shall remain in full force and effect.
SECTION 6. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Amendment in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Amendment in such
jurisdiction or the validity, legality or enforceability of this Amendment,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 7. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed
in any number of counterparts, each of which shall be an original with the same
effect as if the
<PAGE>
signatures thereto and hereto were upon the same instrument.
[signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By [Illegible]
------------------------------
LIMITED COMMERCE CORP.
By [Illegible]
------------------------------
WELSH, CARSON, ANDERSON & STOWE
VIII, L.P.
By WCAS VIII Associates LLC,
General Partner
By /s/ Robert A. Minicucci
------------------------------
Managing Member
WELSH, CARSON, ANDERSON & STOWE
VII, L.P.
By WCAS VII Partners, L.P., General
Partner
By /s/ Robert A. Minicucci
------------------------------
General Partner
WELSH, CARSON, ANDERSON & STOWE VI,
L.P.
By WCAS VI Partners, L.P., General
Partner
By /s/ Robert A. Minicucci
------------------------------
General Partner
<PAGE>
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Associates, L.L.C.,
General Partner
By /s/ Robert A. Minicucci
------------------------------
General Partner
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP II Associates, L.L.C.,
General Partner
By /s/ Robert A. Minicucci
------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By /s/ Thomas E. McInerney
------------------------------
General Partner
<PAGE>
SECURITIES PURCHASE AGREEMENT
among
BUSINESS SERVICES HOLDINGS, INC.
and
THE SEVERAL PURCHASERS NAMED
IN SCHEDULE I AND SCHEDULE II HERETO
Dated as of January 24, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
I. PURCHASE AND SALE OF SECURITIES . . . . . . . . . . . . . . . . . . . . .2
SECTION 1.01 Issuance, Sale and Delivery of the
Initial Common Shares and the Initial
Preferred Shares and Execution,
Sale and Delivery of the Note . . . . . . . . . . .2
SECTION 1.02 Additional Agreement . . . . . . . . . . . . . . . . . .3
SECTION 1.03 Obligation to Purchase Additional
Shares . . . . . . . . . . . . . . . . . . . . . . . .3
SECTION 1.04 Purchase and Sale of the Additional
Securities . . . . . . . . . . . . . . . . . . . . . .4
II. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2.01 First Closing Date . . . . . . . . . . . . . . . . . . .4
SECTION 2.02 Subsequent Closings. . . . . . . . . . . . . . . . . . .4
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . .5
SECTION 3.01 Organization, Qualifications and
Corporate Power. . . . . . . . . . . . . . . . . . . .5
SECTION 3.02 Authorization of Agreements, Etc. . . . . . . . . . . .5
SECTION 3.03 Validity . . . . . . . . . . . . . . . . . . . . . . . .6
SECTION 3.04 Authorized Capital Stock . . . . . . . . . . . . . . . .6
SECTION 3.05 Governmental Approvals . . . . . . . . . . . . . . . . .7
SECTION 3.06 Offering of the Note and the
Shares . . . . . . . . . . . . . . . . . . . . . . . .7
SECTION 3.07 Corporate Transactions . . . . . . . . . . . . . . . . .7
SECTION 3.08 Events Subsequent to Date of
Incorporation. . . . . . . . . . . . . . . . . . . . .7
SECTION 3.09 Accuracy of Representations and
Warranties in the Acquisition
Agreement. . . . . . . . . . . . . . . . . . . . . . .8
SECTION 3.10 Regulations G and X. . . . . . . . . . . . . . . . . . .8
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS . . .. . . . . . . . .8
SECTION 4.01 Authorization. . . . . . . . . . . . . . . . . . . . . .8
SECTION 4.02 Validity . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 4.03 Investment Representations . . . . . . . . . . . . . . .9
V. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 5.01 Conditions Precedent to the
Obligations of the Purchasers. . . . . . . . . . . . . 10
<PAGE>
Page
SECTION 5.02 Conditions Precedent to the
Obligations of the Company . . . . . . . . . . . . . . 12
SECTION 5.03 Conditions Precedent to the
Obligations of the Purchasers With
Respect to Each Subsequent Closing. . . . . . . . . 13
VI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.01 Expenses, Etc . . . . . . . . . . . . . . . . . . . . 13
SECTION 6.02 Survival of Agreements . . . . . . . . . . . . . . . . 13
SECTION 6.03 Parting in Interest. . . . . . . . . . . . . . . . . . 14
SECTION 6.04 Notices. . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 6.05 Entire Agreement; Modifications. . . . . . . . . . . . 14
SECTION 6.06 Counterparts . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6.07 Governing Law. . . . . . . . . . . . . . . . . . . . . 15
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
INDEX TO EXHIBITS AND SCHEDULES
EXHIBIT DESCRIPTION
- ------- -----------
A Form of 10% Subordinated Note
B Form of Registration Rights Agreement
SCHEDULE DESCRIPTION
- -------- -----------
I Schedule I Purchasers and Securities
II Schedule II Purchaser and Securities
ii
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of January 24, 1996, among BUSINESS
SERVICES HOLDINGS, INC., a Delaware corporation (the "Company"), the several
purchasers named in Schedule I hereto (such purchasers being sometimes
hereinafter called individually a "Schedule I Purchaser" and collectively the
"Schedule I Purchasers") and the purchaser named in Schedule II hereto (such
purchaser being sometimes hereinafter called the "Schedule II Purchaser" and,
collectively, with the Schedule I Purchasers, the "Purchasers")
WHEREAS pursuant to an Acquisition Agreement (the "Acquisition Agreement")
dated as of January 12, 1996 between the Company and JCP Telecom Systems, Inc.,
a Delaware corporation ("Seller"), the Company has agreed to buy, and Seller has
agreed to sell to the Company, on the terms and subject to the conditions set
forth therein, all the issued and outstanding capital stock of J.C. Penney
Business Services, Inc., a Delaware corporation, consisting of 10 shares of
Common Stock, $1.00 par value; and
WHEREAS in order to finance the transactions contemplated by the
Acquisition Agreement, the Company wishes (i) to issue and sell on the First
Closing Date (as hereinafter defined) (x) to the Schedule I Purchasers,
severally, an aggregate 24,999,000 shares of Common Stock, $.01 par value
("Common Stock"), of the Company and an aggregate 250,000 shares of Preferred
Stock, $1.00 par value ("Preferred Stock"), of the Company, and (y) to the
Schedule II Purchaser, an aggregate 3,571,429 shares of Common Stock and
$50,000,000 aggregate principal amount of the Company's 10% Subordinated Notes
Due January 24, 2002, and (ii) to issue and sell to the Schedule I Purchasers,
severally, on one or more Subsequent Closing bates (as hereinafter defined),
subject to the terms and conditions bet forth in Sections 1.03 and 1.04 hereof,
up to an aggregate 23,270,000 shares of Common Stock and up to an aggregate
232,700 shares of Preferred Stock; and
WHEREAS the Purchasers, severally, wish to purchase said Note and shares of
Common Stock and Preferred Stock being purchased by them hereunder, all on the
terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE>
I.
PURCHASE AND SALE OF SECURITIES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE INITIAL COMMON SHARES AND
THE INITIAL PREFERRED SHARES AND EXECUTION, SALE AND DELIVERY OF THE NOTE.
(a) Subject to the terms and conditions set forth herein, on the First
Closing Date (i) the Company shall issue, sell and deliver to each Schedule I
Purchaser, and each Schedule I Purchaser shall purchase from the Company, (x)
the number of shares of Common Stock set forth opposite the name of such
Schedule I Purchaser on Schedule I hereto under the caption "Common Shares"
(such shares of Common Stock, collectively with the shares of Common Stock
referred to in paragraph (b) below, being hereinafter sometimes referred to as
the "Initial Common Shares"), and (y) the number of shares of Preferred Stock
set forth opposite the name of such Schedule I Purchaser on said Schedule I
under the caption "Preferred Shares" (the "initial Preferred Shares" and,
collectively with the Initial Common Shares, being hereinafter sometimes
referred to as the "Initial Shares"). The Company shall issue certificates in
definitive form, registered in the name of each Schedule I Purchaser, evidencing
the Initial Common Shares and the Initial Preferred Shares being purchased by
such Schedule I Purchasers hereunder.
(b) Subject to the terms and conditions set forth herein, on the First
Closing Date (i) the Company shall issue, sell and deliver to the Schedule II
Purchaser, and the Schedule II Purchaser shall purchase from the Company, the
number of shares of Common Stock set forth opposite the name of such Schedule II
Purchaser on Schedule II hereto under the caption "Common Shares", and (ii) the
Company shall execute, sell and deliver to the Schedule II Purchaser, and the
Schedule Il Purchaser shall purchase from the Company, a 10% senior Subordinated
Note Due January 24, 2002 of the Company, substantially in the form of Exhibit A
hereto, dated the First Closing Date, in principal amount equal to the amount
set forth opposite the name of such Schedule II Purchaser on said Schedule II
under the caption "Principal Amount of Subordinated Note" (such note, and any
note or notes issued in exchange or substitution therefor, being hereinafter
called the "Note"). The Company shall issue a certificate or Certificates in
definitive form, registered in the name of the Schedule II Purchaser, evidencing
the Initial Common Shares being purchased by it hereunder.
(c) As payment in full for the Initial Shares and the Note being purchased
by each Purchaser hereunder, and against delivery thereof as aforesaid, on the
First Closing Date each
2
<PAGE>
Purchaser shall pay to the Company, by wire transfer of immediately available
funds to an account designated by the Company, the amounts set forth opposite
the name of such Purchaser (i) on Schedule I hereto under the captions
"Purchase Price of Common Shares" and "Purchase Price of Preferred Shares",
respectively, and (ii) on Schedule II hereto under the captions "Purchase
Price of Common Shares" and "Purchase Price of Subordinated Note",
respectively.
SECTION 1.02 ADDITIONAL AGREEMENT. On the First Closing Date,
simultaneously with the execution and delivery of the Initial shares and the
issuance and delivery of the Note hereunder, the Company and each Purchaser will
execute and deliver a Registration Rights Agreement in the form of Exhibit B
hereto (the "Registration Rights Agreement")
SECTION 1.03 OBLIGATION TO PURCHASE ADDITIONAL SHARES.
(a) GENERAL. In addition to the Initial Shares and the Note to be issued
and sold to the Purchasers hereunder, the Company covenants and agrees to issue,
sell and deliver to the Schedule I Purchasers, subject to the terms and
conditions set forth herein, up to an aggregate 23,270,000 shares; of Common
Stock and up to an aggregate 232,700 shares of Preferred Stock (the "Additional
Preferred Shares", and, collectively with the Additional Common Shares, the
"Additional Shares").
(b) OBLIGATION TO PURCHASE ADDITIONAL SHARES. In the event that (i) an
Additional Amount (as defined in the Acquisition Agreement) is required to be
paid to Seller pursuant to Section 1.04 of the Acquisition Agreement and (ii)
the Board of Directors of the Company shall determine that amounts in excess of
funding available from other financing sources will be required to enable the
Company to pay such Additional Amount and satisfy its other capital
requirements, then the Company shall, not less than fifteen (15) days prior to
the date upon which the Additional Payment is required to be paid, (A) notify
the Purchasers that the Company is exercising its right pursuant to this Section
1.03 to require the Purchasers to purchase Additional Shares and (B) take all
action necessary to increase the number of shares of Common Stock and Preferred
Stock authorized to be issued under the Certificate of Incorporation of the
Company as may be required to permit the issuance and sale of such Additional
Shares. Such notice (the "Put Notice") shall be in writing and shall specify
the number of Additional Shares that the Company proposes to issue to the
Schedule I Purchasers (which shall be allocated among such Purchasers in
proportion to the number of Initial Shares purchased by such Purchasers on the
First Closing Date), and (y) the Subsequent Closing Date for the purchase and
sale of such Additional Shares which date shall be not less than 10 nor more
than 15 days after the date of the Put
3
<PAGE>
Notice to which it relates. Any such Put Notice shall be effective upon
delivery thereof.
(c) TERMINATION OF PUT RIGHTS. On June 30, 1998 (the "Termination Date"),
any Additional Shares, if any, not yet issued, sold or delivered hereunder shall
no longer be subject to any of the provisions of this Section 1.03, and the
right to require the Purchasers to purchase such Additional Shares as described
herein shall expire and terminate.
SECTION 1.04 PURCHASE AND SALE OF THE ADDITIONAL SHARES. (a) In the
event that the Company shall have delivered a Put Notice pursuant to Section
1.03(b) above, then, subject to the terms and conditions set forth herein, on
the Subsequent Closing Date specified in such Put Notice, the Company shall
issue and sell to the Purchasers, and the Purchasers shall purchase from the
Company, the Additional Shares specified in the Put Notice at the same
purchase price paid by such Purchasers for the shares of Common Stock and
Preferred Stock purchased by them on the First Closing Date.
(b) As payment in full for the Additional Shares purchased by each
Purchaser hereunder, and against delivery thereof as aforesaid, on each
Subsequent Closing Date each Purchaser shall pay to the Company, by wire
transfer of immediately available funds to an account designated by the Company,
the aggregate purchase price for the Additional Shares being purchased by such
Purchaser as set forth in the relevant Put Notice.
II.
THE FIRST CLOSING; SUBSEQUENT CLOSINGS
SECTION 2.01 FIRST CLOSING DATE. The closing of the sale and purchase of
the Initial Shares and the Note shall take place at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York
10111, at 10 a.m., New York time, on January 24, 1996, or at such other date and
time as may be mutually agreed upon among the Purchasers and the Company (such
date and time of the closing being herein called the "First Closing Date").
SECTION 2.02 SUBSEQUENT CLOSING DATES. Each closing of the sale and
purchase of Additional Shares shall take place at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York
10111, at 10 a.m., New York time, on such date (which shall not be a day on
which banking institutions in the State of New York are authorized or required
to close) as shall be specified in the relevant Put Notice or at
4
<PAGE>
such other date and time as may be mutually agreed upon among the Purchasers
and the Company (each such date and time of the closing being herein called a
"Subsequent Closing Date").
III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
SECTION 3.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER. The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified in each jurisdiction in which the nature of its business or the
ownership of its properties makes such licensing or qualification necessary.
The Company has the corporate power and authority to own and hold its
properties, to carry on its business as currently conducted, to execute, deliver
and perform this Agreement, the Note and the Registration Rights Agreement and
to issue and deliver the Shares. Each Purchaser has been furnished with true
and complete copies of the Company's Certificate of Incorporation and By-laws,
reflecting all amendments thereto as of the First Closing Date.
SECTION 3.02 AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Agreement, the
Note and the Registration Rights Agreement, the performance by the Company of
its respective obligations hereunder and thereunder, the sale of the Note and
the issuance and sale by the Company of the Shares have been duly authorized
by all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Certificate or
Incorporation or By-laws or the Company, or any provision of any indenture,
agreement or other instrument to which the Company or any of its properties or
assets is bound, or conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument, or result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(b) The Shares have been duly authorized by the Company and, when
sold and paid for in accordance with this Agreement, will be validly issued,
fully paid and nonassessable shares of Common Stock and Preferred Stock,
respectively, The issuance, sale and delivery of the Shares to the Purchasers
5
<PAGE>
hereunder is not subject to any preemptive rights of stockholders of the Company
or to any right of first refusal or other similar right in favor of any person.
SECTION 3.03 VALIDITY. This Agreement his been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and to general equity
principles. The Note and the Registration Rights Agreement, when executed and
delivered by the Company as provided in this Agreement, will constitute legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject, as to enforcement of remedies,
to applicable bankruptcy, insolvency, reorganization, moratorium, and similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally and to general equity principles.
SECTION 3.04 AUTHORIZED CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of
34,000,000 shares of Common Stock, $.01 par value, and 250,000 shares of
Preferred Stock, $1 par value. As of the date hereof, 1,000 shares of Common
Stock (the "Organization Shares") have been issued to Welsh, Carson, Anderson &
Stowe VII, L.P. in connection with the organization of the Company for an
aggregate purchase price of $1,000, and no other shares of Common Stock and no
shares of Preferred Stock have ever been issued. As of the Closing, 28,571,429
shares of Common Stock and 250,000 shares of Preferred Stock shall be issued and
outstanding.
(b) Except (i) as provided in this Agreement and the Acquisition
Agreement and (ii) with respect to employee stock options to be granted by the
Board of Directors of the Company from time to time after the date hereof, (i)
no subscription, warrant, option, convertible security or other right
(contingent or other) to purchase or acquire any shares of any class of capital
stock of the Company is authorized or outstanding and (ii) there is not any
commitment of the Company to issue any shares, warrants, options or other such
rights or to distribute to holders of any class of the Company's capital stock,
any evidences of indebtedness or assets. Except as provided in this Agreement
and the Acquisition Agreement, the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any shares of its capital stock
or any interest therein or to pay any dividend or make any other distribution in
respect thereof.
6
<PAGE>
SECTION 3.05 GOVERNMENTAL APPROVALS. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article IV hereof,
no registration or filing with, or consent or approval of, or other action by,
any Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance of this Agreement,
the Note and the Registration Rights Agreement, the sale of the Note or the
issuance, sale and delivery of the Shares (other than notice filings required
under Federal and state securities laws, which will be timely made).
SECTION 3.06 OFFERING OF THE NOTE AND THE SHARES. Neither the Company
nor any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Note, the Shares or any
similar securities of the Company has offered any such securities for sale to,
or solicited any offers to buy any such securities from, or otherwise approached
or negotiated with respect thereto with, any person or persons, under
circumstances that involved the use of any form of general advertising or
solicitation as such terms are defined in Regulation D of the Securities Act of
1933, as amended (the "Securities Act"); and assuming the accuracy of the
representations and warranties of the Purchasers set forth in Article IV hereof,
neither the Company nor any person acting on the Company's behalf has taken or
will take any action (including, without limitation, any offer, issuance or sale
of any securities of the Company under circumstances which might require the
integration of such transactions with the sale of the Note and the Shares under
the Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "Commission") thereunder) which might subject the offering,
issuance or sale of the Note and the Shares to the Purchasers to the
registration provisions of the Securities Act.
SECTION 3.07 CORPORATE TRANSACTIONS. The Company was incorporated on
September 27, 1995, and has not conducted any business or otherwise entered into
any transactions other than (i) the organization of the Company, including the
issuance of the Organization Shares, the adoption of By-laws and the election of
directors and officers, (ii) the authorization, execution and delivery of the
Acquisition Agreement and the agreements described therein and the authorization
of the transactions contemplated thereby and (iii) the authorization of this
Agreement, the Note, the Registration Rights Agreement and the transactions
contemplated hereby and thereby.
SECTION 3.08 EVENTS SUBSEQUENT TO DATE OF INCORPORATION. Other than
in connection with the issuance of the Organization Shares, the Company has not
(i) issued any stock, bonds or other corporate securities, (ii) borrowed any
amount or incurred any liabilities (absolute or contingent),
7
<PAGE>
(iii) discharged or satisfied any lien or incurred or paid any obligation or
liability (absolute or contingent), other than expenses incidental to the
Company's formation, (iv) declared or made any payment or distribution to
stockholders or purchased or redeemed any shares of its capital stock or
other securities or (v) conducted any business of a material nature.
Between the date hereof and the First Closing Date, the Company will
not do any of the things listed in clauses (i) through (v) above.
SECTION 3.09 ACCURACY OF REPRESENTATIONS AND WARRANTIES IN THE
ACQUISITION AGREEMENT. The representations and warranties of the Company
contained in Article V of the Acquisition Agreement are true and correct as of
the date hereof and will be true and correct as of the First Closing Date.
SECTION 3.10 REGULATIONS G AND X. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (as defined, from time to time, in Regulation G promulgated by the Board
of Governors of the Federal Reserve System), and no part of the proceeds from
the Note or the Shares or other financing in connection with the transactions
contemplated by the Acquisition Agreement will be used to purchase or carry any
margin stock or to extend credit to others for the purpose of purchasing or
carrying any margin stock in violation of Regulations G and X.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, represents and warrants to
the Company as follows:
SECTION 4.01 AUTHORIZATION. The execution, delivery and performance
by such Purchaser of this Agreement and the Registration Rights Agreement and
the purchase and receipt by such Purchaser of the Note and the Shares being
purchased by such Purchaser hereunder, as the case may be, have been duly
authorized by all requisite action on the part of such Purchaser, and will not
violate any provision of law, any order of any court or other agency of
government applicable to such Purchaser, the governing instrument of such
Purchaser, or any provision of any indenture, agreement or other instrument by
which such Purchaser or any of such Purchaser's properties or assets are bound,
or conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any
8
<PAGE>
nature whatsoever upon any of the properties or assets of such Purchaser.
SECTION 4.02 VALIDITY. This Agreement has been duly executed and
delivered by such Purchaser and constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in
accordance with its terms, subject, as to enforcement of remedies, to
applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect affecting the enforcement of creditors'
rights generally and to general equity principles. The Registration Rights
Agreement, when executed and delivered in accordance with this Agreement,
will constitute the legal, valid and binding obligation of such Purchaser,
enforceable in accordance with its terms, subject, as to enforcement of
remedies, to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws from time to time in effect affecting the enforcement of
creditors' rights generally and to general equity principles.
SECTION 4.03 INVESTMENT REPRESENTATIONS.
(a) Such Purchaser is acquiring the Shares and the Note
(collectively the "Securities"), being purchased by it hereunder for its own
account, for investment, and not with a view toward the resale or
distribution thereof in violation of applicable law.
(b) Such purchaser understands that he, she or it must bear the
economic risk of his, her or its investment for an indefinite period of time
because the Securities are not registered under the Securities Act or any
applicable state securities laws, and may not be resold unless subsequently
registered under the Securities Act and such other laws or unless an
exemption from such registration is available. Such Purchaser also
understands that, except as provided in the Registration Rights Agreement, it
is not contemplated that any registration will be made under the Securities
Act or that the Company will take steps which will make the provisions of
Rule 144 under the Securities Act available to permit resale of the
Securities. Such Purchaser will not pledge, transfer, convey or otherwise
dispose of any of the Securities, except (i) in connection with a
distribution to its partners, if such Purchaser is a partnership or (ii) in a
transaction that is the subject of either (x) an effective registration
statement under the Securities Act and any applicable state securities laws,
or (y) an opinion of counsel to the effect that such registration is not
required (which opinion and counsel shall be reasonably satisfactory to the
Company, it being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol
shall be satisfactory, and may be relied on by the Company in making such
determination), it being intended that the agreements with respect to the
Common Shares contained in this sentence
9
<PAGE>
shall be construed consistently with the provisions relating to the same
subject matter contained in the Registration Rights Agreement.
(c) Such Purchaser is able to fend for himself, herself and itself
in the transactions contemplated by this Agreement and that he, she or it has
the ability to bear the economic risks of his, her or its, investment in the
Securities for an indefinite period of time. Such Purchaser has had the
opportunity to ask questions of, and receive answers from, officers of the
Company with respect to the business and financial condition of the Company
and the terms and conditions of the offering of the Securities and to obtain
additional information necessary to verify such information or can acquire it
without unreasonable effort or expense.
(d) Such Purchaser has such knowledge and experience in financial
and business matters that he, she or it is capable of evaluating the merits
and risks of his, her or its investment in the Securities, Such Purchaser is
an "accredited investor" as such term is defined in Rule 501 of Regulation D
of the Commission under the Securities Act with respect to its purchase of
the Securities, and that if such Purchaser is a partnership, it has not been
formed solely for the purpose of purchasing the Securities it is purchasing
hereunder.
V.
CONDITIONS PRECEDENT
SECTION 5.01 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
PURCHASERS. The obligations of each Purchaser hereunder are, at its option,
subject to the satisfaction, on or before the First Closing Date, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on the First Closing Date,
with the same force and effect as though such representations and warranties
had been made on and as of such date, and the Company shall have certified to
such effect to the Purchasers in writing.
(b) PERFORMANCE. The Company shall have performed and complied
with all agreements and conditions contained herein required to be performed
or complied with by it prior to or on the First Closing Date, and the Company
shall have certified to such effect to the Purchasers in writing.
10
<PAGE>
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company and all waivers and consents to be
obtained by the Company in connection with the transactions contemplated
hereby shall have been taken or obtained by the Company and all documents
incident thereto shall be satisfactory in form and substance to the
Purchasers and their counsel.
(d) ACQUISITION AGREEMENT, The transactions contemplated by the
Acquisition Agreement shall have been consummated on or prior to the First
Closing Date in accordance with the Acquisition Agreement as originally
executed, without any material amendments or waivers.
(e) CONSUMMATION OF TRANSACTIONS. On the First Closing Date, each
of the other Purchasers and the Company shall have consummated the
transactions contemplated hereby with respect to such parties.
(f) REGISTRATION RIGHTS AGREEMENT. On the First Closing Date, the
Company shall have executed and delivered the Registration Rights Agreement.
(g) SUPPORTING DOCUMENTS. On or prior to the First Closing Date,
the Purchasers and their counsel shall have received copies of the following
supporting documents:
(i) (1) copies of the Certificate of Incorporation of the Company,
and all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Delaware, (2) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing of
the Company and listing all documents of the Company on file with said
Secretary and (3) a telegram or telex from said Secretary as of the close
of business on the next business day preceding the First Closing Date as to
the continued due incorporation and good standing of the Company and to the
effect that no amendment to its Certificate of Incorporation has been filed
since the date of the certificate referred to in clause (2) above;
(ii) a certificate of the Secretary or an Assistant Secretary of the
Company dated the First Closing Date and certifying (1) that attached
thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification; (2) that attached thereto is a
true and complete copy of resolutions adopted by the Board of Directors of
the Company authorizing the execution, delivery and performance of this
Agreement, the Registration Rights Agreement, and the Note, the sale of the
Note and the issuance, sale and delivery of the Shares, and that all such
11
<PAGE>
resolutions are still in full force and effect and are all the resolutions
adopted in connection with the transactions contemplated by this Agreement
and the Registration Rights Agreement; (3) that the Certificate of
Incorporation of the Company has not been amended since the date of the
last amendment referred to in the certificate delivered pursuant to clause
(i) (2) above; and (4) as to the incumbency and specimen signature of each
officer of the Company executing this Agreement, the Registration Rights
Agreement and the Note, the stock certificates representing the Shares and
any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this
paragraph (ii); and
(iii) such additional supporting documents and other information with
respect to the operations and affairs of the Company as the Purchasers or
their counsel may reasonably request.
All such documents shall be satisfactory in form and substance to
the Purchasers and their counsel.
SECTION 5.02 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY. The obligations of the Company hereunder are, at its option, subject
to the satisfaction, on or before the First Closing Date, of the following
Conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of each Purchaser contained in this Agreement
shall be true and correct in all material respects on the First Closing Date,
with the same effect as though such representations and warranties had been
made on and as of such date.
(b) PERFORMANCE. Each Purchaser shall have performed and complied
with all agreements and conditions contained herein required to be performed
or complied with by it prior to or on the First Closing Date,
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be
taken by any Purchaser and all waivers and consents to be obtained by any
Purchaser in connection with the transactions contemplated hereby shall have
been taken or obtained by such Purchaser and all documents incident thereto
shall be satisfactory in form and substance to the Company and its counsel.
(d) ACQUISITION AGREEMENT. The transactions contemplated by the
Acquisition Agreement shall have been
12
<PAGE>
consummated on or prior to the First Closing Date in accordance with the
Acquisition Agreement.
SECTION 5.03 CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS WITH
RESPECT TO EACH SUBSEQUENT CLOSING:. The obligations of each Purchaser to
purchase and pay for the Additional Shares to be purchased by such Purchaser
on each Subsequent Closing Date hereunder are, at its option, subject to the
satisfaction, on or before such Subsequent Closing Date, of the following
conditions:
(a) CONSUMMATION OF FIRST CLOSING. On the First Closing Date the
Purchasers shall have purchased and paid for the Initial Shares and the
Note.
(b) PUT NOTICE. A Put Notice given pursuant to Section 1.03(b) above
shall have become effective pursuant to said Section.
VI.
MISCELLANEOUS
SECTION 6.01 EXPENSES, ETC. (a) Each party hereto will pay its own
expenses in connection with the transactions contemplated by this Agreement,
whether or not such transactions shall be consummated; PROVIDED, HOWEVER,
that the Company shall pay the reasonable fees and disbursements of its
counsel, Reboul, MacMurray, Hewitt, Maynard & Kristol and each Purchaser's
counsel. Each party hereto will indemnify and hold harmless the others
against and in respect of any claim for brokerage or other commissions
relative to this Agreement or to the transactions contemplated hereby, made
as a result of any agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
(b) The Company covenants and agrees that, in the event that
any Purchaser is required to make any filing under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, in connection with any
transaction to which the Company is a party, the Company will pay the
reasonable fees and expenses of such Purchaser's counsel in preparing such
filing, together with all filing fees.
SECTION 6.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the
Securities pursuant hereto and all statements contained in any certificate or
other instrument
13
<PAGE>
delivered by the Company hereunder shall be deemed to constitute
representations and warranties made by the Company.
SECTION 6.03 PARTIES IN INTEREST. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns
of the parties hereto whether so expressed or not, except for transferees in
a Public Sale. For the purposes of this Agreement, "Public Sale" means any
sale of Shares to the public pursuant to an offering registered under the
Securities Act or to the public pursuant to the provisions of Rule 144 (or
any successor or similar rule) adopted under the Securities Act.
SECTION 6.04 NOTICES, Any notice or other communications required
or permitted hereunder shall be deemed to be sufficient if contained in a
written instrument delivered in person or duly sent by first class certified
mail, postage prepaid, or by telecopy addressed to such party at the
address or telecopy number set forth below or such other address or telecopy
number as may hereafter be designated in writing by the addressee to the
addressor listing all parties:
if to the Company, to:
Business Services Holdings, Inc.
5001 Spring Valley Road
Dallas, Texas 75244
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Telecopy Number: (212) 841-5725
Attention: Robert A. Schwed, Esq.
if to any Purchaser, to the address of such Purchaser appearing on
Schedule I or Schedule II hereto, as the case may be;
or, in any case, at such other address or addresses as shall have been
furnished in writing by such party to the other parties hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing and (c) in the case of telecopy, when received.
SECTION 6.05 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement of the parties with
14
<PAGE>
respect to the subject matter hereof and may not be amended or modified nor
any provisions waived except in a writing signed by the Company and holders
owning an aggregate of not less than 66-2/3% of the outstanding principal
amount of each Note and not less than 66-2/3% of the outstanding shares of
Common Stock issued hereunder and not previously transferred in a Public Sale.
SECTION 6.06 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.07 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
15
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
BUSINESS SERVICES HOLDINGS, INC.
By /s/ Anthony J. deNicola
-------------------------------------
Title: President
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By /s/ Anthony J. deNicola
-------------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By WCAS INFO Partners,
General Partner
By /s/ Patrick J. Welsh
-------------------------------------
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners,
General Partner
By /s/ Anthony J. deNicola
-------------------------------------
General Partner
/s/ Patrick J. Welsh
-------------------------------------
Patrick J. Welsh
/s/ Russell L. Carson
-------------------------------------
Russell L. Carson
16
<PAGE>
/s/ Bruce K. Anderson
-------------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
-------------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
-------------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
-------------------------------------
Thomas E. McInerney
/s/ Laura VanBuren
-------------------------------------
Laura VanBuren
/s/ James B, Hoover
-------------------------------------
James B, Hoover
/s/ Robert A. Minicucci
-------------------------------------
Robert A. Minicucci
/s/ Anthony J. deNicola
-------------------------------------
Anthony J. deNicola
17
<PAGE>
/s/ David Bellet
-------------------------------------
David Bellet
18
<PAGE>
WCA MANAGEMENT CORPORATION
By Russell L. Carson
----------------------------------
19
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Price of Number of Price of TOTAL
Name and Common Common Preferred Preferred PURCHASE
Address of Purchaser Shares Shares Shares Shares PRICE
- ------------------------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Welsh, Carson, Anderson & 23,981,500 $ 23,981,500 239,825 $ 23,982,500 $ 47,964,000
Stowe VII, L.P
WCAS Information Partners, 100,000 $ 100,000 1,000 $ 100,000 $ 200,000
L.P.
WCA Management Corporation 17,500 $ 17,500 175 $ 17,500 $ 35,000
Patrick J. Welsh 150,000 $ 150,000 1,500 $ 150,000 $ 300,000
Russell L. Carson 115,000 $ 115,000 1,150 $ 115,000 $ 230,000
Bruce K. Anderson 250,000 $ 250,000 2,500 $ 250,000 $ 500,000
Richard B. Stowe 75,000 $ 75,000 750 $ 75,000 $ 150,000
Andrew M. Paul 50,000 $ 50,000 500 $ 50,000 $ 100,000
Thomas E. McInerney 75,000 $ 75,000 750 $ 75,000 $ 150,000
Laura VanBuren 5,000 $ 5,000 50 $ 5,000 $ 10,000
James B. Hoover 10,000 $ 10,000 100 $ 10,000 $ 20,000
Robert Minicucci 50,000 $ 50,000 500 $ 50,000 $ 100,000
Anthony J. deNicola 20,000 $ 20,000 200 $ 20,000 $ 40,000
David Bellet (DLJSC as 100,000 $ 100,000 1,000 $ 100,000 $ 200,000
Custodian for the IRA FBO
David F. Bellet)
c/o Welsh, Carson, Anderson
& Stowe
One World Financial Center
New York, NY 10281
------------- ------------ ------------ ------------ ------------
TOTAL: 24,999,000 $ 24,999,000 250,000 $ 25,000,000 $ 49,999,000
============= ============ ============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Principal Purchase
Amount of Price of Purchase
Name and Address Subordinated Subordinated Common Price of
of Purchaser Note Note Shares Common Shares
- ------------------------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
WCAS Capital Partners $ 50,000,000 $ 46,428,571 3,571,429 $ 3,571,429
II, L.P.
One World Financial Center
New York, NY 10281
</TABLE>
<PAGE>
AMENDMENT TO SECURITIES PURCHASE AGREEMENT
AMENDMENT TO SECURITIES PURCHASE AGREEMENT, dated as of August 31, 1998
(the "Amendment"), among ALLIANCE DATA SYSTEMS CORPORATION (the "Company"), a
Delaware corporation and the surviving corporation of a merger with Business
Services Holdings, Inc., a Delaware corporation ("BSH"), WCAS CAPITAL PARTNERS
II, L.P., a Delaware limited partnership ("WCAS CP II"), WELSH, CARSON, ANDERSON
& STOWE VII, L.P., a Delaware limited partnership ("WCAS VII"), and LIMITED
COMMERCE CORP., a Delaware corporation ("Limited Commerce"), amending the
Securities Purchase Agreement dated as of January 24, 1996 (the "Original
Agreement") among BSH, WCAS CP II, WCAS VII, Limited Commerce and the other
several purchasers named in Schedule I thereto. Capitalized terms used herein
and not otherwise defined shall have the respective meanings ascribed to them in
the Original Agreement as amended by this Amendment.
WHEREAS, pursuant to the terms of the Original Agreement, BSH sold to WCAS
CP II an aggregate $50,000,000 principal amount of the 10% Subordinated Notes
Due January 24, 2002 of BSH substantially in the form attached to the Original
Agreement as Exhibit A (the "Original Notes"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated as of August 30,
1996 BSH was merged with and into the Company, and all of the debts, liabilities
and duties of BSH, including, without limitation, the indebtedness evidenced by
the Original Notes and the obligations of BSH under the Original Agreement,
attached to the Company; and
WHEREAS pursuant to a Securities Purchase Agreement dated as of August 30,
1996 among the Company, Limited Commerce, WCAS CP II, WCAS VII and the other
securityholders named in Schedule I thereto, Limited Commerce purchased from
WCAS CP 11 $20,000,000 principal amount of the Original Notes; and
WHEREAS the Company and Loyalty Management Group Canada Inc. entered into a
Credit Agreement dated as of July 24, 1998 (such agreement, as supplemented,
amended, restated and/or otherwise modified from time to time, being hereinafter
referred to as the "Credit Agreement") with Morgan Guaranty Trust Company of New
York, as Administrative Agent (the "Agent"), and the Banks and Guarantors named
as parties thereto (as defined in the Credit Agreement), pursuant to which
certain loans and financial accommodations are being extended to the Company and
the borrowers named in the Credit Agreement; and
WHEREAS in connection with the execution and delivery of the Credit
Agreement, the Agent and the Banks have requested that the Company, WCAS CP II
and Limited
<PAGE>
Commerce agree to amend the Original Notes to change the maturity of the
Original Notes from January 24, 2002 to October 25, 2005; and
WHEREAS in consideration of WCAS CP II and Limited Commerce agreeing to
extend the maturity of the Original Notes as aforesaid, the Company is willing
to issue and deliver to WCAS CP II and Limited Commerce an aggregate 454,545
shares (the "Common Shares") of Common Stock $.01 par value ("Common Stock"), of
the Company; and
WHEREAS WCAS CP II and Limited Commerce are willing to extend the maturity
of the Original Notes from January 24, 2002 to October 25, 2005 on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby covenant and
agree as follows:
SECTION 1. AMENDMENT AND RESTATEMENT OF ORIGINAL NOTE. (a) The Securities
Purchase Agreement and the Original Notes are hereby amended to change the
maturity date of the Original Notes from January 24, 2002 to October 25, 2005
and, in connection with such change, the form of the Original Note as set forth
as Exhibit A to the Original Agreement is hereby amended and restated in its
entirety to read as set forth in Exhibit A attached hereto (as so amended and
restated, the "Notes").
(b) The Company shall execute and deliver to each of WCAS CP II and Limited
Commerce, in exchange and substitution for the Original Note held by such party,
and against receipt thereof, a new Note in the form set forth in Exhibit A
attached hereto in the same principal amount and dated as of the date of
original issue of the Original Note held by such party. Original Notes received
by the Company in exchange for the new Notes as aforesaid shall be canceled.
SECTION 2. ISSUANCE OF SHARES OF COMMON STOCK; AMENDMENT OF STOCKHOLDERS
AGREEMENT. (a) In consideration of the agreement by WCAS CP II and Limited
Commerce to extend the maturity of the Original Notes as aforesaid, the Company
shall issue and deliver to each of WCAS CP II and Limited Commerce the number of
shares of Common Stock set forth opposite its name below:
<TABLE>
NOTEHOLDER NO. OF COMMON SHARES
---------- --------------------
<S> <C>
WCAS CP II 272,727
Limited Commerce 181,818
-------
Total: 454,545
=======
</TABLE>
(b) In connection with the execution and delivery of this Amendment and the
Notes and the issuance of the Common Shares as described above, the Company and
the parties to the Amended and Restated Stockholders Agreement, dated as of
August 30, 1996, as amended (the "Stockholders Agreement"), among the Company,
Limited Commerce and the other
2
<PAGE>
stockholders named as parties thereto shall enter into an Amendment to
Amended and Restated Stockholders Agreement in the form attached hereto as
Exhibit B (the "Stockholders Agreement Amendment"), amending the Stockholders
Agreement to provide that the Common Shares being issued to WCAS CP II and
Limited Commerce under this Amendment be treated as "Common Stock" and
"Registrable Securities" under the Stockholders Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. (a) The Company
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and is duly licensed or qualified in each
jurisdiction in which the nature of its business or the ownership of its
properties makes such licensing or qualification necessary. The Company has the
corporate power and authority to own and hold its properties, to carry on its
business as currently conducted, to execute, deliver and perform this Amendment,
the Notes and the Stockholders Agreement Amendment and to issue and deliver the
Common Shares.
(b) The execution and delivery by the Company of this Amendment, the Notes
and the Stockholders Agreement Amendment, the performance by the Company of its
respective obligations hereunder and thereunder, the execution and delivery of
the Notes and the issuance and sale by the Company of the Common Shares have
been duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Certificate of Incorporation, as amended, or By-laws of the Company, or any
provision of any indenture, agreement or other instrument to which the Company
or any of its properties or assets is bound, or conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company.
(c) The Common Shares have been duly authorized by the Company and, when
issued and sold in accordance with this Amendment, will be validly issued, fully
paid and nonassessable shares of Common Stock free and clear of all liens,
claims, charges or encumbrances created by the Company. Except as provided in
the Stockholders Agreement (which rights as to the Common Shares to be issued
hereunder have been effectively waived prior to or on the date hereof), the
issuance, sale and delivery of the Common Shares to WCAS CP II and Limited
Commerce hereunder is not subject to any preemptive rights of stockholders of
the Company or to any right of first refusal or other similar right in favor of
any person.
(d) This Amendment, the Notes and the Stockholders Agreement Amendment have
been duly executed and delivered by the Company and constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, subject, as to enforcement of remedies,
to applicable bankruptcy, insolvency, reorganization, moratorium and similar
laws from time to time in effect affecting the enforcement of creditors' rights
generally and to general equity principles.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF WCAS CP II AND LIMITED
COMMERCE. (a) Each of WCAS CP II and Limited Commerce severally and not jointly,
3
<PAGE>
represents and warrants to the Company that it is acquiring the Common Shares
being acquired by it hereunder for its own account for the purpose of
investment and not with a view to or for sale in connection with any
distribution thereof. Each of WCAS CP II and Limited Commerce further
represents that it understands that (i) the Common Shares have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof, (ii) the Common Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Common Shares will bear a legend to such effect,
and (iv) the Company will make a notation on its transfer books to such
effect. Each of WCAS CP II and Limited Commerce further understands the
exemption from registration afforded by Rule 144 under the Securities Act
depends on the satisfaction of various conditions and that, if applicable,
Rule 144 affords the basis of sales of the Common Shares only in limited
amounts under certain conditions.
(b) Each of WCAS CP II and Limited Commerce further represents and
warrants to the Company that it has had full opportunity to have access to
and to examine the facilities, personnel and records of the Company, that it
is capable of evaluating independently the prospects of the Company and has
made such an evaluation in connection with its investment in the Common
Shares being purchased by it and had adequate financial means to bear the
risk of its investment in the Company.
SECTION 5. EFFECT OF AMENDMENT. Except as expressly provided in this
Amendment, nothing herein shall affect or be deemed to affect any provisions
of the Original Agreement, and except only to the extent that they may be
varied hereby, all of the terms of the Original Agreement shall remain
unchanged and in full force and effect.
SECTION 6. LAW GOVERNING. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7. ENTIRE AGREEMENT. This Amendment, the Original Agreement (as
amended by this Amendment), the Notes, the Stockholders Agreement, the
Stockholders Agreement Amendment, and the documents and agreements described
therein, constitute the entire agreement of the parties with respect to the
subject matter hereof and may not be modified or amended except in the manner
provided in Section 6.05 of the Original Agreement.
SECTION 8. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By
--------------------------------------
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P., General Partner
By
--------------------------------------
General Partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
By
--------------------------------------
General Partner
LIMITED COMMERCE CORP.
By
--------------------------------------
5
<PAGE>
EXHIBIT A
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN PROPOSED TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS JANUARY 24, 1996
THE YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS %
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ALLIANCE DATA SYSTEMS CORPORATION
10% Subordinated Note
Due October 25, 2005
Registered New York, New York
R- January 24, 1996
$
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to
, or registered assigns, the principal sum of
AND NO/100 Dollars ($ ), on October 25, 2005, and to pay
interest (computed on the basis of a 360-day year consisting of twelve 30-day
months) from the date hereof on the unpaid principal amount hereof at the rate
of 10% per annum, payable semi-annually in arrears on the first day of July and
January of each year (each said day being an "Interest Payment Date"),
commencing on July 1, 1996, until the principal amount hereof shall have become
due and payable, whether at maturity or by acceleration or otherwise, and
thereafter
<PAGE>
at the rate of 12% per annum on any overdue principal amount and (to the
extent permitted by applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be in
such coin or currency of the United States of America as at the time of
payment shall be legal tender for payment of public and private debts.
For purposes of this Note, "Business Day" shall mean any day other
than a Saturday, Sunday or a legal holiday under the laws of the State of New
York.
1. NOTES. This Note is one of a duly authorized issue of
Subordinated Notes (herein called the "Notes") made or to be made by the
Company in the aggregate principal amount of $50,000,000, maturing on October
25, 2005 and bearing interest payable at the same rate and on the same dates
as the interest on the principal amount of this Note.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office
or agency maintained as provided in paragraph (a) of Section 10 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may,
at its option, and either in person or by duly authorized attorney, surrender
the same for registration of transfer or exchange at the office or agency of
the Company maintained as provided in paragraph (a) of Section 10, and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or
Notes each in such denomination or denominations as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal amount
as the then unpaid principal amount of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons as
may be designated by such holder. Every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
Company, duly executed by the holder of such Note or his attorney duly
authorized in writing. Every Note so made and delivered in exchange for this
Note shall in all other respects be in the same form and have the same terms
as this Note. No transfer or exchange of any Note shall be valid unless made
in the foregoing manner at such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company
will make and deliver, in lieu of this Note, a new Note of like tenor and
unpaid principal amount and dated as of the date to which interest has been
paid on this Note.
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<PAGE>
4. PERSONS DEEMED OWNERS; HOLDERS. The Company may deem and treat the
person in whose name any Note is registered as the owner and holder of such Note
for the purpose of receiving payment of principal of and interest on such Note
and for all other purposes whatsoever, whether or not such Note shall be
overdue. With respect to any Note at any time outstanding, the term "holder", as
used herein, shall be deemed to mean the person in whose name such Note is
registered as aforesaid at such time.
5. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Upon notice given as provided in Section 6
the Company may, at its option, prepay the Notes, as a whole at any time or
in part from time to time, in amounts which shall be integral multiples of
$100,000, at the unpaid principal amount thereof so to be prepaid, together
with interest accrued thereon to the date fixed for such prepayment. All
prepayments shall be applied to installments of principal hereof in inverse
order of maturity.
(b) [INTENTIONALLY OMITTED]
(c) MANDATORY PREPAYMENT UPON PUBLIC OFFERING. If at any time
while any of the Notes shall be outstanding the Company shall consummate
a public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act, then upon the
consummation of each such offering the Company shall apply to prepayment
of the Notes, without penalty or premium (up to the amount required to
prepay all the Notes including accrued interest thereon) an amount that,
including principal to be prepaid and accrued interest thereon, is equal
to the sum of (x) one-sixth of the proceeds of such offering to the
Corporation (net of underwriting discounts and commissions), plus (y)
the amount (if any) by which one-sixth of such net proceeds exceeds the
amount (if any) which shall have been applied to redemption of the
Company's Preferred Stock, $1 par value, pursuant to the Certificate of
Incorporation of the Company by reason of the consummation of such
offering, it being intended that up to an aggregate one-third of such
proceeds shall be available to prepay the Notes and redeem such
Preferred Stock.
6. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Company shall give
written notice of any prepayment of this Note or any portion hereof pursuant to
Section 5 not less than 10 nor more than 60 days prior to the date fixed for
such prepayment. Such notice of prepayment and all other notices to be given to
any holder of this Note shall be given by registered or certified mail to the
person in whose name this Note is registered at its address designated on the
register maintained by the Company on the date of mailing such notice of
prepayment or other notice. Upon notice of prepayment being given as aforesaid,
the Company covenants and agrees that it will prepay, on the date therein fixed
for prepayment, this Note or the portion hereof, as the case may be, so called
for prepayment, at the principal amount thereof so
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<PAGE>
called for prepayment together with interest accrued thereon to the date
fixed for such prepayment.
7. ALLOCATION OF PREPAYMENT. In the event of any prepayment,
purchase, redemption or retirement of less than all of the outstanding Notes,
the Company will allocate the principal amount so to be prepaid, purchased,
redeemed or retired (but only in units of $100,000) to each Note in
proportion, as nearly as may be, to the aggregate principal amount of all
Notes then outstanding.
8. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for the purpose, the Company shall fail to
pay this Note or such portion, as the case may be, in which event this Note or
such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate PER ANNUM provided herein for overdue
principal.
9. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
10. COVENANTS. The Company covenants and agrees that, so long as
any Note shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Company will maintain an office or
agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof; where the Notes may
be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment.
(b) PAYMENT OF TAXES. The Company will promptly pay and discharge or
cause to be paid and discharged, before the same shall become in default,
all lawful taxes and assessments imposed upon the Company or any subsidiary
or upon the income and profits of the Company or any subsidiary, or upon
any property, real, personal or mixed, belonging to the Company or any
subsidiary, or upon any part thereof by the United States or any State
thereof; as well as all lawful claims for labor, materials and supplies
which, if
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unpaid, would become a lien or charge upon such property or any part
thereof; PROVIDED, HOWEVER, that neither the Company nor any subsidiary
shall be required to pay and discharge or to cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as
both (x) the Company has set aside adequate reserves for such tax,
assessment, charge, levy or claim and (y)(i) the Company or a subsidiary
shall be contesting the validity thereof in good faith by appropriate
proceedings or (ii) the Company shall, in its good faith judgment, deem
the validity thereof to be questionable and the party to whom such tax,
assessment, charge, levy or claim is allegedly owed shall not have made
written demand for the payment thereof
(c) CORPORATE EXISTENCE. The Company will do or cause to be done all
things necessary and lawful to preserve and keep in full force and effect
its corporate existence, rights and franchises and the corporate existence,
rights and franchises of each of its subsidiaries; PROVIDED, HOWEVER, that
nothing in this paragraph (c) shall prevent the abandonment or termination
of any rights or franchises of the Company, or the liquidation or
dissolution of, or a sale, transfer or disposition (whether through merger,
consolidation, sale or otherwise) of all or any substantial part of the
property and assets of, any subsidiary or the abandonment or termination of
the corporate existence, rights and franchises of any subsidiary if such
abandonment, termination, liquidation, dissolution, sale, transfer or
disposition is, in the good faith business judgment of the Company, in the
best interests of the Company and is not disadvantageous in any material
respect to the holders of the Notes.
(d) MAINTENANCE OF PROPERTY. The Company will at all times maintain
and keep, or cause to be maintained and kept, in good repair, working order
and condition all significant properties of the Company and its
subsidiaries used in the conduct of the business of the Company and its
subsidiaries, and will from time to time make or cause to be made all
needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall require (i) the
making of any repair or renewal or (ii) the continuance of the operation
and maintenance of any property or (iii) the retention of any assets if
such action (or inaction) is, in the good faith business judgment of the
Company, in the best interests of the Company (and the best interests of
any subsidiary concerned or affected thereby) and is not disadvantageous in
any material respect to the holders of the Notes.
(e) INSURANCE. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly situated
against loss or damage of the kinds customarily insured against by such
corporations and (ii) carry, with financially sound and reputable insurers,
such other insurance (including, without limitation, liability insurance)
in such amounts as are available at
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reasonable expense and to the extent believed necessary in the good faith
business judgment of the Company.
(f) KEEPING OF BOOKS. The Company will at all times keep, and cause
each of its subsidiaries to keep, proper books of record and account in
which proper entries will be made of its transactions in accordance with
generally accepted accounting principles consistently applied.
(g) TRANSACTIONS WITH AFFILIATES. The Company will enter into any
transaction with any director, officer, stockholder, employee or affiliate
of the Company only upon fair and reasonable terms.
(h) NOTICE OF DEFAULT. If any one or more events which constitute, or
which with notice or lapse of time or both would constitute, an Event of
Default under Section 13 shall occur, or if the holder of any Note shall
demand payment or take any other action permitted upon the occurrence of
any such Event of Default, the Company shall, immediately after it becomes
aware that any such event has occurred or that such demand has been made
or that any such action has been taken, give notice to all holders of the
Notes, specifying the nature of such event or of such demand or action, as
the case may be; PROVIDED, HOWEVER, that if such event, in the good faith
judgment of the Company, will be cured within ten days after the Company
has knowledge that such event would, with or without notice or lapse of
time or both, constitute such an Event of Default, no such notice need be
given if such Event of Default shall be cured within such ten-day period.
11. MODIFICATION BY HOLDERS; WAIVER. The Company may, with the
written consent of the holders of not less than 66 2/3% in principal amount of
the Notes then outstanding, modify the terms and provisions of the Notes or the
rights of the holders of the Notes or the obligations of the Company thereunder,
and the observance by the Company of any term or provision of the Notes may be
waived with the written consent of the holders of not less than 66 2/3% in
principal amount of the Notes then outstanding; PROVIDED, HOWEVER, that no such
modification or waiver shall:
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Note so affected; or
(b) give any Note any preference over any other Note;
(c) reduce the percentage of Notes, the consent of the holders of
which is required for any such modification; or
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<PAGE>
(d) amend the provisions of Section 16 hereof without the consent of
the holders of Senior Indebtedness (as hereinafter defined).
Any such modification or waiver shall apply equally to all the holders
of the Notes and shall be binding upon them, upon each future holder of any Note
and upon the Company, whether or not such Note shall have been marked to
indicate such modification or waiver, but any Note issued thereafter shall bear
a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to all the holders of the
Notes at the time outstanding.
12. EVENTS OF DEFAULT. If any one or more of the following events,
herein called Events of Default, shall occur, for any reason whatsoever, and
whether such occurrence shall, on the part of the Company or any subsidiary, be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of a court of
competent jurisdiction or any order, rule or regulation of any administrative or
other governmental authority and such Event of Default shall be continuing:
(a) default shall be made in the payment of the principal of any Note
when and as the same shall become due and payable, whether at maturity or
at a date fixed for prepayment or by acceleration or otherwise; or
(b) default shall be made in the payment of any installment of
interest on any Note according to its terms when and as the same shall
become due and payable and such default shall continue for a period of five
days; or
(c) default shall be made in the due observance or performance of any
other covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof or of the Securities
Purchase Agreement dated as of January 24, 1996 among the Company and the
several Purchasers named therein (the "Purchase Agreement"), and such
default shall continue for 30 days after written notice thereof, specifying
such default and requesting that the same be remedied, shall have been
given to the Company by the holder or holders of at least 25% of the
principal amount of the Notes then outstanding (the Company to give
forthwith to all other holders of Notes at the time outstanding written
notice of the receipt of such notice specifying the default referred to
therein); or
(d) any representation or warranty made by the Company in the
Purchase Agreement shall prove to have been false or incorrect in any
material respect on the date on or as of which made; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary in
an involuntary case under the
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<PAGE>
federal bankruptcy laws, as now constituted or hereafter amended, or any
other applicable federal or state bankruptcy, insolvency or other
similar laws, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or any
subsidiary or for any substantial part of any of their property, or
ordering the winding-up or liquidation of any of their affairs and the
continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(f) the commencement by the Company or any subsidiary of a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy, insolvency or
other similar laws, or the consent by any of them to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of the Company or any subsidiary
or for any substantial part of their property, or the making by any of them
of any assignment for the benefit of creditors, or the failure of the
Company or any subsidiary generally to pay its debts as such debts become
due; or
(g) default as defined in any instrument evidencing or under which
the Company or any subsidiary has outstanding at the time any indebtedness
for money borrowed in excess of $50,000 in aggregate principal amount shall
occur and as a result thereof the maturity of any such indebtedness shall
have been accelerated so that the same shall have become due and payable
prior to the date on which the same would otherwise have become due and
payable and such acceleration shall not have been rescinded or annulled
within 30 days; or
(h) final judgment for the payment of money in excess of $50,000
shall be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 25% in aggregate principal amount of
the Notes at the time outstanding may, at its or their option, by notice to
the Company, declare all the Notes to be, and all the Notes shall thereupon
be and become, forthwith due and payable together with interest accrued
thereon without presentment, demand, protest or further notice of any kind,
all of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to all of the
Notes has been made as provided in this Section 12, the holders of at least
66 2/3% in principal amount of the Notes then outstanding may, by notice to
the Company, rescind such declaration and its consequences, if (i) the
Company has paid all overdue installments of interest on the Notes and all
principal that has become due otherwise than by such declaration of
acceleration and (ii) all other defaults and Events of Default (other than
nonpayments of principal and interest that have become due solely by reason
of acceleration) shall have been remedied or cured or shall have been waived
pursuant to this paragraph, PROVIDED, HOWEVER, that no such rescission shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
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13. SUITS FOR ENFORCEMENT. In case any one or more of the Events of
Default specified in Section 12 of this Note shall occur and be continuing, the
holder of this Note may proceed to protect and enforce its rights by suit in
equity, action at law and/or by other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note, or may proceed to enforce
the payment of this Note or to enforce any other legal or equitable right of the
holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the costs and
expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
14. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder
of this Note is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
15. REMEDIES NOT WAIVED. No course of dealing between the Company and
the holders of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
16. SUBORDINATION. (a) SUBORDINATION. Anything in this Note to the
contrary notwithstanding, the obligation of the Company to pay the
principal of and interest on, this Note, and to discharge all its other
obligations hereunder, shall be subordinate and junior in right of payment
to the extent set forth in the following paragraphs (A), (B) and (C),
inclusive, to (i) all obligations of the Company to banks or other
financial institutions for borrowed money, and (ii) all obligations of the
Company to banks or other financial institutions under guarantees by the
Company of obligations of wholly owned subsidiaries of the Company to banks
or other financial institutions for borrowed money, in each case, whether
such obligations are outstanding at the date of this Note or created or
incurred after the date of this Note but prior to the maturity of this
Note. The obligations of the Company to which this Note is subordinate and
junior in right of payment are sometimes herein referred to as "Senior
Indebtedness".
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then
all Senior Indebtedness shall first be paid in full, before any
payment on account of principal or interest is made upon this Note.
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<PAGE>
(B) In any of the proceedings referred to in paragraph (A)
above, any payment or distribution of any kind or character, whether
in cash, property, stock or obligations which may be payable or
deliverable in respect of this Note shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof; unless and until all Senior Indebtedness shall have
been paid in full.
(C) In the event the Company shall default under any Senior
Indebtedness obligation held by any bank or other financial
institution, which default shall continue without cure or waiver, and
the effect of such default is to accelerate the maturity of such
obligation or the holder thereof shall cause such obligation to become
due prior to the stated maturity thereof or the Company shall not pay
such obligation at maturity, the Company will not make, directly or
indirectly, to the holder of this Note any payment of any kind of or
on account of all or any part of this Note, and the holder of this
Note will not accept from the Company any payment of any kind of or on
account of all or any part of this Note, unless and until all such
Senior Indebtedness shall have been paid in full; and if; with respect
to any such default, the holder of such Senior Indebtedness obligation
shall have made a demand for payment and commenced an action, suit or
other proceeding against the Company, then the holder of this Note may
not take, demand, receive, sue for, accelerate or commence any
remedial proceedings with respect to any amount payable under this
Note during the pendency of such action, suit or other proceeding.
Notwithstanding the provisions of the immediately preceding sentence,
if any such default shall have continued for 180 days or more, the
Company may make and the holder of this Note may accept from the
Company all past due and current payments of any kind of or on account
of this Note, and such holder may demand, receive, retain, sue for or
otherwise seek enforcement or collection of all amounts payable on
account of principal of or interest on this Note.
Upon request of any holder of Senior Indebtedness, the holder of this Note will
affirm its obligations under this Section 16.
(b) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, this Note shall be paid
in full, and, as between the Company, its creditors other than the holders of
Senior Indebtedness, and the holder of this Note, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Section 16 which otherwise would have been made to the holder of this Note shall
be deemed a payment by the Company on account of the Senior Indebtedness, it
being understood that the provisions of this Section 16 are and are intended
solely for the purposes of defining the relative rights of the holder of this
Note,
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<PAGE>
on the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 16 of holders of
Senior Indebtedness to receive cash, property, stock or obligations otherwise
payable or deliverable to the holder of this Note, nothing herein shall
either impair, as between the Company and the holder of this Note, the
obligation of the Company, which is unconditional and absolute, to pay to the
holder hereof the principal hereof and interest hereon in accordance with its
terms and the provisions of this Note or prevent the holder of this Note from
exercising all remedies otherwise permitted by applicable law or upon default
hereunder.
17. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
18. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
19. HEADINGS. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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<PAGE>
IN WITNESS WHEREOF, ALLIANCE DATA SYSTEMS CORPORATION has caused this Note
to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By_________________________________
12
<PAGE>
EXHIBIT B
AMENDMENT TO AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT dated as of August
31, 1998 (the "Amendment"), amending the Amended and Restated Stockholders
Agreement dated as of August 30, 1996, as amended (as so amended, the "Original
Agreement"), among Alliance Data Systems Corporation (known in the Original
Agreement as World Financial Network Holding Corporation) (the "Issuer"),
Limited Commerce Corp. ("Limited Commerce"), WCAS Capital Partners II, L.P.
("WCAS CP II"), Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII"), and the
several other investors named as parties thereto (collectively with Limited
Commerce, WCAS CP II and WCAS VII, the "Investors"), certain of whom were also
parties to the Original Agreement.
WHEREAS, the Issuer, Limited Commerce, WCAS CP II and WCAS VII have entered
into an Amendment to Securities Purchase Agreement dated as of the date hereof
(the "Amendment to Securities Agreement") pursuant to which, among other things,
the Issuer has agreed to issue and deliver to WCAS CP II and Limited Commerce an
aggregate 454,545 shares of Common Stock (the "Common Shares"), par value $.01
per share, of the Issuer in consideration of the agreement by WCAS CP II and
Limited Commerce to change the maturity of the 10% Subordinated Notes due
January 24, 2002 of the Company held by WCAS CP II and Limited Commerce Corp.
from January 24, 2002 to October 25, 2005; and
WHEREAS, the Issuer and the Investors desire to amend the Original
Agreement to include the Common Shares in such agreement;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. AMENDMENT TO ORIGINAL AGREEMENT. The Common Shares to be
acquired by WCAS CP II and Limited Commerce pursuant to the Amendment to
Securities Agreement shall for all purposes be deemed "Common Stock" and
"Registrable Securities" under the Original Agreement.
SECTION 2. CONSENT. Each of the Investors hereby consents to the issuance
of the Common Shares to WCAS CP II and Limited Commerce and hereby waives any
preemptive right or other right it may have to purchase, participate in or
otherwise acquire any such shares of Common Stock.
<PAGE>
SECTION 3. APPLICABLE LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.
SECTION 4. ORIGINAL AGREEMENT. Except as amended or modified pursuant to
this Amendment, the terms of the Original Agreement shall remain in full force
and effect.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of any
provisions of this Amendment in any jurisdiction shall not affect the validity,
legality or enforceability of the remainder of this Amendment in such
jurisdiction or the validity, legality or enforceability of this Amendment,
including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.
SECTION 6. COUNTERPARTS: EFFECTIVENESS. This Amendment may be executed in
any number of counterparts, each of which shall be an original with the same
effect as if the signatures thereto and hereto were upon the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By________________________________
LIMITED COMMERCE CORP.
By________________________________
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
By WCAS VIII Associates LLC, General Partner
By________________________________
General Partner
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, L.P., General Partner
By________________________________
General Partner
WELSH, CARSON, ANDERSON & STOWE VI L.P.
By WCAS VI Partners, L.P., General Partner
By________________________________
General Partner
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<PAGE>
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
By________________________________
General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners, General Partner
By_________________________________
General Partner
PATRICK J. WELSH
RUSSELL L. CARSON
BRUCE K. ANDERSON
RICHARD H. STOWE
ANDREW M. PAUL
THOMAS E. MCINERNEY
JAMES B. HOOVER
By________________________________
Laura VanBuren, Attorney-in-Fact
__________________________________
Laura VanBuren
__________________________________
Robert A. Minicucci
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<PAGE>
__________________________________
Anthony J. deNicola
__________________________________
David Bellet
__________________________________
Paul B. Queally
__________________________________
Lawrence Sorrel
__________________________________
Priscilla Newman
__________________________________
Rudolph Rupert
__________________________________
D. Scott Mackesy
5
<PAGE>
Exhibit 10.26
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- -------------------------------------------------------------------------------
COMMON STOCK PURCHASE AGREEMENT
Among
ALLIANCE DATA SYSTEMS CORPORATION
and
WELSH, CARSON, ANDERSON & STOWE VII, L.P.,
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
and
THE PERSONS NAMED ON SCHEDULE I HERETO
Dated as of July 24, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
COMMON STOCK PURCHASE AGREEMENT, dated as of July 24, 1998, by and among
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation (the "Company"),
WELSH, CARSON, ANDERSON & STOWE VII, L.P., a Delaware limited partnership
("WCAS VII"), WELSH, CARSON, ANDERSON & STOWE VIII, L.P., a Delaware limited
partnership ("WCAS VIII" and together with WCAS VII, "WCAS") and the persons
named on Schedule I hereto (collectively with WCAS, the "Purchasers").
The Company proposes, as set forth in this Agreement, to issue and
deliver to the Purchasers severally, an aggregate 90,909,091 shares (the
"Shares") of Common Stock, $.01 par value ("Common Stock"), of the Company.
Accordingly, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
I.
THE SHARES
SECTION 1.01 ISSUANCE, SALE AND DELIVERY OF THE SHARES. (a) The Company
shall issue, sell and deliver to each of the Purchasers, and each Purchaser
shall purchase from the Company, the number of Shares set forth opposite the
name of such Purchaser on Schedule I hereto under the heading "Shares
Purchased."
(b) As payment in full for the Shares being purchased by each of the
Purchasers and against delivery thereof as aforesaid, on the Closing Date (as
hereinafter defined) each Purchaser shall transfer to the account of the
Company by wire transfer of immediately available funds the amount set forth
opposite the name of such Purchaser on Schedule I hereto under the heading
"Aggregate Payment."
SECTION 1.02 CLOSING DATE. The closing of the issuance, sale and
delivery of the Shares in accordance herewith shall take place at the offices
of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New
York, New York, on July 24, 1998, or at such other date and time as may be
mutually agreed upon between the Purchasers and the Company (such date and
time of closing being hereinafter called the "Closing Date").
II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as follows:
<PAGE>
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the
corporate power and authority to conduct its business as currently conducted
and as proposed to be conducted, to execute, deliver and perform this
Agreement and the Amendment to Amended and Restated Stockholders Agreement in
the form attached hereto as Exhibit B (the "Stockholders Agreement
Amendment") and to issue and deliver the Shares.
(b) Except as set forth on Schedule II(b) hereto and on Schedule
3.01(b) of the Agreement and Plan of Merger, dated as of August 30, 1996,
between Business Services Holdings, Inc. and the Company, then known as World
Financial Network Holding Company ("WFN"), the Company does not own of record
or beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation or (ii) any participating interest in any partnership, joint
venture or other noncorporate business enterprise.
(c) The execution and delivery by the Company of this Agreement and the
Stockholders Agreement Amendment, the performance by the Company of its
obligations hereunder and thereunder and the issuance and delivery of the
Shares have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Certificate of Incorporation, as amended by the Certificate
of Amendment to the Certificate of Incorporation in the form attached hereto
as Exhibit A (the "Charter Amendment"), or By-laws of the Company, or any
provision of any indenture, agreement or other assets is bound or affected,
or conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
(d) Upon the filing with the Secretary of State of the State of
Delaware of the Charter Amendment, the Shares will be duly authorized by the
Company and, when issued and delivered in accordance with this Agreement,
will be validly issued, fully paid and nonassessable shares of capital stock
of the Company and will be free and clear of all liens, claims, charges or
encumbrances created by the Company. Except as provided in the Amended and
Restated Stockholders Agreement, dated as of August 30, 1996, among WFN,
Limited Commerce Corp., WCAS VII and the Several Other WCAS Investors Named
in Annex I Thereto (which rights as to the Shares to be issued hereunder have
been effectively waived prior to or on the date hereof), the issuance and
delivery of the Shares are not subject to any preemptive rights of
stockholders of the Company or to any right of first refusal or other similar
right in favor of any person.
3
<PAGE>
(e) No approval, authorization, consent or order or action of or filing
with any court, administrative agency or other governmental authority is
required for the execution and delivery by the Company of this Agreement or
the Stockholders Agreement Amendment or the issuance and delivery of the
Shares.
(f) Each of this Agreement and the Stockholders Agreement Amendment has
been duly executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in accordance with
its respective terms.
(g) The authorized capital stock of the Company consists of 350,000,000
shares of Common Stock, of which 330,017,054 shares of Common Stock are
issued and outstanding as of the date hereof, and no other shares have ever
been issued. After the filing of a Charter Amendment, the authorized capital
stock of the Company will consist of 450,000,000 shares of Common Stock and
immediately after consummation of the transactions contemplated hereby
420,926,145 shares of Common Stock will be issued and outstanding. Except as
expressly provided in this Agreement, the Company's Stock Option Plan (the
"Plan")and that certain Agreement for the Purchase of All the Shares of
Loyalty Management Group Canada Inc., dated June 26, 1998 (the "Loyalty
Management Agreement"), and except for the warrants to purchase up to
1,503,759 shares of Common Stock held by JCP Telecom Systems, Inc., (i) no
subscription, warrant, option, convertible security or other right
(contingent or other) to purchase or acquire any shares of any class of
capital stock of the Company is authorized or outstanding, (ii) there is not
any commitment of the Company to issue any shares, warrants, options or other
such rights or to distribute to holders of any class of its capital stock any
evidences of indebtedness or assets and (iii) the Company has no obligation
(contingent or otherwise) to purchase, redeem or-otherwise acquire any shares
of its capital stock or any interest therein or to pay any dividend or make
any other distribution in respect thereof. No more than 15,000,000 shares of
Common Stock are reserved for issuance under the Plan. As of the date
hereof, no shares of Common Stock are held as treasury shares of the Company.
III.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally and not jointly, represents and warrants to the
Company that such Purchaser is acquiring the Shares being purchased by it
hereunder for its own account for the purpose of investment and not with a view
to or for sale in connection with any distribution thereof. Each Purchaser
further represents that it understands that (i) the Shares have not been
4
<PAGE>
registered under the Securities Act of 1933, as amended (the "Securities
Act"), by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof, (ii) the Shares must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act or is exempt from
such registration, (iii) the Shares will bear a legend to such effect, and
(iv) the Company will make a notation on its transfer books to such effect.
Each Purchaser further understands the exemption from registration afforded
by Rule 144 under the Securities Act depends on the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis of sales of
the Shares only in limited amounts under certain conditions.
Each Purchaser further represents and warrants to the Company that
it has had full opportunity to have access to and to examine the facilities,
personnel and records of the Company, that it is capable of evaluating
independently the prospects of the Company and has made such an #valuation in
connection with its investment in the Shares being purchased by such
Purchaser and had adequate financial means to bear the risk of its investment
in the Company.
IV.
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase the Shares being
acquired by it hereunder on the Closing Date is, at the option of such
Purchaser, subject to the satisfaction, on or before such date, of the
following conditions:
(a) The representations and warranties contained in Article II hereof
shall be true and correct on and as of the Closing Date with the same effect
as though such representations and warranties had been made on and as of such
date, and the Company shall have certified to such effect to the Purchasers
in writing.
(b) The Company shall have performed and complied with all agreements
and conditions contained herein required to be performed or complied with by
it prior to or at the Closing Date, and the Company shall have certified to
such effect to the Purchasers in writing.
(c) The Charter Amendment shall have been accepted for filing and filed
by the Secretary of State of the State of Delaware.
5
<PAGE>
(e) The Stockholders Agreement Amendment shall have been fully executed.
V.
MISCELLANEOUS
SECTION 5.01 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance of the Shares pursuant hereto,
and all statements contained in any certificate or other instrument delivered
by the Company hereunder shall be deemed to constitute representations and
warranties made by the Company.
SECTION 5.02 BROKERAGE. Each party hereto shall indemnify and hold
harmless the other against and or in respect of any claim for brokerage or
other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
SECTION 5.03 PARTIES IN INTEREST. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto
shall bind and inure to the benefit) of the respective successors and assigns
of the parties hereto whether so expressed or not.
SECTION 5.04 NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be mailed by first
class registered mail, postage prepaid,
if to the Company, to it at:
5001 Valley Road
Suite 650, West Tower
Dallas, Texas 75244-3910
Attention: General Counsel
if to any Purchaser to it at:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022-6815
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other parties hereto.
6
<PAGE>
SECTION 5.05 LAW GOVERNING. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 5.06 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be modified or amended except in writing.
SECTION 5.07 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
7
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
8
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By [ILLEGIBLE]
---------------------------------------
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, General Partner
By /s/ Anthony J. deNicola
---------------------------------------
Anthony J. deNicola
General Partner
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
By WCAS VIII Partners, General Partner
By /s/ Anthony J. deNicola
----------------------------
Anthony J. deNicola
General Partner
/s/ Patrick J. Welsh
----------------------------
Patrick J. Welsh
/s/ Russell L. Carson
----------------------------
Russell L. Carson
/s/ Bruce K. Anderson
----------------------------
Bruce K. Anderson
<PAGE>
/s/ Richard H. Stowe
----------------------------
Richard H. Stowe
/s/ Andrew M. Paul
----------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
----------------------------
Thomas E. McInerney
/s/ Laura VanBuren
----------------------------
Laura VanBuren
/s/ James B. Hoover
----------------------------
James B. Hoover
/s/ Robert A. Minicucci
----------------------------
Robert A. Minicucci
/s/ Anthony J. deNicola
----------------------------
Anthony J. deNicola
/s/ David Bellet
----------------------------
David Bellet
/s/ Paul B. Queally
----------------------------
Paul B. Queally
9
<PAGE>
----------------------------
Lawrence Sorrel
----------------------------
Priscilla Newman
----------------------------
Rudolph Rupert
----------------------------
D. Scott Mackesy
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By /s/ Laura VanBuren
---------------------------
Laura VanBuren
Title: General Partner
Attorney in Fact
10
<PAGE>
/s/ Lawrence Sorrel
----------------------------
Lawrence Sorrel
/s/ Priscilla Newman
----------------------------
Priscilla Newman
/s/ Rudolph Rupert
----------------------------
Rudolph Rupert
/s/ D. Scott Mackesy
----------------------------
D. Scott Mackesy
11
<PAGE>
SCHEDULE I
PURCHASERS
<TABLE>
<CAPTION>
Aggregate
Name Shares Purchased Payment ($)
- ---- ---------------- ----------
<S> <C> <C>
Welsh, Carson, Anderson
& Stowe VIII, L.P. 64,454,546 70,900,000
Welsh, Carson, Anderson
& Stowe VII, L.P. 21,889,833 24,078,816
WCAS Information
Partners, L.P. 364,007 400,408
Patrick J. Welsh 862,667 948,934
Russell L. Carson 830,717 913,789
Bruce K. Anderson 953,948 1,049,343
Richard H. Stowe 68,450 75,295
Andrew M. Paul 277,458 305,204
Thomas E. McInerney 432,096 475,306
Laura VanBuren 9,106 10,016
James B. Hoover 9,130 10,043
Robert A. Minicucci 318,367 350,204
Anthony J. deNicola 63,705 70,075
David Bellet 45,455 50,000
Paul B. Queally 106,879 117,567
Lawrence Sorrel 90,909 100,000
Priscilla Newman 18,182 20,000
Rudolph Rupert 90,909 100,000
D. Scott Mackesy 22,727 25,000
---------- -----------
Total: 90,909,091 100,000,000
</TABLE>
11
<PAGE>
SCHEDULE II(b)
ADDITIONAL SUBSIDIARIES
Alliance Data Systems (NZ) Limited
Financial Automation Limited Inc.
Financial Automation Marketing Limited Inc.
12
<PAGE>
EXHIBIT 10.27
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
between
ALLIANCE DATA SYSTEMS CORPORATION
and
WCAS CAPITAL PARTNERS III, L.P.
Dated as of September 15, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
I. PURCHASE AND SALE OF SECURITIES ............................... 1
SECTION 1.01 Issuance, Sale and Delivery of the
Securities .................................. 2
II. THE CLOSING ................................................... 2
SECTION 2.01 Closing Date ................................. 2
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................. 2
SECTION 3.01 Organization, Qualifications and
Corporate Power ............................. 2
SECTION 3.02 Authorization of Agreements, Etc. ............ 3
SECTION 3.03 Validity ..................................... 3
SECTION 3.04 Authorized Capital Stock ..................... 3
SECTION 3.05 Governmental Approvals ....................... 4
SECTION 3.06 Offering of the Securities ................... 4
SECTION 3.07 Accuracy of Representations and
Warranties in the Merger Agreement .......... 4
SECTION 3.08 Financial Statements ......................... 5
SECTION 3.09 Regulations G and X .......................... 5
IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ............... 5
SECTION 4.01 Authorization ................................ 5
SECTION 4.02 Validity ..................................... 5
SECTION 4.03 Investment Representations ................... 5
V. CONDITIONS PRECEDENT .......................................... 7
SECTION 5.01 Conditions Precedent to the
Obligations of the Purchaser ................ 7
SECTION 5.06 Conditions Precedent to the
Obligations of the Company .................. 7
VI. MISCELLANEOUS ................................................. 8
SECTION 6.01 Expenses, Etc. ............................... 8
SECTION 6.02 Survival of Agreements ....................... 8
SECTION 6.03 Parties in Interest .......................... 9
SECTION 6.04 Notices ...................................... 9
SECTION 6.05 Entire Agreement; Modifications .............. 10
SECTION 6.06 Counterparts ................................. 10
SECTION 6.07 Governing Law ................................ 10
</TABLE>
i
<PAGE>
INDEX TO EXHIBITS AND SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
A Form of 10% Subordinated Note
B Form of Amendment to Amended and
Restated Stockholders Agreement
</TABLE>
ii
<PAGE>
SECURITIES PURCHASE AGREEMENT, dated as of September 15, 1998,
between ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation (the
"Company"), and WCAS CAPITAL PARTNERS III, L.P., a Delaware limited
partnership (the "Purchaser").
WHEREAS pursuant to an Agreement and Plan of Merger (the "Merger
Agreement") dated as of August 14, 1998 between the Company, HSI Acquisition
Corp., a Minnesota corporation and a wholly-owned subsidiary of the Company
("Merger Subsidiary"), and Harmonic Systems Incorporated, a Minnesota
corporation ("Harmonic"), Merger Subsidiary will merge with and into Harmonic
and Harmonic will become a wholly-owned subsidiary of the Company; and
WHEREAS in order to finance the transactions contemplated by the
Merger Agreement, the Company wishes to issue and sell on the Closing Date
(as hereinafter defined) to the Purchaser (i) an aggregate of 5,900,000 shares
(collectively, the "Shares") of Common Stock, $.01 par value ("Common Stock"),
of the Company, and (ii) the Company's 10% Subordinated Note Due September 15,
2008 in the principal amount of $52,000,000; and
WHEREAS the Purchaser wishes to purchase the Shares and said Note,
all on the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
I.
PURCHASE AND SALE OF SECURITIES
SECTION 1.01 ISSUANCE SALE AND DELIVERY OF THE SECURITIES.
(a) Subject to the terms and conditions set forth herein, on the
Closing Date the Company shall issue, sell and deliver to the Purchaser, and
the Purchaser shall purchase from the Company, (i) the Shares and (ii) a 10%
Subordinated Note Due September 15, 2008 of the Company, substantially in the
form of Exhibit A hereto, dated the Closing Date, in the principal amount of
$52,000,000 (such note, and any note or notes issued in exchange or
substitution therefor, being hereinafter called the "Note"). The Company
shall issue a certificate or certificates in definitive form, registered in
the name of the Purchaser, evidencing the Shares. The Shares and the Note are
sometimes collectively referred to herein as the "Securities".
<PAGE>
(b) As payment in full for the Securities, and against delivery
thereof as aforesaid, on the Closing Date the Purchaser shall pay to the
Company, by wire transfer of immediately available funds to an account
designated by the Company, the sum of $52,000,000.
II.
THE CLOSING
SECTION 2.01 CLOSING DATE. The closing of the sale and purchase
of the Securities shall take place at the offices of Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, at
10 a.m., New York time, on September 15, 1998, or at such other date and time
as may be mutually agreed upon by the Purchaser and the Company (such date
and time of the closing being herein called the "Closing Date").
III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
SECTION 3.01 ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
The Company is a corporation duly incorporated validly existing and in good
standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of its business or the
ownership of its properties makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
material adverse effect on the business, assets, operations or condition
(financial or other) of the Company (a "Material Adverse Effect"). The
Company has the corporate power and authority to own and hold its properties,
to carry on its business as currently conducted, to execute, deliver and
perform this Agreement, the Note and the Amendment to Amended and Restated
Stockholders Agreement in the form attached hereto as Exhibit B (the
"Stockholders Agreement Amendment") and to issue and deliver the Shares. The
Purchaser has been furnished with true and complete copies of the Company's
Certificate of Incorporation and By-laws, reflecting all amendments thereto
through the date hereof.
SECTION 3.02 AUTHORIZATION OF AGREEMENTS, ETC.
(a) The execution and delivery by the Company of this Agreement,
the Note and the Stockholders Agreement Amendment, the
'
2
<PAGE>
performance by the Company of its respective obligations hereunder and
thereunder and the issuance, sale and delivery by the Company of the Shares
have been duly authorized by all requisite corporate action and not (i)
violate any provision of law applicable to the Company, any order of any
court or other agency of government, the Certificate of Incorporation or
By-laws of the Company, or any provision of any indenture, agreement or other
instrument to which the Company or any of its properties or assets is bound,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, or (iii) result in the creation or imposition of any lien, charge
or encumbrance of any nature whatsoever upon any of the properties or assets
of the Company that, in any such case, would have a Material Adverse Effect.
(b) The Shares will, when issued and paid for in accordance with
this Agreement, be validly issued, fully paid and nonassessable shares of
Common Stock. The issuance, sale and delivery of the Shares to the Purchaser
hereunder is not subject to any preemptive rights of stockholders of the
Company or to any right of first refusal or other similar right in favor of
any person.
SECTION 3.03 VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws from time to time in
effect affecting the enforcement of creditors' rights generally and to
general equity principles. The Note and the Stockholders Agreement Amendment,
when executed and delivered by the Company as provided in this Agreement,
will constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and to general
equity principles.
SECTION 3.04 AUTHORIZED CAPITAL STOCK.
(a) The authorized capital stock of the Company consists of
450 million shares of Common Stock, $.01 par value, of which an aggregate of
421,929,815 shares are validly issued and outstanding, fully paid and
nonassessable.
(b) Except as contemplated by this Agreement and with respect
to employee stock options outstanding as of the date hereof or to be granted
by the Board of Directors of the Company
3
<PAGE>
from time to time after the date hereof, (i) no subscription, warrant,
option, convertible security or other right (contingent or other) to purchase
or acquire any shares of any class of capital stock of the Company is
authorized or outstanding and (ii) there is no commitment of the Company to
issue any shares, warrants, options or other such rights or to distribute to
holders of any class of the Company's capital stock, any evidences of
indebtedness or assets and (iii) the Company has no obligation (contingent or
other) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
SECTION 3.05 GOVERNMENTAL APPROVALS. No registration or filling
with, or consent or approval of, or other action by, any federal, state or
other governmental agency or instrumentality is or will be necessary for the
valid execution, delivery and performance of this Agreement, the Note and the
Stockholders Agreement Amendment, or the issuance, sale and delivery of the
Shares.
SECTION 3.06 OFFERING OF THE SECURITIES. Neither the Company nor
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Securities or any
similar securities of the Company has offered any such securities for sale
to, or solicited any offers to buy any such securities from, or otherwise
approached or negotiated with respect thereto with, any person or persons,
under circumstances that involved the use of any form of general advertising
or solicitation as such terms are defined in Regulation D of the Securities
Act of 1933, as amended (the "Securities Act"); and neither the Company nor
any person acting on the Company's behalf has taken or will take any action
(including, without limitation, any offer, issuance or sale of any securities
of the Company under circumstances which might require the integration of
such transactions with the sale of the Securities under the Securities Act or
the rules and regulations of the Securities and Exchange Commission (the
"Commission") thereunder) which might subject the offering, issuance or sale
of the Note and/or the Shares to the Purchaser to the registration
provisions of the Securities Act.
SECTION 3.07 ACCURACY OF REPRESENTATIONS AND WARRANTIES IN THE
MERGER AGREEMENT. The representations and warranties of the Company
contained in Article 4 of the Merger Agreement are true and correct as of the
date hereof and will be true and correct as of the Closing Date in all
material respects. To the best knowledge of the Company, the representations
and warranties of Harmonic contained in Article 3 of the Merger Agreement are
true and correct as of the date hereof and will be true and correct as of the
Closing Date in all materials respects.
4
<PAGE>
SECTION 3.08 FINANCIAL STATEMENTS. The audited financial
statements of the Company at and for the year ended January 31, 19998 and the
unaudited financial statements for the quarterly period ended May 2, 1998,
copies of which have been delivered to the Purchaser, fairly present the
consolidated financial position of the Company as of such dates and the
consolidated income, cash flows and stockholders' equity for the periods
covered thereby.
SECTION 3.09 REGULATIONS G AND X. The Company is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock (as defined, from time to time, in Regulation G promulgated by
the Board of Governors of the Federal Reserve System), and no part of the
proceeds from the Note or the Shares or other financing in connection with
the transactions contemplated by the Merger Agreement will be used to
purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock in violation of
Regulations G and X.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company as follows:
SECTION 4.01 AUTHORIZATION. The execution, delivery and
performance by the Purchaser of this Agreement and the Stockholders Agreement
Amendment and the purchase and receipt by the Purchaser of the Securities
have been duly authorized by all requisite action on the part of the Purchaser,
and will not violate any provision of law, any order of any court or other
agency of government applicable to the Purchaser, the governing instrument of
the Purchaser, or any provision of any indenture, agreement or other
instrument by which the Purchaser or any of the Purchaser's properties or
assets are bound, or conflict with result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Purchaser, that in any case, would have a
material adverse effect on the business, assets, operations or condition
(financial or other) of the Purchaser.
SECTION 4.02 VALIDITY. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency,
5
<PAGE>
reorganization, moratorium and similar laws from time to time in effect
affecting the enforcement of creditors' rights generally and to general equity
principles.
SECTION 4.03 INVESTMENT REPRESENTATIONS.
(a) The Purchaser is acquiring the Securities for its own account,
for investment, and not with a view toward the resale or distribution thereof
in violation of applicable law.
(b) The Purchaser understands that (i) neither the Note nor the
Shares have been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof, (ii) the Securities must be
held indefinitely unless and subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration, (iii) the Note
and the Shares will bear a legend to such effect and (iv) the Company will
make notations on its transfer books to such effect.
(c) The Purchaser is able to fend for itself in the transactions
contemplated by this Agreement and that it has the ability to bear the
economic risks of its investment in the Securities for an indefinite period
of time. The Purchaser has had the opportunity to ask questions of, and
receive answers from, officers of the Company with respect to the business
and financial condition of the Company and the terms and conditions of the
offering of the Securities and to obtain additional information necessary to
verify such information or can acquire it without unreasonable effort or
expense.
(d) The Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
its investment in the Securities. The Purchaser is an "accredited investor"
as such term is defined in Rule 501 of Regulation D of the Commission under
the Securities Act with respect to its purchase of the Securities, and that
the Purchaser has not been formed solely for the purpose of purchasing the
Securities.
(e) The Purchaser understands that the exemption from registration
afforded by Rule 144 under the Securities Act depends on the satisfaction of
various conditions and that, if applicable. Rule 144 affords the basis of
sales of the Securities in limited amounts under certain circumstances.
6
<PAGE>
V.
CONDITIONS PRECEDENT
SECTION 5.01 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
PURCHASER. The obligations of the Purchaser hereunder are, at its option,
subject to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) REPRESENTATION AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in this Agreement
shall be true and correct in all material respects on the Closing Date, with
the same force and effect as though such representations and warranties had
been made on and as of such date.
(b) PERFORMANCE. The Company shall have performed and complied
with all agreements and conditions contained herein required to be performed
or complied with by it prior to or on the Closing Date.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company and all waivers and consents to be
obtained by the Company in connection with the transactions contemplated
hereby shall have been taken or obtained by the Company and all documents
incident thereto shall be satisfactory in form and substance to the
Purchaser and its counsel.
(d) MERGER AGREEMENTS. The transactions contemplated by the Merger
Agreement shall have been consummated on or prior to the Closing Date in
accordance with the Merger Agreement as originally executed, without any
material amendments or waivers.
(e) STOCKHOLDERS AGREEMENT AMENDMENT. On the Closing Date, the
Stockholders Agreement Amendment shall have been fully executed.
SECTION 5.02 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
COMPANY. The obligations of the Company hereunder are, at its option, subject
to the satisfaction, on or before the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on the Closing Date, with
the same effect as though such representations and warranties had been made
on and as of such date.
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(b) PERFORMANCE. The Purchaser shall have performed and complied
with all agreements and conditions contained herein required to be performed
or complied with by it prior to or on the Closing Date.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be
taken by the Purchaser and all waivers and consents to be obtained by the
Purchaser in connection with the transactions contemplated hereby shall have
been taken or obtained by the Purchaser and all documents incident thereto
shall be satisfactory in form and substance to the Company and its counsel.
(d) MERGER AGREEMENT. The transactions contemplated by the Merger
Agreement shall have been consummated on or prior to the Closing Date in
accordance with the Merger Agreement.
VI.
MISCELLANEOUS
SECTION 6.01 EXPENSES, ETC. Each party hereto will pay its own
expenses in connection with the transactions contemplated by this Agreement,
whether or not such transactions shall be consummated; PROVIDED, HOWEVER,
that the Company shall pay the reasonable fees and disbursements of Reboul,
MacMurray, Hewitt, Maynard & Kristol, the Purchaser's counsel. Each party
hereto will indemnify and hold harmless the other against and in respect of
any claim for brokerage or other commissions relative to this Agreement or to
the transactions contemplated hereby, made as a result of any agreements,
arrangements or understanding made or claimed to have been made by such party
with any third party.
SECTION 6.02 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the issuance, sale and delivery of the
Securities pursuant hereto and all statements contained in any certificate or
other instrument delivered by the Company hereunder shall be deemed to
constitute representations and warranties made by the Company.
SECTION 6.03 PARTIES IN INTEREST. All covenants and agreements
contained in this Agreement by or on behalf of either of the parties hereto
shall bind and inure to the benefit of the respective successors and assigns
of the parties hereto whether so expressed or not, except for transferees in
a Public Sale. For the purposes of this Agreement, "Public Sale" means any
sale of Shares to the public pursuant to an offering registered under the
Securities Act or to the public pursuant to the provisions of
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Rule 144 (or any successor or similar rule) adopted under the Securities Act.
SECTION 6.04 NOTICES. Any notice or other communications required
or permitted hereunder shall be deemed to be sufficient if contained in a
written instrument delivered in person or duly sent by first class certified
mail, postage pre-paid, or by telecopy addressed to such party at the address
or telecopy number set forth below or such other address or telecopy number as
may hereafter be designated in writing by the addressee to the addressor
listing all parties:
if to the Company, to:
Alliance Data Systems Corporation
5001 Spring Valley Road, Suite 650W
Dallas, Texas 75244
Attention: General Counsel and Chief Financial Officer
Telecopy Number: (972) 960-5330
if to the Purchaser, to it at:
c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue
Suite 2500
New York, New York 10022
Attention: Anthony J. deNicola
Telecopy Number: (212) 945-2016
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert A. Schwed, Esq.
Telecopy Number: (212) 841-5725
or, in any case, at such other address or addresses as shall have been
furnished in writing by such party to the other party hereto. All such
notices, requests, consents and other communications shall be deemed to have
been received (a) in the case of personal delivery, on the date of such
delivery, (b) in the case of mailing, on the fifth business day following the
date of such mailing and (c) in the case of telecopy, when received.
SECTION 6.05 ENTIRE AGREEMENT; MODIFICATIONS. This Agreement
constitutes the entire agreement of the parties with respect to the subject
matter hereof and may not be amended or modified nor any provisions waived
except in a writing signed by the Company and holders owning an aggregate of
not less than 66-
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2/3% of the outstanding principal amount of the outstanding notes and not
less than 66-2/3% of the outstanding shares of Common Stock issued hereunder
and not previously transferred in a Public Sale.
SECTION 6.06 COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 6.07 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, the Company and the Purchaser have executed
this Agreement as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Edward K. Mims
------------------------------
Title: EVP & CFO
WCAS CAPITAL PARTNERS III, L.P.
By WCAS CP III Partners,
General Partner
By /s/ Laura Van Buren
-----------------------------
General Partner
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EXHIBIT A
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OLD")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN PROPOSED TREASURY REGULATION 1.1275-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $45,510,000.
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $6,490,000.
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS SEPTEMBER 15, 1998.
THE YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS 14.46%
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ALLIANCE DATA SYSTEMS CORPORATION
10% Subordinated Note
Due September 15, 2008
Registered New York, New York
R-001 September 15, 1998
$52,000,000
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corpora-
tion (hereinafter called the "Company"), -for value received,
hereby promises to pay to WCAS CAPITAL PARTNERS III, L.P., a
Delaware limited partnership, or registered assigns, the princi-
pal sum of FIFTY-TWO MILLION AND NO/100 Dollars ($52,000,000), in
two equal installments on September 15, 2007 and September 15,
2008, and to pay interest (computed on the basis of a 360-day
year consisting of twelve 30-day months) from the date hereof on
the unpaid principal amount hereof at the rate of 10% per annum,
payable semi-annually in arrears on the fifteenth day of March
and September of each year (each said day being an "Interest
Payment Date"), commencing on March 15,1999, until the principal
amount hereof shall have become due and payable, whether at
maturity or by acceleration or otherwise, and thereafter at the
rate of 12% per annum on any overdue principal amount and (to the
extent permitted by applicable law) on any overdue interest until
paid.
<PAGE>
All payments of principal and interest on this Note shall be in
such coin or currency of the United States of America as at the time of
payment shall be legal tender for payment of public and private debts.
For purposes of this Note, "Business Day" shall mean any day other
than a Saturday, Sunday or a legal holiday under the laws of the state of New
York.
1. NOTES. This Note is one of a duly authorized issue of
Subordinated Notes (herein called the "Notes") made or to be made by the
Company in the aggregate principal amount of $52,000,000, maturing on
September 15, 2008 and bearing interest payable at the same rate and on the
same dates as the interest on the principal amount of this Note.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office or
agency maintained as provided in paragraph (a) of Section 11 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may,
at its option, and either in person or by duly authorized attorney, surrender
the same for registration of transfer or exchange at the office or agency of
the Company maintained as provided in paragraph (a) of Section 11, and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or
Notes each in such denomination or denominations as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal amount
as the then unpaid principal amount of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons as
may be designated by such holder. Every Note presented or surrendered for
registration of transfer of exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
Company, duly executed by the holder of such Note or his attorney duly
authorized in writing. Every Note so made and delivered in exchange for this
Note shall in all other respects be in the same form and have the same terms
as this Note. No transfer or exchange of any Note shall be valid unless made
in the foregoing manner at such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company
will make and deliver, in lieu of this Note, a new Note of like
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tenor and unpaid principal amount and dated as of the date to which interest
has been paid on this Note.
4. PERSONS DEEMED OWNERS; HOLDERS. The Company may deem and treat
the person in whose name any Note is registered as the owner and holder of
such Note for the purpose of receiving payment of principal of and interest
on such Note and for all other purposes whatsoever, whether or not such Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name
such Note is registered as aforesaid at such time.
5. PAYMENT IN KIND. On March 15 and September 15 of each year
during the term of this Note (each an "Eligible Interest Payment Date"), the
Company may elect to satisfy its obligation to pay interest on this Note by
issuing to the holder hereof a deferred interest note or notes in
substantially the form hereof (which note or notes shall hereinafter be
called the "Deferred Interest Notes") in a principal amount equal to the
interest that would have been payable to such holder on such Eligible
Interest Payment Date. If the Company shall so elect, it shall deliver to the
holder a certificate of the officer of the Company, not less than five
Business Days prior to the Eligible Interest Payment Date, stating that the
Company will pay such interest in the form of Deferred Interest Notes,
together with a resolution of the Board of Directors of the Company
authorizing the issuance of Deferred Interest Notes in the appropriate
principal amount, and a representation that such Deferred Interest Notes will
be binding obligations of the Company, enforceable in accordance with their
terms.
6. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Upon notice given as provided in
Section 7 the Company may, at its option, prepay the Notes, as a whole at
any time or in part from time to time, in amounts which shall be integral
multiples of $100,000, at the unpaid principal amount thereof so to be
prepaid, together with interest accrued thereon to the date fixed for
such prepayment. All prepayments shall be applied to installments of
principal hereof in inverse order of maturity.
(b) MANDATORY PREPAYMENT UPON PUBLIC OFFERING. If at any time
while any of the Notes shall be outstanding the Company shall consummate
a public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act, then upon the
consummation of each such offering the Company shall apply to prepayment
of the Notes (to the extent permitted under
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<PAGE>
the Company's Credit Agreement, dated as of July 24, 1998 (as amended
the "Credit Agreement") with Morgan Guaranty Trust Company of New York,
as Agent), without penalty or premium (up to the amount required to
prepay all the Notes including accrued interest thereon) an amount that,
including principal to be prepaid and accrued interest thereon, is equal
to one-third of the proceeds of such offering to the Company (net of
underwriting discounts and commissions).
(c) MANDATORY OID PREPAYMENT. To the extent permitted by the
Credit Agreement, on any interest payment date on or after September 15,
2003, the Company must pay an amount of accrued original issue discount on
this Note as shall be necessary to ensure that this Note shall not be
considered an "applicable high yield discount obligation" within the
meaning of Section 163(i) of the Internal Revenue Code of 1986, as
amended, or any successor provision. The amount of interest payable on
this Note at maturity shall be reduced by the amount of any accrued
original issue discount that is paid under this Section 5(c).
7. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Company shall give
written notice of any prepayment of this Note or any portion hereof pursuant
to Section 6 not less than 10 nor more than 60 days prior to the date fixed
for such prepayment. Such notice of prepayment and all other notices to be
given to any holder of this Note shall be given by registered or certified
mail to the person in whose name this Note is registered at its address
designated on the register maintained by the Company on the date of mailing
such notice of prepayment or other notice. Upon notice of prepayment being
given as aforesaid, the Company covenants and agrees that it will prepay, on
the date therein fixed for prepayment, this Note or the portion hereof, as
the case may be, so called for prepayment, at the principal amount thereof so
called for prepayment together with interest accrued thereon to the date
fixed for such prepayment.
8. ALLOCATION OF PREPAYMENT. In the event of any prepayment,
purchase, redemption or retirement of less than all of the outstanding Notes,
the Company will allocate the principal amount so to be prepaid, purchased,
redeemed or retired (but only in units of $100,000) to each Note in
proportion, as nearly as may be, to the aggregate principal amount of all
Notes then outstanding.
9. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for the purpose, the Company shall fail
to pay this Note or such portion, as the case may be, in which event this
Note or
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<PAGE>
such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate PER ANNUM provided herein for
overdue principal.
10. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
11. COVENANTS. The Company covenants and agrees that, so long as
any Note shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Company will maintain an office or
agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof, where the Notes
may be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment.
(b) PAYMENT OF TAXES. The Company will promptly pay and discharge
or cause to be paid and discharged, before the same shall become in
default, all lawful taxes and assessments imposed upon the Company or any
subsidiary or upon the income and profits of the Company or any
subsidiary, or upon any property, real, personal or mixed, belonging to
the Company or any subsidiary, or upon any part thereof by the United
States or any State thereof, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge upon
such property or any part thereof; PROVIDED, HOWEVER, that neither the
Company nor any subsidiary shall be required to pay and discharge or to
cause to be paid and discharged any such tax, assessment, charge, levy
or claim so long as both (x) the Company has set aside adequate reserves
for such tax, assessment, charge, levy or claim and (y) (i) the Company
or a subsidiary shall be contesting the validity thereof in good faith by
appropriate proceedings or (ii) the Company shall, in its good faith
judgment, deem the validity thereof to be questionable and the party to
whom such tax, assessment, charge,
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levy or claim is allegedly owed shall not have made written demand for
the payment thereof.
(c) CORPORATE EXISTENCE. The Company will do or cause to be done
all things necessary and lawful to preserve and keep in full force and
effect its corporate existence, rights and franchises and the corporate
existence, rights and franchises of each of its subsidiaries; PROVIDED,
HOWEVER, that nothing in this paragraph (c) shall prevent the
abandonment or termination of any rights or franchises of the Company,
or the liquidation or dissolution of, or a sale, transfer or disposition
(whether through merger, consolidation, sale or otherwise) of all or any
substantial part of the property and assets of, any subsidiary or the
abandonment or termination of the corporate existence, rights and
franchises of any subsidiary if such abandonment, termination,
liquidation, dissolution, sale, transfer or disposition is, in the good
faith business judgment of the Company, in the best interests of the
Company and is not disadvantageous in any material respect to the
holders of the Notes.
(d) MAINTENANCE OF PROPERTY. The Company will at all times
maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition all significant properties of the Company
and its subsidiaries used in the conduct of the business of the Company
and its subsidiaries, and will from time to time make or cause to be
made all needful and proper repairs, renewals, replacement, betterments
and improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall require (i)
the making of any repair or renewal or (ii) the continuance of the
operation and maintenance of any property or (iii) the retention of any
assets if such action (or inaction) is, in the good faith business
judgment of the Company, in the best interests of the Company (and the
best interests of any subsidiary concerned or affected thereby) and is
not disadvantageous in any material respect to the holders of the Notes.
(e) INSURANCE. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly situated
against loss or damage of the kinds customarily insured against by such
corporations and (ii) carry, with financially sound and reputable
insurers, such other insurance (including, without limitation, liability
insurance) in such amounts as are available at reasonable expense and to
the extent believed
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necessary in the good faith business judgment of the Company.
(f) KEEPING OF BOOKS. The Company will at all times keep, and
cause each of its subsidiaries to keep, proper books of record and
account in which proper entries will be made of its transactions with
generally accepted accounting principles consistently applied.
(g) TRANSACTIONS WITH AFFILIATES. The Company will enter into any
transaction with any director, officer, stockholder, employee or
affiliate of the Company only upon fair and reasonable terms.
(h) NOTICE OF DEFAULT. If any one or more events which
constitute, or which with notice or lapse of time or both would
constitute, an Event of Default under Section 12 shall occur, or if the
holder of any Note shall demand payment or take any other action
permitted upon the occurrence of any such Event of Default, the
Company shall, immediately after it becomes aware that any such event
has occurred or that such demand has been made or that any such action
has been taken, give notice to all holders of the Notes, specifying the
nature of such event or of such demand or action, as the case may be;
PROVIDED, HOWEVER, that if such event, in the good faith judgment of the
Company, will be cured within ten days after the Company has knowledge
that such event would, with or without notice or lapse of time or both,
constitute such an Event of default, no such notice need be given if
such Event of Default shall be cured within such ten-day period.
12. MODIFICATION BY HOLDERS; WAIVER. The Company may, with the
written consent of the holders of not less than 66 2/3% in principal amount
of the Notes then outstanding, modify the terms and provisions of the Notes
or the rights of the holders of the Notes or the obligations of the Company
thereunder, and the observance by the Company of any term or provision of the
Notes may be waived with the written consent of the holders of not less than
66 2/3% in principal amount of the Notes then outstanding; PROVIDED, HOWEVER,
that no such modification or waiver shall
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Note so affected; or
(b) give any Note any preference over any other Note;
(c) reduce the percentage of Notes, the consent of the holders of
which is required for any such modification; or
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(d) amend the provisions of Section 17 hereof without the consent of
the holders of Senior Indebtedness (as hereinafter defined).
Any such modification or waiver shall apply equally to all the
holders of the Notes and shall be binding upon them, upon each future holder
of any Note and upon the Company, whether or not such Note shall have been
marked to indicate such modification or waiver, but any Note issued
thereafter shall bear a notation referring to any such modification or
waiver. Promptly after obtaining the written consent of the holders as herein
provided, the Company shall transmit a copy of such modification or waiver to
all the holders of the Notes at the time outstanding.
13. EVENTS OF DEFAULT. If any one or more of the following events,
herein called Events of Default, shall occur, for any reason whatsoever, and
whether such occurrence shall, on the part of the Company or any subsidiary,
be voluntary or involuntary or come about or be effected by operation of law
or pursuant to or in compliance with any judgment, decree or order of a court
of competent jurisdiction or any order, rule or regulation of any
administrative or other governmental authority and such Event of Default
shall be continuing:
(a) default shall be made in the payment of the principal of any
Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(b) default shall be made in the payment of any installment of
interest on any Note according to its terms when and as the same shall
become due and payable and such default shall continue for a period of
five days; or
(c) default shall be made in the due observance or performance of
any other covenant, condition or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof or of the
Securities Purchase Agreement dated as of September 15, 1998 among the
Company and the Purchaser (the "Purchase Agreement"), and such default
shall continue for 30 days after written notice thereof, specifying such
default and requesting that the same be remedied, shall have been given
to the Company by the holder or holders of at least 25% of the principal
amount of the Notes then outstanding (the Company to give forthwith to
all other holders of Notes at the time outstanding written notice of the
receipt of such notice specifying the default referred to therein); or
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(d) any representation or warranty made by the Company in the
Purchase Agreement shall prove to have been false or incorrect in any
material respect on the date on or as of which made; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary
in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar laws, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Company or any subsidiary or for any
substantial part of any of their property, or ordering the winding-up or
liquidation of any of their affairs and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(f) the commencement by the Company or any subsidiary of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar laws, or the consent by any of them to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Company or any subsidiary or for any substantial part of their property,
or the making by any of them of any assignment for the benefit of
creditors, or the failure of the Company or any subsidiary generally to
pay its debts as such debts become due; or
(g) default as defined in any instrument evidencing or under which
the Company or any subsidiary has outstanding at the time any
indebtedness for money borrowed in excess of $50,000 in aggregate
principal amount shall occur and as a result thereof the maturity of any
such indebtedness shall have been accelerated so that the same shall
have become due and payable prior to the date on which the same would
otherwise have become due and payable and such acceleration shall not
have been rescinded or annulled within 30 days; or
(h) final judgment for the payment of money in excess of $50,000
shall be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 26% in aggregate principal amount of
the Notes at the time outstanding may, at its or their option, by notice to
the Company, declare all the Notes to be,
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and all the Notes shall thereupon be and become, forthwith due and payable
together with interest accrued thereon without presentment, demand, protest
or further notice of any kind, all of which are expressly waived to the
extent permitted by law.
At any time after any declaration of acceleration as to all of the
Notes has been made as provided in this Section 13, the holders of at least
66 2/3% in principal amount of the Notes then outstanding may, by notice to
the Company, rescind such declaration and its consequences, if (i) the
Company has paid all overdue installments of interest on the Notes and all
principal that has become due otherwise than by such declaration of
acceleration and (ii) all other defaults and Events of Default (other than
nonpayments of principal and interest that have become due solely by reason
of acceleration) shall have been remedied or cured or shall have been waived
pursuant to this paragraph, PROVIDED, HOWEVER, that no such rescission shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
14. SUITS FOR ENFORCEMENT. In case any one or more of the Events of
Default specified in Section 13 of this Note shall occur and be continuing,
the holder of this Note may proceed to protect and enforce its rights by suit
in equity, action at law and/or by other appropriate proceeding, whether for
the specific performance of any covenant or agreement contained in this Note
or in aid of the exercise of any power granted in this Note, or may proceed
to enforce the payment of this Note or to enforce any other legal or
equitable right of the holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the costs and
expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
15. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder
of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
16. REMEDIES NOT WAIVED. No course of dealing between the Company
and the holders of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
17. SUBORDINATION. (a) SUBORDINATION. Anything in this Note to the
contrary notwithstanding, the obligation of the Company to pay the principal
of and interest on this
10
<PAGE>
Note, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment to the extent set forth in the
following paragraphs (A), (B) and (C), inclusive, to (i) all obligations of
the Company to banks or other financial institutions for borrowed money
(including under the Credit Agreement), and (ii) all obligations of the
Company to banks or other financial institutions under guarantees by the
Company of obligations of wholly owned subsidiaries of the Company to banks
or other financial institutions for borrowed money, in each case, whether
such obligations are outstanding at the date of this Note or created or
incurred after the date of this Note but prior to the maturity of this Note.
The obligations of the Company to which this Note is subordinate and junior
in right of payment are sometimes herein referred to as "Senior Indebtedness".
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then all
Senior Indebtedness shall first be paid in full, before any payment on
account of principal or interest is made upon this Note.
(B) In any of the proceedings referred to in paragraph (A)
above, any payment or distribution of any kind or character, whether in
cash, property, stock or obligations which may be payable or deliverable
in respect of this Note shall be paid or delivered directly to the
holders of Senior Indebtedness for application in payment thereof,
unless and until all Senior Indebtedness shall have been paid in full.
(C) In the event the Company shall default under any Senior
Indebtedness obligation held by any bank or other financial institution,
which default shall continue without cure or waiver, and the effect of
such default is to accelerate the maturity of such obligation or the
holder thereof shall cause such obligation to become due prior to the
stated maturity thereof or the Company shall not pay such obligation at
maturity, the Company will not make, directly or indirectly, to the
holder of this Note any payment of any kind of or on account of all or
any part of this Note, and the holder of this Note will not accept from
the Company any payment of any kind of or on account of all or any
11
<PAGE>
part of this Note, unless and until all such Senior Indebtedness shall
have been paid in full; and if, with respect to any such default, the
holder of such Senior Indebtedness obligation shall have made a demand
for payment and commenced an action, suit or other proceeding against
the Company, then the holder of this Note may not take, demand, receive,
sue for, accelerate or commence any remedial proceedings with respect to
any amount payable under this Note during the pendency of such action,
suit or other proceeding. Notwithstanding the provisions of the
immediately preceding sentence, if any such default shall have continued
for 180 days or more, the Company may make and the holder of this Note
may accept from the Company all past due and current payments of any
kind of or on account of this Note, and such holder may demand, receive,
retain, sue for or otherwise seek enforcement or collection of all
amounts payable on account of principal of or interest on this Note.
Upon request of any holder of Senior Indebtedness, the holder of this Note
will affirm its obligations under this Section 17.
(b) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments
or distributions of any kind or character, whether in cash, property,
stock or obligations, which may be payable or deliverable to the holders
of Senior Indebtedness, until the principal of, and interest on, this
Note shall be paid in full, and, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the holder of this
Note, no such payment or distribution made to the holders of Senior
Indebtedness by virtue of this Section 17 which otherwise would have
been made to the holder of this Note shall be deemed a payment by the
Company on account of the Senior Indebtedness, it being understood that
the provisions of this Section 17 are and are intended solely for the
purposes of defining the relative rights of the holder of this Note, on
the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 17 of holders of
Senior Indebtedness to receive cash, property, stock or obligations
otherwise payable or deliverable to the holder of this Note, nothing
herein shall either impair, as between the Company and the holder of
this Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder hereof the principal hereof and interest
hereon in accordance with its terms and the provisions of this Note or
prevent the holder of this
12
<PAGE>
Note from exercising all remedies otherwise permitted by applicable law
or upon default hereunder.
18. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
19. GOVERNING LAW. This Note shall be governed and construed in
accordance with the laws of the State of New York.
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<PAGE>
20. HEADINGS. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
IN WITNESS WHEREOF, ALLIANCE DATA SYSTEMS CORPORATION has caused
this Note to be signed in its corporate name by one of its officers thereunto
duly authorized and to be dated as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ [Illegible]
--------------------------------------
Title: EVP & CFO
14
<PAGE>
EXHIBIT B
AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDMENT, dated SEPTEMBER 15, 1998, to AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT, dated as of August 30, 1996 (as amended to date, the
"Stockholders Agreement"), among Alliance Data Systems Corporation (known in
the original Stockholders Agreement as World Financial Network Holding
Corporation) (the "Issuer"), Limited Commerce Corp. ("Limited Commerce"),
Welsh, Carson, Anderson & Stowe VII, L.P., Welsh, Carson, Anderson & Stowe
VIII, L.P., the several investors named on Annex I thereto and WCAS Capital
Partners III, L.P. ("WCAS CP III").
WHEREAS, the Issuer and WCAS CP III have entered into a Securities
Purchase Agreement dated as of the date hereof (the "Purchase Agreement"),
whereby WCAS CP III has agreed to purchase (i) an aggregate of 5,900,000
shares of Common Stock (the "Shares"), par value $.01 per share, of the
Issuer, and (ii) the Issuer's 10% Subordinated Note Due September 15, 2008 in
the principal amount of $52,000,000;
WHEREAS, the parties hereto desire to amend the Stockholders Agreement
to include the Shares in such agreement and to include WCAS CP III as a party
thereto;
NOW THEREFORE, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein without
definition shall have the meanings ascribed to them in the Stockholders
Agreement.
SECTION 2. AGREEMENT. WCAS CP III shall for all purposes be
deemed a "WCAS Investor" and a "Holder" under the Stockholders Agreement.
The Shares to be purchased by WCAS CP III pursuant to the Purchase Agreement
shall for all purposes be deemed "Common Stock" and "Registrable Securities"
under the Stockholders Agreement. WCAS CP III hereby confirms and agrees to
be bound by all of the provisions of the Stockholders Agreement.
SECTION 3. APPLICABLE LAW. This Amendment shall be governed by
and construed in accordance with the laws of the State of New York, without
regard to conflicts of law principles
<PAGE>
SECTION 4. ORIGINAL AGREEMENT. Except as amended or modified
pursuant to this Amendment, the terms of the Stockholders Agreement shall
remain in full force and effect.
SECTION 5. SEVERABILITY. The invalidity or unenforceability of
any provisions of this Amendment in any jurisdiction shall not affect the
validity, legality or enforceability of the remainder of this Amendment in
such jurisdiction or the validity, legality or enforceability of this
Amendment, including any such provision, in any other jurisdiction, it being
intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
SECTION 6. COUNTERPARTS; EFFECTIVENESS. This Amendment may be
executed in any number of counterparts, each of which shall be an original
with the same effect as if the signatures thereto and hereto were upon the
same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Edward K. Mims
---------------------------------------
Title: EVP & CPO
LIMITED COMMERCE CORP.
By /s/ [Illegible]
---------------------------------------
Title:
WELSH, CARSON, ANDERSON & STOWE VIII, L.P.
By: WCAS VIII Partners, L.P.,
General Partner
By /s/ Laura VanBuren
---------------------------------------
Title: General Partner
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By /s/ Laura VanBuren
---------------------------------------
Title: General Partner
WELSH, CARSON, ANDERSON & STOWE VI, L.P.
By: WCAS VI Partners, L.P.,
General Partner
By /s/ Laura VanBuren
---------------------------------------
Title: General Partner
3
<PAGE>
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners,
General Partner
By /s/ Laura VanBuren
------------------------------
Title: General Partner
Attorney-in-fact
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners,
General Partner
By /s/ Laura VanBuren
------------------------------
Title: General Partner
WCAS CAPITAL PARTNERS III, L.P.
By: WCAS CP III Partners,
General Partner
By /s/ Laura VanBuren
------------------------------
Title: General Partner
*
------------------------------
Patrick J. Welsh
*
------------------------------
Russell L. Carson
*
------------------------------
Bruce K. Anderson
4
<PAGE>
*
---------------------------------
Richard H. Stowe
*
---------------------------------
Andrew M. Paul
*
---------------------------------
Thomas E. McInerney
/s/ Laura VanBuren
---------------------------------
Laura VanBuren
*
---------------------------------
James B. Hoover
*
---------------------------------
Robert A. Minicucci
*
---------------------------------
Anthony J. deNicola
/s/ David Bellet
---------------------------------
David Bellet
*
---------------------------------
Paul B. Queally
5
<PAGE>
/s/ Lawrence B. Sorrel
---------------------------------
Lawrence Sorrel
/s/ Priscilla Newman
---------------------------------
Priscilla Newman
/s/ Rudolph Rupert
---------------------------------
Rudolph Rupert
/s/ D. Scott Mackesy
---------------------------------
D. Scott Mackesy
*By: /s/ Laura VanBuren
-----------------------------
Laura VanBuren
Attorney-in-fact
6
<PAGE>
Exhibit 10.28
EXHIBIT A
THIS NOTE IS ISSUED WITH ORIGINAL ISSUE DISCOUNT ("OID")
AS DEFINED BY SECTION 1273(a)(1) OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED. THE FOLLOWING INFORMATION IS
PROVIDED PURSUANT TO THE INFORMATION REPORTING REQUIREMENTS
SET FORTH IN PROPOSED TREASURY REGULATION 1.1279-3.
THE ISSUE PRICE OF THIS DEBT INSTRUMENT IS $45,510,000.
THE AMOUNT OF OID ON THIS DEBT INSTRUMENT IS $6,490,000.
THE ISSUE DATE OF THIS DEBT INSTRUMENT IS SEPTEMBER 15, 1998
THE YIELD TO MATURITY OF THIS DEBT INSTRUMENT IS 14.46%
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ALLIANCE DATA SYSTEMS CORPORATION
104 Subordinated Note
Due September 15, 2008
Registered New York, New York
R-001 September 15, 1998
$52,000,000
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to WCAS
CAPITAL PARTNERS III, L.P., a Delaware limited partnership, or registered
assigns, the principal sum of FIFTY-TWO MILLION AND NO/100 Dollars
($52,000,000), in two equal installments on September 15, 2007 and September
15, 2008, and to pay interest (computed on the basis of a 360-day year
consisting of twelve 30-day months) from the date hereof on the unpaid
principal amount hereof at the rate of 10% per annum, payable semi-annually
in arrears on the fifteenth day of March and September of each year (each
said day being an "Interest Payment Date"), commencing on March 15, 1999,
until the principal amount hereof shall have become due and payable, whether
at maturity or by acceleration or otherwise, and thereafter at the rate of
12% per annum on any overdue principal amount and (to the extent permitted by
applicable law) on any overdue interest until paid.
<PAGE>
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts.
For purposes of this Note, "Business Day" shall mean any day other than
a Saturday, Sunday or a legal holiday under the laws of the State of New York.
1. NOTES. This Note is one of a duly authorized issue of Subordinated
Notes (herein called the "Notes") made or to be made by the Company in the
aggregate principal amount of $52,000,000, maturing on September 15, 2008 and
bearing interest payable at the same rate and on the same dates as the
interest on the principal amount of this Note.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office or
agency maintained as provided in paragraph (a) of Section 11 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may,
at its option, and either in person or by duly authorized attorney, surrender
the same for registration of transfer or exchange at the office or agency of
the Company maintained as provided in paragraph (a) of Section 11, and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or
Notes each in such denomination or denominations as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal amount
as the then unpaid principal amount of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons
as may be designated by such holder. Every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
the Company, duly executed by the holder of such Note or his attorney duly
authorized in writing. Every Note so made and delivered in exchange for this
Note shall in all other respects be in the same form and have the same terms
as this Note. No transfer or exchange of any Note shall be valid unless made
in the foregoing manner at such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt of
evidence satisfactory to the Company of this loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company
will make and deliver, in lieu of this Note, a new Note of like
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<PAGE>
tenor and unpaid principal amount and dated as of the date to which interest
has been paid on this Note.
4. PERSONS DEEMED OWNERS, HOLDERS. The Company may deem and treat the
person in whose name any Note is registered as the owner and holder of such
Note for the purpose of receiving payment of principal of and interest on
such Note and for all other purposes whatsoever, whether or not such Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name
such Note is registered as aforesaid at such time.
5. PAYMENT IN KIND. On March 15 and September 15 of each year during
the term of this Note (each an "Eligible Interest Payment Date"), the Company
may elect to satisfy its obligation to pay interest on this Note by issuing
to the holder hereof a deferred interest note or notes in substantially the
form hereof (which note or notes shall hereinafter be called the "Deferred
Interest Notes") in a principal amount equal to the interest that would have
been payable to such holder on such Eligible Interest Payment Date. If the
Company shall so elect, it shall deliver to the holder a certificate of an
officer of the Company, not less than five Business Days prior to the
Eligible Interest Payment Date, stating that the Company will pay such
interest in the form of Deferred Interest Notes, together with a resolution
of the Board of Directors of the Company authorizing the issuance of Deferred
Interest Notes in the appropriate principal amount, and a representation that
such Deferred Interest Notes will be binding obligations of the Company,
enforceable in accordance with their terms.
6. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Upon notice given as provided in Section 7
the Company may, at its option, prepay the Notes, as a whole at any time
or in part from time to time, in amounts which shall be integral
multiples of $100,000, at the unpaid principal amount thereof so to be
prepaid, together with interest accrued thereon to the date fixed for
such prepayment. All prepayments shall be applied to installments of
principal hereof in inverse order of maturity.
(b) MANDATORY PREPAYMENT UPON PUBLIC OFFERING. If at any time while
any of the Notes shall be outstanding the Company shall consummate a
public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act, then upon the
consummation of each such offering the Company shall apply to prepayment
of the Notes (to the extent permitted under
3
<PAGE>
the Company's Credit Agreement, dated as of July 24, 1998 (as amended,
the "Credit Agreement") with Morgan Guaranty Trust Company of New York,
as Agent), without penalty of premium (up to the amount required to
prepay all the Notes including accrued interest thereon) an amount that,
including principal to be prepaid and accrued interest thereon, is equal
to one-third of the proceeds of such offering to the Company (net of
underwriting discounts and commissions).
(c) MANDATORY OID PREPAYMENT. To the extent permitted by the Credit
Agreement, on any interest payment date on or after September 15, 2003,
the Company must pay an amount of accrued original issue discount on
this Note as shall be necessary to ensure that this Note shall not be
considered an "applicable high yield discount obligation" within the
meaning of Section 163(i) of the Internal Revenue Code of 1986, as
amended, or any successor provision. The amount of interest payable on
this Note at maturity shall be reduced by the amount of any accrued
original issue discount that is paid under this Section 5(c).
7. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Company shall give
written notice of prepayment of this Note or any portion hereof pursuant to
Section 6 not less than 10 nor more than 60 days prior to the date fixed for
such prepayment. Such notice of prepayment and all other notices to be given
to any holder of this Note shall be given by registered or certified mail to
the person in whose name this Note is registered at its address designated on
the register maintained by the Company on the date of mailing such notice of
prepayment or other notice. Upon notice of prepayment being given as
aforesaid, the Company covenants and agrees that it will prepay, on the date
therein fixed for prepayment, this Note or the portion hereof, as the case
may be, so called for prepayment, at the principal amount thereof to the date
fixed for such prepayment.
8. ALLOCATION OF PREPAYMENT. In the event of any prepayment, purchase,
redemption or retirement of less than all of the outstanding Notes, the
Company will allocate the principal amount so to be prepaid, purchased,
redeemed or retired (but only in units of $100,000) to each Note in
proportion, as nearly as may be, to the aggregate principal amount of all
Notes then outstanding.
9. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a portion
hereof is called for prepayment as herein provided, this Note or such portion
shall cease to bear interest on and after the date fixed for such prepayment
unless, upon presentation for the purpose, the Company shall fail to pay this
Note or such portion, as the case may be, in which event this Note or
4
<PAGE>
such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate PER ANNUM provided herein for
overdue principal.
10. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount or this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
11. COVENANTS. The Company covenants and agrees that, so long as any
Note shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Company will maintain an office or
agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof, where the Notes
may be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment.
(b) PAYMENT OF TAXES. The Company will promptly pay and discharge or
cause to be paid and discharged, before the same shall become in
default, all lawful taxes and assessments imposed upon the Company or
any subsidiary or upon the income and profits of the Company or any
subsidiary, or upon any property, real, personal or mixed, belonging to
the Company or any subsidiary, or upon any part thereof by the United
States or any State thereof, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge
upon such property or any part thereof; PROVIDED, HOWEVER, that neither
the Company nor any subsidiary shall be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment charge, levy
or claim so long as both (x) the Company has set aside adequate reserves
for such tax, assessment, charge, levy or claim and (y) (i) the Company
or a subsidiary shall be contesting the validity thereof in good faith
by appropriate proceedings or (ii) the Company shall, in its good faith
judgment, deem the validity thereof to be questionable and the party to
whom such tax, assessment charge,
5
<PAGE>
levy or claim is allegedly owed shall not have made written demand for
the payment thereof.
(c) CORPORATE EXISTENCE. The Company will do or cause to be done all
things necessary and lawful to preserve and keep in full force and
affect its corporate existence, rights and franchises and the corporate
existence, rights and franchises of each of its subsidiaries; PROVIDED,
HOWEVER, that nothing in this paragraph (c) shall prevent the
abandonment or termination of any rights or franchises of the Company,
or the liquidation or dissolution of, or a sale, transfer or disposition
(whether through merger, consolidation, sale or otherwise) of all or any
substantial part of the property and assets of, any subsidiary or the
abandonment or termination of the corporate existence, rights and
franchises of any subsidiary if such abandonment, termination,
liquidation, dissolution, sale, transfer or disposition is, in the good
faith business judgment of the Company, in the best interests of the
Company and is not disadvantageous in any material respect to the
holders of the Notes.
(d) MAINTENANCE OF PROPERTY. The Company will at all times maintain
and keep, or cause to be maintained and kept, in good repair, working
order and condition all significant properties of the Company and its
subsidiaries used in the conduct of the business of the Company and its
subsidiaries, and will from time to time make or cause to be made all
needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall require (i)
the making of any repair or renewal or (ii) the continuance of the
operation and maintenance of any property or (iii) the retention of any
assets if such action (or inaction) is, in the good faith business
judgment of the Company, in the best interests of the Company (and the
best interests of any subsidiary concerned or affected thereby) and is
not disadvantageous in any material respect to the holders of the Notes.
(e) INSURANCE. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly
situated against loss or damage of the kinds customarily insured
against by such corporations and (ii) carry, with financially sound and
reputable insurers, such other insurance (including, without limitation,
liability insurance) in such amounts as are available at reasonable
expense and to the extent believed
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<PAGE>
necessary in the good faith business judgment of the Company.
(f) KEEPING OF BOOKS. The Company will at all times keep, and cause
each of its subsidiaries to keep, proper books of record and account in
which proper entries will be made of its transactions in accordance with
generally accepted accounting principles consistently applied.
(g) TRANSACTIONS WITH AFFILIATES. The Company will enter into any
transaction with any director, officer, stockholder, employee or
affiliate of the Company only upon fair and reasonable terms.
(h) NOTICE OF DEFAULT. If any one or more events which constitute, or
which with notice or lapse of time or both would constitute, an Event of
Default under Section 12 shall occur, or if the holder of any Note shall
demand payment or take any other action permitted upon the occurrence of
any such Event of Default, the Company shall, immediately after it
becomes aware that any such event has occurred or that such demand has
been made or that any such action has been taken, give notice to all
holders of the Notes, specifying the nature of such event or of such
demand or action, as the case may be; PROVIDED, HOWEVER, that if such
event, in the good faith judgment of the Company, will be cured within
ten days after the Company has knowledge that such event would, with or
without notice or lapse of time or both, constitute such an Event of
Default, no such notice need be given if such Event of Default shall be
cured within such ten-day period.
12. MODIFICATION OF HOLDERS; WAIVER. The Company may, with the written
consent of the holders of not less than 66 2/3% in principal amount of the
Notes then outstanding, modify the terms and provisions of the Notes or the
rights of the holders of the Notes or the obligations of the Company
thereunder, and the observance by the Company of any term or provision of the
Notes may be waived with the written consent of the holders of not less than
66 2/3% in principal amount of the Notes then outstanding; PROVIDED, HOWEVER,
that no such modification or waiver shall:
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Note so affected; or
(b) give any Note any preference over any other Note;
(c) reduce the percentage of Notes, the consent of the holders of which
is required for any such modification; or
7
<PAGE>
(d) amend the provisions of Section 17 hereof without the consent of
the holders of Senior Indebtedness (as hereinafter defined).
Any such modification or waiver shall apply equally to all the holders
of the Notes and shall be binding upon them, upon each future holder of any
Note and upon the Company, whether or not such Note shall have been marked to
indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to all the holders of
the Notes at the time outstanding.
13. EVENTS OF DEFAULT. If any one or more of the following events,
herein called Events of Default, shall occur, for any reason whatsoever, and
whether such occurrence shall, on the part of the Company or any subsidiary,
be voluntary or involuntary or come about or be effected by operation of law
or pursuant to or in compliance with any judgment, decree or order of a court
of competent jurisdiction or any order, rule or regulation of any
administrative or other governmental authority and such Event of Default
shall be continuing:
(a) default shall be made in the payment of the principal of any Note
when and as the same shall become due and payable, whether at maturity or
at a date fixed for prepayment or by acceleration or otherwise; or
(b) default shall be made in the payment of any installment of interest
on any Note according to its terms when and as the same shall become due
and payable and such default shall continue for a period of five days; or
(c) default shall be made in the due observance or performance of any
other covenant, condition or agreement on the part of the Company to be
observed or performed pursuant to the terms hereof or of the Securities
Purchase Agreement dated as of September 15, 1998 among the Company and
the Purchaser (the "Purchase Agreement"), and such default shall
continue for 30 days after written notice thereof, specifying such
default and requesting that the same be remedied, shall have been given
to the Company by the holder or holders of at least 25% of the principal
amount of the Notes then outstanding (the Company to give forthwith to
all other holders of Notes at the time outstanding written notice of the
receipt of such notice specifying the default referred to therein); or
8
<PAGE>
(d) any representation or warranty made by the Company in the Purchase
Agreement shall prove to have been false or incorrect in any material
respect on the date on or as of which made; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary
in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or
state bankruptcy, insolvency or other similar laws, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Company or any subsidiary or for any
substantial part of any of their property, or ordering the winding-up or
liquidation of any of their affairs and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive
days; or
(f) the commencement by the Company or any subsidiary of a voluntary
case under the federal bankruptcy laws, as now constituted or hereafter
amended, or any other applicable federal or state bankruptcy, insolvency
or other similar laws, or the consent by any of them to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of the Company or
any subsidiary or for any substantial part of their property, or the
making by any of them of any assignment for the benefit of creditors, or
the failure of the Company or any subsidiary generally to pay its debts
as such debts become due; or
(g) default as defined in any instrument evidencing or under which the
Company or any subsidiary has outstanding at the time any indebtedness
for money borrowed in excess of $50,000 in aggregate principal amount
shall occur and as a result thereof the maturity of any such
indebtedness shall have been accelerated so that the same shall have
become due and payable prior to the date on which the same would
otherwise have become due and payable and such acceleration shall not
have been rescinded or annulled within 30 days; or
(h) final judgment for the payment of money in excess of $50,000 shall
be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 26% in aggregate principal amount of
the Notes at the time outstanding may, at its or their option, by notice to
the Company, declare all the Notes to be,
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and all the Notes shall thereupon be and become, forthwith due and payable
together with interest accrued thereon without presentment, demand, protest
or further notice of any kind, all of which are expressly waived to the
extent permitted by law.
At any time after any declaration of acceleration as to all of the Notes
has been made as provided in this Section 13, the holders of at least 66 2/3%
in principal amount of the Notes then outstanding may, by notice to the
Company, rescind such declaration and its consequences, if (1) the Company
has paid all overdue installments of interest on the Notes and all principal
that has become due otherwise than by such declaration of acceleration and
(ii) all other defaults and Events of Default (other than nonpayments of
principal and interest that have become due solely by reason of acceleration)
shall have been remedied or cured or shall have been waived pursuant to this
paragraph, PROVIDED, HOWEVER, that no such rescission shall extend to or
effect any subsequent default or Event of Default or impair any right
consequent thereon.
14. SUITS FOR ENFORCEMENT. In case any one or more of the Events of
Default specified in Section 13 of this Note shall occur and be continuing,
the holder of this Note may proceed to protect and enforce its rights by suit
in equity, action at law and/or by other appropriate proceeding, whether for
the specific performance of any covenant or agreement contained in this Note
or in aid of the exercise of any power granted in this Note, or may proceed
to enforce the payment of this Note or to enforce any other legal or
equitable right of the holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the costs and
expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
15. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder of
this Note is intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise.
16. REMEDIES NOT WAIVED. No course of dealing between the Company and
the holders of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
17. SUBORDINATION. (a) SUBORDINATION. Anything in this Note to the
contrary notwithstanding, the obligation of the Company to pay the principal
of and interest on this
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Note, and to discharge all its other obligations hereunder, shall be
subordinate and junior in right of payment to the extent set forth in the
following paragraphs (A), (B) and (C), inclusive, to (i) all obligations of
the Company to banks or other financial institutions for borrowed money
(including under the Credit Agreement), and (ii) all obligations of the
Company to banks or other financial institutions under guarantees by the
Company of obligations of wholly owned subsidiaries of the Company to banks
or other financial institutions for borrowed money, in each case, whether
such obligations are outstanding at the date of this Note or created or
incurred after the date of this Note but prior to the maturity of this Note.
The obligations of the Company to which this Note is subordinate and junior
in right of payment are sometimes herein referred to as "Senior Indebtedness".
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then all
Senior Indebtedness shall first be paid in full, before any payment on
account of principal or interest is made upon this Note.
(B) In any of the proceedings referred to in paragraph (A) above,
any payment or distribution of any kind or character, whether in cash,
property, stock or obligations which may be payable or deliverable in
respect of this Note shall be paid or delivered directly to the holders
of Senior Indebtedness for application in payment thereof, unless and
until all Senior Indebtedness shall have been paid in full.
(C) In the event the Company shall default under any Senior
Indebtedness obligation held by any bank or other financial institution,
which default shall continue without cure or waiver, and the effect of
such default is to accelerate the maturity of such obligation or the
holder thereof shall cause such obligation to become due prior to the
stated maturity thereof or the Company shall not pay such obligation at
maturity, the Company will not make, directly or indirectly, to the
holder of this Note any payment of any kind of or on account of all or
any part of this Note, and the holder of this Note will not accept from
the Company any payment of any kind of or on account of all or any
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part of this Note, unless and until all such Senior Indebtedness shall
have been paid in full, and if, with respect to any such default, the
holder of such Senior Indebtedness obligation shall have made a demand
for payment and commenced an action, suit or other proceeding against
the Company, then the holder of this Note may not take, demand, receive,
sue for, accelerate or commence any remedial proceedings with respect to
any amount payable under this Note during the pendency of such action,
suit or other proceeding. Notwithstanding the provisions of the
immediately preceding sentence, if any such default shall have continued
for 180 days or more, the Company may make and the holder of this Note
may accept from the Company all past due and current payments of any
kind of or on account of this Note, and such holder may demand, receive,
retain, sue for or otherwise seek enforcement or collection of all
amounts payable on account of principal of or interest on this Note.
Upon request of any holder of Senior Indebtedness, the holder of this Note
will affirm its obligations under this Section 17.
(b) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, this Note shall be
paid in full, and, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the holder of this Note, no such payment
or distribution made to the holders of Senior Indebtedness by virtue of this
Section 17 which otherwise would have been made to the holder of this Note
shall be deemed a payment by the Company on account of the Senior
Indebtedness, it being understood that the provisions of this Section 17 are
and are intended solely for the purposes of defining the relative rights of
the holder of this Note, on the one hand, and the holder of the Senior
Indebtedness, on the other hand. Subject to the rights, if any, under this
Section 17 of holders of Senior Indebtedness to receive cash, property, stock
or obligations otherwise payable or deliverable to the holder of this Note,
nothing herein shall either impair, as between the Company and the holder of
this Note, the obligation of the Company, which is unconditional and
absolute, to pay to the holder hereof the principal hereof and interest
hereon in accordance with its terms and the provisions of this Note or
prevent the holder of this
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Note from exercising all remedies otherwise permitted by applicable law
or upon default hereunder.
18. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
19. GOVERNING LAW. This Note shall be governed and construed in
accordance with the laws of the state of New York.
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<PAGE>
20. HEADINGS. The headings of the Sections and paragraphs of this Note
are inserted for convenience only and do not constitute a part of this Note.
IN WITNESS WHEREOF, ALLIANCE DATA SYSTEMS CORPORATION has caused
this Note to be signed in its corporate name by one of its officers thereunto
duly authorized and to be dated as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ Edward K. Mims
--------------------------
Title: EVP & CFO
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<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ALLIANCE DATA SYSTEMS CORPORATION
10% Subordinated Note
Due October 25, 2005
Registered New York, New York
R-002 January 24, 1996
$20,000,000
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation
(hereinafter called the "Company"), for value received, hereby promises to
pay to LIMITED COMMERCE CORP., a Delaware corporation, or registered assigns,
the principle sum of TWENTY MILLION AND NO/100 Dollars ($20,000,000), on
October 25, 2005, and to pay interest (computed on the basis of a 360-day
year consisting of twelve 30-day months) from the date hereof on the unpaid
principal amount hereof at the rate of 10% per annum, payable semi-annually
in arrears on the first day of July and January of each year (each said day
being an "Interest Payment Date"), commencing on July 1, 1996, until the
principal amount hereof shall have become due and payable, whether at
maturity or by acceleration or otherwise, and thereafter at the rate of 12%
per annum on any overdue principal amount and (to the extent permitted by
applicable law) on any overdue interest until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for payment of public and private debts.
For purposes of this Note, "Business Day" shall mean any day other
than a Saturday, Sunday or a legal holiday under the laws of the State of New
York.
<PAGE>
1. NOTES. This Note is one of a duly authorized issue of
Subordinated Notes (herein called the "Notes") made or to be made by the
Company in the aggregate principal amount of $50,000,000, maturing on October
25, 2005 and bearing interest payable at the same rate and on the same dates
as the interest on the principal amount of this Note.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office
or agency maintained as provided in paragraph (a) of Section 10 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may,
at its option, and either in person or by duly authorized attorney, surrender
the same for registration of transfer or exchange at the office or agency of
the Company maintained as provided in paragraph (a) of Section 10, and,
without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or
Notes each in such denomination or denominations as such holder may request,
dated as of the date to which interest has been paid on the Note or Notes so
surrendered for transfer or exchange, for the same aggregate principal amount
as the then unpaid principal amount of the Note or Notes so surrendered for
transfer or exchange, and registered in the name of such person or persons as
may be designated by such holder. Every Note presented or surrendered for
registration of transfer or exchange shall be duly endorsed, or shall be
accompanied by a written instrument of transfer, satisfactory in form to the
Company, duly executed by the holder of such Note or his attorney duly
authorized in writing. Every Note so made and delivered in exchange for this
Note shall in all other respects be in the same form and have the same terms
as this Note. No transfer or exchange of any Note shall be valid unless made
in the foregoing manner at such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Company, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Company
will make and deliver, in lieu of this Note, a new Note of like tenor and
unpaid principal amount and dated as of the date to which interest has been
paid on this Note.
4. PERSONS DEEMED OWNERS; HOLDERS. The Company may deem and treat
the person in whose name any Note is registered as the owner and holder of
such Note for the purpose of receiving payment of principal of and interest
on such Note and for all other purposes whatsoever, whether or not such Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name
such Note is registered as aforesaid at such time.
5. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Upon notice given as provided in
Section 6 the Company may, at its option, prepay the Notes, as a whole at
any time or in part from
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time to time, in amounts which shall be integral multiples of $100,000, at
the unpaid principal amount thereof so to be prepaid, together with
interest accrued thereon to the date fixed for such prepayment. All
prepayments shall be applied to installments of principal hereof in inverse
order of maturity.
(b) [INTENTIONALLY OMITTED.]
(c) MANDATORY PREPAYMENT UPON PUBLIC OFFERING. If at any time
while any of the Notes shall be outstanding the Company shall consummate a
public offering of equity securities of the Company pursuant to an
effective registration statement under the Securities Act, then upon the
consummation of each such offering the Company shall apply to prepayment of
the Notes, without penalty or premium (up to the amount required to prepay
all the Notes including accrued interest thereon) an amount that, including
principal to be prepaid and accrued interest thereon, is equal to the sum
of (x) one-sixth of the proceeds of such offering to the Corporation (net
of underwriting discounts and commissions), plus (y) the amount (if any) by
which one-sixth of such net proceeds exceeds the amount (if any) which
shall have been applied to redemption of the Company's Preferred Stock, $1
per value, pursuant to the Certificate of Incorporation of the Company by
reason of the consummation of such offering, it being intended that up to
an aggregate one-third of such proceeds shall be available to prepay the
Notes and redeem such Preferred Stock.
6. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Company shall give
written notice of any prepayment of this Note or any portion hereof pursuant
to Section 5 not less than 10 nor more than 60 days prior to the date fixed
for such prepayment. Such notice of prepayment and all other notices to be
given to any holder of this Note shall be given by registered or certified
mail to the person in whose name this Note is registered at its address
designated on the register maintained by the Company on the date of mailing
such notice of prepayment or other notice. Upon notice of prepayment being
given as aforesaid, the Company covenants and agrees that it will prepay, on
the date therein fixed for prepayment, this Note or the portion hereof, as
the case may be, so called for prepayment, at the principal amount thereof so
called for prepayment together with interest accrued thereon to the date
fixed for such prepayment.
7. ALLOCATION OF PREPAYMENT. In the event of any prepayment,
purchase, redemption or retirement of less than all of the outstanding Notes,
the Company will allocate the principal amount so to be prepaid, purchased,
redeemed or retired (but only in units of $100,000) to each Note in
proportion, as nearly as may be, to the aggregate principal amount of all
Notes then outstanding.
8. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for the purpose,
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<PAGE>
the Company shall fail to pay this Note or such portion, as the case may be,
in which event this Note or such portion, as the case may be, and, so far as
may be lawful, any overdue installment of interest, shall bear interest on
and after the date fixed for such prepayment and until paid at the rate PER
ANNUM provided herein for overdue principal.
9. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of a
portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
10. COVENANTS. The Company covenants and agrees that, so long as
any Note shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Company will maintain an office
or agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof, where the Notes may
be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment.
(b) PAYMENT OF TAXES. The Company will promptly pay and
discharge or cause to be paid and discharged, before the same shall become
in default, all lawful taxes and assessments imposed upon the Company or
any subsidiary or upon the income and profits of the Company or any
subsidiary, or upon any property, real, personal or mixed, belonging to
the Company or any subsidiary, or upon any part thereof by the United
States or any State thereof, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge
upon such property or any part thereof; PROVIDED, HOWEVER, that neither
the Company nor any subsidiary shall be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment, charge,
levy or claim so long as both (x) the Company has set aside adequate
reserves for such tax, assessment, charge, levy or claim and (y)(i) the
Company or a subsidiary shall be contesting the validity thereof in good
faith by appropriate proceedings or (ii) the Company shall, in its good
faith judgment, deem the validity thereof to be questionable and the
party to whom such tax, assessment, charge, levy or claim is allegedly
owed shall not have made written demand for the payment thereof.
(c) CORPORATE EXISTENCE. The Company will do or cause to be
done all things necessary and lawful to preserve and keep in full force and
effect its corporate existence,
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<PAGE>
rights and franchises and the corporate existence, rights and franchises
of each of its subsidiaries; PROVIDED, HOWEVER, that nothing in this
paragraph (c) shall prevent the abandonment or termination of any rights
or franchises of the Company, or the liquidation or dissolution of, or a
sale, transfer or disposition (whether through merger, consolidation, sale
or otherwise) of all or any substantial part of the property and assets
of, any subsidiary or the abandonment or termination of the corporate
existence, rights and franchises of any subsidiary if such abandonment,
termination, liquidation, dissolution, sale, transfer or disposition is,
in the good faith business judgment of the Company, in the best interests
of the Company and is not disadvantageous in any material respect to the
holders of the Notes.
(d) MAINTENANCE OF PROPERTY. The Company will at all times
maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition all significant properties of the Company and
its subsidiaries used in the conduct of the business of the Company and
its subsidiaries, and will from time to time make or cause to be made all
needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall require (i)
the making of any repair or renewal or (ii) the continuance of the
operation and maintenance of any property or (iii) the retention of any
assets if such action (or inaction) is, in the good faith business
judgment of the Company, in the best interests of the Company (and the
best interests of any subsidiary concerned or affected thereby) and is
not disadvantageous in any material respect to the holders of the Notes.
(e) INSURANCE. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly situated
against loss or damage of the kinds customarily insured against by such
corporations and (ii) carry, with financially sound and reputable insurers,
such other insurance (including, without limitation, liability insurance)
in such amounts as are available at reasonable expense and to the extent
believed necessary in the good faith business judgment of the Company.
(f) KEEPING OF BOOKS. The Company will at all times keep, and
cause each of its subsidiaries to keep, proper books of record and
account in which proper entries will be made of its transactions in
accordance with generally accepted accounting principles consistently
applied.
(g) TRANSACTIONS WITH AFFILIATES. The Company will enter into any
transaction with any director, officer, stockholder, employee or affiliate
of the Company only upon fair and reasonable terms.
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<PAGE>
(h) NOTICE OF DEFAULT. If any one or more events which constitute,
or which with notice or lapse of time or both would constitute, an Event
of Default under Section 13 shall occur, or if the holder of any Note
shall demand payment or take any other action permitted upon the
occurrence of any such Event of Default, the Company shall, immediately
after it becomes aware that any such event has occurred or that such
demand has been made or that any such action has been taken, give notice
to all holders of the Notes, specifying the nature of such event of such
demand or action, as the case may be; PROVIDED, HOWEVER, that if such
event, in the good faith judgment of the Company, will be cured within ten
days after the Company has knowledge that such event would, with or
without notice or lapse of time or both, constitute such an Event of
Default, no such notice need be given if such Event of Default shall be
cured within such ten-day period.
11. MODIFICATION BY HOLDERS; WAIVER. The Company may, with the
written consent of the holders of not less than 66 2/3% in principal amount
of the Notes then outstanding, modify the terms and provisions of the Notes
or the rights of the holders of the Notes or the obligations of the Company
thereunder, and the observance by the Company of any term or provision of the
Notes may be waived with the written consent of the holders of not less than
66 2/3% in principal amount of the Notes then outstanding; PROVIDED, HOWEVER,
that no such modification or waiver shall:
(a) change the maturity of any Note or reduce the principal amount
thereof or reduce the rate or extend the time of payment of interest
thereon without the consent of the holder of each Note so affected; or
(b) give any Note any preference over any other Note;
(c) reduce the percentage of Notes, the consent of the holders of
which is required for any such modification; or
(d) amend the provisions of Section 16 hereof without the consent
of the holders of Senior Indebtedness (as hereinafter defined).
Any such modification or waiver shall apply equally to all the
holders of the Notes and shall be binding upon them, upon each future holder
of any Note and upon the Company, whether or not such Note shall have been
marked to indicate such modification or waiver, but any Note issued
thereafter shall bear a notation referring to any such modification or
waiver. Promptly after obtaining the written consent of the holders as herein
provided, the Company shall transmit a copy of such modification or waiver to
all the holders of the Notes at the time outstanding.
12. EVENTS OF DEFAULT. If any one or more of the following events,
herein called Events of Default, shall occur, for any reason whatsoever, and
whether such occurrence
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<PAGE>
shall, on the part of the Company or any subsidiary, be voluntary or
involuntary or come about or be effected by operation of law or pursuant to
or in compliance with any judgment, decree or order of a court of competent
jurisdiction or any order, rule or regulation of any administrative or other
governmental authority and such Event of Default shall be continuing:
(a) default shall be made in the payment of the principal of any
Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(b) default shall be made in the payment of any installment of
interest on any Note according to its terms when and as the same shall
become due and payable and such default shall continue for a period of
five days; or
(c) default shall be made in the due observance or performance of
any other covenant, condition or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof or of the Securities
Purchase Agreement dated as of January 24, 1996 among the Company and the
several Purchasers named therein (the "Purchase Agreement"), and such
default shall continue for 30 days after written notice thereof,
specifying such default and requesting that the same be remedied, shall
have been given to the Company by the holder or holders of at least 25% of
the principal amount of the Notes then outstanding (the Company to give
forthwith to all other holders of Notes at the time outstanding written
notice of the receipt of such notice specifying the default referred to
therein); or
(d) any representation or warranty made by the Company in the
Purchase Agreement shall prove to have been false or incorrect in any
material respect on the date on or as of which made; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary
in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or any subsidiary or for any substantial part of
any of their property, or ordering the winding-up or liquidation of any of
their affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(f) the commencement by the Company or any subsidiary of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar laws, or the consent by any of them to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Company or any subsidiary or for any substantial part of their property,
or the making by any of them of any
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<PAGE>
assignment for the benefit of creditors, or the failure of the Company
or any subsidiary generally to pay its debts as such debts become due; or
(g) default as defined in any instrument evidencing or under which
the Company or any subsidiary has outstanding at the time any indebtedness
for money borrowed in excess of $50,000 in aggregate principal amount
shall occur and as a result thereof the maturity of any such indebtedness
shall have been accelerated so that the same shall have become due and
payable prior to the date on which the same would otherwise have become
due and payable and such acceleration shall not have been rescinded or
annulled within 30 days; or
(h) final judgment for the payment of money in excess of $50,000
shall be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 25% in aggregate principal amount of
the Notes at the time outstanding may, at its or their option, by notice to
the Company, declare all the Notes to be, and all the Notes shall thereupon
be and become, forthwith due and payable together with interest accrued
thereon without presentment, demand, protest or further notice of any kind,
all of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to all of the
Notes has been made as provided in this Section 12, the holders of at least
66 2/3% in principal amount of the Notes then outstanding may, by notice to
the Company, rescind such declaration and its consequences, if (i) the
Company has paid all overdue installments of interest on the Notes and all
principal that has become due otherwise than by such declaration of
acceleration and (ii) all other defaults and Events of Default (other than
nonpayments of principal and interest that have become due solely by reason
of acceleration) shall have been remedied or cured or shall have been waived
pursuant to this paragraph, PROVIDED, HOWEVER, that no such rescission shall
extend to or affect any subsequent default or Event of Default or impair any
right consequent thereon.
13. SUITS FOR ENFORCEMENT. In case any one or more of the Events
of Default specified in Section 12 of this Note shall occur and be
continuing, the holder of this Note may proceed to protect and enforce its
rights by suit in equity, action at law and/or by other appropriate
proceeding, whether for the specific performance of any covenant or agreement
contained in this Note or in aid of the exercise of any power granted in this
Note, or may proceed to enforce the payment of this Note or to enforce any
other legal or equitable right of the holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the costs and
expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
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14. REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity
or by statute or otherwise.
15. REMEDIES NOT WAIVED. No course of dealing between the Company
and the holders of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
16. SUBORDINATION. (a) SUBORDINATION. Anything in this Note to the
contrary notwithstanding, the obligation of the Company to pay the principal
of and interest on, this Note, and to discharge all its other obligations
hereunder, shall be subordinate and junior in right of payment to the extent
set forth in the following paragraphs (A), (B) and (C), inclusive, to (i) all
obligations of the Company to banks or other financial institutions for
borrowed money, and (ii) all obligations of the Company to banks or other
financial institutions under guarantees by the Company of obligations of
wholly owned subsidiaries of the Company to banks or other financial
institutions for borrowed money, in each case, whether such obligations are
outstanding at the date of this Note or created or incurred after the date of
this Note but prior to the maturity of this Note. The obligations of the
Company to which this Note is subordinate and junior in right of payment are
sometimes herein referred to as "Senior Indebtedness".
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company or its
creditors or its property, and in the event of any proceedings for
voluntary liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy proceedings, then
all Senior Indebtedness shall first be paid in full, before any
payment on account of principal or interest is made upon this Note.
(B) In any of the proceedings referred to in paragraph (A)
above, any payment or distribution of any kind or character, whether
in cash, property, stock or obligations which may be payable or
deliverable in respect of this Note shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof, unless and until all Senior Indebtedness shall have
been paid in full.
(C) In the event the Company shall default under any Senior
Indebtedness obligation held by any bank or other financial
institution, which default shall continue without cure or waiver, and
the effect of such default is to accelerate the maturity of such
obligation or the holder thereof shall cause such obligation to become
due prior to the stated maturity thereof or the Company shall not pay
such obligation at maturity, the Company will not make, directly or
indirectly, to the
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<PAGE>
holder of this Note any payment of any kind of or on account of all
or any part of this Note, and the holder of this Note will not accept
from the Company any payment of any kind of or on account of all or
any part of this Note, unless and until all such Senior Indebtedness
shall have been paid in full; and if, with respect to any such
default, the holder of such Senior Indebtedness obligation shall have
made a demand for payment and commenced an action, suit or other
proceeding against the Company, then the holder of this Note may not
take, demand, receive, sue for, accelerate or commence any remedial
proceedings with respect to any amount payable under this Note during
the pendency of such action, suit or other proceeding. Notwithstanding
the provisions of the immediately preceding sentence, if any such
default shall have continued for 180 days or more, the Company may
make and the holder of this Note may accept from the Company all past
due and current payments of any kind of or on account of this Note,
and such holder may demand, receive, retain, sue for or otherwise seek
enforcement or collection of all amounts payable on account of
principal of or interest on this Note.
Upon request of any holder of Senior Indebtedness, the holder of this
Note will affirm its obligations under this Section 16.
(b) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock
or obligations, which may be payable or deliverable to the holders of
Senior Indebtedness, until the principal of, and interest on, this Note
shall be paid in full, and, as between the Company, its creditors other
than the holders of Senior Indebtedness, and the holder of this Note, no
such payment or distribution made to the holders of Senior Indebtedness
by virtue of this Section 16 which otherwise would have been made to the
holder of this Note shall be deemed a payment by the Company on account of
the Senior Indebtedness, it being understood that the provisions of this
Section 16 are and are intended solely for the purposes of defining the
relative rights of the holder of this Note, on the one hand, and the
holder of the Senior Indebtedness, on the other hand. Subject to the
rights, if any, under this Section 16 of holders of Senior Indebtedness
to receive cash, property, stock or obligations otherwise payable or
deliverable to the holder of this Note, nothing herein shall either
impair, as between the Company and the holder of this Note, the obligation
of the Company, which is unconditional and absolute, to pay to the holder
hereof the principal hereof and interest hereon in accordance with its
terms and the provisions of this Note or prevent the holder of this Note
from exercising all remedies otherwise permitted by applicable law or upon
default hereunder.
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<PAGE>
17. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf
of the Company shall bind its successors and assigns, whether so expressed or
not.
18. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
19. HEADINGS. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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<PAGE>
IN WITNESS WHEREOF, ALLIANCE DATA SYSTEMS CORPORATION has caused
this Note to be signed in its corporate name by one of its officers thereunto
duly authorized and to be dated as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ [Illegible]
-------------------------------
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<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THAT ACT
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
ALLIANCE DATA SYSTEMS CORPORATION
10% Subordinated Note
Due October 25, 2005
Registered New York, New York
R-001 January 24, 1996
$30,000,000
ALLIANCE DATA SYSTEMS CORPORATION, a Delaware corporation
(hereinafter called the "Company"), for value received, hereby promises to pay
to WCAS CAPITAL PARTNERS II, L.P., a Delaware limited partnership, or registered
assigns, the principal sum of THIRTY MILLION AND NO/100 Dollars ($30,000,000),
on October 25, 2005, and to pay interest (computed on the basis of a 360-day
year consisting of twelve 30-day months) from the date hereof on the unpaid
principal amount hereof at the rate of 10% per annum, payable semi-annually in
arrears on the first day of July and January of each year (each said day being
an "Interest Payment Date"), commencing on July 1, 1996, until the principal
amount hereof shall have become due and payable, whether at maturity or by
acceleration or otherwise, and thereafter at the rate of 12% per annum on any
overdue principal amount and (to the extent permitted by applicable law) on any
overdue interest until paid.
All payments of principal and interest on this Note shall be in such
coin or currency of the United States of America as at the time of payment shall
be legal tender for payment of public and private debts.
For purposes of this Note, "Business Day" shall mean any day other
than a Saturday, Sunday or a legal holiday under the laws of the State of New
York.
<PAGE>
1. NOTES. This Note is one of a duly authorized issue of
Subordinated Notes (herein called the "Notes") made or to be made by the Company
in the aggregate principal amount of $50,000,000, maturing on October 25, 2005
and bearing interest payable at the same rate and on the same dates as the
interest on the principal amount of this Note.
2. TRANSFER, ETC. OF NOTES. The Company shall keep at its office
or agency maintained as provided in paragraph (a) of Section 10 a register in
which the Company shall provide for the registration of Notes and for the
registration of transfer and exchange of Notes. The holder of this Note may, at
its option, and either in person or by duly authorized attorney, surrender the
same for registration of transfer or exchange at the office or agency of the
Company maintained as provided in paragraph (a) of Section 10, and, without
expense to such holder (except for taxes or governmental charges imposed in
connection therewith), receive in exchange therefor a Note or Notes each in such
denomination or denominations as such holder may request, dated as of the date
to which interest has been paid on the Note or Notes so surrendered for transfer
or exchange, for the same aggregate principal amount as the then unpaid
principal amount of the Note or Notes so surrendered for transfer or exchange,
and registered in the name of such person or persons as may be designated by
such holder. Every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed, or shall be accompanied by a written instrument
of transfer, satisfactory in form to the Company, duly executed by the holder of
such Note or his attorney duly authorized in writing. Every Note so made and
delivered in exchange for this Note shall in all other respects be in the same
form and have the same terms as this Note. No transfer or exchange of any Note
shall be valid unless made in the foregoing manner at such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt
of evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of any such loss, theft or
destruction, upon receipt of an affidavit of loss and indemnity from the holder
hereof reasonably satisfactory to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of this Note, the Company will make
and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal
amount and dated as of the date to which interest has been paid on this Note.
4. PERSONS DEEMED OWNERS; HOLDERS. The Company may deem and
treat the person in whose name any Note is registered as the owner and holder of
such Note for the purpose of receiving payment of principal of and interest on
such Note and for all other purposes whatsoever, whether or not such Note shall
be overdue. With respect to any Note at any time outstanding, the term "holder",
as used herein, shall be deemed to mean the person in whose name such Note is
registered as aforesaid at such time.
5. PREPAYMENTS.
(a) OPTIONAL PREPAYMENT. Upon notice given as provided in
Section 6 the Company may, at its option, prepay the Notes, as a
whole at any time or in part from
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<PAGE>
the Company shall fail to pay this Note or such portion, as the case may be, in
which event this Note or such portion, as the case may be, and, so far as may be
lawful, any overdue installment of interest, shall bear interest on and after
the date fixed for such prepayment and until paid at the rate PER ANNUM provided
herein for overdue principal.
9. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment of
a portion of the principal amount of this Note, the holder hereof, at its
option, may require the Company to execute and deliver at the expense of the
Company (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Company for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
10. COVENANTS. The Company covenants and agrees that, so long as
any Note shall be outstanding:
(a) MAINTENANCE OF OFFICE. The Company will maintain an office or
agency in such place in the United States of America as the Company may
designate in writing to the registered holder hereof, where the Notes may
be presented for registration of transfer and for exchange as herein
provided, where notices and demands to or upon the Company in respect of
the Notes may be served and where, at the option of the holders thereof,
the Notes may be presented for payment.
(b) PAYMENT OF TAXES. The Company will promptly pay and discharge
or cause to be paid and discharged, before the same shall become in
default, all lawful taxes and assessments imposed upon the Company or any
subsidiary or upon the income and profits of the Company or any
subsidiary, or upon any property, real, personal or mixed, belonging to
the Company or any subsidiary, or upon any part thereof by the United
States or any State thereof, as well as all lawful claims for labor,
materials and supplies which, if unpaid, would become a lien or charge
upon such property or any part thereof; PROVIDED, HOWEVER, that neither
the Company nor any subsidiary shall be required to pay and discharge or
to cause to be paid and discharged any such tax, assessment, charge, levy
or claim so long as both (x) the Company has set aside adequate reserves
for such tax, assessment, charge, levy or claim and (y)(i) the Company or
a subsidiary shall be contesting the validity thereof in good faith by
appropriate proceedings or (ii) the Company shall, in its good faith
judgment, deem the validity thereof to be questionable and the party to
whom such tax, assessment, charge, levy or claim is allegedly owed shall
not have made written demand for the payment thereof.
(c) CORPORATE EXISTENCE. The Company will do or cause to be done
all things necessary and lawful to preserve and keep in full force and
effect its corporate existence,
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<PAGE>
rights and franchises and the corporate existence, rights and franchises
of each of its subsidiaries; PROVIDED, HOWEVER, that nothing in this
paragraph (c) shall prevent the abandonment or termination of any rights
or franchises of the Company, or the liquidation or dissolution of, or a
sale, transfer or disposition (whether through merger, consolidation, sale
or otherwise) of all or any substantial part of the property and assets
of, any subsidiary or the abandonment or termination of the corporate
existence, rights and franchises of any subsidiary if such abandonment,
termination, liquidation, dissolution, sale, transfer or disposition is,
in the good faith business judgment of the Company, in the best interests
of the Company and is not disadvantageous in any material respect to the
holders of the Notes.
(d) MAINTENANCE OF PROPERTY. The Company will at all times
maintain and keep, or cause to be maintained and kept, in good repair,
working order and condition all significant properties of the Company and
its subsidiaries used in the conduct of the business of the Company and
its subsidiaries, and will from time to time make or cause to be made all
needful and proper repairs, renewals, replacements, betterments and
improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that nothing in this paragraph (d) shall require (i)
the making of any repair or renewal or (ii) the continuance of the
operation and maintenance of any property or (iii) the retention of any
assets if such action (or inaction) is, in the good faith
business judgment of the Company, in the best interests of the Company
(and the best interests of any subsidiary concerned or affected thereby)
and is not disadvantageous in any material respect to the holders of the
Notes.
(e) INSURANCE. The Company will, and will cause each of its
subsidiaries to, (i) keep adequately insured, by financially sound and
reputable insurers, all property of a character usually insured by
corporations engaged in the same or a similar business similarly situated
against loss or damage of the kinds customarily insured against by such
corporations and (ii) carry, with financially sound and reputable
insurers, such other insurance (including, without limitation, liability
insurance) in such amounts as are available at reasonable expense and to
the extent believed necessary in the good faith business judgment of the
Company.
(f) KEEPING OF BOOKS. The Company will at all times keep, and
cause each of its subsidiaries to keep, proper books of record and account
in which proper entries will be made of its transactions in accordance
with generally accepted accounting principles consistently applied.
(g) TRANSACTIONS WITH AFFILIATES. The Company will enter into any
transaction with any director, officer, stockholder, employee or affiliate
of the Company only upon fair and reasonable terms.
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<PAGE>
(h) NOTICE OF DEFAULT. If any one or more events which
constitute, or which with notice or lapse of time or both would
constitute, an Event of Default under Section 13 shall occur, or if the
holder of any Note shall demand payment or take any other action permitted
upon the occurrence of any such Event of Default, the Company shall,
immediately after it becomes aware that any such event has occurred or
that such demand has been made or that any such action has been taken,
give notice to all holders of the Notes, specifying the nature of such
event or of such demand or action, as the case may be; PROVIDED, HOWEVER,
that if such event, in the good faith judgment of the Company, will be
cured within ten days after the Company has knowledge that such event
would, with or without notice or lapse of time or both, constitute such an
Event of Default, no such notice need be given if such Event of Default
shall be cured within such ten-day period.
11. MODIFICATION BY HOLDERS; WAIVER. The Company may, with the
written consent of the holders of not less than 66 2/3% in principal amount of
the Notes then outstanding, modify the terms and provisions of the Notes or the
rights of the holders of the Notes or the obligations of the Company thereunder,
and the observance by the Company of any term or provision of the Notes may be
waived with the written consent of the holders of not less than 66 2/3% in
principal amount of the Notes then outstanding; PROVIDED, HOWEVER, that no such
modification or waiver shall:
(a) change the maturity of any Note or reduce the principal
amount thereof or reduce the rate or extend the time of payment of
interest thereon without the consent of the holder of each Note so
affected; or
(b) give any Note any preference over any other Note;
(c) reduce the percentage of Notes, the consent of the holders of
which is required for any such modification; or
(d) amend the provisions of Section 16 hereof without the consent
of the holders of Senior Indebtedness (as hereinafter defined).
Any such modification or waiver shall apply equally to all the
holders of the Notes and shall be binding upon them, upon each future holder of
any Note and upon the Company, whether or not such Note shall have been marked
to indicate such modification or waiver, but any Note issued thereafter shall
bear a notation referring to any such modification or waiver. Promptly after
obtaining the written consent of the holders as herein provided, the Company
shall transmit a copy of such modification or waiver to all the holders of the
Notes at the time outstanding.
12. EVENTS OF DEFAULT. If any one or more of the following
events, herein called Events of Default, shall occur, for any reason whatsoever,
and whether such occurrence
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<PAGE>
shall, on the part of the Company or any subsidiary, be voluntary or involuntary
or come about or be effected by operation of law or pursuant to or in compliance
with any judgment, decree or order of a court of competent jurisdiction or any
order, rule or regulation of any administrative or other governmental authority
and such Event of Default shall be continuing:
(a) default shall be made in the payment of the principal of any
Note when and as the same shall become due and payable, whether at
maturity or at a date fixed for prepayment or by acceleration or
otherwise; or
(b) default shall be made in the payment of any installment of
interest on any Note according to its terms when and as the same shall
become due and payable and such default shall continue for a period of
five days; or
(c) default shall be made in the due observance or performance of
any other covenant, condition or agreement on the part of the Company to
be observed or performed pursuant to the terms hereof or of the Securities
Purchase Agreement dated as of January 24, 1996 among the Company and the
several Purchasers named therein (the "Purchase Agreement"), and such
default shall continue for 30 days after written notice thereof,
specifying such default and requesting that the same be remedied, shall
have been given to the Company by the holder or holders of at least 25% of
the principal amount of the Notes then outstanding (the Company to give
forthwith to all other holders of Notes at the time outstanding written
notice of the receipt of such notice specifying the default referred to
therein); or
(d) any representation or warranty made by the Company in the
Purchase Agreement shall prove to have been false or incorrect in any
material respect on the date on or as of which made; or
(e) the entry of a decree or order for relief by a court having
jurisdiction in the premises in respect of the Company or any subsidiary
in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or any subsidiary or for any substantial part of
any of their property, or ordering the winding-up or liquidation of any of
their affairs and the continuance of any such decree or order unstayed and
in effect for a period of 60 consecutive days; or
(f) the commencement by the Company or any subsidiary of a
voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other applicable federal or state bankruptcy,
insolvency or other similar laws, or the consent by any of them to the
appointment of or taking possession by a receiver, liquidator, assignee,
trustee, custodian, sequestrator (or other similar official) of the
Company or any subsidiary or for any substantial part of their property,
or the making by any of them of any
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<PAGE>
assignment for the benefit of creditors, or the failure of the Company or
any subsidiary generally to pay its debts as such debts become due; or
(g) default as defined in any instrument evidencing or under
which the Company or any subsidiary has outstanding at the time any
indebtedness for money borrowed in excess of $50,000 in aggregate
principal amount shall occur and as a result thereof the maturity of any
such indebtedness shall have been accelerated so that the same shall have
become due and payable prior to the date on which the same would otherwise
have become due and payable and such acceleration shall not have been
rescinded or annulled within 30 days; or
(h) final judgment for the payment of money in excess of $50,000
shall be rendered against the Company or a subsidiary and the same shall
remain undischarged for a period of 30 days during which execution shall
not be effectively stayed;
then, the holder or holders of a least 25% in aggregate principal amount of the
Notes at the time outstanding may, at its or their option, by notice to the
Company, declare all the Notes to be, and all the Notes shall thereupon be and
become, forthwith due and payable together with interest accrued thereon without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to all of the
Notes has been made as provided in this Section 12, the holders of at least
66 2/3% in principal amount of the Notes then outstanding may, by notice to the
Company, rescind such declaration and its consequences, if (i) the Company has
paid all overdue installments of interest on the Notes and all principal that
has become due otherwise than by such declaration of acceleration and (ii) all
other defaults and Events of Default (other than nonpayments of principal and
interest that have become due solely by reason of acceleration) shall have been
remedied or cured or shall have been waived pursuant to this paragraph,
PROVIDED, HOWEVER, that no such rescission shall extend to or affect any
subsequent default or Event of Default or impair any right consequent thereon.
13. SUITS FOR ENFORCEMENT. In case any one or more of the Events
of Default specified in Section 12 of this Note shall occur and be continuing,
the holder of this Note may proceed to protect and enforce its rights by suit in
equity, action at law and/or by other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note, or may proceed to enforce
the payment of this Note or to enforce any other legal or equitable right of the
holder of this Note.
In case of any default under any Note, the Company will pay to the
holder thereof such amounts as shall be sufficient to cover the costs and
expenses of such holder due to said default, including, without limitation,
collection costs and reasonable attorneys' fees, to the extent actually
incurred.
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<PAGE>
14. REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
15. REMEDIES NOT WAIVED. No course of dealing between the Company
and the holders of this Note or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any right of any
holder of this Note.
16. SUBORDINATION. (a) SUBORDINATION. Anything in this Note to
the contrary notwithstanding, the obligation of the Company to pay the
principal of and interest on, this Note, and to discharge all its other
obligations hereunder, shall be subordinate and junior in right of payment
to the extent set forth in the following paragraphs (A), (B) and (C),
inclusive, to (i) all obligations of the Company to banks or other
financial institutions for borrowed money, and (ii) all obligations of the
Company to banks or other financial institutions under guarantees by the
Company of obligations of wholly owned subsidiaries of the Company to
banks or other financial institutions for borrowed money, in each case,
whether such obligations are outstanding at the date of this Note or
created or incurred after the date of this Note but prior to the maturity
of this Note. The obligations of the Company to which this Note is
subordinate and junior in right of payment are sometimes herein referred
to as "Senior Indebtedness".
(A) In the event of any insolvency, bankruptcy,
liquidation, reorganization or other similar proceedings, or any
receivership proceedings in connection therewith, relative to the
Company or its creditors or its property, and in the event of any
proceedings for voluntary liquidation, dissolution or other winding
up of the Company, whether or not involving insolvency or bankruptcy
proceedings, then all Senior Indebtedness shall first be paid in
full, before any payment on account of principal or interest is made
upon this Note.
(B) In any of the proceedings referred to in paragraph (A)
above, any payment or distribution of any kind or character, whether
in cash, property, stock or obligations which may be payable or
deliverable in respect of this Note shall be paid or delivered
directly to the holders of Senior Indebtedness for application in
payment thereof, unless and until all Senior Indebtedness shall have
been paid in full.
(C) In the event the Company shall default under any
Senior Indebtedness obligation held by any bank or other financial
institution, which default shall continue without cure or waiver,
and the effect of such default is to accelerate the maturity of such
obligation or the holder thereof shall cause such obligation to
become due prior to the stated maturity thereof or the Company shall
not pay such obligation at maturity, the Company will not make,
directly or indirectly, to the
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<PAGE>
holder of this Note any payment of any kind of or on account of all
or any part of this Note, and the holder of this Note will not
accept from the Company any payment of any kind of or on account of
all or any part of this Note, unless and until all such Senior
Indebtedness shall have been paid in full; and if, with respect to
any such default, the holder of such Senior Indebtedness obligation
shall have made a demand for payment and commenced an action, suit
or other proceeding against the Company, then the holder of this
Note may not take, demand, receive, sue for, accelerate or commence
any remedial proceedings with respect to any amount payable under
this Note during the pendency of such action, suit or other
proceeding. Notwithstanding the provisions of the immediately
preceding sentence, if any such default shall have continued for
180 days or more, the Company may make and the holder of this Note
may accept from the Company all past due and current payments of
any kind of or on account of this Note, and such holder may demand,
receive, retain, sue for or otherwise seek enforcement or
collection of all amounts payable on account of principal of or
interest on this Note.
Upon request of any holder of Senior Indebtedness, the holder of this Note will
affirm its obligations under this Section 16.
(b) SUBROGATION. Subject to the payment in full of all Senior
Indebtedness as aforesaid, the holder of this Note shall be subrogated to the
rights of the holders of Senior Indebtedness to receive payments or
distributions of any kind or character, whether in cash, property, stock or
obligations, which may be payable or deliverable to the holders of Senior
Indebtedness, until the principal of, and interest on, this Note shall be paid
in full, and, as between the Company, its creditors other than the holders of
Senior Indebtedness, and the holder of this Note, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Section 16 which otherwise would have been made to the holder of this Note shall
be deemed a payment by the Company on account of the Senior Indebtedness, it
being understood that the provisions of this Section 16 are and are intended
solely for the purposes of defining the relative rights of the holder of this
Note, on the one hand, and the holder of the Senior Indebtedness, on the other
hand. Subject to the rights, if any, under this Section 16 of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the holder of this Note, nothing herein shall either impair,
as between the Company and the holder of this Note, the obligation of the
Company, which is unconditional and absolute, to pay to the holder hereof the
principal hereof and interest hereon in accordance with its terms and the
provisions of this Note or prevent the holder of this Note from exercising all
remedies otherwise permitted by applicable law or upon default hereunder.
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<PAGE>
17. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
18. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
19. HEADINGS. The headings of the Sections and paragraphs of this
Note are inserted for convenience only and do not constitute a part of this
Note.
11
<PAGE>
IN WITNESS WHEREOF, ALLIANCE DATA SYSTEMS CORPORATION has caused
this Note to be signed in its corporate name by one of its officers thereunto
duly authorized and to be dated as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By /s/ [ILLEGIBLE]
-------------------------------
12
<PAGE>
Exhibit 10.31
$330,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of July 24, 1998
and Amended and Restated as of October 22, 1998
among
ALLIANCE DATA SYSTEMS CORPORATION
and
LOYALTY MANAGEMENT GROUP CANADA INC.,
as Borrowers,
THE GUARANTORS PARTY HERETO,
THE BANKS PARTY HERETO
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
as Administrative Agent
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TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS..................................................................................1
SECTION 1.1. Definitions..................................................................................1
SECTION 1.2. Accounting Terms and Determinations.........................................................20
SECTION 1.3. Types of Borrowings.........................................................................21
ARTICLE 2
THE CREDITS.................................................................................21
SECTION 2.1. Commitments to Lend.........................................................................21
SECTION 2.2. Notice of Borrowing.........................................................................24
SECTION 2.3. Notice to Banks; Funding of Loans...........................................................24
SECTION 2.4. Notes.......................................................................................25
SECTION 2.5. Amortization and Maturity of Loans..........................................................26
SECTION 2.6. Interest Rates..............................................................................26
SECTION 2.7. Fees........................................................................................27
SECTION 2.8. Termination or Reduction of Commitments.....................................................28
SECTION 2.9. Method of Electing Interest Rates...........................................................29
SECTION 2.10. Optional Prepayments........................................................................29
SECTION 2.11. Mandatory Prepayments.......................................................................30
SECTION 2.12. General Provisions as to Payments...........................................................37
SECTION 2.13. Funding Losses..............................................................................38
SECTION 2.14. Computation of Interest and Fees............................................................38
SECTION 2.15. Regulation D Compensation...................................................................38
ARTICLE 2A
LETTERS OF CREDIT...........................................................................39
SECTION 2A.1. Letters of Credit...........................................................................39
SECTION 2A.2. Minimum Stated Amount.......................................................................41
SECTION 2A.3. Letter of Credit Requests; Notices of Issuance; Reports.....................................41
SECTION 2A.4. Agreement to Repay Letter of Credit Drawings................................................41
SECTION 2A.5. Letter of Credit Participations.............................................................42
SECTION 2A.6. Increased Costs.............................................................................44
ARTICLE 3
CONDITIONS..................................................................................45
SECTION 3.1. Effectiveness...............................................................................45
SECTION 3.2. Each Borrowing..............................................................................46
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES..............................................................47
SECTION 4.1. Corporate Existence and Power...............................................................47
SECTION 4.2. Corporate and Governmental Authorization; No Contravention..................................47
SECTION 4.3. Binding Effect..............................................................................48
SECTION 4.4. Financial Information.......................................................................48
SECTION 4.5. Litigation..................................................................................49
SECTION 4.6. Compliance with ERISA.......................................................................49
SECTION 4.7. Environmental Matters.......................................................................50
SECTION 4.8. Taxes.......................................................................................50
SECTION 4.9. Subsidiaries................................................................................50
SECTION 4.10. Regulatory Restrictions on Borrowing........................................................51
SECTION 4.11. Full Disclosure.............................................................................51
SECTION 4.12. Intellectual Property.......................................................................51
SECTION 4.13. Year 2000 Compliance........................................................................52
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF EACH GUARANTOR............................................52
SECTION 5.1. Corporate Existence and Power...............................................................52
SECTION 5.2. Corporate and Governmental Authorization; No Contravention..................................52
SECTION 5.3. Binding Effect..............................................................................52
SECTION 5.4. Financial Information.......................................................................52
SECTION 5.5. Litigation..................................................................................53
SECTION 5.6. Compliance with ERISA.......................................................................53
SECTION 5.7. Environmental Matters.......................................................................53
SECTION 5.8. Taxes.......................................................................................54
SECTION 5.9. Subsidiaries................................................................................54
SECTION 5.10. Regulatory Restrictions on Borrowing........................................................54
SECTION 5.11. Full Disclosure.............................................................................54
ARTICLE 6
COVENANTS...................................................................................54
SECTION 6.1. Information.................................................................................55
SECTION 6.2. Payment of Obligations......................................................................56
SECTION 6.3. Maintenance of Property; Insurance..........................................................57
SECTION 6.4. Conduct of Business and Maintenance of Existence............................................57
SECTION 6.5. Compliance with Laws........................................................................57
SECTION 6.6. Inspection of Property, Books and Records...................................................58
SECTION 6.7. Mergers and Sales of Assets.................................................................58
SECTION 6.8. Use of Proceeds.............................................................................58
SECTION 6.9. Negative Pledge.............................................................................58
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SECTION 6.10. End of Fiscal Years and Fiscal Quarters.....................................................59
SECTION 6.11. Minimum Consolidated EBITDA.................................................................59
SECTION 6.12. Leverage Ratio..............................................................................60
SECTION 6.13. Adjusted Consolidated Net Worth.............................................................61
SECTION 6.14. Capitalization of Insured Subsidiaries......................................................61
SECTION 6.15. Delinquency Ratio...........................................................................62
SECTION 6.16. Debt Limitation.............................................................................62
SECTION 6.17. Interest Coverage Ratio.....................................................................62
SECTION 6.18. Restricted Payments; Required Dividends.....................................................63
SECTION 6.19. Equity Ownership; Limitation on Creation of Subsidiaries....................................63
SECTION 6.20. Change of Business..........................................................................64
SECTION 6.21. Limitation on Issuance of Capital Stock.....................................................64
SECTION 6.22. Investments; Restricted Acquisitions........................................................64
SECTION 6.23. Consolidated Capital Expenditures...........................................................65
SECTION 6.24. Limitation on Voluntary Payments and Modifications of Indebtedness;
Modifications of Certain Other Agreements; etc..............................................65
SECTION 6.25. Continuing Obligations......................................................................66
SECTION 6.26. Year 2000 Compliance........................................................................66
ARTICLE 7
DEFAULTS....................................................................................66
SECTION 7.1. Events of Default...........................................................................66
SECTION 7.2. Notice of Default...........................................................................69
ARTICLE 8
THE AGENT...................................................................................69
SECTION 8.1. Appointment and Authorization...............................................................69
SECTION 8.2. Administrative Agent and Affiliates.........................................................70
SECTION 8.3. Action by Administrative Agent..............................................................70
SECTION 8.4. Consultation with Experts...................................................................70
SECTION 8.5. Liability of Administrative Agent...........................................................70
SECTION 8.6. Indemnification.............................................................................71
SECTION 8.7. Credit Decision.............................................................................71
SECTION 8.8. Successor Administrative Agent..............................................................71
ARTICLE 9
CHANGE IN CIRCUMSTANCES.....................................................................71
SECTION 9.1. Basis for Determining Interest Rate Inaccurate or Unfair....................................71
SECTION 9.2. Illegality..................................................................................72
SECTION 9.3. Increased Cost and Reduced Return...........................................................72
SECTION 9.4. Taxes.......................................................................................73
SECTION 9.5. Base Rate Loans Substituted for Affected Fixed Rate Loans...................................75
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ARTICLE 10
PERFORMANCE AND PAYMENT GUARANTY............................................................76
SECTION 10.1. Unconditional and Irrevocable Guaranty......................................................76
SECTION 10.2. Enforcement.................................................................................77
SECTION 10.3. Obligations Absolute........................................................................77
SECTION 10.4. Waiver......................................................................................78
SECTION 10.5. Subrogation.................................................................................78
SECTION 10.6. Survival....................................................................................78
SECTION 10.7. Guarantors' Consent to Assigns..............................................................78
SECTION 10.8. Continuing Agreement........................................................................79
ARTICLE 11
MISCELLANEOUS...............................................................................79
SECTION 11.1. Notices.....................................................................................79
SECTION 11.2. No Waivers..................................................................................79
SECTION 11.3. Expenses; Indemnification...................................................................79
SECTION 11.4. Sharing of Set-Offs.........................................................................80
SECTION 11.5. Amendment or Waiver; etc....................................................................80
SECTION 11.6. Successors and Assigns......................................................................81
SECTION 11.7. Collateral..................................................................................83
SECTION 11.8. Governing Law; Submission to Jurisdiction; Judgment Currency................................83
SECTION 11.9. Counterparts; Integration; Effectiveness....................................................84
SECTION 11.10. WAIVER OF JURY TRIAL........................................................................84
SCHEDULE I Commitments
SCHEDULE II Investment Plan
SCHEDULE III Community Reinvestment Act Requirements
APPENDIX 1 Pricing Schedule
EXHIBIT A Assignment and Assumption Agreement
EXHIBIT B-1 US Term Note
EXHIBIT B-2 A Term Note
EXHIBIT B-3 B Term Note
EXHIBIT BA Revolving Note
EXHIBIT B-5 Swing Note
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<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of July 24, 1998
and amended and restated as of October 22, 1998, among ALLIANCE DATA SYSTEMS
CORPORATION, a Delaware corporation (the "US Borrower"), LOYALTY MANAGEMENT
GROUP CANADA INC., an Ontario corporation (the "Canadian Borrower"), the
GUARANTORS from time to time party hereto, the BANKS from time to time party
hereto and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent.
WHEREAS, the Borrowers, the Administrative Agent and the Guarantors
are party to a Credit Agreement, dated as of July 24, 1998 (the "Original Credit
Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Original
Credit Agreement as herein provided;
NOW, THEREFORE, the parties hereto agree that the Original Credit
Agreement shall be and is hereby amended and restated in its entirety as
follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have
the following meanings:
"A Term Loan Commitment" means, with respect to each Bank listed on
the signature pages hereof, the amount set forth opposite its name on Schedule I
hereto under the heading "A Term Loan Commitment", as such amount may be reduced
from time to time pursuant to Section 11.6(c) or reduced mom time to time
pursuant to Section 2.8.
"A Term Loan Scheduled Repayment" has the meaning provided in
Section 2.11(A).
"A Term Loans" has the meaning provided in Section 2.1(b).
"A Term Note" has the meaning provided in Section 2.4(a).
"Acquisitions" means, collectively, the acquisition by 1302598
Ontario, Inc. (as successor in interest to the Canadian Borrower) of 100% of the
capital stock of Loyalty pursuant to the Loyalty Acquisition Agreement and the
acquisition by the US Borrower (through a wholly-owned acquisition subsidiary)
of 100% of the capital stock of Harmonic pursuant to the Harmonic Acquisition
Agreement.
"Acquisition Documents" means the Loyalty Acquisition Agreement,
the Harmonic Acquisition Agreement, and any other documents executed or
delivered in connection with the Acquisitions.
<PAGE>
"Adjusted Consolidated Net Worth" of any Person means, at any date,
the Consolidated Net Worth of such Person and its Consolidated Subsidiaries
plus, in the case of the US Borrower, the then outstanding amount of the
Subordinated Note (to the extent such Subordinated Note has a maturity not
earlier than the date which is six months after the Final Maturity Date).
"ADSI" means ADS Alliance Data Systems, Inc., a Delaware
corporation.
"ADSNZ" means ADSNZ Alliance Data Systems New Zealand, a New
Zealand corporation.
"Affected Euro-Dollar Loans" has the meaning provided in
Section 2.11(B).
"Affiliate" means (i) any Person that directly, or indirectly
through one or more intermediaries, controls the US Borrower (a "Controlling
Person") or (ii) any Person (other than the US Borrower or a Subsidiary thereof)
which is controlled by or is under common control with a Controlling Person. As
used herein, the term "control" means possession, directly or indirectly, of the
power to vote 10% or more of any class of voting securities of a Person or to
direct or cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
"Administrative Agent" means Morgan Guaranty Trust Company of New
York in its capacity as agent for the Banks hereunder, and its successors in
such capacity.
"Agreement" means this Amended and Restated Credit Agreement, as
modified, supplemented, amended, restated (including any further amendment and
restatement hereof), extended, renewed or refinanced from time to time.
"Amalgamation" means the amalgamation of 1302598 Ontario Inc. with
Loyalty pursuant to the Business Corporations Act (Ontario) and the articles of
amalgamation effective the Original Effective Date.
"Applicable Commitment Fee Percentage" shall mean a rate per annum
equal to the applicable rate specified in the pricing schedule attached hereto
as Appendix 1.
"Applicable Lending Office" means, with respect to any Bank, (i) in
the case of its Domestic Loans, its Domestic Lending Office and (ii) in the case
of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
"Asset Sale" means the sale, transfer or other disposition by the
US Borrower or any Subsidiary of the US Borrower to any Person other than the US
Borrower or any Guarantor of any asset (including, without limitation, any
capital stock or other securities of; or equity interests in, another Person) of
the US Borrower dr such Subsidiary (other than sales, transfers or other
dispositions of assets in the ordinary course of such business).
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"Assigned Collateral" means, collectively, the "Assigned
Collateral" as defined in the Security Agreement and the "Charged Premises" as
defined in the Canadian Security Documents.
"Assignment and Assumption Agreement" means an appropriately
completed Assignment and Assumption Agreement in the form of Exhibit B hereto.
"B Term Loan Commitment" means, with respect to each Bank listed on
the signature pages hereof; the amount set forth opposite its name on Schedule I
hereto under the heading "B Term Loan Commitment," as such amount may be reduced
from time to time pursuant to Section 2.8.
"B Term Loan Scheduled Repayment" has the meaning provided for in
Section 2.11(A).
"B Term Loans" has the meaning provided in Section 2.1(c).
"B Term Note" has the meaning provided in Section 2.4(a).
"Bank" means each bank listed on the signature pages hereof; each
Assignee which becomes a Bank pursuant to Section 11.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means (i) a Loan which bears interest at the Base
Rate pursuant to the provisions of Article 9 or (ii) an overdue amount which was
a Base Rate Loan immediately before it became overdue.
"Base Rate Margin" means a percentage per annum equal to the
applicable percentage specified in the pricing schedule attached hereto as Annex
I.
"Beneficiaries" has the meaning set forth in Section 10.1.
"Benefit Arrangement" means at any time an employee benefit plan
within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrowers" means, collectively, the US Borrower and the Canadian
Borrower.
"Borrowing" has the meaning set forth in Section 1.3.
"Canadian Borrower" has the meaning provided in the first paragraph
of this Agreement.
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<PAGE>
"Canadian Scheme License" means the Amended and Restated License to
Use and Exploit the Air Miles Scheme in Canada, made as of July 24, 1998,
between Air Miles International Trading B.V. and the Canadian Borrower, as such
agreement was in effect on the Original Effective Date.
"Canadian Security Documents" means the Debenture Delivery
Agreement and the Demand Debenture and any undertakings or other security
granted to the Collateral Agent or the Banks as security for the Obligations of
the Canadian Borrower.
"Canadian Trademark License" means the Amended and Restated License
to Use the Air Miles Trade Marks in Canada, dated July 24, 1998, between Air
Miles International Holdings N.V. and Loyalty Management Group Canada Inc., as
such agreement was in effect on the Original Effective Date.
"Change of Control" means (i) the US Borrower shall cease to own
100% of the capital stock of the Canadian Borrower, (ii) The Limited shall own
less than 75% of the amount of the outstanding common stock of the US Borrower
owned by it on the Original Effective Date or (iii) the Welsh, Carson, Anderson
& Stowe Partnerships in the aggregate, shall fail to own a majority of the
outstanding common stock of the US Borrower; PROVIDED, that (x) common stock
owned by employees (either individually or through employee stock ownership or
other stock based benefit plans) of the US Borrower and (y) common stock issued
to the public pursuant to one or more public offerings shall not be included in
the calculation of ownership interests for purposes of this definition or any
"change of control".
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to the Code are to the Code, as in effect on the
Restatement Effective Date and any subsequent provisions of the Code, amendatory
thereof; supplemental thereto or substituted therefor.
"Collateral" means, collectively, the Assigned Collateral and the
Pledged Collateral.
"Collateral Agent" means Morgan Guaranty Trust Company of New York
acting as Collateral Agent on behalf of the Secured Creditors.
"Commitment" of each Bank means the aggregate of such Bank's US
Term Loan Commitment, A Term Loan Commitment, B Term Loan Commitment and
Revolving Loan Commitment.
"Consolidated Capital Expenditures" of any Person means, for any
period, the additions to property, plant and equipment and other capital
expenditures of such Person and its Consolidated Subsidiaries for such period,
as the same are or would be set forth in a consolidated statement of cash flows
of such Person and its Consolidated Subsidiaries for such period.
-4-
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"Consolidated Current Assets" means the current assets of the US
Borrower and its Subsidiaries determined on a consolidated basis in accordance
with generally accepted accounting principles, PROVIDED that Consolidated
Current Assets shall in any event not include cash and cash equivalents other
than Restricted Cash.
"Consolidated Current Liabilities" means the current liabilities of
the US Borrower and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles, but excluding in any
event the current portion of; and accrued but unpaid interest on, any Debt of
the US Borrower and its Subsidiaries.
"Consolidated Debt" of any Person means, at any date, the Debt of
such Person and its Consolidated Subsidiaries, determined on a consolidated
basis as of such date.
"Consolidated EBIT" of any Person means, for any period,
Consolidated Net Income of such Person for such period, before total interest
expense determined on a consolidated basis and before taxes based on income, and
giving effect to gains and losses from sales of assets sold in the ordinary
course of business all with respect to such period.
"Consolidated EBITDA" of any Person means, for any fiscal period,
Consolidated EBIT for such Person for such period, adjusted by adding thereto
the amount of all depreciation and amortization expenses that were deducted in
determining Consolidated EBIT.
"Consolidated Interest Expense" of any Person means, for any
period, the Total Interest Expense of such Person and its Consolidated
Subsidiaries determined on a consolidated basis for such period.
"Consolidated Net Income" of any Person means, for any fiscal
period, the net income of such Person and its Consolidated Subsidiaries,
determined on a consolidated basis for such period, inclusive of the effect of
any extraordinary or other nonrecurring gain and loss.
"Consolidated Net Worth" of any Person means at any date the
consolidated stockholders' equity of such Person and its Consolidated
Subsidiaries.
"Consolidated Subsidiary" of any Person means, at any date, any
Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Credit Document" means this Agreement, the Notes, the Pledge
Agreement, the Security Agreement, the Canadian Security Documents, the WFNB
Note and each other document (including any additional guarantees) executed or
delivered in connection herewith or therewith.
"Credit Party" shall mean each Borrower, each Guarantor, and with
respect to its obligations under the WFNB Note only, WFNB.
-5-
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"Debenture Delivery Agreement" means the Debenture Delivery
Agreement, made as of July 24, 1998, between the Canadian Borrower and Morgan
Guaranty Trust Company of New York, as amended, modified or supplemented from
time to time.
"Debt" of any Person means at any date, without duplication (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business, (iv) all obligations of such Person as lessee which are capitalized in
accordance with generally accepted accounting principles, (v) all non-contingent
obligations (and, for purposes of Section 6.9, Section 6.16 and the definitions
of Material Debt and Material Financial Obligations, all contingent obligations)
of such Person to reimburse any bank or other Person in respect of amounts paid
under a letter of credit or similar instrument, (vi) all Debt secured by a Lien
on any asset of such Person, whether or not such Debt is otherwise an obligation
of such Person and (vii) all Debt of others Guaranteed by such Person; PROVIDED
that, with respect to the US Borrower, amounts owing to Brylane, L.P. pursuant
to the deferred billing program in effect on the Restatement Effective Date
between the US Borrower and Brylane, L.P. shall not be included in the
calculation of "Debt" to the extent such amounts excluded by this proviso do not
exceed $100,000,000 in the aggregate.
"Default" means any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Delinquency Ratio" means, for any calendar month, the percentage
equivalent of a fraction (a) the numerator of which is the aggregate amount of
all Managed Receivables the minimum payments on which are more than 90 days
contractually overdue and (b) the denominator of which is all Managed
Receivables, in each case determined as of the last day of such calendar month.
"Demand Debenture" means the Demand Debenture, made as of July 21,
1998, between the Canadian Borrower and Morgan Guaranty Trust Company of New
York as amended, modified or supplemented from time to time.
"Derivatives Obligations" of any Person means all obligations of
such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions), any transaction whose value is derived from another
asset or security, or any combination of the foregoing transactions.
"Dollars" and "$" shall mean freely transferable lawful money of
the United States of America.
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<PAGE>
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized by law to
close.
"Domestic Lending Office" means, as to each Bank, its office
identified as such on the signature page hereto or such other office as such
Bank may hereafter designate as its Domestic Lending Office by notice to the
Borrowers and the Administrative Agent.
"Domestic Subsidiary" means any Subsidiary of the US Borrower
incorporated or organized in the United States or any state or territory
thereof.
"ECF Prepayment Amount" has the meaning provided in
Section 2.11(A).
"ECF Prepayment Date" has the meaning provided in Section 2.11(A).
"ECF Prepayment Period" has the meaning provided in
Section 2.11(A).
"Eligible Transferee" shall mean and include a commercial bank
insurance company, financial institution, fund or other Person which regularly
purchases interests in loans or extensions of credit of the types made pursuant
to this Agreement, any other Person which would constitute a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act as
in effect on the Restatement Effective Date or other "accredited investor" (as
defined in Regulation D of the Securities Act).
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean. up or other remediation thereof.
"Equity Issuance" shall mean the issuance by the US Borrower on or
prior to the Original Effective Date of its common equity to the Welsh, Carson,
Anderson & Stowe Partnerships yielding net cash proceeds to the US Borrower of
$100,000,000, effected pursuant to the terms of the Equity Issuance Documents.
"Equity Issuance Documents" means the Common Stock Purchase
Agreement, dated as of July 24, 1998, among the US Borrower, the Welsh, Carson,
Anderson & Stowe Partnerships, the persons named on Schedule I thereto and each
other document executed or delivered in connection with the Equity Issuance.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute.
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<PAGE>
"ERISA Group" of any Person means such Person, any Subsidiary and
all members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control which, together with the US
Borrower or any Subsidiary, are treated as a single employer under Section 414
of the Code.
"Euro.Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate identified as such on the signature pages hereto or such
other office, branch or affiliate of such Bank as it may hereafter designate as
its Euro-Dollar Lending Office by notice to the Borrowers and the Administrative
Agent.
"Euro-Dollar Loan" means (i) a Loan which bears interest at a
Euro-Dollar Rate or (ii) an overdue amount which was a Euro-Dollar Loan
immediately before it became overdue.
"Euro-Dollar Margin" means a percentage per annum equal to the
applicable percentage specified in the pricing schedule attached hereto as
Appendix 1.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.6 on the basis of the London Interbank Offered Rate.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency Liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents).
"Event of Default" has the meaning set forth in Section 7.1.
"Excess Cash Flow" means, for any fiscal year of the US Borrower,
(i) Consolidated Net Income for such period PLUS (minus) (ii) the amount of
depreciation, depletion, amortization of intangibles, deferred taxes and other
non-cash expenses (revenues) which, pursuant to generally accepted accounting
principles, were deducted (added) in determining Consolidated Net Income for
such period MINUS (plus) (iii) additions (reductions, other than reductions
attributable solely to Asset Sales) to Working Capital for such period MINUS
(iv) the amount of Consolidated Capital Expenditures made during such period
(except to the extent financed through the incurrence of Debt (other than
through the incurrence of Loans) or with equity proceeds) MINUS (v) the amount
of Scheduled Repayments of Term Loans, and the amount of voluntary payments of
principal of outstanding Term Loans, in each case, actually made during such
period MINUS (vi) regularly scheduled payments of principal or "rent" (other
than capitalized interest) due in accordance with the terms of capital leases
and not otherwise deducted in arriving at Consolidated Net Income to the extent
actually made during such period MINUS (vii) the
-8-
<PAGE>
amount of mandatory payments of principal of outstanding Term Loans pursuant to
Sections 2.11(A)(e) and (h) actually made, but only to the extent that the net
proceeds from the transactions described in such clauses (e) and (h) were added
to Consolidated Net Income during such period.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal Rinds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day; PROVIDED, that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Administrative
Agent.
"Final Maturity Date" means July 25, 2005.
"Foreign Pension Plan" means any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by the US Borrower or any one or
more of its Subsidiaries primarily for the benefit of employees of the US
Borrower or such Subsidiaries residing outside the United States of America,
which plan, fund or other similar program provides, or results in, retirement
income, a deferral of income in contemplation of retirement or payments to be
made upon termination of employment, and which plan is not subject to ERISA or
the Code.
"Foreign Subsidiary" means each Subsidiary of the US Borrower other
than a Domestic Subsidiary.
"Fronting Fee" has the meaning provided in Section 2.7(c).
"Guaranteed Obligations" has the meaning provided in Section 10.1.
"Guarantor" means, (x) with respect to the Obligations of the US
Borrower, (i) ADSI, HSI and HTLI and (ii) each other Domestic Subsidiary of the
US Borrower that becomes a Guarantor from time to time, after the Restatement
Effective Date, pursuant to Section 6.19 and (y) with respect to Obligations of
the Canadian Borrower, (i) the US Borrower, ADSI, HSI and HTLI and (ii) each
other Domestic Subsidiary of the US Borrower or Subsidiary of the Canadian
Borrower (other than LMG to the extent LMG does not at any time account for
greater than 5.0% of the Consolidated Net Worth of the US Borrower) which
becomes a Guarantor from time to time, after the Restatement Effective Date,
pursuant to Section 6.19.
"Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt of any
other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such
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<PAGE>
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt (whether arising by virtue of partnership arrangements, by
agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or (ii)
entered into for the purpose of assuring in any other manner the holder of such
Debt of the payment therefore to protect such holder against loss in respect
thereof (in whole or in part), PROVIDED, that the term Guaranty shall not
include endorsements for collection or deposit in the ordinary course of
business. The term "Guaranty" used as a verb has a corresponding meaning.
"Harmonic" means Harmonic Systems Incorporated, a Minnesota
corporation.
"Harmonic Acquisition Agreement" means the Agreement and Plan of
Merger, dated as of August 14, 1998, among the US Borrower, HSI Acquisition
Corp. and Harmonic.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"HSI" means Harmonic Systems Incorporated, a Minnesota corporation.
"HTLI" means Harmonic Technology Licensing, Inc., a Minnesota
corporation.
"Indemnitee" has the meaning set forth in Section 11.3(b).
"Initial Borrowing Date" means the date on which the initial
Borrowing of Loans occurred under the Original Credit Agreement.
"Initial Maturity Date" means July 25, 2003.
"Insured Subsidiary" means a Subsidiary of the US Borrower which is
an "insured depository institution" under and as defined in the Federal Deposit
Insurance Act (12 U.S.C. 1813(c)(3)) or any successor statute.
"Intellectual Property" has the meaning provided in Section 4.12.
"Interest Coverage Ratio" of any Person means, for any period, the
ratio of Consolidated EBITDA of such Person for such period to Consolidated
Interest Expense of such Person for such period.
"Interest Period" means with respect to each Euro.Dollar Loan, the
period commencing on the date of borrowing specified in the applicable Notice of
Borrowing or on the date specified in the applicable Notice of Interest Period
Election and ending one, two, three or six months thereafter, as the respective
Borrower may elect in the applicable notice; PROVIDED, that:
(i) any Interest Period which would otherwise end on a day which is
not a EuroDollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day
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unless such Euro-Dollar Business Day fails in another calendar month,
in which case such Interest Period shall end on the next preceding
Euro-Dollar Business Day;
(ii) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro- Dollar Business Day of a calendar month; and
(iii) any Interest Period which would otherwise end after the
Initial Maturity Date in the case of US Term Loans, A Term Loans and
Revolving Loans or the Final Maturity Date in the case of B Term
Loans, shall end on the Initial Maturity Date (unless such date is not
a Euro- Dollar Business Day, in which case such Interest Period shall
end on the latest Euro-Dollar Business Day to occur prior to the
Initial Maturity Date) or Final Maturity Date (unless such date is not
a Euro-Dollar Business Day, in which case such Interest Period shall
end on the latest Euro-Dollar Business Day to occur prior to the Final
Maturity Date), as the case may be.
"Investment" means any investment in any Person, whether by means
of share purchase, capital contribution, loan, Guaranty, time deposit or
otherwise (but not including any demand deposit).
"L/C Participant" has the meaning provided in Section 2A.5.
"L/C Supportable Obligations" means and includes obligations of the
US Borrower or its Subsidiaries incurred in the ordinary course of business as
are reasonably acceptable to the Administrative Agent and the respective Letter
of Credit Issuer and otherwise permitted to exist pursuant to the terms of this
Agreement. Inasmuch as the Administrative Agent's (including in its capacity as
Letter of Credit Issuer) approval is required, L/C Supportable Obligations shall
include obligations in respect of securitization of credit card receivables.
"Letter of Credit" has the meaning provided in Section 2A.1(a).
"Letter of Credit Fee" has the meaning provided in Section 2.7(b).
"Letter of Credit Issuer" means Morgan Guaranty Trust Company of
New York in its individual capacity and any Bank which at the request of the US
Borrower and the consent of the Administrative Agent agrees, in such Bank's sole
discretion, to become a Letter of Credit Issuer for the purpose of issuing
Letters of Credit. The sole Letter of Credit Issuer on the Restatement Effective
Date is Morgan Guaranty Trust Company of New York in individual capacity.
"Letter of Credit Outstandings" means, at any time, the sum of;
without duplication, (i) the aggregate Stated Amount of all outstanding Letters
of Credit and (ii) the aggregate amount of all Unpaid Drawings in respect of all
Letters of Credit.
"Letter of Credit Request" has the meaning provided in
Section 2A.3(a).
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<PAGE>
"Leverage Ratio" of any Person means, at any time, the ratio of (x)
Consolidated Debt of such person at such time to (y) Consolidated EBITDA of such
person for the four fiscal quarters then most recently ended.
"License Agreements" means the Canadian Trademark License, the US
Trademark License, the Canadian Scheme License and the US Scheme License.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the US
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, capital lease or other title retention
agreement relating to such asset.
"Loan" means a loan made by a Bank pursuant to Section 2.1;
PROVIDED, that if any such loan or loans (or portions thereof) are combined or
subdivided pursuant to a Notice of Interest Rate Election, the term "Loan" shall
refer to the combined principal amount resulting from such combination or to
each of the separate principal amounts resulting from such subdivision, as the
case may be.
"London Interbank Offered Rate" means for any Interest Period the
rate per annum (rounded upward, if necessary, to the next higher 1/16 of it) at
which deposits in dollars are offered to the Administrative Agent in the London
interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar
Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loans of the
Administrative Agent to which such Interest Period is to apply and for a period
of time comparable to such Interest Period.
"Loyalty" shall mean Loyalty Management Group Canada Inc., an
Ontario corporation, as such entity exists before giving effect to the
Amalgamation.
"Loyalty Acquisition Agreement" means the Agreement for the
Purchase of All the Shares of Loyalty Management Group Canada Inc., made as of
June 26, 1998, among Air Miles International Group B.V., each of the other
shareholders and optionholders listed on Exhibit A-1 thereto and the US
Borrower, as such Agreement was in effect on the Original Effective Date.
"LMG" means LMG Travel Services Limited, an Ontario corporation,
100% of the capital stock of which is owned by the Canadian Borrower.
"Majority Banks" of any Tranche shall mean those Banks which would
constitute the Required Banks under, and as defined in, this Agreement if all
outstanding Obligations of the other Tranches under this Agreement were repaid
in full and all Commitments with respect thereto were terminated.
"Managed Receivables" of any Person means for any date all credit
card receivables of such Person as of such date regardless of whether such
credit card receivables are deter-
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mined, with respect to such Person's financial statements, to be "on-balance
sheet" or "off-balance sheet".
"Material Debt" means Debt (other than the Loans and reimbursement
obligations under Letters of Credit) of a Person and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions, in an
aggregate principal or face amount exceeding $25,000,000.
"Material Financial Obligations" of any Person means a principal or
face amount of Debt and/or payment or collateralization obligations in respect
of Derivatives Obligations of such Person and/or one or more of its
Subsidiaries, arising in one or more related or unrelated transactions,
exceeding in the aggregate $25,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $10,000,000.
"Maturity Date" means, as applicable, the Initial Maturity Date or
the Final Maturity Date.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Net Cash Proceeds" means, with respect to any Asset Sale, the Cash
Proceeds resulting therefrom net of expenses of sale (including payment of
principal, premium and interest of other Debt secured by the assets the subject
of the Asset Sale and required to be, and which is, repaid under the terms
thereof as a result of such Asset Sale), and incremental taxes paid or payable
as a result thereof; PROVIDED that Net Cash Proceeds shall not include cash
deposited with the Administrative Agent pursuant to a cash collateral
arrangement pursuant to this Agreement.
"Note" means any of the US Term Notes, the A Term Notes, the B Term
Notes, the Revolving Notes and the Swing Note.
"Notice of Borrowing" has the meaning set forth in Section 2.2.
"Notice of Interest Period Election" has the meaning set forth in
Section 2.9.
"Obligations" means all amounts owing to the Administrative Agent,
the Collateral Agent or any Bank pursuant to the terms of this Agreement or any
other Credit Document.
"Original Credit Agreement" has the meaning provided in the first
recital to this Agreement.
"Original Effective Date" shall mean July 24, 1998.
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<PAGE>
"Parent" means, with respect to any Bank, any Person controlling
such Bank.
"Participant" has the meaning set forth in Section 11.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Percentage" shall mean at any time for each Bank with a Revolving
Commitment, the percentage obtained by dividing such Bank's Revolving Loan
Commitment by the Total Revolving Loan Commitment, PROVIDED that if the Total
Revolving Loan Commitment has been terminated, the Percentage of each Bank shall
be determined by dividing such Bank's Revolving Loan Commitment immediately
prior to such termination by the Total Loan Revolving Commitment immediately
prior to such termination.
"Permitted Subordinated Debt" means subordinated Debt of the US
Borrower, PROVIDED that (i) the US Borrower shall be in PRO FORMA compliance
with the Financial Covenants contained in Sections 6.12 and 6.17 after giving
effect to such issuance of Debt, (ii) such Debt shall be expressly subordinated
to the Obligations, (iii) such Debt shall be unsecured and unguaranteed, (iv)
such Debt shall have a maturity not earlier than the date which is six months
after the Final Maturity Date and no amortization or sinking fund payments shall
be required in respect of such Debt prior to such date and (v) no covenant or
default applicable to such debt shall be more restrictive than those contained
in this Agreement and the subordination provisions, covenants and defaults
pertaining to such Debt, taken as a whole, shall be no more restrictive, and no
less favorable to the Banks, as those customarily applicable to publicly issued
subordinated indebtedness.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof
"Plan" means at any time an employee pension benefit plan (other
than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to
the minimum funding standards under Section 412 of the Code and either (i) is
maintained, or contributed to, by any member of the ERISA Group for employees of
any member of the ERISA Group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA Group.
"Pledge Agreement" means the Pledge Agreement, dated as of July 24,
1998, by and between the Borrowers, the Guarantors and the Collateral Agent, as
such agreement may be amended, modified or supplemented from time to time.
"Pledge Agreements" means the Pledge Agreement and the Supplemental
Pledge Agreement.
"Pledged Collateral" means the "Collateral", as defined in the
Pledge Agreement.
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<PAGE>
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Projections" means the financial projections of the US Borrower
and its Subsidiaries prepared in a manner consistent with the financial
statements delivered pursuant to Section 4.4(a) and (b).
"Quarterly Dates" has the meaning provided in Section 2.11(A)(d).
"Recovery Event" means the receipt by the US Borrower or any of its
Subsidiaries of any cash insurance proceeds or condemnation award payable (i) by
reason of theft, loss, physical destruction or damage or any other similar event
with respect to any property or asset of the US Borrower or any of its
Subsidiaries, or (ii) by reason of any condemnation, taking, seizing or similar
event with respect to any property or asset of the US Borrower or any of its
Subsidiaries.
"Refunded Swing Loans" has the meaning provided in Section 2.1(f).
"Refunding Date" has the meaning provided in Section 2.1(f).
"Refunding Swing Loan" has the meaning provided in Section 2.1(f).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Reinvestment Assets" means any assets to be employed in the
business of the US Borrower and its Subsidiaries.
"Reinvestment Election" has the meaning provided in
Section 2.11(A)(e).
"Reinvestment Notice" means a written notice signed by an executive
officer of the US Borrower stating that the US Borrower, in good faith, intends
and expects to use all or a specified portion of the Net Cash Proceeds of an
Asset Sale to purchase, construct or otherwise acquire Reinvestment Assets.
"Reinvestment Prepayment Amount" means, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Prepayment Date
relating thereto by which (a) the Anticipated Reinvestment Amount in respect of
such Reinvestment Election exceeds (b) the aggregate amount thereof expended by
the US Borrower and its Subsidiaries to acquire Reinvestment Assets.
"Reinvestment Prepayment Date" means, with respect to any
Reinvestment Election, the earliest of (i) the date, if any, upon which the
Administrative Agent, on behalf of the Required Banks, shall have delivered a
written termination notice to the US Borrower, provided that such notice may
only be given while an Event of Default exists, (ii) the date occurring 180 days
after such Reinvestment Election and (iii) the date on which the US Borrower
shall have
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<PAGE>
determined not to, or shall have otherwise ceased to, proceed with the purchase,
construction or other acquisition of Reinvestment Assets with the related
Anticipated Reinvestment Amount.
"Replaced Bank" has the meaning provided in Section 2A.1(c).
"Replacement Bank" has the meaning provided in Section 2A.1(c)
"Required Banks" means Banks the sum of whose outstanding Term
Loans (and, if prior to the termination thereof; Term Loan Commitments) and
Revolving Loan Commitments (or after the termination thereof; outstanding
Revolving Loans and Percentages of Swing Loans and Letter of Credit
Outstandings) represent an amount greater than 50% of the sum of all outstanding
Term Loans (and, if prior to the termination thereof; the Term Loan Commitments)
and the Total Revolving Loan Commitment (or after the termination thereof; the
sum of the total outstanding Revolving Loans, Swing Loans and Letter of Credit
Outstandings at such time).
"Restatement Effective Date" means October ____, 1998 or if later,
the date this Agreement becomes effective in accordance with Section 11.9.
"Restricted Acquisition" means any acquisition (other than the
Acquisitions), whether in a single transaction or series of related
transactions, by the US Borrower or any one or more of its Subsidiaries, or any
combination thereof; of(i) all or a substantial part of the assets, or all or
any substantial part of a going business or division, of any Person, whether
through purchase of assets or securities, by merger or otherwise, (ii) control
of securities of an existing corporation or other Person having ordinary voting
power (apart from rights accruing under special circumstances) to elect a
majority of the board of directors of such corporation or other Person or (iii)
control of a greater than 50% ownership interest in any existing partnership,
joint venture or other Person.
"Restricted Cash" means cash required by the US Borrower and its
Subsidiaries to fund securitization spread accounts, cash collateral accounts
relating to securitization of credit card receivables, excess funding accounts
relating to securitization of credit card receivables and cash restricted to
fund future Air Miles redemptions.
"Restricted Payment" means (i) any dividend or other distribution
on any shares of a Person's capital stock (except dividends payable solely in
shares of its capital stock) or (ii) any payment on account of the purchase,
redemption, retirement or acquisition of (a) any shares of a Person's capital
stock or (b) any option, warrant or other right to acquire shares of a Person's
capital stock (but not including payments of principal, premium (if any) or
interest made pursuant to the terms of convertible debt securities prior to
conversion).
"Revolving Loan Commitment" means, (i) with respect to each Bank
listed on the signature pages hereof; the amount set forth opposite its name on
Schedule 1 hereto under the heading "Revolving Loan Commitment" and (ii) with
respect to each Assignee that becomes a Bank pursuant to Section 11.6(c), the
amount of the Revolving Loan Commitment thereby assumed by it, in each case as
such amount may be increased or reduced from time to time pursuant to
Section 11.6(c) or reduced from time to time pursuant to Section 2.8.
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<PAGE>
"Revolving Loans" has the meaning provided in Section 2.1(d).
"Revolving Note" has the meaning provided in Section 2.4(a).
"Scheduled Repayment" means each US Term Loan Scheduled Repayment,
A Term Loan Scheduled Repayment and B Term Loan Scheduled Repayment.
"Secured Creditors" has the meaning provided in the Security
Documents.
"Security Agreement" means the Security Agreement, dated as of July
24, 1998, by and between the US Borrower, the other Guarantors which are
Domestic Subsidiaries of the US Borrower and the Collateral Agent, as amended,
modified or supplemented from time to time.
"Security Documents" shall mean the Pledge Agreements, the Security
Agreement and the Canadian Security Documents.
"Stated Amount" of each Letter of Credit means the maximum amount
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met).
"Subordinated Note" means the 10% Subordinated Note due January 24,
2002, dated January 24, 1996, issued by the US Borrower to The Limited and WCAS
Capital Partners 11 in the aggregate principal amount of $50,000,000.
"Subsidiary" means, as to any Person, any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Person;
unless otherwise specified, "Subsidiary" means a Subsidiary of the US Borrower.
"Subsidiary Assumption Agreement" shall mean the Subsidiary
Assumption Agreement, dated the Restatement Effective Date, made by HSI and
HTLI, pursuant to which HSI and HTLI became parties to the Pledge Agreement and
Security Agreement.
"Supermajority Banks" of any Tranche means those Banks which would
constitute the Required Banks under, and as defined in, this Agreement if (x)
all outstanding Obligations of the other Tranches under this Agreement were
repaid in full and all Commitments with respect thereto were terminated and (y)
the percentage "50%" contained therein were changed to "66-2/3%."
"Supplemental Pledge Agreement" shall mean the Supplemental Pledge
Agreement, dated as of July 24, 1998, between the US Borrower and the
Administrative Agent.
"Swing Borrowing" means a Borrowing pursuant to subsection 2.1(e).
"Swing Lender" means Morgan Guaranty Trust Company of New York and
any other Bank which agrees in its sole discretion, with the consent of the
Administrative Agent, to become a Swing Lender hereunder.
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<PAGE>
"Swing Loan Commitment" means $35,000,000.
"Swing Loan Refund Amount" has the meaning specified in
subsection 2.1(e).
"Swing Loans" has the meaning provided in Section 2.1(e).
"Swing Margin" means a percentage per annum equal to the applicable
percentage specified in the pricing schedule attached hereto as Appendix 1.
"Swing Note" has the meaning provided in Section 2.4(a).
"Syndication Date" shall mean the date on which the Administrative
Agent notifies the US Borrower that the initial syndication of the credit
facilities under this Agreement has been completed.
"Term Loan Commitments" means, collectively, the US Term Loan
Commitments, the A Term Loan Commitments and the B Term Loan Commitments.
"Term Loans" means, collectively, US Term Loans, A Term Loans and B
Term Loans.
"The Community Reinvestment Act" means The Community Reinvestment
Act of 1977 (12 U.S.C. 2901 ET SEQ.), as amended.
"The Limited" means The Limited Commerce Corporation, a Delaware
corporation.
"Total A Term Loan Commitment" means, at any time, the sum of the A
Term Loan Commitments of each of the Banks.
"Total B Term Loan Commitment" means, at any time, the sum of the B
Term Loan Commitments of each of the Banks.
"Total Commitment" means the aggregate amount of the Commitments of
each of the Banks.
"Total Interest Expense" means, for any Person, interest paid on a
consolidated basis with respect to all outstanding indebtedness including,
without limitation, capital leases (in accordance with GAAP), all commissions,
discounts and other fees and charges owed in connection with letters of credit
or lines of credit, net costs or benefits under interest rate protection
agreements, amortization of deferred financing costs, original issue discounts,
and any interest expense relating to deferred compensation arrangements.
"Total Revolving Loan Commitment" means, collectively, the
Revolving Loan Commitments of each of the Bank.
"Total US Term Loan Commitment" means, at any time, the sum of the
US Term Loan Commitments of each of the Banks.
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<PAGE>
"Tranche" means, with respect to each Loan, the tranche under which
such Loan is borrowed, with there being four different Tranches of Loans,
including Revolving Loans, US Term Loans, A Term Loans and B Term Loans.
"Type" means the type of Loan determined according to the interest
option applicable thereto; I.E., whether a Base Rate Loan or a Euro-Dollar Loan.
"Unfunded Liabilities" means, with respect to any Plan at any time,
the amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
"Unpaid Drawing" has the meaning provided in Section 2A.4(a).
"US Borrower" has the meaning provided in the first paragraph of
this Agreement.
"US Scheme License" means the Amended and Restated License to Use
and Exploit the Air Miles Scheme in the United States, dated July 24, 1998,
between Air Miles International Trading B.V. and the US Borrower, as such
agreement is in effect on the Original Effective Date.
"US Term Loan Commitment" means, with respect to each Bank listed
on the signature pages hereof; the amount set forth opposite its name on
Schedule I hereto under the heading "US Term Loan Commitment," as such amount
may be reduced from time to time pursuant to Section 2.8.
"US Term Loan Scheduled Repayment" has the meaning provided in
Section 2.11(A).
"US Term Loans" has the meaning provided in Section 2.1(a).
"US Term Note" has the meaning provided in Section 2.4(a).
"US Trademark License" means the Amended and Restated License to
Use the Air Miles Trade Marks in the United States, dated July 24, 1998, between
Air Miles International Holdings B.V. and the US Borrower, as such agreement is
in effect on the Original Effective Date.
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<PAGE>
"WCAS Subordinated Note" means the 10% Subordinated Note due
September 15, 2008, dated September 15, 1998, issued by the US Borrower to WCAS
Capital Partners III, L.P. in the principal amount of $52,000,000.
"Waivable Mandatory Repayment has the meaning provided in
Section 2.11(A)(1).
"Welsh, Carson, Anderson & Stowe Partnerships" means each Welsh,
Carson, Anderson & Stowe limited partnership, as constituted on the Restatement
Effective Date, as may be constituted in the future and any partner, partnership
or affiliate of any of them.
"WFNB" means World Financial Network National Bank a national
banking association wholly owned by the US Borrower.
"WFNB Note" has the meaning provided in Section 3.2(h).
"Wholly-Owned Subsidiary" means, as to any Person, any corporation
100% of whose capital stock (other than director's qualifying shares) is at the
time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such
Person.
"Working Capital" means the excess of Consolidated Current Assets
minus Consolidated Current Liabilities.
"Year 2000 Problem" means the risk that computer applications used
by the US Borrower or its Subsidiaries (or their suppliers and vendors) may be
unable to recognize and perform properly date-sensitive functions involving
dates after December 31, 1999.
SECTION 1.2. ACCOUNTING: TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles in the United States as in effect from
time to time, applied on a basis consistent (except for changes concurred in by
the US Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the US Borrower and its Consolidated
Subsidiaries delivered to the Banks; PROVIDED that, (i) all calculations of
financial covenants and corresponding accounting terms shall include for all
periods covered thereby PRO FORMA adjustments for the (x) actual historical
financial performance of and (y) identifiable cost savings associated with
providing data processing services to any entities acquired as permitted under
Section 6.22(b) and (ii) if a Borrower notifies the Administrative Agent that
such Borrower wishes to amend any covenant in Article 6 to eliminate the effect
of any change in generally accepted accounting principles on the operation of
such covenant (or if the Administrative Agent notifies either Borrower that the
Required Banks wish to amend Article 6 for such purpose), then the Borrowers'
compliance with such covenant shall be determined on the basis of generally
accepted accounting principles in effect immediately before the relevant change
in generally accepted accounting principles became effective, until either such
notice is withdrawn or such covenant is amended in a manner satisfactory to the
Borrowers and the Required Banks.
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SECTION 1.3. TYPES OF BORROWINGS. The term "Borrowing" denotes the
aggregation of Loans of one or more Banks of a single Tranche to be made to a
Borrower pursuant to Article 2 on the same date, all of which Loans are of the
same Type (subject to Article 9) and, except in the case of Base Rate Loans,
have the same initial Interest Period.
ARTICLE 2
THE CREDITS
SECTION 2.1. COMMITMENTS TO LEND.
(a) US TERM LOANS. On the Initial Borrowing Date, each Bank with a
US Term Loan Commitment severally agrees, on the terms and conditions set forth
in this Agreement, to make a loan or loans (each a "US Term Loan" and,
collectively, the "US Term Loans") to the US Borrower pursuant to this Section
in amounts such that the aggregate principal amount of US Term Loans made by
such Bank on a cumulative basis on such date shall not exceed the amount of its
US Term Loan Commitment. The Borrowings made under this Section shall be made by
the several Banks ratably in proportion to their respective US Term Loan
Commitments. Within the foregoing limits, the US Borrower may borrow under this
Section and prepay the US Term Loans to the extent permitted by Section 2.11. To
the extent the US Term Loans are prepaid in any amount, such amount may not be
reborrowed.
(b) A TERM LOANS. On the Initial Borrowing Date, each Bank with an
A Term Loan Commitment severally agrees, on the terms and conditions set forth
in this Agreement, to make a loan or loans (each an "A Term Loan" and,
collectively, the "A Term Loans") to the Canadian Borrower pursuant to this
Section in amounts such that the aggregate principal amount of A Term Loans made
by such Bank on a cumulative basis on such date shall not exceed the amount of
its A Term Loan Commitment. The Borrowings under this Section shall be made by
the several Banks ratably in proportion to their respective A Term Loan
Commitments. Within the foregoing limits, the Canadian Borrower may borrow under
this Section and prepay the A Term Loans to the extent permitted by
Section 2.11. To the extent the A Term Loans are prepaid in any amount, such
amount may not be reborrowed.
(c) B TERM LOANS. On the Initial Borrowing Date, each Bank with a B
Term Loan Commitment severally agrees, on the terms and conditions set forth in
this Agreement, to make a loan or loans (each a "B Term Loan" and, collectively,
the "B Term Loans") to the Canadian Borrower pursuant to this Section in amounts
such that the aggregate principal amount of B Term Loans made by such Bank on a
cumulative basis on such date shall not exceed the amount of its B Term Loan
Commitment. The Borrowings under this Section shall be made by the several Banks
ratably in proportion to their respective B Term Loan Commitments. Within the
foregoing limits, the Canadian Borrower may borrow under this Section and prepay
the B Term Loans to the extent permitted by Section 2.11. To the extent the B
Term Loans are prepaid in any amount, such amount may not be reborrowed.
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(d) REVOLVING LOANS. At any time on or after the Initial Borrowing
Date and prior to the Initial Maturity Date, each Bank with a Revolving Loan
Commitment severally agrees, on the terms and conditions set forth in this
Agreement, to make loans (each a "Revolving Loan" and, collectively, the
"Revolving Loans") to the US Borrower pursuant to this Section from time to time
in amounts such that the aggregate principal amount of Revolving Loans Wade by
such Bank at any one time outstanding, when combined with such Bank's Percentage
of Swing Loans and Letter of Credit Outstandings at such time, shall not exceed
the amount of its Revolving Loan Commitment. Each Borrowing under this Section
shall be in an aggregate principal amount of $5,000,000 or any larger multiple
of $1,000,000 (except that any such Borrowing may be in the aggregate amount of
the then unutilized Revolving Loan Commitment) and shall be made from the
several Banks ratably in proportion to their respective Revolving Loan
Commitments. Within the foregoing limits, the US Borrower may borrow under this
Section, prepay Revolving Loans to the extent permitted by Section 2.11 and
reborrow at any time prior to the Initial Maturity Date.
(e) SWING LOANS. From time to time on or after the Initial
Borrowing Date and prior to the Initial Maturity Date, each Swing Lender
severally agrees, on the terms and conditions set forth in this Agreement, to
make loans (each a "Swing Loan" and, collectively, the "Swing Loans") to the US
Borrower pursuant to this Section 2.1(e) in amounts such that (i) the aggregate
principal amount of Swing Loans made by such Swing Lender to the US Borrower,
when added to all other Swing Loans then outstanding, does not at any time
exceed the aggregate Swing Loan Commitment of the Swing Lenders and (ii) the sum
of the aggregate outstanding principal amount of all Revolving Loans and Swing
Loans at such time, when added to the Letter of Credit Outstandings at such
time, does not exceed the Total Revolving Loan Commitment. Each Borrowing under
this Section 2.1(e) shall be in a principal amount of at least $5,000,000.
Within the foregoing limits, the US Borrower may borrow under this
Section 2.1(e), repay or, to the extent permitted by Section 2.11, prepay Swing
Loans and reborrow at any time prior to the Initial Maturity Date.
(f) REFUNDING: OF SWINE LOANS WITH SYNDICATED LOANS. Provided that
no condition described in Section 3.2 was knowingly waived by the respective
Swing Lender with respect to the making of such Swing Loan, such Swing Lender,
at any time and from time to time in its sole and absolute discretion, may on
behalf of the US Borrower (which hereby irrevocably directs the Swing Lenders to
act on its behalf), on notice given by such Swing Lender no later than 10:30
A.M., New York City time, on the proposed date of Borrowing for the Base Rate
Loans referred to below, request each Bank to make, and each Bank hereby agrees
to make a Revolving Loan which shall be a Base Rate Loan (a "Refunding Swing
Loan") under Section 2.1(d) in an amount (with respect to each Bank, its "Swing
Loan Refund Amount") equal to such Bank's Percentage of the aggregate principal
amount of such Swing Loans (the "Refunded Swing Loans") outstanding on the date
of such notice, to repay such Swing Lender. Unless any of the events described
in Section 7.1(g) or (h) with respect to the US Borrower shall have occurred and
be continuing or the Revolving Loan Commitments shall have been terminated in
full (in which case the procedures of Section 2.1(g) shall apply), each Bank
shall make such Base Rate Loan available to the Administrative Agent at its
address specified in or pursuant to Section 11.1 in immediately available
funds, not later than 12:00 Noon (New York City time), on the date of such
notice. The Administrative Agent shall pay the proceeds of such Base Rate Loans
to the
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respective Swing Lenders, which shall immediately apply such proceeds to
repay its Refunded Swing Loans. Effective on the day such Base Rate Loans are
made, the portion of the Swing Loans so paid shall no longer be outstanding as
Swing Loans, shall no longer be due as Swing Loans under the Swing Note held by
the respective Swing Lender, and shall be due as Base Rate Loans under the
respective Revolving Notes issued to the Banks (including the Swing Lenders) in
accordance with their respective ratable share of the Revolving Loan
Commitments. The US Borrower authorizes the Swing Lenders to charge the US
Borrower's accounts with the Administrative Agent (up to the amount available in
each such account) in order to immediately pay the amount of such Refunded Swing
Loans to the extent amounts received from the Banks are not sufficient to repay
in full such Refunded Swing Loans. Each Swing Lender agrees to give notice to
the US Borrower should it decide to refund Swing Loans with Revolving Loans
pursuant to this subsection 2.1(f); PROVIDED, that such Swing Lender's failure
to give such notice (or any delay therein) does not affect the validity or the
effectiveness of such Notice of Borrowing or the refunding of Swing Loans
pursuant thereto.
(g) PURCHASE OF PARTICIPATIONS IN SWING LOANS. Provided that no
condition described in Section 3.2 was knowingly waived by the respective Swing
Lender with respect to the making of such Swing Loan, if prior to the time
Revolving Loans would have otherwise been made pursuant to Section 2.1(f), one
of the events described in Section 7.1(g) or (h) with respect to the US Borrower
shall have occurred and be continuing or the Revolving Loan Commitments shall
have been terminated in full, each Bank shall, on the date such Base Rate Loans
were to have been made pursuant to the notice referred to in Section 2.1(f) (the
"Refunding Date"), purchase an undivided participating interest in the Swing
Loans in an amount equal to such Bank's Swing Loan Refund Amount. On and after
the Refunding Date, the related Swing Loan will accrue interest as though such
Swing Loan were a Base Rate Loan. On the Refunding Date, each Bank shall
transfer to the Swing Lenders, in immediately available funds, such Bank's Swing
Loan Refund Amount, and upon receipt thereof such Bank shall be deemed to have
purchased an undivided participating interest in such Swing Loans as of such
date of receipt, in the Swing Loan Refund Amount of such Bank.
(h) PAYMENTS ON PARTICIPATED SWING LOANS. Whenever, at any time
after a Swing Lender has received from any Bank such Bank's Swing Loan Refund
Amount pursuant to Section 2.1(g) or such Swing Lender receives any payment on
account of the Swing Loans in which the Banks have purchased participations
pursuant to Section 2.1(g), such Swing Lender will promptly distribute to each
such Bank its ratable share (determined on the basis of the Swing Loan Refund
Amounts of all of the Banks) of such payment (appropriately adjusted, in the
case of interest payments, to reflect the period of time during which such
Bank's participating interest was outstanding and funded); PROVIDED, HOWEVER,
that in the event that such payment received by such Swing Lender is required to
be returned, such Bank will return to such Swing Lender any portion thereof
previously distributed to it by such Swing Lender.
(i) OBLIGATIONS TO REFUND OR PURCHASE PARTICIPATIONS IN SWING LOANS
ABSOLUTE. Each Bank's obligation to transfer the amount of a Base Rate Loan to
the Swing Lenders as provided in Section 2.1(f) or to purchase a participating
interest pursuant to Section 2.1(g) shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, (i)
any set-off counterclaim, recoupment, defense or other right which such Bank, or
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any other Person may have against the Swing Lenders or any other Person, (ii)
the occurrence or continuance of a Default or the reduction of the Revolving
Loans Commitments, (iii) any adverse change in the condition (financial or
otherwise) of any Credit Party or Subsidiary of a Credit Party or any other
Person, (iv) any breach of this Agreement by a Credit Party, any other Bank or
any other Person or (v) any other circumstance, happening or event whatsoever,
whether or not similar to any of the foregoing.
SECTION 2.2. NOTICE OF BORROWING. (a) The respective Borrower shall
give the Administrative Agent notice (a "Notice of Borrowing") in respect of the
Borrowing of Loans, other than Swing Loans and Refunding Swing Loans, not later
than 11:00 A.M. (New York City time) on (x) the Domestic Business Day
immediately preceding the date of the Borrowing if such Borrowing is to be a
Base Rate Borrowing and (y) the third Euro-Dollar Business Day immediately
preceding the date of the Borrowing if such Borrowing is to be a Euro-Dollar
Borrowing, specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Day in the case of a Base Rate Borrowing or a Euro-Dollar Business Day in
the case of a Euro-Dollar Borrowing;
(ii) what Type of Loans are to be borrowed and whether the Loans
comprising such Borrowing are to bear interest initially at the Base Rate
or a Euro-Dollar Rate;
(iii) in the case of a Euro-Dollar Borrowing, the duration of the
initial Interest Period applicable thereto, subject to the provisions of
the definition of Interest Period and in the case of a Base Rate
Borrowing, the date, if any, on which such loan will be converted to a
Euro-Dollar Loan; and
(iv) the aggregate amount of such Borrowing.
(b) The US Borrower shall give the respective Swing Lender a Notice
of Borrowing in respect of Swing Loans not later than 2:00 P.M. (New York City
time) on the date of Borrowing of such Swing Loans (which shall be a Domestic
Business Day), specifying the amount of such Borrowing.
(c) Refunding Swing Loans shall be made on the notice provided in
Section 2.1(h).
SECTION 2.3. NOTICE TO BANKS; FUNDING OF LOANS. (a) Upon receipt of
a Notice of Borrowing (other than Swing Borrowing), the Administrative Agent
shall promptly notify each Bank with a Commitment under the respective Tranche
of the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the respective
Borrower.
(b) Not later than 12:30 P.M. (New York City time) on the date of
each Borrowing, each Bank with a Commitment under such Tranche shall make
available its share of such Borrowing, in Federal or other funds immediately
available in New York City, to the Administrative Agent at its address referred
to in Section 11.1. Each Swing Lender shall make
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the proceeds of its Swing Loan available to the US Borrower no later than 3:00
P.M. (New York City time) on the date requested. Unless the Administrative Agent
determines that any applicable condition specified in Article 3 has not been
satisfied, the Administrative Agent will make the funds so received from the
Banks available to the respective Borrower at the Administrative Agent's
aforesaid address.
(c) Unless the Administrative Agent shall have received notice from
a Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section and the Administrative Agent may, in reliance
upon such assumption, make available to the respective Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and the respective
Borrower severally agree to repay to the Administrative Agent forthwith on
demand such corresponding amount together with interest thereon, for each day
from the date such amount is made available to such Borrower until the date such
amount is repaid to the Administrative Agent, at (i) in the case of such
Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the
interest rate applicable thereto pursuant to Section 2.6 and (ii) in the case of
such Bank, the Federal Funds Rate. If such Bank shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.4. NOTES. (a) The Borrowers' respective obligations to
pay the principal of; and interest on, the Loans made by each Bank shall be
evidenced (i) if US Term Loans, by promissory notes duly executed and delivered
by the US Borrower substantially in the form of Exhibit B-1 (each a "US Term
Note" and, collectively, the "US Term Notes"), in each case with blanks
appropriately completed, (ii) if A Term Loans, by promissory notes duly executed
and delivered by the Canadian Borrower substantially in the form of Exhibit B-2
(each a "A Term Note" and, collectively, the "A Term Notes"), in each case with
blanks appropriately completed, (iii) if B Term Loans, by promissory notes duly
executed and delivered by the Canadian Borrower substantially in the form of
Exhibit B-3 (each a "B Term Note" and, collectively, the "B Term Notes"), in
each case with blanks appropriately completed, (iv) if Revolving Loans, by
promissory notes duly executed and delivered by the US Borrower substantially in
the form of Exhibit BA, with blanks appropriately completed (each a "Revolving
Note" and, collectively, the "Revolving Notes") and (v) if Swing Loans, by
promissory notes duly executed and delivered by the US Borrower substantially in
the form of Exhibit B-5, with blanks appropriately completed (the "Swing Note").
(b) Upon receipt of each Bank's Note or Notes pursuant to
Section 3.1(a), the Administrative Agent shall forward such Notes to the
appropriate Bank. Each Bank shall record the date and amount of the respective
Loans made by it and the date and amount of each payment of principal made by
the respective Borrower with respect thereto, and may, if such Bank so elects
in connection with any transfer or enforcement of any of its Notes, endorse on
the schedule forming a part thereof appropriate notations to evidence the
foregoing information with respect to such Loans then outstanding under such
Note; PROVIDED, that the failure of any Bank to make any such recordation or
endorsement shall not affect the obligations of the respective Borrower
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hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the
Borrowers so to endorse its Notes and to attach to and make a part of its Notes
a continuation of any such schedule as and when required.
SECTION 2.5. AMORTIZATION AND MATURITY OF LOANS. (a) The Term Loans
shall mature, and the principal amount thereof shall be due and payable,
together with accrued interest thereon on the dates, and in the amounts
specified in Section 2.11(B).
(b) Subject to the provisions of Section 2.8, the Revolving Loan
Commitment shall terminate and the principal amount of all then outstanding
Revolving Loans and Swing Loans, together with accrued interest thereon, shall
be due and payable in full on the Initial Maturity Date.
SECTION 2.6. INTEREST RATES. (a) Each Base Rate Loan shall bear
interest on the outstanding principal amount thereof; for each day from the date
such Loan is made (or converted pursuant to Article 9) until it becomes due, at
a rate per annum equal to the Base Rate plus the Base Rate Margin for such day.
Such interest shall be payable quarterly in arrears on each Quarterly Date and,
with respect to the principal amount of any Base Rate Loan converted to a Euro-
Dollar Loan, on each date a Base Rate Loan is so converted. Any overdue
principal of or interest on any Base Rate Loan shall bear interest, payable on
demand, for each day until paid at a rate per annum equal to the sum of 2% PLUS
the rate otherwise applicable to Base Rate Loans for such day.
(b) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof; for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day PLUS the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
or, in the case of an Interest Period of six months, the date occurring three
months after the first day of such Interest Period.
(c) Any overdue principal of; or interest on, any Euro-Dollar Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the higher of (i) the sum of 2% PLUS the Euro-Dollar Margin for
such day PLUS the quotient obtained (rounded upward, if necessary, to the next
higher 1/100 of it) by dividing (x) the average rate per annum (rounded upward,
if necessary, to the next higher 1/16 of 1%) of the respective rates per annum
at which one day (or, if such amount due remains unpaid more than three Euro-
Dollar Business Days, then for such other period of time not longer than three
months as the Administrative Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to the Administrative Agent is
offered to the Administrative Agent in the London interbank market for the
applicable period determined as provided above by (y) one minus the Euro-Dollar
Reserve Percentage (or, if the circumstances described in clause (a) or (b) of
Section 9.1 shall exist, at a rate per annum equal to the sum of 2% plus the
rate applicable to Base Rate Loans for such day) and (ii) the sum of 2% PLUS the
Euro-Dollar Margin for such day plus the London Interbank offered Rate
applicable to such Loan at the date such payment was due.
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(d) Each Swing Loan shall bear interest on the outstanding
principal amount thereof; for each day from the date such Swing Loan is made
until it becomes due, at a rate per annum equal to the Base Rate for such day
plus the Swing Margin. Such interest shall be payable quarterly in arrears, on
each Quarterly Date or on the date such Swing Loan becomes due or is converted
to another type of Loan. Any overdue principal of or interest on any Swing Loan
shall bear interest, payable on demand, for each day until paid at a rate per
annum equal to the sum of 2% plus the rate applicable to Swing Loans for such
day.
(e) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the respective Borrower and the participating Banks of each rate of
interest so determined, and its determination thereof shall be conclusive in the
absence of manifest error.
(f) The Administrative Agent agrees to use its best efforts to
furnish quotations as contemplated by this Section. If the Administrative Agent
is unable to provide a quotation, the provisions of Section 9.1 shall apply.
SECTION 2.7. FEES. (a) During the period from and including the
Original Effective Date to and including the date upon which the Total Revolving
Loan Commitment is terminated, the US Borrower shall pay to the Administrative
Agent for the account of the Banks with Revolving Loan Commitments, ratably in
proportion to their respective Revolving Loan Commitments, a commitment fee at
the rate per annum equal to the Applicable Commitment Fee Percentage on the
daily amount by which the Total Revolving Loan Commitment exceeds the aggregate
principal amount of Revolving Loans outstanding and Letter of Credit
Outstandings on such date. Such commitment fee shall accrue from and including
the Original Effective Date to, but excluding the date of termination of the
Revolving Loan Commitments in their entirety. Accrued commitment fees shall be
payable quarterly in arrears on each Quarterly Date and on the date of
termination of the Revolving Loan Commitments in their entirety.
(b) The US Borrower agrees to pay to the Administrative Agent for
distribution to each Bank with a Revolving Loan Commitment (based on each Bank's
Percentage) a fee in respect of each Letter of Credit issued hereunder (the
"Letter of Credit Fee"), for the period from and including the date of issuance
of such Letter of Credit to and including the date of termination or expiration
of such Letter of Credit, computed at a rate per annum equal to the Euro-Dollar
Margin for Revolving Loans on the daily Stated Amount of such Letter of Credit.
Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on
each Quarterly Date and on the first day after the termination of the Total
Revolving Loan Commitment upon which no Letters of Credit remain outstanding.
(c) The US Borrower agrees to pay to each Issuing Bank, for its own
account, a fronting fee in respect of each Letter of Credit issued by such
Issuing Bank (the "Fronting Fee"), for the period from and including the date of
issuance of such Letter of Credit to and including the date of the termination
of such Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the
daily Stated Amount of such Letter of Credit. Accrued Fronting Fees shall be due
and payable quarterly in arrears on each Quarterly Date and upon the first day
after the
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termination of the Total Revolving Loan Commitment upon which no Letters of
Credit remain outstanding.
(d) The US Borrower agrees to pay, upon each drawing under,
issuance of; or amendment to, any Letter of Credit, such amount as shall at the
time of such event be the customary scheduled administrative charge which the
applicable Issuing Bank is generally imposing in connection with such occurrence
with respect to letters of credit.
(e) The Borrowers shall pay to the Administrative Agent such
amounts as are agreed to from time to time.
SECTION 2.8. TERMINATION OR REDUCTION OF COMMITMENTS.
(A) OPTIONAL REDUCTION OF COMMITMENTS.
The Borrowers may, upon at least three Domestic Business Days'
notice to the Administrative Agent (i) terminate the Total Revolving Loan
Commitment at any time, if no Revolving Loans, Swing Loans or Letters of Credit
are outstanding at such time or (ii) ratably reduce from time to time by an
aggregate amount of $5,000,000 or a larger multiple of $1,000,000, the aggregate
amount of the Total Revolving Loan Commitment in excess of the aggregate
outstanding principal amount of the outstanding Revolving Loans, Swing Loans and
Letter of Credit Outstandings. Upon receipt of a notice pursuant to this
Section, the Administrative Agent shall promptly notify each Bank of the
contents thereof.
(B) MANDATORY REDUCTION OF COMMITMENTS.
(a) In addition to any other mandatory commitment reductions
pursuant to this Section 2.8(B), the Term Loan Commitments shall terminate on
the Initial Borrowing Date, after giving effect to the making of Term Loans on
such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 2.8(B), the Total Revolving Loan Commitment (and the
respective Revolving Loan Commitment of each Bank) shall terminate on the
earlier to occur of (x) the Initial Maturity Date and (y) unless the Required
Banks otherwise agree in writing, the date on which any Change of Control
occurs.
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 2.8(B), on each date after the Restatement Effective
Date upon which a mandatory prepayment of Term Loans pursuant to Section 2.11
(A)(e), (f), (g), (h), (i), or (j) is required (and exceeds in amount the
aggregate principal amount of Term Loans then outstanding and required to be so
prepaid) or would be required if Term Loans were then outstanding and required
to be so prepaid, the Total Revolving Loan Commitment shall be permanently
reduced by the amount, if any, by which the amount required to be applied
pursuant to such Section (determined as if an unlimited amount of Term Loans
were actually outstanding and required to be so prepaid) exceeds the aggregate
principal amount of Term Loans then outstanding and required to be prepaid.
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(d) Each reduction to the Total US Term Loan Commitment, the Total
A Term Loan Commitment, the Total B Term Loan Commitment and the Total Revolving
Loan Commitment pursuant to this Section 2.8(B) shall be applied proportionately
to reduce the US Term Loan Commitment, the A Term Loan Commitment, the B Term
Loan Commitment or the Revolving Loan Commitment, as the case may be, of each
Bank with such a Commitment.
SECTION 2.9. METHOD OF ELECTING INTEREST RATES. (a) The Loans
included in a Borrowing shall be the Type of Loan specified by the respective
Borrower in the applicable Notice of Borrowing given pursuant to Section 2.2.
Thereafter, the respective Borrower shall deliver a notice (a "Notice of
Interest Period Election") to the Administrative Agent not later than 11:00 A.M.
(New York City time) on the third Euro-Dollar Business Day prior to (i) if such
Borrowing was initially a Base Rate Borrowing, the commencement of the first
Interest Period with respect to the conversion of such Base Rate Loan into a
Euro-Dollar Loan specifYing the duration of such Interest Period or (ii) at any
other time, the last day of the current Interest Period specifYing the duration
of the additional Interest Period which is to commence. Each Interest Period
specified in a Notice of Interest Period Election shall comply with the
provisions of the definition of Interest Period. Notwithstanding the foregoing,
the respective Borrower may not elect to convert any Loan into, or continue any
Loan as, a Euro-Dollar Loan pursuant to any Notice of Interest Rate Election if
at the time such notice is delivered an Event of Default shall have occurred and
be continuing.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Borrowing of Loans (or portion thereof) to
which such notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with
the applicable clause of subsection (a) above;
(iii) if the Loans comprising such Borrowing are to be
converted, the new Type of Loans and, if the Loans being converted
are to be Euro-Dollar Loans, the duration of the next succeeding
Interest Period applicable thereto; and
(iv) if such Loans are to be continued as Euro-Dollar
Loans for an additional Interest Period, the duration of such
additional Interest Period.
(c) Upon receipt of a Notice of Interest Period Election from a
Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by such Borrower. If no Notice of Interest Period
Election is timely received prior to the end of an Interest Period, the
respective Borrower shall be deemed to have elected that such Loan be continued
as a Base Rate Loan.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Borrowing of Loans pursuant to this Section shall not
constitute a "Borrowing" subject to the provisions of Section 3.2.
SECTION 2.10. OPTIONAL PREPAYMENTS. (a) Subject, in the case of
Euro-Dollar Loans, to Section 2.13, the Borrowers may, upon at least one
Domestic Business Day's notice to
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the Administrative Agent, prepay any Base Rate Loans or upon at least three
Euro-Dollar Business Days' notice to the Administrative Agent, prepay any
Euro-Dollar Loans, in each case in whole at any time, or from time to time in
part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by
paying the principal amount to be prepaid together with accrued interest thereon
to the date of prepayment. Each such optional prepayment shall be applied to
prepay ratably the Loans of the several Banks made under such Tranche which is
being repaid.
(b) The US Borrower may elect to prepay any combination of
Revolving Loans and US Term Loans pursuant to clause (a) of this Section 2. 10.
Any optional prepayment of Term Loans by the Canadian Borrower shall be applied
to prepay A Term Loans and B Term Loans, PRO RATA (based upon the then
outstanding principal amount of A Term Loans and B Term Loans); PROVIDED that if
no Default then exists or would arise therefrom, the Canadian Borrower may elect
to prepay A Term Loans or B Term Loans; PROVIDED FURTHER that, to the extent A
Term Loans remain outstanding at the time of such prepayment, each Bank with a B
Term Loan shall have the right, upon two Business Days' prior notice to the
Administrative Agent, to waive its right to receive its PRO RATA share of the
amount by which such optional prepayment, when added to all previous voluntary
prepayments of B Term Loans, exceeds $10,000,000. Any amount so waived may be
applied by the Canadian Borrower to prepay A Term Loans as permitted above in
this Section 2.10.
(c) Upon receipt of a notice of prepayment pursuant to this
Section, the Administrative Agent shall promptly notify each Bank with Loans
outstanding under the Tranche or Tranches which are to be repaid of the contents
thereof and of such Bank's ratable share (if any) of such prepayment and such
notice shall not thereafter be revocable by the respective Borrower.
SECTION 2.11. MANDATORY PREPAYMENTS.
(A) REQUIREMENTS:
(a) If on any date the sum of the aggregate outstanding principal
amount of Revolving Loans and Swing Loans and the Letter of Credit Outstandings
exceeds the Total Revolving Loan Commitment as then in effect, the US Borrower
shall repay on such date the principal of Swing Loans, and if no Swing Loans are
or remain outstanding, Revolving Loans in an aggregate amount equal to such
excess. If, after giving effect to the repayment of all outstanding Swing Loans
and Revolving Loans, the aggregate amount of Letter of Credit Outstandings
exceeds the Total Revolving Commitment, the US Borrower shall pay to the
Administrative Agent on such date an amount in cash equal to such excess (up to
the aggregate amount of the Letter of Credit Outstandings at such time) and the
Administrative Agent shall hold such payment as security for the obligations of
the US Borrower hereunder pursuant to a cash collateral agreement to be entered
into in form and substance satisfactory to the Administrative Agent (which shall
permit certain investments in cash equivalents satisfactory to the
Administrative Agent, until the proceeds are applied to the secured
obligations).
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<PAGE>
(b) On each date set forth below, the US Borrower shall be required
to repay the principal amount of the US Term Loans set forth opposite such date
(each such repayment, a "US Term Loan Scheduled Repayment"):
<TABLE>
<CAPTION>
US TERM LOAN SCHEDULED AMOUNT
---------------------- ------
REPAYMENT DATE
--------------
<S> <C>
October 30, 1998 $0
January 29, 1999 $0
April 30, 1999 $0
July 30, 1999 $5,000,000
October 29, 1999 $0
January 28, 2000 $0
April 28, 2000 $0
July 28, 2000 $10,000,000
October 27, 2000 $0
January 26, 2001 $0
April 27, 2001 $0
July 27, 2001 $30,000,000
October 26, 2001 $0
February 1, 2002 $0
May 3, 2002 $0
August 2, 2002 $40,000,000
November 1, 2002 $0
January 31, 2003 $0
May 2, 2003 $0
Initial Maturity Date $45,000,000
</TABLE>
(c) On each date set forth below, the Canadian Borrower shall be
required to repay the principal amount of A Term Loans set forth opposite such
date (each such repayment, an "A Term Loan Scheduled Repayment"):
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<PAGE>
<TABLE>
<CAPTION>
A Term Loan Scheduled Amount
--------------------- ------
Repayment Date
--------------
<S> <C>
October 30, 1998 $0
January 29, 1999 $0
April 30, 1999 $0
July 30, 1999 $3,125,000
October 29, 1999 $0
January 28, 2000 $0
April 28, 2000 $0
July 28, 2000 $3,125,000
October 27, 2000 $0
January 26, 2001 $0
April 27, 2001 $0
July 27, 2001 $3,125,000
October 26, 2001 $0
February 1, 2002 $0
May 3, 2002 $0
August 2, 2002 $3,125,000
November 1, 2002 $0
January 31, 2003 $0
May 2, 2003 $0
Initial Maturity Date $37,500,000
</TABLE>
(d) On each date set forth below (collectively, the "Quarterly
Dates"), the Canadian Borrower shall be required to repay the principal amount
of B Term Loans set forth opposite such date (each such repayment, a "B Term
Loan Scheduled Repayment"):
<TABLE>
<CAPTION>
B Term Loan Scheduled Amount
--------------------- ------
Repayment Date
--------------
<S> <C>
October 30, 1998 $0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
B TERM LOAN SCHEDULED AMOUNT
---------------------- ------
REPAYMENT DATE
--------------
<S> <C>
January 29, 1999 $0
April 30, 1999 $0
July 30, 1999 $1,000,000
October 29, 1999 $0
January 28, 2000 $0
April 28, 2000 $0
July 28, 2000 $1,000,000
October 27, 2000 $0
January 26, 2001 $0
April 27, 2001 $0
July 27, 2001 $1,000,000
October 26, 2001 $0
February 1, 2002 $0
May 3, 2002 $0
August 2, 2002 $1,000,000
November 1, 2002 $0
January 31, 2003 $0
May 2, 2003 $0
August 1, 2003 $1,000,000
October 31, 2003 $0
January 30, 2004 $0
April 30, 2004 $0
July 30, 2004 $1,000,000
October 29, 2004 $0
January 28, 2005 $0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
B TERM LOAN SCHEDULED AMOUNT
---------------------- ------
REPAYMENT DATE
--------------
<S> <C>
April 29, 2005 $0
Final Maturity Date $44,000,000
</TABLE>
(e) On the date of receipt thereof by the US Borrower and/or any of
its Subsidiaries of Cash Proceeds from any Asset Sale, an amount equal to 100%
of the Net Cash Proceeds from such Asset Sale shall, subject to Section
2.11(B)(c), be applied as a mandatory repayment of principal of the then
outstanding Term Loans; PROVIDED that up to an aggregate of $2,500,000 of Net
Cash Proceeds from Asset Sales in any fiscal year of the US Borrower shall not
be required to be used to so repay Term Loans to the extent the US Borrower
elects, as hereinafter provided, to cause such Net Cash Proceeds to be
reinvested in Reinvestment Assets (a "Reinvestment Election"). The US Borrower
may exercise its Reinvestment Election (within the parameters specified in the
preceding sentence) with respect to an Asset Sale if (x) no Default exists and
(y) the US Borrower delivers a Reinvestment Notice to the Administrative Agent
within three Business Days following the date of the consummation of the
respective Asset Sale, with such Reinvestment Election being effective with
respect to the Net Cash Proceeds of such Asset Sale equal to the Anticipated
Reinvestment Amount specified in such Reinvestment Notice, PROVIDED FURTHER,
that the Net Cash Proceeds from an Asset Sale shall not be required to be used
to so repay Term Loans to the extent the assets sold pursuant to such Asset
Sale, at the time of such Asset Sale, secured Debt permitted pursuant to Section
6.16 and such Net Cash Proceeds do not exceed the amount of Indebtedness so
secured.
(f) On the date of the receipt thereof by the US Borrower and/or
any of its Subsidiaries, an amount equal to 100% of the proceeds (net of
underwriting discounts, commissions and other reasonable costs associated
therewith) of the incurrence of Debt for borrowed money by the US Borrower
and/or any of its Subsidiaries (other than Debt permitted by Section 6. 16 as in
effect on the Restatement Effective Date) shall, subject to Section 2.11(B)(c),
be applied as a mandatory prepayment of principal of the then outstanding Term
Loans.
(g) On the date of the receipt thereof by the US Borrower, an
amount equal to 100% of the cash proceeds (net of underwriting discounts,
commissions and other reasonable costs associated therewith) of any sale or
issuance of its equity (other than the Equity Issuance) and 100% of any amount
of cash received by the US Borrower in connection with any contribution to its
capital, in each case shall, subject to Section 2. 11 (B)(c), be applied as a
mandatory repayment of principal of the then outstanding Term Loans.
(h) Within 30 days following each date on which the US Borrower or
any of its Subsidiaries receives any proceeds from any Recovery Event, an amount
equal to 100% of the cash proceeds of such Recovery Event (net of reasonable
costs, expenses, taxes incurred in connection with such Recovery Event and
amounts required to be paid to third parties) shall, subject to Section 2. 11
(B)(c), be applied as a mandatory repayment of principal of the then outstanding
Term Loans, PROVIDED that so long as no Default then exists and such proceeds do
not exceed $2,500,000 in any fiscal year, such proceeds shall not be required to
be so applied on
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<PAGE>
such date to the extent that the US Borrower has delivered a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used or committed to be used to replace or restore any properties or assets
in respect of which such proceeds were paid or otherwise acquire productive
assets usable in the business of the US Borrower and its Subsidiaries within a
period specified in such certificate not to exceed 180 days after the date of
receipt of such proceeds with respect to such Recovery Event (which certificate
shall set forth the estimates of the proceeds to be so expended); and PROVIDED
FURTHER, that if all or any portion of such proceeds not required to be applied
to the repayment of Term Loans pursuant to the preceding proviso are not so used
within the period specified in the relevant certificate furnished pursuant to
the immediately preceding proviso, such remaining portion not used shall be
applied on the last day of such specified period as a mandatory repayment of
principal of the then outstanding Term Loans.
(i) On each date which is 90 days after the last day of each fiscal
year of the US Borrower (such date, the "ECF Prepayment Date"), beginning with
the fiscal year of the US Borrower ending on February 1, 1999, 50% of Excess
Cash Flow (such amount, the "ECF Prepayment Amount") of the US Borrower and its
Subsidiaries for the fiscal year of the US Borrower then last ended (such fiscal
year, the "ECF Prepayment Period") shall be applied as a mandatory repayment of
principal of US Term Loans until repaid in full, and then, subject to Section
2.11(B)(c) to A Term Loans and B Term Loans.
(j) On the Reinvestment Prepayment Date with respect to a
Reinvestment Election, an amount equal to the Reinvestment Prepayment Amount, if
any, for such Reinvestment Election shall, subject to Section 2.11(B)(c), be
applied as a repayment of the principal amount of the then outstanding Term
Loans.
(k) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans shall be repaid in full on the
respective Maturity Dates for such Loans.
(l) Notwithstanding any provision to the contrary contained in this
Agreement, but only to the extent A Term Loans remain outstanding, with respect
to any mandatory repayments of B Term Loans (excluding B Term Loan Scheduled
Repayments) otherwise required above pursuant to this Section 2.11(A), if on or
prior to the date the respective mandatory repayment is otherwise required to be
made pursuant to this Section 2.11, the Canadian Borrower has given the
Administrative Agent written notification that the Canadian Borrower has elected
to give each Bank with a B Term Loan the right to waive such Bank's rights to
receive such repayment (the "Waivable Mandatory Repayment ), the Administrative
Agent shall notify such Banks of such receipt and the amount of the repayment to
be applied to each such Bank's B Term Loans. In the event any such Bank with a B
Term Loan desires to waive such Bank's right to receive any such Waivable
Mandatory Repayment in whole or in part, such Bank shall so advise the
Administrative Agent no later than 5:00 P.M. (New York time) five Business Days
after the date of such notice from the Administrative Agent which notice shall
also include the amount the Bank desires to receive. If the Bank does not reply
to the Administrative Agent within such five Business Day period, it will be
deemed acceptance of the total payment. If the Bank does not specify an amount
it wishes to receive, it will be deemed acceptance of 100% of the total
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<PAGE>
payment. In the event that any such Bank waives such Bank's right to any such
Waivable Mandatory Repayment, the Administrative Agent shall apply 100% of the
amount so waived by such Banks to prepay the A Term Loans. Notwithstanding
anything to the contrary contained above, if one or more Banks waives its right
to receive all or any part of any Waivable Mandatory Repayment, but less than
all the Banks holding B Term Loans waive in full their right to receive 100% of
the total payment otherwise required with respect to the B Term Loans, then of
the amount actually applied to the repayment of B Term Loans of Banks which have
waived in part, but not in full, their right to receive 100% of such repayment,
such amount shall be applied to each then outstanding Borrowing of B Term Loans
on a PRO RATA basis (so that each Bank holding B Term Loans shall, after giving
effect to the application of the respective repayment, maintain the same
percentage (as determined for such Bank, but not the same percentage as the
other Banks hold and not the same percentage held by such Bank prior to
repayment) of each Borrowing of B Term Loans which remains outstanding after
giving effect to such application.
(B) APPLICATION:
(a) Subject to Section 2.11(A)(1), each mandatory repayment of Term
Loans required to be made pursuant to Section 2.11(A) (other than pursuant to
clause (b), (c), (d) or (i) thereof) shall be applied (i) to repay the principal
of outstanding US Term Loans, A Term Loans and B Term Loans PRO RATA based on
the then outstanding principal amount of each Tranche of Term Loans, and (ii) to
reduce the then remaining US Term Loan Scheduled Repayments, A Term Loan
Scheduled Repayments and B Term Loan Scheduled Repayments, respectively (PRO
RATA based upon the then remaining US Term Loan Scheduled Repayments, A Term
Loan Scheduled Repayments or B Term Loan Scheduled Repayments after giving
effect to all prior reductions thereto). Notwithstanding anything to the
contrary herein contained (other than Section 2.11(B)(c)), in the event a
mandatory prepayment of Term Loans is required pursuant to Section 2.11 (A)(e),
(h) or (i) as a consequence of an Asset Sale or Recovery Event involving assets
of the Canadian Borrower, the proceeds of such Asset Sale or Recovery Event
shall be required to be applied solely to repay A Term Loans or B Term Loans
pursuant to this Section 2. 11.
(b) With respect to each prepayment of Loans required by Section
2.11(A), the relevant Borrower may designate the Types of Loans which are to be
prepaid and the specific Borrowing or Borrowings under the affected Tranche
pursuant to which made, PROVIDED that (i) Euro.Dollar Loans may so be designated
for prepayment pursuant to this Section 2.11 only on the last day of an Interest
Period applicable thereto unless all Euro-Dollar Loans made pursuant to such
Facility with Interest Periods ending on such date of required prepayment and
all Base Rate Loans made pursuant to such Facility have been paid in full; (ii)
if any prepayment of Euro-Dollar Loans made pursuant to a single Borrowing shall
reduce the outstanding Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount for such Borrowing, such Borrowing shall be
immediately converted into Base Rate Loans; and (iii) each prepayment of
Revolving Loans pursuant to a Borrowing shall be applied PRO RATA among such
Revolving Loans. In the absence of a designation by the relevant Borrower as
described in the preceding sentence, the Administrative Agent shall, subject to
the above, make such designation in its sole discretion with a view, but no
obligation, to minimize breakage costs. Notwithstanding the foregoing provisions
of this Section 2.11(B), if at any time a mandatory or voluntary prepayment of
Loans pursuant to Sections 2.10 or 2.11(A) above would result, after giving
effect to the
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<PAGE>
procedures set forth above, in a Borrower incurring breakage costs as a result
of Euro-Dollar Loans being prepaid other than on the last day of an Interest
Period applicable thereto (the "Affected Euro-Dollar Loans"), then the
applicable Borrower may in its sole discretion initially deposit a portion (up
to 100%) of the amounts that otherwise would have been paid in respect of the
Affected Euro-Dollar Loans with the Administrative Agent (which deposit must be
equal in amount to the amount of the Affected Euro-Dollar Loans not immediately
prepaid) to be held as security for the obligations of such Borrower hereunder
pursuant to a cash collateral arrangement satisfactory to the Administrative
Agent and shall provide for investments satisfactory to the Administrative
Agent, with such cash collateral to be directly applied upon the first
occurrence (or occurrences) thereafter of the last day of an Interest Period
applicable to the relevant Loans that are Euro-Dollar Loans (or such earlier
date or dates as shall be requested by such Borrower), to repay an aggregate
principal amount of such Loans equal to the Affected Euro-Dollar Loans not
initially prepaid pursuant to this sentence. Notwithstanding anything to the
contrary contained in the immediately preceding sentence, all amounts deposited
as cash collateral pursuant to the immediately preceding sentence shall be held
for the sole benefit of the Banks whose Loans would otherwise have been
immediately prepaid with the amounts deposited and upon the taking of any action
by the Administrative Agent or the Banks pursuant to the remedial provisions of
Article 7, any amounts held as cash collateral pursuant to this Section 2.11
(B)(b) shall, subject to the requirements of applicable law, be immediately
applied to repay Loans.
(c) Notwithstanding any provision to the contrary contained in this
Agreement, in no event shall any mandatory prepayment pursuant to Section
2.11(A) when added to (x) all payments of principal of the A Term Loans or B
Term Loans, respectively, pursuant to Section 2.10 and 2.11 and (y) all
remaining A Term Loan Scheduled Repayments or B Term Loan Scheduled Repayments,
respectively, required to be made pursuant to Section 2.11(A)(c) or (d) prior to
the date that is five years plus one day from the Initial Borrowing Date, exceed
25% of the aggregate principal amount of A Term Loans or B Term Loans,
respectively, borrowed on the Initial Borrowing Date. To the extent that this
Section 2.11(B)(c) applies, the amount of such excess shall be applied first to
the other Tranche of Term Loans of the Canadian Borrower (subject to the
restrictions of this clause (c)), and thereafter to repayment of US Term Loans,
or, if no US Term Loans remain outstanding, pursuant to Section 2.8(B)(c).
SECTION 2.12. GENERAL PROVISIONS AS TO PAYMENTS. (a) The Borrowers
shall make each payment of principal of; and interest on, the Loans and of fees
hereunder (i) not later than 12:00 Noon (New York City time) on the date when
due, in Federal or other funds immediately available in New York City, to the
Administrative Agent at its address referred to in Section 11.1 and (ii) without
any right to set-off deduction or counterclaim by any Borrower. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of; or interest on, the Base Rate Loans
or of fees shall be due on a day which is not a Domestic Business Day, the date
for payment thereof shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of; or interest on, the Euro-Dollar Loans
or Swing Loans shall be due on a day which is not a Euro-Dollar Business Day,
the date for payment thereof shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another
calendar month, in which case the date for payment thereof shall be the next
preceding Euro-Dollar Business Day. If the date for any
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<PAGE>
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from
any Borrower prior to the date on which any payment is due to the Banks
hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
such Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
SECTION 2.13. FUNDING LOSSES. If a Borrower makes any payment of
principal with respect to any Euro-Dollar Loan or any Euro-Dollar Loan is
prepaid, converted or becomes due (pursuant to Article 2, 6 or 7 or otherwise)
on any day other than the last day of an Interest Period applicable thereto, or
the last day of an applicable period fixed pursuant to Section 2.6(c), or if a
Borrower fails to borrow, prepay or continue any Euro-Dollar Loans after notice
has been given to any Bank in accordance with Section 2.2, 2.9 or 2.11 such
Borrower shall reimburse each Bank within 15 days after demand for any resulting
loss or expense incurred by it (or by an existing or prospective Participant in
the related Loan), including, without limitation, any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow, prepay, convert or continue, PROVIDED that such Bank shall have
delivered to such Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
SECTION 2.14. COMPUTATION OF INTEREST AND FEES. (a) Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day if and only if such payment is made in accordance with the provisions of the
first sentence of Section 2.11(a)).
(b) For purposes of the Interest Act (Canada), (i) whenever any
interest or fee under this Agreement is calculated using a rate based on a year
of 360 days or 365 days, as the case may be, the rate determined pursuant to
such calculation, when expressed as an annual rate, is equivalent to (x) the
applicable rate based on a year of 360 or 365 days, as the case may be, (y)
multiplied by the actual number of days in the relevant year of calculation and
(z) divided by 360 or 365, as the case may be, (ii) the principle of deemed
reinvestment of interest does not apply to any interest calculation under this
Agreement, and (iii) the rates of interest stipulated in this Agreement are
intended to be nominal rates and not effective rates or yields.
SECTION 2.15. REGULATION D COMPENSATION. Each Bank may require a
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans,
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<PAGE>
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
London Interbank Offered Rate then in effect for such Loan divided by (B) one
minus the Euro-Dollar Reserve Percentage over (ii) such London Interbank offered
Rate. Any Bank wishing to require payment of such additional interest (x) shall
so notify such Borrower and the Administrative Agent, in which case such
additional interest on the Euro-Dollar Loan of such Bank shall be payable to
such Bank at the place indicated in such notice with respect to each Interest
Period commencing at least three Euro-Dollar Business Days after the giving of
such notice and (y) shall notify such Borrower at least five Euro-Dollar
Business Days prior to each date on which interest is payable on the EuroDollar
Loans of the amount then due it under this Section.
ARTICLE 2A
LETTERS OF CREDIT
SECTION 2A.1. LETTERS OF CREDIT. (a) Subject to and upon the terms
and conditions set forth herein, the US Borrower may request a Letter of Credit
Issuer at any time and from time to time on or after the Restatement Effective
Date and prior to the Business Day immediately preceding the Initial Maturity
Date to issue a standby letter of credit for the account of the US Borrower in
support of L/C Supportable Obligations (each such letter of credit, a "Letter of
Credit" and, collectively, the "Letters of Credit"), and subject to and upon the
terms and conditions set forth herein such Letter of Credit Issuer agrees to
issue from time to time, irrevocable Letters of Credit in such form as may be
approved by such Letter of Credit Issuer and the Administrative Agent.
Notwithstanding the foregoing, no Letter of Credit Issuer shall be under any
obligation to issue any Letter of Credit if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Letter of Credit Issuer from issuing such Letter of
Credit or any requirement of law applicable to such Letter of
Credit Issuer or any request or directive (whether or not having
the force of law) from any governmental authority with
jurisdiction over such Letter of Credit Issuer shall prohibit, or
request that such Letter of Credit Issuer refrain from, the
issuance of letters of credit generally or such Letter of Credit
in particular or shall impose upon such Letter of Credit Issuer
with respect to such Letter of Credit any restriction or reserve
or capital requirement (for which such Letter of Credit Issuer is
not otherwise compensated) not in effect on the Restatement
Effective Date, or any unreimbursed loss, cost or expense which
was not applicable, in effect or known to such Letter of Credit
Issuer as of the Restatement Effective Date and which such Letter
of Credit Issuer in good faith deems material to it;
(ii) such Letter of Credit Issuer shall have received
notice from the US Borrower or the Required Banks prior to the
issuance of such Letter of Credit of the type described in clause
(v) of Section 2A. 1(b); or
(iii) the Administrative Agent or such Letter of Credit
Issuer has received notice from any Bank that it does not intend to
participate in such Letter of Credit pursuant to
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<PAGE>
Section 2A. 5, or any Bank has failed to participate in any
Letter of Credit issued hereunder, unless the US Borrower and
such Letter of Credit Issuer shall have entered into arrangements
satisfying to such Letter of Credit Issuer to eliminate the risk
of such Bank's failure to participate in Letters of Credit
(including cash collateralizing the amount of such Bank's
obligation).
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued, the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of; and
prior to the issuance of; the respective Letter of Credit) at such time, would
exceed either (x) $25,000,000 or (y) when added to the aggregate principal
amount of all Revolving Loans and Swing Loans then outstanding, the Total
Revolving Loan Commitment at such time; (ii) each Letter of Credit shall have an
expiry date occurring not later than one year after such Letter of Credit's date
of issuance (although any Letter of Credit may be extendible (whether
automatically or otherwise) for successive periods of up to 12 months, but not
beyond the tenth Domestic Business Day preceding the Initial Maturity Date), on
terms acceptable to the respective Letter of Credit Issuer and in no event shall
any Letter of Credit have an expiry date occurring later than the tenth Domestic
Business Day preceding the Initial Maturity Date; (iii) each Letter of Credit
shall be denominated in Dollars; (iv) each Letter of Credit shall be payable
only on a sight basis; and (v) no Letter of Credit Issuer shall issue any Letter
of Credit after it has received written notice from the US Borrower or the
Required Banks that a Default exists until such time as such Letter of Credit
Issuer shall have received written notice of (x) rescission of such notice from
the party or parties originally delivering the same or (y) waiver of such
Default by the Required Banks.
(c) upon the occurrence of an event giving rise to the operation of
Section 2A.1 (a)(iii), the US Borrower shall have the right, if no Default then
exists, to replace such Bank (the "Replaced Bank") with one or more other
Eligible Transferees (it being acknowledged that the Replaced Bank shall be
under no obligation to identify or secure the commitment of such Eligible
Transferee or assist in identifYing or securing the commitment of such Eligible
Transferee), each of whom shall be reasonably acceptable to the Administrative
Agent (collectively, the "Replacement Bank"), PROVIDED that (i) at the time of
any replacement pursuant to this Section 2A. 1(c), the Replacement Bank shall
enter into one or more Assignment and Assumption Agreements pursuant to Section
11.6(c) (and with all fees payable pursuant to Section 11.6(c) to be paid by the
Replacement Bank) pursuant to which the Replacement Bank shall acquire all of
the Commitments and outstanding Loans of; and participations in Letters of
Credit by, the Replaced Bank and, in connection therewith, shall pay to (x) the
Replaced Bank in respect thereof an amount equal to the sum of (I) the principal
of; and all accrued interest on, all outstanding Loans of the Replaced Bank,
(II) all Unpaid Drawings that have been funded by (and not reimbursed to) such
Replaced Bank, together with all then unpaid interest with respect thereto at
such time and (III) all accrued, but theretofore unpaid, fees to the Replaced
Bank, (y) each Issuing Bank an amount equal to such Replaced Bank's Percentage
of any Unpaid Drawing (which at such time remains an Unpaid Drawing) to the
extent such amount was not theretofore funded by such Replaced Bank to such
Issuing Bank and (c) the Swingline Bank and amount equal to such Replaced Bank's
Percentage of any Swing Loan to the extent such amount was required to be but
not theretofore funded by such Replaced Bank, and (ii) all obligations of the
Borrowers due and owing to the Replaced Bank at such time (other than those
specifically
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described in clause (i) above in respect of which the assignment purchase price
has been, or is concurrently being paid) shall be paid in full to such Replaced
Bank concurrently with such replacement. Upon the execution of the respective
Assignment and Assumption Agreement, the payments of amounts referred to in
clauses (i) and (ii) above and, if so requested by the Replacement Bank,
delivery to the Replacement Bank of the appropriate Note or Notes executed by
the respective Borrowers, (i) the Replacement bank shall become a Bank hereunder
and the Replaced Bank shall cease to constitute a Bank hereunder, except with
respect to indemnification provisions under this Agreement, which shall survive
as to such Replaced Bank and (ii) the Percentages of the Banks shall be
automatically adjusted at such time to give effect to such replacement.
Replacements pursuant to this Section 2A. 1(c) shall only be effected by
assignments which otherwise meet the applicable requirements of Section 11.6(c).
SECTION 2A.2. MINIMUM STATED AMOUNT. The initial Stated Amount of
each Letter of Credit shall be not less than $ 100,000 or such lesser amount
acceptable to the respective Letter of Credit Issuer.
SECTION 2A.3. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE:
REPORTS. (a) Whenever the US Borrower desires that a Letter of Credit be issued,
the US Borrower shall give the Administrative Agent and the respective Letter of
Credit Issuer a written request (including by way of telecopier) prior to 12:00
P.M. (New York time) at least three Business Days (or such shorter period as may
be acceptable to such Letter of Credit Issuer) prior to the proposed date (which
shall be a Domestic Business Day) of issuance (each a "Letter of Credit
Request"), which Letter of Credit Request shall include any other documents that
such Letter of Credit Issuer customarily requires in connection therewith.
(b) The respective Letter of Credit Issuer shall, promptly after
each issuance of a Letter of Credit by it, give the Administrative Agent, each
Bank and the US Borrower written notice of the issuance of such Letter of
Credit, accompanied, if requested, by a copy of the Letter of Credit or Letters
of Credit issued by it.
SECTION 2A.4. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The
US Borrower hereby agrees to reimburse the respective Letter of Credit Issuer,
by making payment to the Administrative Agent at the Payment Office (which funds
the Administrative Agent shall promptly forward to such Letter of Credit
Issuer), for any payment or disbursement made by such Letter of Credit Issuer
under any Letter of Credit issued by it (each such amount so paid or disbursed
until reimbursed, an "Unpaid Drawing") immediately after, and in any event on
the date on which, the US Borrower is notified by such Letter of Credit Issuer
of such payment or disbursement with interest on the amount so paid or disbursed
by such Letter of Credit Issuer, to the extent not reimbursed prior to 12:00
P.M. (New York time) on the date of such payment or disbursement, from and
including the date paid or disbursed to but not including the date such Letter
of Credit Issuer is reimbursed therefor at a rate per annum which shall be the
interest rate applicable to Revolving Loans maintained as Base Rate Loans as in
effect from time to time (plus an additional 2% per annum if not reimbursed by
the third Business Day after the date of such notice of payment or
disbursement), such interest also to be payable on demand. Each Letter of Credit
Issuer shall provide the US Borrower prompt notice of any payment or
disbursement made by it under any Letter of Credit issued by it, although the
failure of; or delay in, giving any such
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notice shall not release or diminish the obligations of the US Borrower under
this Section 2A.4(a) or under any other Section of this Agreement.
(b) The US Borrower's obligation under this Section 2A.4 to
reimburse the respective Letter of Credit Issuer with respect to Unpaid Drawings
(including, in each case, interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim or
defense to payment which the US Borrower may have or have had against such
Letter of Credit Issuer, the Administrative Agent or any BanK including, without
limitation, any defense based upon the failure of any payment under a Letter of
Credit to conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such payment; PROVIDED,
HOWEVER, that the US Borrower shall not be obligated to reimburse any Letter of
Credit Issuer for any wrongful payment made by such Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence (as determined by a court of competent
jurisdiction) on the part of such Letter of Credit Issuer.
SECTION 2A.5. LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon
the issuance by any Letter of Credit Issuer of a Letter of Credit, such Letter
of Credit Issuer shall be deemed to have sold and transferred to each other Bank
with a Revolving Loan Commitment, and each such Bank (each an "L/C Participant")
shall be deemed irrevocably and unconditionally to have purchased and received
from such Letter of Credit Issuer, without recourse or warranty, an undivided
interest and participation, to the extent of such Bank's Percentage, in such
Letter of Credit, each substitute letter of credit, each payment made thereunder
and the obligations of the US Borrower under this Agreement with respect thereto
(although the Letter of Credit Fee shall be payable directly to the
Administrative Agent for the account of the Banks as provided in Section 2.7(b)
and the L/C Participants shall have no right to receive any portion of any
Fronting Fees) and any security therefor or guaranty pertaining thereto. Upon
any change in the Revolving Loan Commitments or percentages of the Banks with
Revolving Loan Commitments pursuant to Section 11.6(c), it is hereby agreed
that, with respect to all outstanding Letters of Credit and Unpaid Drawings,
there shall be an automatic adjustment to the participations pursuant to this
Section 2A.5 to reflect the new percentages of the assigning and assignee Bank
or of all Banks with Revolving Loan Commitments, as the case may be.
(b) In determining whether to pay under any Letter of Credit, the
respective Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that any documents required to be delivered
under such Letter of Credit have been delivered and that they substantially
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by any Letter of Credit Issuer under or in
connection with any Letter of Credit if taken or omitted in the absence of gross
negligence or willful misconduct (as determined by a court of competent
jurisdiction) shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that the respective Letter of Credit Issuer makes
any payment under any Letter of Credit and the US Borrower shall not have
reimbursed such amount in full to such Letter of Credit Issuer pursuant to
Section 2A.4(a), such Letter of Credit Issuer shall promptly notify
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the Administrative Agent, and the Administrative Agent shall promptly notify
each L/C Participant of such failure, and each L/C Participant shall promptly
and unconditionally pay to the Administrative Agent for the account of such
Letter of Credit Issuer, the amount of such L/C Participant's Percentage of such
payment in Dollars and in same day funds; PROVIDED, HOWEVER, that no L/C
Participant shall be obligated to pay to the Administrative Agent its Percentage
of such unreimbursed amount for any wrongful payment made by such Letter of
Credit Issuer under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence (as determined by a court of
competent jurisdiction) on the part of such Letter of Credit Issuer. If the
Administrative Agent so notifies any L/C Participant required to fund an Unpaid
Drawing under a Letter of Credit prior to 11:00 A.M. (New York time) on any
Business Day, such L/C Participant shall make available to the Administrative
Agent for the account of the respective Letter of Credit Issuer (which funds the
Administrative Agent shall promptly forward to the Letter of Credit Issuer) such
Participant's Percentage of the amount of such payment on such Business Day in
same day funds. If and to the extent such L/C Participant shall not have so made
its Percentage of the amount of such Unpaid Drawing available to the
Administrative Agent for the account of such Letter of Credit Issuer, such L/C
Participant agrees to pay to the Administrative Agent for the account of such
Letter of Credit Issuer, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Administrative Agent for the account of such Letter of Credit Issuer at the
overnight Federal Funds Effective Rate. The failure of any L/C Participant to
make available to the Administrative Agent for the account of the respective
Letter of Credit Issuer its percentage of any Unpaid Drawing under any Letter of
Credit shall not relieve any other L/C Participant of its obligation hereunder
to make available to the Administrative Agent for the account of the respective
Letter of Credit Issuer its Percentage of any payment under any Letter of Credit
on the date required, as specified above, but no L/C Participant shall be
responsible for the failure of any other L/C Participant to make available to
the Administrative Agent for the account of such Letter of Credit Issuer such
other L/C Participant's Percentage of any such payment.
(d) Whenever the respective Letter of Credit Issuer receives a
payment of a reimbursement obligation as to which the Administrative Agent has
received for the account of such Letter of Credit Issuer any payments from the
L/C Participants pursuant to clause (c) above, such Letter of Credit Issuer
shall pay to the Administrative Agent and the Administrative Agent shall
promptly pay to each L/C Participant which has paid its Percentage thereof; in
US Dollars, and in same day funds, -an amount equal to such L/C Participant's
Percentage of the principal amount thereof and interest thereon accruing at the
overnight Federal Funds Effective Rate after the purchase of the respective
participations.
(e) The obligations of the L/C Participants to make payments to the
Administrative Agent for the account of the respective Letter of Credit Issuer
with respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever (PROVIDED that no L/C Participant shall be required to make payments
resulting from the Letter of Credit Issuer's gross negligence or willful
misconduct (as determined by a court of competent jurisdiction) and shall be
made in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
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(i) any lack of validity or enforceability of this
Agreement or any of the other Credit Documents;
(ii) the existence of any claim, set-off defense or
other right which the US Borrower or any of it Subsidiaries may
have at any time against a beneficiary named in a Letter of Credit,
any transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting), the Administrative Agent, the
respective Letter of Credit Issuer, any Bank or other Person,
whether in connection with this Agreement, any Letter of Credit,
the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the US Borrower or
any of its Subsidiaries and the beneficiary named in any such
Letter of Credit);
(iii) any draft, certificate or other document
presented under the Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any security for
the performance or observance of any of the terms of any of the
Credit Documents; or
(v) the occurrence of any Default.
(f) To the extent the respective Letter of Credit Issuer is not
indemnified for same by the US Borrower, the L/C Participants will reimburse and
indemnify the Letter of Credit Issuer, in proportion to their respective
Percentages, for and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, costs, expenses or disbursements
of whatsoever kind or nature which may be imposed on, asserted against or
incurred by such Letter of Credit Issuer in performing its respective duties in
any way relating to or arising out of its issuance of Letters of Credit;
PROVIDED that no L/C Participant shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Letter of Credit Issuer's
gross negligence or willful misconduct (as determined by a court of competent
jurisdiction).
SECTION 2A.6. INCREASED COSTS. If at any time after the Restatement
Effective Date, the adoption or effectiveness of any applicable law, rule or
regulation, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof; or compliance
by the respective Letter of Credit Issuer or any Bank with any request or
directive (whether or not having the force of law) by any such authority,
central bank or comparable agency shall either (i) impose, modify or make
applicable any reserve, deposit, capital adequacy or similar requirement against
Letters of Credit issued by such Letter of Credit Issuer or such Bank's
participation therein, or (ii) shall impose on such Letter of Credit Issuer or
any Bank any other conditions affecting this Agreement, any Letter of Credit or
such Bank's participation therein; and the result of any of the foregoing is to
increase the cost to such Letter of Credit Issuer or such Bank of issuing,
maintaining or participating in any Letter of Credit, or to reduce the amount of
any sum received or receivable by such Letter of Credit Issuer or such Bank
hereunder (other than any increased cost or reduction in the amount received or
receivable resulting from the imposition
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of or a change in the rate of taxes or similar charges), then, upon demand to
the US Borrower by such Letter of Credit Issuer or such Bank (a copy of which
notice shall be sent by such Letter of Credit Issuer or such Bank to the
Administrative Agent), the US Borrower shall pay to such Letter of Credit Issuer
or such Bank such additional amount or amounts as will compensate such Letter of
Credit Issuer or such Bank for such increased cost or reduction. A certificate
submitted to the US Borrower by the respective Letter of Credit Issuer or such
Bank, as the case may be (a copy of which certificate shall be sent by such
Letter of Credit Issuer or such Bank to the Administrative Agent), setting forth
the basis for the determination of such additional amount or amounts necessary
to compensate such Letter of Credit Issuer or such Bank shall be conclusive and
binding on the US Borrower absent manifest error, although the failure to
deliver any such certificate shall not release or diminish any of the US
Borrower's obligations to pay additional amounts pursuant to this Section 2A.6
upon the subsequent receipt thereof.
ARTICLE 3
CONDITIONS
SECTION 3.1. EFFECTIVENESS. The Restatement Effective Date shall
occur upon receipt by the Administrative Agent of the following documents:
(a) opinions of Caroly Melvin, Esq., general counsel and Secretary of
the Credit Parties, Arter & Hadden, counsel for the Credit Parties and
Fasken Campbell Godfrey, Canadian counsel to the Credit Parties, each in a
form reasonably acceptable to the Administrative Agent and covering such
matters relating to the transactions contemplated hereby as the
Administrative Agent or the Required Banks may reasonably request;
(b) all documents the Administrative Agent may reasonably request
relating to (i) in the case of each Credit Party which is a party hereto,
the corporate authority for and the validity of this Agreement and (ii) in
the case of HSI and its Subsidiaries, (x) the corporate existence of HSI
and its Subsidiaries and (y)the corporate authority for and the validity of
the Pledge Agreement and the Security Agreement and any other matters
relevant hereto, all in form and substance satisfactory to the
Administrative Agent;
(c) copies of (x) this Agreement executed by each of the Borrowers,
each Guarantor and each of the Banks and (y) the Subsidiary Assumption
Agreement executed by HSI and its Subsidiaries;
(d) all filings (including, without limitation, pursuant to the
Uniform Commercial Code) and recordings shall have been accomplished with
respect to the Security Agreement in such jurisdictions as may be required
by law to establish, perfect, protect and preserve the rights, titles,
interests, remedies, powers, privileges, liens and security interests of
the Collateral Agent in the Assigned Collateral covered by the Security
Agreement and any giving of notice or the taking of any other action to
such end (whether similar or dissimilar) required by law shall have been
given or taken. On or prior to the Closing Date, the Agent and the
Collateral Agent shall have received satisfactory
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evidence as to any such filing, recording, registration, giving of notice
or other action so taken or made;
(e) the Administrative Agent shall have received the full amount of
the fees due from the Borrowers pursuant to Section 2.7;
(f) the Administrative Agent shall have received fully executed copies
of the Acquisition Documents;
(g) the Administrative Agent shall have received fully executed copies
of the License Agreements;
(h) the Administrative Agent shall have received fully executed copies
of the Subordinated Note and the WCAS Subordinated Note;
(i) the Administrative Agent shall have received fully executed copies
of the Equity Issuance Documents; and
(j) the Administrative Agent shall have received insurance
certificates complying with the requirements of Section 6.3 for the
business and properties of the Borrowers and their Subsidiaries naming the
Collateral Agent as an additional insured and loss payee (except that, in
the case of insurance policies covering property of the Canadian Borrower,
the Collateral Agent shall not be named as an additional insured or loss
payee) and stating that such insurance shall not be canceled without 30
days prior written notice to the Collateral Agent.
The Administrative Agent shall promptly notify the Borrowers and
the Banks of the Restatement Effective Date, and such notice shall be conclusive
and binding on all parties hereto.
SECTION 3.2. EACH BORROWING. The occurrence of the Initial
Borrowing Date and the obligation of the Banks to make each Loan hereunder
(including Loans made on the Initial Borrowing Date) is subject at the time of
such Loan to the satisfaction of the following conditions:
(a) the fact that the Restatement Effective Date shall have occurred;
(b) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.2;
(c) the fact that, immediately after any Borrowing of Loans, the
aggregate principal amount of all Loans of a particular Tranche made
hereunder will not exceed the aggregate amount of the Commitments in effect
with respect to such Tranche (or, in the case of Term Loans, the respective
Commitment with respect to such Tranche of Term Loans immediately prior to
giving effect to the reduction of the Commitments pursuant to Section
2.8(B)(a));
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(d) the fact that, immediately before and after such Borrowing, no
Default shall have occurred and be continuing;
(e) the fact that the representations and warranties of the Credit
Parties contained in this Agreement shall be true and correct on and as of
the date of such Borrowing;
(f) with respect to the transactions contemplated by the Credit
Agreement, the Pledge Agreements, the Security Agreement and the Canadian
Security Documents, each Credit Party shall have obtained any necessary
consents, waivers, approvals, authorizations, registrations, filings,
licenses and notifications (including, if necessary, qualifying to do
business in, and qualifying under the applicable consumer laws of; each
jurisdiction where the applicable party is then doing business, or is in
the process of obtaining such qualification in each jurisdiction where the
applicable party is expected to be doing business utilizing the proceeds of
such Loan) and the same shall be in full force and effect; and
(g) The Security Documents shall be in full force and effect, the
Collateral Agent shall have a first priority perfected security interest in
all assets of the Borrowers and their respective Subsidiaries purported to
be covered thereby, and all filings (including, without limitation,
pursuant to the Uniform Commercial Code or foreign equivalent) and
recordings shall have been accomplished with respect to the Security
Agreement and the Canadian Security Documents in such jurisdictions as may
be required by law to establish, perfect, protect and preserve the rights,
titles, interests, remedies, powers, privileges, liens and security
interests of the Collateral Agent in the Assigned Collateral covered by the
Security Agreement and the Canadian Security Documents (except, in respect
of the Canadian Security Documents, such filings with (x) Canadian
trademark authorities to the extent the filing thereof is separately
contemplated by the undertaking dated the Original Effective Date) and (y)
land registry offices in connection with leased premises with respect to
which landlord consent has not been obtained) and any giving of notice or
the taking of any other action to such end (whether similar or dissimilar)
required by law shall have been given or taken. The Administrative Agent
and the Collateral Agent shall have received satisfactory evidence as to
any such filing, recording, registration, giving of notice or other action
so taken or made.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the respective Borrowers on the date of such Borrowing as to the facts specified
in clauses (c), (d), (e), (g) and (f) of this Section.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant, in each case after giving
effect to the Acquisitions, that:
SECTION 4.1. CORPORATE EXISTENCE AND POWER. Each Credit Party is a
corporation, duly organized and validly existing and, where applicable, in good
standing under the laws of the jurisdiction of its incorporation, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 4.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION: NO
CONTRAVENTION. The execution, delivery and performance by each Credit Party of
the Credit Documents to which it is a party are within the corporate powers of
such Credit Party, have been duly authorized by all necessary corporate action,
require no action by or in respect of; or filing with, any governmental body,
agency or official (other than a filing with the Canadian Federal Government in
connection with the change of control of LMG, which filing has been made) and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the articles of association, the organizational certificate
or bylaws of such Credit Party or of any agreement, judgment, injunction, order,
decree or other instrument binding upon the Borrowers or any of their
Subsidiaries or result in the creation or imposition of any Lien on any asset of
either Borrower or any of their Subsidiaries (other than Liens granted pursuant
hereto).
SECTION 4.3. BINDING: EFFECT. This Agreement and the other Credit
Documents constitute valid and binding agreements of the Borrowers and each
other Credit Party which is a party thereto, and each Note, when executed and
delivered in accordance with this Agreement, will constitute a valid and binding
obligation of the respective Borrower, in each case enforceable in accordance
with its terms.
SECTION 4.4. FINANCIAL INFORMATION. (a) The consolidated balance
sheet of the US Borrower and its Consolidated Subsidiaries as of February 1,
1998 and the related consolidated statements of income, retained earnings and
cash flows for the fiscal year then ended, reported on by Deloitte & Touche LLP,
a copy of which has been delivered to each of the Banks, fairly present the
consolidated financial position of the US Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of operations and
cash flows for such fiscal year. The consolidated balance sheet of Loyalty and
its Consolidated Subsidiaries as of April 30, 1998 and the related consolidated
statements of income, retained earnings and cash flows for the fiscal year then
ended, reported on by Ernst & Young, a copy of which has been delivered to each
of the Banks, fairly present the consolidated financial position of Loyalty and
its Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such fiscal year. The consolidated balance sheet
of Harmonic and its Consolidated Subsidiaries as of December 31, 1997 and the
related consolidated statements of income, retained earnings and cash flows for
the fiscal year then ended, reported on by Ernst & Young LLP, a copy of which
has been delivered to each of the Banks, fairly present the consolidated
financial
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position of Harmonic and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such fiscal year.
(b) The unaudited consolidated and consolidating balance sheets of
the US Borrower and its Consolidated Subsidiaries and the related unaudited
consolidated statements of income, retained earnings and cash flows, each for
the six months ended August 1, 1998, a copy of which has been delivered to each
of the Banks, fairly present the consolidated financial position of the US
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such three month period
(subject to normal year-end adjustments).
(c) Since February 1, 1998 there has been no material adverse
change in the business, financial position, results of operations or prospects
of the US Borrower and its Consolidated Subsidiaries, considered as a whole
(after giving effect to the Acquisitions).
(d) On and as of the Restatement Effective Date, (a) the sum of the
assets, at a fair valuation, of each of the Borrowers on a stand alone basis and
of the US Borrower and its Subsidiaries taken as a whole will exceed its debts;
(b) each of the Borrowers on a stand alone basis and the US Borrower and its
Subsidiaries taken as a whole has not incurred and does not intend to incur
debts beyond their ability to pay such debts as such debts mature; and (c) each
of the Borrowers on a stand alone basis and the US Borrower and its Subsidiaries
taken as a whole will have sufficient capital with which to conduct its
business. For purposes of this Section 4.4(d), "debt" means any liability on a
claim, and "claim" means (i) right to payment, whether or not such a right is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured, or unsecured or (ii)
right to an equitable remedy for breach of performance if such breach gives rise
to a payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(e) Except as fully disclosed in the financial statements delivered
pursuant to Section 4.4(a) there were as of the Restatement Effective Date no
liabilities or obligations with respect to the US Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in aggregate,
could reasonably be expected to have a material and adverse effect on either
Borrower or the US Borrower and its Subsidiaries taken as a whole. As of the
Restatement Effective Date, neither Borrower knows of any basis for the
assertion against it or any of its Subsidiaries of any liability or obligation
of any nature whatsoever that is not fully disclosed in the financial statements
delivered pursuant to Section 4.4(a) which, either individually or in the
aggregate, could reasonably be expected to be material to either Borrower or the
U.S. Borrower and its Subsidiaries taken as a whole.
(f) On and as of the Restatement Effective Date, the Projections
delivered to the Administrative Agent and the Banks prior to the Restatement
Effective Date have been prepared in good faith and are based on reasonable
assumptions. On the Restatement Effective Date, the Borrowers believe that the
Projections are reasonable and attainable, it being understood that the
Projections include assumptions as to future events that are not to be viewed
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as facts and that actual results may differ from the projected results and such
differences may be material.
SECTION 4.5. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of either Borrower threatened against or
affecting, either Borrower or any of their respective Subsidiaries before any
court or arbitrator or any governmental body, agency or official in which there
is a reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or consolidated
results of operations of either Borrower and its Consolidated Subsidiaries,
considered as a whole, or which in any manner draws into question the validity
or enforceability of any Credit Document.
SECTION 4.6. COMPLIANCE WITH ERISA. (a) To the best of the
Borrowers' knowledge, after reasonable investigation, each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Code or (iii) incurred any liability under Title IV of ERISA other
than a Liability to the PBGC for premiums under Section 4007 of ERISA.
(b) To the best of the Borrowers' knowledge, each Foreign Pension
Plan has been maintained in substantial compliance with its terms and with the
requirements of any and all applicable laws, statutes, rules, regulations and
orders and has been maintained, where required, in good standing with applicable
regulatory authorities. All material contributions required to be made with
respect to a Foreign Pension Plan have been timely made. Neither the Borrowers
nor any of their Subsidiaries has incurred any material obligation in connection
with the termination of or withdrawal from any Foreign Pension Plan. The
Borrowers and their Subsidiaries do not maintain or contribute to any Foreign
Pension Plan the obligations with respect to which could reasonably be expected
to have a material adverse effect on the ability of either Borrower or either
Borrower and its Subsidiaries taken as a whole to perform their obligations
under the Credit Documents.
SECTION 4.7. ENVIRONMENTAL MATTERS. To the best of the Borrowers'
knowledge, after reasonable investigation, each of the Borrowers and their
Subsidiaries has obtained all environmental, health and safety permits, licenses
and other authorizations required under all Environmental Laws to carry on
itsbusiness as now being or as proposed to be conducted. Each of such permits,
licenses and authorizations is in full force and effect and each of the
Borrowers and their Subsidiaries is in material compliance with the terms and
conditions thereof; and is also in material compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any applicable Environmental
Law or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder. In
addition, no notice, notification, demand, request for information, citations,
summons or order has been issued, no complaint has
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been filed, no penalty has been assessed and no investigation or review is
pending or threatened by any governmental or other entity with respect to any
alleged failure by either Borrower or any of their Subsidiaries to have any
environmental, health or safety permit, license or other authorization required
under any Environmental Law in connection with the conduct of the business of
either Borrower or any of their Subsidiaries or with respect to any generation,
treatment, storage, recycling, transportation, discharge or disposal, or any
release of any Hazardous Substance generated or handled by either Borrower or
any of their Subsidiaries. There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by or that are in
the possession of either Borrower or any of their Subsidiaries in relation to
any site or facility now or previously owned, operated or leased by either
Borrower or any of their Subsidiaries which have not been made available to the
Administrative Agent and the Banks.
SECTION 4.8. TAXES. Each Borrower and its Subsidiaries have filed
all United States Federal and Canadian income tax returns and all other material
tax returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by such Borrower
or any Subsidiary. The charges, accruals and reserves on the books of the
Borrowers and their Subsidiaries in respect of taxes or other governmental
charges are, in the opinion of the respective Borrowers, adequate.
SECTION 4.9. SUBSIDIARIES. Each of the Borrowers' corporate
Subsidiaries, if any, is a corporation duly incorporated, validly existing and,
where applicable, and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 4.10. REGULATORY RESTRICTIONS ON BORROWING. Neither
Borrower is an "investment company" within the meaning of the Investment Company
Act of 1940, as amended, a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended, or otherwise subject to any
regulatory scheme which restricts its ability to incur debt.
SECTION 4.11. FULL DISCLOSURE. All information heretofore furnished
by either Borrower to the Administrative Agent or any Bank for purposes of or in
connection with this Agreement or any transaction contemplated hereby is, and
all such information hereafter furnished by either Borrower to the
Administrative Agent or any Bank will be, true and accurate in all material
respects on the date as of which such information is stated or certified. Each
Borrower has disclosed to the Banks in writing any and all facts which
materially and adversely affect or may affect (to the extent such Borrower can
now reasonably foresee), the business, operations or financial condition of such
Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of
such Borrower to perform its obligations under this Agreement or the other
Credit Documents.
SECTION 4.12. INTELLECTUAL PROPERTY. The US Borrower and its
Subsidiaries own or have the exclusive right in the United States and Canada to
use and to license the patents, trade names, registered or unregistered
trademarks, registered or unregistered service marks, and registered copyrights,
all pending applications therefor and all know-how required to operate their
respective businesses (collectively, the "Intellectual Property"), and each item
constituting part of
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the Intellectual Property has been duly registered with, filed with or issued
by, as the case may be, the appropriate authorities in the United States and
Canada and, to the knowledge of the Credit Parties, such registrations, filings
and issuances remain in full force and effect. To the knowledge of the Credit
Parties, there are no infringements of any proprietary rights (including,
without limitation, the Intellectual Property, the License Agreements and any
inventions and know-how owned or licensed by the US Borrower or its
Subsidiaries) owned or licensed by the US Borrower or its Subsidiaries which
could reasonably be expected to have a material adverse effect on the business,
property, assets, liabilities, condition (financial or otherwise) or prospects
of either Borrower taken individually or the US Borrower and its Subsidiaries
taken as a whole. To the knowledge of the Credit Parties, the trademarks,
service marks and trade names owned or licensed by the US Borrower or its
Subsidiaries are enforceable by such entities and all patents (if any)
comprising the Intellectual Property are believed valid and enforceable by the
Credit Parties. No consent of third parties will be required for the use of any
Intellectual Property as a consequence of the consummation of the transactions
contemplated hereby. To the knowledge of any Credit Party, no claims are
currently being asserted by any Person to the use of any of the Intellectual
Property or challenging or questioning the validity or effectiveness of any
License Agreement, and the use of the Intellectual Property by the US Borrower
or any of its Subsidiaries does not infringe on the rights of any Person and no
suits or proceedings are pending or threatened against the Seller, the US
Borrower or any of their respective Subsidiaries with respect to the foregoing;
and (ii) no claims are currently being asserted, and no conditions exist upon
which such claims could be based, that the US Borrower or any of its
Subsidiaries is in default or is not in full compliance with any License
Agreement.
SECTION 4.13. YEAR 2000 COMPLIANCE. (a) The US Borrower has (i)
initiated a review and assessment of all areas within its and each of its
Subsidiaries' business and operations (including those affected by suppliers and
vendors) that could be adversely affected by the Year 2000 Problem, (ii)
developed a plan and timeline for addressing the Year 2000 Problem on a timely
basis and (iii) to date, implemented such plan in accordance with such
timetable. The US Borrower reasonably believes that all computer applications
(including those of its suppliers and vendors) that are material to its or any
of its Subsidiaries' business and operations will on a timely basis be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000, except to the extent that a failure to do so could not reasonably be
expected to have material adverse effect on the business, operations,
properties, assets, liabilities, condition (financial or otherwise) or prospects
of the US Borrower and its Consolidated Subsidiaries, taken as a whole, or on
the ability of the Borrowers to perform their respective obligations under the
Credit Documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF EACH GUARANTOR
Each Guarantor represents and warrants for itself that:
SECTION 5.1. CORPORATE EXISTENCE AND POWER. The applicable
Guarantor is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction
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of its incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
SECTION 5.2. CORPORATE AND GOVERNMENTAL AUTHORIZATION: NO
CONTRAVENTION. The execution, delivery and performance by the applicable
Guarantor of this Agreement and each other Credit Document to which it is a
party is within the corporate powers of the applicable Guarantor, have been duly
authorized by all necessary corporate action, require no action by or in respect
of; or filing with, any governmental body, agency or official and do not
contravene, or constitute a default under, any provision of applicable law or
regulation or of the certificate of incorporation or by-laws of the Guarantor or
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the applicable Guarantor or any of its Subsidiaries or result in
the creation or imposition of any Lien on any asset of the applicable Guarantor
or any of its Subsidiaries (other than Liens granted pursuant hereto).
SECTION 5.3. BINDING: EFFECT. This Agreement and each other Credit
Document to which it is a party constitutes a valid and binding agreement of the
applicable Guarantor enforceable in accordance with its terms.
SECTION 5.4. FINANCIAL INFORMATION. (a) The unaudited consolidated
balance sheets of the applicable Guarantor and its Consolidated Subsidiaries and
the related unaudited consolidated statements of income, changes in common
stockholders' equity and cash flows, each for the six months ended August 1,
1998, a copy of which has been delivered to each of the Banks, fairly present
the consolidated financial position of the applicable Guarantor and its
Consolidated Subsidiaries as of such date and their consolidated results of
operations and cash flows for such three-month period (subject to normal
year-end adjustments).
(b) Since the end of the fiscal quarter ending August 1, 1998 there
has been no material adverse change in the business, financial position, results
of operations or prospects of the applicable Guarantor and its Consolidated
Subsidiaries, considered as a whole.
SECTION 5.5. LITIGATION. There is no action, suit or proceeding
pending against, or to the knowledge of the applicable Guarantor threatened
against or affecting, the applicable Guarantor or any of its Subsidiaries before
any court or arbitrator or any governmental body, agency or official in which
there is a reasonable possibility of an adverse decision which could materially
adversely affect the business, consolidated financial position or consolidated
results of operations of the applicable Guarantor and its Consolidated
Subsidiaries, considered as a whole, or which in any manner draws into question
the validity or enforceability of this Agreement or the Notes.
SECTION 5.6. COMPLIANCE WITH ERISA. To the best of the applicable
Guarantor's knowledge, after reasonable investigation, each member of the ERISA
Group has fulfilled its obligations under the minimum funding standards of ERISA
and the Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any Plan or
Multiemployer Plan or in respect of
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any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Code or (iii)
incurred any liability under Title IV of ERISA other than a liability to the
PBGC for premiums under Section 4007 of ERISA.
SECTION 5.7. ENVIRONMENTAL MATTERS. Each of the applicable
Guarantor and its Subsidiaries has obtained all environmental, health and safety
permits, licenses and other authorizations required under all Environmental Laws
to carry on its business as now being or as proposed to be conducted. Each of
such permits, licenses and authorizations is in full force and effect and each
of the applicable Guarantor and its Subsidiaries is in material compliance with
the terms and conditions thereof; and is also in material compliance with all
other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in any applicable
Environmental Law or in any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder. In addition, no notice, notification, demand, request for
information, citations, summons or order has been issued, no complaint has been
filed, no penalty has been assessed and no investigation or review is pending or
threatened by any governmental or other entity with respect to any alleged
failure by the applicable Guarantor or any of its Subsidiaries to have any
environmental, health or safety permit, license or other authorization required
under any Environmental Law in connection with the conduct of the business of
the applicable Guarantor or any of its Subsidiaries or with respect to any
generation, treatment, storage, recycling, transportation, discharge or
disposal, or any release of any Hazardous Substance generated or handled by the
applicable Guarantor or any of its Subsidiaries. There have been no
environmental investigations, studies, audits, tests, reviews or other analyses
conducted by or that are in the possession of the applicable Guarantor or any of
its Subsidiaries in relation to any site or facility now or previously owned,
operated or leased by the applicable Guarantor or any of its Subsidiaries which
have not been made available to the Administrative Agent and the Banks.
SECTION 5.8. TAXES. The applicable Guarantor and its Subsidiaries
have filed all United States Federal income tax returns and all other material
tax returns which are required to be filed by them and have paid all taxes due
pursuant to such returns or pursuant to any assessment received by the
applicable Guarantor or any Subsidiary. The charges, accruals and reserves on
the books of the applicable Guarantor and its Subsidiaries in respect of taxes
or other governmental charges are, in the opinion of the applicable Guarantor,
adequate.
SECTION 5.9. SUBSIDIARIES. Each of the applicable Guarantor's
corporate Subsidiaries is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation, and has
all corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
SECTION 5.10. REGULATORY RESTRICTIONS ON BORROWING. The applicable
Guarantor is not an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended, or otherwise subject to
any regulatory scheme which restricts its ability to incur debt.
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SECTION 5.11. FULL DISCLOSURE. All information heretofore furnished
by the applicable Guarantor to the Administrative Agent or any Bank for purposes
of or in connection with this Agreement or any transaction contemplated hereby
is, and all such information hereafter furnished by the applicable Guarantor to
the Administrative Agent or any Bank will be, true and accurate in all material
respects on the date as of which such information is stated or certified. The
applicable Guarantor has disclosed to the Banks in writing any and all facts
which materially and adversely affect or may affect (to the extent the
applicable Guarantor can now reasonably foresee), the business, operations or
financial condition of the applicable Guarantor and its Consolidated
Subsidiaries, taken as a whole, or the ability of the applicable Guarantor to
perform its obligations under this Agreement.
ARTICLE 6
COVENANTS
The Borrowers and each Guarantor, as the case may be, agree that,
so long as any Bank has any Commitment hereunder or any amount payable hereunder
or under any Note remains unpaid or any Letter of Credit remains outstanding:
SECTION 6.1. INFORMATION. The US Borrower will deliver to each of
the Banks:
(a) as soon as available and in any event within 90 days after the end
of each fiscal year of the US Borrower, consolidated and consolidating
balance sheets of the US Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidating statements of
income cash flows, changes in common stockholders' equity and retained
earnings, each for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year and certified by
Deloitte & Touche LLP or another independent public accounting firm of
nationally recognized standing;
(b) as soon as available and in any event within 45 days after the end
of each of the first three fiscal quarters of the US Borrower, consolidated
and consolidating balance sheets of the US Borrower and its Consolidated
Subsidiaries as of the end of such quarter and the related consolidated and
consolidating statements of income, changes in common stockholders' equity
and cash flows for such quarter and for the portion of the US Borrower's
fiscal year ended at the end of such quarter, setting forth in each case,
in comparative form the figures for the corresponding quarter and the
corresponding portion of the US Borrower's previous fiscal year, all
certified (subject to normal year-end adjustments) as to fairness of
presentation, generally accepted accounting principles and consistency by
the treasurer or chief financial officer of the US Borrower;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, (x) a certificate of
the treasurer or chief financial officer of the US Borrower, (i) setting
forth in reasonable detail the calculations required to establish whether
the US Borrower was in compliance with the requirements of Sections 6. 11,
6.12, 6.13, 6.14, 6.15 and 6.17 on the date of such financial statements,
(ii) comparing
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such results to the comparable period of the prior fiscal year and the
budgeted figures previously delivered for such period and (iii) stating
whether any Default exists on the date of such certificate and, if any
Default then exists, setting forth the details thereof and the action which
the US Borrower is taking or proposes to take with respect thereto and (y)
management's discussion and analysis of the important operational and
financial developments during such quarterly and year-to-date periods;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the accounting
firm which reported on such statements (i) as to whether anything has come
to their attention to cause them to believe that any Default existed on the
date of such statements and (ii) confirming the calculations set forth in
the officer's certificate delivered simultaneously therewith pursuant to
clause (c) above;
(e) within 45 days of the end of each fiscal year of the US Borrower,
a budget in form reasonably satisfactory to the Administrative Agent
(including budgeted statements of income and balance sheets) prepared by
the US Borrower for each of the four quarters of such fiscal year,
accompanied by a statement of the treasurer or chief financial officer of
the US Borrower to the effect that, to the best of such officer's
knowledge, the budget is a reasonable estimate for the period covered
thereby;
(f) within five days after any officer of any Credit Party obtains
knowledge of any Default, if such Default is then continuing, a certificate
of the treasurer or chief financial officer of the US Borrower setting
forth the details thereof and the action which the US Borrower or such
Credit Party is taking or proposes to take with respect thereto;
(g) following any public equity offering consummated on or after the
Original Effective Date promptly upon the mailing thereof to the
shareholder:: of the US Borrower or any other Credit Party, as the case may
be, copies of all financial statements, reports and proxy statements so
mailed;
(h) promptly upon the filing thereof; copies of all registration
statements (other than the exhibits thereto and any registration statements
on Form 5-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or
their equivalents) which the US Borrower or any other Credit Party shall
have filed with the Securities and Exchange Commission;
(i) immediately upon discovery of the fact that any member of the
ERISA Group (i) gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of ERISA) with respect to
any Plan which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of any Plan
has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given
to the PBGC; (ii) receives notice of complete or partial withdrawal
liability under Title IV of ERISA or notice that any Multiemployer Plan is
in reorganization, is insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title IV of ERISA of an
intent to terminate, impose liability (other than for premiums under
Section
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4007 of ERISA) in respect of; or appoint a trustee to administer any Plan,
a copy of such notice; (iv) applies for a waiver of the minimum funding
standard under Section 412 of the Code, a copy of such application; (v)
gives notice of intent to terminate any Plan under Section 4041(c) of
ERISA, a copy of such notice and other information filed with the PBGC;
(vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of
ERISA, a copy of such notice; or (vii) fails to make any payment or
contribution to any Plan, Foreign Pension Plan or Multiemployer Plan or in
respect of any Benefit Arrangement or makes any amendment to any Plan,
Foreign Pension Plan or Benefit Arrangement which has resulted or could
result in the imposition of a Lien or the posting of a bond or other
security, a certificate of the treasurer of the US Borrower setting forth
details as to such occurrence and action, if any, which the US Borrower,
the applicable Credit Party or the applicable member of the ERISA Group is
required or proposes to take; and
(j) from time to time such additional information regarding the
financial position or business of the Credit Parties and their Subsidiaries
as the Administrative Agent, at the request of any Bank may reasonably
request.
SECTION 6.2. PAYMENT OF OBLIGATIONS. Each Credit Party will pay and
discharge, and will cause each Subsidiary to pay and discharge, at or before
maturity, all their respective material obligations and liabilities (including,
without limitation, tax liabilities and claims of materialmen, warehousemen and
the like which if unpaid might by law give rise to a Lien), except where the
same may be contested in good faith by appropriate proceedings, and will
maintain, and will cause each Subsidiary to maintain, in accordance with
generally accepted accounting principles, appropriate reserves for the accrual
of any of the same.
SECTION 6.3. MAINTENANCE OF PROPERTY: INSURANCE. (a) Each Credit
Party will keep, and will cause each Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) Each Credit Party will, and will cause each Subsidiary to,
maintain (either in the name of the US Borrower or in its own name) with
financially sound and responsible insurance companies, insurance on all their
respective properties in at least such amounts, against at least such risks and
with such risk retention as are usually maintained, insured against or retained,
as the case may be, in the same general area by companies of established repute
engaged in the same or a similar business and will furnish to the Banks, upon
request from the Administrative Agent, information presented in reasonable
detail as to the insurance so carried.
(c) Each Credit party will at all times keep its property insured,
with the Collateral Agent named as additional insured and loss payee (except
that in the case of insurance policies covering property of the Canadian
Borrower, the Collateral Agent shall not be named as an additional insured or
loss payee) and all policies or certificates shall name the Collateral Agent as
such (except that in the case of insurance policies covering property of the
Canadian Borrower, the Collateral Agent shall not be named as an additional
insured or loss payee) and state that such insurance policy may not be canceled
without at least 30 days' prior written notice to the Collateral Agent (or such
shorter period as a particular insurance company policy generally provides).
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SECTION 6.4. CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. Each
Credit Party will continue, and will cause each Subsidiary to continue, to
engage in business of the same general type as now conducted by such Credit
Party, and will preserve, renew and keep in full force and effect, and will
cause each Subsidiary to preserve, renew and keep in full force and effect their
respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business; PROVIDED,
that nothing in this Section 6.4 shall prohibit (i) a merger or consolidation
which is otherwise permitted by Section 6.7 or (ii) the termination of the
corporate existence of any Subsidiary if the US Borrower in good faith determine
that such termination is in the best interest of the Borrowers and is not
materially disadvantageous to the Banks.
SECTION 6.5. COMPLIANCE WITH LAWS. Each Credit Party will comply,
and cause each Subsidiary to comply, in all respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where the necessity of compliance therewith
is contested in good faith by appropriate proceedings or (ii) to the extent that
failure to comply therewith would not have a material adverse effect on (a) the
property, business, operations, financial condition, prospects, liabilities or
capitalization of any Credit Party and its Subsidiaries taken as a whole, (b)the
ability of any Credit Party to perform its obligations under any of the Credit
Documents to which it is a party, (c) the validity or enforceability of any of
the Credit Documents, (d) the rights and remedies of the Banks and the
Administrative Agent under any of the Credit Documents or (e) the timely payment
of the principal of or interest on the Loans or the payment obligations of the
Credit Parties under the Credit Documents.
SECTION 6.6. INSPECTION OF PROPERTY. BOOKS AND RECORDS. The Credit
Parties will keep, and will cause each Subsidiary to keep, proper books of
record and account in which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and activities; and will
permit, and will cause each Subsidiary to permit, representatives of any Bank,
at such Bank's expense, to visit and inspect any of their respective properties,
to examine and make abstracts from any of their respective books and records and
to discuss their respective affairs, finances and accounts with their respective
officers, employees and independent public accountants, all at such reasonable
times and as often as may reasonably be desired.
SECTION 6.7. MERGERS AND SALES OF ASSETS. The Credit Parties will
not (x) consolidate or merge with or into any other Person or (y) sell, lease or
otherwise transfer, directly or indirectly, any substantial part of the assets
of any Credit Party and its Subsidiaries, taken as a whole, to any other Person;
except that the following shall be permitted: (a) (i) the Acquisitions, (ii) any
Credit Party other than the Canadian Borrower may merge with the US Borrower or
another Guarantor if after giving effect to such merger, no Default shall have
occurred and be continuing and (iii) any Person may be merged with or into any
Credit Party pursuant to an acquisition permitted by Section 6.22(b), provided
that such Credit Party is the surviving corporation of such merger, (b) the sale
of credit card receivables pursuant to (i) securitizations of such credit card
receivables and (ii) the deferred billing program associated with Brylane, L.P.
and (c) assets sold and leased back in the normal course of the Borrowers'
business.
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SECTION 6.8. USE OF PROCEEDS. The proceeds of the Revolving Loans
made under this Agreement will be used by the US Borrower to finance the general
corporate and working capital needs of the US Borrower and its Subsidiaries.
None of the proceeds of any Loan made hereunder will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any "margin stock" within the meaning of Regulation U.
SECTION 6.9. NEGATIVE PLEDGE. Neither a Credit Party nor any
Subsidiary will create, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired by it, except:
(a) Liens pursuant to the Security Documents;
(b) Liens existing on the Original Effective Date securing Debt
outstanding on the Original Effective Date in an aggregate principal or
face amount not exceeding $5,000,000;
(c) any Lien existing on any asset of any person at the time such
person becomes a Subsidiary and not created in contemplation of such event;
(d) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches only to such asset acquired and attaches
concurrently with or within 90 days after the acquisition thereof;
(e) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into a Credit Party or its
Subsidiary and not created in contemplation of such event, so long as such
Lien does not attach to any other asset of such Credit Party or its
Subsidiaries;
(f) any Lien existing on any asset prior to the acquisition thereof by
a Credit Party or a Subsidiary and not created in contemplation of such
acquisition;
(g) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the foregoing
clauses of this Section, provided that the amount of such Debt is not
increased and is not secured by any additional assets;
(h) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives obligations, (ii) do not secure any
obligation in an amount exceeding $5,000,000 (iii) do not in the aggregate
materially detract from the value of the assets secured or materially
impair the use thereof in the operation of such Credit Party or
Subsidiary's business;
(i) any Lien on any credit card receivable subject to a sale of credit
card receivables pursuant to securitizations of such credit card
receivables.
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(j) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date
not to exceed 2% of Consolidated Net Worth of the US Borrower; and
SECTION 6.10. END OF FISCAL YEARS AND FISCAL QUARTERS. The US
Borrower shall and shall cause each of its Subsidiaries' fiscal years to end on
the Saturday closest to January 31 and its and each of its Subsidiaries' fiscal
quarters to end on quarterly dates consistent with such fiscal year end and in
accordance with past practice, PROVIDED that a one time adjustment of such dates
shall be permitted so long as the financial calculations made during any period
which includes the quarterly period of such adjustment shall be adjusted
accordingly in a manner reasonably acceptable to the US Borrower and the
Administrative Agent.
SECTION 6.11. MINIMUM CONSOLIDATED EBITDA. The US Borrower will not
permit its Consolidated EBITDA for any four fiscal quarter period of the US
Borrower, determined on the last day of each fiscal quarter below, to be less
than the respective amount set forth opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Minimum Consolidated EBITDA
<S> <C>
October 31, 1998 $60,000,000
January 31, 1999 $60,000,000
April 30, 1999 $70,000,000
July 31, 1999 $70,000,000
October 31, 1999 $75,000,000
January 31, 2000 $75,000,000
April 30, 2000 $90,000,000
July 31, 2000 $90,000,000
October 31, 2000 $105,000,000
January 31, 2001 $103,000,000
April 30, 2001 $115,000,000
July 31, 2001 $115,000,000
October 31, 2001 $125,000,000
January 31, 2002 $125,000,000
April 30, 2002 $125,000,000
July 31,2002 $125,000,000
October 31, 2002 $125,000,000
January 31, 2003 $125,000,000
April 30, 2003 $125,000,000
July 31, 2003 $125,000,000
October 31, 2003 $125,000,000
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Fiscal Quarter Ended Closest To Ratio
January 31, 2004 $125,000,000
April 30, 2004 $125,000,000
July 31, 2004 $125,000,000
October 31, 2004 $125,000,000
January 31, 2005 $125,000,000
April 30, 2005 $125,000,000
Thereafter $125,000,000
</TABLE>
SECTION 6. 12. LEVERAGE RATIO. The US Borrower shall not permit its
Leverage Ratio at any time to exceed the ration set forth below opposite such
fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest To Ratio
------------------------------- -----
<S> <C>
October 31, 1998 6.25:1.0
January 31, 1999 6.25:1.0
April 30, 1999 5.25:1.0
July 31, 1999 5.25:1.0
October 31, 1999 5.25:1.0
January 31, 2000 5.25:1.0
April 30, 2000 4.00:1.0
July 31, 2000 4.00:1.0
October 31, 2000 4.00:1.0
January 31, 2001 4.00:1.0
April 30, 2001 3.00:1.0
July 31, 2001 3.00:1.0
October 31,2001 3.00:1.0
January 31, 2002 3.00:1.0
April 30, 2002 2.5:1.0
July 31, 2002 2.5:1.0
October 31, 2002 2.5:1.0
January 31, 2003 2.5:1.0
April 30, 2003 2.5:1.0
July 31, 2003 2.5:1.0
October 31, 2003 2.5:1.0
January 31, 2004 2.5:1.0
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Fiscal Quarter Ended Closest To Ratio
------------------------------- -----
April 30, 2004 2.5:1.0
July 31, 2004 2.5:1.0
October 31, 2004 2.5:1.0
January 31, 2005 2.5:1.0
April 30, 2005 2.5:l.0
Thereafter 2.5:1.0
</TABLE>
SECTION 6.13. ADJUSTED CONSOLIDATED NET WORTH. Adjusted
Consolidated Net Worth of the US Borrower will at no time be less than the sum
of (i) $250,000,000, plus (ii) an amount equal to 50% of the amount by which the
Borrower's Consolidated Net Income (determined at the end of each fiscal
quarter) exceeds zero, plus (iii) 100% if any proceeds from equity issuances of
capital stock of the US Borrower.
SECTION 6.14. CAPITALIZATION OF INSURED SUBSIDIARIES. The US
Borrower shall, at all times, cause all Insured Subsidiaries to be "well
capitalized" within the meaning of 12 C.F.R. 208.33(b)(1) or any successor
regulation and such Insured Subsidiaries at no time be reclassified by any
relevant agency as anything other than "well capitalized".
SECTION 6.15. DELINQUENCY RATIO. The US Borrower shall not permit
the average of the Delinquency Ratios for WFNB for the most recently ended three
consecutive calendar months to exceed 4.5%.
SECTION 6.16. DEBT LIMITATION. The US Borrower shall not, and shall
not permit any of its Subsidiaries, whether now existing or created in the
future, to create or retain any Debt other than (i) any Debt created or retained
by the US Borrower or such Subsidiary on or before May 2, 1998, (ii) any Debt
created or retained by the US Borrower or such Subsidiary in connection with the
funds made available to the Borrowers pursuant to this Agreement (including any
intercompany loans of such funds), PROVIDED that such loans made by the US
Borrower and its Subsidiaries to (x) the Canadian Borrower shall not exceed
$20,000,000 and (y) ADSNZ shall not exceed $1,500,000 in aggregate principal
amount outstanding at any time, and all such loans from the US Borrower to WFNB
shall be made pursuant to and evidenced by the WFNB Note, (iii) issuances by
WFNB of certificates of deposit to the extent no Default results therefrom
pursuant to the other covenants contained in this Article 6, (iv) intercompany
loans not otherwise permitted by clause (ii) of this Section 6.16 made by the US
Borrower to ADSI and WFNB, PROVIDED that any such intercompany loans to WFNB
shall be made pursuant to and evidenced by the WFNB Note, (v) Debt consisting of
amounts in excess of $100,000,000 owing to Brylane, L.C. pursuant to the US
Borrower's deferred payment plan with Brylane, L.C. as in effect on the Original
Effective Date, (vi) Debt of the US Borrower outstanding pursuant to the WCAS
Subordinated Note in an aggregate principal amount not to exceed $52,000,000,
less all repayments of principal thereof and (vii) other unsecured Debt of the
US Borrower and/or its Subsidiaries not to exceed $10,000,000 in the aggregate
outstanding at any time. Notwithstanding anything to the contrary above in this
Section 6.16, the US Borrower may, subject to the applicability of the other
covenants contained in this Agreement, issue Permitted Subordinated Debt.
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SECTION 6.17. INTEREST COVERAGE RATIO. As of the last day of each
fiscal quarter of the US Borrower, the Interest Coverage Ratio of the US
Borrower, determined on a rolling four quarter basis, will not be less than the
ratio set forth below opposite such fiscal quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Closest to Ratio
------------------------------- -----
<S> <C>
October 31, 1998 2.00:1.0
January 31, 1999 2.00:1.0
April 30, 1999 2.25:1.0
July 31, 1999 2.25:1.0
October 31, 1999 2.50:1.0
January 31, 2000 2.50:1.0
April 30, 2000 3.00:1.0
July 31, 2000 3.00:1.0
October 31,2000 3.75:1.0
January 31, 2001 3.75:1.0
April 30, 2001 4.25:1.0
July 31, 2001 4.50:1.0
October 31, 2001 4.50:1.0
January 31, 2002 4.50:1.0
April 30, 2002 4.50:1.0
July 31, 2002 4.50:1.0
October 31, 2002 4.50:1.0
January 31, 2003 4.50:1.0
April 30, 2003 4.50:1.0
July 31, 2003 4.50:1.0
October 31, 2003 4.50:1.0
January 31, 2004 4.50:1.0
April 30, 2004 4.50:1.0
July 31, 2004 4.50:1.0
October 31, 2004 4.50:1.0
January 31, 2005 4.50:1.0
April 30, 2005 4.50:1.0
Thereafter 4.50:1.0
</TABLE>
SECTION 6.18. RESTRICTED PAYMENTS: REQUIRED DIVIDENDS. (a) Other
than payments made in accordance with the terms of subsection (b) below, neither
the US Borrower
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nor any of its Subsidiaries will declare or make any Restricted Payment unless,
after giving effect thereto, the aggregate of all Restricted Payments declared
or made does not exceed the sum of (i) $20,000,000 plus (ii) 25% of the amount
by which the consolidated Net Income of the US Borrower exceeds zero (or minus
100% of the amount by which the Consolidated Net Income of the US Borrower is
less than zero) for the period from January 30, 1999 through the end of the US
Borrower's then most recent fiscal quarter (treated for this purpose as a single
accounting period).
(b) The US Borrower shall cause each Domestic Subsidiary (to the
extent permitted under any applicable law, rule or regulation, judgment,
injunction, order or decree of any governmental authority) to take all such
necessary corporate actions to declare cash dividends, payable to the
shareholder of such Subsidiary, in an aggregate amount, if any, equal to all
amounts that are then due and owing and remain outstanding after the date of
payment therefor pursuant to the terms of this Agreement.
SECTION 6.19. EQUITY OWNERSHIP: LIMITATION ON CREATION OF
SUBSIDIARIES. Notwithstanding anything to the contrary contained in this
Agreement, the US Borrower will not, and will not permit any of its Subsidiaries
to, establish, create or acquire after the Restatement Effective Date any
Subsidiary; PROVIDED that (A) the US Borrower and its Wholly-Owned Subsidiaries
shall be permitted to establish or create Wholly-Owned Subsidiaries so long as,
in each case, (i) at least 30 days' prior written notice thereof is given to the
Administrative Agent (or such shorter period of time as is acceptable to the
Administrative Agent), (ii) all of the capital stock of such new Subsidiary (or
65% of the outstanding capital stock of a Foreign Subsidiary) is promptly
pledged pursuant to, and to the extent required by, this Agreement and the
Pledge Agreement and the certificates, if any, representing such stock, together
with stock powers duly executed in blank, are delivered to the Collateral Agent
and (iii) such new Subsidiary (except, with respect to the Obligations of the US
Borrower, a Foreign Subsidiary) promptly executes a counterpart to this
Agreement in form and substance reasonably acceptable to the Administrative
Agent to become a Guarantor pursuant to Article 10, and becomes a party to the
Pledge Agreement and the Security Agreement (or similar documents satisfactory
to the Administrative Agent) and (B) Subsidiaries may be acquired to the extent
such acquisition does not give rise to a Default hereunder so long as (x) in
each such case involving the acquisition of a Wholly-Owned Subsidiary, the
actions specified in preceding clause (A) shall be taken and (y) in each such
case involving the acquisition of a non Wholly-Owned Subsidiary, the stock of
such Subsidiary held by the Credit Parties shall be pledged to the extent
required by the Pledge Agreement. In addition, each new Subsidiary that is
required to execute any Credit Document shall execute and deliver, or cause to
be executed and delivered, all other relevant documentation of the type
described in Section 3. 1 as such new Subsidiary would have had to deliver if
such new Subsidiary were a Credit Party on the Initial Borrowing Date.
SECTION 6.20. CHANCE OF BUSINESS. The US Borrower will not, and
will not permit any of its Subsidiaries to, materially alter the character of
the business of the US Borrower and its Subsidiaries from that conducted on the
Restatement Effective Date.
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<PAGE>
SECTION 6.21. LIMITATION ON ISSUANCE OF CAPITAL STOCK. (a) The US
Borrower will not, and will not permit any of its Subsidiaries to, issue (i) any
preferred stock or (ii) any common stock redeemable at the option of the holder
thereof.
(b) The US Borrower will not permit any of its Subsidiaries to
issue any capital stock (including by way of sales of treasury stock) or any
options or warrants to purchase, or securities convertible into, capital stock
except (i) for transfers and replacements of then outstanding shares of capital
stock, (ii) for stock splits, stock dividends and issuances which do not
decrease the percentage ownership of the US Borrower or any of its Subsidiaries
in any class of the capital stock of such Subsidiary, (iii) to qualify directors
to the extent required by applicable law and (iv) for issuances by newly created
or acquired Subsidiaries in accordance with the terms of this Agreement.
SECTION 6.22. INVESTMENTS: RESTRICTED ACQUISITIONS. (a) The US
Borrower shall not, and shall. not permit any Subsidiary to hold, make or
acquire any Investment in any Person other than:
(i) Investments by the US Borrower or its Subsidiaries
in Persons which are Domestic Subsidiaries on the Original
Effective Date, PROVIDED that (x) in the case of any Investment in
Foreign Subsidiaries of the US Borrower, such Investment shall not
exceed 5% of Adjusted Consolidated Net Worth plus the amount
invested on the Original Effective Date and (y) any Investments by
the US Borrower in WFNB which are in the form of intercompany loans
shall be made pursuant to and evidenced by the WFNB Note;
(ii) the Acquisitions;
(iii) Investments consistent with the investment policy
attached hereto as Schedule II;
(iv) Investments currently held by WFNB to comply with
the provisions of the Community Reinvestment Act as such
Investments are set forth on Schedule III attached hereto;
(v) Investments consisting of credit card loans made by
WFNB pursuant to the terms of any applicable credit card accounts
owned by WFNB; and
(vi) any Investment not otherwise permitted by the
foregoing clauses of this Section if, immediately after such
Investment is made or acquired, the aggregate net book value of all
Investments permitted by this clause (f) does not exceed 5% of
Adjusted Consolidated Net Worth of the US Borrower.
(b) The US Borrower shall not, and shall not permit any of its
Subsidiaries to, make (or agree to make, whether or not subject to conditions)
any Restricted Acquisition prior to the Syndication Date. The US Borrower and
its Subsidiaries may make Restricted Acquisitions after the Syndication Date so
long as:
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<PAGE>
(i) the US Borrower and its Subsidiaries shall be in
compliance with all provisions of this Agreement, including all
financial covenants, both before and after giving effect thereto,
with such financial covenants to be calculated on a PRO FORMA basis
as if such Restricted Acquisition had been consummated on the first
day of the then most recently ended period of four consecutive
fiscal quarters and giving effect to (x) the actual historical
financial performance (including EBITDA) of such acquired entity
(y) identifiable cost savings associated with providing data
processing services to such acquired entities; and
(ii) the total consideration paid (including equity
issued and Debt assumed) in connection with any Restricted
Acquisition of a Person which as a result thereof does not become a
Wholly-Owned Subsidiary shall not exceed 10% of Adjusted
Consolidated Net Worth.
SECTION 6.23. CONSOLIDATED CAPITAL EXPENDITURES. The US Borrower
shall not, and shall not permit its Subsidiaries to make Consolidated Capital
Expenditures in any fiscal year exceeding 50% of the US Borrower's previous
fiscal year's Consolidated EBITDA.
SECTION 6.24. LIMITATION ON VOLUNTARY PAYMENTS AND MODIFICATIONS OF
INDEBTEDNESS: MODIFICATIONS OF CERTAIN OTHER AGREEMENTS: ETC. The US Borrower
will not, and will not permit any of its Subsidiaries to, (i) make (or give any
notice in respect of) any voluntary or optional payment or prepayment on or
redemption or acquisition for value of; or make any prepayment or redemption as
a result of any asset sale, change of control or similar event of (including, in
each case, without limitation, by way of depositing with the trustee with
respect thereto or any other Person, money or securities before due for the
purpose of paying when due) the Subordinated Note, the WCAS Subordinated Note or
any Permitted Subordinated Debt or (ii) amend or modify or permit the amendment
or modification of; any provision of the Equity Issuance Documents, the
Subordinated Note (other than any amendments thereto made in accordance with
Section 6.25), the WCAS Subordinated Note, the License Agreements or the WFNB
Note.
SECTION 6.25. CONTINUING OBLIGATIONS. On or before December 31,
1998, the Subordinated Note Documents shall have either been amended to extend
the maturity of the Subordinated Note to a date not earlier than 90 days after
the Final Maturity Date or refinanced by the Welsh, Carson, Anderson & Stowe
Partnerships on substantially the same terms as the existing Subordinated Note,
except that such replacement note shall have a maturity not earlier than the
date which is 90 days after the Final Maturity Date. If such refinancing of the
Subordinated Note occurs, the replacement note shall become the Subordinated
Note for all purposes hereunder.
SECTION 6.26. YEAR 2000 COMPLIANCE. Any reprogramming required to
permit the proper functioning, in and following year 2000, of (i) the computer
systems of the US Borrower and its Subsidiaries and (ii) equipment containing
embedded microchips (including, to the knowledge of the US Borrower, systems and
equipment supplied by others or with which the systems interface) and the
testing of all such systems and equipment, as so reprogrammed, will be completed
by June 30, 1999. The cost to the US Borrower and its Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable consequences of the
Year 2000 Problem
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<PAGE>
to the US Borrower and its Subsidiaries (including, without limitation,
reprogramming errors) will not result in a Default or a material adverse effect
on the properties, assets, liabilities, condition (financial or otherwise) or
prospects of the US Borrower and its Subsidiaries taken as a whole. Except for
such of the reprogramming referred to above in this Section 6.26, the computer
and management information systems of the US Borrower and its Subsidiaries are
and, with ordinary course upgrading and maintenance, will continue to be
sufficient to permit the US Borrower and its Subsidiaries to conduct its
business as presently conducted for the term of this Agreement.
ARTICLE 7
DEFAULTS
SECTION 7. 1. EVENTS OF DEFAULT. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) either Borrower shall fail to pay when due any principal of any
Loan or shall fail to pay within 3 Business Days from the date due any
interest, any fees or any other amount payable hereunder;
(b) any Credit Party shall fail to observe or perform any covenant
contained in Article 6 (other than those contained in Sections 6.1 through
6.3 inclusive, Section 6.5 or Section 6.6) or contained in subsection
3.02(d)(i) or (ii) of the Security Agreement (to the extent such provisions
contain on-going obligations of the Credit Parties) or Section 12.01 of the
Security Agreement;
(c) any Credit Party shall fail to observe or perform any covenant or
agreement contained in this Agreement, the Pledge Agreements, the Security
Agreement and the Canadian Security Documents (other than those covered by
clause (a) or (b) above) for 30 days after notice thereof has been given to
the applicable Credit Party by the Administrative Agent at the request of
the Required Banks;
(d) any representation, warranty, certification or statement made by
any Credit Party in any Credit Document or in any certificate, financial
statement or other document delivered pursuant to this Agreement shall
prove to have been incorrect in any material respect when made (or deemed
made);
(e) any Credit Party or any Subsidiary of any of them shall fail to
make any payment in respect of any Material Financial Obligations when due
or within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt of any Credit Party or
any Subsidiary of a Credit Party or enables (or, with the giving of notice
or lapse of time or both, would enable) the holder of such Debt or any
Person acting on such holder's behalf to accelerate the maturity thereof;
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<PAGE>
(g) any Credit Party or any Subsidiary of any of them shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of; or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
any Credit Party or any Subsidiary of any of them seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against any Credit Party or any Subsidiary of either of them under the
federal bankruptcy laws as now or hereafter in effect;
(i) any member of the ERISA Group shall fail to pay when due an amount
or amounts aggregating in excess of $5,000,000 which it shall have become
liable to pay under Title IV of ERISA; or notice of intent to terminate a
Material Plan shall be filed under Title IV of ERISA by any member of the
ERISA Group, any plan administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of ERISA to terminate,
to impose liability (other than for premiums under Section 4007 of ERISA)
in respect of; or to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of which the PBGC would
be entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or there shall occur a complete or partial withdrawal from, or
a default, within the meaning of Section 4219(c)(5) of ERISA, with respect
to, one or more Multiemployer Plans which could cause one or more members
of the ERISA Group to incur a current payment obligation in excess of
$5,000,000;
(j) judgments or orders for the payment of money aggregating in excess
of $5,000,000 shall be rendered against the US Borrower or any of its
Subsidiaries and such judgments or orders shall continue unsatisfied and
unstayed for a period of 30 days;
(k) a Change of Control shall occur;
(l) any Credit Party shall assert any claim that the security interest
in the Collateral granted by such Credit Party to the Collateral Agent
pursuant to the Security Agreement, the Canadian Security Documents or the
Pledge Agreements is unenforceable, is other than first-priority or is
otherwise invalid;
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<PAGE>
(m) any Guarantor shall revoke its guaranty provided for in Article 10
of this Agreement or assert that its guaranty provided for in Article 10 of
this Agreement is unenforceable or otherwise invalid;
(n) at any time, the Collateral is transferred by either Borrower in
violation of the terms of the Pledge Agreements, Security Agreement or the
Canadian Security Documents;
(o) any License Agreement shall terminate or any arbitration or
litigation shall be commenced in respect thereof (except that any
litigation or arbitration commenced by a Person who is not a party to such
License Agreement shall not result in an Event of Default hereunder unless
such action is not stayed or dismissed within 60 days of the commencement
thereof), or any party shall assert that any termination thereof; or any
party to any License Agreement shall default in any of its obligations
thereunder beyond the period of grace (if any) therein provided;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to the Borrowers terminate the Commitments and they shall thereupon terminate,
(ii) if requested by Banks holding more than 50% of the aggregate principal
amount of the Loans, by notice to the Borrowers declare the Loans (together with
accrued interest thereon and any commitment fee) to be, and the Loans shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrowers; PROVIDED, that in the case of any of the Events of Default specified
in clause 7.1(g) or 7.1(h) above with respect to the Borrowers, without any
notice to the Borrowers or any other act by the Administrative Agent or the
Banks, the Commitments shall thereupon terminate and the Loans (together with
accrued interest thereon and any commitment fee) shall become immediately due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers and (iii) if requested by the
Required Banks enforce, as Collateral Agent, any or all of the Liens and
security interests created pursuant to the Security Documents; (x) terminate any
Letter of Credit which may be terminated in accordance with its terms; (y)
direct the US Borrower to pay (and the US Borrower hereby agrees upon receipt of
such notice, or upon the occurrence of any Event of Default specified in clauses
7.1(g) and 7.1(h) in respect of the US Borrower, it will pay) to the Collateral
Agent at the Payment Office such additional amounts of cash, to be held as
security for the US Borrower's reimbursement obligations in respect of Letters
of Credit then outstanding equal to the aggregate Stated Amount of all Letters
of Credit then outstanding; and (z) apply any cash collateral held pursuant to
this Agreement to repay the Obligations.
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SECTION 7.2. NOTICE OF DEFAULT. (a) Promptly upon becoming aware
that any Default exists, the Borrowers shall provide notice thereof to the
Administrative Agent and each of the Banks stating the nature of the Default,
setting forth the details thereof and the action which the respective Borrower
is taking or proposes to take with respect thereto.
(b) The Administrative Agent shall give notice to the Borrowers
under Section 7.1(c) promptly upon being requested to do so by the Banks and
shall thereupon notify all the Banks thereof.
ARTICLE 8
THE AGENT
SECTION 8. 1. APPOINTMENT AND AUTHORIZATION. (a) Each Bank
irrevocably appoints and authorizes the Administrative Agent to take such action
as agent on its behalf and to exercise such powers under this Agreement and the
Notes as are delegated to the Administrative Agent by the terms hereof or
thereof; together with all such powers as are reasonably incidental thereto. For
greater certainty, and without limiting the powers of the Administrative Agent
hereunder or under any of the Security Documents, the Borrowers hereby
acknowledge that the Administrative Agent shall, for purposes of holding any
security granted by the Borrowers on the Borrowers' property pursuant to the
laws of the Province of Quebec, the holder of an irrevocable power of attorney
(within the meaning of the Civil Code of Quebec) for all present and future
Banks. Each of the Banks hereby irrevocably constitutes, to the extent
necessary, the Administrative Agent, in its capacity as Collateral Agent, as the
holder of an irrevocable power of attorney (within the meaning of Article 2692
of the Civil Code of Quebec) in order to hold security granted by the Borrowers
in the Province of Quebec. Any assignee shall be deemed to have confirmed and
ratified the constitution of the Administrative Agent as the holder of such
irrevocable power of attorney by execution of the relevant assignment and
assumption agreement substantially in the form of Exhibit B. Notwithstanding the
provisions of Section 32 of the Special Corporate Powers Act (Quebec), the
Administrative Agent may acquire and be the holder of any debenture issued by a
Borrower as contemplated under any of the Security Documents at any time and
from time to time. The Borrowers hereby acknowledge that any such debenture
constitutes a title of indebtedness, as such term is used in Article 2692 of the
Civil Code of Quebec.
SECTION 8.2. ADMINISTRATIVE AGENT AND AFFILIATES. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the same
as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with the Borrowers or any
Subsidiary or affiliate of the respective Borrower as if it were not the
Administrative Agent.
SECTION 8.3. ACTION BY ADMINISTRATIVE AGENT. The obligations of the
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the
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generality of the foregoing, the Administrative Agent shall not be required to
take any action with respect to any Default, except as expressly provided in
Article 7.
SECTION 8.4. CONSULTATION WITH EXPERTS. The Administrative Agent
may consult with legal counsel (who may be counsel for the Borrowers and/or any
Guarantor), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
SECTION 8.5. LIABILITY OF ADMINISTRATIVE AGENT. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action taken or
not taken by it in connection herewith (i) with the consent or at the request of
the Required Banks (or, when expressly required hereby, such different number of
Banks required to consent to or request such action or inaction) or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any Borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of the Borrowers or any Guarantor; (iii) the satisfaction of any
condition specified in Article 3, except receipt of items required to be
delivered to the Administrative Agent; or (iv) the validity, effectiveness or
genuineness of this Agreement, the Notes or any other instrument or writing
furnished in connection herewith. The Administrative Agent shall not incur any
liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, facsimile transmission or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties. Without limiting the generality of the foregoing, the use of
the term "agent" in this Agreement with reference to the Administrative Agent is
not intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is used
merely as a matter of market custom and is intended to create or reflect only an
administrative relationship between independent contracting parties.
SECTION 8.6. INDEMNIFICATION. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Administrative Agent, its
affiliates and their respective directors, officers, agents and employees (to
the extent not reimbursed by the Borrowers) against any cost, expense (including
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnities, gross negligence or willful
misconduct) that such indemnities may suffer or incur in connection with this
Agreement or any action taken or omitted by such indemnities hereunder.
SECTION 8.7. CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
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SECTION 8.8. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative
Agent may resign at any time by giving notice thereof to the Banks and the
Borrower. Upon any such resignation, the Required Banks shall have the right to
appoint a successor Administrative Agent. If no successor Administrative Agent
shall have been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent gives notice
of resignation, then the retiring Administrative Agent may, on behalf of the
Banks, appoint a successor Administrative Agent, which shall be a commercial
bank organized or Licensed under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$100,000,000. Upon the acceptance of its appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights and
duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's resignation hereunder as Administrative Agent,
the provisions of this Article shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent.
ARTICLE 9
CHANGE IN CIRCUMSTANCES
SECTION 9. 1. BASIS FOR DETERMINING: INTEREST RATE INACCURATE OR
UNFAIR. If on, or prior to, the first day of any Interest Period for a
Euro-Dollar Loan:
(a) the Administrative Agent determines that deposits in dollars (in
the applicable amounts) are not being offered to the Administrative Agent
in the Euro-Dollar market for such Interest Period, or
(b) in the case of Euro-Dollar Loans, Banks having 50% or more of the
aggregate principal amount of the affected Loans advise the Administrative
Agent that the London Interbank Offered Rate, as determined by the
Administrative Agent, will not adequately and fairly reflect the cost to
such Banks of funding their Euro-Dollar Loans for such Interest Period,
the Administrative Agent shall forthwith give notice thereof to the Borrowers
and the Banks, whereupon until the Administrative Agent notifies the Borrower
that the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make Euro-Dollar Loans or to continue or convert
outstanding Loans as or into Euro-Dollar Loans shall be suspended and (ii) each
outstanding Euro-Dollar Loan shall be converted into a Base Rate Loan on the
last day of the then current Interest Period applicable thereto. Should either
of the events set forth in subclause (a) or (b) above occur, unless the
Borrowers notify the Administrative Agent at least two Domestic Business Days
before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has
previously been given that it elects not to borrow on such date, such Borrowing
shall instead be made as a Base Rate Borrowing.
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SECTION 9.2. ILLEGALITY. If; on or after the Restatement Effective
Date, the adoption of any applicable law, rule or regulation, or any change in
any applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof; or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central Bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and
such Bank shall so notify the Administrative Agent, the Administrative Agent
shall forthwith give notice thereof to the other Banks and the Borrowers,
whereupon until such Bank notifies the Borrowers and the Administrative Agent
that the circumstances giving rise to such suspension no longer exist, the
obligation of such Bank to make Euro-Dollar Loans, or to convert outstanding
Loans into Euro-Dollar Loans, shall be suspended. Before giving any notice to
the Administrative Agent pursuant to this Section, such Bank shall designate a
different Euro-Dollar Lending Office if such designation will avoid the need for
giving such notice and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of
such Bank then outstanding shall be converted to a Base Rate Loan either (a) on
the last day of the then current Interest Period applicable to such Euro-Dollar
Loan if such Bank may lawfully continue to maintain and fund such Loan to such
day or (b) immediately if such Bank shall determine that it may not lawfully
continue to maintain and fund such Loan to such day.
SECTION 9.3. INCREASED COST AND REDUCED RETURN. (a) If on or after
the Restatement Effective Date, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof; or compliance by any Bank (or its Applicable Lending
office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
with respect to any Euro-Dollar Loan any such requirement with respect to which
such Bank is entitled to compensation during the relevant Interest Period under
Section 2. 15), special deposit, insurance assessment or similar requirement
against assets of; deposits with or for the account of; or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or the London interbank market any other condition
affecting its Loans, its Note or its obligation to make Loans and the result of
any of the foregoing his to increase the cost to such Bank (or its Applicable
Lending office) of making or maintaining any Loan, or to reduce the amount of
any sum received or receivable by such Bank (or its Applicable Lending office)
under this Agreement or under its Note with respect thereto, by an amount deemed
by such Bank to be material, then, within 15 days after demand by such Bank
(with a copy to the Administrative Agent), the Borrowers shall pay to such Bank
such additional amount or amounts as will compensate such Bank for such
increased cost or reduction.
(b) If any Bank shall have determined that after the Restatement
Effective Date, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such law, rule or regulation, or any
change in the interpretation or administration
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thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of such Bank (or its Parent) as a
consequence of such Bank's obligations hereunder to a level below that which
such Bank (or its Parent) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction.
(c) Each Bank will promptly notify the Borrowers and the
Administrative Agent of any event of which it has knowledge, occurring after the
Restatement Effective Date, which will entitle such Bank to compensation
pursuant to this Section and will designate a different Applicable Lending
Office if such designation will avoid the need for, or reduce the amount of;
such compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive in the absence of manifest error. In
determining such amount, such Bank may use any reasonable averaging and
attribution methods.
SECTION 9.4. TAXES. (a) For the purposes of this Section 9.4, the
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by a
Borrower or the applicable Guarantor, as the case may be, pursuant to this
Agreement or under any Note, and all liabilities with respect thereto, EXCLUDING
(i) in the case of each Bank and the Administrative Agent, taxes imposed on its
income, and franchise or similar taxes imposed on it, by a jurisdiction under
the laws of which such Bank or the Administrative Agent (as the case may be) is
organized or in which its principal executive office is located or, in the case
of each Bank, in which its Applicable Lending Office is located and (ii) in the
case of each Bank, any United States withholding tax imposed on such payments
but only to the extent that such Bank is subject to United States withholding
tax at the time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or levies,
which arise from any payment made pursuant to this Agreement or under any Note
or from the execution or delivery of; or otherwise with respect to, this
Agreement or any Note.
(b) Any and all payments by a Borrower or the applicable Guarantor,
as the case may be, to or for the account of any Bank or the Administrative
Agent hereunder or under any Note shall be made without deduction for any Taxes
or Other Taxes; PROVIDED, that, if a Borrower or the applicable Guarantor, as
the case may be, shall be required by law to deduct any Taxes or Other Taxes
from any such payments (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums
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payable under this Section) such Bank or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) such Borrower or the applicable Guarantor, as the
case may be, shall make such deductions, (iii) such Borrower or the applicable
Guarantor, as the case may be, shall pay the full amount deducted to the
relevant taxation authority or other authority in accordance with applicable law
and (iv) such Borrower or the applicable Guarantor, as the case may be, shall
furnish to the Administrative Agent, at its address referred to in Section 11.1,
the original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrowers agree to indemnify each Bank and the
Administrative Agent for the full amount of Taxes or other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section) paid by such Bank or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside
the United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by a Borrower (but only
so long as such Bank remains lawfully able to do so), shall provide such
Borrower and the Administrative Agent with Internal Revenue Service form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Bank is entitled to benefits under an income tax
treaty to which the United States is a party which exempts the Bank from United
States withholding tax or reduces the rate of withholding tax on payments of
interest for the account of such Bank or certifying that the income receivable
pursuant to this Agreement is effectively connected with the conduct of a trade
or business in the United States.
(e) For any period with respect to which a Bank has failed to
provide a Borrower or the Administrative Agent with the appropriate form
pursuant to Section 9.4(d) (unless such failure is due to a change in treaty,
law or regulation occurring subsequent to the date on which such form originally
was required to be provided), such Bank shall not be entitled to indemnification
under Section 9.4(b) or (c) with respect to Taxes imposed by the United States;
PROVIDED that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrowers shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes.
(f) If a Borrower is required to pay additional amounts to or for
the account of any Bank pursuant to this Section, then such Bank will change the
jurisdiction of its Applicable Lending office if; in the judgment of such Bank,
such change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
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SECTION 9.5. BASE RATE LOANS SUBSTITUTED FOR AFFECTED FIXED RATE
LOANS. If (i) the obligation of any Bank to make, or convert outstanding Loans
to, Euro.Dollar Loans has been suspended pursuant to Section 9.2 or (ii) any
Bank has demanded compensation under Section 9.3 or 9.4 with respect to its
Euro-Dollar Loans and a Borrower shall, by at least five Euro-Dollar Business
Days' prior notice to such Bank through the Administrative Agent, have elected
that the provisions of this Section shall apply to such Bank, then, unless and
until such Bank notifies such Borrower that the circumstances giving rise to
such suspension or demand for compensation no longer exist:
(a) all Loans which would otherwise be made by such Bank as (or
continued as or converted into) Euro-Dollar Loans shall instead be Base
Rate Loans (on which interest and principal shall be payable
contemporaneously with the related Fixed Rate Loans of the other Banks);
and
(b) after each of its Euro-Dollar Loans has been repaid (or converted
to a Base Rate Loan), all payments of principal which would otherwise be
applied to repay such Fixed Rate Loans shall be applied to repay its Base
Rate Loans instead.
If such Bank notifies a Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a Euro-Dollar Loan on the first day of the next succeeding
Interest Period applicable to the related Euro-Dollar Loans of the other Banks.
ARTICLE 10
PERFORMANCE AND PAYMENT GUARANTY
SECTION 10.1. UNCONDITIONAL AND IRREVOCABLE GUARANTY. (a) The
Guarantors hereby jointly and severally, unconditionally and irrevocably
undertake and agree with and for the benefit of the Administrative Agent and the
Banks and each of their respective permitted assignees (collectively, the
"Beneficiaries") to cause the due payment, performance and observance by the
Borrowers and their assigns of all of the Obligations, terms, covenants,
conditions, agreements and undertakings on the part of the Borrowers, to be
paid, performed or observed under any Credit Document in accordance with the
terms thereof including, without limitation, any agreement of a Borrower to pay
any amounts due with respect to the Loans, under this Agreement or any other
amounts due and owing under any Credit Document (all such Obligations, terms,
covenants, conditions, agreements and undertakings on the part of the Borrowers
to be paid, performed or observed by the Borrowers being collectively called the
"Guaranteed Obligations" provided that with respect to any Foreign Subsidiary,
"Guaranteed Obligations" shall not be deemed to include any obligations of the
US Borrower). In the event that the Borrowers shall fail in any manner
whatsoever to pay, perform or observe any of the Guaranteed Obligations when the
same shall be required to be paid, performed or observed under such Credit
Document (after giving effect to any cure period), then each of the Guarantors
(provided that it is expressly understood that no Foreign Subsidiary shall be
deemed to be a
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Guarantor in respect of the Obligations of the US Borrower) will itself
jointly and severally duly pay, perform or observe, or cause to be duly paid,
performed or observed, such Guaranteed Obligation, and it shall not be a
condition to the accrual of the obligation of any Guarantor hereunder to pay,
perform or observe any Guaranteed Obligation (or to cause the same to be
paid, performed or observed) that the Administrative Agent, the Banks or any
of their permitted assignees shall have first made any request of or demand
upon or given any notice to any Guarantor or to the Borrower or its
successors or assigns, or have instituted any action or proceeding against
any Guarantor or the Borrower or its successors or assigns in respect thereof
Notwithstanding anything to the contrary contained in this Section 10. 1 the
obligations of the respective Guarantors hereunder in respect of the
Borrowers are expressly limited to the Guaranteed Obligations.
(b) IRREVOCABILITY. The Guarantors each agree that its obligations
under this Agreement shall be joint and several and irrevocable. In the event
that under applicable law (notwithstanding the Guarantors' agreement regarding
the joint and several and irrevocable nature of its obligations hereunder) any
Guarantor shall have the right to revoke its guaranty under this Agreement, this
Agreement shall continue in full force and effect as to such Guarantor until a
written revocation hereof specifically referring hereto, signed by such
Guarantor, is actually received by the Administrative Agent, delivered as
provided in Section 11. 1 hereof Any such revocation shall not affect the right
of the Administrative Agent or any other Beneficiary to enforce their respective
rights under this Agreement with respect to (i) any Guaranteed Obligation
(including any Guaranteed Obligation that is contingent or unmatured) which
arose on or prior to the date the aforementioned revocation was received by the
Administrative Agent, (ii) any Assigned Collateral in which a security interest
was acquired by the Administrative Agent or its permitted assignees on or prior
to the date the aforementioned revocation was received by the Administrative
Agent or (iii) any other Guarantor. If the Administrative Agent, or its
permitted assignees takes any action in reliance on this Agreement after any
such revocation by a Guarantor but prior to the receipt by the Administrative
Agent of said written notice, the rights of the Administrative Agent, any other
Beneficiary or such permitted assignee with respect thereto shall be the same as
if such revocation had not occurred.
SECTION 10.2. ENFORCEMENT. The Administrative Agent and its
permitted assignees may proceed to enforce the obligations of the Guarantors
under this Agreement without first pursuing or exhausting any right or remedy
which the Administrative Agent or its permitted assignees may have against the
respective Borrower, any other Person or the Assigned Collateral.
SECTION 10.3. OBLIGATIONS ABSOLUTE. To the extent permitted by law,
the applicable Guarantor will perform its obligations under this Agreement
regardless of any law now or hereafter in effect in any jurisdiction affecting
any of the terms of this Agreement or any document delivered in connection with
this Agreement or the rights of the Administrative Agent or its permitted
assignees with respect thereto. The obligations of each Guarantor under this
Agreement shall be absolute and unconditional irrespective of;
(a) any lack of validity or enforceability or the discharge or
disaffirmance (by any Person, including a trustee in bankruptcy) of the
Guaranteed Obligations, the Loans,
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any Credit Document or any Assigned Collateral or any document, or any
other agreement or instrument relating thereto;
(b) any exchange, release or non-perfection of any Assigned Collateral
or any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Guaranteed Obligations;
(c) any failure to obtain any authorization or approval from or other
action by, or to notify or file with, any governmental authority or
regulatory body required in connection with the performance of such
obligations by the Borrowers or any Guarantor; or
(d) any impossibility or impracticality of performance, illegality,
force majeure, any act of any government or any other circumstance which
might constitute a legal or equitable defense available to, or a discharge
of, a Borrower or any Guarantor, or any other circumstance, event or
happening whatsoever, whether foreseen or unforeseen and whether similar or
dissimilar to anything referred to above in this Section 10.3.
Each Guarantor further agrees that its obligations under this Agreement shall
not be limited by any valuation or estimation made in connection with any
proceedings involving a Borrower or any Guarantor filed under the Bankruptcy
Code of 1978, as amended (the "Bankruptcy Code"), whether pursuant to Section
502 of the Bankruptcy Code or any other Section thereof Each Guarantor further
agrees that the Administrative Agent shall be under no obligation to marshall
any assets in favor of or against or in payment of any or all of the Guaranteed
Obligations. Each Guarantor further agrees that, to the extent that a payment or
payments are made by or on behalf of a Borrower to the Administrative Agent,
which payment or payments or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to such Borrower, the estate, trustee, receiver or any other party
relating to such Borrower, including, without limitation, any Guarantor, under
any bankruptcy law, state or federal law, common law or equitable cause then, to
the extent of such payment or repayment, the Guaranteed Obligations or part
thereof which had been paid, reduced or satisfied by such amount shall be
reinstated and continued in full force and effect as of the date such initial
payment, reduction or satisfaction occurred. The obligations of any Guarantor
under this Agreement shall not be discharged except by performance as provided
herein.
SECTION 10.4. WAIVER. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and any Credit Document and any requirement that the
Administrative Agent or its permitted assignees exhaust any right or take any
action against a Borrower, any other Person or any Assigned Collateral.
SECTION 10.5. SUBROGATION. No Guarantor will exercise or assert any
rights which it may acquire by way of subrogation under this Agreement unless
and until all of the Guaranteed Obligations shall have been paid and performed
in full. If any payment shall be made to any Guarantor on account of any
subrogation rights at any time when all of the Guaranteed Obligations shall not
have been paid and performed in full each and every amount so paid will be
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held in trust for the benefit of the Beneficiaries and forthwith be paid to the
appropriate Beneficiary in accordance with this Agreement and the appropriate
Credit Document, to be credited and applied to the Guaranteed Obligations to the
extent then unsatisfied, in accordance with the terms of this Agreement or any
document delivered in connection with this Agreement, as the case may be. In the
event (i) the Guarantors shall have satisfied any of the Guaranteed Obligations
and (ii) all of the Guaranteed Obligations shall have been paid and performed in
full, the Administrative Agent will, at the Guarantors' request and expense,
execute and deliver to the Guarantors appropriate documents, without recourse
and without representation or warranty of any kind, necessary to evidence or
confirm the transfer by way of subrogation to the Guarantors of the rights of
the Beneficiaries or any permitted assignee, as the case may be, with respect to
the Guaranteed Obligations to which the Guarantors shall have become entitled by
way of subrogation, and thereafter the Beneficiaries and their respective
permitted assignees shall have no responsibility to the Guarantors or any other
person with respect thereof.
SECTION 10.6. SURVIVAL. All covenants made by the Guarantors herein
shall be considered to have been relied upon by the Administrative Agent and the
Banks and shall survive regardless of any investigation made by the
Administrative Agent or any Bank or on the Administrative Agent's behalf.
SECTION 10.7. GUARANTORS' CONSENT TO ASSIGNS. Each Bank may assign
or participate out all or any portion of its Commitment or the Loans in
accordance with Section 11.6 of this Agreement, and each Guarantor agrees to
recognize any such Assignee or participant as a successor and assignee of such
Bank hereunder, with all rights of such Bank hereunder.
SECTION 10.8. CONTINUING AGREEMENT. Article 10 under this Agreement
is a continuing agreement and shall remain in full force and effect until all of
the Borrowers' Obligations have been satisfied in full.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1. NOTICES. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
facsimile transmission or similar writing) and shall be given to such party: (a)
in the case of a Credit Party or the Administrative Agent, at its address or
facsimile number set forth on the signature pages hereof; (b) in the case of any
Bank, at its address or facsimile number set forth on the signature pages hereof
or (c) in the case of any party, such other address or facsimile number as such
party may hereafter specify for the purpose by notice to the Administrative
Agent and the Borrowers. Each such notice, request or other communication shall
be effective (i) if given by facsimile transmission, when transmitted to the
facsimile number specified in this Section and confirmation of receipt is
received, (ii) if given by mail, 72 hours after such communication is deposited
in the mails with first class postage prepaid, addressed as aforesaid or (iii)
if given by any other means, when delivered at the address specified in this
Section; PROVIDED that notices to the Administrative Agent under Article 2 or
Article 9 shall not be effective until received.
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SECTION 11.2. NO WAIVERS. No failure or delay by the Administrative
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 11.3. EXPENSES: INDEMNIFICATION. (a) The Borrowers shall
pay (i) all out-of-pocket expenses of the Administrative Agent, including fees
and disbursements of White & Case LLP, special counsel for the Administrative
Agent, in connection with the preparation and administration of this Agreement
and the other Credit Documents, any waiver or consent hereunder or any amendment
hereof or any Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all out-of-pocket expenses incurred by the Administrative Agent
and each Bank including (without duplication) the fees and disbursements of
outside counsel and the allocated cost of inside counsel, in connection with
such Event of Default and collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom.
(b) The Borrowers agree to indemnify the Administrative Agent and
each Bank, their respective affiliates and the respective directors, officers,
agents and employees of the foregoing (each an "Indemnitee") and hold each
Indemnitee harmless from and against any and all liabilities, losses, damages,
costs and expenses of any kind, including, without limitation, the reasonable
fees and disbursements of counsel, which may be incurred by such Indemnitee in
connection with any investigative, administrative or judicial proceeding
(whether or not such Indemnitee shall be designated a party thereto) brought or
threatened relating to or arising out of this Agreement or any actual or
proposed use of proceeds of Loans hereunder; PROVIDED, that no Indemnitee shall
have the right to be indemnified hereunder for such Indemnitee's own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
SECTION 11.4. SHARING: OF SET-OFFS. Each Bank agrees that if it
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of a proportion of the aggregate amount of principal and interest due
with respect to any Note held by it which is greater than the proportion
received by any other Bank in respect of the aggregate amount of principal and
interest due with respect to any Note held by such other Bank, the Bank
receiving such proportionately greater payment shall purchase such
participations in the Notes held by the other Banks, and such other adjustments
shall be made, as may be required so that all such payments of principal and
interest with respect to the Notes held by the Banks shall be shared by the
Banks in accordance with the provisions of Section 2.12(B); PROVIDED, that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of a Borrower other than its
indebtedness hereunder. Each Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of such Borrower in the amount of such participation.
SECTION 11.5. AMENDMENT OR WAIVER: ETC. Neither this Agreement nor
any other Credit Document nor any terms hereof or thereof may be changed,
waived, discharged or
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terminated unless such change, waiver, discharge or termination is in writing
signed by the respective Credit Parties party thereto and the Required Banks,
PROVIDED that no such change, waiver, discharge or termination shall, without
the consent of each Bank (with Obligations being directly affected in the case
of following clause (i) and (ii)), (i) extend the final scheduled maturity of
any Loan or Note, or reduce the rate of interest or fees or extend the time of
payment of interest or fees, or reduce the principal amount thereof (except to
the extent repaid in cash) (provided that any amendment or modification to the
financial definitions in this Agreement or to Section 2. 14 shall not constitute
a reduction in the rate of interest or any fees for purposes of this clause
(i)), (ii) release all or substantially all of the Collateral, (iii) release a
Guarantor from its Guaranty of the Obligations of the Borrowers (except in
connection with the sale of a Subsidiary which is a Guarantor in accordance with
the terms of this Agreement), (iv) amend, modify or waive any provision of this
Section 11.5, (v) reduce the percentage specified in the definition of Required
Banks (it being understood that, with the consent of the Required Banks,
additional extensions of credit pursuant to this Agreement may be included in
the determination of the Required Banks on substantially the same basis as the
extensions of Term Loans and Revolving Loan Commitments are included on the
Restatement Effective Date) or (vi) consent to the assignment or transfer by a
Borrower of any of its rights and obligations under this Agreement; PROVIDED
FURTHER, that no such change, waiver, discharge or termination shall (u) without
the consent of each Letter of Credit Issuer amend, modify or waive any provision
of Article 2A or alter its rights or obligations with respect to Letters of
Credit, (v) increase the Commitments of any Bank over the amount thereof then in
effect without the consent of such Bank (it being understood that waivers or
modifications of conditions precedent, covenants, Defaults or of a mandatory
reduction in the Total Commitments shall not constitute an increase of the
Commitment of any Bank, and that an increase in the available portion of any
Commitment of any Bank shall not constitute an increase of the Commitment of
such Bank), (w) without the consent of the Administrative Agent, amend, modify
or waive any provision of Article 8 or any other provision as same relates to
the rights or obligations of the Administrative Agent, (x) without the consent
of the Collateral Agent, amend, modify or waive any provision relating to the
rights or obligations of the Collateral Agent, (y) without the consent of the
Majority Banks of each Tranche which is being allocated a lesser prepayment,
repayment or commitment reduction as a result of the actions described below (or
without the consent of the Majority Banks of each Tranche in the case of an
amendment to the definition of Majority Banks), amend the definition of Majority
Banks (provided that, with the consent of the Required Banks, additional
extensions of credit pursuant to this Agreement may be included in the
determination of the Majority Banks on substantially the same basis as the
extensions of Term Loans and Revolving Loan Commitments are included on the
Restatement Effective Date) or alter the required application of any prepayments
or repayments (or commitment reductions), as between the various Tranches,
pursuant to Section 2.12(B) (although the Required Banks may waive, in whole or
in part, any such prepayment, repayment or commitment reduction, so long as the
application, as amongst the various Tranches, of any such prepayment, repayment
or commitment reduction which is still required to be made is not altered) or
(z) without the consent of the Supermajority Banks of the respective Tranche,
reduce the amount of; or extend the date of; any Scheduled Repayment or without
the consent of the Supermajority Banks of each Tranche, amend the definition of
Supermajority Banks (it being understood that, with the consent of the Required
Banks, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Supermajority Banks on
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substantially the same basis as the extensions of Term Loans and Revolving Loan
Commitments are included on the Restatement Effective Date).
SECTION 11.6. SUCCESSORS AND ASSIGNS. (a) The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that neither the Borrowers
nor any Guarantor may assign or otherwise transfer any of their respective
rights under this Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such Want by a Bank of a
participating interest to a Participant, whether or not upon notice, to the
respective Borrower and the Administrative Agent, such Bank shall remain
responsible for the performance of its obligations hereunder, and the Borrowers
and the Administrative Agent shall continue to deal solely and directly with
such Bank in connection with such Bank's rights and obligations under this
Agreement. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Borrowers hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement except to the extent such amendment
or waiver would (i) extend the final scheduled maturity of any Loan or Note in
which such participant is participating, or reduce the rate or extend the time
of payment of interest, or fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof; or increase the amount of the participant's
participation over the amount thereof then in effect (it being understood that a
waiver of any Default or of a mandatory reduction in the Total Commitment, shall
not constitute a change in the terms of such participation, and that an increase
in any Commitment or Loan shall be permitted without the consent of any
participant if the participant's participation is not increased as a result
thereof), (ii) consent to the assignment or transfer by the respective Borrower
of any of its rights and obligations under this Agreement or (iii) release all
or substantially all of the Collateral under the Security Documents (except as
expressly provided in the Credit Documents). In the case of any such
participation, the participant shall not have any rights under this Agreement or
any of the other Credit Documents (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement executed by
such Bank in favor of the participant relating thereto) and all amounts payable
by the Borrowers hereunder shall be determined as if such Bank had not sold such
participation. The Borrowers agree that each Participant shall, to the extent
provided in its participation agreement, be entitled to the benefits of Article
9 with respect to its participating interest. An assignment or other transfer
which is not permitted by subsection (c) or (d) below shall be given effect for
purposes of this Agreement only to the extent of a participating interest
granted in accordance with this subsection (b).
(c) Any Bank (or any Bank together with one or more other Banks)
may (A) assign all or a portion of its Commitments and related outstanding
Obligations hereunder to (i) its parent company and/or any affiliate of such
Bank which is at least 50% owned by such Bank or its parent company, (ii) to one
or more Banks or (iii) in the case of a Bank that is a fund that invests in bank
loans, any other fund that invests in bank loans and is managed or advised by
the same
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<PAGE>
investment advisor of such Bank or by an Affiliate of such investment advisor or
(B) assign all, or if less than all, a portion equal to at least $5,000,000 in
the aggregate for the assigning Bank or assigning Banks, of such Commitments and
related outstanding Obligations hereunder to one or more Eligible Transferees,
each of which assignees shall become a party to this Agreement as a Bank by
execution of an Assignment and Assumption Agreement, PROVIDED that, (i) at such
time Schedule I shall be deemed modified to reflect the Commitments (or
outstanding Term Loans, as the case may be) of such new Bank and of the existing
Banks, (ii) upon the surrender of the relevant Notes by the assigning Bank (or,
upon such assigning Bank's indemnifying the Borrower for any lost Note pursuant
to a customary indemnification agreement) new Notes will be issued, at the
respective Borrower's expense, to such new Bank and to the assigning Bank upon
the request of such new Bank or assigning Bank, such new Notes to be in
conformity with the requirements of Section 2.4 (with appropriate modifications)
to the extent needed to reflect the revised Commitments (or outstanding Term
Loans, as the case may be), (iii) the consent of the Administrative Agent shall
be required in connection with any assignment to an Eligible Transferee pursuant
to clause (B) above (which consent shall not be unreasonably withheld or
delayed), (iv) so long as no Default or Event of Default exists, the consent of
the respective Borrower shall be required in connection with any assignment to
an Eligible Transferee pursuant to clause (B) above (which consent shall not be
unreasonably withheld or delayed, (v) the Administrative Agent shall receive at
the time of each such assignment, from the assigning or assignee Bank, the
payment of a non-refundable assignment fee of $3,500, which fee shall not be
subject to reimbursement from the respective Borrower and (vi) no such transfer
or assignment will be effective until recorded by the Administrative Agent. To
the extent of any assignment pursuant to this Section 13.04(b), the assigning
Bank shall be relieved of its obligations hereunder with respect to its assigned
Commitments. At the time of each assignment pursuant to this Section 11.6(c) to
a Person which is not already a Bank hereunder and which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for Federal
income tax purposes, the respective assignee Bank shall, to the extent legally
entitled to do so, provide to the respective Borrower the appropriate Internal
Revenue Service forms described in Section 9.4(b).
(d) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 9.3 or 9.4
than such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made (i) with the respective Borrower's
prior written consent or (ii) by reason of the provisions of Section 9.2, 9.3 or
9.4 requiring such Bank to designate a different Applicable Lending Office under
certain circumstances or (iii) at a time when the circumstances giving rise to
such greater payment did not exist.
SECTION 11.7. COLLATERAL. Each of the Banks represents to the
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provided for in this Agreement.
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<PAGE>
SECTION 11.8. GOVERNING: LAW: SUBMISSION TO JURISDICTION: JUDGMENT
CURRENCY. (a) THIS AGREEMENT AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. The Borrowers hereby submit
to the nonexclusive jurisdiction of the United States District Court for the
Southern District of New York and of any New York State court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Agreement or the transactions contemplated hereby. The Borrowers
irrevocably waive, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
(b) (i) If; for the purposes of obtaining judgment in any court, it
is necessary to convert a sum due to a Bank in any currency (the "Original
Currency") into another currency (the "Other Currency"), the parties agree, to
the fullest extent that they may effectively do so, that the rate of exchange
used shall be that at which, in accordance with normal banking procedures, such
Bank could purchase the Original Currency with the Other Currency on the
Domestic Business Day preceding the day on which final judgment is given or, if
permitted by applicable law, on the day on which the judgment is paid or
satisfied.
(ii) The obligations of the Borrowers in respect of any sum due in
the Original Currency from it to the Banks under any of the Credit documents
shall, notwithstanding any judgment in any Other Currency, be discharged only to
the extent that on the Domestic Business Day following receipt by the Banks of
any sum adjudged to be so due in the Other Currency, the Banks may, in
accordance with normal banking procedures, purchase the Original Currency with
such Other Currency. If the amount of the Original Currency so purchased is less
than the sum originally due to the Banks in the Original Currency, the Borrowers
agree, as a separate obligation and notwithstanding the judgment, to indemnify
the Banks against any loss, and, if the amount of the Original Currency so
purchased exceeds the sum originally due to the Banks in the Original Currency,
the Banks shall remit such excess to the respective Borrower.
SECTION 11.9. COUNTERPARTS: INTEGRATION: EFFECTIVENESS. This
Agreement may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Administrative
Agent of counterparts hereof signed by each of the parties hereto (or, in the
case of any party as to which an executed counterpart shall not have been
received, receipt by the Administrative Agent in form satisfactory to it of
telegraphic, facsimile or other written confirmation from such party of
execution of a counterpart hereof by such party) and each of the other
conditions specified in Section 3. 1 have been satisfied.
SECTION 11.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR
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<PAGE>
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
ALLIANCE DATA SYSTEMS CORPORATION,
as a Borrower and Guarantor
By /s/ Edward K. Mims
-------------------------------------
Title: Executive Vice President &
Chief Financial Officer
Address: 17655 Waterview Parkway,
Dallas, TX 75252
Telephone: (972) 348-5135
Facsimile: (972) 348-5330
LOYALTY MANAGEMENT GROUP CANADA INC.,
as a Borrower
By /s/ Carolyn S. Melvin
-------------------------------------
Title: Secretary
Address: 800 TechCenter Drive,
Gahanna, OH 43230
Telephone: (614) 729-4900
Facsimile: (614)729-4949
ADS ALLIANCE DATA SYSTEMS, INC.
as a Guarantor
By /s/ Edward K. Mims
-------------------------------------
Title: Executive Vice President &
Chief Financial Officer
Address: 17655 Waterview Parkway,
Dallas, TX 75252
Telephone: (972) 348-5135
Facsimile: (972) 348-5330
HARMONIC SYSTEMS INCORPORATED,
as a Guarantor
By /s/ Edward K. Mims
-------------------------------------
Title: Chief Financial Officer
Address: 17655 Waterview Parkway,
Dallas, TX 75252
Telephone: (972) 348-5135
Facsimile: (972) 348-5330
HARMONIC TECHNOLOGY LICENSING, INC.,
as a Guarantor
By /s/ Edward K. Mims
-------------------------------------
Title: Chief Financial Officer
Address: 17655 Waterview Parkway,
Dallas, TX 75252
Telephone: (972) 348-5135
Facsimile: (972) 348-5330
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, Individually and as Administrative
Agent
By /s/ David Koran
-------------------------------------
Title: Vice President
Address: 60 Wall Street
New York, NY 10260
Telephone: (212) 648-7679
Facsimile: (212) 648-5005
Domestic Lending Office
60 Wall Street
New York, NY 10260
Euro-Dollar Lending Office
60 Wall Street
New York, NY 10260
<PAGE>
EXECUTION COPY
WORLD FINANCIAL NETWORK NATIONAL BANK,
Transferor and Servicer
and
THE BANK OF NEW YORK,
Trustee
WORLD FINANCIAL NETWORK CREDIT CARD MASTER TRUST III
POOLING AND SERVICING AGREEMENT
Dated as of January 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2. Other Interpretive Provisions. . . . . . . . . . . . . 21
ARTICLE II CONVEYANCE OF RECEIVABLES . . . . . . . . . . . . . . . . . 22
SECTION 2.1. Conveyance of Receivables. . . . . . . . . . . . . . . 22
SECTION 2.2. Acceptance by Trustee. . . . . . . . . . . . . . . . . 24
SECTION 2.3. Representations and Warranties of Transferor
Relating to Transferor . . . . . . . . . . . . . . . 24
SECTION 2.4. Representations and Warranties of Transferor
Relating to Transaction Documents and the
Receivables . . . . . . . . . . . . . . . . . . . . 27
SECTION 2.5. Reassignment of Ineligible Receivables . . . . . . . . 29
SECTION 2.6. Reassignment of Receivables in Trust Portfolio . . . . 30
SECTION 2.7. Covenants of Transferor. . . . . . . . . . . . . . . . 31
SECTION 2.8. Addition of Accounts . . . . . . . . . . . . . . . . . 33
SECTION 2.9. Removal of Accounts. . . . . . . . . . . . . . . . . . 36
SECTION 2.10. Discount Option. . . . . . . . . . . . . . . . . . . . 38
SECTION 2.11. Additional Transferors . . . . . . . . . . . . . . . . 39
SECTION 2.12. Additional Credit Card Originators . . . . . . . . . . 39
ARTICLE III ADMINISTRATION AND SERVICING. . . . . . . . . . . . . . . . 39
SECTION 3.1. Acceptance of Appointment and Other Matters
Relating to Servicer . . . . . . . . . . . . . . . . 39
SECTION 3.2. Servicing Compensation . . . . . . . . . . . . . . . . 40
SECTION 3.3. Representations, Warranties and Covenants of
Servicer . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.4. Reports to Trustee . . . . . . . . . . . . . . . . . . 45
SECTION 3.5. Annual Certificate of Servicer . . . . . . . . . . . . 46
SECTION 3.6. Annual Servicing Report of Independent
Public Accountants; Copies of Reports
Available. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 3.7. Tax Treatment. . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.8. Notices to WFN . . . . . . . . . . . . . . . . . . . . 47
i
<PAGE>
SECTION 3.9. Adjustments. . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE IV RIGHTS OF HOLDERS; ALLOCATIONS. . . . . . . . . . . . . . . 48
SECTION 4.1. Rights of Holders. . . . . . . . . . . . . . . . . . . 48
SECTION 4.2. Establishment of Collection Account and
Excess Funding Account . . . . . . . . . . . . . . . 49
SECTION 4.3. Collections and Allocations. . . . . . . . . . . . . . 50
SECTION 4.4. Shared Principal Collections . . . . . . . . . . . . . 52
SECTION 4.5. Excess Finance Charge Collections. . . . . . . . . . . 52
ARTICLE V DISTRIBUTIONS AND REPORTS . . . . . . . . . . . . . . . . . 53
ARTICLE VI THE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.1. The Certificates . . . . . . . . . . . . . . . . . . . 53
SECTION 6.2. Authentication of Certificates . . . . . . . . . . . . 53
SECTION 6.3. New Issuances. . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.4. Registration of Transfer and Exchange of
Certificates . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.5. Mutilated, Destroyed, Lost or Stolen Certificates. . . 60
SECTION 6.6. Persons Deemed Owners. . . . . . . . . . . . . . . . . 61
SECTION 6.7. Appointment of Paying Agent. . . . . . . . . . . . . . 61
SECTION 6.8. Access to List of Registered Holders'
Names and Addresses. . . . . . . . . . . . . . . . . 62
SECTION 6.9. Authenticating Agent . . . . . . . . . . . . . . . . . 62
SECTION 6.10. Book-Entry Certificates. . . . . . . . . . . . . . . . 63
SECTION 6.11. Notices to Clearing Agency . . . . . . . . . . . . . . 64
SECTION 6.12. Definitive Certificates. . . . . . . . . . . . . . . . 65
SECTION 6.13. Global Certificate . . . . . . . . . . . . . . . . . . 65
SECTION 6.14. Uncertificated Classes . . . . . . . . . . . . . . . . 65
ARTICLE VII OTHER MATTERS RELATING TO
TRANSFEROR . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 7.1. Liability of Transferor. . . . . . . . . . . . . . . . 66
SECTION 7.2. Merger or Consolidation of, or Assumption
of the Obligations of, Transferor. . . . . . . . . . 66
SECTION 7.3. Limitations on Liability of Transferor . . . . . . . . 67
SECTION 7.4. Liabilities. . . . . . . . . . . . . . . . . . . . . . 68
ii
<PAGE>
ARTICLE VIII OTHER MATTERS RELATING TO SERVICER. . . . . . . . . . . . . 68
SECTION 8.1. Liability of Servicer. . . . . . . . . . . . . . . . . 68
SECTION 8.2. Merger or Consolidation of, or Assumption
of the Obligations of, Servicer. . . . . . . . . . . 68
SECTION 8.3. Limitation on Liability of Servicer and Others . . . . 69
SECTION 8.4. Servicer Indemnification of the Trust and Trustee. . . 70
SECTION 8.5. Servicer Not to Resign . . . . . . . . . . . . . . . . 70
SECTION 8.6. Access to Certain Documentation and
Information Regarding the Receivables. . . . . . . . 71
SECTION 8.7. Delegation of Duties . . . . . . . . . . . . . . . . . 71
ARTICLE IX EARLY AMORTIZATION EVENTS . . . . . . . . . . . . . . . . . 71
SECTION 9.1. Early Amortization Events. . . . . . . . . . . . . . . 71
SECTION 9.2. Additional Rights upon Certain Events. . . . . . . . . 72
ARTICLE X SERVICER DEFAULTS . . . . . . . . . . . . . . . . . . . . . 73
SECTION 10.1. Servicer Defaults. . . . . . . . . . . . . . . . . . . 73
SECTION 10.2. Trustee to Act; Appointment of Successor . . . . . . . 76
SECTION 10.3. Notification to Holders. . . . . . . . . . . . . . . . 78
SECTION 10.4. Waiver of Past Defaults. . . . . . . . . . . . . . . . 78
ARTICLE XI TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . 78
SECTION 11.1. Duties of Trustee. . . . . . . . . . . . . . . . . . . 78
SECTION 11.2. Certain Matters Affecting Trustee. . . . . . . . . . . 80
SECTION 11.3. Trustee Not Liable for Recitals in Certificates. . . . 81
SECTION 11.4. Trustee Not to Own Certificates. . . . . . . . . . . . 82
SECTION 11.5. Servicer to Pay Trustee's Fees and Expenses. . . . . . 82
SECTION 11.6. Eligibility Requirements for Trustee . . . . . . . . . 82
SECTION 11.7. Resignation or Removal of Trustee. . . . . . . . . . . 83
SECTION 11.8. Successor Trustee. . . . . . . . . . . . . . . . . . . 83
SECTION 11.9. Merger or Consolidation of Trustee . . . . . . . . . . 84
SECTION 11.10. Appointment of Co-Trustee or Separate Trustee. . . . . 84
SECTION 11.11. Tax Return . . . . . . . . . . . . . . . . . . . . . . 85
SECTION 11.12. Trustee May Enforce Claims Without
Possession of Certificates . . . . . . . . . . . . . 86
SECTION 11.13. Suits for Enforcement. . . . . . . . . . . . . . . . . 86
SECTION 11.14. Rights of Holders to Direct Trustee. . . . . . . . . . 86
SECTION 11.15. Representations and Warranties of Trustee. . . . . . . 87
iii
<PAGE>
SECTION 11.16. Maintenance of Office or Agency. . . . . . . . . . . . 87
SECTION 11.17. Confidentiality. . . . . . . . . . . . . . . . . . . . 87
ARTICLE XII TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 88
SECTION 12.1. Termination of Trust . . . . . . . . . . . . . . . . . 88
SECTION 12.2. Final Distribution . . . . . . . . . . . . . . . . . . 88
SECTION 12.3. Transferor's Termination Rights. . . . . . . . . . . . 90
ARTICLE XIII MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . 90
SECTION 13.1. Amendment; Waiver of Past Defaults . . . . . . . . . . 90
SECTION 13.2. Protection of Right, Title and Interest to Trust . . . 92
SECTION 13.3. Limitation on Rights of Holders. . . . . . . . . . . . 93
SECTION 13.4. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . 94
SECTION 13.5. Notices, Payments. . . . . . . . . . . . . . . . . . . 94
SECTION 13.6. Rule 144A Information. . . . . . . . . . . . . . . . . 95
SECTION 13.7. Severability of Provisions . . . . . . . . . . . . . . 95
SECTION 13.8. Certificates Nonassessable and Fully Paid. . . . . . . 95
SECTION 13.9. Further Assurances . . . . . . . . . . . . . . . . . . 95
SECTION 13.10. Nonpetition Covenant . . . . . . . . . . . . . . . . . 96
SECTION 13.11. No Waiver; Cumulative Remedies . . . . . . . . . . . . 96
SECTION 13.12. Counterparts . . . . . . . . . . . . . . . . . . . . . 96
SECTION 13.13. Third-Party Beneficiaries. . . . . . . . . . . . . . . 96
SECTION 13.14. Actions by Holders . . . . . . . . . . . . . . . . . . 96
SECTION 13.15. Merger and Integration . . . . . . . . . . . . . . . . 97
</TABLE>
iv
<PAGE>
EXHIBITS
Exhibit A Form of Transferor Certificate
Exhibit B Form of Assignment of Receivables in
Supplemental Accounts
Exhibit C Form of Reassignment of Receivables in
Removed Accounts
Exhibit D Form of Annual Servicer's Certificate
Exhibit E-1 Private Placement Legend
Exhibit E-2 Form of Undertaking Letter
Exhibit E-3 ERISA Legend
Exhibit F-1 Form of Opinion of Counsel with respect
to Amendments
Exhibit F-2 Form of Opinion of Counsel with respect
to Addition of Supplemental Accounts
v
<PAGE>
POOLING AND SERVICING AGREEMENT, dated as of January 30, 1998 between
WORLD FINANCIAL NETWORK NATIONAL BANK, a national banking association ("WFN"),
as Transferor and as Servicer, and THE BANK OF NEW YORK, a New York banking
corporation, as Trustee.
In consideration of the mutual agreements herein contained, each party
agrees as follows for the benefit of the other parties, the Holders and any
Enhancement Provider to the extent provided herein and in any Supplement:
ARTICLE I DEFINITIONS
SECTION I.1. DEFINITIONS. When used in this Agreement, the following
words and phrases have the following meanings. The definitions of such terms are
applicable to the singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of such terms.
"ACCOUNT" means each Initial Account, each Automatic Additional Account
and each Supplemental Account, but excludes any Account all the Receivables in
which are either reassigned or assigned to Transferor or its designee or
Servicer in accordance with this Agreement and any inactive Accounts which in
accordance with the Credit Card Guidelines have been removed from the computer
records of the Credit Card Originator. The term "Account" includes each account
into which an Account is transferred (a "TRANSFERRED ACCOUNT") so long as (a)
such transfer is made in accordance with the Credit Card Guidelines and (b) such
Transferred Account can be traced or identified, by reference to or by way of
the Account Schedule delivered to Trustee pursuant to SECTION 2.1 or 2.8(d), as
an account into which an Account has been transferred. The term "Account"
includes an Automatic Additional Account or a Supplemental Account only from and
after its Addition Date and includes any Removed Account only prior to its
Removal Date.
"ACCOUNT SCHEDULE" means a computer file or microfiche list containing a
true and complete list of Accounts, identified by account number and setting
forth the Receivable balance as of (a) the Trust Cut Off Date (for the Account
Schedule delivered on the Initial Closing Date), (b) the end of the related
Monthly Period (for any Account Schedule relating to Automatic Additional
Accounts) or (c) the related Addition Cut Off Date (for any Account Schedule
delivered in connection with any designation of Supplemental Accounts).
"ACQUIRED PORTFOLIO RECEIVABLE" means any receivable acquired by
Transferor from an Other Originator in connection with Transferor's acquisition
of a portfolio of revolving credit card accounts from such Other Originator
(prior to the transfer of such receivable to the Trust pursuant to this
Agreement).
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"ADDITION" means the designation of additional Eligible Accounts to be
included as Accounts pursuant to SECTION 2.8(a), (b) or (c) or of Participation
Interests to be included as Trust Assets pursuant to SECTION 2.8(b) or (c), as
applicable.
"ADDITION CUT OFF DATE" means the date as of which any Supplemental
Accounts or Participation Interests are designated for inclusion in the Trust,
as specified in the related Assignment.
"ADDITION DATE" means (a) as to Supplemental Accounts, the date on which
the Receivables in such Supplemental Accounts are conveyed to the Trust pursuant
to SECTION 2.8(b) or (c), as applicable, (b) as to Automatic Additional
Accounts, the date on which such accounts are created or otherwise become
Automatic Additional Accounts and (c) as to Participation Interests, the date
from and after which such Participation Interests are to be included as Trust
Assets pursuant to SECTION 2.8(b) or (c).
"ADDITIONAL ACCOUNT" means an Automatic Additional Account or a
Supplemental Account.
"ADJUSTED INVESTED AMOUNT" is defined, as to any Series, in the related
Supplement.
"AFFILIATE" means, as to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For this purpose, "control" means the power to direct the management and
policies of a Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and "controlling" and "controlled"
have correlative meanings.
"AGREEMENT" means this Pooling and Servicing Agreement and, for purposes
of any Series, the related Supplement.
"AMORTIZATION PERIOD" means, as to any Series or any Class within a
Series, any period specified in the related Supplement during which a share of
principal collections is set aside to repay the principal investment in that
Series (excluding repayments of a Variable Interest during its revolving
period).
"APPLICANTS" is defined in SECTION 6.8.
"APPOINTMENT DATE" is defined in SECTION 9.2(a).
"APPROVED PORTFOLIO" means any Identified Portfolio and any additional
portfolio that is designated as an Approved Portfolio pursuant to SECTION
2.8(e).
"ASSIGNMENT" is defined in SECTION 2.8(d)(ii).
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"AUTHORIZED NEWSPAPER" means any newspaper or newspapers of general
circulation in the Borough of Manhattan, The City of New York printed in the
English language (and, with respect to any Series or Class, if and so long as
the Investor Certificates of such Series or Class are listed on the Luxembourg
Stock Exchange and such exchange shall so require, in Luxembourg, printed in any
language satisfying the requirements of such exchange) and customarily published
on each business day at such place, whether or not published on Saturdays,
Sundays or holidays.
"AUTOMATIC ADDITION SUSPENSION DATE" is defined in SECTION 2.8(a).
"AUTOMATIC ADDITION TERMINATION DATE" is defined in SECTION 2.8(a).
"AUTOMATIC ADDITIONAL ACCOUNT" means each open end credit card account in
any Approved Portfolio that is established pursuant to a Credit Card Agreement
coming into existence after (a) the Trust Cut Off Date (in the case of an
account in the Identified Portfolio) or (b) the Addition Cut Off Date relating
to the first Addition Date on which receivables from accounts in the applicable
portfolio are transferred to the Trust (in the case of an account in any other
Approved Portfolio) and, in either case, prior to the Automatic Addition
Termination Date or an Automatic Addition Suspension Date, or subsequent to a
Restart Date. In addition, accounts in an Approved Portfolio that were in
existence, but were not Eligible Accounts, on (x) the Trust Cut Off Date (in the
case of an account in the Identified Portfolio) or (y) the Addition Cut Off Date
relating to the first Addition Date on which receivables from accounts in the
applicable portfolio are transferred to the Trust (in the case of an account in
any other Approved Portfolio) but which, in either case, become Eligible
Accounts prior to the Automatic Addition Termination Date or an Automatic
Addition Suspension Date, or subsequent to a Restart Date, shall also be
"Automatic Additional Accounts" and shall be deemed, for purposes of the
definition of "Eligible Account" and SECTION 2.8(a), to have been created on the
first day after the Trust Cut Off Date or applicable Addition Cut Off Date on
which they are Eligible Accounts.
"BANC ONE" means Banc One, Dayton, N.A., a national banking association.
"BASE RATE" is defined, as to any Series, in the related Supplement.
"BEARER CERTIFICATE" is defined in SECTION 6.1.
"BENEFIT PLAN" is defined in SECTION 6.4(c).
"BOOK-ENTRY CERTIFICATES" means beneficial interests in the Investor
Certificates, ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in SECTION 6.10.
"BUSINESS DAY" means any day other than (a) a Saturday or Sunday, (b) any
other day on which national banking associations or state banking institutions
in New York, New York or
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Columbus, Ohio are authorized or obligated by law, executive order or
governmental decree to be closed or (c) for purposes of any particular
Series, any other day specified in the related Supplement.
"CERTIFICATE" means an Investor Certificate, a Supplemental
Certificate or the Transferor Certificate.
"CERTIFICATE OWNER" means, with respect to a Book-Entry Certificate, the
Person who is the owner of such Book-Entry Certificate, as reflected on the
books of the Clearing Agency, or on the books of a Person maintaining an account
with such Clearing Agency (directly or as an indirect participant, in accordance
with the rules of such Clearing Agency).
"CERTIFICATE REGISTER" is defined in SECTION 6.4.
"CLASS" means any class of Investor Certificates of any Series.
"CLEARING AGENCY" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Exchange Act.
"CLEARING AGENCY PARTICIPANT" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"CLOSING DATE" means, as to any Series, the date on which that Series is
issued.
"CO-BRANDING AGREEMENT" means an agreement entered into by Transferor
with Service Merchandise, relating to the origination by Transferor of
MasterCard and/or VISA credit card accounts and which includes benefits for the
obligors of such accounts provided by Service Merchandise.
"COLLECTION ACCOUNT" is defined in SECTION 4.2.
"COLLECTIONS" means all payments (including Recoveries of Principal
Receivables or Finance Charge Receivables and Insurance Proceeds, whether or not
treated as Recoveries) received by Servicer with respect to the Receivables,
including In-Store Payments, in the form of cash, checks (to the extent
collected), wire transfers or other form of payment in accordance with the
Credit Card Agreement in effect from time to time on any Receivables. If so
specified in any Supplement, Collections shall also include any payments
received by Servicer with respect to Participation Interests.
"COMMISSION" means the Securities and Exchange Commission.
"CONFIDENTIAL INFORMATION" is defined in SECTION 11.17.
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"CORPORATE TRUST OFFICE" is defined in SECTION 11.16.
"COUPON" is defined in SECTION 6.1.
"CREDIT CARD AGREEMENT" means, as to any Account, the agreements between
the Credit Card Originator that owns the Account (including WFN as assignee of
an Other Originator) and the related Obligor that govern the Account, as amended
or otherwise modified from time to time.
"CREDIT CARD GUIDELINES" means the written policies and procedures of the
Credit Card Originator relating to the operation of its consumer revolving
lending business, including written policies and procedures for determining the
creditworthiness of credit card customers, the extension of credit to credit
card customers and the maintenance of credit card accounts and collection of
related receivables, as amended or otherwise modified from time to time.
"CREDIT CARD ORIGINATOR" means (i) WFN and/or any transferee of the
Accounts from WFN or (ii) any other originator of Accounts which is designated
from time to time pursuant to SECTION 2.12 and, directly or indirectly, enters
into a receivables purchase agreement with Transferor.
"CREDIT CARD PROCESSING AGREEMENT" means one or more agreements between
the Credit Card Originator (including WFN as assignee of an Other Originator)
and a Merchant pursuant to which the Credit Card Originator agrees to extend
open end credit card accounts to customers of the Merchant and the Merchant
agrees to allow purchases to be made at its retail establishments, or in its
catalogue sales business, under such accounts.
"DAILY REPORT" is defined in SECTION 3.4(a).
"DATE OF PROCESSING" means, as to any transaction, the Business Day on
which the transaction is first recorded on Servicer's computer file of consumer
revolving accounts (without regard to the effective date of such recordation).
"DEBTOR RELIEF LAWS" means Title 11 of the United States Code and all
other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments,
readjustment of debt, marshalling of assets or similar debtor relief laws of the
United States, any state or any foreign country from time to time in effect,
affecting the rights of creditors generally.
"DEFAULTED RECEIVABLE" means, as to any date of determination, all
Principal Receivables in any Account which are charged off as uncollectible on
that date in accordance with the Credit Card Guidelines and Servicer's customary
and usual servicing procedures for servicing open end credit card account
receivables comparable to the Receivables. A Principal Receivable in any Account
shall
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become a Defaulted Receivable on the day on which such Principal Receivable
is recorded as charged off in accordance with the Credit Card Guidelines.
"DEFERRED PAYMENT RECEIVABLES" means any amount owed by any Merchant to
Transferor in respect of accrued finance charges on any Principal Receivable
incurred in connection with a deferred payment plan.
"DEFINITIVE CERTIFICATES" is defined in SECTION 6.10.
"DEFINITIVE EURO-CERTIFICATES" is defined in SECTION 6.13.
"DEPOSITORY AGREEMENT" means, as to any Series or Class, any agreement
among Transferor, Trustee and any applicable Clearing Agency.
"DETERMINATION DATE" means, unless otherwise specified in any Supplement
with respect to the related Series, the second Business Day preceding each
Distribution Date.
"DISCOUNT OPTION RECEIVABLES" means, on any Date of Processing on and
after the date on which Transferor's exercise of its discount option pursuant to
SECTION 2.10 takes effect, the sum of (a) the product of the Discount Percentage
and the aggregate Principal Receivables (before subtracting Finance Charge
Receivables which are Discount Option Receivables) at the end of the prior day
(which amount, prior to the date on which Transferor's exercise of its discount
option takes effect and with respect to Receivables generated prior to such
date, shall be zero), plus (b) any New Discount Option Receivables created on
such day, minus (c) any Discount Option Receivables Collections received on such
Date of Processing.
"DISCOUNT OPTION RECEIVABLES COLLECTIONS" means on any Date of Processing
on and after the date on which Transferor's exercise of its discount option
pursuant to SECTION 2.10 takes effect, the product of (a) a fraction the
numerator of which is the amount of the Discount Option Receivables and the
denominator of which is the sum of the Principal Receivables plus the amount of
Discount Option Receivables in each case (for both numerator and denominator) at
the end of the prior Monthly Period and (b) Collections of Principal
Receivables, prior to any reduction for Finance Charge Receivables which are
Discount Option Receivables, received on such Date of Processing.
"DISCOUNT PERCENTAGE" is defined in SECTION 2.10.
"DISTRIBUTION DATE" means, with respect to any Series, the date specified
in the related Supplement.
"DOCUMENT DELIVERY DATE" means the Initial Closing Date in the case of
Initial Accounts, the Addition Date in the case of Supplemental Accounts and the
Removal Date in the case of Removed Accounts.
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"EARLY AMORTIZATION EVENT" means, as to any Series, each event specified
in SECTION 9.1 and each additional event, if any, specified in the relevant
Supplement as an Early Amortization Event for that Series.
"ELIGIBLE ACCOUNT" means an open end credit card account in an Approved
Portfolio owned by the Credit Card Originator that, as of the Trust Cut Off Date
(in the case of an Initial Account), the date of creation thereof (in the case
of an Automatic Additional Account) or the related Addition Cut Off Date (in the
case of a Supplemental Account):
(a) is in existence and is serviced by the Credit Card Originator,
any Affiliate of the Credit Card Originator or an Other Originator;
(b) is payable in United States dollars;
(c) except as provided below, has not been identified as an
account (i) the credit cards for which have been reported to the Credit
Card Originator or the related Other Originator (if any) as lost or
stolen or (ii) the Obligor of which is the subject of a bankruptcy
proceeding;
(d) none of the Receivables in which have been, sold, pledged,
assigned or otherwise conveyed to any Person (except by an Other
Originator to Transferor or otherwise pursuant to this Agreement), unless
any such pledge or assignment is released on or before the Initial
Closing Date or the Addition Date, as applicable;
(e) except as provided below, none of the Receivables in which are
Defaulted Receivables or have been identified by the Credit Card
Originator or the related Other Originator (if any), or by the relevant
Obligor to the Credit Card Originator or the related Other Originator (if
any), as having been incurred as a result of fraudulent use of a credit
card; and
(f) has an Obligor who has provided as his or her most recent
billing address, an address located in the United States or a United
States military address, PROVIDED that an account shall not fail to be an
"Eligible Account" solely due to the Obligor having provided a billing
address not satisfying the foregoing if as of the Trust Cut Off Date (in
the case of an Initial Account), the end of the most recently ended
Monthly Period (in the case of an Automatic Additional Account) or the
related Addition Cut Off Date (in the case of a Supplemental Account) the
aggregate Principal Receivables in Accounts the most recent billing
address for which does not satisfy the foregoing made up less than 2% (or
any higher percentage as to which the Rating Agency Condition has been
satisfied) of the aggregate Principal Receivables.
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Notwithstanding the foregoing, Eligible Accounts may include accounts, the
receivables in which have been written off, or as to which the Credit Card
Originator or related Other Originator (if any) believes the related Obligor is
bankrupt and certain receivables that have been identified by the Obligor as
having been incurred as a result of fraudulent use of credit cards or any credit
cards have been reported to the Credit Card Originator or the related Other
Originator (if any) as lost or stolen, so long as (1) the balance of all
receivables included in such accounts is reflected on the books and records of
the Credit Card Originator (and is treated for purposes of this Agreement) as
"zero" and (2) charging privileges with respect to all such accounts have been
canceled and are not reinstated.
"ELIGIBLE DEPOSIT ACCOUNT" means either (a) a segregated account with an
Eligible Institution or (b) a segregated trust account with the corporate trust
department of a depository institution organized under the laws of the United
States or any one of the states thereof, including the District of Columbia (or
any domestic branch of a foreign bank), and acting as a trustee for funds
deposited in such account, so long as any of the securities of such depository
institution shall have a credit rating from each of Moody's, S&P and, if rated
by Fitch, Fitch in one of its generic credit rating categories that signifies
investment grade.
"ELIGIBLE INSTITUTION" means (a) a depository institution (which may be
Trustee or an affiliate) organized under the laws of the United States or any
one of the states thereof (i) that has either (A) a long-term unsecured debt
rating of "A2" or better by Moody's or (B) a certificate of deposit rating of
"P-1" by Moody's, (ii) that has either (A) a long-term unsecured debt rating of
"AAA" by S&P or (B) a certificate of deposit rating of at least "A-1" by S&P,
(iii) that, if rated by Fitch, has either (A) a long-term unsecured debt rating
of "AAA" by Fitch or (B) a certificate of deposit rating of at least "F-1" by
Fitch and (iv) the deposits of which are insured by the FDIC or (b) any other
institution that is acceptable to each Rating Agency, Servicer and Trustee.
"ELIGIBLE INVESTMENTS" means book-entry securities, negotiable
instruments or securities represented by instruments in bearer or registered
form which evidence:
(a) direct obligations of, and obligations fully guaranteed as to
timely payment of principal and interest by, the United States of
America;
(b) demand deposits, time deposits or certificates of deposit
(having original maturities of no more than 365 days) of depository
institutions or trust companies incorporated under the laws of the United
States of America or any state thereof (or domestic branches of foreign
banks) and subject to supervision and examination by federal or state
banking or depository institution authorities; PROVIDED that at the time
of the Trust's investment or contractual commitment to invest therein,
the short-term debt rating of such depository institution or trust
company shall be in the highest investment category of each of Moody's,
S&P and, if rated by Fitch, Fitch;
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(c) commercial paper or other short-term obligations having, at
the time of the Trust's investment or contractual commitment to invest
therein, a rating from each of Moody's, S&P and, if rated by Fitch, Fitch
in its highest investment category;
(d) demand deposits, time deposits and certificates of deposit
which are fully insured by the FDIC, with a Person the commercial paper
of which has a credit rating from each of Moody's, S&P and, if rated by
Fitch, Fitch in its highest investment category;
(e) notes or bankers acceptances (having original maturities of no
more than 365 days) issued by any depository institution or trust company
referred to in CLAUSE (b);
(f) investments in money market funds (including funds of Trustee
or its affiliates as well as funds for which Trustee and its affiliates
may receive compensation) rated in the highest investment category by
each of Moody's, S&P and, if rated by Fitch, Fitch or otherwise approved
in writing by each Rating Agency;
(g) time deposits, other than as referred to in CLAUSE (d), with a
Person the commercial paper of which has a credit rating from each of
Moody's, S&P and, if rated by Fitch, Fitch in its highest investment
category; or
(h) any other investments approved in writing by each Rating
Agency, PROVIDED that making such investments shall not cause the Trust
to be required to register as an investment company within the meaning of
the Investment Company Act.
"ELIGIBLE RECEIVABLE" means a Receivable:
(a) that has arisen under an Eligible Account;
(b) that was created in compliance with the Credit Card Guidelines
and all Requirements of Law applicable to the Credit Card Originator (or,
in the case of an Acquired Portfolio Receivable, the related Other
Originator) the failure to comply with which would have a material
adverse effect on Investor Holders, and pursuant to a Credit Card
Agreement that complies with all Requirements of Law applicable to the
Credit Card Originator (and, in the case of an Acquired Portfolio
Receivable, the related Other Originator during the time prior to the
transfer of such Acquired Portfolio Receivable to Transferor), the
failure to comply with which would have a material adverse effect on
Investor Holders;
(c) with respect to which all consents, licenses, approvals or
authorizations of, or registrations with, any Governmental Authority
required to be obtained or made by the Credit Card Originator (and, in
the case of an Acquired Portfolio Receivable, the related Other
Originator with respect to such actions prior to the transfer of such
Acquired Portfolio Receivable to Transferor) in connection with the
creation of such Receivable or the
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execution, delivery and performance by the Credit Card Originator
(and, in the case of an Acquired Portfolio Receivable, the
related Other Originator with respect to such actions
prior to the transfer of such Acquired Portfolio Receivable to
Transferor) of the related Credit Card Agreement, have been duly obtained
or made and are in full force and effect as of the date of creation of
such Receivable, but failure to comply with this CLAUSE (c) shall not
cause a Receivable not to be an Eligible Receivable if, and to the extent
that, the failure to so obtain or make any such consent, license,
approval, authorization or registration would not have a material adverse
effect on the Investor Holders;
(d) as to which, at the time of its transfer to the Trust,
Transferor or the Trust will have good and marketable title free and
clear of all Liens (other than any Lien permitted by SECTION 2.7(b));
(e) that is the subject of a valid transfer and assignment (or the
grant of a security interest) from Transferor to the Trust of all
Transferor's right, title and interest therein;
(f) that at and after the time of transfer to the Trust is the
legal, valid and binding payment obligation of the Obligor thereof,
legally enforceable against such Obligor in accordance with its terms,
except as enforceability may be limited by applicable Debtor Relief Laws,
and by general principles of equity (whether considered in a suit at law
or in equity);
(g) that constitutes an account, a general intangible or chattel
paper;
(h) as to which, at the time of its transfer to the Trust,
Transferor has not taken any action which, or failed to take any action
the omission of which, would, at the time of transfer to the Trust,
impair the rights therein of the Trust or the Holders;
(i) that, at the time of its transfer to the Trust, has not been
waived or modified except as permitted in accordance with SECTION 3.3(h);
(j) that, at the time of its transfer to the Trust, is not
subject to any right of rescission, setoff, counterclaim or any other
defense of the Obligor (including the defense of usury), other than
defenses arising out of Debtor Relief Laws and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or equity) or as to which Servicer makes an
adjustment pursuant to SECTION 3.9; and
(k) as to which, at the time of its transfer to the Trust, the
Transferor has satisfied all obligations to be fulfilled at the time it
is transferred to the Trust.
"ELIGIBLE SERVICER" means Trustee, a wholly owned subsidiary of Trustee,
an Other Originator or an entity that, at the time of its appointment as
Servicer: (a) is servicing a portfolio of
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consumer open end credit card accounts or other consumer open end credit
accounts; (b) is legally qualified and has the capacity to service the
Accounts; (c) is qualified (or licensed) to use the software that is then
being used to service the Accounts or obtains the right to use, or has its
own, software which is adequate to perform its duties under this Agreement;
(d) has, in the reasonable judgment of Trustee, the ability to professionally
and competently service a portfolio of similar accounts; and (e) has a net
worth of at least $50,000,000 as of the end of its most recent fiscal quarter.
"ENHANCEMENT" means the rights and benefits provided to the Investor
Holders of any Series or Class pursuant to any letter of credit, surety bond,
cash collateral account, guaranty collateral invested amount, spread account,
guaranteed rate agreement, maturity guaranty facility, tax protection agreement,
interest rate swap agreement, interest rate cap agreement or other similar
arrangement. The subordination of any Class to another Class, or a cross support
feature which requires collections on Receivables allocated to one Series to be
paid as principal and/or interest with respect to another Series shall be deemed
to be an Enhancement for the Class or Series benefitting from the subordination
or cross support feature.
"ENHANCEMENT AGREEMENT" means any agreement, instrument or document
governing any Enhancement or pursuant to which any Enhancement is issued or
outstanding.
"ENHANCEMENT PROVIDER" means the Person or Persons providing any
Enhancement, other than the Investor Holders of any Class which is subordinated
to another Class.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"EXCESS FINANCE CHARGE COLLECTIONS" means all amounts that any Supplement
designates as "Excess Finance Charge Collections."
"EXCESS FUNDING ACCOUNT" is defined in SECTION 4.2.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FDIC" means the Federal Deposit Insurance Corporation.
"FINANCE CHARGE RECEIVABLES" means, with respect to any Monthly Period,
the sum of (a) all amounts billed to the Obligors on any Account at the
beginning of such Monthly Period in respect of Periodic Finance Charges, (b)
Late Fees, return check fees and any other fees that may after the Trust Cut Off
Date be charged with respect to any Account, to the extent that Servicer
designates such fees to be treated as Finance Charge Receivables in an Officer's
Certificate delivered to Trustee, (c) Discount Option Receivables and (d)
Deferred Payment Receivables. Collections of Finance Charge Receivables with
respect to any Monthly Period include the amount of Interchange (if any)
allocable to any Series of Certificates pursuant to the related Supplement with
respect to such
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Monthly Period (to the extent received by the Trust and deposited into the
Finance Charge Account or any Series Account, as the case may be, on the
Transfer Date following such Monthly Period). Except as otherwise specified
in any Supplement as to the related Series, Recoveries shall be treated as
Collections of Finance Charge Receivables.
"FINANCE CHARGE SHORTFALLS" is defined, as to any Series, in the related
Supplement.
"FITCH" means Fitch IBCA, Inc.
"FLOW-THROUGH ENTITY" is defined in SECTION 6.4(d).
"GLOBAL CERTIFICATE" is defined in SECTION 6.13.
"GOVERNMENTAL AUTHORITY" means the United States of America, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"GROUP" means, with respect to any Series, the group of Series, if any,
in which the related Supplement specifies such Series is to be included.
"HOLDER" means an Investor Holder or a Person in whose name the
Transferor Certificate is registered.
"IDENTIFIED PORTFOLIO" means any Accounts owned from time to time by WFN
and included in the private label credit card program of Service Merchandise or
issued under a Co-Branding Agreement.
"INELIGIBLE RECEIVABLES" is defined in SECTION 2.5(a).
"INITIAL ACCOUNT" means each open end credit card account in the
Identified Portfolio existing on the Trust Cut Off Date and identified in the
Account Schedule delivered on the Initial Closing Date.
"INITIAL CLOSING DATE" means January 30, 1998.
"INSOLVENCY EVENT" is defined in SECTION 9.1(a).
"INSOLVENCY PROCEEDS" is defined in SECTION 9.2(b).
"INSURANCE PROCEEDS" means any amounts recovered by Servicer pursuant to
any credit insurance policies covering any Obligor with respect to Receivables
under such Obligor's Account.
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"INTERCHANGE" means interchange fees payable to Transferor or an Other
Originator, in its capacity as credit card issuer, through VISA U.S.A., Inc.
and Mastercard International Inc. in connection with cardholder charges for
goods and services, and cash advances, as calculated pursuant to the related
Series Supplement for any Series.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986.
"INVESTED AMOUNT" is defined, as to any Series, in the related
Supplement.
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940.
"INVESTOR CERTIFICATE" means any one of the certificates (including
the Bearer Certificates, the Registered Certificates or any Global
Certificate) executed by Transferor and authenticated by or on behalf of
Trustee, substantially in the form attached to the related Supplement, other
than the Transferor Certificate and the Supplemental Certificates, if any.
"INVESTOR HOLDER" means the Person in whose name a Registered
Certificate is registered in the Certificate Register or the holder of any
Bearer Certificate (or the Global Certificate, as the case may be) or Coupon.
"INVESTOR INTEREST" is defined in SECTION 4.1.
"INVESTOR PERCENTAGE" is defined, as to any Series, in the related
Supplement.
"INVESTOR SERVICING FEE" is defined, as to any Series, in the related
Supplement.
"IN-STORE PAYMENTS" is defined in SECTION 2.1(a).
"LATE FEES" means the fees specified in the Credit Card Agreement
applicable to each Account for late fees with respect to such Account.
"LIEN" means any mortgage, deed of trust, pledge, hypothecation,
assignment, participation or equity interest, deposit arrangement,
encumbrance, lien (statutory or other), preference, priority or other
security agreement or preferential arrangement of any kind or nature
whatsoever, including any conditional sale or other title retention
agreement, excluding any lien or filing pursuant to this Agreement; PROVIDED
that any assignment or transfer pursuant to SECTION 6.3(c) or (d) or SECTION
7.2 shall not constitute a Lien.
"MAJORITY HOLDERS" means the Holders of Investor Certificates
evidencing more than 50% of the aggregate unpaid principal amount of all
outstanding Investor Certificates.
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"MERCHANT" means (a) Service Merchandise and (b) any other Person that
operates retail establishments at which, or a catalogue sales business in
which, goods or services may be purchased under an Account.
"MERCHANT ADJUSTMENT PAYMENTS" is defined in SECTION 3.9(a).
"MINIMUM TRANSFEROR AMOUNT" means, as of any date of determination,
the sum of (a) the product of (i) the sum of (A) the aggregate Principal
Receivables and (B) the amounts on deposit in the Excess Funding Account and
(ii) the Required Retained Transferor Percentage plus (b) any additional
amounts specified in the Supplement for any outstanding Series.
"MONTHLY PERIOD" means as to each Distribution Date, the immediately
preceding calendar month, unless otherwise defined in any Supplement.
"MOODY'S" means Moody's Investors Service, Inc.
"NEW DISCOUNT OPTION RECEIVABLES" means, as of any date of
determination, the product of the Discount Percentage and the amount of
Principal Receivables (before subtracting Finance Charge Receivables which
are Discount Option Receivables) arising on such date of determination.
"NOTICE DATE" is defined in SECTION 2.8(d)(i).
"NOTICES" is defined in SECTION 13.5(a).
"OBLIGOR" means, as to any Account, the Person or Persons obligated to
make payments on such Account, including any guarantor.
"OFFICER'S CERTIFICATE" means a certificate delivered to Trustee
signed by the Chairman of the Board, President, any Vice President or the
Treasurer or any Assistant Treasurer of Transferor or Servicer, as the case
may be.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for, or an employee of, the Person providing the opinion and which
counsel shall be reasonably acceptable to Trustee.
"OTHER ORIGINATOR" means Banc One and any other Person designated as
an Other Originator in a Supplement.
"PARTICIPATION INTERESTS" is defined in SECTION 2.8(b).
"PAYING AGENT" means any paying agent and co-paying agent appointed
pursuant to SECTION 6.7.
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"PERIODIC FINANCE CHARGES" means any finance charges (due to periodic
rate) applicable to any Account.
"PERSON" means any legal person, including any individual,
corporation, partnership, limited liability company, joint venture,
association, joint-stock company, trust, unincorporated organization,
governmental entity or other entity of similar nature.
"PORTFOLIO YIELD" is defined, as to any Series, in the related
Supplement.
"PRINCIPAL RECEIVABLE" means all Receivables other than Finance Charge
Receivables. In calculating the aggregate amount of Principal Receivables on
any day, the amount of Principal Receivables shall not include Defaulted
Receivables and shall be reduced by the aggregate amount of credit balances
in the Accounts on such day.
"PRINCIPAL SHARING SERIES" means a Series that, pursuant to the
Supplement therefor, is entitled to receive Shared Principal Collections.
"PRINCIPAL SHORTFALLS" is defined, as to any Series, in the related
Supplement.
"PRINCIPAL TERMS" means, with respect to any Series: (a) its name or
designation; (b) its initial principal amount (or method for calculating such
amount) and its invested amount in the Trust; (c) its interest rate (or
method for the determination thereof); (d) the payment date or dates and the
date or dates from which interest shall accrue; (e) the method for allocating
Collections to Holders of such Series; (f) the designation of any Series
Accounts and the terms governing the operation of any such Series Accounts;
(g) the percentage used to calculate the servicing fee with respect thereto;
(h) the provider, if any, and the terms of any form of Enhancement with
respect thereto; (i) the terms on which the Investor Certificates of such
Series may be repurchased by Transferor or any Affiliate of Transferor or
remarketed to other investors; (j) the Series Termination Date; (k) the
number of Classes of Investor Certificates of such Series and, if such Series
consists of more than one Class, the rights and priorities of each such
Class; (l) the extent to which the Investor Certificates of such Series will
be issuable in temporary or permanent global form (and, in such case, the
depositary for such Global Certificate or Certificates, the conditions, if
any, upon which such Global Certificates may be exchanged, in whole or in
part, for Definitive Certificates, and the manner in which any interest
payable on a Global Certificate will be paid); (m) whether the Investor
Certificates of such Series may be issued as Bearer Certificates and any
limitation imposed thereon; (n) the priority of such Series with respect to
any other Series; (o) the Group, if any, to which such Series belongs; (p)
whether Interchange or other fees will be included in the funds available to
be paid for such Series; and (q) any other terms of such Series.
"RATING AGENCY" means, as to each Series, the rating agency or
agencies, if any, specified in the related Supplement.
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"RATING AGENCY CONDITION" means, with respect to any action, that each
Rating Agency, if any, shall have notified Transferor, Servicer and Trustee
in writing that such action will not result in a reduction or withdrawal of
the rating, if any, of any outstanding Series or Class with respect to which
it is a Rating Agency.
"REASSIGNMENT" is defined in SECTION 2.9(a).
"RECEIVABLE" means any amount owing from time to time by an Obligor
under an Account, including amounts owing for purchases of goods and
services, and amounts payable as Finance Charge Receivables. A Receivable
shall be deemed to have been created at the end of the day on the Date of
Processing of such Receivable. Receivables which become Defaulted Receivables
shall not be shown on Servicer's records as amounts payable (and shall cease
to be included as Receivables) on the day on which they become Defaulted
Receivables.
"RECORD DATE" means, as to any Distribution Date, the date specified
in the related Supplement.
"RECOVERIES" means (a) all amounts received by Servicer with respect
to Principal Receivables that have previously become Defaulted Receivables
and with respect to Finance Charge Receivables that have been charged off as
uncollectible (including Insurance Proceeds) and (b) proceeds of any
collateral securing any Receivable, in each case less related collection
expenses.
"REGISTERED CERTIFICATES" is defined in SECTION 6.1.
"REGISTERED HOLDER" means the Holder of a Registered Certificate.
"REMOVAL DATE" is defined in SECTION 2.9(a)(i).
"REMOVAL NOTICE DATE" is defined in SECTION 2.9(a)(i).
"REMOVED ACCOUNTS" is defined in SECTION 2.9(a).
"REQUIRED PRINCIPAL BALANCE" means, as of any date of determination,
the sum of the numerators used at such date to calculate the Investor
Percentage with respect to Principal Receivables for all Series outstanding
on such date, less the amount on deposit in the Excess Funding Account as of
the date of determination.
"REQUIRED RETAINED TRANSFEROR PERCENTAGE" means, as of any date of
determination, 7% or, if less, the highest of the Required Retained
Transferor Percentages specified in the Supplements for all outstanding
Series.
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"REQUIREMENTS OF LAW" means, as to any Person, the certificate of
incorporation or articles of association and by-laws or other organizational
or governing documents of such Person, and any law, treaty, rule or
regulation, or determination of an arbitrator or Governmental Authority, in
each case applicable to or binding upon such Person or to which such Person
is subject, whether Federal, state or local.
"RESPONSIBLE OFFICER" means any officer (a) within the Corporate Trust
Department (or any successor group of Trustee), including any vice president,
assistant vice president, assistant secretary or any other officer or
assistant officer of Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred at Trustee's
Corporate Trust Office because of such officer's knowledge of and familiarity
with the particular subject and (b) who shall have direct responsibility for
this Agreement.
"RESTART DATE" is defined in SECTION 2.8(a).
"RULE 144A" means Rule 144A under the Securities Act, as such Rule may
be amended from time to time.
"S&P" means Standard & Poor's Ratings Service, a division of the
McGraw Hill Companies, Inc.
"SECURITIES ACT" means the Securities Act of 1933.
"SERIES" means any series of Investor Certificates established
pursuant to a Supplement.
"SERIES ACCOUNT" means any deposit, trust, escrow or similar account
maintained for the benefit of the Investor Holders of any Series or Class, as
specified in any Supplement.
"SERIES SERVICING FEE PERCENTAGE" is defined, as to any Series, in the
related Supplement.
"SERIES TERMINATION DATE" is defined, as to any Series, in the related
Supplement.
"SERVICE MERCHANDISE" means Service Merchandise Company, Inc., a
Tennessee corporation.
"SERVICE TRANSFER" is defined in SECTION 10.1.
"SERVICER" means WFN, in its capacity as Servicer pursuant to this
Agreement, and, after any Service Transfer, the Successor Servicer.
"SERVICER DEFAULT" is defined in SECTION 10.1.
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"SERVICING FEE" means, as to any Series, the servicing fee specified
in SECTION 3.2.
"SERVICING OFFICER" means any officer of Servicer involved in, or
responsible for, the administration and servicing of the Receivables whose
name appears on a list of servicing officers furnished to Trustee by Servicer
on the Initial Closing Date, as such list may from time to time be amended.
"SHARED PRINCIPAL COLLECTIONS" means all amounts that any Supplement
designates as "Shared Principal Collections."
"SPECIFIED TRANSFEROR AMOUNT" means, as of any date of determination,
0 or, if more, the highest amount identified as the "Specified Transferor
Amount" in the Supplement for any outstanding Series.
"SUBJECT CERTIFICATE" is defined in SECTION 6.4(d).
"SUCCESSOR SERVICER" is defined in SECTION 10.2(a).
"SUPPLEMENT" means, as to any Series, a supplement to this Agreement,
executed and delivered in connection with the original issuance of the
Investor Certificates of such Series pursuant to SECTION 6.3, and all
amendments thereof and supplements thereto.
"SUPPLEMENTAL ACCOUNT" is defined in SECTION 2.8(b).
"SUPPLEMENTAL CERTIFICATE" is defined in SECTION 6.3(c).
"TAX OPINION" means, with respect to any action, an Opinion of Counsel
to the effect that, for Federal income tax purposes, (a) such action will not
adversely affect the tax characterization as debt of Investor Certificates of
any outstanding Series or Class with respect to which an Opinion of Counsel
was delivered at the time of their issuance that such Investor Certificates
would be characterized as debt, (b) such actions will not cause the Trust to
be classified, for federal income tax purposes, as an association (or
publicly traded partnership) taxable as a corporation and (c) such action
will not cause or constitute an event in which gain or loss would be
recognized by any Investor Holder.
"TERMINATION NOTICE" is defined in SECTION 10.1.
"TRANSACTION DOCUMENTS" means, at any time, this Agreement, the
Supplement for each outstanding Series, any document pursuant to which any
outstanding purchased interest is sold as permitted by SECTION 6.3(b) and any
other document designated as a Transaction Document in any Supplement or any
document pursuant to which any outstanding purchased interest is sold as
permitted by SECTION 6.3(b).
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"TRANSFER AGENT AND REGISTRAR" is defined in SECTION 6.4.
"TRANSFER DATE" means the Business Day immediately preceding each
Distribution Date.
"TRANSFEROR" means WFN and additional transferors, if any, designated
in accordance with SECTION 2.11 or 6.3(d).
"TRANSFEROR AMOUNT" means, on any date of determination, the excess,
if any, of (a) the aggregate amount of Principal Receivables on such day,
plus the principal amount on deposit in the Excess Funding Account on such
day over (b) the sum of the Invested Amounts (or, as to any Series that has
an Adjusted Invested Amount, the Adjusted Invested Amount) with respect to
all Series then outstanding, plus the outstanding principal amount of all
Supplemental Certificates (and of any purchased interest sold pursuant to
SECTION 6.3(b)).
"TRANSFEROR CERTIFICATE" means the certificate executed by Transferor
and authenticated by or on behalf of Trustee, substantially in the form of
EXHIBIT A.
"TRANSFEROR RETAINED CERTIFICATE" means any Certificate in any Class
of Investor Certificates that is designated as a "Transferor Retained Class"
in any Supplement.
"TRANSFEROR INTEREST" is defined in SECTION 4.1.
"TRANSFEROR PERCENTAGE" means as to Finance Charge Receivables,
Defaulted Receivables and Principal Receivables, 100% less the sum of the
applicable Investor Percentages for all outstanding Series.
"TRANSFERRED ACCOUNT" is defined in the definition of "Account."
"TRUST" means the Trust created by this Agreement, which shall be
known as the World Financial Network Credit Card Master Trust III.
"TRUST ASSETS" is defined in SECTION 2.1.
"TRUST CUT OFF DATE" means January 30, 1998.
"TRUSTEE" means The Bank of New York, a New York banking corporation,
in its capacity as trustee of the Trust, or any successor trustee appointed
as herein provided.
"UCC" means the Uniform Commercial Code, as in effect in the State of
Ohio and in any other State where the filing of a financing statement is
required to perfect Transferor's or the Trust's interest in the Receivables
and the proceeds thereof or in any other specified jurisdiction.
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"UNITED STATES" means the United States of America (including the
States and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
"VARIABLE INTEREST" means either of (a) any Investor Certificate that
is designated as a variable funding certificate in the related Supplement and
(b) any purchased interest sold as permitted by SECTION 6.3(b).
"WFN" is defined in the PREAMBLE.
SECTION I.2. OTHER INTERPRETIVE PROVISIONS. With respect to any
Series, all terms used and not defined herein are used as defined in the
related Supplement. All terms defined in this Agreement shall have the
defined meanings when used in any certificate or other document delivered
pursuant hereto unless otherwise defined therein. For purposes of this
Agreement and all such certificates and other documents, unless the context
otherwise requires: (a) accounting terms not otherwise defined in this
Agreement, and accounting terms partly defined in this Agreement to the
extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles; (b) terms defined in Article 9 of
the UCC and not otherwise defined in this Agreement are used as defined in
that Article; (c) any reference to each Rating Agency shall only apply to any
specific rating agency if such rating agency is then rating any outstanding
Series; (d) references to any amount as on deposit or outstanding on any
particular date means such amount at the close of business on such day; (e)
the words "hereof," "herein" and "hereunder" and words of similar import
refer to this Agreement (or the certificate or other document in which they
are used) as a whole and not to any particular provision of this Agreement
(or such certificate or document); (f) references to any Section, Schedule or
Exhibit are references to Sections, Schedules and Exhibits in or to this
Agreement (or the certificate or other document in which the reference is
made), and references to any paragraph, subsection, clause or other
subdivision within any Section or definition refer to such paragraph,
subsection, clause or other subdivision of such Section or definition; (g)
the term "including" means "including without limitation"; (h) references to
any law or regulation refer to that law or regulation as amended from time to
time and include any successor law or regulation; (i) references to any
agreement refer to that agreement as amended from time to time; (j)
references to any Person includethat Person's permitted successors and
assigns; and (k) headings are for purposes of reference only and shall not
otherwise affect the meaning or interpretation of any provision hereof. The
agreements, representations and warranties of WFN in this Agreement, in its
respective capacities as Transferor and Servicer, shall be deemed to be the
separate agreements, representations and warranties of WFN only so long as it
remains a party to this Agreement in such capacity (but the foregoing shall
not impair rights arising during or with respect to the time that such Person
was a party to this Agreement in such capacity).
ARTICLE II CONVEYANCE OF RECEIVABLES
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SECTION II.1. CONVEYANCE OF RECEIVABLES. (a) By execution of this
Agreement, Transferor transfers, assigns, sets over and otherwise conveys to
the Trust, for the benefit of the Holders, all of its right, title and
interest in, to and under (i) the Receivables existing at the close of
business on the Trust Cut Off Date and thereafter arising from time to time
in the Initial Accounts and the Receivables existing on each applicable
Addition Date and thereafter arising from time to time in the Automatic
Additional Accounts, all Recoveries allocable to the Trust as provided
herein, all moneys due or to become due and all amounts received with respect
to, and proceeds of, any of the foregoing, (ii) without limiting the
generality of the foregoing or the following, all of Transferor's rights to
receive Deferred Payment Receivables and payments made by any Merchant under
any Credit Card Processing Agreement on account of amounts received by such
Merchant in payment of Receivables ("IN-STORE PAYMENTS") and all proceeds of
such rights, and (iii) the right to receive certain amounts paid or payable
as Interchange (if provided for in any Supplement). Such property, together
with all moneys on deposit in the Collection Account, the Excess Funding
Account, the Series Accounts, any Enhancement and the security interest
granted pursuant to SECTION 3.9(a) shall constitute the assets of the Trust
(the "TRUST ASSETS"). The foregoing does not constitute and is not intended
to result in the creation or assumption by the Trust, Trustee, any Investor
Holders or any Enhancement Provider of any obligation of the Credit Card
Originator, Servicer, Transferor or any other Person in connection with the
Accounts or the Receivables or under any agreement or instrument relating
thereto, including any obligation to obligors, merchant banks, merchants
clearance systems or insurers. If the foregoing transfer, assignment, setover
and conveyance is not deemed to be an absolute assignment of the subject
property to the Trustee, for the benefit of the Holders, then it shall be
deemed to constitute a grant of a security interest in such property to the
Trustee, for the benefit of the Investor Holders, and the Transferor Interest
shall be deemed to represent Transferor's equity in the collateral granted.
(b) Transferor agrees to record and file, at its own expense,
financing statements (and continuation statements when applicable) with
respect to the Receivables now existing and hereafter created in Accounts
owned by the Credit Card Originator and other Trust Assets meeting the
requirements of applicable state law in such manner and in such jurisdictions
as are necessary to perfect, and maintain the perfection of, the assignment
of such Receivables to the Trust, and to deliver a file stamped copy of each
such financing statement or other evidence of such filing (which may, for
purposes of this SECTION 2.1 consist of telephone confirmation of such filing
promptly followed by delivery to Trustee of a file-stamped copy) to Trustee
on or prior to the Initial Closing Date, in the case of such Receivables
arising in the Initial Accounts and Automatic Additional Accounts included in
the Identified Portfolio, and (if any additional filing is so necessary) the
applicable Addition Date, in the case of such Receivables arising in
Supplemental Accounts and any related Automatic Additional Accounts. Trustee
shall be under no obligation whatsoever to file such financing or
continuation statements or to make any other filing under the UCC in
connection with such assignment.
(c) Transferor further agrees, at its own expense, (i) on or prior to
(A) the Automatic Addition Termination Date or any Automatic Addition
Suspension Date, or subsequent to a Restart
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Date, in the case of the Initial Accounts and any Additional Accounts
designated pursuant hereto prior to such date, (B) the applicable Addition
Date, in the case of Supplemental Accounts and (C) the applicable Removal
Date, in the case of Removed Accounts, to indicate in the appropriate
computer files that Receivables created in connection with the Accounts owned
by the Credit Card Originator (other than Removed Accounts) have been
conveyed to the Trust pursuant to this Agreement for the benefit of the
Holders (or conveyed to Transferor or its designee in accordance with SECTION
2.9, in the case of Removed Accounts) by including in such computer files the
code identifying each such Account (or, in the case of Removed Accounts,
either including such a code identifying the Removed Accounts only if the
removal occurs prior to the Automatic Addition Termination Date or an
Automatic Addition Suspension Date, or subsequent to a Restart Date, or
deleting such code thereafter) and (ii) on or prior to the date referred to
in CLAUSES (i)(A), (B) or (C), as applicable, to deliver to Trustee an
Account Schedule (PROVIDED that such Account Schedule shall be provided in
respect of Automatic Additional Accounts on or prior to the Determination
Date relating to the Monthly Period during which their respective Addition
Dates occur), specifying for each such Account, as of the Automatic Addition
Termination Date or Automatic Addition Suspension Date, in the case of CLAUSE
(i)(B), the applicable Addition Cut Off Date, in the case of Supplemental
Accounts, and the Removal Date, in the case of Removed Accounts, its account
number, the aggregate amount outstanding in such Account and the aggregate
amount of Principal Receivables outstanding in such Account. Such Account
Schedule shall be supplemented from time to time to reflect Supplemental
Accounts and Removed Accounts. Once the code referenced in CLAUSE (i) of this
paragraph has been included with respect to any Account, Transferor further
agrees not to alter such code during the remaining term of this Agreement
unless and until (x) such Account becomes a Removed Account, (y) a Restart
Date has occurred on which the Transferor starts including Automatic
Additional Accounts as Accounts or (z) Transferor shall have delivered to
Trustee at least 30 days' prior written notice of its intention to do so and
has taken such action as is necessary or advisable to cause the interest of
Trustee in the Receivables and other Trust Assets to continue to be perfected
with the priority required by this Agreement.
SECTION II.2. ACCEPTANCE BY TRUSTEE. (a) Trustee accepts on behalf of
the Trust all right, title and interest to the property, now existing and
hereafter created, conveyed to the Trust pursuant to SECTION 2.1 and declares
that it shall maintain such right, title and interest, upon the trust herein
set forth, for the benefit of all Holders.
(b) Trustee shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Trust other than as
contemplated in this Agreement or any Supplement.
SECTION II.3. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR RELATING TO
TRANSFEROR. Transferor represents and warrants to the Trust as of each
Closing Date as follows:
(a) ORGANIZATION AND GOOD STANDING. Transferor is a national
banking association validly existing in good standing under the laws of
the United States, and has full corporate power, authority and legal
right to own its properties and conduct its business as presently
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owned and conducted, to execute, deliver and perform its obligations
under each Transaction Document and to execute and deliver to Trustee
the Certificates. Transferor's deposits are insured by the FDIC.
(b) DUE QUALIFICATION. Transferor is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals in
each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would render any Credit Card Agreement or any
Receivable transferred to the Trust by Transferor unenforceable by the
Credit Card Originator, Transferor, Servicer or Trustee and would have a
material adverse effect on the interests of the Holders hereunder or
under any Supplement.
(c) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and each Supplement by Transferor, the execution and
delivery to Trustee of the Certificates by Transferor and the
consummation by Transferor of the transactions provided for in each
Transaction Document have been duly authorized by Transferor by all
necessary corporate action on the part of Transferor.
(d) NO CONFLICT. The execution and delivery by Transferor of each
Transaction Document and the Certificates, the performance by Transferor
of the transactions contemplated by each Transaction Document and the
fulfillment by Transferor of the terms hereof and thereof will not
conflict with, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or
both) a material default under, any indenture, contract, agreement,
mortgage, deed of trust, or other instrument to which Transferor is a
party or by which it or any of its properties are bound.
(e) NO VIOLATION. The execution and delivery by Transferor of each
Transaction Document and the Certificates, the performance by Transferor
of the transactions contemplated by this Agreement and each Supplement
and the fulfillment by Transferor of the terms hereof and thereof will
not conflict with or violate any Requirements of Law applicable to
Transferor.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of Transferor, threatened against
Transferor, before any court, regulatory body, administrative agency, or
other tribunal or governmental instrumentality (i) asserting the
invalidity of any Transaction Document or the Certificates, (ii) seeking
to prevent the issuance of the Certificates or the consummation of any of
the transactions contemplated by any Transaction Document or the
Certificates, (iii) seeking any determination or ruling that, in the
reasonable judgment of Transferor, would materially and adversely affect
the performance by Transferor of its obligations under any Transaction
Document, (iv) seeking any determination or ruling that would materially
and adversely affect the validity or enforceability of any Transaction
Document or the Certificates or (v) seeking to affect
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adversely the income tax attributes of the Trust under the Federal or
applicable state income or franchise tax systems.
(g) ALL CONSENTS REQUIRED. All approvals, authorizations,
consents, orders or other actions of any Person or of any governmental
body or official required in connection with the execution and delivery
by Transferor of each Transaction Document and the Certificates, the
performance by Transferor of the transactions contemplated by each
Transaction Document and the fulfillment by Transferor of the terms
hereof and thereof, have been obtained.
(h) INSOLVENCY. No Insolvency Event with respect to Transferor has
occurred. Transferor did not (i) execute the Transaction Documents,
(ii) grant to the Trustee the security interests described in SECTIONS
2.1 and 3.9, (iii) cause, permit, or suffer the perfection or attachment
of such a security interest, (iv) otherwise effectuate or consummate any
transfer to Trustee pursuant to any Transaction Document or (v) acquire
its interest in the Trust, in each case:
(A) in contemplation of insolvency;
(B) with a view to preferring one creditor over another or
to preventing the application of its assets in the manner required
by applicable law or regulations;
(C) after committing an act of insolvency; or
(D) with any intent to hinder, delay, or defraud itself or
its creditors.
(i) TRUSTEE. Trustee is not an insider or Affiliate of Transferor.
The representations and warranties of Transferor set forth in this
SECTION 2.3 shall survive the transfer and assignment by Transferor of the
respective Receivables to the Trust. Upon discovery by Transferor, Servicer or
Trustee of a breach of any of the representations and warranties by Transferor
set forth in this SECTION 2.3, the party discovering such breach shall give
prompt written notice to the others and to each Enhancement Provider, if any,
entitled thereto pursuant to the relevant Supplement. Transferor agrees to
cooperate with Servicer and Trustee in attempting to cure any such breach. For
purposes of the representations and warranties set forth in this SECTION 2.3,
each reference to a Supplement shall be deemed to refer only to those
Supplements in effect as of the relevant Closing Date.
SECTION II.4. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR RELATING TO
TRANSACTION DOCUMENTS AND THE RECEIVABLES. (a) REPRESENTATIONS AND WARRANTIES.
Transferor represents and warrants to the Trust as of the date of this
Agreement, each Closing Date and, with respect to Additional Accounts, the
related Addition Date that:
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(i) each Transaction Document and, in the case of Supplemental
Accounts, the related Assignment, each constitutes a legal, valid and
binding obligation of Transferor, enforceable against Transferor in
accordance with its terms, except as such enforceability may be limited
by applicable Debtor Relief Laws now or hereafter in effect and by
general principles of equity (whether considered in a suit at law or in
equity);
(ii) as of the Automatic Addition Termination Date or any
Automatic Addition Suspension Date and as of each subsequent Addition
Date with respect to Supplemental Accounts, and as of the applicable
Removal Date with respect to the Removed Accounts, the Account Schedule
delivered pursuant to this Agreement, as supplemented to such date, is an
accurate and complete listing in all material respects of all the
Accounts as of such Automatic Addition Termination Date, such Automatic
Addition Suspension Date, the related Addition Cut Off Date or such
Removal Date, as the case may be, and the information contained therein
with respect to the identity of such Accounts and the Receivables
existing in such Accounts is true and correct in all material respects as
of such specified date;
(iii) Transferor is the legal and beneficial owner of all right,
title and interest in each Receivable and Transferor has the full right
to transfer such Receivables to the Trust, and each Receivable conveyed
to the Trust by Transferor has been conveyed to the Trust free and clear
of any Lien of any Person claiming through or under Transferor or any of
its Affiliates (other than Liens permitted under SECTION 2.7(b)) and in
compliance, in all material respects, with all Requirements of Law
applicable to Transferor;
(iv) all authorizations, consents, orders or approvals of or
registrations or declarations with any Governmental Authority required to
be obtained, effected or given by Transferor in connection with the
conveyance by Transferor of Receivables to the Trust have been duly
obtained, effected or given and are in full force and effect;
(v) this Agreement or, in the case of Supplemental Accounts, the
related Assignment constitutes either a valid transfer and assignment to
the Trust of all right, title and interest of Transferor in the
Receivables and other Trust Assets conveyed to the Trust by Transferor
and all monies due or to become due with respect thereto and the proceeds
thereof or a grant of a security interest in such property to the
Trustee, for the benefit of the Investor Holders, which, in the case of
existing Receivables and the proceeds thereof, is enforceable upon
execution and delivery of this Agreement, or, with respect to then
existing Receivables in Additional Accounts, as of the applicable
Addition Date, and which will be enforceable with respect to such
Receivables hereafter and thereafter created and the proceeds thereof
upon such creation, in each case except as such enforceability may be
limited by applicable Debtor Relief Laws, now or hereafter in effect, and
by general principles of equity (whether considered in a suit at law or
in equity). Upon the filing of the financing statements pursuant
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to SECTION 2.1 and, in the case of Receivables hereafter created and the
proceeds thereof, upon the creation thereof, the Trust shall have a first
priority security interest in such property and proceeds except for Liens
permitted under SECTION 2.7(b);
(vi) except as otherwise expressly provided in this Agreement or
any Supplement, neither Transferor nor any Person claiming through or
under Transferor has any claim to or interest in the Collection Account,
the Excess Funding Account, any Series Account or any Enhancement;
(vii) on the Trust Cut Off Date, with respect to each Initial
Account, on the date of its creation or the date it otherwise becomes an
Automatic Additional Account, with respect to each Automatic Additional
Account and, on the applicable Addition Cut Off Date, with respect to
each related Supplemental Account, each such Account is an Eligible
Account;
(viii) on the Trust Cut Off Date, each Receivable then existing is
an Eligible Receivable, on the date of creation of each Automatic
Additional Account or the date the related account otherwise becomes an
Automatic Additional Account, each Receivable contained in such Automatic
Additional Account is an Eligible Receivable and, on the applicable
Addition Cut Off Date, each Receivable contained in any related
Supplemental Account is an Eligible Receivable; and
(ix) as of the date of the creation of any new Receivable, such
Receivable is an Eligible Receivable.
(b) NOTICE OF BREACH. The representations and warranties of Transferor
set forth in this SECTION 2.4 shall survive the transfer and assignment by
Transferor of Receivables to the Trust. Upon discovery by Transferor, Servicer
or Trustee of a breach of any of the representations and warranties by
Transferor set forth in this SECTION 2.4, the party discovering such breach
shall give prompt written notice to the others and to each Enhancement Provider,
if any, entitled thereto pursuant to the relevant Supplement. Transferor agrees
to cooperate with Servicer and Trustee in attempting to cure any such breach.
For purposes of the representations and warranties set forth in this SECTION
2.4, each reference to a Supplement shall be deemed to refer only to those
Supplements in effect as of the date of the relevant representations or
warranties.
SECTION II.5. REASSIGNMENT OF INELIGIBLE RECEIVABLES. (a) REASSIGNMENT OF
RECEIVABLES. If (i) any representation or warranty of Transferor contained in
SECTION 2.4(a)(ii), (iii), (iv), (vii), (viii) or (ix) is not true and correct
in any material respect as of the date specified therein with respect to any
Receivable transferred to the Trust by Transferor or any Account and as a result
of such breach any Receivables in the related Account become Defaulted
Receivables or the Trust's rights in, to or under such Receivables or the
proceeds of such Receivables are impaired or such proceeds are not available for
any reason to the Trust free and clear of any Lien, unless cured within 60 days
(or such longer period, not in excess of 150 days, as may be agreed to by
Trustee) after the earlier to occur
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of the discovery thereof by Transferor or receipt by Transferor or a designee
of Transferor of notice thereof given by Trustee, or (ii) it is so provided
in SECTION 2.7(a) with respect to any Receivables transferred to the Trust by
Transferor, then such Receivable shall be designated an "INELIGIBLE
RECEIVABLE" and shall be assigned a principal balance of zero for the purpose
of determining the aggregate amount of Principal Receivables on any day;
PROVIDED that such Receivables will not be deemed to be Ineligible
Receivables but will be deemed Eligible Receivables and such Principal
Receivables shall be included in determining the aggregate Principal
Receivables in the Trust if, on any day prior to the end of such 60-day or
longer period, (x) either (A) in the case of an event described in CLAUSE
(i), the relevant representation and warranty shall be true and correct in
all material respects as if made on such day or (B) in the case of an event
described in CLAUSE (ii), the circumstances causing such Receivable to become
an Ineligible Receivable shall no longer exist and (y) Transferor shall have
delivered an Officer's Certificate describing the nature of such breach and
the manner in which the relevant representation and warranty became true and
correct.
(b) PRICE OF REASSIGNMENT. On and after the date of its designation as an
Ineligible Receivable, each Ineligible Receivable shall not be given credit in
determining the aggregate amount of Principal Receivables used to calculate the
Transferor Amount or the Investor Percentages applicable to any Series. If,
following the exclusion of such Principal Receivables from the calculation of
the Transferor Amount, the Transferor Amount would be less than the Specified
Transferor Amount, Transferor shall make a deposit into the Excess Funding
Account in immediately available funds prior to the next succeeding Business Day
in an amount equal to the amount by which the Transferor Amount would be less
than the Specified Transferor Amount (up to the amount of such Principal
Receivables). The payment of such deposit amount in immediately available funds
shall otherwise be considered payment in full of all of the Ineligible
Receivables.
The obligation of Transferor to make the deposits, if any, required to be
made to the Excess Funding Account as provided in this Section, shall constitute
the sole remedy respecting the event giving rise to such obligation available to
Holders (or Trustee on behalf of the Holders) or any Enhancement Provider.
SECTION II.6. REASSIGNMENT OF RECEIVABLES IN TRUST PORTFOLIO. If any
representation or warranty of Transferor set forth in SECTION 2.3(a), (b) or (c)
or SECTION 2.4(a)(i), (v) or (vi) is not true and correct in any material
respect and such breach has a material adverse effect on the Investor Interest
in the Receivables transferred to the Trust by Transferor, then either Trustee
or the Majority Holders, by notice then given to Transferor and Servicer (and to
Trustee if given by the Investor Holders), may direct Transferor to accept a
reassignment of the Receivables transferred to the Trust by Transferor if such
breach and any material adverse effect caused by such breach is not cured within
60 days of such notice (or within such longer period, not in excess of 150 days,
as may be specified in such notice), and upon those conditions Transferor shall
be obligated to accept such reassignment on the terms set forth below; PROVIDED
that such Receivables will not be reassigned to Transferor if, on any day prior
to the end of such 60-day or longer period (i) the relevant representation and
warranty shall be true and correct in all material respects as if made on such
day
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and (ii) Transferor shall have delivered an Officer's Certificate describing
the nature of such breach and the manner in which the relevant representation
and warranty became true and correct.
Transferor shall deposit in the Collection Account in immediately
available funds not later than 12:00 noon, New York City time, on the first
Distribution Date following the Monthly Period in which such reassignment
obligation arises, in payment for such reassignment, an amount equal to the sum
of the amounts specified therefor with respect to each outstanding Series in the
related Supplement. Notwithstanding anything to the contrary in this Agreement,
such amounts shall be distributed on such Distribution Date in accordance with
ARTICLE IV and each Supplement. The payment of such deposit amount in
immediately available funds shall otherwise be considered payment in full of all
of the Receivables.
Upon the deposit, if any, required to be made to the Collection Account
as provided in this Section or SECTION 2.5, Trustee, on behalf of the Trust,
shall automatically and without further action be deemed to transfer, assign,
set over and otherwise convey to Transferor or its designee, without recourse,
representation or warranty (except for the warranty that since the date of
transfer by Transferor, Trustee has not sold, transferred or encumbered any such
Receivables or interest therein), all the right, title and interest of the Trust
in and to the applicable Receivables, all moneys due or to become due and all
amounts received with respect thereto and all proceeds thereof. Trustee shall
execute such documents and instruments of transfer or assignment and take such
other actions as shall reasonably be requested by Transferor to effect the
conveyance of such Receivables pursuant to this Section. The obligation of
Transferor to accept reassignment of any Receivables, and to make the deposits,
if any, required to be made to the Collection Account as provided in this
Section, shall constitute the sole remedy respecting the event giving rise to
such obligation available to Holders (or Trustee on behalf of the Holders).
SECTION II.7. COVENANTS OF TRANSFEROR. Transferor covenants as follows:
(a) RECEIVABLES TO BE ACCOUNTS, GENERAL INTANGIBLES OR CHATTEL
PAPER. Except in connection with the enforcement or collection of an
Account, Transferor will take no action to cause any Receivable
transferred by it to the Trust to be evidenced by any instrument and, if
any such Receivable is so evidenced (whether or not in connection with
the enforcement or collection of an Account), it shall be deemed to be an
Ineligible Receivable in accordance with SECTION 2.5(a) and shall be
reassigned to Transferor in accordance with SECTION 2.5(b).
(b) SECURITY INTERESTS. Except for the conveyances hereunder,
Transferor will not sell, pledge, assign or transfer or otherwise convey
to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any Receivable, whether now existing or hereafter created, or
any interest therein; Transferor will immediately notify Trustee of the
existence of any Lien on any Receivable of which Transferor has
knowledge; and Transferor shall defend the right, title and interest of
the Trust in, to and under the Receivables, whether now existing or
hereafter created, against all claims of third parties claiming through
or under
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Transferor; PROVIDED that nothing in this SECTION 2.7(b) shall prevent
or be deemed to prohibit Transferor from suffering to exist upon any
of the Receivables (i) any Liens for taxes if such taxes shall not at
the time be due and payable or if Transferor shall currently be
contesting the validity thereof in good faith by appropriate
proceedings and shall have set aside on its books adequate reserves
with respect thereto, or (ii) at any time when accounts subject to any
Co-Branding Agreement are included in the Identified Portfolio, rights
of the counterparty to such Co-Branding Agreement in respect of such
accounts and related receivables, which rights arise pursuant to the
terms of such Co-Branding Agreement and do not constitute a Lien on
any Receivables transferred to the Trust hereunder. Notwithstanding
the foregoing, nothing in this SECTION 2.7(b) shall be construed to
prevent or be deemed to prohibit the transfer of the Transferor
Certificate and certain other rights of Transferor in accordance with
this Agreement and any related Supplement.
(c) TRANSFEROR INTEREST. Except as otherwise permitted herein,
including in SECTIONS 2.11, 6.3 and 7.2, Transferor agrees not to
transfer, assign, exchange or otherwise convey or pledge, hypothecate or
otherwise grant a security interest in the Transferor Interest (or any
interest therein) represented by the Transferor Certificate (or any
interest therein) or any Supplemental Certificate (or any interest
therein) and any such attempted transfer, assignment, exchange,
conveyance, pledge, hypothecation or grant shall be void.
(d) DELIVERY OF COLLECTIONS OR RECOVERIES. If Transferor is not
Servicer, and Transferor receives Collections or Recoveries, then
Transferor agrees to pay Servicer all such Collections and Recoveries as
soon as practicable after receipt thereof but in no event later than two
Business Days after the Date of Processing by Transferor.
(e) NOTICE OF LIENS. Transferor shall notify Trustee and each
Enhancement Provider, if any, entitled to such notice pursuant to the
relevant Supplement promptly after becoming aware of any Lien on any
Receivable other than the conveyances hereunder or Liens permitted under
SECTION 2.7(b).
(f) CONTINUOUS PERFECTION. Transferor shall not change its name,
identity or structure in any manner that might cause any financing or
continuation statement filed pursuant to this Agreement to be misleading
within the meaning of Section 9-402(7) of the UCC (or any other then
applicable provision of the UCC) unless Transferor shall have delivered
to Trustee at least 30 days prior written notice thereof and, no later
than 30 days after making such change, shall have taken all action
necessary or advisable to amend such financing statement or continuation
statement so that it is not misleading. Transferor shall not change its
chief executive office or change the location of its principal records
concerning the Receivables, the Trust Assets or the Collections unless it
has delivered to Trustee at least 30 days prior written notice of its
intention to do so and has taken such action as is necessary or advisable
to cause the interest of Trustee in the Receivables and other Trust
Assets to continue to be perfected with the priority required by this
Agreement.
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(g) CREDIT CARD AGREEMENT AND GUIDELINES. Transferor shall comply
with and perform its obligations under the Credit Card Agreements
relating to the Accounts, the Credit Card Guidelines and with respect to
Accounts arising under any Co-Branding Agreement, all applicable rules
and regulations of VISA U.S.A., Inc. and MasterCard International Inc.,
except insofar as any failure to comply or perform would not materially
or adversely affect the rights of the Trust or the Holders under any
Transaction Document or the Certificates. Transferor may change the terms
and provisions of the Credit Card Agreements or the Credit Card
Guidelines in any respect (including the reduction of the required
minimum monthly payment, the calculation of the amount, or the timing, of
charge offs and Periodic Finance Charges and other fees assessed
thereon), but only if such change is made applicable to any comparable
segment of the revolving credit card accounts owned and serviced by
Transferor which have characteristics the same as, or substantially
similar to, the Accounts that are the subject of such change, except as
otherwise restricted by an endorsement, sponsorship or other agreement
between Transferor and an unrelated third party or by the terms of the
Credit Card Agreements.
(h) OFFICIAL RECORDS. The resolutions of Transferor's Board of
Directors approving each of the Transaction Documents and all documents
relating thereto are and shall be continuously reflected in the minutes
of Transferor's Board of Directors. Each of the Transaction Documents and
all documents relating thereto are and shall, continuously from the time
of their respective execution by Transferor, be official records of
Transferor.
SECTION II.8. ADDITION OF ACCOUNTS. (a) AUTOMATIC ADDITIONAL ACCOUNTS.
Subject to any limitations specified in any Supplement, Automatic Additional
Accounts shall be included as Accounts from and after the date upon which they
are created, and all Receivables in Automatic Additional Accounts, whether such
Receivables are then existing or thereafter created, shall be transferred
automatically to the Trust upon their creation. For all purposes of this
Agreement, all receivables relating to Automatic Additional Accounts shall be
treated as Receivables upon their creation and shall be subject to the
eligibility criteria specified in the definitions of "Eligible Receivable" and
"Eligible Account." Transferor may elect at any time to terminate the inclusion
in Accounts of new accounts which would otherwise be Automatic Additional
Accounts as of any Business Day (the "AUTOMATIC ADDITION TERMINATION DATE"), or
suspend any such inclusion as of any Business Day (an "AUTOMATIC ADDITION
SUSPENSION DATE") until a date (the "RESTART DATE") to be notified in writing by
Transferor to Trustee by delivering to Trustee, Servicer and each Rating Agency
ten days prior written notice of such election at least 10 days prior to such
Automatic Addition Termination Date, Automatic Addition Suspension Date or
Restart Date, as the case may be. Promptly after each of an Automatic Addition
Termination Date, an Automatic Addition Suspension Date and a Restart Date,
Transferor and Trustee agree to execute, and Transferor agrees to record and
file at its own expense, an amendment to the financing statements referred to in
SECTION 2.1 to specify the accounts then subject to this Agreement (which
specification may incorporate a list of accounts by reference) and, except in
connection with any such filing made after a Restart
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Date, to release any security interest in any accounts created after the
Automatic Addition Termination Date or Automatic Addition Suspension Date.
(b) REQUIRED ADDITIONS OF SUPPLEMENTAL ACCOUNTS. If during any period of
thirty consecutive days, the Transferor Amount averaged over that period is less
than the Minimum Transferor Amount for that period, Transferor shall designate
additional Eligible Accounts ("SUPPLEMENTAL ACCOUNTS") to be included as
Accounts in a sufficient amount such that the average of the Transferor Amount
as a percentage of the average amount of Principal Receivables for such 30-day
period, computed by assuming that the amount of the Principal Receivables of
such Supplemental Accounts shall be deemed to be outstanding in the Trust during
each day of such 30-day period, is at least equal to the Minimum Transferor
Amount. In addition, if on any Record Date the aggregate amount of Principal
Receivables plus amounts on deposit in the Excess Funding Account is less than
the Required Principal Balance, Transferor shall designate Supplemental Accounts
from any Approved Portfolio to be included as Accounts in a sufficient amount
such that the aggregate amount of Principal Receivables plus amounts on deposit
in the Excess Funding Account will be equal to or greater than the Required
Principal Balance. Receivables from all such Supplemental Accounts shall be
transferred to the Trust on or before the tenth Business Day following such
thirty-day period or Record Date, as the case may be. In lieu of, or in addition
to, designating Supplemental Accounts as required above, Transferor may convey
to the Trust participations or trust certificates representing undivided legal
or beneficial interests in a pool of assets primarily consisting of receivables
arising under revolving credit card accounts or other revolving credit accounts
owned by Transferor or any of its Affiliates and collections thereon
("PARTICIPATION INTERESTS"). Any addition of Participation Interests to the
Trust (whether pursuant to this PARAGRAPH (b) or PARAGRAPH (c) below) shall be
effected by an amendment hereto, dated the applicable Addition Date, pursuant to
SUBSECTION 13.1(a).
(c) PERMITTED ADDITIONS. In addition to its obligation under PARAGRAPH
(b), Transferor may, but shall not be obligated to, from time to time designate
Supplemental Accounts or Participation Interests to be included as Trust Assets,
in either case as of the applicable Addition Date.
(d) CERTAIN CONDITIONS FOR ADDITIONS OF SUPPLEMENTAL ACCOUNTS AND
PARTICIPATION INTERESTS. Transferor agrees that any transfer of Receivables from
Supplemental Accounts or Participation Interests under PARAGRAPHS (b) or (c)
shall occur only upon satisfaction of the following conditions (to the extent
applicable):
(i) on or before the tenth Business Day prior to the Addition Date
(the "NOTICE DATE"), Transferor shall give Trustee, each Rating Agency
and Servicer written notice that such Supplemental Accounts or
Participation Interests will be included, which notice shall specify the
approximate aggregate amount of the Receivables or Participation
Interests to be transferred; and, in the case of any transfer pursuant to
PARAGRAPH (c), the Rating Agency Condition shall have been satisfied;
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(ii) on or before the Addition Date, Transferor shall have
delivered to Trustee a written assignment (including an acceptance by
Trustee on behalf of the Trust for the benefit of the Investor Holders)
in substantially the form of EXHIBIT B (the "ASSIGNMENT") and Transferor
shall have indicated in its computer files that the Receivables created
in connection with the Supplemental Accounts have been transferred to the
Trust and, within five Business Days thereafter, Transferor shall have
delivered to Trustee an Account Schedule listing such Supplemental
Accounts, which as of the date of such Assignment, shall be deemed
incorporated into and made a part of such Assignment and this Agreement;
(iii) Transferor shall represent and warrant that (x) each
Supplemental Account is, as of the Addition Date, an Eligible Account,
and each Receivable in such Supplemental Account is, as of the Addition
Date, an Eligible Receivable, (y) no selection procedures believed by
Transferor to be materially adverse to the interests of the Investor
Holders were utilized in selecting the Additional Accounts from the
available Eligible Accounts in an Approved Portfolio, and (z) as of the
Addition Date, Transferor is not insolvent;
(iv) Transferor shall represent and warrant that, as of the
Addition Date, the Assignment constitutes either (x) a valid transfer and
assignment to the Trust of all right, title and interest of Transferor in
and to the Receivables then existing and thereafter created in the
Supplemental Accounts, and all proceeds of such Receivables and Insurance
Proceeds relating thereto and such Receivables and all proceeds thereof
and Insurance Proceeds and Recoveries relating thereto will be held by
the Trust free and clear of any Lien of any Person claiming through or
under Transferor or any of its Affiliates, except for (i) Liens permitted
under SECTION 2.7(b), (ii) the interest of Transferor as Holder of the
Transferor Certificate and (iii) Transferor's right to receive interest
accruing on, and investment earnings in respect of, the Excess Funding
Account, or any Series Account as provided in this Agreement and any
related Supplement or (y) a grant of a security interest in such property
to the Trustee, for the benefit of the Investor Holders, which is
enforceable with respect to then existing Receivables in the Supplemental
Accounts, the proceeds thereof and Insurance Proceeds and Recoveries
relating thereto upon the conveyance of such Receivables to the Trust,
and which will be enforceable with respect to the Receivables thereafter
created in respect of Supplemental Accounts conveyed on such Addition
Date, the proceeds thereof and Insurance Proceeds and Recoveries relating
thereto upon such creation; and (z) if the Assignment constitutes the
grant of a security interest to the Trustee in such property, upon the
filing of a financing statement as described in SECTION 2.1 with respect
to such Supplemental Accounts and in the case of the Receivables
thereafter created in such Supplemental Accounts and the proceeds
thereof, and Insurance Proceeds and Recoveries relating thereto, upon
such creation, the Trust shall have a first priority perfected security
interest in such property (subject to Section 9-306 of the UCC), except
for Liens permitted under SECTION 2.7(b);
(v) Transferor shall deliver an Officer's Certificate to Trustee
confirming the items set forth in CLAUSE (ii); and
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(vi) Transferor shall deliver an Opinion of Counsel with respect
to the Receivables in the Supplemental Accounts to Trustee (with a copy
to each Rating Agency) substantially in the form of EXHIBIT F-2.
(e) ADDITIONAL APPROVED PORTFOLIOS. The Transferor may from time to time
designate additional portfolios of accounts as "Approved Portfolios" if all
conditions, if any, in each Supplement for the designation of an Approved
Portfolio are satisfied.
SECTION II.9. REMOVAL OF ACCOUNTS. (a) On any day of any Monthly Period
Transferor shall have the right to require the reassignment to it or its
designee of all the Trust's right, title and interest in, to and under the
Receivables then existing and thereafter created, all moneys due or to become
due and all amounts received with respect thereto and all proceeds thereof in or
with respect to the Accounts then owned by the Credit Card Originator and
designated by Transferor (the "REMOVED ACCOUNTS") or Participation Interests
(unless otherwise set forth in the applicable Supplement), upon satisfaction of
the following conditions (PROVIDED that the conditions listed in CLAUSES (iv)
through (viii) below need not be satisfied if the Removed Accounts relate to a
repurchase pursuant to SECTION 2.9(b)):
(i) on or before the tenth Business Day immediately preceding
the Removal Date (the "REMOVAL NOTICE DATE") Transferor shall have given
Trustee, Servicer, each Rating Agency and any Enhancement Provider
entitled thereto pursuant to the relevant Supplement written notice of
such removal and specifying the date for removal of the Removed Accounts
and Participation Interests (the "REMOVAL DATE");
(ii) with respect to Removed Accounts, on or prior to the date
that is 10 Business Days after the Removal Date, Transferor shall have
delivered to Trustee an Account Schedule listing the Removed Accounts and
specifying for each such Account, as of the Removal Notice Date, its
account number, the aggregate amount outstanding, and the aggregate
amount of Principal Receivables outstanding in such Account;
(iii) with respect to Removed Accounts, Transferor shall have
represented and warranted as of the Removal Date that the list of Removed
Accounts delivered pursuant to PARAGRAPH (ii), as of the Removal Date, is
true and complete in all material respects;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such removal;
(v) Transferor shall have delivered to Trustee and any
Enhancement Provider entitled thereto pursuant to the relevant Supplement
an Officer's Certificate, dated as of the Removal Date, to the effect
that Transferor reasonably believes that (i) such removal will not, based
on the facts known to such officer at the time of such certification,
then or thereafter cause an Early Amortization Event to occur with
respect to any Series and (ii) no
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selection procedure believed by Transferor to be materially adverse to
the interests of the Investor Holders has been used in removing Removed
Accounts from among any pool of Accounts or Participation Interests of a
similar type;
(vi) Transferor shall not use a selection procedure intended to
include a disproportionately higher level of Defaulted Receivables in the
Removed Accounts than exist in the Accounts and shall not remove such
Accounts for the intended purpose of mitigating losses to the Trust;
(vii) the aggregate Principal Receivables in the Removed Accounts
shall not exceed the excess of the Transferor Amount over the Minimum
Transferor Amount, all measured as of the end of the most recently ended
Monthly Period; and
(viii) such removal shall not cause a decrease in the sum of the
Invested Amounts for all outstanding Series.
Upon satisfaction of the above conditions, Trustee shall execute and
deliver to Transferor or its designee a written reassignment in substantially
the form of EXHIBIT C (the "REASSIGNMENT") and shall, without further action, be
deemed to transfer, assign, set over and otherwise convey to Transferor or its
designee, effective as of the Removal Date, without recourse, representation or
warranty, all the right, title and interest of the Trust in and to the
Receivables arising in the Removed Accounts or the Participation Interests, all
moneys due and to become due and all amounts received with respect thereto and
all proceeds thereof. In addition, Trustee shall execute such other documents
and instruments of transfer or assignment and take such other actions as shall
reasonably be requested by Transferor to effect the conveyance of Receivables
pursuant to this Section.
(b) Transferor may from time to time designate as Removed Accounts any
Accounts designated for repurchase by a Merchant pursuant to the terms of the
related Credit Card Processing Agreement. Any repurchase of the Receivables in
Removed Accounts designated pursuant to this SECTION 2.9(b) shall be effected in
the manner and at a price determined in accordance with SECTION 2.5(b), as if
the Receivables being repurchased were Ineligible Receivables. Amounts
deposited in the Collection Account in connection therewith shall be deemed to
be Collections of Principal Receivables and shall be applied in accordance with
the terms of ARTICLE IV and each Supplement.
SECTION II.10. DISCOUNT OPTION. (a) Transferor shall have the
option, to designate at any time a fixed or floating percentage (the
"DISCOUNT PERCENTAGE"), of the amount of Receivables arising in the Accounts
on or after the date such designation becomes effective that would otherwise
constitute Principal Receivables (prior to subtracting from Principal
Receivables, Finance Charge Receivables that are Discount Option Receivables)
to be treated as Finance Charge Receivables. Transferor may from time to time
increase (subject to the limitations described below), reduce or eliminate
the Discount Percentage for Discount Option Receivables arising in the
Accounts on and after the date of such change. Transferor must provide 30 days'
prior written notice to Servicer,
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Trustee and each Rating Agency of any such increase, reduction or elimination,
and such increase, reduction or elimination shall become effective on the date
specified therein only if (i) Transferor has delivered to Trustee an Officer's
Certificate to the effect that, based on the facts known to such officer at the
time, Transferor reasonably believes that such increase, reduction or
elimination will not at the time of its occurrence cause an Early Amortization
Event, or an event which with notice or the lapse of time would constitute an
Early Amortization Event, to occur with respect to any Series and (ii) in the
case of any increase, the Discount Percentage shall not exceed 3% after giving
effect to that increase.
(b) On each Date of Processing after the date on which the Transferor's
exercise of its discount option takes effect, the Transferor shall treat
Discount Option Receivables Collections as Collections of Finance Charge
Receivables.
SECTION II.11. ADDITIONAL TRANSFERORS. Transferor may designate
additional or substitute Persons to be included as Transferors under this
Agreement by an amendment to this Agreement (which amendment shall be subject to
SECTION 13.1 and to any applicable restrictions in the Supplement for any
outstanding Series) and, in connection with such designation, the initial
Transferor shall surrender the Transferor Certificate to Trustee in exchange for
a newly issued Transferor Certificate reflecting such additional Transferor's
interest in the Transferor Interest; PROVIDED THAT prior to any such designation
and issuance the conditions set forth in SECTION 6.3(c) shall have been
satisfied.
SECTION II.12. ADDITIONAL CREDIT CARD ORIGINATORS. Transferor may
designate additional Persons as Credit Card Originators under this Agreement by
an amendment to this Agreement (which amendment shall be subject to SECTION 13.1
and to any applicable restrictions in the Supplement for any outstanding
Series).
ARTICLE III ADMINISTRATION AND SERVICING
SECTION III.1. ACCEPTANCE OF APPOINTMENT AND OTHER MATTERS RELATING TO
SERVICER. (a) WFN is appointed, and agrees to act, as Servicer.
(b) Servicer shall service and administer the Receivables, shall collect
payments due under the Receivables and shall charge off as uncollectible
Receivables, all in accordance with its customary and usual servicing procedures
for servicing credit card and other consumer open end credit receivables
comparable to the Receivables and in accordance with the Credit Card Guidelines.
Servicer shall have full power and authority, acting alone or through any party
properly designated by it hereunder, to do any and all things in connection with
such servicing and administration which it may deem necessary or desirable.
Without limiting the generality of the foregoing, subject to SECTION 10.1 and
provided WFN is Servicer, Servicer or its designee (rather than Trustee) is
hereby authorized and empowered (i) to make withdrawals and payments or to
instruct Trustee to make withdrawals and payments from the Collection Account
and any Series Account, as set forth in this
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Agreement or any Supplement, and (ii) to take any action required or
permitted under any Enhancement, as set forth in this Agreement or any
Supplement. Without limiting the generality of the foregoing and subject to
SECTION 10.1, Servicer or its designee is authorized and empowered to make
any filings, reports, notices, applications and registrations with, and to
seek any consents or authorizations from, the Commission and any state
securities authority on behalf of the Trust as may be necessary or advisable
to comply with any Federal or state securities laws or reporting requirements.
Trustee shall furnish Servicer with any powers of attorney or other documents
necessary or appropriate to enable Servicer to carry out its servicing and
administrative duties hereunder.
(c) Servicer shall not be obligated to use separate servicing procedures,
offices, employees or accounts for servicing the Receivables from the
procedures, offices, employees and accounts used by Servicer in connection with
servicing other credit card receivables.
(d) Servicer shall comply with and perform its servicing obligations with
respect to the Accounts and Receivables in accordance with the Credit Card
Agreements relating to the Accounts and the Credit Card Guidelines except
insofar as any failure to so comply or perform would not materially and
adversely affect the Trust or the Investor Holders.
(e) Servicer shall be liable for the payment, without reimbursement, of
all expenses incurred in connection with the Trust and the servicing activities
hereunder including expenses related to enforcement of the Receivables, fees and
disbursements of Trustee, any Paying Agent and any Transfer Agent and Registrar
(including the reasonable fees and expenses of its counsel) in accordance with
SECTION 11.5, fees and disbursements of independent accountants and all other
fees and expenses, including the costs of filing UCC continuation statements and
the costs and expenses relating to obtaining and maintaining the listing of any
Investor Certificates on any stock exchange, that are not expressly stated in
this Agreement to be payable by the Trust, the Investor Holders of a Series or
Transferor (other than Federal, state, local and foreign income, franchise and
other taxes, if any, or any interest or penalties with respect thereto, assessed
on the Trust).
SECTION III.2. SERVICING COMPENSATION. As full compensation for its
servicing activities hereunder and as reimbursement for any expense incurred by
it in connection therewith, Servicer shall be entitled to receive a servicing
fee (the "SERVICING FEE") with respect to each Monthly Period, payable monthly
on the related Distribution Date, in an amount equal to one-twelfth of the
product of (a) the weighted average of the Series Servicing Fee Percentages with
respect to each outstanding Series (based upon the Series Servicing Fee
Percentage for each Series and the Invested Amount (or such other amount as
specified in the related Supplement) of such Series, in each case as of the last
day of the prior Monthly Period) and (b) the amount of Principal Receivables on
the last day of the prior Monthly Period. The share of the Servicing Fee
allocable to the Investor Interest of each Series with respect to any Monthly
Period (the "INVESTOR SERVICING FEE") will be determined in accordance with the
relevant Supplement. The portion of the Servicing Fee with respect to any
Monthly Period not so allocated to the Investor Interest of a particular Series,
or otherwise allocated in any
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Supplement, shall be paid from Finance Charge Collections allocable to
Transferor on the related Distribution Date. In no event shall the Trust,
Trustee, the Investor Holders of any Series or any Enhancement Provider be
liable for the share of the Servicing Fee with respect to any Monthly Period
to be paid by Transferor.
SECTION III.3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SERVICER.
WFN, in its capacity as initial Servicer, hereby makes, and any Successor
Servicer by its appointment hereunder shall make, on each Closing Date (and on
the date of any such appointment), the following representations, warranties and
covenants to the Trust:
(a) ORGANIZATION AND GOOD STANDING. Servicer is a national
banking association (or with respect to such Successor Servicer, such
other corporate entity as may be applicable) duly organized, validly
existing and in good standing under the laws of the United States, and
has full corporate power, authority and legal right to execute, deliver
and perform its obligations under this Agreement and each Supplement and,
in all material respects, to own its properties and conduct its business
as such properties are presently owned and as such business is presently
conducted.
(b) DUE QUALIFICATION. Servicer is duly qualified to do business
and is in good standing as a foreign corporation (or is exempt from such
requirements), and has obtained all necessary licenses and approvals in
each jurisdiction in which failure to so qualify or to obtain such
licenses and approvals would have a material adverse effect on the
interests of the Investor Holders hereunder or under any Supplement.
(c) DUE AUTHORIZATION. The execution, delivery, and performance
of this Agreement and each Supplement have been duly authorized by
Servicer by all necessary corporate action on the part of Servicer.
(d) BINDING OBLIGATION. This Agreement and each Supplement
constitutes a legal, valid and binding obligation of Servicer,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereinafter in effect, affecting the
enforcement of creditors' rights in general (or with respect to such
Successor Servicer, such other corporate entity as may be applicable) and
except as such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity).
(e) NO VIOLATION. The execution and delivery of this Agreement
and each Supplement by Servicer, the performance of the transactions
contemplated by this Agreement and each Supplement and the fulfillment of
the terms hereof and thereof applicable to Servicer, will not conflict
with, violate, result in any breach of any of the material terms and
provisions of, or constitute (with or without notice or lapse of time or
both) a material default under, any Requirement of Law applicable to
Servicer or any indenture, contract, agreement, mortgage,
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deed of trust or other instrument to which Servicer is a party or by
which it or any of its properties are bound.
(f) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of Servicer, threatened against
Servicer before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality seeking to prevent the
issuance of the Certificates or the consummation of any of the
transactions contemplated by this Agreement or any Supplement, seeking
any determination or ruling that, in the reasonable judgment of Servicer,
would materially and adversely affect the performance by Servicer of its
obligations under this Agreement or any Supplement, or seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability of this Agreement or any Supplement.
(g) COMPLIANCE WITH REQUIREMENTS OF LAW. Servicer shall duly
satisfy all obligations on its part to be fulfilled under or in
connection with the Receivables and the related Accounts, will maintain
in effect all qualifications required under Requirements of Law in order
to properly service the Receivables and the related Accounts and will
comply in all material respects with all other Requirements of Law in
connection with servicing the Receivables and the related Accounts, the
failure to comply with which would have a material adverse effect on the
interests of the Investor Holders.
(h) NO RESCISSION OR CANCELLATION. Servicer shall not permit any
rescission or cancellation of a Receivable except as ordered by a court
of competent jurisdiction or other Governmental Authority or in the
ordinary course of its business and in accordance with the Credit Card
Guidelines. Servicer shall reflect any such rescission or cancellation
in its computer file of revolving credit card accounts. In addition,
Servicer may waive the accrual and/or payment of certain Finance Charge
Receivables in respect of certain past due Accounts, the Obligors of
which have enrolled with a consumer credit counseling service, and the
Receivables in such Accounts shall not fail to be Eligible Receivables
solely as a result of such waiver.
(i) PROTECTION OF HOLDERS' RIGHTS. Servicer shall take no action
which, nor omit to take any action the omission of which, would
materially impair the rights of Holders in any Receivable or Account, nor
shall it, except in the ordinary course of its business and in accordance
with the Credit Card Guidelines, reschedule, revise or defer Collections
due on the Receivables.
(j) RECEIVABLES NOT TO BE EVIDENCED BY PROMISSORY NOTES. Except
in connection with its enforcement or collection of an Account, Servicer
will take no action to cause any Receivable to be evidenced by any
instrument, other than an instrument that, taken together with one or
more other writings, constitutes chattel paper and, if any Receivable is
so
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evidenced (whether or not in connection with the enforcement or
collection of an Account), it shall be reassigned or assigned to Servicer
as provided in this Section.
(k) ALL CONSENTS REQUIRED. All approvals, authorizations,
consents, orders or other actions of any Person or of any governmental
body or official required in connection with the execution and delivery
by Servicer of this Agreement and each Supplement, the performance by
Servicer of the transactions contemplated by this Agreement and each
Supplement and the fulfillment by Servicer of the terms hereof and
thereof, have been obtained; PROVIDED that Servicer makes no
representation or warranty as to state securities or "blue sky" laws.
(l) MAINTENANCE OF RECORDS AND BOOKS OF ACCOUNT. Servicer shall
maintain and implement administrative and operating procedures (including
the ability to recreate records evidencing the Receivables in the event
of the destruction of the originals thereof), and keep and maintain all
documents, books, computer records and other information, reasonably
necessary or advisable for the collection of all the Receivables. Such
documents, books and computer records shall reflect all facts giving rise
to the Receivables, all payments and credits with respect thereto, and,
to the extent required pursuant to SECTION 2.1, such documents, books and
computer records shall indicate the interests of the Trust in the
Receivables.
For purposes of the representations and warranties set forth in this
SECTION 3.3, each reference to a Supplement shall be deemed to refer only to
those Supplements in effect as of the relevant Closing Date or the date of
appointment of a Successor Servicer, as applicable.
If any of the representations, warranties or covenants of Servicer
contained in PARAGRAPH (g), (h), (i) or (j) with respect to any Receivable or
the related Account is breached, and as a result of such breach the Trust's
rights in, to or under any Receivables in the related Account or the proceeds of
such Receivables are materially impaired or such proceeds are not available for
any reason to the Trust free and clear of any Lien, then no later than the
expiration of 60 days (or such longer period, not in excess of 150 days, as may
be agreed to by Trustee) from the earlier to occur of the discovery of such
event by Servicer, or receipt by Servicer of notice of such event given by
Trustee, all Receivables in the Account or Accounts to which such event relates
shall be reassigned or assigned to Servicer as set forth below; PROVIDED that
such Receivables will not be reassigned or assigned to Servicer if, on any day
prior to the end of such 60-day or longer period, (i) the relevant
representation and warranty shall be true and correct, or the relevant covenant
shall have been complied with, in all material respects and (ii) Servicer shall
have delivered an Officer's Certificate describing the nature of such breach and
the manner in which such breach was cured.
Servicer shall effect such assignment by making a deposit into the
Collection Account in immediately available funds prior to the next succeeding
Business Day in an amount equal to the
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amount of such Receivables, which deposit shall be considered a Collection
with respect to such Receivables and shall be applied in accordance with
ARTICLE IV and each Supplement.
Upon each such assignment to Servicer, Trustee, on behalf of the Trust,
shall automatically and without further action be deemed to transfer, assign,
set over and otherwise convey to Servicer, without recourse, representation or
warranty (except for the warranty that since the date of transfer by Transferor,
Trustee has not sold, transferred or encumbered any such Receivables or interest
therein), all right, title and interest of the Trust in and to such Receivables,
all moneys due or to become due and all amounts received with respect thereto
and all proceeds thereof. Trustee shall execute such documents and instruments
of transfer or assignment and take such other actions as shall be reasonably
requested by Servicer to effect the conveyance of any such Receivables pursuant
to this Section. The obligation of Servicer to accept assignment of such
Receivables, and to make the deposits, if any, required to be made to the Excess
Funding Account or the Collection Account as provided in the preceding
paragraph, shall constitute the sole remedy respecting the event giving rise to
such obligation available to Holders (or Trustee on behalf of Holders) or any
Enhancement Provider.
SECTION III.4. REPORTS TO TRUSTEE.
(a) DAILY REPORTS. On the second Business Day immediately following
each Date of Processing, Servicer shall prepare and make available at the
office of Servicer for inspection by Trustee a report (the "DAILY REPORT")
that shall set forth (i) the aggregate amounts of Collections, Collections
with respect to Principal Receivables and Collections with respect to Finance
Charge Receivables processed by Servicer on such Date of Processing, (ii) the
aggregate amount of Defaulted Receivables for such Date of Processing, and
(iii) the aggregate amount of Principal Receivables in the Trust as of such
Date of Processing.
(b) MONTHLY SERVICER'S CERTIFICATE. Unless otherwise stated in any
Supplement as to the related Series, on each Determination Date, Servicer shall
forward to Trustee, the Paying Agent, each Rating Agency and each Enhancement
Provider, if any, a certificate of a Servicing Officer setting forth (i) the
aggregate amounts for the preceding Monthly Period with respect to each of the
items specified in CLAUSE (i) of SECTION 3.4(a), (ii) the aggregate Defaulted
Receivables and Recoveries for the preceding Monthly Period, (iii) a calculation
of the Portfolio Yield and Base Rate for each Series then outstanding, (iv) the
aggregate amount of Receivables and the balance on deposit in the Collection
Account (or any subaccount thereof) or any Series Account applicable to any
Series then outstanding with respect to Collections processed as of the end of
the last day of the preceding Monthly Period, (v) the aggregate amount of
adjustments from the preceding Monthly Period, (vi) the aggregate amount, if
any, of withdrawals, drawings or payments under any Enhancement with respect to
each Series required to be made with respect to the previous Monthly Period,
(vii) the sum of all amounts payable to the Investor Holders on the succeeding
Distribution Date in respect of interest and principal payable with respect to
the Investor Certificates and (viii) such other amounts, calculations, and/or
information as may be required by any relevant Supplement.
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(c) TRANSFERRED ACCOUNTS. Servicer covenants and agrees hereby to
deliver to Trustee, on or prior to the Automatic Addition Termination Date or
any Automatic Addition Suspension Date (but in the latter case, prior to a
Restart Date) within a reasonable time period after any Transferred Account
is created, but in any event not later than 15 days after the end of the
month within which the Transferred Account is created, a notice specifying
the new account number for any Transferred Account and the replaced account
number.
SECTION III.5. ANNUAL CERTIFICATE OF SERVICER. Servicer shall deliver
to Trustee, each Rating Agency and each Enhancement Provider, if any, entitled
thereto pursuant to the relevant Supplement, on or before the 90th day following
fiscal year 1998 and each subsequent fiscal year, an Officer's Certificate (with
appropriate insertions) substantially in the form of EXHIBIT D.
SECTION III.6. ANNUAL SERVICING REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS; COPIES OF REPORTS AVAILABLE. (a) On or before the 90th day
following the end of its fiscal year 1998 and each subsequent fiscal year,
Servicer shall cause a firm of nationally recognized independent public
accountants (who may also render other services to Servicer or Transferor) to
furnish a report (addressed to Trustee) to Trustee, Servicer and each Rating
Agency to the effect that they have applied certain procedures with Servicer
and such firm has examined certain documents and records relating to the
servicing of Accounts under this Agreement and each Supplement, compared the
information contained in Servicer's certificates delivered pursuant to this
Agreement during the period covered by such report with such documents and
records and that, on the basis of such agreed upon procedures (and assuming
the accuracy of any reports generated by Servicer's third party agents), such
servicing was conducted in compliance with this Agreement during the period
covered by such report (which shall be the prior fiscal year, or the portion
thereof falling after the Initial Closing Date), except for such exceptions,
errors or irregularities as such firm shall believe to be immaterial and such
other exceptions, errors or irregularities as shall be set forth in such
report. Such report shall set forth the agreed upon procedures performed. A
copy of such report shall be delivered to each Enhancement Provider, if any,
entitled thereto pursuant to the relevant Supplement.
(b) On or before the 90th day following the end of fiscal year 1998 and
each subsequent fiscal year, Servicer shall cause a firm of nationally
recognized independent public accountants (who may also render other services to
Servicer or Transferor) to furnish a report to Trustee, Servicer and each Rating
Agency to the effect that they have applied certain procedures agreed upon with
Servicer to compare the mathematical calculations of certain amounts set forth
in Servicer's Certificates delivered pursuant to SECTION 3.4(b) during the
period covered by such report with Servicer's computer reports which were the
source of such amounts and that on the basis of such agreed upon procedures and
comparison, such amounts are in agreement, except for such exceptions as they
believe to be immaterial and such other exceptions as shall be set forth in such
statement. A copy of such report shall be delivered to each Enhancement
Provider, if any, entitled thereto pursuant to the relevant Supplement.
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(c) A copy of each certificate and report provided pursuant to SECTION
3.4(b), 3.5 or 3.6 may be obtained by any Investor Holder or Certificate Owner
by a request to Trustee addressed to the Corporate Trust Office.
SECTION III.7. TAX TREATMENT. Transferor has entered into this
Agreement, and the Certificates will be issued, with the intention that for
Federal, state and local income and franchise tax purposes, the Investor
Certificates (except Transferor Retained Certificates which are held by
Transferor) of each Series will qualify as debt secured by the Receivables.
Transferor, by entering into this Agreement, each Holder, by the acceptance
of its Certificate (and each Certificate Owner, by its acceptance of an
interest in the applicable Certificate), agree to treat such Investor
Certificates for Federal, state and local income and franchise tax purposes
as debt. Each Holder of such Investor Certificate agrees that it will cause
any Certificate owner acquiring an interest in a Certificate through it to
comply with this Agreement as to treatment as debt under applicable tax law,
as described in this SECTION 3.7. Furthermore, subject to SECTION 11.11, or
unless Transferor shall determine that the filing of returns is appropriate,
Trustee shall treat the Trust as a security device only and shall not file
tax returns or obtain an employer identification number on behalf of the
Trust.
SECTION III.8. NOTICES TO WFN. If WFN is no longer acting as Servicer,
any Successor Servicer shall deliver to WFN each certificate and report required
to be provided thereafter pursuant to SECTION 3.4(b), 3.5 or 3.6.
SECTION III.9. ADJUSTMENTS. (a) If Servicer adjusts downward the amount
of any Receivable because of a rebate, refund, unauthorized charge or billing
error to an accountholder, or because such Receivable was created in respect of
merchandise which was refused or returned by an accountholder, or if Servicer
otherwise adjusts downward the amount of any Receivable without receiving
Collections therefor or charging off such amount as uncollectible, then, in any
such case, the amount of Principal Receivables used to calculate the Transferor
Interest or the Investor Percentages applicable to any Series will be reduced by
the amount of the adjustment. Similarly, the amount of Principal Receivables
used to calculate the Transferor Amount and the Investor Percentages applicable
to any Series will be reduced by the amount of any Principal Receivable which
was discovered as having been created through a fraudulent or counterfeit charge
or with respect to which the covenant of Transferor contained in SECTION 2.7(b)
has been breached. Any adjustment required pursuant to either of the two
preceding sentences shall be made on or prior to the end of the Monthly Period
in which such adjustment obligation arises. If, following the exclusion of such
Principal Receivables from the calculation of the Transferor Amount, the
Transferor Amount would be less than the Specified Transferor Amount, not later
than 12:00 noon, New York City time, on the Distribution Date following the
Monthly Period in which such adjustment obligation arises, Transferor shall make
a deposit into the Excess Funding Account in immediately available funds in an
amount equal to the amount by which the Transferor Amount would be less than the
Specified Transferor Amount (up to the amount of such Principal Receivables).
Any amount deposited into the Excess Funding Account pursuant to the preceding
sentence shall be considered Collections of Principal Receivables and shall be
applied in accordance with ARTICLE IV and each Supplement.
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To secure its obligations to make deposits required by this SECTION
3.9(a), Transferor hereby grants to Trustee, for the benefit of the Investor
Holders, a security interest in (i) its rights to receive payments from any
Merchant under any Credit Card Processing Agreement on account of rebates,
refunds, unauthorized charges, refused or returned merchandise or any other
event or circumstance that causes Servicer to adjust downward the amount of any
Receivable without receiving Collections therefor or charging off such amount as
uncollectible ("MERCHANT ADJUSTMENT PAYMENTS"), (ii) any collateral security
granted to, or guaranty for the benefit of, WFN with respect to Merchant
Adjustment Payments, (iii) all amounts received from any Merchant or guarantor
on account of Merchant Adjustment Payments and (iv) all proceeds of such rights
and such amounts. Except as otherwise required by any Supplement, Transferor
may permit or require Merchant Adjustment Payments owed by any Merchant to be
netted against amounts owed by Transferor to that Merchant.
(b) If (i) Servicer makes a deposit into the Collection Account in
respect of a Collection of a Receivable and such Collection was received by
Servicer in the form of a check which is not honored for any reason or (ii)
Servicer makes a mistake with respect to the amount of any Collection and
deposits an amount that is less than or more than the actual amount of such
Collection, Servicer shall appropriately adjust the amount subsequently
deposited into the Collection Account to reflect such dishonored check or
mistake. Any Receivable in respect of which a dishonored check is received shall
be deemed not to have been paid. Notwithstanding the first two sentences of this
paragraph, any adjustments made pursuant to this paragraph will be reflected in
a current report but will not change any amount of Collections previously
reported pursuant to SECTION 3.4(b).
ARTICLE IV RIGHTS OF HOLDERS; ALLOCATIONS
SECTION IV.1. RIGHTS OF HOLDERS. The Investor Certificates shall
represent fractional undivided interests in the Trust, which, with respect to
each Series, shall consist of the right to receive, to the extent necessary to
make the required payments with respect to the Investor Certificates of such
Series at the times and in the amounts specified in the related Supplement, the
portion of Collections allocable to Investor Holders of such Series pursuant to
this Agreement and such Supplement, funds on deposit in the Collection Account
allocable to Holders of such Series pursuant to this Agreement and such
Supplement, funds on deposit in any related Series Account and funds available
pursuant to any related Enhancement (the "INVESTOR INTEREST"), it being
understood that, unless otherwise specified in the Supplements with respect to
each affected Series, the Investor Certificates of any Series or Class shall not
represent any interest in any Series Account or Enhancement for the benefit of
any other Series or Class. The Transferor Certificate shall represent the
ownership interest in the remainder of the Trust Assets not allocated pursuant
to this Agreement or any Supplement to the Investor Interest, including the
right to receive Collections with respect to the Receivables and other amounts
at the times and in the amounts specified in this Agreement or any Supplement to
be paid to Transferor or on behalf of the Holder of the Transferor Certificate
(the "TRANSFEROR INTEREST"); PROVIDED that (x) the Transferor Certificate shall
not represent any interest in the Collection Account, any Series Account or any
Enhancement, except as
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specifically provided in this Agreement or any Supplement and (y) if this
Agreement or, in the case of Supplemental Accounts, the related Assignment is
deemed to constitute a grant to the Trustee, for the benefit of the Investor
Holders, of a security interest in the Receivables and other Trust Assets,
then the Transferor Certificate shall be deemed to represent Transferor's
equity in the collateral granted.
SECTION IV.2. ESTABLISHMENT OF COLLECTION ACCOUNT AND EXCESS FUNDING
ACCOUNT. Servicer, for the benefit of the Holders, shall establish and maintain
in the name of Trustee, on behalf of the Trust, two Eligible Deposit Accounts
(the "COLLECTION ACCOUNT" and the "EXCESS FUNDING ACCOUNT"), each bearing a
designation clearly indicating that the funds deposited therein are held for the
benefit of the Holders. The Collection Account and the Excess Funding Account
shall initially be established with Trustee. Trustee shall possess all right,
title and interest in all funds on deposit from time to time in the Collection
Account and the Excess Funding Account and in all proceeds thereof for the
benefit of the Holders. The Collection Account and the Excess Funding Account
shall be under the sole dominion and control of Trustee for the benefit of the
Holders. Except as expressly provided in this Agreement, Trustee agrees that it
shall have no right of set-off or banker's lien against, and no right to
otherwise deduct from, any funds held in the Collection Account or the Excess
Funding Account for any amount owed to it by the Trust, any Holder or any
Enhancement Provider. If at any time the Collection Account or the Excess
Funding Account ceases to be an Eligible Deposit Account, Trustee (or Servicer
on its behalf) shall within 10 Business Days (or such longer period, not to
exceed 30 calendar days, as to which the Rating Agency Condition is satisfied)
establish a new Eligible Deposit Account meeting the conditions specified above
and transfer any cash or any investments from the affected account to such new
account, and from the date such new account is established, it shall be the
"Collection Account" or the "Excess Funding Account," as the case may be.
Funds on deposit in the Collection Account and the Excess Funding Account
shall, at the direction of Servicer, be invested by Trustee in Eligible
Investments selected by Servicer, except that funds on deposit in either such
account on any Transfer Date need not be invested through the immediately
following Distribution Date. All such Eligible Investments shall be held by
Trustee for the benefit of the Holders. Trustee shall maintain for the benefit
of the Holders possession of the negotiable instruments or securities, if any,
evidencing such Eligible Investments. Investments of funds representing
Collections collected during any Monthly Period shall be invested in Eligible
Investments that will mature so that all funds will be available at the close of
business on the Transfer Date following such Monthly Period. No Eligible
Investment shall be disposed of prior to its maturity unless Servicer so directs
and either (i) such disposal will not result in a loss of all or part of the
principal portion of such Eligible Investment or (ii) prior to the maturity of
such Eligible Investment, a default occurs in the payment of principal, interest
or any other amount with respect to such Eligible Investment. On each
Distribution Date, all interest and other investment earnings (net of losses and
investment expenses) on funds on deposit in the Collection Account and the
Excess Funding Account shall be treated as Collections of Finance Charge
Receivables with respect to the last day of the related Monthly Period, except
as otherwise specified in any Supplement. For
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purposes of determining the availability of funds or the balances in the
Collection Account or the Excess Funding Account for any reason under this
Agreement, all investment earnings net of investment expenses and losses on
such funds shall be deemed not to be available or on deposit.
Unless otherwise directed by Servicer, funds on deposit in the Excess
Funding Account will be withdrawn and paid to Transferor on any day to the
extent that the Transferor Amount exceeds the Specified Transferor Amount on
such day. On any Transfer Date on which one or more Series is in an Amortization
Period, Servicer shall determine the aggregate amounts of Principal Shortfalls,
if any, with respect to each such Series that is a Principal Sharing Series
(after giving effect to the allocation and payment provisions in the Supplement
with respect to each such Series), and Servicer shall instruct Trustee to
withdraw such amount from the Excess Funding Account (up to an amount equal to
the lesser of (x) the amount on deposit in the Excess Funding Account after
application of the preceding sentence on that day and (y) the amount, if any, by
which the Transferor Amount would be less than zero if there were no funds on
deposit in the Excess Funding Account on that day) on such Transfer Date and
allocate such amount among each such Series as specified in each related
Supplement.
SECTION IV.3. COLLECTIONS AND ALLOCATIONS. (a) Servicer shall apply, or
instruct Trustee to apply, all funds on deposit in the Collection Account as
described in this ARTICLE IV and in each Supplement. Except as otherwise
provided below and in each Supplement, Servicer shall deposit Collections into
the Collection Account no later than the second Business Day following the Date
of Processing of such Collections. Except as otherwise required by any
Supplement, Transferor may permit or require payments owed by any Merchant with
respect to In-Store Payments to be netted against amounts owed by Transferor to
that Merchant, and Transferor shall deposit into the Collection Account on each
Business Day an amount equal to the aggregate amount of In-Store Payments netted
against amounts owed by Transferor to the various Merchants on that Business
Day.
Subject to the express terms of any Supplement, but notwithstanding
anything else in this Agreement to the contrary, if WFN remains Servicer and (x)
for so long as WFN maintains a short term debt rating of A-1 or better by S&P,
P-1 or better by Moody's and, if rated by any other Rating Agency, the
equivalent rating by that Rating Agency (or such other rating below A-1, P-1 or
such equivalent rating, as the case may be, which is satisfactory to each Rating
Agency, if any), (y) with respect to Collections allocable to any Series, any
other conditions specified in the related Supplement are satisfied or (z) WFN
has provided to Trustee a letter of credit covering collection risk of Servicer
acceptable to each Rating Agency (as evidenced by a letter from each Rating
Agency to the effect that the Rating Agency Condition has been satisfied), if
any, Servicer need not make the daily deposits of Collections into the
Collection Account as provided in the preceding paragraph, but may make a single
deposit in the Collection Account in immediately available funds not later than
12:00 noon, New York City time, on the related Transfer Date.
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(b) On each Date of Processing, Collections of Finance Charge Receivables
and of Principal Receivables shall be allocated to the Investor Interest of each
Series in accordance with the related Supplement. On each Determination Date,
Defaulted Receivables will be allocated to the Investor Interest of each Series
in accordance with the related Supplement.
(c) Throughout the existence of the Trust, unless otherwise stated in any
Supplement, on each Date of Processing Servicer shall allocate to Transferor an
amount equal to the product of (A) the Transferor Percentage and (B) the
aggregate amount of Collections allocated to Principal Receivables and Finance
Charge Receivables, respectively, on that Date of Processing; PROVIDED that, if
the Transferor Amount (determined after giving effect to any transfer of
Principal Receivables to the Trust on such date), is less than or equal to the
Specified Transferor Amount, Servicer shall not allocate to Transferor any such
amounts that otherwise would be allocated to Transferor, but shall instead
deposit such funds in the Excess Funding Account. Unless otherwise stated in any
Supplement, neither Servicer nor Transferor need deposit any amounts allocated
to the Transferor pursuant to the foregoing into the Collection Account and
shall pay, or be deemed to pay, such amounts as collected to Transferor.
The payments to be made to Transferor, pursuant to this SECTION 4.3(c) do
not apply to deposits to the Collection Account or other amounts that do not
represent Collections, including payment of the purchase price for Receivables
pursuant to SECTION 2.6 or 10.1, proceeds from the sale, disposition or
liquidation of Receivables pursuant to SECTION 9.2 or 12.2 or payment of the
purchase price for the Investor Interest of a specific Series pursuant to the
related Supplement.
SECTION IV.4. SHARED PRINCIPAL COLLECTIONS. On each Business Day, Shared
Principal Collections may, at the option of Transferor, be applied (or held in
the Collection Account for later application) as principal with respect to any
Variable Interest or, so long as either no Series is in an Amortization Period
or no Series that is in an Amortization Period will have a Principal Shortfall
on the related Transfer Date (assuming no Early Amortization Event occurs),
withdrawn from the Collection Account and paid to Transferor; and on each
Transfer Date, (a) Servicer shall allocate Shared Principal Collections not
previously so applied or paid to each applicable Principal Sharing Series, pro
rata, in proportion to the Principal Shortfalls, if any, with respect to each
such Series, and any remainder may, at the option of Transferor, be applied as
principal with respect to any Variable Interest and (b) Servicer shall withdraw
from the Collection Account and pay to Transferor any amounts representing
Shared Principal Collections remaining after the allocations and applications
referred to in CLAUSE (a); PROVIDED that, if, on any day the Transferor Amount
(determined after giving effect to any transfer of Principal Receivables to the
Trust on such day), is less than or equal to the Specified Transferor Amount,
Servicer shall not distribute to Transferor any Shared Principal Collections
that otherwise would be distributed to Transferor, but shall deposit such funds
in the Excess Funding Account to the extent required so that the Transferor
Amount equals the Specified Transferor Amount.
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SECTION IV.5. EXCESS FINANCE CHARGE COLLECTIONS. On each Transfer Date,
(a) for each Group, Servicer shall allocate the aggregate amount for all
outstanding Series in such Group of the amounts which the related Supplements
specify are to be treated as "Excess Finance Charge Collections" for such
Transfer Date to each Series in such Group, pro rata, in proportion to the
Finance Charge Shortfalls, if any, with respect to each such Series, and (b)
Servicer shall on the related Distribution Date withdraw (or shall instruct
Trustee in writing to withdraw) from the Collection Account and pay to
Transferor an amount equal to the excess, if any, of (x) the aggregate amount
for all outstanding Series in a Group of the amounts which the related
Supplements specify are to be treated as "Excess Finance Charge Collections" for
such Distribution Date over (y) the aggregate amount for all outstanding Series
in such Group which the related Supplements specify are "Finance Charge
Shortfalls", for such Distribution Date.
THE REMAINDER OF ARTICLE IV IS RESERVED AND SHALL BE SPECIFIED IN ANY
SUPPLEMENT WITH RESPECT TO ANY SERIES
ARTICLE V DISTRIBUTIONS AND REPORTS
DISTRIBUTIONS SHALL BE MADE TO, AND REPORTS SHALL BE PROVIDED TO, HOLDERS
AS SET FORTH IN THE APPLICABLE SUPPLEMENT.
ARTICLE VI THE CERTIFICATES
SECTION VI.1. THE CERTIFICATES. The Investor Certificates of any Series
or Class may be issued in bearer form ("BEARER CERTIFICATES") with attached
interest coupons and any other applicable coupon (collectively, the "COUPONS")
or in fully registered form ("REGISTERED CERTIFICATES") and shall be
substantially in the form of the exhibits with respect thereto attached to the
applicable Supplement. The Transferor Certificate will be issued in registered
form and shall upon issue, be executed and delivered by Transferor to Trustee
for authentication and redelivery as provided in SECTION 6.2. Except as
otherwise provided in SECTION 6.3 or in any Supplement, Bearer Certificates
shall be issued in minimum denominations of $5,000 and Registered Certificates
shall be issued in minimum denominations of $1,000 and in integral multiples of
$1,000 in excess thereof. If specified in any Supplement, the Investor
Certificates of any Series or Class shall be issued upon initial issuance as a
single certificate evidencing the aggregate original principal amount of such
Series or Class as described in SECTION 6.13. The Transferor Certificate shall
initially be a single certificate and shall initially represent the entire
Transferor Interest. Each Certificate shall be executed by manual or facsimile
signature on behalf of Transferor by its President, Treasurer or any Vice
President. Certificates bearing the manual or facsimile signature of an
individual who was, at the time when such signature was affixed, authorized to
sign on behalf of Transferor shall not be rendered invalid, notwithstanding that
such individual ceased to be so authorized prior to the authentication and
delivery of such Certificates or does not hold such office at the date of such
Certificates. No Certificates shall be entitled to any benefit under this
Agreement, or be valid for any purpose, unless there appears on such Certificate
a certificate of authentication substantially in the
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form provided for herein executed by or on behalf of Trustee by the manual or
facsimile signature of a duly authorized signatory, and such certificate of
authentication upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly authenticated and
delivered hereunder. Bearer Certificates shall be dated the applicable
Closing Date. All Registered Certificates and the Transferor Certificate
shall be dated the date of their authentication.
SECTION VI.2. AUTHENTICATION OF CERTIFICATES. Trustee shall authenticate
and deliver the Investor Certificates of each Series and Class that are issued
upon original issuance to or upon the order of Transferor against payment to
Transferor of the purchase price therefor. Trustee shall authenticate and
deliver the Transferor Certificate to Transferor simultaneously with its
delivery of the Investor Certificates of the first Series to be issued
hereunder. If specified in the related Supplement for any Series or Class,
Trustee shall authenticate and deliver outside the United States the Global
Certificate that is issued upon original issuance thereof.
SECTION VI.3. NEW ISSUANCES. (a) Transferor may from time to time direct
Trustee, on behalf of the Trust, to authenticate one or more new Series of
Investor Certificates. The Investor Certificates of all outstanding Series shall
be equally and ratably entitled as provided herein to the benefits of this
Agreement without preference, priority or distinction, all in accordance with
the terms and provisions of this Agreement and the applicable Supplement except,
with respect to any Series or Class, as provided in the related Supplement.
(b) On or before the Closing Date for any new Series, the parties hereto
will execute and deliver a Supplement specifying the Principal Terms of the new
Series. Such Supplement may modify or amend the terms of this Agreement solely
as applied to the new Series and may grant the Holders of the Investor
Certificates in that Series, or an agent or other representative of such
Holders, notice and consultation rights with respect to any rights or actions of
Trustee. Trustee's obligation to authenticate the Investor Certificates of a new
Series and to execute and deliver the related Supplement is subject to the
satisfaction of the following conditions (except that the conditions set forth
in CLAUSES (i), (iii), (iv) and (v) shall not be applicable to the issuance of
the first Series):
(i) on or before the fifth Business Day immediately preceding the
Closing Date, Transferor shall have given Trustee, Servicer, each Rating
Agency and any Enhancement Provider entitled thereto pursuant to the
relevant Supplement notice of such issuance and the Closing Date;
(ii) Transferor shall have delivered to Trustee the related
Supplement, executed by each party hereto other than Trustee;
(iii) Transferor shall have delivered to Trustee any related
Enhancement Agreement executed by each of the parties thereto, other than
Trustee;
(iv) the Rating Agency Condition shall have been satisfied with
respect to such issuance;
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(v) Transferor shall have delivered to Trustee and any
Enhancement Provider entitled thereto pursuant to the relevant
Supplement an Officer's Certificate, dated the applicable Closing
Date, to the effect that Transferor reasonably believes that such
issuance will not, based on the facts known to such officer at the
time of such certification, then or thereafter cause an Early
Amortization Event to occur with respect to any Series;
(vi) Transferor shall have delivered to Trustee and each Rating
Agency a Tax Opinion, dated the Closing Date, with respect to such
issuance; and
(vii) Transferor shall have delivered to Trustee an Officer's
Certificate stating that the Transferor Amount shall not be less than the
Minimum Transferor Amount as of the Closing Date and after giving effect
to such issuance.
Upon satisfaction of the above conditions, Trustee shall execute the Supplement
and authenticate the Investor Certificates of such Series upon execution thereof
by Transferor. Upon satisfaction of the above conditions (MUTATIS MUTANDIS),
Transferor may also cause Trustee to enter into one or more agreements pursuant
to which Trustee shall sell purchased interests in the Receivables and other
Trust Assets to one or more purchasers. Such agreement(s) shall specify terms
similar to Principal Terms for any such purchased interests and may grant the
purchaser(s) of such interests, or an agent or other representative of such
purchaser(s), notice and consultation rights with respect to any rights or
actions of Trustee. Any such purchased interests shall be treated as a Series of
Investor Certificates for purposes of all voting and allocation provisions, and
calculations of the Transferor Amount and Transferor Percentage, under this
Agreement.
(c) Transferor may surrender the Transferor Certificate to Trustee in
exchange for a newly issued Transferor Certificate and one or more additional
certificates (each a "SUPPLEMENTAL CERTIFICATE"), the terms of which shall be
defined in a Supplement (which Supplement shall be subject to SECTION 13.1(a) to
the extent that it amends any of the terms of this Agreement), to be delivered
to or upon the order of Transferor (or the Holder of a Supplemental Certificate,
in the case of the transfer or exchange thereof, as provided below), upon
satisfaction of the following conditions:
(i) Transferor shall have delivered to Trustee an Officer's
Certificate stating that the Transferor Amount shall not be less than the
Minimum Transferor Amount, as of the date of, and after giving effect to,
such exchange;
(ii) the Rating Agency Condition shall have been satisfied with
respect to such exchange (or transfer, exchange or pledge as provided
below); and
(iii) Transferor shall have delivered to Trustee and each Rating
Agency a Tax Opinion, dated the date of such exchange (or transfer,
exchange or pledge as provided below), with respect thereto.
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Any Supplemental Certificate may be transferred or exchanged, and the Transferor
Certificate may be pledged, only upon satisfaction of the conditions set forth
in CLAUSES (ii) and (iii).
(d) The Transferor Certificate (or any interest therein) may be
transferred to a Person which is a member of the "affiliated group" as defined
in Internal Revenue Code Section 1504(a) of which WFN is a member without the
consent or approval of the Holders of the Investor Certificates, provided that
(i) the Rating Agency Condition shall have been satisfied with respect to such
transfer, (ii) Transferor shall have delivered to Trustee and each Rating Agency
a Tax Opinion, dated the date of such transfer, with respect thereto and (iii)
Transferor shall have delivered to Trustee an Officer's Certificate stating that
the Transferor Amount shall not be less than the Minimum Transferor Amount. In
connection with any such transfer, the Person to whom the Transferor Certificate
is transferred will, by its acquisition and holding of an interest in the
Transferor Certificate, assume all of the rights and obligations of Transferor
as described in this Agreement and in any Supplement or amendment thereto
(including the right under this PARAGRAPH (d) with respect to subsequent
transfers of an interest in the Transferor Certificate).
SECTION VI.4. REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES. (a)
Trustee shall cause to be kept at the office or agency to be maintained in
accordance with the provisions of SECTION 11.16 a register (the "CERTIFICATE
REGISTER") in which, subject to such reasonable regulations as it may prescribe,
a transfer agent and registrar (which may be Trustee) (the "TRANSFER AGENT AND
REGISTRAR") shall provide for the registration of the Registered Certificates
and of transfers and exchanges of the Registered Certificates as herein
provided. The Transfer Agent and Registrar shall initially be The Bank of New
York and any co-transfer agent and co-registrar chosen by Transferor and
acceptable to Trustee, including, if and so long as any Series or Class is
listed on the Luxembourg Stock Exchange and such exchange shall so require, a
co-transfer agent and co-registrar in Luxembourg. So long as any Investor
Certificates are outstanding, Transferor shall maintain a co-transfer agent and
co-registrar in New York City. Any reference in this Agreement to the Transfer
Agent and Registrar shall include any co-transfer agent and co-registrar unless
the context requires otherwise.
Trustee may revoke such appointment and remove any Transfer Agent and
Registrar if Trustee determines in its sole discretion that such Transfer Agent
and Registrar failed to perform its obligations under this Agreement in any
material respect. Any Transfer Agent and Registrar shall be permitted to resign
as Transfer Agent and Registrar upon 30 days' notice to Transferor, Trustee and
Servicer; PROVIDED that such resignation shall not be effective and such
Transfer Agent and Registrar shall continue to perform its duties as Transfer
Agent and Registrar until Trustee has appointed a successor Transfer Agent and
Registrar reasonably acceptable to Transferor.
Subject to PARAGRAPH (c), upon surrender for registration of transfer of
any Registered Certificate at any office or agency of the Transfer Agent and
Registrar maintained for such purpose, one or more new Registered Certificates
(of the same Series and Class) in authorized denominations
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of like aggregate fractional undivided interests in the Investor Interest
shall be executed, authenticated and delivered, in the name of the designated
transferee or transferees.
At the option of a Registered Holder, Registered Certificates (of the
same Series and Class) may be exchanged for other Registered Certificates of
authorized denominations of like aggregate fractional undivided interests in the
Investor Interest, upon surrender of the Registered Certificates to be exchanged
at any such office or agency; Registered Certificates, including Registered
Certificates received in exchange for Bearer Certificates, may not be exchanged
for Bearer Certificates. At the option of the Holder of a Bearer Certificate,
subject to applicable laws and regulations, Bearer Certificates may be exchanged
for other Bearer Certificates or Registered Certificates (of the same Series and
Class) of authorized denominations of like aggregate fractional undivided
interests in the Investor Interest, upon surrender of the Bearer Certificates to
be exchanged at an office or agency of the Transfer Agent and Registrar located
outside the United States. Each Bearer Certificate surrendered pursuant to this
Section shall have attached thereto all unmatured Coupons; PROVIDED that any
Bearer Certificate, so surrendered after the close of business on the Record
Date preceding the relevant payment date or distribution date after the expected
final payment date need not have attached the Coupon relating to such payment
date or distribution date (in each case, as specified in the applicable
Supplement).
Whenever any Investor Certificates are so surrendered for exchange,
Transferor shall execute, Trustee shall authenticate and the Transfer Agent and
Registrar shall deliver (in the case of Bearer Certificates, outside the United
States) the Investor Certificates which the Investor Holder making the exchange
is entitled to receive. Every Investor Certificate presented or surrendered for
registration of transfer or exchange shall be accompanied by a written
instrument of transfer in a form satisfactory to Trustee or the Transfer Agent
and Registrar duly executed by the Investor Holder or the attorney-in-fact
thereof duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Investor Certificates, but the Transfer Agent and Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any such transfer or exchange.
All Investor Certificates (together with any Coupons) surrendered for
registration of transfer and exchange or for payment shall be canceled and
disposed of in a manner satisfactory to Trustee. Trustee shall cancel and
destroy any Global Certificate upon its exchange in full for Definitive
Euro-Certificates and shall deliver a certificate of destruction to
Transferor. Such certificate shall also state that a certificate or
certificates of a foreign Clearing Agency to the effect required by the
applicable Supplement was received with respect to each portion of the Global
Certificate exchanged for Definitive Euro-Certificates.
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Transferor shall execute and deliver to Trustee Bearer Certificates and
Registered Certificates in such amounts and at such times as are necessary to
enable Trustee to fulfill its responsibilities under this Agreement, each
Supplement and the Certificates.
(b) The Transfer Agent and Registrar will maintain at its expense in the
City of New York and, if and so long as any Series or Class is listed on the
Luxembourg Stock Exchange, Luxembourg, an office or agency where Investor
Certificates may be surrendered for registration of transfer or exchange (except
that Bearer Certificates may not be surrendered for exchange at any such office
or agency in the United States).
(c)(i) Registration of transfer of Investor Certificates containing
(x) a legend substantially to the effect set forth on EXHIBIT E-1 shall be
effected only if such transfer is made pursuant to an effective registration
statement under the Securities Act or is exempt from the registration
requirements under the Securities Act and (y) a legend substantially to the
effect set forth on EXHIBIT E-3 shall be effected only if such transfer is
made to a Person that is not (1) an employee benefit plan or other plan,
trust or account (including an individual retirement account) that is subject
to ERISA or Section 4975 of the Internal Revenue Code or (2) any collective
investment fund, insurance company separate or general account or other
entity (except an entity registered under the Investment Company Act) whose
underlying assets include "plan assets" under ERISA by reason of a plan's
investment in such entity (a "BENEFIT PLAN"). If registration of a transfer
is to be made in reliance upon an exemption from the registration
requirements under the Securities Act, the transferor or the transferee shall
deliver, at its expense, to Transferor, Servicer and Trustee, an investment
letter from the transferee, substantially in the form of the investment
representation letter attached hereto as EXHIBIT E-2, and no registration of
transfer shall be made until such letter is so delivered.
Investor Certificates issued upon registration or transfer of, or
Investor Certificates issued in exchange for, Investor Certificates bearing a
legend referred to above shall also bear such legend unless Transferor,
Servicer, Trustee and the Transfer Agent and Registrar receive an Opinion of
Counsel, satisfactory to each of them, to the effect that such legend may be
removed.
Whenever an Investor Certificate containing a legend referred to above is
presented to the Transfer Agent and Registrar for registration of transfer, the
Transfer Agent and Registrar shall promptly seek instructions from Servicer
regarding such transfer and shall be entitled to receive instructions signed by
a Servicing Officer prior to registering any such transfer. Transferor hereby
agrees to indemnify the Transfer Agent and Registrar and Trustee and to hold
each of them harmless against any loss, liability or expense incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by them in relation to any such instructions furnished
pursuant to this paragraph.
(ii) Registration of transfer of Investor Certificates containing a
legend to the effect set forth on EXHIBIT E-3 shall be effected only if such
transfer is made to a Person which is not a Benefit Plan. By accepting and
holding any such Investor Certificate, an Investor Holder shall be deemed to
have
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represented and warranted that it is not a Benefit Plan. By acquiring any
interest in a Book-Entry Certificate which contains such legend, a
Certificate Owner shall be deemed to have represented and warranted that it
is not a Benefit Plan.
(iii) If so requested by Transferor, Trustee will make available to any
prospective purchaser of Investor Certificates who so requests, a copy of a
letter provided to Trustee by or on behalf of Transferor relating to the
transferability of any Series or Class to a Benefit Plan.
(d) Notwithstanding any other provision of this Agreement, any
Certificate for which an Opinion of Counsel has not been issued opining on the
treatment of such Certificates as debt for Federal income tax purposes (each, a
"SUBJECT CERTIFICATE") shall be subject to the following. No transfer (or
purported transfer) of all or any part of a Subject Certificate (or any economic
interest therein), whether to another Certificateholder or to a person who is
not a Certificateholder, shall be effective, and any such transfer (or purported
transfer) shall be void AB INITIO, and no Person shall otherwise become a Holder
of a Subject Certificate if (i) at the time of such transfer (or purported
transfer) any Subject Certificates are traded on an established securities
market, (ii) after such transfer (or purported transfer) the Trust would have
more than 100 Holders of Subject Certificates or (iii) the Subject Certificates
have been issued in a transaction or transactions that were required to be
registered under the Securities Act, and to the extent such offerings or sales
were not required to be registered under the Securities Act by reason of
Regulation S (17 CFR 230.901 through 230.904 or any successor thereto) such
offerings or sales would have been required to be registered under the
Securities Act if the interests so offered or sold had been offered and sold
within the United States. For purposes of CLAUSE (i) of the preceding sentence,
an established securities market is a national securities exchange that is
either registered under Section 6 of the Exchange Act or exempt from
registration because of the limited volume of transactions, a foreign securities
exchange that, under the law of the jurisdiction where it is organized,
satisfies regulatory requirements that are analogous to the regulatory
requirements of the Exchange Act, a regional or local exchange, or an
interdealer quotation system that regularly disseminates firm buy or sell
quotations by identified brokers or dealers by electronic means or otherwise.
For purposes of determining whether the Trust will have more than 100 Holders of
Subject Certificates, each Person indirectly owning an interest in the Trust
through a partnership (including any entity treated as a partnership for federal
income tax purposes), a grantor trust or an S corporation (each such entity a
"FLOW-THROUGH ENTITY") shall be treated as a Holder of a Subject Certificate
unless Servicer determines in its sole discretion, after consulting with
qualified tax counsel, that less than substantially all of the value of the
beneficial owner's interest in the flow-through entity is attributable to the
flow-through entity's interest (direct or indirect) in the Trust.
SECTION VI.5. MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If
(a) any mutilated Certificate (together, in the case of Bearer Certificates,
with all unmatured Coupons (if any) appertaining thereto) is surrendered to
the Transfer Agent and Registrar, or the Transfer Agent and Registrar
receives evidence to its satisfaction of the destruction, loss or theft of
any Certificate and (b) there is delivered to the Transfer Agent and Registrar
and Trustee such security or indemnity as
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may be required by them to save each of them harmless, then, in the absence
of notice to Trustee that such Certificate has been acquired by a bona fide
purchaser, Transferor shall execute, Trustee shall authenticate and the
Transfer Agent and Registrar shall deliver (in the case of Bearer
Certificates, outside the United States), in exchange for or in lieu of any
such mutilated, destroyed, lost or stolen Certificate, a new Certificate of
like tenor and aggregate fractional undivided interest. In connection with
the issuance of any new Certificate under this Section, Trustee or the
Transfer Agent and Registrar may require the payment by the Holder of a sum
sufficient to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees and expenses
of Trustee and Transfer Agent and Registrar) connected therewith. Any
duplicate Certificate issued pursuant to this Section shall constitute
complete and indefeasible evidence of ownership in the Trust, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION VI.6. PERSONS DEEMED OWNERS. Trustee, the Paying Agent, the
Transfer Agent and Registrar and any agent of any of these may (a) prior to
due presentation of a Registered Certificate for registration of transfer,
treat the Person in whose name any Registered Certificate is registered as
the owner of such Registered Certificate for the purpose of receiving
distributions pursuant to the applicable Supplement and for all other
purposes whatsoever, and (b) treat the bearer of a Bearer Certificate or
Coupon as the owner of such Bearer Certificate or Coupon for the purpose of
receiving distributions pursuant to the applicable Supplement and for all
other purposes whatsoever; and, in any such case, neither Trustee, the Paying
Agent, the Transfer Agent and Registrar nor any agent of any of these shall
be affected by any notice to the contrary. Notwithstanding the foregoing, in
determining whether the Holders of the requisite Investor Certificates have
given any request, demand, authorization, direction, notice, consent or
waiver hereunder, Certificates owned by Transferor, Servicer, any other
Holder of the Transferor Certificate, Trustee or any Affiliate thereof, shall
be disregarded and deemed not to be outstanding, except that, in determining
whether Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Certificates which
Trustee actually knows to be so owned shall be so disregarded. Certificates
so owned which have been pledged in good faith shall not be disregarded and
may be regarded as outstanding if the pledgee establishes to the satisfaction
of Trustee the pledgee's right so to act with respect to such Certificates
and that the pledgee is not Transferor, Servicer, any other Holder of the
Transferor Certificate or any Affiliate thereof.
SECTION VI.7. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make
distributions to Investor Holders from the Collection Account or any applicable
Series Account pursuant to the provisions of the applicable Supplement and shall
report the amounts of such distributions to Trustee. Any Paying Agent shall have
the revocable power to withdraw funds from the Collection Account or any
applicable Series Account for the purpose of making the distributions referred
to above. Trustee may revoke such power and remove the Paying Agent if Trustee
determines in its sole discretion that the Paying Agent shall have failed to
perform its obligations under this Agreement or any Supplement in any material
respect. The Paying Agent shall initially be Trustee, and any co-paying agent
chosen by Transferor and acceptable to Trustee, including, if and so long
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as any Series or Class is listed on the Luxembourg Stock Exchange and such
exchange so requires, a co-paying agent in Luxembourg or another western
European city. Any Paying Agent shall be permitted to resign as Paying Agent
upon 30 days' notice to Trustee. If any Paying Agent shall resign, Trustee
shall appoint a successor to act as Paying Agent. Trustee shall cause each
successor or additional Paying Agent to execute and deliver to Trustee an
instrument in which such successor or additional Paying Agent shall agree
with Trustee that it will hold all sums, if any, held by it for payment to
the Investor Holders in trust for the benefit of the Investor Holders
entitled thereto until such sums shall be paid to such Investor Holders. The
Paying Agent shall return all unclaimed funds to Trustee and upon removal
shall also return all funds in its possession to Trustee. The provisions of
SECTIONS 11.1, 11.2, 11.3 and 11.5 shall apply to Trustee also in its role as
Paying Agent, for so long as Trustee shall act as Paying Agent. Any reference
in this Agreement to the Paying Agent shall include any co-paying agent
unless the context requires otherwise.
SECTION VI.8. ACCESS TO LIST OF REGISTERED HOLDERS' NAMES AND ADDRESSES.
Trustee will furnish or cause to be furnished by the Transfer Agent and
Registrar to Servicer or the Paying Agent, within five Business Days after
receipt by Trustee of a request therefor, a list in such form as Servicer or the
Paying Agent may reasonably require, of the names and addresses of the
Registered Holders. If any Holder or group of Holders of Investor Certificates
of any Series or all outstanding Series, as the case may be, evidencing not less
than 10% of the aggregate unpaid principal amount of such Series or all
outstanding Series, as applicable (the "APPLICANTS"), apply to Trustee, and such
application states that the Applicants desire to communicate with other Investor
Holders with respect to their rights under this Agreement or any Supplement or
under the Investor Certificates and is accompanied by a copy of the
communication which such Applicants propose to transmit, then Trustee, after
having been adequately indemnified by such Applicants for its costs and expenses
shall afford or shall cause the Transfer agent and Registrar to afford such
Applicants access during normal business hours to the most recent list of
Registered Holders of such Series or all outstanding Series, as applicable, held
by Trustee, within five Business Days after the receipt of such application.
Such list shall be as of a date no more than 45 days prior to the date of
receipt of such Applicants' request.
Every Registered Holder, by receiving and holding a Registered
Certificate, agrees with Trustee that neither Trustee, the Transfer Agent and
Registrar, nor any of their respective agents, shall be held accountable by
reason of the disclosure of any such information as to the names and addresses
of the Registered Holders hereunder, regardless of the sources from which such
information was derived.
SECTION VI.9. AUTHENTICATING AGENT. (a) Trustee may appoint one or more
authenticating agents with respect to the Certificates which shall be authorized
to act on behalf of Trustee in authenticating the Certificates in connection
with the issuance, delivery, registration of transfer, exchange or repayment of
the Certificates. Whenever reference is made in this Agreement to the
authentication of Certificates by Trustee or Trustee's certificate of
authentication, such reference shall be deemed to include authentication on
behalf of Trustee by an authenticating agent and
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certificate of authentication executed on behalf of Trustee by an
authenticating agent. Each authenticating agent must be acceptable to
Transferor and Servicer.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without the
execution or filing of any power or any further act on the part of Trustee or
such authenticating agent. An authenticating agent may at any time resign by
giving notice of resignation to Trustee and to Transferor. Trustee may at any
time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to Transferor. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time an
authenticating agent shall cease to be acceptable to Trustee or Transferor,
Trustee promptly may appoint a successor authenticating agent. Any successor
authenticating agent upon acceptance of its appointment hereunder shall become
vested with all the rights, powers and duties of its predecessor hereunder, with
like effect as if originally named as an authenticating agent. No successor
authenticating agent shall be appointed unless acceptable to Trustee and
Transferor. Transferor agrees to pay to each authenticating agent from time to
time reasonable compensation for its services under this Section. The provisions
of SECTIONS 11.1, 11.2 and 11.3 shall be applicable to any authenticating agent.
(c) Pursuant to an appointment made under this Section, the Certificates
may have endorsed thereon, in lieu of Trustee's certificate of authentication,
an alternate certificate of authentication in substantially the following form:
This is one of the Certificates described in the Pooling and Servicing
Agreement.
------------------------------
------------------------------
as Authenticating Agent
for Trustee,
By:
--------------------------
Authorized Officer
SECTION VI.10. BOOK-ENTRY CERTIFICATES. Unless otherwise specified
in the related Supplement for any Series or Class, the Investor Certificates,
upon original issuance, shall be issued in the form of one or more
typewritten Investor Certificates representing the Book-Entry Certificates,
to be delivered to the Clearing Agency, by, or on behalf of, Transferor. The
Investor Certificates shall initially be registered on the Certificate
Register in the name of the Clearing Agency or its nominee, and no
Certificate Owner will receive a definitive certificate representing such
Certificate Owner's interest in the Investor Certificates, except as provided
in SECTION 6.12. Unless and until
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definitive, fully registered Investor Certificates ("DEFINITIVE CERTIFICATES")
have been issued to the applicable Certificate Owners pursuant to SECTION 6.12
or as otherwise specified in any such Supplement:
(a) the provisions of this Section shall be in full force and
effect;
(b) Transferor, Servicer and Trustee may deal with the Clearing
Agency and the Clearing Agency Participants for all purposes (including
the making of distributions) as the authorized representatives of the
respective Certificate Owners;
(c) to the extent that the provisions of this Section conflict
with any other provisions of this Agreement, the provisions of this
Section shall control; and
(d) the rights of the respective Certificate Owners shall be
exercised only through the Clearing Agency and the Clearing Agency
Participants and shall be limited to those established by law and
agreements between such Certificate Owners and the Clearing Agency or the
Clearing Agency Participants. Pursuant to the Depository Agreement,
unless and until Definitive Certificates are issued pursuant to SECTION
6.12, the Clearing Agency will make book-entry transfers among the
Clearing Agency Participants and receive and transmit distributions of
principal and interest on the related Investor Certificates to such
Clearing Agency Participants.
For purposes of any provision of this Agreement requiring or permitting
actions with the consent of, or at the direction of, Investor Holders evidencing
a specified percentage of the aggregate unpaid principal amount of Investor
Certificates, such direction or consent may be given by Certificate Owners
(acting through the Clearing Agency and the Clearing Agency Participants) owning
Investor Certificates evidencing the requisite percentage of principal amount of
Investor Certificates.
SECTION VI.11. NOTICES TO CLEARING AGENCY. Whenever any notice or other
communication is required to be given to Investor Holders of any Series or Class
with respect to which Book-Entry Certificates have been issued, unless and until
Definitive Certificates shall have been issued to the related Certificate
Owners, Trustee shall give all such notices and communications to the applicable
Clearing Agency.
SECTION VI.12. DEFINITIVE CERTIFICATES. If Book-Entry Certificates have
been issued with respect to any Series or Class and (a) Transferor advises
Trustee that the Clearing Agency is no longer willing or able to discharge
properly its responsibilities under the Depository Agreement with respect to
such Series or Class and Trustee or Transferor is unable to engage a qualified
successor, (b) Transferor, at its option, advises Trustee that it elects to
terminate the book-entry system with respect to such Series or Class through the
Clearing Agency or (c) after the occurrence of a Servicer Default, Certificate
Owners of such Series or Class evidencing not less than 50% of the aggregate
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unpaid principal amount of such Series or Class advise Trustee and the
Clearing Agency through the Clearing Agency Participants that the
continuation of a book-entry system with respect to the Investor Certificates
of such Series or Class through the Clearing Agency is no longer in the best
interests of the Certificate Owners with respect to such Certificates, then
Trustee shall notify all Certificate Owners of such Certificates, through the
Clearing Agency, of the occurrence of any such event and of the availability
of Definitive Certificates to Certificate Owners requesting the same. Upon
surrender to Trustee of any such Certificates by the Clearing Agency,
accompanied by registration instructions from the Clearing Agency for
registration, Transferor shall execute and Trustee shall authenticate and
deliver such Definitive Certificates. Neither Transferor nor Trustee shall be
liable for any delay in delivery of such instructions and may conclusively
rely on, and shall be protected in relying on, such instructions. Upon the
issuance of such Definitive Certificates all references herein to obligations
imposed upon or to be performed by the Clearing Agency shall be deemed to be
imposed upon and performed by Trustee, to the extent applicable with respect
to such Definitive Certificates and Trustee shall recognize the Holders of
such Definitive Certificates as Investor Holders hereunder.
SECTION VI.13. GLOBAL CERTIFICATE. If specified in the related
Supplement for any Series, or Class, the Investor Certificates for such
Series or Class will initially be issued in the form of a single temporary
global Certificate (the "GLOBAL CERTIFICATE") in bearer form, without
interest coupons, in the denomination of the aggregate principal amount of
such Series or Class and substantially in the form set forth in the exhibit
with respect thereto attached to the related Supplement. The Global
Certificate will be executed by Transferor and authenticated by Trustee upon
the same conditions, in substantially the same manner and with the same
effect as the Definitive Certificates. The Global Certificate may be
exchanged for Bearer or Registered Certificates in definitive form (the
"DEFINITIVE EURO-CERTIFICATES") pursuant to any applicable Supplement.
SECTION VI.14. UNCERTIFICATED CLASSES. Unless otherwise specified in
any Supplement, the provisions of this ARTICLE VI and ARTICLE XII relating to
the registration, form, execution, authentication, delivery, presentation,
cancellation and surrender of Certificates shall not apply to any
uncertificated Certificates.
ARTICLE VII OTHER MATTERS RELATING TO TRANSFEROR
SECTION VII.1. LIABILITY OF TRANSFEROR. Transferor shall be liable for
its obligations, covenants, representations and warranties under this Agreement
and any Supplement, but only to the extent of the obligations specifically
undertaken by it in its capacity as Transferor.
SECTION VII.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, TRANSFEROR. (a) Transferor shall not consolidate with or merge
into any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person unless:
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(i) the corporation formed by such consolidation or into which
Transferor is merged or the Person which acquires by conveyance or
transfer the properties and assets of Transferor substantially as an
entirety shall be, if Transferor is not the surviving entity, a
corporation organized and existing under the laws of the United States of
America or any State or the District of Columbia, and, if Transferor is
not the surviving entity, such corporation shall expressly assume, by an
agreement supplemental hereto, executed and delivered to Trustee, in form
reasonably satisfactory to Trustee, the performance of every covenant and
obligation of Transferor hereunder, including its obligations under
SECTION 7.4;
(ii) Transferor has delivered to Trustee (A) an Officer's
Certificate stating that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section and
that all conditions precedent herein provided for relating to such
transaction have been complied with, and (B) an Opinion of Counsel to the
effect that such supplemental agreement is a valid and binding obligation
of such surviving entity enforceable against such surviving entity in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally from time to time in
effect and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity);
(iii) Transferor shall have delivered to Trustee and each Rating
Agency a Tax Opinion, dated the date of such consolidation, merger,
conveyance or transfer, with respect thereto;
(iv) in connection with any merger or consolidation, or any
conveyance or transfer referred to above, the business entity into which
Transferor shall merge or consolidate, or to which such conveyance or
transfer is made, shall be (x) a business entity that may not become a
debtor in any case, action or other proceeding under Title 11 of the
United States Code or (y) a special-purpose corporation, the powers and
activities of which shall be limited to the performance of Transferor's
obligations under this Agreement and any Supplement; and
(v) if Transferor is not the surviving entity, the surviving
entity shall file new UCC-1 financing statements with respect to the
interest of the Trust in the Receivables.
(b) This SECTION 7.2 shall not be construed to prohibit or in any way
limit Transferor's ability to effectuate any consolidation or merger pursuant to
which Transferor would be the surviving entity.
(c) Transferor shall notify each Rating Agency promptly after any
consolidation, merger, conveyance or transfer effected pursuant to this SECTION
7.2;
(d) The obligations of Transferor hereunder shall not be assignable nor
shall any Person succeed to the obligations of Transferor hereunder except in
each case in accordance with (i) the
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provisions of the foregoing paragraphs, (ii) SECTIONS 2.11 or 6.3(d), or
(iii) conveyances, mergers, consolidations, assumptions, sales or transfers
to other entities (1) for which Transferor delivers an Officer's Certificate
to Trustee indicating that Transferor reasonably believes that such action
will not adversely affect in any material respect the interests of any
Investor Holder, (2) which meet the requirements of CLAUSE (ii) of PARAGRAPH
(a) and (3) for which such purchaser, transferee, pledgee or entity shall
expressly assume, in an agreement supplemental hereto, executed and delivered
to Trustee in writing in form satisfactory to Trustee, the performance of
every covenant and obligation of Transferor thereby conveyed.
SECTION VII.3. LIMITATIONS ON LIABILITY OF TRANSFEROR. Subject to
SECTIONS 7.1 and 7.4, neither Transferor, any Holder of the Transferor
Certificate nor any of their directors, officers, employees or agents of
Transferor acting in such capacities shall be under any liability to the Trust,
Trustee, the Holders, any Enhancement Provider or any other Person for any
action taken or for refraining from the taking of any action in good faith in
their capacities as Transferor pursuant to this Agreement; PROVIDED that this
provision shall not protect Transferor, any Holder of the Transferor Certificate
or any such Person against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties or by reason of reckless disregard of obligations and duties
hereunder. Transferor and any director, officer, employee or agent of Transferor
may rely in good faith on any document of any kind prima facie properly executed
and submitted by any Person (other than Transferor) respecting any matters
arising hereunder.
SECTION VII.4. LIABILITIES. Notwithstanding SECTIONS 7.3, 8.3 and 8.4,
Transferor by entering into this Agreement, and any Holder of any interest in
the Transferor Certificate by its acceptance thereof, agree to be liable,
directly to the injured party, for the entire amount of any losses, claims,
damages or liabilities (other than those that would be incurred by an Investor
Holder if the Investor Certificates were notes secured by the Receivables, for
example, as a result of the performance of the Receivables, market fluctuations,
a shortfall or failure to make payment under any Enhancement or other similar
market or investment risks associated with ownership of the Investor
Certificates) arising out of or based on the arrangement created by this
Agreement or the actions of Servicer taken pursuant hereto (to the extent Trust
Assets remaining after the Investor Holders and Enhancement Providers, if any,
have been paid in full are insufficient to pay any such losses, claims, damages
or liabilities) as though this Agreement created a partnership under the
Delaware Revised Uniform Partnership Act in which Transferor and such Holder of
the Transferor Certificate were general partners.
ARTICLE VIII OTHER MATTERS RELATING TO SERVICER
SECTION VIII.1. LIABILITY OF SERVICER. Servicer shall be liable under
this Agreement only to the extent of the obligations specifically undertaken by
Servicer in its capacity as Servicer.
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SECTION VIII.2. MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE
OBLIGATIONS OF, SERVICER. (a) Servicer shall not consolidate with or merge into
any other corporation or convey or transfer its properties and assets
substantially as an entirety to any Person, unless:
(i) the corporation formed by such consolidation or into which
Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of Servicer substantially as an entirety shall
be, if Servicer is not the surviving entity, a corporation organized and
existing under the laws of the United States of America or any State or
the District of Columbia, and, if Servicer is not the surviving entity,
such corporation shall expressly assume, by an agreement supplemental
hereto, executed and delivered to Trustee, in form reasonably
satisfactory to Trustee, the performance of every covenant and obligation
of Servicer hereunder;
(ii) Servicer has delivered to Trustee (A) an Officer's
Certificate stating that such consolidation, merger, conveyance or
transfer and such supplemental agreement comply with this Section and
that all conditions precedent herein provided for relating to such
transaction have been complied with, and (B) an Opinion of Counsel to the
effect that such supplemental agreement is a valid and binding obligation
of such surviving entity enforceable against such surviving entity in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally from time to time in
effect and except as such enforceability may be limited by general
principles of equity (whether considered in a suit at law or in equity);
and
(iii) either (x) the corporation formed by such consolidation or
into which Servicer is merged or the Person which acquired by conveyance
or transfer the properties and assets of Servicer substantially as an
entirety shall be an Eligible Servicer (taking into account, in making
such determination, the experience and operations of the predecessor
Servicer) or (y) upon the effectiveness of such consolidation, merger,
conveyance or transfer, a Successor Servicer shall have assumed the
obligations of Servicer in accordance with this Agreement.
(b) This SECTION 8.2 shall not be construed to prohibit or in any way
limit Servicer's ability to effectuate any consolidation or merger pursuant to
which Servicer would be the surviving entity.
(c) Servicer shall notify each Rating Agency promptly after any
consolidation, merger, conveyance or transfer effected pursuant to this
SECTION 8.2.
SECTION VIII.3. LIMITATION ON LIABILITY OF SERVICER AND OTHERS.
Except as provided in SECTIONS 8.4 and 11.5, neither Servicer nor any of the
directors, officers, employees or agents of Servicer in its capacity as
Servicer shall be under any liability to the Trust, Trustee, the Holders, any
Enhancement Providers or any other person for any action taken or for
refraining from the taking of any action in good faith in its capacity as
Servicer pursuant to this Agreement; PROVIDED that this
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provision shall not protect Servicer or any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith
or gross negligence in the performance of duties or by reason of reckless
disregard of obligations and duties hereunder. Servicer and any director,
officer, employee or agent of Servicer may rely in good faith on any document
of any kind prima facie properly executed and submitted by any Person (other
than Servicer) respecting any matters arising hereunder. Servicer shall not
be under any obligation to appear in, prosecute or defend any legal action
which is not incidental to its duties as Servicer in accordance with this
Agreement and which in its reasonable judgment may involve it in any expense
or liability. Servicer may, in its sole discretion, undertake any such legal
action which it may deem necessary or desirable for the benefit of the
Holders with respect to this Agreement and the rights and duties of the
parties hereto and the interests of the Holders hereunder.
SECTION VIII.4. SERVICER INDEMNIFICATION OF THE TRUST AND TRUSTEE.
Servicer shall indemnify and hold harmless the Trust and Trustee and its
officers, directors, employees and agents, from and against any loss, liability,
expense, damage or injury suffered or sustained by reason of any acts or
omissions of Servicer with respect to the Trust pursuant to this Agreement, and
shall also hold harmless Trustee and its officers, directors, employees and
agents, from and against any loss, liability, expense, damage or injury suffered
or sustained by reason of any acts or omissions of Trustee pursuant to this
Agreement, in each case including any judgment, award, settlement, reasonable
attorneys' fees and other costs or expenses incurred in connection with the
defense of any action, proceeding or claim; PROVIDED that (a) Servicer shall not
indemnify Trustee if such acts, omissions or alleged acts or omissions
constitute or are caused by fraud, negligence, or willful misconduct by Trustee,
(b) Servicer shall not indemnify the Trust, the Investor Holders or the
Certificate Owners for any liabilities, costs or expenses of the Trust with
respect to any action taken by Trustee at the request of the Investor Holders,
(c) Servicer shall not indemnify the Trust, the Investor Holders or the
Certificate Owners as to any losses, claims or damages incurred by any of them
in their capacities as investors, including losses with respect to market or
investment risks associated with ownership of the Investor Certificates or
losses incurred as a result of Defaulted Receivables and (d) Servicer shall not
indemnify the Trust, the Investor Holders or the Certificate Owners for any
liabilities, costs or expenses of the Trust, the Investor Holders or the
Certificate Owners arising under any tax law, including any Federal, state,
local or foreign income or franchise taxes or any other tax imposed on or
measured by income (or any interest or penalties with respect thereto or arising
from a failure to comply therewith) required to be paid by the Trust, the
Investor Holders or the Certificate Owners in connection herewith to any taxing
authority. Indemnification pursuant to this Section shall not be payable from
the Trust Assets. The provisions of this indemnity shall run directly to and be
enforceable by an indemnitee subject to the limitations hereof.
SECTION VIII.5. SERVICER NOT TO RESIGN. Servicer shall not resign from
the obligations and duties hereby imposed on it except (x) upon the
determination that (i) the performance of its duties hereunder is no longer
permissible under Requirements of Law (other than the charter and by-laws of
Servicer) and (ii) there is no reasonable action which Servicer could take to
make the performance of its duties hereunder permissible under such Requirements
of Law or (y) as may be required, in
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connection with Servicer's consolidation with, or merger into any other
corporation or Servicer's conveyance or transfer of its properties and assets
substantially as an entirety to any person in each case, in accordance with
SECTION 8.2. Any determination permitting the resignation of Servicer
pursuant to clause (x) above shall be evidenced by an Opinion of Counsel to
such effect delivered to Trustee. No resignation shall become effective until
Trustee or a Successor Servicer shall have assumed the responsibilities and
obligations of Servicer in accordance with SECTION 10.2. If within 120 days
of the date of the determination that Servicer may no longer act as Servicer,
and if Trustee is unable to appoint a Successor Servicer, Trustee shall serve
as Successor Servicer. Notwithstanding the foregoing, Trustee shall, if it is
legally unable so to act, petition a court of competent jurisdiction to
appoint any established institution having a net worth of not less than
$50,000,000 and whose regular business includes the servicing of credit card
accounts as the Successor Servicer hereunder. Trustee shall give prompt
notice to each Rating Agency and each Enhancement Provider, if any, entitled
thereto under the applicable Supplement upon the appointment of a Successor
Servicer.
SECTION VIII.6. ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION
REGARDING THE RECEIVABLES. Servicer shall provide to Trustee access to the
documentation regarding the Accounts and the Receivables in such cases where
Trustee is required in connection with the enforcement of the rights of
Holders or by applicable statutes or regulations to review such
documentation, such access being afforded without charge but only (a) upon
reasonable request, (b) during normal business hours, (c) subject to
Servicer's normal security and confidentiality procedures and (d) at
reasonably accessible offices in the continental United States designated by
Servicer. Nothing in this Section shall derogate from the obligation of each
Credit Card Originator, Transferor, Trustee and Servicer to observe any
applicable law prohibiting disclosure of information regarding the Obligors,
and the failure of Servicer to provide access as provided in this Section as
a result of such obligation shall not constitute a breach of this Section.
SECTION VIII.7. DELEGATION OF DUTIES. In the ordinary course of
business, Servicer may at any time delegate any duties hereunder to any
Person who agrees to conduct such duties in accordance with the Credit Card
Guidelines and this Agreement. Any such delegations shall not relieve
Servicer of its liability and responsibility with respect to such duties, and
shall not constitute a resignation within the meaning of SECTION 8.5, and
Servicer shall remain jointly and severally liable with such Person for any
amounts which would otherwise be payable pursuant to this ARTICLE VIII as if
Servicer had performed such duty; PROVIDED that in the case of any
significant delegation to a Person other than an Affiliate of WFN, at least
30 days' prior written notice shall be given to Trustee, each Rating Agency
and each Enhancement Provider, if any, entitled thereto pursuant to the
relevant Supplement, of such delegation to any entity that is not an
Affiliate of Servicer.
ARTICLE IX EARLY AMORTIZATION EVENTS
SECTION IX.1. EARLY AMORTIZATION EVENTS. Each of the following shall
constitute an "EARLY AMORTIZATION EVENT" with respect to each Series:
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SECTION XI.11. TAX RETURN. If the Trust is required to file tax
returns, Servicer shall prepare or shall cause to be prepared any tax returns
required to be filed by the Trust and shall remit such returns to Trustee for
signature at least five days before such returns are due to be filed; Trustee
shall promptly sign such returns and deliver such returns after signature to
Servicer and such returns shall be filed by Servicer. Servicer in accordance
with each Supplement shall also prepare or shall cause to be prepared all tax
information required by law to be distributed to Investor Holders. Trustee
upon request, will furnish Servicer with all such information known to
Trustee as may be reasonably required in connection with the preparation of
all tax returns of the Trust. In no event shall Trustee or Servicer (except
as provided in SECTIONS 7.4 or 8.4) be liable for any liabilities, costs or
expenses of the Trust or the Investor Holders arising under any tax law,
including Federal, state, local or foreign income or excise taxes or any
other tax imposed or measured by income (or any interest or penalty with
respect thereto or arising from a failure to comply therewith).
SECTION XI.12. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES. All rights of action and claims under this Agreement or the
Certificates may be prosecuted and enforced by Trustee without the possession
of any of the Certificates or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by Trustee shall be
brought in its own name as trustee. Any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
obtained.
SECTION XI.13. SUITS FOR ENFORCEMENT. If a Servicer Default shall
occur and be continuing, Trustee, in its discretion may, subject to the
provisions of SECTIONS 10.1 and 11.14, proceed to protect and enforce its
rights and the rights of the Holders under this Agreement by a suit, action
or proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in
aid of the execution of any power granted in this Agreement or for the
enforcement of any other legal, equitable or other remedy as Trustee, being
advised by counsel, shall deem most effectual to protect and enforce any of
the rights of Trustee or the Holders.
SECTION XI.14. RIGHTS OF HOLDERS TO DIRECT TRUSTEE. Holders of
Investor Certificates evidencing more than 50% of the aggregate unpaid
principal amount of all Investor Certificates (or, with respect to any
remedy, trust or power that does not relate to all Series, 50% of the
aggregate unpaid principal amount of the Investor Certificates of all Series
to which such remedy, trust or power relates) shall have the right to direct
the time, method, and place of conducting any proceeding for any remedy
available to Trustee, or exercising any trust or power conferred on Trustee
relating to such proceeding; PROVIDED that, subject to SECTION 11.1, Trustee
shall have the right to decline to follow any such direction if Trustee being
advised by counsel determines that the action so directed may not lawfully be
taken, or if Trustee in good faith shall, by a Responsible Officer or
Responsible Officers of Trustee, determine that the proceedings so directed
would be illegal or involve it in personal liability or be unduly prejudicial
to the rights of Holders not parties to such
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direction; and PROVIDED FURTHER that nothing in this Agreement shall impair
the right of Trustee to take any action deemed proper by Trustee and which is
not inconsistent with such direction.
SECTION XI.15. REPRESENTATIONS AND WARRANTIES OF TRUSTEE. Trustee
represents and warrants as of each Closing Date that:
(a) Trustee is a New York banking corporation organized, existing
and in good standing under the laws of the State of New York;
(b) Trustee has full power, authority and right to execute,
deliver and perform this Agreement and has taken all necessary action to
authorize the execution, delivery and performance by it of this
Agreement; and
(c) this Agreement has been duly executed and delivered by Trustee
and is a binding obligation of Trustee enforceable against Trustee in
accordance with its terms, except as such enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting the enforcement of
creditors' rights in general and except as such enforceability may be
limited by general principles of equity (whether considered in a suit at
law or in equity).
SECTION XI.16. MAINTENANCE OF OFFICE OR AGENCY. Trustee will maintain at
its expense an office or agency (the "CORPORATE TRUST OFFICE") where notices and
demands to or upon Trustee in respect of the Certificates and this Agreement may
be served (a) in the City of New York, in the case of Registered Certificates
and Holders thereof, and (b) in London or Luxembourg, in the case of Bearer
Certificates and Holders thereof, if and for so long as any Bearer Certificates
are outstanding. The Corporate Trust Office shall initially be located at 101
Barclay Street, New York, New York 10286. Trustee will give prompt notice to
Servicer and to Investor Holders of any change in the location of the
Certificate Register or any such office or agency.
SECTION XI.17. CONFIDENTIALITY. Information provided by the Credit Card
Originator or Transferor to Trustee related to the transaction effected
hereunder, including all information related to the Obligors with respect to the
Receivables, and any computer software provided to Trustee in connection with
the transaction effected hereunder or under any Supplement, in each case whether
in the form of documents, reports, lists, tapes, discs or any other form, shall
be "CONFIDENTIAL INFORMATION." Trustee and its agents, representatives or
employees shall at all times maintain the confidentiality of all Confidential
Information and shall not, without the prior written consent of the Credit Card
Originator or Transferor, as applicable, disclose to third parties (including
Holders) or use such information to compete or assist any other Person in
competing with the Credit Card Originator or Transferor or in any manner
whatsoever, in whole or in part, except as expressly permitted under this
Agreement or under any Supplement or as required to fulfill an obligation of
Trustee under this Agreement or under any Supplement, in which case such
Confidential Information shall be revealed only to the extent expressly
permitted or only to Trustee's agents, representatives
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and employees who need to know such Confidential Information to the extent
required for the purpose of fulfilling an obligation of Trustee under this
Agreement or under any Supplement. Notwithstanding the above, Confidential
Information may be disclosed to the extent required by law or legal process,
provided that Trustee gives prompt written notice to the Credit Card
Originator or Transferor, as applicable, of the nature and scope of such
disclosure.
ARTICLE XII TERMINATION
SECTION XII.1. TERMINATION OF TRUST. The Trust and the respective
obligations and responsibilities of Transferor, Servicer and Trustee created
hereby (other than the obligation of Trustee to make payments to Investor
Holders as hereinafter set forth) shall terminate, except with respect to the
duties described in SECTIONS 7.4, 8.4, 9.2 and 12.2(b), upon the earlier of
(i) January 1, 2021, (ii) the day following the Distribution Date on which
the Invested Amount for each Series is zero (PROVIDED that Transferor has
delivered a written notice to Trustee electing to terminate the Trust) and
(iii) the date provided in SECTION 9.2.
SECTION XII.2. FINAL DISTRIBUTION. (a) Servicer shall give Trustee at
least 30 days prior notice of the Distribution Date on which the Investor
Holders of any Series or Class may surrender their Investor Certificates for
payment of the final distribution on and cancellation of such Investor
Certificates (or, in the event of a final distribution resulting from the
application of SECTION 2.6, 9.2 or 10.1, notice of such Distribution Date
promptly after Servicer has determined that a final distribution will occur,
if such determination is made less than 30 days prior to such Distribution
Date). Such notice shall be accompanied by an Officer's Certificate setting
forth the information specified in SECTION 3.5 covering the period during the
then current fiscal year through the date of such notice. Not later than the
fifth day of the month in which the final distribution in respect of such
Series or Class is payable to Investor Holders, Trustee shall provide notice
to Investor Holders of such Series or Class specifying (i) the date upon
which final payment of such Series or Class will be made upon presentation
and surrender of Investor Certificates of such Series or Class at the office
or offices therein designated, (ii) the amount of any such final payment and
(iii) that the Record Date otherwise applicable to such payment date is not
applicable, payments being made only upon presentation and surrender of such
Investor Certificates at the office or offices therein specified (which, in
the case of Bearer Certificates, shall be outside the United States). Trustee
shall give such notice to the Transfer Agent and Registrar and the Paying
Agent at the time such notice is given to Investor Holders.
(b) Notwithstanding a final distribution to the Investor Holders of
any Series or Class (or the termination of the Trust), except as otherwise
provided in this paragraph, all funds then on deposit in the Collection
Account, the Excess Funding Account and any Series Account allocated to such
Investor Holders shall continue to be held in trust for the benefit of such
Investor Holders and the Paying Agent or Trustee shall pay such funds to such
Investor Holders upon surrender of their Investor Certificates (and any
excess shall be paid in accordance with any relevant Enhancement Agreement).
If all such Investor Holders shall not surrender their Investor Certificates
for
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cancellation within six months after the date specified in the notice from
Trustee described in PARAGRAPH (a), Trustee shall give a second notice to the
remaining such Investor Holders to surrender their Investor Certificates for
cancellation and receive the final distribution with respect thereto (which
surrender and payment, in the case of Bearer Certificates, shall be outside
the United States). If within one year after the second notice all such
Investor Certificates shall not have been surrendered for cancellation,
Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining such Investor Holders concerning
surrender of their Investor Certificates, and the cost thereof shall be paid
out of the funds in the Collection Account or any Series Account held for the
benefit of such Investor Holders. Trustee and the Paying Agent shall pay to
Transferor any moneys held by them for the payment of principal or interest
that remains unclaimed for two years. After payment to Transferor, Investor
Holders entitled to the money must look to Transferor for payment as general
creditors unless an applicable abandoned property law designates another
Person.
(c) If the Invested Amount with respect to any Series is greater than
zero on its Series Termination Date or such earlier date as is specified in
the related Supplement (after giving effect to deposits and distributions
otherwise to be made on such date), Trustee will sell or cause to be sold on
such Series Termination Date, in accordance with the procedures and subject
to the conditions described in such Supplement, Principal Receivables and the
related Finance Charge Receivables (or, if a Tax Opinion is obtained,
interests therein) in an amount up to 110% of the Invested Amount with
respect to such Series on such date (after giving effect to such deposits and
distributions; PROVIDED that in no event shall such amount exceed an amount
of Principal Receivables (and all associated Finance Charge Receivables)
equal to the sum of (i) the product of (A) Transferor Percentage, (B) the
aggregate outstanding Principal Receivables, and (C) a fraction the numerator
of which is the related Investor Percentage of Collections of Finance Charge
Receivables and the denominator of which is the sum of all Investor
Percentages with respect to Collections of Finance Charge Receivables of all
Series outstanding and (ii) the Invested Amount of such Series). The proceeds
from any such sale shall be allocated and distributed in accordance with the
applicable Supplement.
SECTION XII.3. TRANSFEROR'S TERMINATION RIGHTS. Upon the termination
of the Trust pursuant to SECTION 12.1 and the surrender of the Transferor
Certificate and any Supplemental Certificate, Trustee shall assign and convey
to Transferor or its designee, without recourse, representation or warranty,
all right, title and interest of the Trust in the Receivables, whether then
existing or thereafter created, all moneys due or to become due and all
amounts received with respect thereto and all proceeds thereof, except for
amounts held by Trustee pursuant to SECTION 12.2(b). Trustee shall execute
and deliver such instruments of transfer and assignment, in each case without
recourse, as shall be reasonably requested by Transferor to vest in
Transferor or its designee all right, title and interest which the Trust had
in the Receivables and such other related assets.
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ARTICLE XIII MISCELLANEOUS PROVISIONS
SECTION XIII.1. AMENDMENT; WAIVER OF PAST DEFAULTS. (a) This Agreement
or any Supplement may be amended from time to time (including in connection
with (i) adding covenants, restrictions or conditions of Transferor, such
further covenants, restrictions or conditions as its Board of Directors and
Trustee shall consider to be for the benefit or protection of the Investor
Holders, and to make the occurrence, or the occurrence and continuance, of a
default in any of such additional covenants, restrictions or conditions a
default or Early Amortization Event permitting the enforcement of all or any
of the several remedies provided in this Agreement as herein set forth;
PROVIDED, HOWEVER, that in respect of any such additional covenant,
restriction or condition such amendment may provide for a particular period
of grace after default or may provide for an immediate enforcement upon such
default or may limit the remedies available to Trustee upon such default,
(ii) curing any ambiguity or correcting or supplementing any provision
contained herein or in any Supplement which may be defective or inconsistent
with any other provision contained herein or in any Supplement or to
surrender any right or power conferred upon Transferor, (iii) the issuance of
a Supplemental Certificate, (iv) the addition of a Participation Interest or
receivables arising in VISA, MasterCard or any other type of open end
revolving credit card account to the Trust, (v) the assumption by another
entity, in accordance with the provisions of this Agreement, of Transferor's
obligations hereunder, or (vi) the provision of additional Enhancement for
the benefit of Holders of any Series) by Servicer, Transferor and Trustee
without the consent of such Holders as provided for in the applicable
Supplement, PROVIDED that (x) Transferor shall have delivered to Trustee an
Officer's Certificate to the effect that Transferor reasonably believes that
such action shall not adversely affect in any material respect the interests
of any Investor Holder, (y) the Rating Agency Condition shall have been
satisfied with respect to any such amendment and (z) a Tax Opinion is
delivered in connection with any such amendment. The designation of
additional or substitute Transferors or additional Credit Card Originators
pursuant to SECTION 2.11 or 2.12 shall be subject to this SECTION 13.1 only
to the extent that the supplement to this Agreement providing for such
designation amends any of the terms of this Agreement.
(b) This Agreement or any Supplement may also be amended from time to
time by Servicer, Transferor and Trustee, with the consent of the Holders of
Investor Certificates (acting for themselves or through any designated
agents, as provided for in any applicable Supplement) evidencing not less
than 66-2/3% of the aggregate unpaid principal amount of the Investor
Certificates of all adversely affected Series, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of this Agreement or any Supplement or of modifying in any manner the rights
of the Holders; PROVIDED, HOWEVER, that no such amendment shall (i) reduce in
any manner the amount of or delay the timing of any distributions to be made
to Investor Holders or deposits of amounts to be so distributed or the amount
available under any Enhancement without the consent of each affected Holder
(provided that any amendment of the terms of an Early Amortization Event
shall not be deemed to be within the scope of this CLAUSE (i)), (ii) change
the definition of or the manner of calculating the interest of any Investor
Holder without
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the consent of each affected Investor Holder (acting for themselves or
through any designated agents, as provided for in any applicable Supplement)
or (iii) reduce the aforesaid percentage required to consent to any such
amendment without the consent of each Investor Holder (acting for themselves
or through any designated agents, as provided for in any applicable
Supplement). Any amendment to be effected pursuant to this paragraph shall be
deemed to adversely affect all outstanding Series, other than any Series with
respect to which such action shall not, as evidenced by an Opinion of Counsel
for Transferor, addressed and delivered to Trustee, adversely affect in any
material respect the interests of any Investor Holder of such Series. Trustee
may, but shall not be obligated to, enter into any such amendment which
affects Trustee's rights, duties or immunities under this Agreement or
otherwise.
(c) Promptly after the execution of any such amendment or consent (other
than an amendment pursuant to PARAGRAPH (a)), Trustee shall furnish notification
of the substance of such amendment to each Investor Holder; and Servicer shall
furnish prior notification of the substance of such amendment to (i) each Rating
Agency and (ii) each Enhancement Provider, if any, entitled thereto pursuant to
the relevant Supplement.
(d) It shall not be necessary for the consent of Investor Holders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Investor Holders shall be subject to such reasonable
requirements as Trustee may prescribe.
(e) Any Supplement executed in accordance with the provisions of SECTION
6.3 shall not be considered an amendment to this Agreement for the purposes of
this Section.
(f) The Holders of Investor Certificates evidencing more than 66-2/3% of
the aggregate unpaid principal amount of the Investor Certificates of each
Series, or, with respect to any Series with two or more Classes, of each Class
(or, with respect to any default that does not relate to all Series, 66-2/3% of
the aggregate unpaid principal amount of the Investor Certificates of each
Series to which such default relates or, with respect to any such Series with
two or more Classes, of each Class) may, on behalf of all Holders, waive any
default by Transferor or Servicer in the performance of their obligations
hereunder and its consequences, except the failure to make any distributions
required to be made to Investor Holders or to make any required deposits of any
amounts to be so distributed. Upon any such waiver of a past default, such
default shall cease to exist, and any default arising therefrom shall be deemed
to have been remedied for every purpose of this Agreement. No such waiver shall
extend to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
SECTION XIII.2. PROTECTION OF RIGHT, TITLE AND INTEREST TO TRUST. (a)
Transferor shall cause this Agreement, all amendments and supplements hereto and
all financing statements and continuation statements and any other necessary
documents covering the Holders, and Trustee's
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right, title and interest to the Trust to be promptly recorded, registered
and filed, and at all times to be kept recorded, registered and filed, all in
such manner and in such places as may be required by law fully to preserve
and protect the right, title and interest of the Holders and Trustee
hereunder to all property comprising the Trust Assets. Transferor shall
deliver to Trustee file-stamped copies of, or filing receipts for, any
document recorded, registered or filed as provided above, as soon as
available following such recording, registration or filing.
(b) Within 30 days after Transferor makes any change in its name,
identity or corporate structure which would make any financing statement or
continuation statement filed in accordance with PARAGRAPH (a) seriously
misleading within the meaning of Section 9-402(7) (or any comparable provision)
of the UCC, Transferor shall give Trustee notice of any such change and shall
file such financing statements or amendments as may be necessary to continue the
perfection of the Trust's security interest in the Receivables and the proceeds
thereof.
(c) Transferor and Servicer will give Trustee prompt notice of any
relocation of any office from which it services Receivables or keeps records
concerning the Receivables or of its principal executive office and whether, as
a result of such relocation, the applicable provisions of the UCC would require
the filing of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall file such financing
statements or amendments as may be necessary to perfect or to continue the
perfection of the Trust's security interest in the Receivables and the proceeds
thereof. Transferor and Servicer will at all times maintain each office from
which it services Receivables and its principal executive offices within the
United States.
(d) Transferor will deliver to Trustee and any Enhancement Provider
entitled thereto pursuant to the relevant Supplement: (i) upon the execution and
delivery of each amendment of this Agreement or any Supplement, an Opinion of
Counsel to the effect specified in EXHIBIT F-1; (ii) on each Addition Date on
which any Supplemental Accounts are to be designated as Accounts pursuant to
SECTION 2.8(a) or (b), an Opinion of Counsel to the effect specified in EXHIBIT
F-2, and on each Addition Date on which any Participation Interests are to be
included in the Trust pursuant to SECTION 2.8(a) or (b), an Opinion of Counsel
covering the same substantive legal issues addressed by EXHIBIT F-2 but
conformed to the extent appropriate to relate to Participation Interests; and
(iii) on or before March 31 of each year, beginning with March 31, 1998, an
Opinion of Counsel to the effect specified in EXHIBIT F-2.
SECTION XIII.3. LIMITATION ON RIGHTS OF HOLDERS. (a) The death or
incapacity of any Holder shall not operate to terminate this Agreement or the
Trust, nor shall such death or incapacity entitle such Holders' legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the Trust,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of them.
(b) No Investor Holder shall have any right to vote (except as
expressly provided in this Agreement) or in any manner otherwise control the
operation and management of the Trust, or the
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obligations of the parties hereto, nor shall anything herein set forth, or
contained in the terms of the Certificates, be construed so as to constitute
the Investor Holders from time to time as partners or members of an
association, nor shall any Investor Holder be under any liability to any
third person by reason of any action by the parties to this Agreement
pursuant to any provision hereof.
(c) No Investor Holder shall have any right by virtue of any
provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Investor Holder previously shall have made, and unless the Holders of
Investor Certificates evidencing more than 50% of the aggregate unpaid
principal amount of all Investor Certificates (or, with respect to any such
action, suit or proceeding that does not relate to all Series, 50% of the
aggregate unpaid principal amount of the Investor Certificates of all Series
which such action, suit or proceeding relates) shall have made written
request to Trustee to institute such action, suit or proceeding in its own
name as Trustee hereunder and shall have offered to Trustee such reasonable
indemnity as it may require against the costs, expenses and liabilities to be
incurred therein or thereby, and Trustee, for 60 days after its receipt of
such request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and
intended, and being expressly covenanted by each Investor Holder with every
other Investor Holder and Trustee, that no one or more Investor Holders shall
have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or
prejudice the rights of Holders of any other of the Investor Certificates, or
to obtain or seek to obtain priority over or preference to any other Investor
Holder, or to enforce any right under this Agreement, except in the manner
herein provided and for the equal, ratable and common benefit of all Investor
Holders except as otherwise expressly provided in this Agreement. For the
protection and enforcement of the provisions of this Section, each and every
Investor Holder and Trustee shall be entitled to such relief as can be given
either at law or in equity.
SECTION XIII.4. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION XIII.5. NOTICES, PAYMENTS. (a) All demands notices, instructions,
directions and communications (collectively, "NOTICES") under this Agreement
shall be in writing and shall be deemed to have been duly given if personally
delivered at, mailed by registered mail, return receipt requested, or sent by
facsimile transmission (i) in the case of Transferor or Servicer, to WFN, 800
Techcenter Drive, Gahanna, Ohio 43230, Attention: Dan Groomes (facsimile no.
614/729-4899), (ii) in the case of Trustee, The Bank of New York, 101 Barclay
Street, 12th Floor East, New York, New York 10286, Attention: Asset-Backed Unit
(facsimile no. 212-815-5999)), (iii) in the case of the Paying Agent or the
Transfer Agent and Registrar, to Trustee at the address above and (iv) to any
other Person as specified in any Supplement; or, as to each party, at such other
address or facsimile number as shall be designated by such party in a written
notice to each other party.
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(b) Any Notice required or permitted to be given to a Holder of
Registered Certificates shall be given by first-class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. No Notice shall
be required to be mailed to a Holder of Bearer Certificates or Coupons but shall
be given as provided below. Any Notice so mailed within the time prescribed in
this Agreement shall be conclusively presumed to have been duly given, whether
or not the Investor Holder receives such Notice. In addition, (i) if and so long
as any Series or Class is listed on the Luxembourg Stock Exchange and such
Exchange shall so require, any Notice to Investor Holders shall be published in
an Authorized Newspaper of general circulation in Luxembourg within the time
period prescribed in this Agreement and (ii) in the case of any Series or Class
with respect to which any Bearer Certificates are outstanding, any Notice
required or permitted to be given to Investor Holders of such Series or Class
shall be published in an Authorized Newspaper within the time period prescribed
in this Agreement.
SECTION XIII.6. RULE 144A INFORMATION. For so long as any of the Investor
Certificates of any Series or Class are "restricted securities" within the
meaning of Rule 144(a)(3) under the Securities Act, each of Transferor, Trustee,
Servicer and any Enhancement Provider agree to cooperate with each other to
provide to any Investor Holders of such Series or Class and to any prospective
purchaser of Certificates designated by such Investor Holder, upon the request
of such Investor Holder or prospective purchaser, any information required to be
provided to such holder or prospective purchaser to satisfy the condition set
forth in Rule 144A(d)(4) under the Securities Act.
SECTION XIII.7. SEVERABILITY OF PROVISIONS. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall for any
reason whatsoever be held invalid, then such provisions shall be deemed
severable from the remaining provisions of this Agreement and shall in no way
affect the validity or enforceability of the remaining provisions or of the
Certificates or the rights of the Holders.
SECTION XIII.8. CERTIFICATES NONASSESSABLE AND FULLY PAID. It is the
intention of the parties to this Agreement that the Holders shall not be
personally liable for obligations of the Trust, that the interests in the Trust
represented by the Certificates shall be nonassessable for any losses or
expenses of the Trust or for any reason whatsoever and that Certificates upon
authentication thereof by Trustee pursuant to SECTION 6.2 are and shall be
deemed fully paid.
SECTION XIII.9. FURTHER ASSURANCES. Transferor and Servicer agree to do
and perform, from time to time, any and all acts and to execute any and all
further instruments required or reasonably requested by Trustee more fully to
effect the purposes of this Agreement, including the execution of any financing
statements or continuation statements relating to the Receivables for filing
under the provisions of the UCC of any applicable jurisdiction.
SECTION XIII.10. NONPETITION COVENANT. Notwithstanding any prior
termination of this Agreement, Servicer, Trustee, Transferor, each Holder and
each Enhancement Provider, if any, and
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each Holder of a Supplemental Certificate shall not, prior to the date which
is one year and one day after the last day on which any Investor Certificates
shall have been outstanding, with respect to the Trust, petition or otherwise
invoke or cause the Trust to invoke the process of any Governmental Authority
for the purpose of commencing or sustaining a case against the Trust under
any Federal or state bankruptcy, insolvency or similar law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Trust or any substantial part of its property or
ordering the winding-up or liquidation of the affairs of the Trust.
SECTION XIII.11. NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise
and no delay in exercising, on the part of Trustee or the Holders, any right,
remedy, power or privilege under this Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges provided under this Agreement are cumulative and
not exhaustive of any rights, remedies, powers and privileges provided by law.
SECTION XIII.12. COUNTERPARTS. This Agreement may be executed in two or
more counterparts (and by different parties on separate counterparts), each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
SECTION XIII.13. THIRD-PARTY BENEFICIARIES. This Agreement will inure to
the benefit of and be binding upon the parties hereto, the Holders, any
Enhancement Provider (to the extent provided in this Agreement and the related
Supplement) and their respective successors and permitted assigns. Except as
otherwise expressly provided in this Agreement (including SECTION 7.4), no other
Person will have any right or obligation hereunder.
SECTION XIII.14. ACTIONS BY HOLDERS. (a) Wherever in this Agreement a
provision is made that an action may be taken or a Notice given by Holders, such
action or Notice may be taken or given by any Holder, unless such provision
requires a specific percentage of Holders.
(b) Any Notice, request, authorization, direction, consent, waiver or
other act by the Holder of a Certificate shall bind such Holder and every
subsequent Holder of such Certificate and of any Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done or omitted to be done by Trustee or Servicer in
reliance thereon, whether or not notation of such action is made upon such
Certificate.
SECTION XIII.15. MERGER AND INTEGRATION. Except as specifically stated
otherwise herein, this Agreement sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior understandings,
written or oral, are superseded by this Agreement.
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IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Agreement to be duly executed by their respective officers as of the day and
year first above written.
WORLD FINANCIAL NETWORK
NATIONAL BANK, as Transferor
and Servicer,
By___________________________
Name: Robert Armiak
Title: Treasurer
THE BANK OF NEW YORK,
as Trustee,
By___________________________
Name:
Title:
<PAGE>
EXHIBIT A
FORM OF TRANSFEROR CERTIFICATE
THIS TRANSFEROR CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. NEITHER THIS TRANSFEROR CERTIFICATE NOR
ANY PORTION HEREOF MAY BE OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM SUCH REGISTRATION PROVISIONS.
THIS TRANSFEROR CERTIFICATE IS NOT PERMITTED TO BE TRANSFERRED,
ASSIGNED, EXCHANGED OR OTHERWISE PLEDGED OR CONVEYED EXCEPT IN COMPLIANCE
WITH THE TERMS OF THE POOLING AND SERVICING AGREEMENT REFERRED TO HEREIN.
No. R-1 One Unit
WORLD FINANCIAL NETWORK CREDIT CARD MASTER TRUST III
TRANSFEROR CERTIFICATE
THIS CERTIFICATE REPRESENTS AN INTEREST
IN CERTAIN ASSETS OF THE
WORLD FINANCIAL NETWORK CREDIT CARD MASTER TRUST III
(Not an interest in or obligation of Transferor
or any affiliate thereof)
This certifies that WORLD FINANCIAL NETWORK NATIONAL BANK is the
registered owner of a fractional interest in the assets of a trust (the
"TRUST") not allocated to the Investor Interest or the interest of any Holder
of a Supplemental Certificate pursuant to the Pooling and Servicing Agreement
dated as of January 30, 1998 (as amended and supplemented, the "AGREEMENT"),
between World Financial Network National Bank, a national banking
association, as Transferor ("TRANSFEROR") and as Servicer, and The Bank of
New York, a New York banking corporation, as trustee ("TRUSTEE"). To the
extent not defined herein, the capitalized terms used herein have the
meanings ascribed to them in the Agreement.
This Certificate is the Transferor Certificate issued under, and is
subject to, the Agreement. By accepting this Certificate, its Holder assents
to, and is bound by, the Agreement.
Exhibit A, Page 1
<PAGE>
Transferor has entered into the Agreement, and this Certificate is
issued, with the intention that, for Federal, state and local income and
franchise tax purposes only, the Investor Certificates (except Transferor
Retained Certificates which are held by Transferor) will qualify as debt
secured by the Receivables. Transferor, by entering into the Agreement and
the Holder of the Transferor Certificate by acceptance of this Transferor
Certificate, agree to treat such Investor Certificates for Federal, state and
local income and franchise tax purposes as debt under applicable tax law.
Unless the certificate of authentication hereon has been executed by
or on behalf of Trustee, by manual or facsimile signature, this Certificate
shall not be entitled to any benefit under the Agreement or be valid for any
purpose.
IN WITNESS WHEREOF, the Holder of the Transferor Certificate has
caused this Certificate to be duly executed.
WORLD FINANCIAL NETWORK
NATIONAL BANK,
as Transferor,
BY
------------------------------------
Name:
Title:
Dated: January 30, 1998
Exhibit A, Page 2
<PAGE>
DATED: JANUARY 30, 1998
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is the Transferor Certificate described in the within-mentioned
Pooling and Servicing Agreement dated as of January 30, 1998 between World
Financial Network National Bank as Transferor and Servicer and The Bank of
New York, as Trustee.
THE BANK OF NEW YORK,
as Trustee
By
----------------------------------
Authorized Signatory
Exhibit A, Page 3
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT OF RECEIVABLES IN SUPPLEMENTAL ACCOUNTS
(As required by SECTION 2.8 of
the Pooling and Servicing Agreement)
ASSIGNMENT No. _______ OF RECEIVABLES IN SUPPLEMENTAL ACCOUNTS dated
as of _____________, ___1/ by and among WORLD FINANCIAL NETWORK NATIONAL BANK,
a national banking association, as Transferor ("TRANSFEROR") and as Servicer
("SERVICER"), and THE BANK OF NEW YORK, a New York banking corporation
("TRUSTEE"), pursuant to the Pooling and Servicing Agreement referred to
below.
WITNESSETH
WHEREAS Transferor, Servicer and Trustee are parties to the Pooling and
Servicing Agreement dated as of January 30, 1998 (as may be amended and
supplemented from time to time, the "AGREEMENT");
WHEREAS, pursuant to the Agreement, Transferor wishes to designate
Supplemental Accounts owned by the Credit Card Originator to be included as
Accounts and to convey the Receivables of such Supplemental Accounts, whether
now existing or hereafter created, to the Trust as part of the corpus of the
Trust (as each such term is defined in the Agreement); and
WHEREAS Trustee is willing to accept such designation and conveyance
subject to the terms and conditions hereof;
NOW, THEREFORE, Transferor, Servicer and Trustee hereby agree as follows:
1. DEFINED TERMS. All capitalized terms used herein shall have the
meanings ascribed to them in the Agreement unless otherwise defined herein.
"Addition Date" means, with respect to the Supplemental Accounts
designated hereby, ________, ____.
"Addition Cut Off Date" means, with respect to the Supplemental Accounts
designated hereby, ________, ____.
- -----------------------------
1/ To be dated as of the applicable Addition Date.
Exhibit B, Page 1
<PAGE>
2. DESIGNATION OF SUPPLEMENTAL ACCOUNTS. On or before the Document
Delivery Date, Transferor will deliver to Trustee an Account Schedule
containing a true and complete schedule identifying all such Supplemental
Accounts specifying for each such Account, as of the Addition Cut Off Date,
its account number, the aggregate amount outstanding in such Account and the
aggregate amount of Principal Receivables outstanding in such Account, which
Account Schedule shall supplement any other Account Schedule previously
delivered to Trustee pursuant to the Agreement.
3. CONVEYANCE OF RECEIVABLES. Transferor does hereby transfer, assign,
set over and otherwise convey to the Trust, for the benefit of the Holders,
all its right, title and interest in, to and under the Receivables of such
Supplemental Accounts existing at the close of business on the Addition Date
and thereafter created from time to time until the termination of the Trust,
all monies due or to become due and all amounts received with respect thereto
and all proceeds thereof. The foregoing does not constitute and is not
intended to result in the creation or assumption by the Trust, Trustee, any
Investor Holder or any Enhancement Provider of any obligation of Servicer,
Transferor, the Credit Card Originator or any other Person in connection with
the Accounts, the Receivables or under any agreement or instrument relating
thereto, including any obligation to Obligors, merchant banks, merchants
clearance systems or insurers.
Transferor agrees to record and file, at its own expense, financing
statements (and continuation statements when applicable) with respect to the
Receivables now in Supplemental Accounts, meeting the requirements of
applicable state law in such manner and in such jurisdictions as are
necessary to perfect, and maintain perfection of, the assignment of such
Receivables to the Trust, and to deliver a file-stamped copy of each such
financing statement or other evidence of such filing to Trustee on or prior
to the Addition Date. Trustee shall be under no obligation whatsoever to file
such financing or continuation statements or to make any other filing under
the UCC in connection with such assignment.
In connection with such assignment, Transferor further agrees, at its
own expense, on or prior to the date of this Assignment, to cause the Credit
Card Originator to indicate in the appropriate computer files that
Receivables created in connection with the Supplemental Accounts and
designated hereby have been conveyed to the Trust pursuant to the Agreement
and this Assignment for the benefit of the Holders.
Transferor does hereby grant to Trustee a security interest in all of
its right, title and interest in and to the Receivables now existing and
hereafter created in the Supplemental Accounts, all monies due or to become
due and all amounts received with respect thereto and all proceeds thereof.
This Assignment constitutes a security agreement under the UCC.
4. ACCEPTANCE BY TRUSTEE. Trustee hereby acknowledges its acceptance on
behalf of the Trust of all right, title and interest to the property, now
existing and hereafter created, conveyed to the Trust pursuant to SECTION
3(A) of this Assignment, and declares that it shall maintain such right, title
Exhibit B, Page 2
<PAGE>
and interest, upon the trust set forth in the Agreement for the benefit
of all Holders. Trustee further acknowledges that, prior to or simultaneously
with the execution and delivery of this Assignment, Transferor delivered to
Trustee the Account Schedule described in SECTION 2 of this Assignment.
5. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR. Transferor hereby
represents and warrants to Trustee, on behalf of the Trust, as of the date of
this Assignment and as of the Addition Date that:
(a) LEGAL, VALID AND BINDING OBLIGATION. This Assignment
constitutes a legal, valid and binding obligation of Transferor
enforceable against Transferor in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect affecting the enforcement of creditors' rights in general and
except as such enforceability may be limited by general principles of
equity (whether considered in a suit at law or in equity);
(b) ELIGIBILITY OF ACCOUNTS. Each Supplemental Account designated
hereby is an Eligible Account;
(c) INSOLVENCY. As of each of the Addition Cut Off Date and the
Addition Date, no Insolvency Event with respect to the Credit Card
Originator or Transferor has occurred and the transfer by Transferor of
Receivables arising in the Supplemental Accounts to the Trust has not
been made in contemplation of the occurrence thereof;
(d) EARLY AMORTIZATION EVENT. Transferor reasonably believes that
(A) the addition of the Receivables arising in the Supplemental Accounts
will not, based on the facts known to Transferor, then or thereafter
cause an Early Amortization Event to occur with respect to any Series and
(B) no selection procedure was utilized by Transferor which would result
in the selection of Supplemental Accounts (from among the available
Eligible Accounts owned by the Credit Card Originator) that would be
materially less favorable to the interests of the Investor Holders of any
Series as of the Addition Date than a random selection;
(e) SECURITY INTEREST. Either this Assignment constitutes a valid
transfer and assignment to the Trust of all right, title and interest of
Transferor in the Receivables and other Trust Assets conveyed to the
Trust by Transferor and all monies due or to become due and all amounts
received with respect thereto and the proceeds thereof, or this
Assignment constitutes a grant of a security interest in such property to
the Trustee, for the benefit of the Investor Holders, which, in the case
of existing Receivables and the proceeds thereof, is enforceable upon
execution and delivery of this Assignment, and which will be enforceable
with respect to such Receivables hereafter created and the proceeds
thereof upon such creation. Upon the filing of the financing statements
described in SECTION 3 of this Assignment and, in the case of the
Receivables hereafter created and the proceeds thereof, upon the creation
thereof, the Trust shall have a first priority security interest in such
property except for Liens permitted under SECTION 2.7(B) of the
Agreement;
Exhibit B, Page 3
<PAGE>
(f) NO CONFLICT. The execution and delivery by Transferor of this
Assignment, the performance of the transactions contemplated by this
Assignment and the fulfillment of the terms hereof applicable to
Transferor, will not conflict with or violate any Requirements of Law
applicable to Transferor or conflict with, result in any breach of any of
the material terms and provisions of, or constitute (with or without
notice or lapse of time or both) a material default under, any indenture,
contract, agreement, mortgage, deed of trust or other instrument to which
Transferor is a party or by which it or its properties are bound;
(g) NO PROCEEDINGS. There are no proceedings or investigations
pending or, to the best knowledge of Transferor, threatened against
Transferor before any court, regulatory body, administrative agency or
other tribunal or governmental instrumentality (i) asserting the
invalidity of this Assignment, (ii) seeking to prevent the consummation
of any of the transactions contemplated by this Assignment, (iii) seeking
any determination or ruling that, in the reasonable judgment of
Transferor, would materially and adversely affect the performance by
Transferor of its obligations under this Assignment, (iv) seeking any
determination or ruling that would materially and adversely affect the
validity or enforceability of this Assignment or (v) seeking to affect
adversely the income tax attributes of the Trust under the Federal, or
applicable state income or franchise tax systems; and
(h) ALL CONSENTS. All authorizations, consents, orders or
approvals or other actions of any Person or of any court or other
governmental authority required to be obtained by Transferor in
connection with the execution and delivery of this Assignment by
Transferor and the performance of the transactions contemplated by this
Assignment by Transferor, have been obtained.
6. RATIFICATION OF AGREEMENT. As supplemented by this Assignment, the
Agreement is in all respects ratified and confirmed and the Agreement as so
supplemented by this Assignment shall be read, taken and construed as one and
the same instrument.
7. COUNTERPARTS. This Assignment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of
which shall be an original, but all of which shall constitute one and the
same instrument.
8. GOVERNING LAW. THIS ASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW
PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER
SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Exhibit B, Page 4
<PAGE>
IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Assignment to be duly executed by their respective officers as of the day and
year first above written.
WORLD FINANCIAL NETWORK
NATIONAL BANK,
as Transferor and Servicer,
By
---------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee,
By
---------------------------------------
Name:
Title:
Exhibit B, Page 5
<PAGE>
EXHIBIT C
FORM OF REASSIGNMENT OF RECEIVABLES IN REMOVED ACCOUNTS
(As required by SECTION 2.9 of
the Pooling and Servicing Agreement)
REASSIGNMENT No. _______ OF RECEIVABLES dated as of _________, ____1/by
and among WORLD FINANCIAL NETWORK NATIONAL BANK, a national banking
association, as Transferor ("TRANSFEROR") and as Servicer ("SERVICER") and
THE BANK OF NEW YORK, a New York banking corporation ("TRUSTEE"), pursuant to
the Pooling and Servicing Agreement referred to below.
WITNESSETH:
WHEREAS Transferor, Servicer and Trustee are parties to the Pooling and
Servicing Agreement dated as of January 30, 1998 (as may be amended and
supplemented from time to time, the "AGREEMENT");
WHEREAS pursuant to the Agreement, Transferor wishes to remove from the
Trust all Receivables in certain designated Accounts owned by the Credit Card
Originator (the "REMOVED ACCOUNTS") and to cause Trustee to reconvey the
Receivables of such Removed Accounts, whether now existing or hereafter
created, from the Trust to Transferor; and
WHEREAS Trustee is willing to accept such designation and to reconvey
the Receivables in the Removed Accounts subject to the terms and conditions
hereof;
NOW, THEREFORE, Transferor, Servicer and Trustee hereby agree as follows:
1. DEFINED TERMS. All terms defined in the Agreement and used herein
shall have such defined meanings when used herein, unless otherwise defined
herein.
"REMOVAL DATE" means, with respect to the Removed Accounts designated
hereby, ____________, _____.
"REMOVAL NOTICE DATE" means, with respect to the Removed Accounts,
___________, ___.
2. DESIGNATION OF REMOVED ACCOUNTS. On or before the date that is 10
Business Days after the Removal Date, Transferor will deliver to Trustee an
Account Schedule identifying all Accounts
- -------------------------------------
1/ To be dated as of the Removal Date.
Exhibit C, Page 1
<PAGE>
the Receivables of which are being removed from the Trust, specifying for
each such Account, as of the Removal Notice Date, its account number, the
aggregate amount outstanding in such Account and the aggregate amount of
Principal Receivables in such Account, which Account Schedule shall
supplement any Account Schedule previously delivered to Trustee pursuant to
the Agreement.
3. CONVEYANCE OF RECEIVABLES. (a) Trustee does hereby transfer, assign,
set over and otherwise convey to Transferor, without recourse, on and after
the Removal Date, all right, title and interest of the Trust in, to and under
the Receivables existing at the close of business on the Removal Date and
thereafter created from time to time in the Removed Accounts designated
hereby, all monies due or to become due and all amounts received with respect
thereto and all proceeds thereof.
(b) In connection with such transfer, Trustee agrees to execute and
deliver to Transferor on or prior to the date this Reassignment is delivered,
applicable termination statements with respect to the Receivables existing at
the close of business on the Removal Date and thereafter created from time to
time in the Removed Accounts reassigned hereby and the proceeds thereof
evidencing the release by the Trust of its interest in the Receivables in the
Removed Accounts, and meeting the requirements of applicable state law, in
such manner and such jurisdictions as are necessary to terminate such
interest.
4. REPRESENTATIONS AND WARRANTIES OF TRANSFEROR. Transferor hereby
represents and warrants to Trustee, on behalf of the Trust, as of the Removal
Date:
(a) LEGAL, VALID AND BINDING OBLIGATION. This Reassignment constitutes
a legal, valid and binding obligation of Transferor enforceable against
Transferor, in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect affecting the enforcement of
creditors, rights in general and except as such enforceability may be limited
by general principles of equity (whether considered in a suit at law or in
equity);
[only for removals pursuant to SECTION 2.9(A) of the Agreement][(b) EARLY
AMORTIZATION EVENT. Transferor reasonably believes that (A) the removal of
the Receivables existing in the Removed Accounts will not, based on the
facts known to Transferor, then or thereafter cause an Early Amortization
Event to occur with respect to any Series and (B) no selection procedure
was utilized by Transferor which would result in a selection of Removed
Accounts from among any pools of Accounts of a similar type that would be
materially adverse to the interests of the Investor Holders of any Series
as of the Removal Date;] and
[(c)] LIST OF REMOVED ACCOUNTS. The list of Removed Accounts delivered
pursuant to SECTION 2.9(C) of the Agreement, as of the Removal Date, is true and
complete in all material respects.
Exhibit C, Page 2
<PAGE>
[only if removals pursuant to SECTION 2.9(A)][(d) DEFAULTED
RECEIVABLES. No selection procedure was utilized by Transferor with the intent
to include a disproportionately higher level of Defaulted Receivables in the
Removed Accounts than exist in the Accounts or to remove Accounts for the
intended purpose of mitigating losses to the Trust.]
5. RATIFICATION OF AGREEMENT. As supplemented by this Reassignment, the
Agreement is in all respects ratified and confirmed and the Agreement as so
supplemented by this Reassignment shall be read, taken and construed as one
and the same instrument.
6. COUNTERPARTS. This Reassignment may be executed in two or more
counterparts, and by different parties on separate counterparts, each of
which shall be an original, but all of which shall constitute one and the
same instrument.
7. GOVERNING LAW. THIS REASSIGNMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF
LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Exhibit C, Page 3
<PAGE>
IN WITNESS WHEREOF, Transferor, Servicer and Trustee have caused this
Reassignment to be duly executed by their respective officers as of the day
and year first above written.
WORLD FINANCIAL NETWORK
NATIONAL BANK,
as Transferor and Servicer,
By
-----------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
as Trustee,
By
-----------------------------------------
Name:
Title:
Exhibit C, Page 4
<PAGE>
EXHIBIT D
FORM OF ANNUAL SERVICER'S CERTIFICATE
(To be delivered on or before the
90th day following the end of the fiscal year
of Transferor beginning with December 31, 1998,
pursuant to SECTION 3.5 of the Pooling and
Servicing Agreement referred to below)
WORLD FINANCIAL NETWORK NATIONAL BANK
WORLD FINANCIAL NETWORK CREDIT CARD MASTER TRUST III
The undersigned, a duly authorized representative of World Financial
Network National Bank, as Servicer ("WFN"), pursuant to the Pooling and
Servicing Agreement dated as of January 30, 1998 (as may be amended and
supplemented from time to time, the "AGREEMENT"), among WFN, as Transferor
and as Servicer, and The Bank of New York, as Trustee, does hereby certify
that:
1. WFN is, as of the date hereof, Servicer under the Agreement.
Capitalized terms used in this Certificate have their respective meanings as
set forth in the Agreement.
2. The undersigned is a Servicing Officer who is duly authorized
pursuant to the Agreement to execute and deliver this Certificate to Trustee.
3. A review of the activities of Servicer during the fiscal year ended
__________, ____, and of its performance under the Agreement was conducted
under my supervision.
4. Based on such review, Servicer has, to the best of my knowledge,
performed in all material respects its obligations under the Agreement
throughout such year and no default in the performance of such obligations
has occurred or is continuing except as set forth in PARAGRAPH 5.
5. The following is a description of each default in the performance of
Servicer's obligations under the provisions of the Agreement known to me to
have been made by Servicer during the fiscal year ended ___________, _____,
which sets forth in detail (i) the nature of each such default, (ii) the
action taken by Servicer, if any, to remedy each such default and (iii) the
current status of each such default: [if applicable, insert "None."]
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
this ______ day of ____________, 19___.
WORLD FINANCIAL NETWORK
Exhibit D, Page 1
<PAGE>
as Servicer,
By
------------------------------------
Name:
Title:
Exhibit D, Page 2
<PAGE>
EXHIBIT E-1
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS CERTIFICATE NOR ANY
PORTION HEREOF MAY BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED EXCEPT
IN COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY
APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF
THIS CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING
AND SERVICING AGREEMENT REFERRED TO HEREIN.
Exhibit-E-1
<PAGE>
EXHIBIT E-2
FORM OF UNDERTAKING LETTER
[Date]
Trustee Bank
Attention: [ ]
World Financial Network
National Bank
4590 East Broad Street
Columbus, Ohio 43213
Attention: [ ]
RE: PURCHASE OF $___________1/PRINCIPAL AMOUNT OF World
Financial Network Credit Card Master Trust III,
[Class __], [__%] [Floating Rate] Asset Backed
Certificates, Series [ ]
Dear Sirs:
In connection with our purchase of the above-referenced Asset Backed
Certificates (the "CERTIFICATES") we confirm that:
(i) we understand that the Certificates are not being registered
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and
are being sold to us in a transaction that is exempt from the
registration requirements of the Securities Act;
(ii) any information we desire concerning the Certificates or any
other matter relevant to our decision to purchase the certificates is or
has been made available to us;
(iii) we have such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of
an investment in the Certificates, and we (and any account for which we
are purchasing under PARAGRAPH (iv)) are able to bear the economic risk
of an investment in the Certificates; we (and any account for which we
are purchasing under PARAGRAPH (iv)) are an "accredited investor" (as
such term is defined in Rule 501(a)(1),
- ---------------------
1/ Not less than $250,000 minimum principal amount.
Exhibit E-2, Page 1
<PAGE>
(2) or (3) of Regulation D under the Securities Act); and we are not, and
none of such accounts is, a Benefit Plan;
(iv) we are acquiring the Certificates for our own account or for
accounts as to which we exercise sole investment discretion and not with
a view to any distribution of the Certificates, subject, nevertheless, to
the understanding that the disposition of our property shall at all times
be and remain within our control;
(v) we agree that the Certificates must be held indefinitely by
us unless subsequently registered under the Securities Act or an
exemption from any registration requirements of that Act and any
applicable state securities laws available;
(vi) we agree that if at some future time we wish to dispose of
or exchange any of the Certificates (such disposition or exchange not
being currently foreseen or contemplated), we will not transfer or
exchange any of the Certificates unless
(A)(1) the sale is of at least U.S. $250,000 principal
amount of Certificates to an Eligible Purchaser (as defined
below), (2) a letter to substantially the same effect as
paragraphs (i), (ii), (iii), (iv), (v) and (vi) of this letter is
executed promptly by the purchaser and (3) all offers or
solicitations in connection with the sale, whether directly or
through any agent acting on our behalf, are limited only to
Eligible Purchasers and are not made by means of any form of
general solicitation or general advertising whatsoever; or
(B) the Certificates are transferred pursuant to Rule 144
under the Securities Act by us after we have held them for more
than three years; or
(C) the Certificates are sold in any other transaction
that does not require registration under the Securities Act and,
if Transferor, Servicer, Trustee or the Transfer Agent and
Registrar so requests, we theretofore have furnished to such party
an Opinion of Counsel satisfactory to such party, in form and
substance satisfactory to such party, to such effect; or
(D) the Certificates are transferred pursuant to an
exception from the registration requirements of the Securities Act
under Rule 144A under the Securities Act; and
(vii) we understand that the Certificates will bear a legend to
substantially the following effect:
Exhibit E-2, Page 2
<PAGE>
"THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). NEITHER THIS CERTIFICATE NOR ANY
PORTION HEREOF MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE REGISTRATION PROVISIONS OF THE SECURITIES ACT AND ANY
APPLICABLE PROVISIONS OF ANY STATE BLUE SKY OR SECURITIES LAWS OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM SUCH REGISTRATION PROVISIONS. THE TRANSFER OF THIS
CERTIFICATE IS SUBJECT TO CERTAIN CONDITIONS SET FORTH IN THE POOLING AND
SERVICING AGREEMENT REFERRED TO HEREIN."
["THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT
PLAN (AS DEFINED BELOW)."]*/
The first paragraph of this legend may be removed if Transferor, Servicer,
Trustee and the Transfer Agent and Registrar have received an Opinion of Counsel
satisfactory to them, in form and substance satisfactory to them, to the effect
that such paragraph may be removed.
- ------------------------
* This bracketed text should be included only if the Certificate(s) to be
purchased include the legend specified on EXHIBIT E-3.
Exhibit E-2, Page 3
<PAGE>
"ELIGIBLE PURCHASER" means either an Eligible Dealer or a corporation,
partnership or other entity which we have reasonable grounds to believe and do
believe can make representations with respect to itself to substantially the
same effect as the representations set forth herein. "ELIGIBLE DEALER" means any
corporation or other entity the principal business of which is acting as a
broker and/or dealer in securities. ["BENEFIT PLAN" means (a) any employee
benefit plan or other plan, trust or account (including an individual retirement
account) that is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as
amended, or (b) any collective investment fund, insurance company separate or
general account or other entity (except an entity registered under the
Investment Company Act of 1940, as amended) whose underlying assets include
"plan assets" under ERISA by reason of a plan's investment in such
entity.]**/ Capitalized terms used but not defined herein shall have the
meanings given to such terms in the Pooling and Servicing Agreement, dated as of
January 30, 1998, between World Financial Network National Bank and The Bank of
New York.
Very truly yours,
____________________________
(Name of Purchaser)
By:_________________________
(Authorized Officer)
- -----------------------
** This bracketed text should be included only if the Certificate(s) to be
purchased include the legend specified on Exhibit E-1.
Exhibit E-2, Page 4
<PAGE>
EXHIBIT E-3
THIS CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF A BENEFIT PLAN (AS
DEFINED BELOW). 1/
- ---------------------------
1/ The following text should be included in any Certificate in which the above
legend appears:
The [Certificates] may not be acquired by or for the
account of (a) any employee benefit plan or other plan, trust or
account (including an individual retirement account) that is
subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or Section 4975 of the Internal Revenue Code of
1986, as amended, or (b) any collective investment fund, insurance
company separate or general account or other entity (except an
entity registered under the Investment Company Act of 1940, as
amended) whose underlying assets include "plan assets" under ERISA
by reason of any such plan's investment in such entity (a "Benefit
Plan"). By accepting and holding this Certificate, the Holder
hereof shall be deemed to have represented and warranted that it
is not, and is not acting on behalf of, a Benefit Plan. By
acquiring any interest in this Certificate, each applicable
Certificate Owner shall be deemed to have represented and
warranted that it is not, and is not acting on behalf of, a
Benefit Plan.
Exhibit E-3, Page 1
<PAGE>
EXHIBIT F-1
FORM OF OPINION OF COUNSEL WITH RESPECT
TO AMENDMENTS
Provisions to be included in
Opinion of Counsel to be delivered pursuant
to SECTION 13.2(d)(i)
The opinions set forth below may be subject to all the qualifications,
assumptions, limitations and exceptions taken or made in the Opinions Of Counsel
delivered on any applicable Closing Date.
(i) The amendment to the [Pooling and Servicing Agreement],
[Supplement], attached hereto as Schedule 1 (the "AMENDMENT"), has been
duly authorized, executed and delivered by Transferor and Servicer and
constitutes the legal, valid and binding agreement of Transferor and
Servicer, respectively, enforceable in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws from time to time in
effect affecting creditors' rights generally or the rights of creditors
of national banking associations. The enforceability of the respective
obligations of Transferor and Servicer is also subject to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law)
(ii) The Amendment has been entered into in accordance with the
terms and provisions of SECTION 13.1 of the Pooling and Servicing
Agreement.
EXHIBIT F-1
<PAGE>
EXHIBIT F-2
FORM OF OPINION OF COUNSEL WITH RESPECT
TO ADDITION OF SUPPLEMENTAL ACCOUNTS
Provisions to be included in
Opinion of Counsel to be
delivered pursuant to
SECTION 13.2(d)(ii) or (iii)
The opinions set forth below may be subject to appropriate
qualifications, assumptions, limitations and exceptions. PARAGRAPHS 1-4 are not
required if the opinion is being delivered solely under SECTION 13.2(d)(iii).
1. The Receivables arising in such Supplemental Accounts constitute
either general intangibles, accounts or chattel paper.
2. The Pooling and Servicing Agreement creates in favor of the Trust
either a security interest or an ownership interest in Transferor's rights in
the Receivables in such Supplemental Accounts and the proceeds thereof (the
"SPECIFIED ASSETS").
3. If the transfer of the Specified Assets from Transferor to Trustee
pursuant to the provisions of the Pooling and Servicing Agreement constitutes a
sale of the Specified Assets to Trustee by Transferor, such transfer, to the
extent Ohio law is applied, transfers all right, title and interest of
Transferor in and to the Specified Assets to Trustee.
4. If the transfer of the Specified Assets from Transferor to Trustee
does not constitute a sale, the security interest in the Specified Assets
created by the Pooling and Servicing Agreement will be perfected by the filing
of the Financing Statements [as described and defined in such opinion]. Based
solely upon our review of the UCC Searches [as described and defined in such
opinion], we hereby confirm to you that no Person other than Trustee has filed
any financing statement with the Filing Offices [as described and defined in
such opinion] that covers the Specified Assets and that would have priority over
the security interest, if any, of the Trustee by virtue of such filing.
5. No further filings or actions are required under the UCC or other Ohio
law prior to March 31, ____ , in order to maintain the perfection and priority
of the security interest created by the Pooling and Servicing Agreement in favor
of the Trust in Transferor's rights in the Receivables and the proceeds thereof.
EXHIBIT F-2
<PAGE>
ADS, ALLIANCE DATA SYSTEMS, INC.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
(SERP)
EFFECTIVE MAY 1, 1999
<PAGE>
Alliance Data Systems relies on key individuals, such as yourself, for the
continued success of our organization. To assist your financial planning and
goals, Alliance Data Systems offers you the opportunity to save for retirement
through our 401(k) and Retirement Savings Plan. The Company also contributes to
your retirement funds through a company match on your 401(k) contributions and
funding the Retirement Savings Plan.
Due to your level of income, the IRS limits the amounts you can contribute to
our qualified plan, as well as the amounts Alliance Data Systems can contribute
on your behalf. This Supplemental Executive Retirement Plan (SERP) has been
designed to help you maximize your pre-tax savings and company contributions
that are otherwise restricted due to these IRS limitations.
PURPOSE OF THE SERP:
The Alliance Data Systems' SERP is a nonqualified, unfunded plan that is
designed to accomplish two things:
1. The Plan has a contributory component that will allow you to save money on
a pre-tax basis (separately and in addition to your 401(k) contribution).
2. The Plan has a restorative component that allows you to continue to receive
Retirement Savings Plan contributions that are otherwise limited due to
certain IRS restrictions.
ELIGIBILITY:
You must be a regular, full-time associate on the United States payroll of ADS
Alliance Data Systems, Inc., and your eligible compensation must be equal to or
greater than the IRS compensation limit (currently $160,000) as of December 31
of the previous calendar year. An associate is any person receiving
compensation for personal services rendered in the employment of ADS Alliance
Data Systems, Inc. In addition, you must be a participant in the ADS Alliance
Data Systems, Inc. 401(k) and Retirement Savings Plan.
Eligible compensation is defined as your base annual salary, plus commissions,
payments received under the ADS Alliance Data Systems, Inc. Incentive
Compensation Plan and bonuses (but not sign-on bonus), up to a maximum of $1
million annually, paid to you while you are a full-time associate. Excluded
from eligible compensation are severance payments, disability payments, workers
compensation payments, stock option earnings, referral or signing bonuses, and
gross-up of wages for contest or other earnings.
IRS LIMITATIONS (AS THEY PERTAIN TO THIS PLAN):
There are two IRS limitations on qualified plans, such as our 401(k) and
Retirement Savings Plan, which this Plan takes into consideration.
1. For associates whose eligible compensation reaches the $160,000 IRS
compensation limit (subject to cost of living adjustments announced by the
IRS) during the plan year, all contributions to the 401(k) and Retirement
Savings Plan must stop. This means all pre- and post-tax associate
contributions, as well as any Company contributions, such as the employer
match. It also means the maximum amount of compensation used to calculate
Retirement
1
<PAGE>
Savings Plan contribution is $160,000 (subject to cost of living
adjustments announced by the IRS).
For example, assume your eligible compensation as of December 31 is
$200,000, you are 48 years old and have 10 years of service. The age and
service points under the 401(k) and Retirement Savings Plan would be 4, or
4%. However, only $6,400 ($160,000 x 4%) could be contributed to your
401(k) and Retirement Savings Plan. The remaining $1,600 [($200,000 -
$160,000) x 4%] would be "restored" and placed in the Alliance Data
Systems' SERP.
2. The maximum allowable associate contribution to a qualified plan is equal
to 25% of compensation as defined under Section 415(c) of the Internal
Revenue Code, or $30,000, (whichever is less). Compensation for these
purposes is calculated by taking into consideration all pre-tax
contributions, such as 401(k) contributions, as well as medical, dental,
vision, and health care spending account deductions. This is referred to
as reaching the "415 Limit". Any amounts that would normally be refunded
to you from the qualified plan because of reaching the 415 Limit would
instead be directed into the SERP on your behalf.
BASIC PLAN DESIGN:
There are two components: contributory and restorative.
<TABLE>
<CAPTION>
CONTRIBUTORY RESTORATIVE
<S> <C>
- 0% to 16% (in whole percentages) - Retirement Savings Plan
of eligible compensation on a contributions for compensation in
pre-tax basis and contributed to excess of the IRS allowable
the plan each pay period (subject compensation limit (subject to
to eligible compensation of $1 cost of living adjustments
million annually) announced by the IRS) that cannot
- 401(k) contributions that would be contributed to the 401(k) and
otherwise be returned because of Retirement Savings Plan (subject
reaching the 415 Limit to eligible compensation of $1
million annually)
</TABLE>
Unlike the qualified plan, the SERP does not provide any company match on your
contributions.
Your contributions and the restorative contributions from Alliance Data Systems
will initially accrue interest at a rate of 8% a year, compounded quarterly.
The interest rate is established by Alliance Data Systems and may be reviewed
and adjusted periodically at the sole discretion of the 401(k) and Retirement
Savings Plan Investment Committee.
Contributions to the SERP are in addition to any contributions you choose to
make to Alliance Data Systems' qualified 401(k) and Retirement Savings Plan.
Therefore, it's possible you could be contributing 16% to both plans at the same
time (a total of 32% of income). You must decide prior to the beginning of the
Plan Year, by making an election in accordance with the procedures described in
this Plan, how much of a contributory contribution you want to make (i.e., how
much of your eligible compensation is to be deferred).
2
<PAGE>
VESTING:
You are always 100% vested in your own contributions. You become 100% vested in
the restorative funds after five (5) continuous years of service. For this
purpose, a year of service means a calendar year in which you have worked at
least 500 hours for ADS Alliance Data Systems, Inc. Years of service worked for
a company acquired by ADS Alliance Data Systems, Inc. will not be used to
determine years of service for purposes of vesting under this Plan.
In the event of a change of control of Alliance Data Systems, as described under
Funding, you will become automatically 100% vested in the restorative funds,
regardless if you have five (5) years of service with Alliance Data Systems.
FUNDING:
The SERP is not funded. The amounts you contribute to the plan as well as the
restored company contributions are not set aside in a trust. Any payments made
to participating associates will be made from the general assets of Alliance
Data Systems.
In the event of a change of control of Alliance Data Systems, Alliance Data
Systems has established a "rabbi trust", which will fund all deferred and
restored amounts, to secure your SERP benefits. A change of control occurs if
one person or entity acquires 51% of the voting stock of Alliance Data Systems
(other than a person or entity who now owns 51% of the voting stock of Alliance
Data Systems), or if there is a merger and more than 50% of the voting stock
after the merger is held by the new stockholders. A change of control also
occurs if Alliance Data Systems is dissolved or liquidated, or if all or
substantially all of the company's assets are sold. However, a change of
control will not be considered to occur when ADS Alliance Data Systems, Inc.
stock becomes publicly traded on the open stock exchange.
ACCESS TO SERP BENEFITS:
While you are actively employed at Alliance Data Systems, you cannot access your
contributions, restored company contributions and accrued interest in your SERP
account, unless you experience an unforeseeable financial emergency. Requests
for funds must be approved by the Investment Committee or its delegate. An
unforeseeable financial emergency means a severe financial hardship resulting
from:
- - a sudden and unexpected illness or injury to you or a dependent,
- - loss of your primary residence due to casualty, or
- - other similar unforeseeable circumstances arising out of events that are
beyond your control.
Funds cannot be withdrawn to purchase a home or to pay for tuition. Loans are
not available.
If approval by the Investment Committee or its delegate is approved for a reason
indicated above, voluntary contributions to the SERP will be suspended until the
first of the month following 12 months from the date funds are released from the
Plan.
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<PAGE>
DISTRIBUTION OF BENEFITS:
If you cease to be actively employed, you retire, or become totally disabled
(under the terms of the long-term disability plan and as determined by Alliance
Data Systems' disability carrier at the time of distribution), you will be given
the value of your pre-tax contributions, vested restored company contributions,
and accrued interest on your pre-tax contributions and vested restored company
contributions.
Receiving severance payments from Alliance Data Systems as part of a separation
agreement is not considered to be actively employed by Alliance Data Systems.
If you die, your benefits will be paid to your designated beneficiary. If there
is no beneficiary on file, benefits will be paid to your estate.
If the Plan is terminated, you will be given the value of your pre-tax
contributions, vested restored company contributions, and accrued interest on
your pre-tax contributions and vested restored company contributions.
Payments will be made within 60 days of the end of the quarter in which you
become eligible for a distribution. All benefits will be paid in one lump-sum
payment.
ACCOUNT STATEMENTS:
A summary of your account, reflecting your contributions, restored company
contributions and accrued interest will be prepared and distributed annually.
TAXES:
This is a brief summary of tax rules in effect as of the date this Plan is
adopted.
While your contributions into the SERP will be taken through payroll deduction
on a pre-tax basis, you will be required to pay FICA taxes on any contributions
made to the SERP. These contributions and their earnings will not be subject to
FICA taxes upon distribution from the Plan.
Restored company contributions made to the Plan are subject to FICA taxes only
after you have become vested in these contributions.
When a distribution is made from the plan, the payment is taxed as ordinary
income at time of payment and any taxes required to be withheld will be
subtracted from any amounts distributed. Distributions are not eligible for any
special tax treatment, nor can they be rolled over into an IRA or another
qualified plan.
ENROLLMENT PROCESS:
If you wish to take advantage of the pre-tax option of this plan, you must
complete the form found at the end of this booklet.
4
<PAGE>
You do not have to do anything to enroll in the restorative component of the
SERP. However, you should still complete the Beneficiary Designation section of
the form in the event a distribution needs to be made as a result of your death.
FOLLOW THESE STEPS:
1. Complete the Enrollment Form found in the back of this booklet.
2. If you wish to make pre-tax contributions to the SERP, indicate the
percentage of pay you wish to defer.
3. ALL PARTICIPANTS NEED TO COMPLETE THE BENEFICIARY DESIGNATION SECTION
OF THE FORM.
4. Return the form to the Manager, Corporate Benefits, DAD1, PRIOR TO
APRIL 30, 1999.
IMPORTANT NOTE:
You can stop your pre-tax voluntary contribution to the SERP at any time,
however, YOU CANNOT DECREASE OR INCREASE YOUR CONTRIBUTION AT ANY TIME DURING
THE CALENDAR YEAR. Contribution percentages can only be changed effective each
January 1. If you stop contributions during the calendar year, you may not
begin making pre-tax contributions until the next January 1.
You will be given an opportunity to change your pre-tax contribution each year
prior to January 1.
AMENDMENT AND TERMINATION:
While Alliance Data Systems intends to continue the Supplemental Executive
Retirement Plan, it is impossible to predict all future conditions. Therefore,
the Investment Committee reserves the right to amend or terminate the plan at
any time. However, no amendment may be made that would negatively impact your
vested benefit or delay your ability to receive the benefits without your
written consent.
OTHER INFORMATION:
PLAN ADMINISTRATION. The SERP is administered by the Alliance Data Systems'
Investment Committee. The members of this committee are associates of Alliance
Data Systems who are appointed by the Alliance Data Systems' Board of Directors
and serve at the discretion of the Board. The Investment Committee has the
authority to interpret the plan and decide all matters arising under the plan.
Decisions of the Investment Committee are final and binding upon all parties.
Additional information about the plan is available by contacting:
Investment Committee
C/o Sr. VP of Human Resources
Alliance Data Systems
17566 Waterview Parkway
Dallas, TX 75252
5
<PAGE>
ERISA, TAX AND SECURITIES MATTERS. While not a qualified plan, the SERP is
subject to some provisions of the Employee Retirement Income Security Act of
1974 (ERISA), as amended. It is not subject to any funding requirements and no
property is held in the plan. It is not a qualified plan under Section 401(a)
of the Internal Revenue Code and Alliance Data Systems may not take a tax
deduction for contributions to the plan until the plan participant receives
payment.
No person has or may create a lien on a participant's interest in the plan,
under the plan, or on behalf of a plan participant or pursuant to any contracts
in connection with the plan.
CLAIMS PROCEDURE. In the event a participant or named beneficiary has a dispute
concerning the administration of this Plan, it shall first be submitted in
writing to the Senior Vice President of Human Resources of the Company. In the
event that this Senior Vice President does not provide a response satisfactory
to the participant within 90 business days after receipt of the claim, the
participant or named beneficiary may submit the dispute in writing within 60
business days thereafter to the Investment Committee, whose decision regarding
the dispute shall be final and binding on each participant or person claiming
under the plan. The Investment Committee review and decision shall be made
within 60 business days, unless special circumstances require an extension of
time for processing, in which case a decision shall be rendered within a
reasonable period of time, but not later than 120 days after receipt of a
request for review.
NOT A CONTRACT OF EMPLOYMENT. This Plan shall not be deemed to constitute a
contract between ADS Alliance Data Systems, Inc. and any associate or other
person whether or not in the employ of ADS Alliance Data Systems, Inc., nor
shall anything herein contained be deemed to give any associate or other person
whether or not in the employ of ADS Alliance Data Systems, Inc. any right to be
retained in the employ of ADS Alliance Data Systems, Inc., or to interfere with
the right of ADS Alliance Data Systems, Inc. to discharge any associate at any
time and to treat the associate without any regard to the effect which such
treatment might have upon said associate as a participant of the Plan.
NON-ASSIGNABILITY. Except as may otherwise be required by law, no distribution
or payment under the Plan to any participant, named beneficiary, heirs and
successors shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and any attempt to so anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void; nor shall any such
distribution or payment be in any way liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person entitled to such
distribution or payment. If any participant, named beneficiary, heir or
successor is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any such distribution or payment,
voluntarily or involuntarily, the Investment Committee, in their discretion, may
cancel such distribution or payment or may hold or cause to be held or applied
such distribution or payment or any part thereof to or for the benefit of such
participant, named beneficiary, heir or successor in such manner as the
Investment Committee shall direct.
GOVERNING LAW. The provisions of the Plan shall be construed, administered and
governed under applicable Federal law and the laws of the State of Ohio.
6
<PAGE>
Alliance Data Systems Supplemental Executive Retirement Plan
ENROLLMENT/BENEFICIARY DESIGNATION FORM
PLEASE PRINT
EMPLOYEE DATA
- ----------------------------------------------------------------------------
Last Name First Name M.I.
- ----------------------------------------------------------------------------
Social Security Number
( )
- ----------------------------------------------------------------------------
Work Phone Work Location
DEFERRAL ELECTION
I elect to participate in the Supplemental Executive Retirement Plan and elect
the following savings percentage to be deducted from my eligible compensation:
/ / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /
1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16%
BENEFICIARY DESIGNATION
PRIMARY BENEFICIARIES
I name the following as my primary beneficiary(ies) who, if living at the time
of my death, will receive my SERP account balance. If any primary beneficiary
is not living at the time of my death, his or her share will be paid
proportionately to the remaining primary beneficiaries.
Name/Social Security Number % Relationship Birth Date Address
- -------------------------- ---- ------------ --------- ------------
- -------------------------- ---- ------------ --------- ------------
- -------------------------- ---- ------------ --------- ------------
CONTINGENT BENEFICIARIES
In the event no primary beneficiary survives me, I name the following as my
contingent beneficiary(ies) who, if living at the time of my death, his or her
share will be paid proportionately to the remaining contingent beneficiary(ies).
Name/Social Security Number % Relationship Birth Date Address
- -------------------------- ---- ------------ --------- ------------
- -------------------------- ---- ------------ --------- ------------
- -------------------------- ---- ------------ --------- ------------
By signing below, I acknowledge that:
- I authorize the savings deferrals indicated above.
- I understand this election is irrevocable until the end of the calendar
year and shall continue in effect except: (1) I can stop my contributions
at any time and (2) I can make a new election in the month of December to
be effective the immediately following January 1.
- I understand the plan is not funded through a qualified trust. Accounts
are paid out of company assets, backed by the good faith of Alliance Data
Systems.
Signature__________________________________________________Date________________
RETURN THIS FORM TO MANAGER, CORPORATE BENEFITS, DAD1, DALLAS, TEXAS
7
<PAGE>
EXHIBIT A
WORLD FINANCIAL NETWORK HOLDING CORPORATION AND ITS SUBSIDIARIES STOCK
OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of the World Financial Network
Holding Corporation and its Subsidiaries Stock Option and Restricted Stock
Purchase Plan (the "Plan") is to promote the interests of World Financial
Network Holding Corporation, a Delaware corporation (the "Company"), and any
Subsidiary thereof and the interests of the Company's stockholders by
providing an opportunity to stockholders and selected employees, officers,
directors and other persons performing services for the Company or any
Subsidiary thereof as of the date of the adoption of the Plan or at any time
thereafter to purchase Common Stock of the Company. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate such employees
and other persons and to encourage such employees and other persons to devote
their best efforts to the business and financial success of the Company. It is
intended that this purpose will be effected by the granting of "non-
qualified stock options" and/or "incentive stock options" to acquire the
Common Stock of the Company, and/or by the granting of rights to purchase the
Common Stock of the Company on a "restricted stock" basis. Under the Plan, the
Committee shall have the authority (in its sole discretion) to grant
"incentive stock options" within the meaning of Section 422(b) of the Code,
"non-qualified stock options" as described in Treasury Regulation Section
1.83-7 or any successor regulation thereto, or "restricted stock" awards.
Section 2. DEFINITIONS. For purposes of the Plan, following terms
used herein shall have the following meanings s a different meaning is
clearly required by the context:
2.1. "Award" shall mean an award of the right to purchase Common
Stock granted under the provisions of Section 7 of the Plan.
2.2 "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company.
2.3 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
2.4. "COMMITTEE" shall mean the committee of the Board Directors
referred to in Section 5 hereof; provided, that if no such committee is
appointed by the Board of Directors, the Board of Directors shall have all of
the authority and obligations of the Committee under the Plan.
<PAGE>
2.5. "COMMON STOCK" shall mean the Common Stock, $1.00 par value, of
the Company.
2.6. "EMPLOYEE" shall mean, with respect to an ISO, any person,
including, without limitation, an officer or director of the Company, who, at
the time an ISO is granted to such person hereunder, is employed on a
full-time basis by the Company or any Parent or Subsidiary of the Company.
2.7. "ELIGIBLE OPTIONEE" shall mean, with respect to a Non-Qualified
Option and/or an Award, any stockholder of the Company, and any person (or
any profit sharing or similar plan established in whole or in part for the
benefit of any such person) employed by, or performing services for, the
Company or any Parent or Subsidiary of the Company including, without
limitation, directors and officers of the Company and employees of any
stockholder of the Company that is performing services for the Company.
2.8. "ISO" shall mean an option granted to a Participant pursuant to
the Plan that constitutes and shall be treated as an "incentive stock option"
as defined in Section 422(b) of the Code.
2.9. "NON-QUALIFIED OPTION" shall mean an Option granted to a
Participant pursuant to the Plan that is intended to be, and qualifies as, a
"non-qualified stock option" as described in Treasury Regulation Section
1.83-7 or any successor regulation thereto and that shall not constitute or
be treated as an ISO.
2.10. "OPTION" shall mean any ISO or Non-Qualified Option granted to
an Employee or Eligible Optionee pursuant to the Plan.
2.11. "PARTICIPANT" shall mean any Employee or Eligible Optionee to
whom an Award and/or an Option is granted under the Plan.
2.12. "Parent" of the Company shall have the meaning set forth in
Section 424(e) of the Code.
2.13. "SUBSIDIARY" of the Company shall have the meaning set forth
in Section 424(f) of the Code.
Section 3. ELIGIBILITY. Awards and/or Options may be granted to any
Employee or Eligible Optionee. The Committee shall have the sole authority to
select the persons to whom Awards and/or Options are to be granted hereunder,
and to determine whether a person is to be granted a Non-Qualified Option, an
ISO or an Award or any combination thereof. No person shall have any right to
participate in the Plan unless selected
2
<PAGE>
for participation by the Committee. Any person selected by the Committee for
participation during any one period will not by virtue of such participation
have the right to be selected as a Participant for any other period.
Section 4. COMMON STOCK SUBJECT TO THE PLAN.
4.1. NUMBER OF SHARES. The total number of shares of Common Stock
for which options and/or Awards may be granted under the Plan shall not
exceed in the aggregate Eight Million Two Hundred Seventy Thousand
(8,270,000) shares of Common Stock (subject to adjustment as provided in
Section 8 hereof).
4.2. REISSUANCE. The shares of Common Stock that may be subject to
Options and/or Awards granted under the Plan may be either authorized and
unissued shares or shares reacquired at any time and now or hereafter held as
treasury stock as the Committee may determine. In the event that any
outstanding Option expires or is terminated for any reason, the shares
allocable to the unexercised portion of such Option may again be subject to
an Option and/or Award granted under the Plan. If any shares of Common Stock
issued or sold pursuant to an Award or the exercise of an Option shall have
been repurchased by the Company, then such shares may again be subject to an
Option and/or Award granted under the Plan.
4.3. SPECIAL ISO LIMITATIONS
(a) The aggregate fair market value (determined as of the date an
ISO is granted) of the shares of Common Stock with respect to which ISOs are
exercisable for the first time by an Employee during any calendar year (under
all incentive stock option plans of the Company or any Parent or Subsidiary
of the Company) shall not exceed $100,000.
(b) No ISO shall be granted to an Employee who, at the time the ISO
is granted, owns (actually or constructively under the provisions of Section
424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Parent or
Subsidiary of the Company, unless (i) the option price is at least 110% of
the fair market value (determined as of the time the ISO IS granted) of the
shares of Common Stock subject to the ISO and (ii) the ISO by its terms is
not exercisable more than five years from the date it is granted.
4.4. LIMITATIONS NOT APPLICABLE TO NON-QUALIFIED OPTIONS OR AWARDS.
Notwithstanding any other provision of the Plan, the provisions of Sections
4.3(a) and (b) shall not apply, nor shall be construed to apply, to any
Non-Qualified Option or Award granted under the Plan.
3
<PAGE>
Section 5. ADMINISTRATION OF THE PLAN.
5.1. ADMINISTRATION. The Plan shall be administered by a committee
of the Board of Directors (the "Committee") established by the Board of
Directors and consisting of no less than three persons. All members of the
Committee shall be "disinterested persons" within the meaning of Rule l6b-3
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Committee shall be appointed from time to time by, and
shall serve at the pleasure of, the Board of Directors.
5.2. GRANT OF OPTIONS/AWARDS.
(a) OPTIONS. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees and Eligible Optionees
who are to be granted options hereunder; (ii) to designate whether any Option
to be granted hereunder is to be an ISO or a Non-Qualified Option; (iii) to
establish the number of shares of Common Stock that may be subject to each
Option; (iv) to determine the time and the conditions subject to which
Options may be exercised in whole or in part; (v) to determine the amount
(not less than the par value per share) and the form of the consideration
that may be used to purchase shares of Common Stock upon exercise of any
option (including, without limitation, the circumstances under which issued
and outstanding shares of Common Stock owned by a Participant may be used by
the Participant to exercise an Option); (vi) to impose restrictions and/or
conditions with respect to shares of Common Stock acquired upon exercise of
an Option; (vii) to determine the circumstances under which shares of Common
Stock acquired upon exercise of any Option may be subject to repurchase by
the Company; (viii) to determine the circumstances and conditions subject to
which shares acquired upon exercise of an Option may be sold or otherwise
transferred, including, without limitation, the circumstances and conditions
subject to which a proposed sale of shares of Common Stock acquired upon
exercise of an option may be subject to the Company's right of first refusal
(as well as the terms and conditions of any such right of first refusal);
(ix) to establish a vesting provision for any Option relating to the time
when (or the circumstances under which) the Option may be exercised by a
Participant, including, without limitation, vesting provisions that may be
contingent upon (A) the Company's meeting specified financial goals, (B) a
change of control of the Company or (C) the occurrence of other specified
events; (x) to accelerate the time when outstanding options may be exercised,
PROVIDED, however, that any ISOs shall be deemed "accelerated" within the
meaning of Section 424(h) of the Code; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Option not inconsistent with
the provisions of the Plan.
4
<PAGE>
Notwithstanding anything in the Plan to the contrary, in no event shall any
Option granted to any director or officer of the Company who is subject to
Section 16 of the Exchange Act become exercisable, in whole or in part, prior
to the date that is six months after the date such Option is granted to such
director or officer.
(b) AWARDS. The Committee shall have the sole authority and
discretion under the Plan (i) to select the Employees and Eligible Optionees
who are to be granted Awards hereunder; (ii) to determine the amount to be
paid by a Participant to acquire shares of Common Stock pursuant to an Award,
which amount may be equal to, more than, or less than 100% of the fair market
value of such shares on the date the Award is granted (but in no event less
than the par value of such shares); (iii) to determine the time or times and
the conditions subject to which Awards may be made; (iv) to determine the
time or times and the conditions subject to which the shares of Common Stock
subject to an Award are to become vested and no longer subject to repurchase
by the Company; (v) to establish transfer restrictions and the terms and
conditions on which any such transfer restrictions with respect to shares of
Common Stock acquired pursuant to an Award shall lapse; (vi) to establish
vesting provisions with respect to any shares of Common Stock subject to an
Award, including, without limitation, vesting provisions which may be
contingent upon (A) the Company's meeting specified financial goals, (B) a
change of control of the Company or (C) the occurrence of other specified
events; (vii) to determine the circumstances under which shares of Common
Stock acquired pursuant to an Award may be subject to repurchase by the
Company; (viii) to determine the circumstances and conditions subject to
which any shares of Common Stock acquired pursuant to an Award may be sold or
otherwise transferred, including, without limitation, the circumstances and
conditions subject to which a proposed sale of shares of Common Stock
acquired pursuant to an Award may be subject to the Company's right of first
refusal (as well as the terms and conditions of any such right of first
refusal); (ix) to determine the form of consideration that may be used to
purchase shares of Common Stock pursuant to an Award (including, without
limitation, the circumstances under which issued and outstanding shares of
Common Stock owned by a Participant may be used by the Participant to
purchase the Common Stock subject to an Award); (x) to accelerate the time at
which any or all restrictions imposed with respect to any shares of Common
Stock subject to an Award will lapse; and (xi) to establish any other terms,
restrictions and/or conditions applicable to any Award not inconsistent with
the provisions of the Plan. Notwithstanding anything in the Plan to the
contrary, in no event shall any Option granted to any director or officer of
the Company who is subject to Section 16 of the Exchange Act become
exercisable, in whole or in part, prior to the date that is six months after
the date such Option is granted to such director or officer.
5.3. INTERPRETATION. The Committee shall be authorized to interpret
the Plan and may, from time to time,
5
<PAGE>
adopt such rules and regulations, not inconsistent with the provisions of the
Plan, as it may deem advisable to carry out the purposes of the Plan.
5.4. FINALITY. The interpretation and construction by the Committee
of any provision of the Plan, any Option and/or Award granted hereunder or
any agreement evidencing.any such Option and/or Award shall be final and
conclusive upon all parties.
5.5. EXPENSES, Etc. All expenses and liabilities incurred by the
Committee in the administration of the Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants or other persons
in connection with the administration of the Plan. The Company, and its
officers and directors, shall be entitled to rely upon the advice, opinions
or valuations of any such persons. No member of the Committee shall be liable
for any action, determination or interpretation taken or made in good faith
with respect to the Plan or any Option and/or Award granted hereunder.
Section 6. TERMS AND CONDITIONS OF OPTIONS.
6.1. ISOs. The terms and conditions of each ISO granted under the
Plan shall be specified by the Committee and shall be set forth in an ISO
agreement between the Company and the Participant in such form as the
Committee shall approve. The terms and conditions of each ISO shall be such
that each ISO issued hereunder shall constitute and shall be treated as an
"incentive stock option" as defined in Section 422(b) of the Code. The terms
and conditions of any ISO granted hereunder need not be identical to those of
any other ISO granted hereunder.
The terms and conditions of each ISO shall include the following:
(a) The option price shall be fixed by the Committee but shall in no
event be less than 100% (or 110%) in the case of an Employee referred to in
Section 4.3(b) hereof) of the fair market value of the shares of Common Stock
subject to the ISO on the date the ISO is granted. For purposes of the Plan,
the fair market value per share of Common Stock as of any day shall mean the
average of the closing prices of sales of shares of Common Stock on all
national securities exchanges on which the Common Stock may at the time be
listed or, if there shall have been no sales on any such day, the average of
the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day the Common Stock shall not be so listed, the
average of the representative bid and asked prices quoted in the NASDAQ
system as of 3:30 p.m., New York time, on such day, or, if on any day the
Common Stock shall not be quoted in the NASDAQ system,
6
<PAGE>
the average of the high and low bid and asked prices on such day in the
over-the-counter market as reported by National Quotation Bureau Incorporated,
or any similar successor organization. If at any time the Common Stock is not
listed an any national securities exchange or quoted in the NASDAQ system or the
over-the-counter market, the fair market value of the shares of Common Stock
subject to an Option on the date the ISO is granted shall be the fair market
value thereof determined in good faith by the Board of Directors.
(b) ISOS, by their terms, shall not be transferable otherwise
than by will or the laws of descent and distribution, and, during a
Participant's lifetime, an ISO shall be exercisable only by the Participant.
(c) The Committee shall fix the term of all ISOs granted
pursuant to the Plan (including, without limitation, the date on which such ISO
shall expire and terminate); PROVIDED, HOWEVER, that such term shall in no event
exceed ten years from the date on which such ISO is granted (or, in the case of
an ISO granted to an Employee referred to in Section 4.3(b) hereof, such term
shall in no event exceed five years from the date on which such ISO is granted).
Each ISO shall be exercisable in such amount or amounts, under such conditions
and at such times or intervals or in such installments as shall be determined by
the Committee in its sole discretion; PROVIDED, however, that in no event shall
any ISO granted to any director or officer of the Company who is subject to
Section 16 of the Exchange Act become exercisable, in whole or in part, prior to
the date that is six months after the date such ISO is granted to such director
or officer.
(d) To the extent that the Company or any Parent or Subsidiary
of the Company is required to withhold any Federal, state or local taxes in
respect of any compensation income realized by any Participant as a result of
any "disqualifying disposition" of any shares of Common Stock acquired upon
exercise of an ISO granted hereunder, the Company shall deduct from any payments
of any kind otherwise due to such Participant the aggregate amount of such
Federal, state or local taxes required to be so withheld or, if such payments
are insufficient to satisfy such Federal, state or local taxes, such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Board of
Directors, in its sole discretion.
7
<PAGE>
(e) In the sole discretion of the Committee the terms and
conditions of any ISO may include any of the following provisions:
(i) In the event that (x) the Company or any Parent or
Subsidiary of the Company terminates a Participant's employment "for
cause" or (y) a Participant terminates his employment by such entity
for any reason whatsoever other than as a result of his death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the
unexercised portion of any ISO held by such Participant at that time
may only be exercised within one month after the date on which the
Participant ceased to be so employed, and only to the extent that the
Participant could have otherwise exercised such ISO as of the date on
which he ceased to be so employed.
(ii) In the event a Participant shall cease to be employed by
the Company or any Parent or Subsidiary of the Company on a full-time
basis as a result of the termination of such Participant's
employment.by such entity other than "for cause" or as a result of his
death or disability (within the meaning of Section 22(e)(3) of the
Code), the unexercised portion of any ISO held by such Participant at
that time may only be exercised within three months after the date on
which the Participant ceased to be so employed, and only to the extent
that the Participant could have otherwise exercised such ISO as of the
date on which he ceased to be so employed.
(iii) In the event a Participant shall cease to be employed by
the Company or any Parent or Subsidiary of the Company on a full-time
basis by reason of his "disability" (within the meaning of Section
22(e)(3) of the Code), the. unexercised portion of any ISO held by such
Participant at that time may only be exercised within one year after
the date on which the Participant ceased to be so employed, and only to
the extent that the Participant could have otherwise exercised such ISO
as of the date on which he ceased to be so employed.
(iv) in the event a Participant shall die while in the employ
of the Company or a Parent or Subsidiary of the Company (or within a
period of one month after ceasing to be an Employee for any reason
other than his ,disability,, (within the meaning of Section 22(e)(3) of
the Code) or within'a period of one year after ceasing to be an
Employee by reason of such "disability"), the unexercised portion of
any ISO held by such Participant at the time of his death may only be
exercised within one year after the date of such Participant's death,
and only to the extent that the
8
<PAGE>
Participant could have otherwise exercised such ISO at the time of his
death. In such event, such ISO may be exercised by the executor or
administrator of the Participant's estate or by any person or persons
who shall have acquired the ISO directly from the Participant by
bequest or inheritance.
6.2. NON-OUALIFIED OPTIONS. The terms and conditions of each
Non-Qualified Option granted under the Plan shall be specified by the Committee,
in its sole discretion, and shall be set forth in a written option agreement
between the Company and the Participant in such form as the Committee shall
approve. The terms and conditions of each Non-Qualified Option will be such (and
each Non-Qualified Option Agreement shall expressly so state) that each
Non-Qualified Option issued hereunder shall not constitute nor be treated as an
"incentive stock option" As defined in Section 422(b) of the Code, butwill be a
"non-qualified stock option" for Federal, state and local income tax purposes.
The terms and conditions of any Non-Qualified Option granted hereunder need not
be identical to those of any other Non-Qualified Option granted hereunder.
The terms and conditions of each Non-Qualified Option Agreement
shall include the following:
(a) The option (exercise) price shall be fixed by the
Committee and may be equal to, more than or less than 100% of the fair market
value of the shares of Common Stock subject to the Non-Qualified Option on the
date such Non-Qualified Option is granted.
(b) The Committee shall fix the term of all Non-Qualified
Options granted pursuant to the Plan (including, without limitation, the date on
which such Non-Qualified Option shall expire and terminate). Such term may be
more than ten years from the date on which such Non-Qualified Option is granted.
Each Non-Qualified Option shall be exercisable in such amount or amounts, under
such conditions (including, without limitation, provisions governing the rights
to exercise such Non-Qualified Option), and at such times or intervals or in
such installments as shall be determined by the Committee-in its sole
discretion; PROVIDED, however, that in no event shall any Non- Qualified Option
granted to any director or officer of the Company who is subject to Section 16
of the Exchange Act become exercisable, in whole or in part, prior to the date
that is six months after the date such Non-Qualified option is granted to such
director or officer.
(c) Unless the agreement pursuant to which any Non- Qualified
Option is granted shall otherwise provide, no Non-Qualified Option shall be
transferable otherwise than by will or the laws of descent and distribution, and
during a Participant's
9
<PAGE>
lifetime a Non-Qualified Option shall be exercisable only by the Participant.
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
any Participant in respect of a Non-Qualified Option granted hereunder or in
respect of any shares of Common Stock acquired upon exercise of a Non-Qualified
Option, the Company shall deduct from any payments of any kind otherwise due to
such Participant the aggregate amount of such Federal, state or local taxes
required to be so withheld or, if such payments are insufficient to satisfy such
Federal, state or local taxes, or if no such payments are due or to become due
to such Participant, then, such Participant will be required to pay to the
Company, or make other arrangements satisfactory to the Company regarding
payment to the Company of, the aggregate amount of any such taxes. All matters
with respect to the total amount of taxes to be withheld in respect of any such
compensation income shall be determined by the Board of Directors, in its sole
discretion.
7. TERMS AND CONDITIONS OF AWARDS. The terms and conditions of
each Award granted under the Plan shall be specified by the Committee, in its
sole discretion, and shall be set forth in a written agreement between the
Participant and the Company, in such form as the Committee shall approve. The
terms and provisions of any Award granted hereunder need not be identical to
those of any other Award granted hereunder.
The terms and conditions of each Award shall include the
following:
(a) The amount to be paid by a Participant to acquire the
shares of Common Stock pursuant to an Award shall be fixed by the Committee and
may be equal to, more than or less than 100% of the fair market value of the
shares of Common Stock subject to the Award on the date the Award is granted
(but in no event less than the par value of such shares).
(b) Each Award shall contain such vesting provisions, such
transfer restrictions and such other restrictions and conditions as the
Committee, in its sole discretion, may determine, including, without limitation,
the circumstances under which the Company shall have the right and option to
repurchase shares of Common Stock acquired pursuant to an Award.
(c) Stock certificates representing Common Stock acquired
pursuant to an Award shall bear a legend referring to any restrictions imposed
on such Stock and such other matters as the Committee may determine.
10
<PAGE>
(d) To the extent that the Company is required to withhold any
Federal, state or local taxes in respect of any compensation income realized by
the Participant in respect of an Award granted hereunder, in respect of any
shares acquired pursuant to an Award, or in respect of the vesting of any such
shares of Common Stock, then the Company shall deduct from any payments of any
kind otherwise due to such Participant the aggregate amount of such Federal,
state or local taxes required to be so withheld, or if such payments are
insufficient to satisfy such Federal, state or local taxes, or if no such
payments are due or to become due to such Participant, then such Participant
will be required to pay to the Company, or make other arrangements satisfactory
to the Company regarding payment to the Company of, the aggregate amount of any
such taxes. All matters with respect to the total amount of taxes to be withheld
in respect of any such compensation income shall be determined by the Committee,
in its sole discretion.
Section 8. ADJUSTMENTS. (a) In the event that, after the
adoption of the Plan by the Board of Directors, the outstanding shares of the
Company's Common Stock shall be increased or decreased or changed into or
exchanged for a different number or kind of shares of stock or other securities
of the Company or of another entity through reorganization, merger or
consolidation, recapitalization, reclassification, stock split, split-up,
combination or exchange of shares or declaration of any dividends payable in
Common Stock, the Board of Directors shall appropriately adjust (i) the number
of shares of Common Stock (and the option price per share) subject to the
unexercised portion of any outstanding Option (to the nearest possible full
share); PROVIDED, however, that the limitations of Section 424 of the Code shall
apply with respect to adjustments made to ISOS, (ii) the number of shares of
Common Stock to be acquired pursuant to an Award which have not become vested,
and (iii) the number of shares of Common Stock for which Options and/or Awards
may be granted under the Plan, as set forth in Section 4.1 hereof, and such
adjustments shall be effective and binding for all purposes of the Plan.
(b) if any capital reorganization or reclassification of the
capital stock of the Company or any consolidation or merger of the Company with
another entity, or the sale of all or substantially all its assets to another
entity, shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, subject to Section 8(c) below, each holder of an Option
shall thereafter have the right to purchase, upon the exercise of the Option in
accordance with the terms and conditions specified in the option agreement
governing such Option and in lieu of the shares of Common Stock immediately
theretofore receivable upon the exercise of such Option, such
11
<PAGE>
shares of stock, securities or assets (including, without limitation, cash) as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place.
(c) Notwithstanding Section B(b) hereof (but only if expressly
provided in any option agreement), in the event of (i) any offer to holders of
the Company's Common Stock generally relating to the acquisition of all or
substantially all of their shares, including, without limitation, through
purchase, merger or otherwise, or (ii) any proposed transaction generally
relating to the acquisition of substantially all of the assets or business of
the Company (herein sometimes referred to as an "Acquisition"), the Board of
Directors may, in its sole discretion, cancel any outstanding options (PROVIDED,
however, that the limitations of Section 424 of the Code shall apply with
respect to adjustments made to ISOs) and pay or deliver, or cause to be paid or
delivered, to the holder thereof an amount in cash or securities having a value
(as determined by the Board of Directors acting in good faith) equal to the
product of (A) the number of shares of Common Stock (the "Option Shares") that,
as of the date of the consummation of such Acquisition, the holder of such
Option had become entitled to purchase (and had not purchased) multiplied by (B)
the amount, if any, by which (1) the ,formula or fixed price per share paid to
holders of shares of Common Stock pursuant to such Acquisition exceeds (2) the
option price applicable to such Option Shares.
Section 9. EFFECT OF THE PLAN ON EMPLOYMENT RELATIONSHIP.
Neither the Plan nor any Option and/or Award granted hereunder to a Participant
shall be construed as conferring upon such Participant any right to continue in
the employ of (or otherwise provide services to) the Company or any Subsidiary
or Parent thereof, or limit in any respect the right of the Company or any
Subsidiary or Parent thereof to terminate such Participant's employment or other
relationship with the Company or any Subsidiary or Parent, as the case may be,
at any time.
Section 10. AMENDMENT OF THE PLAN. The Board of Directors may
amend the Plan from time to time as it deems desirable; PROVIDED, HOWEVER, that
(i) without the approval of the holders of a majority of the outstanding capital
stock of the Company entitled to vote thereon or consent thereto, the Board of
Directors may not amend the Plan (x) to increase (except for increases due to
adjustments in accordance with Section 8 hereof) the aggregate number of shares
of Common Stock for which Options and/or Awards may be granted hereunder, (y) to
decrease the minimum exercise price specified by the Plan in respect of ISOs
12
<PAGE>
or (z) to change the class of Employees eligible to receive ISOs under the Plan
and (ii) without the approval of the Participant or Participants adversely
effected, the Board of Directors may not amend the Plan in a manner that has an
adverse effect on the vested rights of any Participant under any Award or Option
theretofore granted under the Plan.
Section 11. TERMINATION OF THE PLAN. The Board of Directors
may terminate the Plan at any time. Unless the Plan shall theretofore have been
terminated by the Board of Directors, the Plan shall terminate ten years after
the date of its initial adoption by the Board of Directors. No Option and/or
Award may be granted hereunder after termination of the Plan. The termination or
amendment of the Plan shall not alter or impair any rights or obligations under
any Option and/or Award theretofore granted under the Plan.
Section 12. EFFECTIVE DATE OF THE PLAN. The Plan shall be
effective as of August 27, 1996, the date on which the Plan was adopted by the
Board of Directors and approved by the stockholders of the Company.
* * * * *
13
<PAGE>
Form of Resolution to be Adopted
by the Board of Directors of
Alliance Data Systems Corporation
RENAMING OF STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
RESOLVED that the World Financial Network Holding Corporation
and its Subsidiaries Stock Option and Restricted Stock Purchase Plan (the
"Plan") adopted by World Financial Network Holding Corporation (now known as
"Alliance Data Systems Corporation") be amended to reflect the name change of
the Corporation from "World Financial Network Holding Corporation" to "Alliance
Data Systems Corporation"; and
RESOLVED, that in connection with such amendment, the title of
the Plan and the first sentence of Section 1 of the Plan are hereby amended and
restated in their entirety to read as follows:
"ALLIANCE DATA SYSTEMS CORPORATION AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
Section 1. PURPOSE. The purpose of the Alliance Data Systems
Corporation and its Subsidiaries Stock Option and Restricted Stock
Purchase Plan (the "Plan") is to promote the interests of Alliance Data
Systems Corporation, a Delaware corporation (the "Company"), and any
Subsidiary thereof and the interests of the Company's stockholders by
providing an opportunity to stockholders and selected employees,
officers, directors and other persons performing services for the
Company or any Subsidiary thereof as of the date of the adoption of the
Plan or at any time thereafter to purchase Common Stock of the
Company."
RESOLVED that, except as expressly provided in the preceding
resolutions, nothing herein shall affect or be deemed to affect any provisions
of the Plan, and except only to the extent that they may be varied hereby, all
of the terms of the Plan shall remain unchanged and in full force and effect.
<PAGE>
AMENDMENT NO. 2
TO THE
ALLIANCE DATA SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PLAN
WHEREAS, Alliance Data Systems Corporation (the "Company") has
adopted The Alliance Data Systems Corporation and its Subsidiaries Stock Option
and Restricted Stock Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to increase the
number of shares of common stock available for options and awards under the Plan
to 15,000,000 (fifteen million).
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 4.1 of the Plan is hereby amended to read as
follows:
"NUMBER OF Shares. The total number of shares of Common Stock
for which Options and/or Awards may be granted under the Plan
shall not exceed in the aggregate fifteen million (15,000,000)
shares of Common Stock (subject to adjustment as provided in
Section 8 hereof."
<PAGE>
AMENDMENT NO. 3
TO THE
ALLIANCE DATA SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
WHEREAS, Alliance Data Systems Corporation (the "Company") has adopted The
Alliance Data Systems Corporation and its Subsidiaries Stock Option and
Restricted Stock Purchase Plan (the "Plan"); and
W'HEREAS, the Company desires to amend the Plan to (1) clarify
certain provisions, (2) authorize options and award amendments, (3) modify the
vesting and forfeiture provisions, (4) provide for limited transferability of
options, and (5) provide the Company with a right of first refusal to purchase
option shares.
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 5.1 of the Plan is hereby amended to read:
"5.1 ADMINISTRATION. The Plan shall be administered by one or more
committees appointed by the Board of Directors (the "Committee"), and
the individual or individuals who hold the positions Chairman and Chief
Executive Officer of the Company. Each Committee shall consist of no
less than three persons. The Board of Directors shall appoint the
members of the Committee from time to time and may remove any Committee
member at any time. The Committee may delegate its responsibilities and
authority under the Plan to another party and any party acting pursuant
to such a delegation shall be deemed to be the Committee for all
purposes of the Plan. At least one Committee shall be comprised of
members of the Board of Directors appointed by the Board of Directors
(the "Board Committee"). The Board Committee shall be responsible for
and make all determinations with respect to (i) all matters under the
Plan pertaining to Participants who are members of the Executive
Committee of the Company (the "Executive Committee"), and (ii) the
number of shares available under the Plan for Option and Award grants
to Participants who are not members of the Executive Committee of the
Company (the "Pool"). The Chairman and Chief Executive Officer of the
Company (collectively, the "Executives") shall have the authority, be
responsible for and make all determinations with respect to all matters
under the Plan pertaining to Participants who are not members of the
Executive Committee other than (i) the determination of the number of
shares of Common Stock available under the Pool, and (ii) the making of
Plan, Option Agreement and Award Agreement amendments. The Board
Committee and the Executives shall each be deemed to be the Committee
for all purposes of the Plan, except as is otherwise provided for
herein."
<PAGE>
2. The Plan is hereby amended by adding the following new Section 5.2(c) to
read as follows:
"(c) TERMINATION OF AWARDS AND OPTIONS. Notwithstanding any provision
in the Plan to the contrary, each Award and Option granted under the
Plan shall terminate four weeks following the date on which the
Participant receives an agreement or document containing the terms and
conditions of the Option or Award (the "Agreement") unless prior to the
end of such four week period the Participant executes and returns to
the Company both the Agreement and the Company's Confidentiality and
Non-Solicitation Agreement."
3 The Plan is hereby arnended by adding the following new Section 5.2(d):
"(d) BONA FIDE OFFER TO PURCHASE SHARES. If a Participant shall at any
time prior to the date on which an underwritten public offering of the
Company's Common Stock, registered under the Securities Act of 1933, as
Amended ("Public Offering"), desire to sell all or any of the Common
Stock acquired by the Participant pursuant to an Option or an Award
("Plan Shares") and obtains a bona fide written offer which Participant
desires to accept (referred to in this Section as the "Offer") to
purchase all, or a portion of the Participant's Plan Shares the
Participant shall transmit copies of the Offer to the Company within
five (5) business days after Participant's receipt of the Offer. Except
as provided below, prior to a Public Offering a Participant may sell
Plan Shares only for cash. The Offer shall set forth its date, the
proposed price per share of Common Stock, the number of shares of
Common Stock being sold, and the other terms and conditions upon which
the purchase is proposed to be made, as well as the name and address of
the prospective purchaser. Transmittal of the Offer to the Company by
Participant shall constitute an offer by Participant to sell all of the
Plan Shares which are subject to the Offer to the Company at a price
equal to the cash consideration plus the fair market value of the
non-cash considerations specified in the Offer for such Common Stock
(the "Purchase Price") and upon the other terms set forth in the Offer,
except as hereinafter provided. For a period of sixty (30) days after
the submission of the Offer to the Company, the Company shall have the
option, exercisable by notice to Participant, to accept Participant's
offer as to all, but not less than all, of the Plan Shares that are the
subject of the Offer. If the Company does not exercise its option to
purchase within the specified 60 day period or if the Company waives,
in writing, the 30 day period, the Purchaser may then, and only then,
accept the
<PAGE>
offer from the prospective purchaser. Any sale of Plan Stock which
occurs without complying with the provisions of this Section 5.2(d) is
null and void.
5. The first paragraph of Section 6.1 of the Plan is hereby amended by
adding the following sentence to the end thereof,
"If any portion of an Option designated as an ISO is determined for any
reason not to qualify as an incentive stock option within the meaning
of Section 422 of the Code, such Option shall be treated as a
Non-Qualified Option for all purposes under the provisions of the
Plan."
6. Subsection 6.I(e)(i) of Plan is hereby amended by adding the following
to the end of such subsection:
"Notwithstanding anything herein to the contrary, if the Committee
determines, after full consideration of the facts presented on behalf
of the Company and the Participant, that the Participant has been
engaged in disloyalty to the Company or any of its affiliates,
including, without limitation, fraud, embezzlement theft, commission of
a felony or proven dishonesty in the course of his employment or
service, or has disclosed trade secrets or confidential information of
the Company or of an affiliate, any unexercised ISO previously granted
to the Participant shall terminate immediately and the Participant
shall forfeit all shares of Common Stock for which the Company has not
yet delivered the share certificates upon refund by the Company of the
option price. The Company may also withhold delivery of share
certificates pending the resolution of any inquiry that could lead to a
finding resulting in a forfeiture."
7. The Plan is hereby amended to add the following new Section 11 and to
redesignate current Sections 11 and 12 as Sections 12 and 13.
"Section 11. AMENDMENT OF AN AWARD OR OPTION. Subject to the
provisions of the Plan, the Committee shall have the right to amend any
Option or Award issued to a Participant, subject the Participant's consent,
if such amendment is not favorable to the Participant or if such
amendment has the effect of changing an ISO to a Non-Qualified Option;
provided, however, that the consent of the Participant shall not be required
for any amendment made pursuant to Section 5.2(a)(x) or Section
5.2(b)(x)."
<PAGE>
AMENDMENT NO. 4
TO THE
ALLIANCE DATA SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PLAN
WHEREAS, Alliance Data Systems Corporation (the "Company") has
adopted The Alliance Data Systems Corporation and its Subsidiaries Stock Option
and Restricted Stock Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to increase the
number of shares of common stock available for options and awards under the Plan
to 21,500,000 (twenty-one million five hundred thousand).
NOW THEREFORE, the Plan is hereby amended as follows:
1. Section 4.1 of the Plan is hereby amended to read as
follows:
"NUMBER OF Shares. The total number of shares of Common Stock
for which Options and/or Awards may be granted under the Plan
shall not exceed in the aggregate twenty-one million five
hundred thousand (21,500,000) shares of Common Stock (subject
to adjustment as provided in Section 8 hereof)."
<PAGE>
AMENDMENT NO. 5
TO THE
ALLIANCE DATA SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PLAN
WHEREAS, Alliance Data Systems Corporation (the "Company") has
adopted The Alliance Data Systems Corporation and its Subsidiaries Stock Option
and Restricted Stock Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to increase the
number of shares of Common Stock available for Options and Awards under the Plan
to twenty six million seven hundred fifty thousand (26,750,000);
NOW THEREFORF,, the Plan is hereby amended as follows:
Section 4.1 of the Plan is hereby amended to read as follows:
"NUMBER OF SHARES". The total number of shares of
Common Stock for which Options and/or Awards may be
granted under the Plan shall not exceed the aggregate
26.75 million (26,750,000) shares of Common Stock
(subject to adjustment as provided in Section 8
herein)."
<PAGE>
AMENDMENT NO. 6
TO THE
ALLIANCE DATA SYSTEMS CORPORATION
AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PLAN
WHEREAS, Alliance Data Systems Corporation (the "Company") has
adopted The Alliance Data Systems Corporation and its Subsidiaries Stock Option
and Restricted Stock Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to provide for
limited transferability of Options;
NOW THEREFORE, the Plan is hereby amended as follows:
Section 6.2(c) of the Plan is hereby amended to read as
follows:
Except as otherwise provided in this Section 6.2(c),
no Option shall be transferable otherwise than by will
or the laws of descent and distribution, and during a
Participants lifetime an Option shall be exercisable
only by the Participant. Notwithstanding the foregoing,
an Option, other than an ISO, shall be transferable
pursuant to a "domestic relations order" as defined in
the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and also shall be
transferable, without payment of consideration, to (a)
immediate family members of the holder (i.e, spouse or
former spouse, parents, issue including adopted and
"step" issue, or siblings), (b) trusts for the benefit
of immediate family members, (e) partnerships whose only
partners are such family members, and (d) to any
transferee permitted by a rule adopted by the Committee
in an individual case. Any transferee will be subject to
all of the conditions set forth in the Option prior to
its transfer."
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Employee/Optionee:
EXAMPLE
Number of shares of
Common Stock subject
to this Agreement:
Pursuant to the Alliance Data Systems Corporation and its Subsidiaries
Stock Option and Restricted Stock Purchase Plan (the "Plan"), the Board of
Directors of Alliance Data Systems Corporation (the "Company") has granted to
you on this date an option (the "Option") to purchase the number of shares of
the Company's Common Stock, $.01 par value ("Common Stock"), set forth above.
Such shares (as the same may be adjusted as described in Section 13 below) are
herein referred to as the "Option Shares". The Option shall constitute and be
treated at all times by you and the Company as an "incentive stock option" as
defined under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the "Code"). If any portion of this incentive stock option is determined for
any reason not to qualify as an incentive stock option within the meaning of
Section 422 of the Code, such Option shall be treated as a Non-Qualified Option
for all purposes under the provisions of the Plan. The terms and conditions of
the Option are set out below.
1. DATE OF GRANT. The Option is granted to you on , 1999
(the "Grant Date").
2. TERMINATION OF OPTION. Your right to exercise the Option
(and to purchase the Option Shares) shall expire and terminate in all events
on the earlier of (i) the tenth anniversary of the Grant Date or (ii) the
date provided in Section 9 below in the event you cease to be employed by the
Company or any subsidiary or parent there of. Notwithstanding any provision
in the Plan to the contrary, this Option shall terminate four weeks following
the date on which you received this Agreement unless prior to the end of such
four week period you execute and return to the Company both the Agreement and
the Company's Confidentiality and Non-Solicitation Agreement.
3. OPTION PRICE. The purchase price to be paid upon the
exercise of the Option is $1.25 per share, the fair market value of a share
of Common Stock (as determined by the Board of Directors of the Company) on
the Grant Date (subject to adjustment as provided in Section 13 hereof).
4. VESTING PROVISIONS. Except as provided in Section 5 below,
you will not be entitled to exercise the option (and purchase any Option
Shares) prior to FEBRUARY 1, 2007. Commencing on FEBRUARY 1, 2007 and on each
of the two anniversaries of such date on which you shall continue to be
employed on a full-time
<PAGE>
basis by the Company or any subsidiary or parent thereof, you shall become
entitled to exercise the Option with respect to 33-1/3% of the Option Shares
(rounded to the nearest whole share) until the Option expires and terminates
pursuant to Section 2 hereof.
5. ACCELERATED VESTING PROVISIONS.
(a) Prior to the beginning of each fiscal year of the
Company, the Board of Directors may establish Actual Operating Income (as
hereinafter defined) goals ("Operating Income Goal") and designated
percentages of outstanding options that will become vested prior to the time
such options would otherwise vest ("Designated Percentage") for achieving
various levels of the Operating Income Goal. If an Operating Income Goal is
satisfied, you will be entitled, effective as of the February 1 which
immediately follows the end of the applicable fiscal year of the Company, to
exercise a percentage of the Option Shares (rounded to the nearest whole
share) equal to the Designated Percentage for the Operating Income Goal
attained, until the Option expires and terminates pursuant to Section 2
hereof, provided the Company is not in material violation of any covenants
contained in, or otherwise in default under, any credit agreement.
(b) For the purposes of this Agreement, the following terms
shall have the meanings set forth below:
"ACTUAL OPERATING INCOME" shall mean, with respect to any
fiscal year, Operating Income (as hereinafter defined) for such fiscal
year as calculated by the Board of Directors of the Company based on
the audited consolidated financial statements of the Company and its
subsidiaries for such fiscal year, which financial statements shall be
conclusive and binding upon the Company and you.
"OPERATING INCOME" shall mean, with respect to any fiscal
year:
(i) the net income (calculated (x) before preferred
and common stock dividends and (y) exclusive of the effect of
any extraordinary or other material non-recurring gain or loss
outside the ordinary course of business) of the Company and
its consolidated subsidiaries, determined on a consolidated
basis for such period (Consolidated Net Income); plus
(ii) to the extent deducted in determining
Consolidated Net Income for such period, the aggregate amount
of (x) interest charges, whether expended or capitalized,
incurred or accrued by the Company and its consolidated
subsidiaries during such period, (y) provision for income
taxes and (z) amortization and other similar non-cash charges.
-2-
<PAGE>
Notwithstanding the Operating Income Goals established by the Board
of Directors prior to the beginning of a fiscal year of the Company, if at
any time or from time to time after the date hereof the Company or any of its
subsidiaries acquires a business or substantially all of the assets of a
business, or any assets material to the business of the Company or any of its
subsidiaries are sold, the Board of Directors of the Company shall make such
adjustments to the Operating Income Goals, as the Board of Directors of the
Company in its discretion deems equitable in light of each such acquisition
or sale. Any such determination by the Board of Directors shall be effective
and binding for all purposes of this Agreement.
(c) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option (and purchase any
Option Shares) shall be determined by the Board of Directors of the Company.
(d) Notwithstanding anything contained herein to the
contrary, no new rights to exercise the Option with respect to any Option
Shares shall be acquired under this Section 5 after the date on which you
cease to be employed on a full-time basis by the Company or any subsidiary or
parent thereof.
6. ADDITIONAL PROVISIONS RELATING TO EXERCISE. (a) Once you
become entitled to exercise the Option (and purchase Option Shares) as
provided in Sections 4 and 5 hereof, such right will continue until the date
on which the option expires and terminates pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Sections 4 and 5
hereof at which the Option may be exercised by you with respect to any Option
Shares.
7. EXERCISE OF OPTION. To exercise the Option, you must
deliver a completed copy of the attached Option Exercise Form to the address
indicated on the Form, specifying the number of Option Shares being purchased
as a result of such exercise, together with payment of the full option price
for the option Shares being purchased. Payment of the option price must be
made in cash, by certified or official bank check, or by such other
consideration as shall be approved at the time by the Board of Directors of
the Company.
8. TRANSFERABILITY OF OPTION. The Option may not be transferred
by you (other than by will or the laws of descent and distribution) and may
be exercised during your lifetime only by you.
9. TERMINATION OF EMPLOYMENT. (a) In the event that (i) the
Company or any subsidiary or parent thereof terminates your employment by such
entity "for cause" or (ii) you terminate your employment by such entity for any
reason whatsoever (other than as a result of your death or "disability"
(within the meaning of Section 22(e)(3) of the Code)), then the Option may
only be exercised within one month after
-3-
<PAGE>
such termination, and only to the same extent that you were entitled to
exercise the Option on the date your employment was so terminated and had not
previously done so. Notwithstanding anything herein to the contrary, if the
Committee determines, after full consideration of the facts presented on
behalf of the Company and you, that you have been engaged in disloyalty to
the Company or any of its affiliates, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in the
course of your employment or service, or you have disclosed trade secrets or
confidential information of the Company or of an affiliate, any unexercised
portion of this Option shall terminate immediately and you shall forfeit all
shares of Common Stock for which the Company has not yet delivered the share
certificates upon refund by the Company of the option price. The Company may
also withhold delivery of share certificates pending the resolution of any
inquiry that could lead to a finding resulting in a forfeiture.
(b) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof as a result of the
termination of your employment by the Company or any subsidiary or parent
thereof at any time other than "for cause" or as a result of your death or
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within three months after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such termination
and had not previously done so.
(c) In the event that you cease to be employed on a full-time
basis by the Company or any subsidiary or parent thereof by reason of a
"disability" (within the meaning of Section 22(e)(3) of the Code), the Option
may only be exercised within one year after the date you cease to be so
employed, and only to the same extent that you were entitled to exercise the
Option on the date you ceased to be so employed by reason of such disability and
had not previously done so.
(d) In the event that you die while employed by the Company
or any subsidiary or parent thereof (or within a period of one month after
ceasing to be employed by the Company or any subsidiary or parent thereof for
any reason described in Section 9(a) hereof, within a period of three months
after ceasing to be employed by the Company or any subsidiary or parent
thereof for any reason described in Section 9 (b) hereof or within a period
of one year after ceasing to be employed by the Company or any subsidiary or
parent thereof for any reason described in Section 9(c) hereof), the Option
may only be exercised within one year after your death. In such event, the
Option may be exercised during such one-year period by the executor or
administrator of your estate or by any person who shall have acquired the
Option through bequest or inheritance, but only to the same extent that you
were entitled to exercise the Option immediately prior to the time of your
death and you had not previously done so.
-4-
<PAGE>
(e) Notwithstanding any provision contained in this Section 9
to the contrary, in no event may the Option be exercised to any extent by anyone
after the tenth anniversary of the Grant Date.
10. COMPANY'S RIGHT AND OPTION TO REPURCHASE OPTION SHARES. (a) In the
event that you cease to be employed by the Company or any subsidiary or parent
thereof on a full-time basis for any reason (including, without limitation, as a
result of your death, disability, incapacity, retirement, resignation or
dismissal with or without cause) at any time prior to the date on which an
underwritten public offering of the Company's Common Stock, registered under the
Securities Act of 1933, as amended (the "Securities Act"), has been completed,
the Company shall have the right and option, but not the obligation, to purchase
from you (or in the case of your death, your legal representative) any or all of
the Option Shares (i) held by you on the date you cease to be so employed by the
Company or (ii) purchased by you after such date as permitted by Section 9
above. In the event that the Company exercises such right and option, the
Company shall pay to you as the purchase price for such Option Shares (the
"Purchase Price") an amount per share equal to the fair market value thereof as
of the date you ceased to be employed by the Company or any subsidiary or parent
thereof, such fair market value to be determined by the Board of Directors of
the Company.
(b) The Company may exercise the right and option described in
Section 10(a) above by giving you (or, in the case of your death, your legal
representative) a written notice of election to purchase at any time within 60
days after the date your employment ceases, which notice of election shall
specify the number of Option Shares to be purchased and the Purchase Price for
such Option Shares. The closing for the purchase by the Company of such Option
Shares pursuant to the provisions of this Section 10 (the "Purchase Date") will
take place at the offices of the Company on the date specified in such written
notice, which date shall be a business day not later than 60 days after the date
such notice is given. At such closing, you will deliver such Option Shares, duly
endorsed for transfer, against payment in cash of the Purchase Price thereof. To
the extent the Company chooses not to exercise its right and option under this
Section 10 to purchase any of such Option Shares, such Shares shall thereafter
cease to be subject to the provisions of this Agreement.
11. BONA FIDE OFFER TO PURCHASE SHARES. If at any time prior to the
date on which an underwritten public offering of the Company's Common Stock,
registered under the Securities Act of 1933, as amended (the "Securities
Act"), has been completed, ("Public Offering") you desire to sell all or any
of the Common Stock acquired by you under this Option ("Plan Shares") and you
obtain a bona fide written offer which you desire to accept (referred to in
this Section as the "Offer") to purchase all, or a portion of your Plan
Shares, you shall transmit copies of the Offer to the Company within five (5)
business days after your receipt of the Offer. The Offer shall set forth its
date, the proposed price per share of Common Stock, the number of shares of
Common Stock being sold, and the other terms and conditions upon which the
purchase is proposed to be made, as well as the name and address of the
prospective purchaser. Transmittal of
-5-
<PAGE>
the Offer to the Company by you shall constitute an offer by you to sell all
of the Plan Shares which are subject to the Offer to the Company at a price
equal to the cash consideration plus the fair market value of any non-cash
consideration specified in the Offer for such Common Stock (the "Purchase
Price") and upon the other terms set forth in the Offer, except as
hereinafter provided. For a period of thirty (30) days after the submission
of the Offer to the Company, the Company shall have the option, exercisable
by notice to you, to accept your offer as to all, but not less than all, of
the Plan Shares that are the subject of the Offer. If the Company does not
exercise its option to purchase within the specified 30 day period, or if the
Company waives, in writing, the 30 day period, you may then, and only then,
accept the offer from the prospective purchaser. Any sale of Plan Stock which
occurs without complying with the provisions of this Section 11 is null and
void.
12. REPRESENTATIONS. (a) You represent and warrant to the Company that,
upon exercise of the Option, you will be acquiring the Option Shares for your
own account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof, and you understand that (i) neither
the Option nor the Option Shares have been registered with the Securities and
Exchange Commission by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act and (ii) the Option Shares must
be held indefinitely by you unless a subsequent disposition thereof is
registered under said Act or is exempt from such registration. The stock
certificates for any Option Shares issued to you will bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE
BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, state and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
Option Shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In addition, you
understand that the Company will be required to withhold Federal, state or local
taxes in respect of any compensation income realized by you as a result of any
"disqualifying disposition" of any Option Shares acquired upon exercise of the
Option granted hereunder. To the extent that the Company is required to withhold
any such taxes as a result of any such "disqualifying disposition", you hereby
agree that the Company may deduct from any payments of any kind otherwise due to
you an amount equal to the total Federal, state and local taxes required to be
so withheld, or if such payments are inadequate to satisfy such Federal, state
and local taxes, or if no such payments are due or to become due to you, then
you agree to provide the Company with cash funds or make other arrangements
satisfactory to the Company
-6-
<PAGE>
regarding such payment. It is understood that all matters with respect to the
total amount of taxes to be withheld in respect of, any such compensation
income shall be determined by the Board of Directors in its sole discretion.
13. NOTICE OF SALE. You agree to give the Company prompt notice of any
sale or other disposition of any option Shares that occurs (i) within two years
from the date of the granting of the Option to you, or (ii) within one year
after the transfer of such Option Shares to you upon the exercise of the option.
14. ADJUSTMENTS; REORGANIZATION, RECLASSIFICATION, CONSOLIDATION,
MERGER OR SALE. (a) In the event that, after the date hereof, the outstanding
shares of the Company's Common Stock shall be increased or decreased or
changed into or exchanged for a different number or kind of shares of stock
or other securities of the Company or of another corporation through
reorganization, merger or consolidation, recapitalization, reclassification,
stock split, split-up, combination or exchange of shares or declaration of
any dividends payable in Common Stock, the Board of Directors of the Company
shall appropriately adjust the number of shares of Common Stock (and the
option price per share) subject to the unexercised portion of the Option (to
the nearest possible full share), and such adjustment shall be effective and
binding for all purposes of this Agreement and the Plan subject in all cases
to the limitations of Section 424 of the Code.
(b) If any capital reorganization or reclassification of
the capital stock of the Company or any consolidation or merger of the
Company with another entity, or the sale of all or substantially all its
assets to another entity, shall be effected after the date hereof in such a
way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
you shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified in the Option and in lieu of the shares of
Common Stock of the Company immediately theretofore receivable upon the
exercise of the Option, such shares of stock, securities or assets (including
cash) as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place.
15. CONTINUATION OF EMPLOYMENT. Neither the Plan nor the Option shall
confer upon you any right to continue in the employ of the Company or any
subsidiary or parent thereof, or limit in any respect the right of the Company
or any subsidiary or parent thereof to terminate your employment or other
relationship with the Company or any subsidiary or parent thereof, as the case
may be, at any time.
16. PLAN DOCUMENTS. This Agreement is qualified in its entirety by
reference to the provisions of the Plan applicable to "incentive stock options"
as defined in Section 422(b) of the Code, which are hereby incorporated herein
by reference.
17. AMENDMENT. Subject to the provisions of the Plan, the Committee
shall have the right to amend this Option, subject your consent, if such
amendment is not
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<PAGE>
favorable to you; provided, however, that your consent shall not be required
for any amendment made pursuant to Section 5.2(a)(x) or Section 5.2(b)(x) of
the Plan.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware. If any one or more provisions
of this Agreement shall be found to be illegal or unenforceable in any respect,
the validity and enforceability of the remaining provisions hereof shall not in
any way be affected or impaired thereby.
Please acknowledge receipt of this Agreement by signing the enclosed
copy of this Agreement in the space provided below and returning it promptly to
the Secretary of the Company.
ALLIANCE DATA SYSTEMS CORPORATION
By: _____________________________
J. Michael Parks
Chairman and CEO
Accepted and Agreed:
_____________________________
EMPLOYEE
-8-
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION AND ITS SUBSIDIARIES
STOCK OPTION AND RESTRICTED STOCK PURCHASE PLAN
OPTION EXERCISE FORM
I, , a Participant under the Alliance Data Systems
Corporation and its Subsidiaries Stock option and Restricted Stock Purchase
Plan (the "Plan"), do hereby exercise the right to purchase _____________ shares
of Common Stock, $.01 par value, of Alliance Data Systems Corporation pursuant
to the option granted to me on _________ __, ____ under the Plan. Enclosed
herewith is $____________ an amount equal to the total exercise price for the
shares of Common Stock being purchased pursuant to this option Exercise Form.
Date: __________________ _______________________________
Signature
_______________________________
Social Security Number
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Send a completed copy of this Option Exercise Form to:
Alliance Data Systems Corporation
800 Techcenter Drive
Gahanna, Ohio 43230
Attention: Corporate Secretary
<PAGE>
ALLIANCE DATA SYSTEMS CORPORATION
NON-QUALIFIED STOCK OPTION AGREEMENT
EXAMPLE
Employee/Optionee:
Number of shares of
common stock subject
to this Agreement:
Pursuant to the Alliance Data Systems Corporation and its
Subsidiaries Stock Option and Restricted Stock Purchase Plan (the "Plan"),
the Board of Directors of Alliance Data Systems Corporation (the "Company")
has granted to you on this date an option (the "Option") to purchase the
number of shares of the Company, a Common Stock, $1.00 par value ("Common
Stock), set forth above. such shares (as the same may be adjusted as
described in Section 12 below) are herein referred to as the "Option Shares".
The Option shall constitute and be treated at all times by you and the
company as a "non-qualified stock option" for Federal income tax purposes and
shall not constitute and shall not be treated as an "incentive stock option"
as defined under Section 422(b) of the Internal Revenue Code of 1986, as
amended (the "Code"). The terms and conditions of the Options are set out
below.
1. DATE OF GRANT. The Option is granted to you on __________,
_____(the "Grant Date").
2. TERMINATION OF OPTION. Your right to exercise the Option (and to
purchase the Option Shares) shall expire on the ____ anniversary of the Grant
Date or (ii) the date provided in Section 8 below in the event you cease to
be employed by the Company or any subsidiary or parent thereof. Notwithstanding
any provision in the Plan to the contrary, this Option shall terminate FOUR
weeks following the date on which you received this Agreement unless prior to
the end of such two week period you execute and return to the Company both the
Agreement and the Company's Confidentiality and Non-Solicitation Agreement.
3. OPTION PRICE. The purchase price to be paid upon the exercise of
the option $1.00 per share (subject to adjustment as provided in Section 12
hereof).
4. VESTING PROVISIONS. Except as provided in Section 5 below, you
will not be entitled to exercise the Option (and purchase any Option Shares)
prior to __________, ____. Commencing on __________, ____and on each of the
two anniversaries of such date on which you shall continue to be employed on
a full-time basis by the Company or any subsidiary or parent thereof, you
shall become entitled to
<PAGE>
exercise the Option with respect to 33-1/3% of the Option Shares (rounded to
the nearest whole share) until the option expires and terminates pursuant to
Section 2 hereof.
5. ACCELERATED VESTING PROVISIONS.
(a) Prior to the beginning of each fiscal year of the
Company, the Board of Directors may establish Actual Operating Income (as
hereinafter defined) goals ("Operating Income Goal") and designated
percentages of outstanding options that will become vested prior to the time
such options would otherwise vest ("Designated Percentage") for achieving
various levels of the Operating Income Goal. If an Operating Income Goal is
satisfied, you will be entitled, effective as of the February 1 which
immediately follows the end of the applicable fiscal year of the Company, to
exercise a percentage of the Option Shares (rounded to the nearest whole
share) equal to the Designated Percentage for the Operating Income Goal
attained, until the Option expires and terminates pursuant to Section 2
hereof, provided the Company is not in material violation of any covenants
contained in, or otherwise in default under, any credit agreement.
(b) For the purposes of this Agreement, the following terms
shall have the meanings set forth below:
"ACTUAL OPERATING INCOME" shall mean, with respect to any
fiscal year, Operating Income (as hereinafter defined) for such fiscal
year as calculated by the Board of Directors of the Company based on
the audited consolidated financial statements of the Company and its
subsidiaries for such fiscal year, which financial statements shall be
conclusive and binding upon the Company and you.
"OPERATING INCOME" shall mean, with respect to any
fiscal year:
(i) the net income (calculated (x) before preferred
and common stock dividends and (y) exclusive of the effect of
any extraordinary or other material nonrecurring gain or loss
outside the ordinary course of business) of the Company and
its consolidated subsidiaries, determined on a consolidated
basis for such period (Consolidated Net Income); plus
(ii) to the extent deducted in determining
Consolidated Net Income for such period, the aggregate amount
of (x) interest charges, whether expended or capitalized,
incurred or accrued by the Company and its consolidated
subsidiaries during such period, (y) provision for income
taxes and (z) amortization and other similar non-cash charges.
<PAGE>
Notwithstanding the Operating Income Goals established by the Board
of Directors prior to the beginning of a fiscal year of the Company, if at
any time or from time to time after the date hereof the Company or any of its
subsidiaries acquires a business, or substantially all of the assets of a
business, or any assets material to the business of the Company or any of its
subsidiaries are sold, the Board of Directors of the Company shall make such
adjustments to the Operating Income Goals, as the Board of Directors of the
Company in its discretion deems equitable in light of each such acquisition
or sale. Any such determination by the Board of Directors shall be effective
and binding for all purposes of this Agreement.
(c) The satisfaction of any and all conditions set forth in
this Section 5 regarding your right to exercise the Option (and purchase any
Option Shares) shall be determined by the Board of Directors of the Company.
(d) Notwithstanding anything contained herein to the
contrary, no new rights to exercise the Option with respect to any Option
Shares shall be acquired under this Section 5 after the date on which you
cease to be employed on a full-time basis by the Company or any subsidiary or
parent thereof.
6. ADDITIONAL PROVISIONS RELATING TO EXERCISE.
(a) Once you become entitled to exercise the Option (and
purchase Option Shares) as provided in Sections 4 and 5 hereof, such right
will continue until the date on which the Option expires and terminates
pursuant to Section 2 hereof.
(b) The Board of Directors of the Company, in its sole
discretion, may at any time accelerate the time set forth in Sections 4 and 5
at which the Option may be exercised by you with respect to any Option Shares.
7. EXERCISE OF OPTION. To exercise the Option, you must deliver a
completed copy of the attached Option Exercise Form to the address indicated
on the Form, specifying the number of Option shares being purchased as a
result of such exercise, together with payment of the full option price for
the option Shares being purchased. Payment of the option price must be made
in cash, by certified or official bank check, or by such other consideration
as shall be approved by the Board of Directors of the Company.
<PAGE>
8. TERMINATION OF EMPLOYMENT.
(a) In the event that (i) the Company or any subsidiary or
parent thereof terminates your employment by such entity "for cause" or (ii)
you terminate your employment by such entity for any reason whatsoever (other
than as a result of your death or "disability" (within the meaning of Section
22(e)(3) of the Code)), then the Option may only be exercised within one
month after such termination, and only to the same extent that you were
entitled to exercise the Option on the date your employment was so terminated
and had not previously done so. Notwithstanding anything herein to the
contrary, if the Committee determines, after full consideration of the facts
presented on behalf of the Company and you, that you have been engaged in
disloyalty to the Company or any of its affiliates, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of your employment or service, or you have disclosed
trade secrets or confidential information of the Company or of an affiliate,
any unexercised portion of this Option shall terminate immediately and you
shall forfeit all shares of Common Stock for which the Company has not yet
delivered the share certificates upon refund by the Company of the option
price. The Company may also withhold delivery of share certificates pending
the resolution of any inquiry that could lead to a finding resulting in a
forfeiture.
(b) In the event that you cease to be employed on a
full-time basis by the Company or any subsidiary or parent thereof as a
result of the termination of your employment by the Company or any subsidiary
or parent thereof at any time other than "for cause" or as a result of your
death or "disability" (within the meaning of Section 22(e)(3) of the Code),
the Option may only be exercised within six months after the date you cease
to be so employed, and only to the same extent that you were entitled to
exercise the Option on the date you ceased to be so employed by reason of
such termination and had not previously done so.
(c) In the event that you cease to be employed on a
full-time basis by the Company or any subsidiary or parent thereof by reason
of a "disability" (within the meaning of Section 22(e)(3) of the Code), the
Option may only be exercised within one year after the date you cease to be
so employed, and only to the same extent that you were entitled to exercise
the Option on the date you ceased to be so employed by reason of such
disability and had not previously done no.
(d) In the event that you die while employed by the Company or
any subsidiary or parent thereof (or within a period of one month after ceasing
to be employed by the Company or any subsidiary or parent thereof for any reason
described in Section 8(a) hereof, within a period of three months after ceasing
to be employed by the Company or any subsidiary or parent thereof for any reason
described in Section 8(b) hereof or within a period of one year after ceasing to
be employed by the Company or any subsidiary or parent thereof for any reason
described in Section 8(c) hereof), the Option may only be exercised within one
year after your death. In such event, the Option may be exercised during such
one-year period by the executor or administrator of your
<PAGE>
estate or by any person who shall have acquired the Option through bequest or
inheritance, but only to the same extent that you were entitled to exercise
the option immediately prior to the time of your death and you had not
previously done so.
(e) Notwithstanding any provision contained in this Section
8 to the contrary, in no event may the Option be exercised to any extent by
anyone after the tenth anniversary of the Grant Date.
9. COMPANY'S RIGHT AND OPTION TO REPURCHASE OPTION SHARES.
(a) In the event that you cease to be employed by the
Company or any subsidiary or parent thereof on a full-time basis for any
reason (including, without limitation, as a result of your death, disability,
incapacity, retirement, resignation or dismissal with or without cause) at
any time prior to the date on which an underwritten public offering of the
Company's Common Stock, registered under the Securities Act of 1933, as
amended (the "Securities Act"), has been completed, the Company shall have
the right and Option but not the obligation, to purchase from you (or in the
case of your death, your legal representative) any or all of the Options
Shares (i) held by you on the date you cease to be so employed by the Company
or (ii) purchased by you after such date as permitted by Section 8 above. In
the event that the Company exercises such right and option, the Company shall
pay to you as the purchase price for such option Shares (the "Purchase
Price") an amount per share equal to the fair market value thereof as of the
date you ceased to be employed by the Company or any subsidiary or parent
thereof, such fair market value so be determined by the Board of Directors of
the Company.
(b) The Company may exercise the right and option described
in Section 9(a) above by giving you (or, in the case of your death, your
legal representative) a written notice of election to purchase at any time
within 60 days after the date your employment ceases, which notice of
election shall specify the number of Option Shares to be purchased and the
Purchase Price for ouch Option Shares. The closing for the purchase by the
Company of such Option Shares pursuant to the provisions of this Section 9
(the "Purchase Date") will take place at the offices of the Company on the
date specified in such written notice, which date shall be a business day not
later than 60 days after the date such notice is given. At such closing, you
will deliver such Option Shares, duly endorsed for transfer, against payment
in cash of the Purchase Price thereof To the extent the Company chooses not
to exercise its right and option under this Section 9 to purchase any of such
Option Shares, such shares shall thereafter cease to be subject to the
provisions of this Agreement.
10. BONA FIDE OFFER TO PURCHASE SHARES. If at any time prior to the
date on which an underwritten public offering of the Company's Common Stock,
registered under the Securities Act of 1933, as amended, has been completed,
("Public Offering") you desire to sell all or any of the Common Stock acquired
by you under this Option ("Plan Shares") and you obtain a bona fide
written offer which you desire to accept (referred to in this Section as the
"Offer") to purchase all, or a portion of your Plan
<PAGE>
Shares, you shall transmit copies of the Offer to the Company within five (5)
business days after your receipt of the Offer. The Offer shall set forth its
date, the proposed price per share of Common Stock, the number of shares of
Common Stock being sold, and the other terms and conditions upon which the
purchase is proposed to be made, as well as the name and address of the
prospective purchaser. Transmittal of the Offer to the Company by you shall
constitute an offer by you to sell all of the Plan Shares which are subject
to the Offer to the Company at a price equal to the cash consideration plus
the fair market value of any non-cash consideration specified in the Offer
for such Common Stock (the "Purchase Price") and upon the other terms set
forth in the Offer, except as hereinafter provided. For a period of sixty
(60) days after the submission of the Offer to the Company, the Company shall
have the option, exercisable by notice to you, to accept your offer as to
all, but not less than all, of the Plan Shares that are the subject of the
Offer. If the Company does not exercise its option to purchase within the
specified 60 day period, or if the Company, in writing, waives the 30 day
period, you may then, and only then, accept the offer from the prospective
purchaser. Any sale of Plan Stock which occurs without complying with the
provisions of this Section 9(c) is null and void.
11. REPRESENTATIONS.
(a) You represent and warrant to the Company that, upon
exercise of the Option, you will be acquiring the Option Shares for your own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof, and you understand that (i) neither
the Option nor the Option Shares have been registered with the Securities and
Exchange Commission by reason of their issuance in a transaction exempt from
the registration requirements of the Securities Act and (ii) the Option
Shares must be held indefinitely by you unless a subsequent disposition
thereof is registered under said Act or is exempt from such registration. The
stock certificates for any option Shares issued to you will bear the
following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT
O&AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
(b) You further represent and warrant that you understand the
Federal, State and local income tax consequences of the granting of the Option
to you, the acquisition of rights to exercise the Option with respect to any
option shares, the exercise of the Option and purchase of Option Shares, and the
subsequent sale or other disposition of any Option Shares. In,
addition, you understand that the Company will be required to withhold Federal,
state or local taxes in respect of any compensation income realized by you upon
exercise of the option granted hereunder. To the extent that the Company is
required to withhold any such taxes, you hereby agree that the Company may
deduct from any payments of any kind otherwise due to you an amount equal to the
total federal, state and local taxes required to be so withheld, or if such
payments are inadequate to
<PAGE>
satisfy such Federal, state and local taxes, or if no such payments are due
or, to become due to you, then you agree to provide the Company with cash
funds or make other arrangements satisfactory to the Company regarding such
payment. It is understood that all matters with respect to the total amount
of taxes to be withhold "in respect of any such compensation income shall be
determined by the Board of Directors in its sole discretion.
12. ADJUSTMENTS REORGANIZATION RECLASSIFICATION CONSOLIDATION
MERGER OR SALE.
(a) In the event that, after the date hereof, the
outstanding shares of the Company's Common Stock shall be increased or
decreased or changed into or exchanged for a different number or kind of
shares of stock or other securities of the Company or of another corporation
through reorganization, merger or consolidation, recapitalization,
reclassification, stock split, split-up, combination or exchange of shares or
declaration of any dividends payable in Common Stock, the Board of Directors
of the Company shall appropriately adjust the number of shares of Common
Stock (and the option price per share) subject to the unexercised portion of
the Option (to the nearest possible full share), and such adjustment shall be
effective and binding for all purposes of this Agreement and the Plan.
(b) If any capital reorganization or reclassification of
the capital stock of the Company or any consolidation or merger of the
Company with another entity, or the sale of all or substantially all its
assets to another entity, shall be effected after the date hereof in such a
way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then
you shall thereafter have the right to receive, upon the basis and upon the
terms and conditions specified in the Option and in lieu of the Shares of
Common Stock of the Company immediately theretofore receivable upon the
exercise of the option, such shares of stock, securities or assets (including
cash) as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore so receivable had such reorganization,
reclassification, consolidation, merger or sale not taken place.
13. CONTINUATION OF EMPLOYMENT. Neither the Plan nor the option
shall confer upon you any right to continue in the employ of the Company or
any subsidiary or parent, thereof, or limit in any respect the right of the
Company or any subsidiary or parent thereof to terminate your employment or
other relationship with the Company or any subsidiary or parent thereof, as
the came may be, at any time.
14. AMENDMENT. Subject to the provisions of the Plan, the Committee
shall have the right to amend this Option, subject your consent, if such
amendment is not favorable to you; provided, however, that your consent shall
not be required for any amendment made pursuant to Section 5.2(a)(x) or
Section 5.2(b)(x) of the Plan.
<PAGE>
15. PLAN DOCUMENTS. This Agreement is qualified in its entirety by
reference to the provisions of the Plan, which are hereby incorporated herein
by reference.
16. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware. If any one or
more provisions of this Agreement shall be found to be illegal or
unenforceable in any respect, the validity and enforceability of the
remaining provisions hereof shall not in any way be affected or impaired
thereby.
Please acknowledge receipt of this Agreement by signing the enclosed
copy of this Agreement in the space provided below and returning it promptly
to the Secretary of the Company.
ALLIANCE DATA SYSTEMS CORPORATION
By
------------------------------
Accepted and Agreed:
- -----------------------------
Employee Optionee
<PAGE>
CONFIDENTIALITY AND NON-SOLICITATION AGREEMENT
CONFIDENTIALITY AND NON-SOLICITATION AGREEMENT dated as of
_______________________ 19xx by and between ALLIANCE DATA SYSTEMS
CORPORATION, a Delaware corporation (the "Company"), and (the
"Employee").
WITNESSETH:
WHEREAS the Employee is currently employed by the Company or an
affiliate thereof; and
WHEREAS the Employee has access to proprietary information pertaining
to the business and operations of the Company and its subsidiaries, and has
resources and expertise sufficient to enable the Employee to provide services
to third parties in competition with the Company and its subsidiaries; and
WHEREAS in connection with the employment of the Employee by the
Company and in consideration of the grant by the Company to the Employee on
the date hereof of an incentive stock option to purchase an aggregate shares
of Common Stock, $.01 par value, of the Company, on the terms and subject to
the conditions specified in the Incentive Stock Option Agreement being
executed and delivered by the Company and the Employee simultaneously with
the execution and delivery of this Agreement, the Employee has agreed to
preserve certain confidential information and to refrain from soliciting
employees of the Company and its subsidiaries for the period of time
specified herein;
NOW, THEREFORE, for and in consideration of the premises hereof and the
mutual covenants contained herein, the parties hereto hereby covenant and
agree as follows:
1. CONFIDENTIALITY ETC. The Employee hereby acknowledges that, as an
officer and/or member of management of the Company and/or one or more of its
subsidiaries, the Employee has had, and has, access to proprietary and
otherwise confidential information that directly or indirectly relates to the
business, prospects, operations, personnel and other aspects of the Company
and its Affiliates (as hereinafter defined). The Employee hereby covenants
and agrees that, during the Employee's employment by the Company or any of
its Affiliates and for a period of two years after the Employee ceases to be
employed by the Company or any of its Affiliates for any reason whatsoever
(such period of employment and two-year period following the cessation of
such employment being referred to herein as the "Restricted Period"), the
Employee shall not use for his or her, as the case may be, benefit or
disclose at any time (except as required by applicable law or in connection
with the performance of the Employee's services for the Company or any of its
Affiliates):
(a) any information obtained or developed by the Employee while in
the employ of or acting as a consultant to the Company or any of the
Company's Affiliates, in each case relating to any inventions, products,
discoveries, improvements, processes, manufacturing, marketing and
service methods or techniques, formulae, designs, styles, specifications,
databases, computer programs (whether in source code or object code),
<PAGE>
know-how, strategies and data, whether or not patentable or registerable
under copyright or similar statutes, which may pertain to the business,
products, services or processes of the Company or any of its Affiliates,
or any customers, clients, suppliers, products, employees, financial
affairs, or methods of design, distribution, marketing, service,
procurement or management of the Company or any of its Affiliates; or
(b) any other confidential or proprietary information or matter
relating to the Company or any of the Company's Affiliates;
except any such information (i) which at the time is generally known to the
public other than as a result of disclosure by the Employee not permitted
hereunder or (ii) which becomes available to the Employee on a
non-confidential basis from a source (other than the Company or any of its
Affiliates or any of their respective employees or representatives) that is
not prohibited from disclosing such information to the Employee by a legal,
contractual or fiduciary obligation. The Employee further covenants and
agrees that the Employee will not take with him or her, following termination
of the Employee's employment with the Company or any of its Affiliates, as
the case may be, any document, papers or materials in any form containing any
confidential information described in clauses (a) and (b) above, except in
each case information described in clauses (i) and (ii) above. For the
purposes of this Agreement, the term "Affiliate" or "Affiliates" of the
Company shall mean any corporation or other entity that is controlled,
directly or indirectly, by the Company. As used in the preceding sentence,
the word "control" shall mean, with respect to any entity, the power to vote
or direct the voting of more than 50% of the voting equity interests in such
entity.
2. NON-SOLICITATION. (a) During the Restricted Period the Employee agrees
not to (i) solicit for employment any employee of the Company or any of
its Affiliates or (ii) advise or recommend to any other person, firm,
partnership or corporation that competes with the Company in the Business
(as hereinafter defined) in those areas of the United States where the
Company conducts the Business, that they employ or solicit for employment
any employee of the Company or any of its Affiliates. For purposes of
this Agreement, the term "Business" means the business of providing
merchant transaction processing, credit card or other card-based credit
or loan services or credit authorization, payment and/or settlement
services for card-based products.
(b) The Employee agrees that the limitations set forth in this
Section 2 (including, without limitation, any time or territorial
limitations) are reasonable and properly required for the adequate
protection of the business of the Company (and of its Affiliates).
3. STOCK OPTION. Simultaneously with the execution and delivery
hereof, pursuant to an agreement of even date herewith, the Company is
granting to the Employee an incentive stock option to purchase the number of
shares of Common Stock, $ 1.00 par value, of the Company set forth in the
recitals to this Agreement on the terms and subject to the conditions
specified in said agreement.
2
<PAGE>
4. REMEDIES. The Employee acknowledges and agrees that the Company's
remedy at law, if any, for any breach or threatened breach of the provisions
of Sections 1 and 2 above would be inadequate and, therefore, agrees that the
Company and any of the Company's Affiliates shall be entitled to injunctive
and other equitable relief, in addition to any other available rights and
remedies (whether for money damages or otherwise), in case of any such breach
or threatened breach, and the Employee hereby waives any request that the
Company or any of the Company's Affiliates provide a bond or other security
in connection with any such proceeding or the issuance of any such injunction.
5. NON-ASSIGNABILITY. Neither this Agreement nor any right or interest
hereunder shall be assignable by the Employee, or any of the heirs, legal
representatives or permitted assigns of the Employee, without the Company's
prior written consent.
6. BINDING EFFECT. Without limiting or diminishing the effect of
Section 5 hereof, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, successors, legal
representatives and assigns.
7. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient in all respects if given in writing and (i)
delivered personally, (ii) mailed by certified or registered mail, return
receipt requested and postage prepaid, or (iii) sent via a nationally
recognized overnight courier, in each case (A) if to the Company, to it at
5001 Spring Valley Road, West Tower, Suite 650, Dallas, Texas 75244,
Attention: Vice President of Benefits and Compensation, with a copy to
Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York,
New York 10111, Attention: Mark M. Sugino, Esq.; (B) if to the Employee, at
the Employee's home address most recently filed with the Company; or (C) to
such other address or addresses as any party shall have designated in writing
to the other parties hereto.
8. GOVERNING LAW: JURISDICTION AND VENUE. This Agreement shall be
governed in all respects by the laws of the State of New York, without giving
effect to the principles of conflicts of law.
9. SEVERABILITY. If any provision or part of this Agreement shall be
determined to be invalid, illegal or unenforceable in whole or in part,
neither the validity of the remaining part of such provision nor the validity
of any other provision of this Agreement shall in any way be affected thereby.
10. WAIVER. Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such
term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
11. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
supersedes all prior agreements, oral and written, between the parties hereto
with respect to the subject matter hereof.
3
<PAGE>
This Agreement may be modified or amended only by an instrument in writing
signed by all parties hereto.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4
<PAGE>
IN WITNESS WHEREOF, the Company and the Employee have each duly executed and
delivered this Agreement as of the day and year first above written.
ALLIANCE DATA SYSTEMS CORPORATION
By:_____________________________
Name: J. Michael Parks
Title: Chairman and Chief
Executive Officer
-------------------------------
Employee
<PAGE>
ALLIANCE DATA SYSTEMS
1999
INCENTIVE
COMPENSATION
PLAN
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TIME LINE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
PLAN OBJECTIVES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
PLAN EFFECTIVE DATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCENTIVE COMPENSATION TARGETS . . . . . . . . . . . . . . . . . . . . . . . 4
WEIGHTINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SETTING OBJECTIVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
OTHER TERMS AND CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
ATTACHMENTS
ATTACHMENT - A (PERFORMANCE / PAY OUT TABLE)
ATTACHMENT - B (INDIVIDUAL PERFORMANCE OBJECTIVES)
2
<PAGE>
TIME LINE
<TABLE>
<CAPTION>
DATE EVENT
<S> <C>
FEBRUARY 10, 1999 1999 COMPANY AND BUSINESS UNIT OBJECTIVES APPROVED AT
BOARD OF DIRECTORS MEETING
MARCH 31 INDIVIDUAL OBJECTIVES COMPLETED, APPROVED AND FILED
WITH THE HUMAN RESOURCES (SENIOR BUSINESS CONSULTANT OR
FACILITY HR MANAGER)
THROUGHOUT 1999 PERIODIC REVIEWS OF PROGRESS ON INDIVIDUAL OBJECTIVES
FEBRUARY 2000 YEAR END EVALUATION OF 1999 COMPANY / BUSINESS UNIT AND
INDIVIDUAL PERFORMANCE AGAINST OBJECTIVES
FEBRUARY SET COMPANY, BUSINESS UNIT AND INDIVIDUAL OBJECTIVES
FOR YEAR 2000
MARCH PAYOUT OF INCENTIVE COMPENSATION EARNED FOR PLAN YEAR
1999
</TABLE>
3
<PAGE>
PLAN OBJECTIVES
The Alliance Data System's Incentive Plan ("Plan") is designed to provide
incentive compensation for the achievement of specific, predetermined goals.
The intent of the Plan is to:
- Strengthen individual commitment to strategic, financial and key value
objectives,
- Link a portion of incentive opportunity to company, business unit and
individual results, and
- Provide an opportunity for associates to share in the success they
help create.
EFFECTIVE DATE
The Plan Year is January 1, 1999 through December 31, 1999.
ELIGIBILITY
Associates are covered by this Plan if they are:
- In pay grades 1-11, 6T - 11T, and in non-sales Grades 41-50.
- Employed by Alliance Data Systems before October 1, 1999. (Newly hired
associates, and associates newly promoted into eligible positions for
the first time, are eligible for prorated incentive compensation).
- Performing at a satisfactory level as determined by the Company.
- On active status on the date of award distribution or eligible under
guidelines for retirement, disability or leave of absence.
Part-time associates working a schedule equal to a minimum of 25 hours per week
are eligible for the plan.
Associates are not eligible if they:
- Are participating in a sales commission or other incentive plan,
unless approved by the Business Unit Head and CEO.
- Are temporary or contract employees.
- Are hired on or after October 1, 1999 or are promoted into one of the
pay grades listed above on or after October 1, 1999.
4
<PAGE>
INCENTIVE COMPENSATION (IC) TARGETS
Each participant has an incentive compensation target. This target is expressed
as a percent of annual base earnings. The Compensation Committee of the Board
of Directors assigns IC targets for positions on the Executive Committee. The
CEO and business unit/department heads approve IC targets for other positions
using such factors as job function, reporting level and pay grade. Unless
otherwise determined, IC targets are shown in the following table.
<TABLE>
<CAPTION>
GRADE LEVEL IC TARGET (% OF ANNUAL SALARY*)
<S> <C>
Member of Executive
Committee At the discretion of the Compensation Committee
3 - 4 & 50 At the discretion of the Executive Committee
5 20%
6 & 7 15%
8 - 10, 8T - 10T,
41 - 43 10%
11 & 11T 5%
</TABLE>
* ANNUAL SALARY EQUALS TOTAL BASE EARNING BETWEEN JANUARY 1, 1999 AND
DECEMBER 31, 1999.
Incentive compensation earned for the 1999 Plan year is paid in the first
quarter of the following year. Status changes can affect the amount of incentive
a participant receives. Status changes include:
- Transfers between Business Units
- Changes in position involving a change in pay grade.
- Leave of absences
- Retirements, deaths and disabilities
When a participant transfers between business units during the plan year, the
incentive shall be prorated by the period of time, calculated in whole months,
the associate worked in each business unit. For purposes of calculating
results, transfers between business units will be effective the first of the
month following the date of transfer. The end-of-year performance factor for
each business unit will be used to calculate prorated incentive amounts.
If there is a grade level change during the performance period and this triggers
a change in incentive target, the incentive will be prorated for the period of
time the associate performed in each grade level.
If a participant takes a leave of absence in excess of 30 consecutive days,
either paid or unpaid, during the performance period, he or she may be eligible
for a prorated award at the discretion of the Executive Committee member for
that line of business and Corporate Compensation.
5
<PAGE>
If a participant retires, becomes disabled or dies during the performance
period, he or she may be eligible for a prorated award at the discretion of the
Executive Committee member for that line of business and Corporate Compensation.
In the event of death, any incentive award is made to the beneficiary named in
the company paid life insurance program.
WEIGHTINGS
Incentive Compensation objectives are weighted to reflect the position's impact
on company, business unit and individual goals.
The weighting allocation depends on the evaluated level of the position and
where the position resides in terms of a business unit or support function, as
shown below:
- PARTICIPANTS ASSIGNED TO BUSINESS UNITS.
<TABLE>
<CAPTION>
COMPANY BUSINESS UNIT INDIVIDUAL
POSITION PERFORMANCE PERFORMANCE PERFORMANCE
<S> <C> <C> <C>
ADS Corporate
Executive Team 70% 20% 10%
Grades 3-7 & 50 50% 30% 20%
Grades 8-10, 8T-10T, 30% 30% 40%
& 41-43
Grade 11, 11T 50% 50% 0%
</TABLE>
- PARTICIPANTS ASSIGNED TO NON-BUSINESS UNITS*
<TABLE>
<CAPTION>
COMPANY BUSINESS UNIT INDIVIDUAL
POSITION PERFORMANCE PERFORMANCE PERFORMANCE
<S> <C> <C> <C>
ADS Corporate
Executive Team 90% 0% 10%
Grades 3-7 & 50 80% 0% 20%
Grades 8-10, 8T-10T, 60% 0% 40%
41-43
Grade 11, 11T 100% 0% 0%
</TABLE>
* Non-Business Units are Computer Information Services, Corporate Finance,
Corporate Human Resources, Legal, and designated functions within Subscriber
Services and Business Planning and Development.
EXAMPLE: ASSUME TARGET INCENTIVE OF $ 8,000 FOR ASSOCIATE IN GRADE 8
<TABLE>
<CAPTION>
WEIGHTING %
COMPANY BUSINESS INDIVIDUAL
UNIT
6
<PAGE>
<S> <C> <C> <C>
Target Incentive 30% - $2,400 30% - $2,400 40% - $3,200
Performance Results 90% of Target 110% of target 105% of Target
Payout Results* 83% x $2,400 125% x $2,400 112.5% x $3,200
Incentive Earned $1,992 $3,000 $3,600
</TABLE>
Total IC Payout - $ 8,592
*See Attachment - A for Payout Percentages
SETTING OBJECTIVES
Company, business unit and individual objectives are established and
communicated at the beginning of the Plan year. The degree to which these
objectives are accomplished determines the level of incentive earned from the
plan.
COMPANY OBJECTIVE: Operating Income is the measure for determining Company
performance. The Board of Directors of the company approves the level of
Operating Income to be achieved for minimum, target and maximum payout.
Operating Income is defined as earnings before taxes, interest expense,
amortization of intangibles, and start up costs. The relationship between
level of performance achieved and incentive pay out, for company, business unit
and individual objectives, is reflected in Attachment - A.
BUSINESS UNIT GOALS: The CEO and the Business Unit President determines the
appropriate financial and operational objectives for the business unit. These
objectives are communicated to participants in that business unit prior to the
development of individual objectives.
INDIVIDUAL GOALS: WITH THE EXCEPTION OF ASSOCIATES IN GRADES 11, 11T AND 41 -
43, each plan participant in collaboration with their manager develops
individual objectives. Generally, 1-4 objectives are sufficient. These
objectives must be important to the organization and be items the participant
can truly impact. They also need to be consistent with the strategic direction
of the business unit and company. NOTE: For participants in Grades 1-7, 6T, 7T
and 50, these objectives are the same objectives submitted for the Performance
Management Process pilot program.
Individual objectives should be reviewed on a periodic basis. Adjustments to
objectives may be made to remain consistent with newly identified company and
business unit direction.
In developing objectives, a few basic principles will help you approach the
challenge systematically. Objectives have three characteristics, which answer
these questions.
1 What is to be accomplished?
2 How are you going to measure success?
3 What is the time frame involved?
The best tool to use when writing your objectives is the SMART rule, as
described follows:
7
<PAGE>
SPECIFIC & SIGNIFICANT
X Identify a specific and tangible outcome - not several rolled
into one.
X Objectives should reflect how Associates should spend their time
by allowing an appropriate "weight" and priority to each
objective.
X The objective should be a clear and concise statement.
MEASURABLE
X Identify how the associate and manager will know if the objective
has been achieved.
X What criteria will be used to measure the outcome (i.e., what,
how much, quality standards).
ATTAINABLE
X Should be challenging, but reasonable to achieve.
X Can the associate impact the outcome through his/her own
performance.
RESULTS-ORIENTED
X Focus on an end result - WHAT is to be achieved vs. how it is
achieved.
TIME-RELATED
X Should have a defined completion date.
Individual objectives should be completed in writing, signed by the associate,
approved by the manager and given to the Human Resources Senior Business
Consultant or Facility HR Manager by March 31, 1999. Associates in Grades 8-10
should use Attachment - B for documenting objectives. Associates in Grades 1-7,
6T, 7T and 50 should use forms associated with the annual Performance Management
process. And, associates in Grade 11 and 11T have their entire incentive
compensation tied to company and business performance and are therefore not
required to complete formal individual objectives for incentive compensation
purposes.
MANAGERS WHO FAIL TO SUBMIT INDIVIDUAL OBJECTIVES FOR THEIR ASSOCIATES AND
REVIEW YEAR-END RESULTS WITH THE ASSOCIATES WITHIN THE DESIGNATED DEADLINES WILL
FORFEIT ALL INCENTIVE COMPENSATION FOR THEMSELVES AND THE INDIVIDUAL COMPONENT
FOR THE ASSOCIATE. YEAR-END RESULTS SHOULD BE SIGNED BY THE ASSOCIATE AND
APPROVED BY TWO LEVELS OF MANAGEMENT.
Newly hired or promoted associates should have individual objectives completed
within 30 days of the date of hire or promotion.
OTHER TERMS AND CONDITIONS
- - All decisions by the Company will be final in the interpretation and
administration of the Plan and shall lie within the Company's sole and
absolute discretion. Decisions shall be final, conclusive, and binding on
all parties concerned.
- - Participant's rights under the Plan may not be assigned or transferred in
any way.
8
<PAGE>
- - The Alliance Data System's 1999 Incentive Plan may be amended, modified,
suspended or terminated by the Company at any time, without prior consent
or prior notice to associates. The Compensation Committee at its sole
discretion without prior consent by or prior notice may change objectives
at any time to associates.
- - The Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make other segregation of assets to
assure the payment of the amounts under the Plan. Rights to the payment of
amounts under the Plan shall be no greater than the rights of the Company's
general creditors.
- - Texas state law governs the validity, construction, interpretation,
administration, and effect of the Plan, and rights relating to the Plan
shall be governed by the substantive laws, but not the choice of law rules,
of the State of Texas.
- - All applicable employment and tax deductions plus 401(k) contribution
deferrals will be withheld from the incentive payout.
- - No associate has the right or is guaranteed the right to participate in the
Plan by virtue of being an employee or fulfilling any specific position
with Alliance Data Systems. Selection for participation in the Plan is
solely within the discretion of the Compensation Committee. Alliance Data
Systems may offer participation in the Plan to additional associates or
terminate the participation of any Participant in the Plan at any time
during the Plan Year.
- - Revenues and earnings classified as "windfalls" or business losses may or
may not be excluded in whole or in part from the calculation of operating
income objective at the discretion of the Compensation Committee.
Similarly, significant declines in revenue and operating income volume will
be reviewed prior to any incentive compensation award.
- - Notice to participate in the Plan shall not impair or limit the Company's
rights to transfer, promote, or demote plan participants to other jobs or
to terminate their employment. Nor shall it create any claim or right to
receive any payment under the Plan or any right to be retained in the
employ of Alliance Data Systems.
- - The Plan is established for the current fiscal year. There shall be no
obligation on the part of the Company to continue the Plan in the same or a
modified form for any future years.
- - In the event that a participant has a dispute concerning the administration
of this Plan, it shall first be submitted in writing to the Senior Vice
President of Human Resources of the Company. In the event that this
Senior Vice President does not provide a response satisfactory to the
Participant within 30 business days, the Participant may submit the dispute
in writing within five business days thereafter to the Executive
9
<PAGE>
Committee, whose decision regarding the dispute shall be final and binding
on each Participant or person claiming under the Plan.
- - The Plan is effective January 1, 1999, and supersedes and replaces all
previous Incentive Compensation Plans. All such previous plans, unless
earlier terminated, are terminated at midnight, December 31, 1998. If not
renewed by the Compensation Committee or their designated representative,
the Plan will automatically terminate on December 31, 1999.
- - In the event the associate's performance is below satisfactory standards,
he or she may receive no incentive compensation regardless of the
performance results of the company and business units, at the discretion of
the company.
ATTACHMENT - A
PERFORMANCE / PAYOUT TABLE
<TABLE>
<CAPTION>
% OF OBJECTIVE(s) ACHIEVED % PAYOUT
(COMPANY, BUSINESS UNIT AND
INDIVIDUAL*)
<S> <C>
< 80% 0%
80% (Threshold Perf.) 65% (Threshold for Payout)
81% 67%
82% 69%
83% 70%
84% 72%
85% 74%
86% 76%
87% 77%
88% 79%
89% 81%
90% 83%
91% 84%
92% 86%
93% 88%
94% 89%
95% 91%
96% 93%
97% 95%
98% 96%
99% 98%
100% (Target Perf.) 100.0% (Target Payout)
101% 102.5%
102% 105.0%
103% 107.5%
104% 110.0%
105% 112.5%
106% 115.0%
107% 117.5%
108% 120.0%
109% 122.5%
10
<PAGE>
<CAPTION>
<S> <C>
110% 125.0%
111% 127.5%
112% 130.0%
113% 132.5%
114% 135.0%
115% 137.5%
116% 140.0%
117% 142.5%
118% 145.0%
119% 147.5%
120% (Max Perf. Payable) 150.0% (Maximum Payout)
> 120% 150.0%
</TABLE>
* COMPANY AND/OR BUSINESS UNIT PERFORMANCE MUST BE AT TARGET OR ABOVE IN ORDER
FOR THE PLAN TO PAY INDIVIDUAL OBJECTIVES ABOVE 100% OF TARGET.
11
<PAGE>
<TABLE>
<CAPTION>
FOR ASSOCIATES IN GRADES 8-10 ONLY ATTACHMENT - B
ALLIANCE DATA SYSTEMS
INCENTIVE COMPENSATION PLAN
1999 INDIVIDUAL PERFORMANCE OBJECTIVES
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Name: Target IC (%)
- ---------------------------------------------------------------------------------------------------------------------------------
Position Title: Grade Level:
- ---------------------------------------------------------------------------------------------------------------------------------
(a) (b) RATINGS (e)
OVERALL
SPECIFIC OBJECTIVES / STANDARDS OF ACCOMPLISHMENTS / RESULTS -------------------------- PERF. SCORE
MEASURE (ACTUAL RESULTS ACHIEVED IN PERFORMANCE PERIOD) %
(END RESULTS TO BE ACHIEVED) (c x d)
(c) (d)
WEIGHTING ACTUAL PERF.
% %
- ---------------------------------------------------------------------------------------------------------------------------------
1.
- ---------------------------------------------------------------------------------------------------------------------------------
2.
- ---------------------------------------------------------------------------------------------------------------------------------
3.
- ---------------------------------------------------------------------------------------------------------------------------------
4.
- ---------------------------------------------------------------------------------------------------------------------------------
5.
- ---------------------------------------------------------------------------------------------------------------------------------
100%
- ---------------------------------------------------------------------------------------------------------------------------------
Total Score on Specific Objectives (add column "e") >
- ---------------------------------------------------------------------------------------------------------------------------------
_________________________________ _______________________________________ _________________________________________
Signed by - Associate 1st Level Manager 2nd Level Manager
</TABLE>
12
<PAGE>
WELSH, CARSON, ANDERSON & STOWE
320 PARK AVENUE
SUITE 2500
NEW YORK, NEW YORK 10022-6815
TELEPHONE NO.
(212) 893-9500
FACSIMILE NO.
(212) 893-9575
February 19, 1997
Mr. Michael Parks
3347 South 161st Circle
Omaha, NE 68130
Dear Mike:
On behalf of the Board of Directors of Alliance Data Systems, Inc. this
letter will confirm the terms of your appointment:
Position: Chairman of the Board and Chief Executive Officer
Alliance Data Systems, Inc.
Effective Date: March 10, 1997
Compensation: Total cash compensation "on plan" of $875,000 for
FY1997.
Salary: $475,000; Bonus target $400,000 "at plan";
Bonus of $100,000 guaranteed for first two years.
1997 Fiscal Year Operating Plan: $94.3 million
Percentage of Target Bonus:
---------------------------
0% less than $88 mm (excluding $100,000 guarantee)
100% at $94.3 mm
200% (capped) at and more than $102 mm
Bonus for EBITDAS achievement within the range of
$88-102 target would be pro rated, e.g. @ $98 million
the bonus would be 150% of target percentage.
<PAGE>
2
Equity: 3,000,000 ten year stock options exercisable @ $1.00 per
share: 2,000,000 shares vest annually over four years based
upon the achievement of EBITDAS performance (see schedule
below). In addition, 1,000,000 shares will vest on second
year anniversary as long as employment continues or if
terminated for reasons other than cause (e.g. criminal
activity, gross negligence).
Options granted will be a combination of incentive and
non qualified stock options. "Make up" provision for a
missed year will be included. Adjustments in the operating
income performance targets will be made for acquisitions
which require additional capital or non operating charges
or benefits.
ACCELERATED
-----------
PERFORMANCE VESTING 2,000,000 SHARES
------------------------------------
<TABLE>
<CAPTION>
Year EBITDAS Vesting
---- ------- -------
<S> <C> <C>
1996 $82.0 million starting point
1997 $96.3 million 25%
1998 $113.2 million 25%
1999 $133.0 million 25%
2000 $156.3 million 25%
</TABLE>
In the event Alliance is acquired within the four year
accelerated vesting period, performance options will vest
automatically if WCAS achieves 40% internal rate of return
on its investment. If IRR is below 40%, vesting will be at
discretion of the Board of Directors. 1,000,000 two year
guaranteed options will vest automatically on acquisition.
CEO will agree to assist in acquisition transition.
In the event employee is severed and the Company is still
privately held, the exercise period for options will extend
for one year. If the Company is publicly held and the
employee is severed, the exercise period will be ninety
days.
Other: Customary relocation reimbursement package
"Bridge" house loan of $800,000 at fixed rate to be repaid
when mortgage can be arranged.
Initially, salary and benefits continuation will extend
for two and one half years. After first employment
anniversary salary continuation will extend for 18 months.
<PAGE>
3
Mike, this letter cannot possibly do an adequate job of conveying how
enthusiastic the entire Board of Directors is with respect to your agreeing
to lead Alliance Data Systems. We believe the situation is a superb matching
of your impressive skills and experience and the many opportunities and
challenges facing the Company. We look forward to working with you to build a
Company that will create significant shareholder value by becoming a
fast-growing industry leader.
Sincerely,
/s/ Robert A. Minicucci
Robert A. Minicucci
Agreed & Accepted Confirmed
/s/ Michael Parks /s/ Robert A. Minicucci
- ----------------------- ----------------------------
Robert A. Minicucci
on behalf of
The Board of Directors
Alliance Data Systems, Inc.
RAM/bg
cc: Bruce Anderson
Anthony deNicola
Kenneth Gilman
Bruce Soll
<PAGE>
[Alliance Data Systems letterhead]
May 4, 1998
Mike Parks
Chairman and CEO
Ivan Szeftel
1318 Flat Rock Road
Penn Valley, PA 19072
Dear Ivan,
I am pleased to offer you the position of President-Retail Services Division.
You will report directly to me and be a member of the executive committee.
Your salary for the first year of employment will be $300,000, paid
semi-monthly. In the second year of your employment, the base salary shall
increase to not less than $325,000, paid semi-monthly. The base salary for
each successive year will be reviewed annually, but shall not be less than
$325,000.
You will also be awarded a signing bonus of $25,000 to be paid 30 days
following the beginning of your employment. If you resign without good cause
within 1 year of employment, you will be obligated to return this bonus in
full with your resignation letter.
In addition, you will be eligible for an incentive bonus of $200,000 for the
achievement of the company's annual financial goals. For fiscal year 1998,
the pay out of incentive will be based on the company's performance against
goal and be prorated based on the number of months of your employment for the
fiscal year ending January 31, 1999.
Ivan, you will also be granted 1,000,000 options to purchase ADS common stock
at $1.00 per share. The grant shall be governed by the terms and conditions
contained in the Incentive Stock Option Agreement and the company's Incentive
Stock Options Plan. Additional benefits will be the same as other senior
executives of ADS, including 4 weeks of vacation, family medical, dental, and
vision insurance, life insurance, accident and travel insurance, disability
insurance and participation in the company's 401K and retirement savings
plan. You will be eligible for benefits at the earliest possible date
allowable by our agreements with providers, but no later than the first of
the month following 30 days of employment.
In the event you are terminated without cause, you shall be entitled to
receive the following severance payments: (1) Six months base salary if
terminated within the first year of your employment; (2) Nine months base
salary if terminated with the second year of employment; and (3) 12 months
base salary if terminated after your second year of employment. The severance
payment shall be paid either in a lump sum within 14 days of the date of
termination or in equal bi-monthly installments for no more than six, nine,
or twelve months, as the case may be. In the event ADS elects to make
bi-monthly installment payments, we shall continue to cover at company
expense, you and your family under ADS' group medical, dental, and vision
insurance plans for the severance period, as if you were an active employee.
After the severance period, Executive may elect to invoke his rights under
COBRA. "Without Cause" shall mean any reason
<PAGE>
except the commission of a felony, dishonesty, fraud, material
misrepresentation, willful misconduct, and gross neglect of responsibilities.
You will also be paid according to the above severance arrangement for
termination by yourself for "good reason". Good reason shall include a
material change in job title, position, responsibilities, change in our home
base and work location understanding, or any material breach in terms of this
letter.
If you are terminated without cause as a result of a change in control, or
subsequent to a change of control, you will be entitled to receive 12 months
base salary paid on the same basis as described in connection with a
termination without cause.
If you choose to terminate employment, you must provide 60 days notice.
You will be required to sign the company's confidentiality and
non-solicitation agreement. In the event you are terminated, the restricted
period will be reduced to the number of months on which your severance
payment is based.
We have agreed that you shall continue to reside in the Philadelphia area and
this shall be your home base and work location. All business travel expenses
from the Philadelphia area will be paid by ADS, consistent with the company's
"away from home" travel policies for a member of the Company's Executive
Committee. ADS will pay the cost of installing a video-conference unit at
your home base work location, and shall pay the necessary expenses for the
business use of the video-conference unit.
It is the intent of the home base and work location plan to spend three of
every five nights of the work week at home, and to spend an average of three
full days a week at ADS offices in Columbus, Ohio and during these three days
to make whatever trips are necessary to the company's headquarters in Dallas,
Texas. We will provide a mutually agreeable (furnished and serviced)
apartment in Columbus, Ohio at the company's expense. The remaining two
workdays will be available for client and prospect visits from your home base
location, as well as staff and administrative duties.
Ivan, I am pleased to have you become part of our executive management team
and look forward to your contribution toward our success.
Sincerely,
/s/ J. Michael Parks
J. Michael Parks
cc: Art Buhl, Executive Recruiter
I ACCEPT THIS OFFER OF EMPLOYMENT:_____________________ DATE:_________________
<PAGE>
REGISTRATION RIGHTS AGREEMENT
January 24, 1996
To each of the parties
listed on Annex A hereto
Dear Sirs:
This will confirm that in consideration of (i) the purchase by
certain of you (individually a "Purchaser" and collectively the "Purchasers"),
severally, of an aggregate 28,571,429 shares of Common Stock, $.01 par value
("Common Stock"), of Business Services Holdings, Inc., a Delaware corporation
(the "Company"), pursuant to the Securities Purchase Agreement dated as of
January 24, 1996 (the "Purchase Agreement") among the Company and the Purchasers
named therein, (ii) the agreement by certain of you pursuant to the terms of the
Purchase Agreement to purchase up to an additional 23,270,000 shares of Common
Stock, and (iii) the acquisition by JCP Telecom Systems, Inc., a Delaware
corporation (the "Seller"), of a stock purchase warrant (the "Warrant") of the
Company exercisable for an aggregate 1,503,759 shares of Common Stock pursuant
to the Acquisition Agreement dated as of January 12, 1996 between the Company
and the Seller, the Company hereby covenants and agrees with each of you, and
with each subsequent holder of Restricted Stock (as such term is defined
herein), as follows:
1. CERTAIN DEFINITIONS. As used herein, the following terms
shall have the following respective meanings:
"COMMISSION" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the
Securities Act.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934
or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"PUBLIC SALE" means any sale of Common Stock to the public
pursuant to an offering registered under the Securities Act or to the
public pursuant to the provisions of Rule 144 (or any successor or
similar rule) adopted under the Securities Act.
<PAGE>
"REGISTRATION EXPENSES" shall mean the expenses so
described in Section 7 hereof.
"RESTRICTED STOCK" shall mean (i) an aggregate 28,571,429
shares of Common Stock sold and delivered to the Purchasers pursuant
to the Purchase Agreement, (ii) to the extent issued and sold to any
Purchasers pursuant to the terms of the Purchase Agreement, up to an
aggregate 23,270,000 shares of Common Stock sold and delivered to the
Purchasers pursuant to the Purchase Agreement, (iii) the Warrant Shares
and (iv) any securities issued upon exchange, adjustment or transfer of
any such shares, the certificates for which are required to bear the
legend set forth in Section 2 below. The respective number of shares of
Restricted Stock held by each of you as of the date hereof is set forth
opposite your name on Schedule I hereto.
"SECURITIES ACT" shall mean the Securities Act of 1933 or any
similar Federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean the expenses so described
in Section 7 hereof.
"WARRANT SHARES" shall mean the shares of Common Stock
issuable upon exercise of the Warrants.
2. RESTRICTIVE LEGEND. Each certificate representing
Restricted Stock and each certificate issued upon exchange or transfer thereof,
other than in a Public Sale or as otherwise permitted by the last paragraph of
Section 3, shall be stamped or otherwise imprinted with a legend substantially
in the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. NEITHER THE SECURITIES EVIDENCED BY
THIS CERTIFICATE, NOR ANY INTEREST THEREIN, MAY BE OFFERED,
SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS
EITHER (I) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SAID ACT AND LAWS RELATING THERETO OR (II) THE ISSUER HAS
RECEIVED AN OPINION OF COUNSEL, REASONABLY SATISFACTORY IN
FORM AND SUBSTANCE TO THE ISSUER, STATING THAT SUCH
REGISTRATION IS NOT REQUIRED."
3. NOTICE OF PROPOSED TRANSFER. Prior to any proposed
transfer of any Restricted Stock (other than under the
2
<PAGE>
circumstances described in Section 4 or 5 hereof), the holder thereof shall
give written notice to the Company of its intention to effect such transfer.
Each such notice shall describe the manner of the proposed transfer and, if
requested by the Company, shall be accompanied by an opinion of counsel
reasonably satisfactory to the Company (it being agreed that Reboul,
MacMurray, Hewitt, Maynard & Kristol shall be satisfactory) to the effect
that the proposed transfer of the Restricted Stock may be effected without
registration under the Securities Act and any applicable state securities
laws, whereupon the holder of such Restricted Stock may transfer such
Restricted Stock in accordance with the terms of its notice, PROVIDED,
HOWEVER, that, in the case of any Purchaser that is a partnership, no such
opinion or other documentation shall be required if such notice shall cover a
distribution by such partnership to its partners. Each certificate of
Restricted Stock transferred as above provided shall bear the legend set
forth in Section 2, unless (i) such transfer is to the public in accordance
with the provisions of Rule 144 (or any other rule permitting public sale
without registration under the Securities Act) or (ii) the opinion of counsel
referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a Public Sale without registration
under the Securities Act.
The foregoing restrictions on transferability of Restricted
Stock shall terminate as to any particular shares of Restricted Stock when such
shares shall have been effectively registered under the Securities Act and sold
or otherwise disposed of in accordance with the intended method of disposition
by the seller or sellers thereof set forth in the registration statement
concerning such shares. Whenever a holder of Restricted Stock is able to
demonstrate to the Company (and its counsel) that the provisions of Rule 144(k)
of the Securities Act are available to such holder without limitation, such
holder of Restricted Stock shall be entitled to receive from the Company,
without expense, a new certificate not bearing the restrictive legend set forth
in Section 2.
4. REQUIRED REGISTRATION.
(a) At any time, the holders of Restricted Stock constituting
at least a majority of the total Restricted Stock outstanding at such
time may request the Company to register under the Securities Act all
or any portion of the Restricted Stock held by such requesting holder
or holders for sale in the manner specified in such notice. For the
purposes of this Section 4 and Section 5 hereof, the holders of the
Warrants shall be deemed to be the holders of the number of shares of
Restricted Stock then issuable upon the exercise of the Warrants;
PROVIDED, HOWEVER, that the only securities
3
<PAGE>
which the Company shall be required to register pursuant hereto shall
be shares of Common Stock; PROVIDED, FURTHER, HOWEVER, that, in any
underwritten public offering contemplated by this Section 4 and Section
5 hereof, the holders of the Warrants shall be entitled to sell such
securities to the underwriters for exercise and sale of the shares of
Common Stock issuable upon exercise thereof.
(b) Promptly following receipt of any notice under this
Section 4, the Company shall immediately notify any holders of
Restricted Stock from whom notice has not been received and shall use
its best efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice
from requesting holders, on the same basis as shares are to be sold by
requesting holders pursuant to paragraph (a) above, the number of
shares of Restricted Stock specified in such notice (and in any notices
received from other holders within 20 days after their receipt of such
notice from the Company). If the holders of a majority of the
Restricted Stock requesting registration require an underwritten public
offering, the Company shall designate the managing underwriter of such
offering, subject to the approval of the selling holders of a majority
of the Restricted Stock covered by the offering, which approval shall
not be unreasonably withheld. The Company shall be obligated to
register Restricted Stock pursuant to this Section 4 on two occasions
only. Notwithstanding anything to the contrary contained herein, the
obligation of the Company under this Section 4 shall be deemed
satisfied only when a registration statement covering all shares of
Restricted Stock specified in notices received as aforesaid, for sale
in accordance with the method of disposition specified by the
requesting holder, shall have become effective and, it such method of
disposition is a firm commitment underwritten public offering, all such
shares shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in
accordance with the method of disposition specified by the requesting
holders, shares of Common Stock to be sold by the Company for its own
account, except as and to the extent that, in the opinion of the
managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would adversely affect
the marketing of the Restricted Stock to be sold. Except as provided in
this paragraph (c), the Company will not effect any other registration
of its Common Stock, whether for its own account or that of other
holders (except with respect to a registration statement filed on Form
S-8 or any successor form), from the date of receipt of a notice from
requesting
4
<PAGE>
holders pursuant to this Section 4 until the completion of the period
of distribution of the registration contemplated thereby or withdrawal
of the registration.
5. INCIDENTAL REGISTRATION. If the Company at any time (other
than pursuant to Section 4 hereof) proposes to register any of its Common Stock
under the Securities Act for sale to the public, whether for its own account or
for the account of other securityholders or both (except with respect to
registration statements on Forms S-4 or S-8 or another form not available for
registering the Restricted Stock for sale to the public), it will give written
notice at such time to all holders of outstanding Restricted Stock of its
intention to do so. Upon the written request of any such holder, given within 30
days after receipt of any such notice by the Company, to register any of its
Restricted Stock (which request shall state the intended method of
disposition thereof), the Company will use its best efforts to cause the
Restricted Stock as to which registration shall have been so requested to be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Restricted Stock so registered. In the event that any registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, any request by a holder pursuant to this Section 5 to register
Restricted Stock shall specify that either (i) such Restricted Stock is to be
included in the underwriting on the same terms and conditions as the shares of
Common Stock otherwise being sold through underwriters under such registration
or (ii) such Restricted Stock is to be sold in the open market without any
underwriting, on terms and conditions comparable to those normally applicable to
offerings of common stock in reasonably similar circumstances. The number of
shares of Restricted Stock to be included in such an underwriting may be reduced
(PRO RATA among the requesting holders based upon the number of shares so
requested to be registered) if and to the extent that the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein, PROVIDED, HOWEVER, that
such number of shares of Restricted Stock shall not be reduced if any shares are
to be included in such underwriting for the account of any person other than the
Company.
Notwithstanding anything to the contrary contained in this
Section 5, in the event that there is a firm commitment underwritten offering of
securities of the Company pursuant to a registration covering Restricted Stock
and a holder of Restricted Stock does not elect to sell his Restricted Stock to
the underwriters of the Company's securities in connection with such offering,
such holder shall refrain from selling such Restricted
5
<PAGE>
Stock so registered pursuant to this Section 5 during the period of
distribution of the Company's securities by such underwriters and the period
in which the underwriting syndicate participates in the after market;
PROVIDED, HOWEVER, that such holder shall, in any event, be entitled to sell
its Restricted Stock in connection with such registration commencing on the
90th day after the effective date or such registration statement.
6. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 4 or 5 hereof to use its best efforts to
effect the registration of any of the Restricted Stock under the Securities Act,
the Company will, subject to its right to cease or postpone any registration
pursuant to Section 5 hereof, as expeditiously as possible:
(a) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission a registration statement (which, in the case of an
underwritten public offering pursuant to Section 4 hereof, shall be on
Form S-1, Form S-3 or other form of general applicability satisfactory
to the managing underwriter selected as therein provided) with respect
to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the
distribution contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford counsel for the selling holders
reasonable opportunity to review and comment thereon) and file with the
Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective for the period
specified in paragraph (a) above and as comply with the provisions of
the Securities Act with respect to the disposition of all Restricted
Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration
statement for such period;
(c) furnish to each seller and to each underwriter such number
of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons may
reasonably request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration
statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or
blue sky laws of such jurisdictions as the sellers of Restricted Stock
or, in the case of an underwritten public offering, the managing
underwriter,
6
<PAGE>
shall reasonably request (provided that the Company will not be
required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but
for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any
jurisdiction);
(e) immediately notify each seller under such registration
statement and each underwriter, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus contained in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(f) use its best efforts (if the offering is underwritten)
to furnish, at the request of any seller, on the date that
Restricted Stock is delivered to the underwriters for sale pursuant
to such registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration,
addressed to the underwriters and to such seller, stating that such
registration statement has become effective under the Securities Act
and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration
statement as theretofore amended, the related prospectus, and each
amendment or supplement thereof, comply as to form in all material
respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to financial
statements contained therein) and (C) to such other effects as may
reasonably be requested by counsel for the underwriters or by such
seller or its counsel, and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to
the underwriters and to such seller, stating that they are
independent public accountants within the meaning of the Securities
Act and that, in the opinion of such accountants, the financial
statements of the Company included in the registration statement as
theretofore amended, the related prospectus, or any amendment or
supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, and
additionally covering such other financial matters (including
information as to the period ending no more than five business days
prior to the date of such letter) with
7
<PAGE>
respect to the registration in respect of which such letter is being
given as such underwriters or seller may reasonably request, and
(g) make available for inspection by each seller, any
underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent
retained by such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement.
For purposes of paragraphs (a) and (b) above and of Section 4(c) hereof, the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby or
six months after the effective date thereof.
In connection with each registration hereunder, the selling
holders of Restricted Stock will furnish to the Company in writing such
information with respect to themselves and the proposed distribution by them as
shall be reasonably necessary in order to assure compliance with federal and
applicable state securities laws.
In connection with each registration pursuant to Sections 4
and 5 hereof covering an underwritten public offering, the Company agrees to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between major
underwriters and companies of the Company's size and investment stature,
provided that such agreement shall not contain any such provision applicable to
the Company which is inconsistent with the provisions hereof and provided,
further, that the time and place of the closing under said agreement shall be as
mutually agreed upon between the Company and such managing underwriter.
7. EXPENSES. All expenses incurred by the Company in complying
with Sections: 4 and 5 hereof, including without limitation all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees of the National Association
of Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, costs of insurance and fees and expenses of one counsel
8
<PAGE>
for the sellers of Restricted Stock, but excluding any Selling Expenses, are
herein called "Registration Expenses". All underwriting discounts and selling
commissions applicable to the sale of Restricted Stock are herein called
"Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement filed pursuant to Section 4 or 5 hereof. All
Selling Expenses in connection with any registration statement filed pursuant to
Section 4 or 5 hereof shall be borne by the participating sellers in proportion
to the number of shares sold by each, or by such persons other than the Company
(except to the extent the Company shall be a seller) as they may agree.
8. INDEMNIFICATION. In the event of a registration or any of
the Restricted Stock under the Securities Act pursuant to Section 4 or 5 hereof,
the Company will indemnify and hold harmless each seller of such Restricted
Stock thereunder and each underwriter of Restricted Stock thereunder and each
officer, director and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller or
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Restricted Stock was registered under the Securities
Act pursuant to Section 4 or 5, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, PROVIDED, HOWEVER, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by such seller, such underwriter or such controlling person in writing
specifically for use in such registration statement or prospectus.
In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Section 4 or 5 hereof, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company and each officer, director and each other person, if any,
who con-
9
<PAGE>
trols the Company within the meaning of the Securities Act, each officer of
the Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter within
the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer or
director or underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Restricted Stock was
registered under the Securities Act pursuant to Section 4 or 5, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
damage, liability or action, PROVIDED, HOWEVER, that such seller will be
liable hereunder in any such case if and only to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information pertaining to such seller,
as such, furnished in writing to the Company by such seller specifically for
use in such registration statement or prospectus, PROVIDED, FURTHER, HOWEVER,
that the liability of each seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of shares sold by such
seller under such registration statement bears to the total public offering
price of all securities sold thereunder, but not to exceed the proceeds
received by such seller from the sale of Restricted Stock covered by such
registration statement.
Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to the indemnified party other than under this Section 8. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the
10
<PAGE>
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
much indemnified party under this Section 8 for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation and of liaison
with counsel so selected, PROVIDED, HOWEVER, that, if the defendants in any
such action include both the indemnified party and the indemnifying party and
the indemnified party shall have reasonably concluded that there may be
reasonable defenses available to it which are different from or additional to
those available to the indemnifying party, or if the interests of the
indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party (or, if there is more than one
indemnified party, all of the indemnified parties collectively) shall have
the right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall
have the right to retain its own counsel in any such action, but the fees and
disbursements of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such counsel.
It is understood that the indemnifying party shall not, in connection with any
action or related actions in the same jurisdiction, be liable for the fees
and disbursements of more than one separate firm qualified in such jurisdiction
to act as counsel for the indemnified party (or, if there is more than one
indemnified party, all of the indemnified parties collectively). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
If the indemnification provided for in this Section 8 is
unavailable to an indemnified party under the first or second paragraphs hereof
in respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the sellers of Restricted Stock and any other sellers participating
in the
11
<PAGE>
registration statement on the other from the sale of shares pursuant to the
registered offering of securities as to which indemnity is sought or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the sellers of Restricted Stock and any other
sellers participating in the registration statement on the other in
connection with the statement or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the sellers of Restricted Stock and any other sellers participating in
the registration statement on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) to the Company bear to the total net proceeds from the offering
(before deducting expenses) to the sellers of Restricted Stock and any other
sellers participating in the registration statement. The relative fault of
the Company on the one hand and of the sellers of Restricted Stock and any
other sellers participating in the registration statement on the other shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the sellers of Restricted Stock or other sellers participating
in the registration statement and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the sellers of Restricted Stock agree that
it would not be just and equitable if contribution pursuant to this Section 8
were determined by PRO RATA allocation (even if the sellers of Restricted
Stock were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, no seller of Restricted Stock shall be required
to contribute any amount in excess of the proceeds received by such seller
from the sale of Restricted Stock covered by the registration statement filed
pursuant hereto. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
12
<PAGE>
9. CHANGES IN COMMON STOCK. If, and as often as, there are
any changes in the Common Stock by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof, as may be required, so
that the rights and privileges granted hereby shall continue with respect to
the Common Stock as so changed and shall apply to any securities received in
any such transaction.
10. MISCELLANEOUS. (a) All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto,
including, without limitation, the rights to indemnification under Section 8
hereof, shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting
the generality of the foregoing, the registration rights conferred herein on
the holders of Restricted Stock shall inure to the benefit of any and all
subsequent holders from time to time of the Restricted Stock; PROVIDED,
HOWEVER, that, notwithstanding anything to the contrary herein contained, the
Company shall have no obligation to register any Restricted Stock pursuant to
Section 4 or Section 5 hereof for any holder of such Restricted Stock until
such time as such holder has executed and delivered to the Company its
agreement to be bound by the terms and provisions hereof to the same extent
as if such holder were an original signatory hereto.
(b) All notices, requests, consents and other
communications hereunder shall be in writing and shall be sent by telecopier,
national overnight courier service or certified mail, return receipt requested,
in each case with postage prepaid, addressed as follows:
if to the Company, to it at
if to any holder of Restricted Stock, to it at the address
set forth in Schedule I hereto;
if to any subsequent holder of Restricted Stock, to it at
such address as may have been furnished to the Company in writing
by such holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Restricted
Stock) or to the holders of Restricted Stock (in the case of the Company).
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
13
<PAGE>
(d) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof and supersedes all other
prior agreements and understandings, whether oral or written, relating to the
subject matter hereof. This Agreement may not be modified or amended except
in writing signed by the Company and the holders of not less than 66-2/3% of
the Restricted Stock PROVIDED, HOWEVER, that in the event such amendment or
waiver adversely affects the rights and/or obligations of any holder or class
or series of holders under this Agreement in a manner different from the
wanner in which it affects the rights and/or obligations of any other holder
or class or series of holders, as the case may be, such amendment or waiver
shall also require the written consent of such holder, or a majority of such
class or series of holders, as the case may be.
(e) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14
<PAGE>
Please indicate your acceptance of the foregoing
by signing and returning the enclosed counterpart of this letter, whereupon
this letter (herein sometimes called "this Agreement") shall be a binding
agreement between the Company and you.
Very truly yours,
BUSINESS SERVICES HOLDINGS, INC.
By: /s/ Anthony J. de Nicola
----------------------------
Name: Anthony J. de Nicola
Title: President
AGREED TO AND ACCEPTED
as of the date first
above written.
WELSH, CARSON, ANDERSON & STOWE VII, L.P.
By WCAS VII Partners, General Partner
By: /s/ Anthony J. de Nicola
-------------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By WCAS INFO Partners, General Partner
By: /s/ Patrick J. Welsh
-------------------------------------
General partner
WCAS CAPITAL PARTNERS II, L.P.
By WCAS CP II Partners, General Partner
By: /s/ Anthony J. de Nicola
-------------------------------------
General Partner
/s/ Patrick J. Welsh
- -----------------------------------------
Patrick J. Welsh
15
<PAGE>
/s/ Russell L. Carson
- ------------------------------
Russell L. Carson
/s/ Bruce K. Anderson
- ------------------------------
Bruce K. Anderson
/s/ Richard H. Stowe
- ------------------------------
Richard H. Stowe
/s/ Andrew M. Paul
- ------------------------------
Andrew M. Paul
/s/ Thomas E. McInerney
- ------------------------------
Thomas E. McInerney
/s/ Laura VanBuren
- ------------------------------
Laura VanBuren
/s/ James B. Hoover
- ------------------------------
James B. Hoover
/s/ Robert A. Minicucci
- -----------------------------
Robert A. Minicucci
/s/ Anthony J. deNicola
- ------------------------------
Anthony J. deNicola
/s/ David F. Bellet
- ------------------------------
David F. Bellet
16
<PAGE>
JCP TELECOM SYSTEMS, INC.
By: /s/ [Illegible]
--------------------------
17
<PAGE>
WCA MANAGEMENT CORPORATION
By: /s/ [Illegible]
--------------------------
18
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
No. of Shares Of Common
Name of Holder Stock \ Warrant Shares
-------------- -----------------------
<S> <C>
Welsh, Carson, Anderson & Stowe VII, 23,982,500
L.P.
WCAS Capital Partners II, L.P. 3,571,429
WCAS Information Partners, L.P. 100,000
WCA Management Corporation 17,500
Patrick J. Welsh 150,000
Russell L. Carson 115,000
Bruce K. Anderson 250,000
Richard H. Stowe 75,000
Andrew M. Paul 50,000
Thomas E. McInerney 75,000
Laura VanBuren 5,000
James B. Hoover 10,000
Robert A. Minicucci 50,000
Anthony J. deNicola 20,000
David Bellet (DLJSC as 100,000
Custodian for the IRA FBO
David F. Bellet)
JCP Telecom Systems, Inc. 1,503,759
(Warrant Shares)
</TABLE>
<PAGE>
SCHEDULE I
NAMES AND ADDRESSES OF HOLDERS
Welsh, Carson, Anderson & Stowe VII,
L.P.
WCAS Capital Partners II, L.P.
WCAS Information Partners, L.P.
WCA Management Corporation
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
Andrew M. Paul
Thomas E. McInerney
Laura VanBuren
James B. Hoover
Robert A. Minicucci
Anthony J. deNicola
c/o Welsh, Carson, Anderson & Stowe
One World Financial Center
New York, NY 10281
David Bellet (DLJSC as
Custodian for the IRA FBO
David F. Bellet)
Pershing Division of Donaldson, Lufkin
& Jenrette Securities Corporation
P.O. Box 2050
Jersey City, New Jersey 07399
JCP Telecom Systems, Inc.
6501 Legacy Drive
Plano, Texas 75024
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
Among
WORLD FINANCIAL NETWORK HOLDING CORPORATION
LIMITED COMMERCE CORP.
and
THE OTHER SECURITYHOLDERS
NAMED ON SCHEDULE I AND SCHEDULE II HERETO
Dated as of August 30, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SALE AND TRANSFER OF SECURITIES; CLOSING;
PURCHASE PRICE ................................................ 2
SECTION 1.01 Sale and Transfer of Securities .......................... 2
SECTION 1.02 Delivery of Shares and Notes;
Reissuance of Notes and Payment
of Purchase Price ...................................... 3
SECTION 1.03 Closing .................................................. 4
SECTION 1.04 Assumption of Obligation to Purchase
Additional Shares ...................................... 4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
THE SELLING SECURITYHOLDERS ................................... 5
SECTION 2.01 Authorization of Agreements, Etc ......................... 5
SECTION 2.02 Validity ................................................. 5
SECTION 2.03 Governmental Approvals, Etc .............................. 5
SECTION 2.04 Litigation Relating to Transaction ....................... 6
SECTION 2.05 Brokers' or Finders' Fees ................................ 6
SECTION 2.06 Title to Shares and Note ................................. 6
SECTION 2.07 Distributions ............................................ 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE COMPANY ................................................... 7
SECTION 3.01 Organization, Qualifications and
Corporate Power; Subsidiaries .......................... 7
SECTION 3.02 Authorization of Agreements, Etc ......................... 7
SECTION 3.03 Validity ................................................. 7
SECTION 3.04 Governmental Approvals, Etc .............................. 8
SECTION 3.05 Litigation Relating to Transaction ....................... 8
SECTION 3.06 Representations and Warranties In the
Merger Agreement ....................................... 8
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ................. 8
SECTION 4.01 Organization, Power, Etc ................................. 8
SECTION 4.02 Authorization of Agreements, Etc ......................... 8
SECTION 4.03 Validity ................................................. 9
SECTION 4.04 Governmental Approvals, Etc .............................. 9
SECTION 4.05 Litigation Relating to Transaction ....................... 9
SECTION 4.06 Brokers' or Finders' Fees ................................ 9
<PAGE>
Page
----
ARTICLE V COVENANTS....................................................... 9
SECTION 5.01 Certain Covenants of
the Selling Securityholders ............................ 9
ARTICLE VI CONDITIONS PRECEDENT............................................. 10
SECTION 6.01 Conditions Precedent to
the Obligations of the Purchaser ....................... 10
SECTION 6.02 Conditions Precedent to the
Obligations of the Selling Securityholders ............. 11
ARTICLE VII MISCELLANEOUS.................................................... 12
SECTION 7.01 Expenses, Etc ............................................ 12
SECTION 7.02 Survival of Representations and
Warranties .............................................. 13
SECTION 7.03 Execution in Counterparts ................................ 13
SECTION 7.04 Notices .................................................. 13
SECTION 7.05 Waivers .................................................. 14
SECTION 7.06 Amendments, Supplements, Etc ............................. 14
SECTION 7.07 Entire Agreement ......................................... 14
SECTION 7.08 Applicable Law ........................................... 14
SECTION 7.09 Binding Effect; Benefits ................................. 14
SECTION 7.10 Assignability ............................................ 15
TESTIMONIUM .................................................................... 16
</TABLE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
Schedule Description
-------- -----------
<S> <C>
I Schedule I Securityholders
II Schedule II Securityholder
</TABLE>
(ii)
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of August 1996 among WORLD
FINANCIAL NETWORK HOLDING CORPORATION, a Delaware corporation (the "Company"),
LIMITED COMMERCE CORP., a Delaware corporation (the "Purchaser"), the
securityholders whose names appear on Schedule I hereto (hereinafter sometimes
referred to individually as a "Schedule I Securityholder" and collectively as
the "Schedule I Securityholders") and WCAS CAPITAL PARTNERS II, L.P., a Delaware
limited partnership (the "Schedule II Securityholder" and, together with the
Schedule I Securityholders, the "Selling Securityholders").
RECITALS
WHEREAS the Selling Securityholders hold all of the issued and
outstanding shares of capital stock of Business Services Holdings, Inc., a
Delaware corporation ("BSH"), and 60% of the issued and outstanding shares of
capital stock of the Company; and
WHEREAS the Purchaser holds the remaining 40% of the issued and
outstanding shares of capital stock of the Company; and
WHEREAS the Company and BSH have entered into an Agreement and Plan of
Merger dated as of August , 1996 (the "Merger Agreement"), pursuant to which BSH
and the Company have agreed on the terms and conditions pursuant to which BSH
will be merged (the "Merger") with and into the Company, with the Company as the
surviving corporation of the Merger; and
WHEREAS upon the effectiveness of the Merger, the issued and
outstanding shares of Common Stock, $.01 par value ("BSH Common Stock"), of BSH
shall be converted into an aggregate 28,571,429 shares of Common Stock, $.01 par
value ("Common Stock"), of the Company, and the issued and outstanding shares of
Preferred Stock, $1 par value ("BSH Preferred Stock"), of BSH shall be converted
into an aggregate 25,899,999 shares of Common Stock; and
WHEREAS, upon the effectiveness of the Merger, the Company will assume,
among other things, the obligations and liabilities of BSH under and in respect
of (i) the 10% Subordinated Notes Due January 24, 2002 of BSH (the "Notes") in
the aggregate principal amount of $50,000,000 and (ii) the Securities Purchase
Agreement dated as of January 24, 1996 (the "BSH Securities Purchase
Agreement"), among BSH and the Selling Securityholders; and
<PAGE>
WHEREAS the Purchaser, on the one hand, and the Selling
Securityholders, on the other hand, desire to maintain their proportionate
investments in the Company following the effectiveness of the Merger, and, in
connection therewith, (i) the Selling Securityholders have agreed to sell to the
Purchaser, and the Purchaser has agreed to purchase from the Selling
Securityholders, (x) forty percent (40%) of the shares of Common Stock received
by each Selling Securityholder in connection with the Merger, being an aggregate
21,788,572 shares of Common Stock, and (y) forty percent (40%) of the principal
amount of the Notes (being an aggregate $20,000,000 principal amount of Notes),
in each case on the terms and subject to the conditions hereinafter set forth,
and (ii) the Purchaser is willing to assume forty percent (40%) of the financing
obligations of the Schedule I Securityholders under Sections 1.03 and 1.04 of
the BSH Securities Purchase Agreement; and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Merger Agreement that the BSH Securities Purchase Agreement
be amended to the extent required to give effect to the transactions
contemplated by the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
I.
SALE AND TRANSFER OF SECURITIES;
CLOSING; PURCHASE PRICE
SECTION 1.01. SALE AND TRANSFER OF SECURITIES.
(a) THE SCHEDULE I COMMON SHARES. Subject to the terms and conditions
set forth herein, each Schedule I Securityholder shall sell to the Purchaser,
and the Purchaser shall purchase from such Schedule I Securityholder on the
Closing Date (as hereinafter defined), the number of shares (the "Schedule I
Common Shares") of Common Stock set forth opposite the name of such Schedule I
Securityholder on Schedule I hereto under the heading "Number of Common Shares".
(b) THE SCHEDULE II COMMON SHARES. Subject to the terms and conditions
set forth herein, the Schedule II Securityholder shall sell to the Purchaser,
and the Purchaser shall purchase from the Schedule II Securityholder on the
Closing Date, the number of shares (the "Schedule II Common Shares" and,
collectively with the Schedule I Common Shares, the "Common Shares") of Common
Stock set forth opposite the name of the
2
<PAGE>
Schedule II Securityholder on Schedule II hereto under the heading "Number of
Common Shares".
(c) THE NOTES. Subject to the terms and conditions set forth herein,
the Schedule II Securityholder shall sell to the Purchaser, and the Purchaser
shall purchase from the Schedule II Securityholder on the Closing Date, the
principal amount of notes set forth opposite the name of the Schedule II
Securityholder on Schedule II hereto under the heading "Principal Amount of
Note". The purchase of the principal amount of Notes shall also constitute the
purchase of any accrued and unpaid interest in respect of such principal amount.
The Common Shares and the Note are herein referred to as the "Securities".
SECTION 1.02. DELIVERY OF SHARES AND NOTES: REISSUANCE OF NOTES AND
PAYMENT OF PURCHASE PRICE. (a) At the closing on the Closing Date (i) each
Selling Securityholder shall deliver to the Purchaser a certificate or
certificates in definitive form, registered in the name of such Securityholder,
evidencing the Shares being sold by such Selling Securityholder hereunder, duly
endorsed for transfer or accompanied by stock transfer powers duly endorsed in
blank, with all requisite stock transfer taxes paid and stamps affixed and (ii)
the Schedule II Securityholder shall surrender to the Company the Note, duly
endorsed as to the principal amount being sold to the Purchaser by the Schedule
II Securityholder.
(b) At the Closing on the Closing Date, subject to surrender of the
Note as aforesaid, the Company shall issue and deliver to each of the Purchaser
and the Schedule II Securityholder a new Note in the principal amounts being
sold to the Purchaser and being retained by the Schedule II Securityholder,
respectively. Interest on the Note shall be apportioned between the Purchaser
and the Schedule II Securityholder as of the close of business on the Closing
Date.
(c) As payment in full of the purchase price for the Shares and the
Note and against delivery of the certificates evidencing the Shares and
surrender of the Note and issuance of the new Notes as aforesaid, at the closing
on the Closing Date, the Purchaser shall:
(i) pay to each Schedule I Securityholder the amount set
opposite the name of such Schedule I Securityholder in Schedule I
hereto under the heading "Price of Common Shares" being $1.00 for each
Schedule I Common Share being sold by such Schedule I Securityholder,
by transfer of such amount to such Schedule I Securityholder by wire
transfer to an account designated by Welsh, Carson, Anderson & Stowe
VII, L.P. ("WCAS VII") in writing prior to the Closing Date; and
3
<PAGE>
(ii) pay to the Schedule II Securityholder the amount set opposite the
name of such Schedule II Securityholder in Schedule II hereto under the
headings "Purchase Price of Subordinated Note" and "Purchase Price of
Common Shares" being the sum of (x) $1.00 for each Schedule II Common
Share being sold by such Schedule II Securityholder, (y) $18,571,428 in
respect of the $20,000,000 principal amount of Notes being sold by the
Schedule II Securityholder and (z) $333,333.33 representing accrued and
unpaid interest on the Notes being purchased by the Purchaser from the
date of original issue thereof through the Closing Date, by wire
transfer to an account designated by WCAS VII in writing prior to the
Closing Date.
SECTION 1.03. CLOSING. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Reboul,
MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, N.Y. 10111
on August 30, 1996, at 10 a.m. Eastern Daylight Time, or at such other place or
at such other date and time as the Selling Securityholders and the Purchaser may
mutually agree (the date and time of the Closing being herein called the
"Closing Date").
SECTION 1.04. ASSUMPTION OF OBLIGATION TO PURCHASE ADDITIONAL SHARES.
(a) The Purchaser hereby assumes from the Schedule I Securityholders forty
percent (40%) of the Selling Securityholders' obligation under the BSH
Securities Purchase Agreement to purchase up to an aggregate $46,540,000 in
equity securities from the Company, in all respects as if the Purchaser had
been a Purchaser under the BSH Securities Purchase Agreement. In no event shall
any provision of the BSH Securities Purchase Agreement be amended or modified
without the prior written consent of the Purchaser. In addition, the Purchaser
shall not be obligated to make any payment pursuant to this Section 1.04(a)
unless the Selling Securityholders have provided documentation reasonably
satisfactory to the Purchaser demonstrating that the payment of additional
consideration under the BSH Securities Purchase Agreement is required. In no
event will the Purchaser be required to make any payment pursuant to this
Section 1.04(a) unless each Selling Securityholder has theretofore made all
corresponding payments to be made by such Selling Securityholder in accordance
with the BSH Securities Purchase Agreement.
(b) The Company hereby agrees that the assumption by the Purchaser of a
portion of the obligation of the Schedule I Securityholders to provide
additional financing pursuant to the BSH Securities Purchase Agreement as
provided in Section 1.04(a) above shall relieve such Schedule I Securityholders
of their respective proportionate shares of the obligation to provide such
additional financing under the BSH Securities Purchase Agreement.
4
<PAGE>
II.
REPRESENTATIONS AND WARRANTIES OF
THE SELLING SECURITYHOLDERS
Each Selling Securityholder represents and warrants as to itself only,
to the Purchaser as follows:
SECTION 2.01. AUTHORIZATION OF AGREEMENTS, ETC. (a) Such Selling
Securityholder has full legal capacity and power to execute and deliver
this Agreement and to perform such Selling Securityholder's obligations
hereunder.
(b) The execution and delivery by such Selling Securityholder of this
Agreement, and the performance by each Selling Securityholder of such Selling
Securityholder's obligations hereunder, have been duly authorized (in the case
of each corporation and partnership that is a Selling Securityholder) by all
requisite corporate or partnership action on its part, and will not violate any
provision of law, any order of any court or other agency of government, any
judgment, award or decree or any provision of any indenture, agreement or other
instrument which such Selling Securityholder is a party, or by which such
Selling Securityholder or any of such Selling Securityholder's properties or
assets is bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument.
SECTION 2.02. VALIDITY. This Agreement has been duly executed and
delivered by such Selling Securityholder and constitutes a legal, valid and
binding agreement of such Selling Securityholder, enforceable against such
Selling Securityholder in accordance with its terms, subject, as to enforcement
of remedies, to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights in general and to general principles of equity,
regardless of whether enforcement is sought in a proceeding in equity or at law.
SECTION 2.03. GOVERNMENTAL APPROVALS. ETC. Other than compliance by
the Purchaser and the Company with the requirements of the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 (the "HSR Act") with respect to
the transactions contemplated hereby, no order, authorization, approval or
consent from, or filing with, any federal or state governmental or public
body or other authority having jurisdiction over such Selling
Securityholder is required for the execution, delivery and performance of
this Agreement or is necessary in order to ensure the legality, validity,
binding effect or enforceability of this Agreement.
5
<PAGE>
SECTION 2.04. LITIGATION RELATING TO TRANSACTION. There are no actions,
suits, proceedings or claims pending before any court, arbitrator or government
agency against or affecting the Purchaser which might enjoin or prevent the
consummation of the transactions contemplated by this Agreement or the Escrow
Agreement.
SECTION 2.05. BROKERS' OR FINDERS' FEES. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
such Selling Shareholder directly, without the intervention of any person on
behalf of the Selling Shareholder in such manner as to give rise to any claim by
any person against the Purchaser for a finder's fee, brokerage commission or
similar payment.
SECTION 2.06. TITLE TO SHARES AND NOTE. Such Securityholder is the
lawful holder of record and beneficial owner of the number of shares of Common
Stock and the principal amount of the Note being sold by such Selling
Securityholder to the Purchaser hereunder and has good and valid title thereto,
in each case free and clear of any and all pledges, security interests, liens,
charges or other encumbrances of any nature whatsoever, except as otherwise
provided in the Stockholders Agreement dated as of January 31, 1996 (the
"Original Stockholders Agreement") among the Company, the Purchaser and certain
of the Selling Securityholders, as amended and restated by the Amended and
Restated Stockholders Agreement of even date herewith (collectively with the
Original Stockholders Agreement, the "Stockholders Agreement"). All shares of
Common Stock to be sold by such Selling Securityholder have been duly authorized
and validly issued by the Company and are non-assessable and, except as provided
in the Stockholders Agreement, the issuance thereof was not subject to any
preemptive or similar rights. Upon consummation of the transactions contemplated
by this Agreement, the Purchaser will be the record and beneficial owner of all
shares of Common Stock to be sold by such Selling Securityholder and will have
good and valid title to such shares, free and clear of any and all pledges,
security interest, liens, charges or other encumbrances of any kind, except as
otherwise provided in the Stockholders Agreement. The principal amount of the
Note to be sold by such Selling Securityholder as well as all other obligations
related thereto (including, without limitation, the obligation to pay interest
in respect thereof), constitute valid and binding obligations of the Company.
Upon consummation of the transactions contemplated by this Agreement, the
Purchaser will be the record and beneficial owner of the principal amount of the
Note to be sold by such Selling Securityholder (and all other rights, including
the right to receive interest payments relating thereto) and will have good and
valid title thereto, free and clear of any and all pledges, security interests,
liens, charges or other encumbrances of any kind.
6
<PAGE>
SECTION 2.07. DISTRIBUTIONS. Such Selling Securityholder has not
received any payments from BSH or the Company in respect of the Securities,
whether by way of dividend, distribution, payment of interest or otherwise.
III.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants to the Purchaser as follows:
SECTION 3.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER;
SUBSIDIARIES. The Company is a corporation duly incorporated and validly
existing under the laws of the State of Delaware and is duly licensed or
qualified as a foreign corporation in each other jurisdiction in which it
owns, leases or operates any property or in which the nature of business
transacted by it makes such licensing or qualification necessary (other than
any such jurisdiction in which the failure to be so qualified would not, in
the aggregate, have a material adverse effect on its business, properties or
financial condition). The Company has the corporate power and authority, and
the legal right, to own and operate its properties and to carry on its
business as currently conducted.
SECTION 3.02. AUTHORIZATION OF AGREEMENTS, ETC. (a) The Company has
the corporate power and authority to execute and deliver this Agreement and
to perform its obligations hereunder.
(b) The execution and delivery by the Company of this Agreement, and
the performance by the Company of its obligations hereunder, have been duly
authorized by all requisite corporate action on its part, and will not violate
any provision of law, any order of any court or other agency of government, any
judgment, award or decree or any provision of any indenture, agreement or other
instrument which the Company is a party, or by which the Company's properties or
assets is bound or affected, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
SECTION 3.03. VALIDITY. This Agreement has been duly executed and
delivered the Company and constitutes a legal, valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
subject, as to enforcement of remedies, to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
7
<PAGE>
affecting the enforcement of creditors' rights in general and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law.
SECTION 3.04. GOVERNMENTAL APPROVALS, ETC. Other than compliance by
the Purchaser and the Company with the requirements of the HSR Act with
respect to the transactions contemplated hereby, no order, authorization,
approval or consent from, or filing with, any federal or state governmental
or public body or other authority having jurisdiction over the Company is
required for the execution, delivery and performance of this Agreement or is
necessary in order to ensure the legality, validity, binding effect or
enforceability of this Agreement.
SECTION 3.05. LITIGATION RELATING TO TRANSACTION. There are no actions,
suits, proceedings or claims pending before any court, arbitrator or government
agency against or affecting the Company which might enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
SECTION 3.06. REPRESENTATIONS AND WARRANTIES IN THE MERGER AGREEMENT.
The Representations and Warranties made by the Company to BSH in Article III of
the Merger Agreement (other than those contained in Section 3.01(a) thereof) are
hereby incorporated herein in their entirety and shall, for the purposes of this
Agreement, be deemed to be included among the representations and warranties
made by the Company to the Purchaser in this Article III.
IV.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Selling Securityholders as
follows:
SECTION 4.01. ORGANIZATION, POWER, ETC. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Purchaser has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
SECTION 4.02. AUTHORIZATION OF AGREEMENTS, ETC. The execution and
delivery by the Purchaser of this Agreement, and the performance by the
Purchaser of its obligations hereunder, have been duly authorized by all
requisite corporate action on its part and will not violate any provision of
law, any order of any court or other agency of government, the Certificate of
Incorporation or By-laws of the Purchaser, any judgment, award or decree or
any indenture, agreement or other instrument to which the Purchaser is a
party, or by which it or any of its properties
8
<PAGE>
or assets is bound or affected, or result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such indenture,
agreement or other instrument, or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Purchaser.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Purchaser and constitutes a legal, valid and binding
agreement of the Purchaser, enforceable against the Purchaser in accordance with
its terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights in general and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law.
SECTION 4.04. GOVERNMENTAL APPROVALS, ETC. Other than compliance by the
Company and the Purchaser with the requirements of the HSR Act, no order,
authorization, approval or consent from, or filing with, any federal or state
governmental or public body or other authority having jurisdiction over the
Purchaser is required for the execution, delivery and performance of this
Agreement or is necessary in order to ensure the legality, validity, binding
effect or enforceability of this Agreement.
SECTION 4.05. LITIGATION RELATING TO TRANSACTION. There are no actions,
suits, proceedings or claims pending before any court, arbitrator or government
agency against or affecting the Purchaser which might enjoin or prevent the
consummation of the transactions contemplated by this Agreement.
SECTION 4.06. BROKERS' OR FINDERS' FEES. All negotiations relative to
this Agreement and the transactions contemplated hereby have been carried out by
the Purchaser directly with the Selling Securityholders, without the
intervention of any person on behalf of the Purchaser in such manner as to give
rise to any claim by any person against any of the Selling Securityholders for a
finder's fee, brokerage commission or similar payment.
V.
COVENANTS
SECTION 5.01. CERTAIN COVENANTS OF THE SELLING SECURITYHOLDERS. (a)
Upon prior notice and at reasonable times, between the date hereof and the
Closing Date, the Selling Securityholders shall, and shall cause the Company to,
provide access to representatives of the Purchaser to the financial,
9
<PAGE>
accounting and legal records of the Company, and to key employees of the
Company designated by the Purchaser, and, in connection therewith, shall
permit representatives of the Purchaser to visit the premises of the Company.
Such activities shall be performed, so far as is reasonably possible, in such
a manner as to avoid disruption of normal operations.
(b) Between the date hereof and the Closing Date, none of the Selling
Securityholders nor any affiliate of any of the Selling Securityholders shall
enter into any transaction, make any agreement or commitment, or take any
action, which would result in any of the representations, warranties or
covenants of the Selling Securityholders contained in this Agreement not being
true and correct at and as of the time immediately after the occurrence of such
transaction, event or action.
VI.
CONDITIONS PRECEDENT
SECTION 6.01. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER.
The obligation of the Purchaser to consummate the transactions contemplated by
this Agreement is subject, at the option of the Purchaser, to the satisfaction
at or prior to the Closing Date of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Selling Securityholder contained in this Agreement or in any
certificate or document delivered to the Purchaser pursuant hereto shall be true
and correct on and as of the Closing Date as though made at and as of that date,
and each Selling Securityholder shall have so certified to the Purchaser in
writing.
(b) COMPLIANCE WITH COVENANTS. Each Selling Securityholder shall have
performed and complied with all terms, agreements, covenants and conditions of
this Agreement to be performed or complied with by it at or prior to the Closing
Date, and each Selling Securityholder shall have so certified to the Purchaser
in writing.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All proceedings to be taken by
the Selling Securityholders and the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Purchaser and its counsel, Davis Polk
& Wardwell, and the Purchaser and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
10
<PAGE>
(d) HSR ACT; CONSENTS AND APPROVALS. The applicable waiting period
under the HSR Act with respect to the transactions contemplated hereby shall
have expired or been terminated, and all authorizations, consents, waivers
and approvals required in connection with the execution, delivery and
performance of this Agreement shall have been duly obtained and shall be in
form and substance satisfactory to counsel for the Purchaser.
(e) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding shall
have been instituted by any party or threatened by any governmental department,
agency or authority, in either case seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated hereby or
which would, if adversely decided, materially adversely affect the operation by
the Purchaser of the business of the Company.
(f) MERGER AGREEMENT. The Merger Agreement shall have been executed and
delivered by the parties thereto, and the transactions contemplated thereby
shall have been consummated.
(g) SUPPORTING DOCUMENTS. On or prior to the Closing Date, the
Purchaser and its counsel shall have received copies of the following supporting
documents:
(1) (A) the Certificate of Incorporation of the Company
certified as of a recent date by the Secretary of State of the State of
Delaware and (B) a certificate of the Secretary of State of the State
of Delaware as to the due incorporation and existence of the Company
and listing all documents on file with said official;
(2) a certificate of the Secretary or an Assistant Secretary
of the Company, dated the Closing Date and certifying (A) that attached
thereto is a true and complete copy of the By-laws of the Company as in
effect on the date of such certification; and (B) that the Certificate
of Incorporation of the Company has not been amended since the date of
the last amendment referred to in the certificate delivered pursuant to
clause (1) (B) above; and
(3) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchaser or its counsel may reasonably request.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
SECTION 6.02. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE SELLING
SECURITYHOLDERS. The obligations of the Selling Securityholders under this
Agreement are subject, at the option
11
<PAGE>
of the Selling Securityholders, to the satisfaction at or prior to the
Closing Date of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchaser contained in this Agreement or in any certificate or
document delivered to the Selling Securityholders pursuant hereto shall be true
and correct on and as of the Closing Date as though made at and as of that date
and the Purchaser shall so certified to the Selling Securityholders in writing.
(b) COMPLIANCE WITH COVENANTS. The Purchaser shall have performed and
complied with all terms, agreements, covenants and conditions of this Agreement
to be performed or complied with by it at or prior to the Closing Date, and the
Purchaser shall have so certified to the Selling Securityholders in writing.
(c) CONSENTS AND APPROVALS. The applicable waiting period under the HSR
Act with respect to the transactions contemplated hereby shall have expired or
been terminated and all authorizations, consents, waivers and approvals required
in connection with the execution, delivery and performance of this Agreement
shall have been duly obtained and shall be in form and substance satisfactory to
counsel for the Selling Securityholders.
(d) LEGAL ACTIONS OR PROCEEDINGS. No legal action or proceeding shall
have been instituted by any party or threatened by any governmental department,
agency or authority, in either case seeking to restrain, prohibit, invalidate or
otherwise affect the consummation of the transactions contemplated hereby or
which would, if adversely decided, materially adversely affect the operation by
the Purchaser of the business of the Company.
(e) MERGER AGREEMENT. The Merger Agreement shall have been executed and
delivered by the parties thereto, and the transactions contemplated thereby
shall have been consummated.
VII.
MISCELLANEOUS
SECTION 7.01. EXPENSES, ETC. (a) All costs and expenses, including fees
and disbursements of counsel, financial advisors, accountants and consultants,
incurred in connection with the negotiation, preparation, execution and delivery
of this Agreement and the closing of the transactions contemplated hereby, shall
be paid by the party incurring such expenses.
(b) The Selling Securityholders, on the one hand, and the Purchaser, on
the other hand, will indemnify the other and
12
<PAGE>
hold it or them harmless from and against any claims for finders' fees or
brokerage commissions in relation to or in connection with such transactions
as a result of any agreement or understanding between such indemnifying party
and any third party.
SECTION 7.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by any party hereto in this Agreement or
pursuant hereto shall survive the Closing Date hereunder.
SECTION 7.03. EXECUTION IN COUNTERPARTS. For the convenience of the
parties, this Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 7.04. NOTICES. All notices which are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if (i) delivered personally, (ii) mailed by
registered or certified mail, return receipt requested and postage prepaid,
(iii) sent via a nationally recognized overnight courier service or (iv) sent
via facsimile confirmed in writing to the recipient, in each case as follows:
if to the Company, to:
World Financial Network Holding
Corporation
4590 East Broad Street
Columbus, Ohio 43213
Attention:
if to the Purchaser, to:
Limited Commerce Corp.
c/o The Limited, Inc.
Three Limited Parkway
Columbus, Ohio 43230
Attention:
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention:
if to any Selling Securityholder, to the address appearing under the
name of such Selling Securityholder on Schedule I or II hereto;
13
<PAGE>
or such other address or addresses as the Selling Security-holders, on the
one hand, or the Purchaser, on the other hand, shall have designated by
notice in writing to the other.
SECTION 7.05. WAIVERS. Either the Selling Securityholders, on the one
hand, or the Purchaser, on the other hand, may, by written notice to the other,
(i) extend the time for the performance of any of the obligations or other
actions of the other under this Agreement, (ii) waive any inaccuracies in the
representations or warranties of the other contained in this Agreement or in any
document delivered pursuant to this Agreement, (iii) waive compliance with any
of the conditions or covenants of the other contained in this Agreement, or (iv)
waive performance of any of the obligations of the other under this Agreement.
Except as provided in the preceding sentence, no action taken pursuant to this
Agreement, including without limitation any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
SECTION 7.06. AMENDMENTS, SUPPLEMENTS, ETC. At any time this Agreement
may be amended or supplemented by such additional agreements, articles or
certificates, as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by all parties hereto.
SECTION 7.07. ENTIRE AGREEMENT. This Agreement, its Exhibits, Schedules
and Annexes and the documents executed on the Closing Date in connection
herewith, constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings, oral and written, between the parties hereto with respect to the
subject matter hereof.
SECTION 7.08. APPLICABLE LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
exclusive of the conflicts of laws provisions thereof.
SECTION 7.09. BINDING EFFECT; BENEFITS. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted as-
14
<PAGE>
signs. Notwithstanding anything contained in this Agreement to the contrary,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
SECTION 7.10. ASSIGNABILITY. Neither this Agreement nor any of the
parties' rights hereunder shall be assignable by any party hereto without
the prior written consent of the other parties hereto.
15
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the parties hereto as of the day and year first above written.
WORLD FINANCIAL NETWORK HOLDING
CORPORATION
By /s/ Ralph E.
------------------------------
Title
LIMITED COMMERCE CORP.
By
------------------------------
Title:
WELSH, CARSON, ANDERSON, STOWE VII, L.P.
By: WCAS VII Partners, L.P.,
General Partner
By
------------------------------
Title: General Partner
WCAS INFORMATION PARTNERS, L.P.
By: WCAS INFO Partners, L.P.
------------------------------
General Partner
By
-------------------------------
Title: General Partner
16
<PAGE>
WCAS CAPITAL PARTNERS II, L.P.
By: WCAS CP II Partners,
General Partner
By
-------------------------------
Title: General Partner
WCA MANAGEMENT CORPORATION
By
-------------------------------
Title:
------------------------------
Patrick J. Welsh
------------------------------
Russell L. Carson
-----------------------------
Bruce K. Anderson
-----------------------------
Richard H. Stowe
----------------------------
Andrew M. Paul
------------------------------
Thomas E. McInerney
17
<PAGE>
------------------------------
Laura VanBuren
------------------------------
James B. Hoover
------------------------------
Robert A. Minicucci
------------------------------
Anthony J. deNicola
-------------------------------
David Bellet
18
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Price of
Name and Address of Common Common
Selling Securityholder Shares Shares
- ---------------------- --------- ------------
<S> <C> <C>
Welsh, Carson, Anderson & 19,531,348 $19,531,348
Stowe VII, L.P.
WCAS Information Partners, 81,440 $81,440
L.P.
WCA Management Corporation 14,252 $14,252
Patrick J. Welsh 122,160 $122,160
Russell L. Carson 93,656 $93,656
Bruce K. Anderson 203,600 $203,600
Richard H. Stowe 61,080 $61,080
Andrew M. Paul 40,720 $40,720
Thomas E. Mclnerney 61,080 $61,080
Laura VanBuren 4,072 $4,072
James B. Hoover 8,144 $8,144
Robert A. Minicucci 40,720 $40,720
Anthony J. deNicola 16,288 $16,288
David Bellet (DLJSC as 81,440 $81,440
Custodian for the IRA FBO
David F. Bellet)
c/o Welsh, Carson, Anderson
& Stowe
320 Park Avenue, Suite 2500
New York, NY 10022-6815
---------- -----------
TOTAL: 21,788,572 $21,788,572
========== ===========
</TABLE>
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Principal Purchase
Amount of Price of Purchase
Name and Address of Subordinated Subordinated Common Price of
Selling Securityholder Note Note Shares Common Shares
- ---------------------- ------------ ------------ ----------- -------------------
<S> <C> <C> <C> <C>
WCAS Capital Partners $20,000,000 $18,571,428 1,428,572 $ 1,428,572
II L.P.
320 Park Avenue, Suite 2500
New York, NY 10022-6815
</TABLE>
<PAGE>
Exhibit 10.35
AMENDED AND RESTATED LICENSE TO USE
THE AIR MILES TRADE MARKS IN CANADA
BETWEEN
AIR MILES INTERNATIONAL HOLDINGS N.V.
AND
LOYALTY MANAGEMENT GROUP CANADA INC.
July 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1 DEFINITIONS...............................................................................................................2
2 LICENSE...................................................................................................................6
3 SUB-LICENSE RIGHTS........................................................................................................8
4 STANDARDS OF QUALITY......................................................................................................9
5 USE OF THE MARKS.........................................................................................................10
6 USE OF LMGC MARKS........................................................................................................11
7 ASSIGNMENT OF CANADIAN MARKS.............................................................................................11
8 ROYALTIES................................................................................................................12
9 REGISTRATION AND RENEWALS................................................................................................13
10 REPRESENTATIONS AND WARRANTIES...........................................................................................13
10.1 AMIH Warranties.............................................................................................13
10.2 LMGC Warranties.............................................................................................14
11 TITLE AND GOODWILL.......................................................................................................15
12 INDEMNITY................................................................................................................16
13 INFRINGEMENT.............................................................................................................16
14 DURATION AND TERMINATION.................................................................................................17
15 NON-COMPETITION..........................................................................................................19
16 ASSIGNMENT/SUCCESSORS....................................................................................................19
17 NOTICES..................................................................................................................20
18 CONFIDENTIALITY..........................................................................................................22
19 DISPUTE RESOLUTION.......................................................................................................22
19.1 General.....................................................................................................22
19.2 Negotiations between Executives.............................................................................22
19.3 Binding Arbitration.........................................................................................23
19.4 Expedited Binding Arbitration...............................................................................26
20 MISCELLANEOUS............................................................................................................26
20.1 Name, Captions..............................................................................................26
20.2 Entire Agreement and Relationship Between the Parties.......................................................26
20.3 Amendments..................................................................................................27
20.4 Severability................................................................................................27
20.5 Specific Performance / Injunctive Relief....................................................................27
20.6 Remedies Cumulative.........................................................................................27
20.7 No Waiver...................................................................................................28
20.8 Further Assurances..........................................................................................28
20.9 Extended Meanings...........................................................................................28
20.10 No Third Party Beneficiaries................................................................................28
20.11 Counterparts................................................................................................28
20.12 No Liability of Shareholders................................................................................28
20.13 Statutory References........................................................................................29
20.14 Business Day Payments.......................................................................................29
20.15 References..................................................................................................29
20.16 Currency....................................................................................................29
20.17 Schedules...................................................................................................29
20.18 Limitation of Liability.....................................................................................30
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
<S> <C> <C>
20.19 Time of the Essence.........................................................................................30
20.20 Costs and Expenses..........................................................................................30
20.21 Excusable Delays............................................................................................30
20.22 Governing Law and Attornment................................................................................31
</TABLE>
<PAGE>
AMENDED AND RESTATED LICENSE TO USE THE AIR MILES TRADE MARKS
IN CANADA
THIS AGREEMENT is dated the 24th day of July, 1998 between AIR
MILES INTERNATIONAL HOLDINGS N.V. of Landhuis Joonchi, Kaya Richard J. Beaujon
z/n, P.O. Box 837, Curacao, Netherlands Antilles ("AMIH") and LOYALTY MANAGEMENT
GROUP CANADA INC., whose registered office is located at 4110 Yonge Street,
Suite 200, North York, Ontario, Canada ("LMGC");
WHEREAS the Parties entered into the License Agreement and the
Intellectual Property License on December 17, 1992; and
WHEREAS throughout the term of that License Agreement AMIH and LMGC
were related companies; and
WHEREAS Alliance Data Systems Corporation has agreed to purchase
all of the shares of LMGC pursuant to the Share Purchase Agreement and such
transaction is intended to close on the date hereof; and
WHEREAS certain of the Canadian Marks have been used by LMGC in the
Territory since at least as early as December 17, 1992 pursuant to the License
Agreement; and
WHEREAS the Parties are desirous of amending the terms of the
License Agreement and have, for simplicity, agreed to enter into this Agreement;
and
WHEREAS AMIH is entitled to grant the licenses herein to LMGC and
is willing to license and allow LMGC to use the AMIH Marks and adopt the
Licensed Names in the Territory on the terms and conditions set out in this
Agreement.
NOW THEREFORE, in consideration of the business relationship
between the Parties, the mutual covenants contained herein, and other good and
valuable consideration (the receipt and sufficiency of which are acknowledged by
the Parties), the Parties here to agree that the License Agreement is hereby
amended and restated as follows:
<PAGE>
-2-
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
"AFFILIATE" means a Person directly or indirectly controlling,
controlled by or under common control with a party.
"AIR MILES DEVICE" means the design mark as depicted in Canadian
Trademark Registration No. 398,882.
"AGREEMENT" means this License Agreement including any recitals and
schedules to this agreement, as amended, supplemented or restated in writing
from time to time.
"AMIH MARKS" means the Canadian Marks and the Non-Canadian Marks
collectively.
"BANKRUPTCY" shall be considered to occur in respect of a Party if:
(i) any voluntary proceeding is commenced (by the filing of
any originating process, notice or assignment or
otherwise) by the Party pursuant to an Insolvency Act;
(ii) any proceeding is commenced (by the filing of any
originating process or otherwise) against the Party
pursuant to an Insolvency Act, and
(a) such proceeding is not contested,
diligently and on a timely basis, by that
Party,
(b) Bankruptcy occurs in respect of that Party
within the meaning of any other paragraph
of this definition during the contestation
of such proceeding, or
(c) such proceeding is not dismissed, withdrawn
or permanently stayed within sixty (60)
days of commencement;
(iii) any voluntary proceeding is commenced (by the filing
of any originating process or notice or otherwise) by
or respecting a Party pursuant to the corporate or
company statute under which Party is organized from
time to time or any other statute of any relevant
jurisdiction which is not an Insolvency Act seeking
any stay of creditor remedies or moratorium,
compromise, arrangement, adjustment, extension or
reorganization of debts or other liabilities;
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(iv) any voluntary or other proceeding is commenced (by the
filing of any originating process or notice or
otherwise) by or against the Party seeking appointment
(provisional, interim or permanent) of a receiver,
manager, receiver and manager, trustee, sequestrator,
custodian, liquidator or Person with like or comparable
powers for that Party or for all or substantially all
of its property, assets and undertaking, and
(a) such proceeding is not contested,
diligently and on a timely basis, by that
Party;
(b) Bankruptcy occurs in respect of that Party
within the meaning of any other paragraph
of this definition during the contestation
of such proceeding, or
(c) such proceeding is not dismissed, withdrawn
or permanently stayed within sixty (60)
days of commencement;
(v) any secured creditor of the Party takes possession or
control (actual or constructive) of, or appoints any
agent, receiver, manager, receiver and manager or
Person with like or comparable powers in respect of,
that Party or all or substantially all of its property,
assets and undertaking; or
(vi) a majority of the directors or shareholders of the
Party voting thereon pass or ratify any resolution (A)
except as part of a bona fide corporate
reorganization, for its liquidation, winding up or
dissolution, (B) to authorize any voluntary proceeding
by or in respect of that Party described above or (C)
to consent to or refrain from contesting any
proceeding or step against or in respect of that Party
or its property, assets or undertaking described
above.
"BUSINESS" means the business carried on by LMGC in connection with
which the Canadian Marks are used.
"BUSINESS DAY" means any day of the year, other than a Saturday,
Sunday or any day on which the banks are required or authorized to close in
Toronto, Ontario, Canada.
"CANADIAN MARKS" means the Marks owned by AMIH or its Affiliates
whether pending or registered in accordance with the Canadian Trade-Marks Act,
from time to time, particulars of which are set out in Schedule 1 hereof and as
such Schedule may be updated by agreement of the Parties and/or those Marks
owned by AMIH or its Affiliates and used in the Territory by AMIH or its
licensees in association with the Programme from time to time (and as such Marks
may be modified or supplemented by agreement of the Parties), excluding the LMGC
Marks.
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"CATEGORY" means the business sector granted to a Sponsor within
the Territory.
"CONCURRENT USE AGREEMENT" means the Concurrent Use Agreement
between AMIH, Air Miles International Trading B.V., Air Miles Travel Promotions
Limited, Loyalty Management Group Inc., LMGC and AMI Funding, Inc. entered into
as of the 13th day of May, 1994, as amended, supplemented or restated in writing
from time to time.
"INCLUDING" The terms "include", "including" and "such as" are
illustrative and not limitative and shall be interpreted to mean "including
without limitation
"INSOLVENCY ACT" means the Bankruptcy and Insolvency Act (Canada),
the Companies' Creditors Arrangement Act (Canada), the Winding-up Act (Canada)
or any other statute of any relevant jurisdiction relating to bankruptcy,
insolvency, stay of creditor remedies, moratorium, compromise, arrangement,
extension, adjustment or reorganization of debts or other liabilities,
liquidation, winding up or dissolution.
"INTELLECTUAL PROPERTY LICENSE" means the Licence to Use and
Exploit the Air Miles Scheme in Canada Agreement between Air Miles International
Trading B.V. and LMGC, as amended by Amendment No. 1 dated 13th day of May, 1994
and as amended and restated in the amending agreement of even date, and as
amended, supplemented or restated in writing from time to time.
"INTERNIC REGISTRATION RIGHTS" means all rights associated with the
registration of a Mark, being a domain name or URL with InterNIC or any other
entity now or hereafter serving a domain name registration function with respect
to any jurisdiction, including the Territory.
"LICENSE AGREEMENT" means the Licence to Use the Air Miles Trade
Marks in Canada agreement between AMIH and LMGC dated December 17, 1992, as
amended by Amendment No. 1 dated 13th day of May, 1994.
"LICENSED NAME" means any corporate name, trading style and/or
business name of LMGC or its Affiliates which is or includes any Canadian Mark.
"LMGC MARKS" means the Marks owned by LMGC or its Affiliates
whether pending or registered in accordance with the Canadian Trade-Marks Act,
from time to time, particulars of which are set out in Schedule 2 hereof and as
such Schedule may be updated and/or those Marks developed, owned and used by
LMGC or its Affiliates or sub-licensees in the Territory from time to time (and
as such Marks may be modified or supplemented).
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"MARK" means any name, brand, mark, trade mark, trade dress, trade
name, business name, Uniform Resource Locator ("URL"), domain name or other
indicia of origin.
"MARKETING SPECIFICATIONS" means AMIH's reasonable standards and
guidelines as of the date of this Agreement relating to the permitted use,
depiction, graphic display, marketing, advertising and promotion of any of the
AMIH Marks and any Licensed Name in association with the Programme, as they may
be amended, modified or supplemented from time to time in accordance with this
Agreement, which shall be reflected in writing.
"MASTER SPECIFICATIONS" means the applicable Quality Specifications
and Marketing Specifications for the Programme.
"NON-CANADIAN MARKS" means the registered or common law trade marks
and service marks subsisting outside the Territory comprising or including the
words Air Miles or the Air Miles Device and which are owned or used by AMIH or
any of its Affiliates, licensees, successors or assignees.
"PARTY" means either AMIH or LMGC; and "PARTIES" means AMIH and
LMGC collectively.
"PERSON" includes an individual, a legal personal representative,
corporation, company, body corporate, partnership, limited partnership, joint
venture, syndicate, trust, unincorporated organization, the Crown or any agency
or instrumentality thereof, regulatory authority or any other entity recognized
by law, howsoever designated or constituted.
"PROGRAMME" means any program(s) or business(es) that involve(s)
three (3) or more sponsoring companies in any product or service category or
industry and which offer(s), only entitled members with addresses in the
Territory or any other geographic region in which LMGC or any of its Affiliates
has a license from AMIH to similar effect to this Agreement, airline seats,
airline miles, airline or any other services, awards or value of any nature
(whether or not by virtue of exchanging, converting or redeeming coupons,
tickets, points or other tangible or intangible rights) in connection with the
purchase of goods or services of any party and which operates for more than
three (3) months duration and the operation of travel agency services.
"QUALITY SPECIFICATIONS" means AMIH's reasonable specifications as
of the date of this Agreement relating to the standards of the wares or services
bearing the Canadian Marks for the Programme, as they may be amended, modified
or supplemented from time to time in accordance with this Agreement, which shall
be reflected in writing.
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"RELATED AGREEMENTS" means collectively, the Intellectual Property
License, and the Concurrent Use Agreement.
"SHARE PURCHASE AGREEMENT" means the agreement for the purchase of
all the shares of LMGC made as of June 26, 1998, as amended in writing from time
to time, among Alliance Data Systems Corporation and each of the shareholders of
LMGC at that date.
"SPONSORS" means those businesses participating in the Programme in
conjunction with the offer of wares or services to consumers within the
Territory and includes the Suppliers.
"SUPPLIERS" means those businesses offering wares or services in
connection with exchanges, conversions or redemptions under the Programme.
"TERRITORY" means the current geographic area and territory of
Canada at the date of this Agreement.
"THIRD PERSON" means any Person other than AMIH and its Affiliates
and LMGC and its Affiliates.
ARTICLE 2
LICENSE
2.1 AMIH hereby grants to LMGC, subject to the terms of this Agreement, an
exclusive right and license to use the Canadian Marks in the Territory in
association with the Programme only and the marketing, advertising and promotion
thereof in any media in the Territory or any other geographic region in which
LMGC or any of its Affiliates has a license from AMIH to similar effect to this
Agreement, including the right to sub-license the use of the Canadian Marks in
the Territory in accordance with the provisions of this Agreement. Provided that
LMGC's use of a NonCanadian Mark in the Territory in association with the
Programme would not violate the rights of any Third Person (which has not
obtained such rights from or through AMIH or an Affiliate), AMIH hereby grants
to LMGC, subject to the terms of this Agreement, an exclusive right and license
effective from the date hereof to use the Non-Canadian Marks in the Territory in
association with the Programme only, including the right to sub-license the use
of such Non-Canadian Marks in the Territory in accordance with the provisions of
this Agreement. Except as provided in Article 2.3 herein, AMIH agrees not to
license to anyone else the right to use a Non-Canadian Mark in the Territory.
The exclusivity of the license is subject to the rights of AMIH, its Affiliates,
successors and assignees together with their respective licensees and
sub-licensees mentioned in Articles 2.3 and 2.4 hereafter.
2.2 AMIH hereby grants a non-exclusive right to LMGC, with a right to
sub-license its applicable Sponsors and sub-licensees, for and further agrees
that it will
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not and will ensure that its Affiliates, successors, assignees or any of their
licensees or sub-licensees will not object to the use of the AMIH Marks outside
the Territory by such of the Sponsors as provide travel or entertainment related
services for business and other travellers including, for the avoidance of
doubt, airline, car rental and/or hotel services and/or by LMGC and/or by LMGC's
applicable sub-licensees only in connection with the provision of travel or
entertainment related services including, for the avoidance of doubt, airline,
car rental and/or hotel services to the extent only that such use is incidental
to the operation of the Programme in the Territory. LMGC shall not itself have
any other right to use the AMIH Marks outside the Territory. LMGC's right to use
of the AMIH Marks outside the Territory shall include the right to display, for
the purposes of promotion and advertisement, such Marks including on or through
the World Wide Web on the Internet or through other electronic media.
2.3 Notwithstanding Article 2.1 LMGC shall not object to the use of the AMIH
Marks by AMIH, its Affiliates, successors and assignees together with their
respective licensees and sub-licensees in the Territory only in connection with
the provision of travel or entertainment related services including, for the
avoidance of doubt, airline, car rental and/or hotel services to persons
providing travel or entertainment related services for business and other
travellers, to the extent only that such use is incidental to the rights of
AMIH, its Affiliates, successors and assignees together with their respective
licensees or sub-licensees to carry out activities in connection with the
operation of sales promotion and/or incentive or loyalty schemes outside of the
Territory.
2.4 AMIH, its Affiliates, successors and assignees may use the Canadian Marks in
the Territory for the purposes of promoting their activities to issuers or
potential issuers of points, credits, vouchers or other incentives in connection
with the operation of sales promotion and/or incentive or loyalty schemes
conducted outside the Territory. In so doing, AMIH, its Affiliates, successors
and assignees must cooperate with LMGC with respect to the promotion of the
Business. LMGC, its Affiliates, successors and assignees may use the
Non-Canadian Marks outside of the Territory for the purposes of privately
promoting their activities to issuers or potential issuers of points, credits,
vouchers or other incentives in connection with the operation of sales promotion
and/or incentive or loyalty schemes conducted in the Territory, but shall not
make such advertisements or promotion to the public in general.
2.5 Subject to this Agreement, AMIH reserves the right to use and license the
use of the AMIH Marks outside the Territory, whether in connection with sales
promotion and incentive schemes similar to the Programme or otherwise.
2.6 The Parties agree that the Concurrent Use Agreement shall not be amended or
terminated during the term of this Agreement without the prior written consent
of the Parties.
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ARTICLE 3
SUB-LICENSE RIGHTS
3.1 AMIH acknowledges that LMGC has entered into sub-licensing arrangements with
a number of Sponsors that are currently participating in the Programme. AMIH
confirms that the terms and conditions of such sub-licenses are acceptable to
it.
3.2 AMIH agrees that LMGC may grant additional or amended non-exclusive sub-
licenses to the same or other Sponsors to use the Canadian Marks in the
Territory in connection with the Programme only, with or without exclusivity in
the relevant Category. If the terms and conditions of such sub-licenses are
consistent with the terms and conditions of the current sub-license arrangements
with the current Sponsors, AMIH hereby grants its consent to such sub-licenses.
If the terms and conditions of such sub-licenses are not consistent with the
current sub-license arrangements, LMGC shall submit to AMIH a copy of each such
license agreement and AMIH shall provide written notice of any objections
thereto within ten (10) Business Days, failing which AMIH shall be deemed to
have consented to such sub-license arrangement. In any event, AMIH's consent to
such sub-licenses shall not be unreasonably withheld.
3.3 AMIH agrees that LMGC may agree in such sub-license agreements as mentioned
under Article 3.2 with such Sponsors that neither AMIH nor their Affiliates,
successors, assignees, licensees or sub-licensees will object to the use by such
Sponsors of the AMIH Marks outside the Territory only to the extent that such
use is in accordance with the rights granted in Article 2.2 above.
3.4 It shall be a term of all sub-licenses granted pursuant to Article 3.2 above
that the Sponsors undertake not to engage in any advertising or promotion
outside the Territory for the Programme or the participation of the Sponsors in
the Programme PROVIDED ALWAYS that incidental references to the participation of
the Sponsors in the Programme in the Territory may be made in promotional
materials such as brochures outside the Territory incidental to the distribution
inside the Territory provided that any use of the Marks in such promotional
materials shall clearly indicate that the Sponsors participate in the Programme
in the Territory and that the Programme is only open to entitled members with
addresses in the Territory.
3.5 In this Agreement, where LMGC agrees to ensure that all sub-licensees of the
AMIH Marks appointed by LMGC comply with an obligation, this means:
(i) LMGC shall impose a contractual obligation on the
sub-licensees to observe such obligations; and
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(ii) where LMGC becomes aware of any non-compliance by any
sub-licensee with any such obligation, LMGC shall use
reasonable efforts to ensure that such sub-licensee
complies with such obligation.
3.6 The Parties acknowledge that Licensee has no obligation to (but may) amend
any agreement with any existing Sponsor and that any and all such agreements
with any Sponsors remain unaffected hereby.
3.7 For greater clarity, LMGC may sub-license its rights hereunder to an
Affiliate to the extent considered by LMGC, acting reasonably, advisable for the
operation of travel agency services in the Territory.
ARTICLE 4
STANDARDS OF QUALITY
4.1 In using the AMIH Marks hereunder LMGC shall comply so far as it is capable
of doing so and shall ensure that all sub-licensees of the AMIH Marks appointed
by LMGC comply so far as they are capable of doing so in the manufacturing and
distribution, advertising, marketing and promotion of wares and services under
the AMIH Marks in relation to the Programme with all applicable laws in force in
the Territory and all other countries in which sub-licensees appointed by LMGC
use the AMIH Marks in the manufacture and distribution, advertising, marketing
and promotion of wares or services under such AMIH Marks in relation to the
Programme.
4.2 In using the AMIH Marks here under, LMGC shall and shall cause its sub-
licensees to meet the Master Specifications, provided that:
(i) AMIH hereby confirms that LMGC and, to AMIH's
knowledge, LMGC's sub- licensees have prior to the
signing of this Agreement met all material Master
Specifications set by it;
(ii) subject to Article 4.2(iii) below, on an ongoing basis,
the Master Specifications are the Master Specifications
as of the date of this Agreement; and
(iii) the Master Specifications may be amended, modified
or supplemented from time to time by AMIH, provided
that LMGC consents to the changes in such Master
Specifications and is provided with a reasonable
period of time to comply with such changes. LMGC will
have a period of ninety (90) days to rectify any breach
of the Master Specifications after receipt from AMIH of
notice of such breach, providing particulars of such
breach. Any extension of the cure period may be
mutually agreed upon by the Parties, acting reason
ably, taking into account primarily the materiality and
nature of the breach and the
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impact of the breach on AMIH's rights in the AMIH
Marks and otherwise what would be a reasonable time
within which to effect a cure and any reasonable
efforts LMGC is making to meet the Master
Specifications. LMGC will not be in breach of this
Agreement if it is meeting most of the Master
Specifications and is taking reasonable steps to meet
the balance of the Master Specifications, any failure
to comply with any Master Specification does not
negatively impact customer perceptions of quality or
negatively affect any of AMIH's rights in the AMIH
Marks and/or are not material to customer perceptions.
If a dispute arises between AMIH and LMGC as to the
materiality of a breach of the Master Specifications,
the matter will be resolved pursuant to .
ARTICLE 5
USE OF THE MARKS
5.1 LMGC shall be entitled to use any or all of the Canadian Marks including the
words Air Miles as or as part of the Licensed Name(s) of LMGC or any of its
Affiliates incorporated in the Territory provided that it is legally able to do
so.
5.2 LMGC may use any URL featuring any or part of the Canadian Marks including
the words Air Miles and may use a domain name featuring any or part of the
Canadian Marks including the words Air Miles including for any Internet-based
products or services that LMGC offers as part of or in furtherance of the
Programme, providing such URL or domain name includes an identifier of the
Territory. LMGC's website accessed through such domain name must also identify
the Territory. LMGC may own any InterNlC Registration Rights therein in its sole
discretion.
5.3 AMIH and LMGC agree to consider in good faith any incidents of actual
confusion or circumstances giving rise to a reasonable apprehension of confusion
between the operation of the Programme by LMGC and/or its sub-licensees of the
AMIH Marks and the activities of AMIH and their respective Affiliates and/or
licensees under the AMIH Marks which may come to the attention of either Party
and the Party responsible for such incidents of confusion or circumstances shall
take reasonable steps to ensure that similar confusion or potential confusion
does not arise in the future.
5.4 Where LMGC becomes aware of a material or persistent breach, that materially
affects the rights of AMIH, of the terms of any sub-license by a sub-licensee of
the AMIH Marks appointed by LMGC and such breach continues for at least sixty
(60) days after LMGC has given notice requiring the breach to be remedied LMGC
shall by means of an escalating course of discipline culminating in termination
assert the rights legally available to it to ensure compliance with the
provisions of such sub-license agreement.
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5.5. Where LMGC becomes aware of a challenge to the validity of, or entitlement
of LMGC to use or license any of the AMIH Marks by a sub-licensee of the AMIH
Marks appointed by LMGC, LMGC shall by means of an escalating course of
discipline culminating in termination assert the rights legally available to it
to ensure compliance with the provisions of such sub-licensee's sub-license in
relation to such AMIH Marks.
ARTICLE 6
USE OF LMGC MARKS
6.1 LMGC may use, continue to use and adopt any LMGC Marks in respect of any
wares and services including in relation to the Programme and in association
with any of the Canadian Marks. LMGC may register any LMGC Marks in the
Territory in respect of any wares and services including in relation to the
Programme. LMGC may associate intellectual property belonging to a Third Person
with the Canadian Marks or Licensed Name. LMGC may co-mingle the LMGC Marks with
the Canadian Marks and Licensed Name. Further, any Marks which are developed
after the date hereof by LMGC and which are not confusingly similar to AMIH
Marks shall be owned by LMGC and AMIH and/or any of its Affiliates shall not
have any ownership rights whatsoever therein and shall not use, adopt or
register such Marks (in any jurisdiction where they would be registrable by
LMGC) in the world. None of the foregoing shall permit LMGC to do anything which
would impair any of the rights of AMIH in the AMIH Marks in the Territory.
6.2 LMGC may provide services and distribute wares and invest in businesses or
non-commercial enterprises under the LMGC Marks.
ARTICLE 7
ASSIGNMENT OF CANADIAN MARKS
7.1 If AMIH wishes to assign or transfer the Canadian Marks, either directly or
indirectly by or through AMIH or AMIH's Bankruptcy, other than to an Affiliate,
no such assignment or transfer shall be effective unless AMIH provides LMGC
notice of its intention to do so and gives LMGC thirty (30) days written notice
within which to bid on such Canadian Marks for the purposes of owning either
directly or indirectly such Canadian Marks. The foregoing provision shall not,
in any way, obligate AMIH to accept any bid which LMGC submits. Any such
assignee or transferee must be bound in writing by the grant of the license set
out in this Agreement.
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ARTICLE 8
ROYALTIES
8.1 (i) In accordance with the practice actually used for the payment of
Royalties under the License Agreement for the fiscal year of LMGC ended April
30, 1998, LMGC shall pay to AMIH as license fee royalties calculated as a
percentage of all gross sums received by LMGC in respect of the sale,
redemption, distribution or issue of Air Miles travel miles ("AMTM") or Air
Miles awards, including:
(a) all sums received from Sponsors in connection with the
issuance of AMTM or in lieu of payments therefor (such
as participation and/or exclusivity fees);
(b) all sums received from Sponsors for services;
(c) all commissions or other income received by LMGC in
respect of the sale of travel services; and
(d) all sums received from the sale of promotional items
and/or any other activity involving the use of the AMIH
Marks
but excluding amounts received as co-operative marketing fees or for
reimbursement of expenses.
(ii) The percentage referred to above shall be 0.100%.
8.2 LMGC shall, within fourteen (14) days after the end of each fiscal quarter,
in accordance with past practise as of April 30, 1998, prepare and submit to
AMIH a statement setting out the sums received by LMGC as set out Article 8.1
above and the amount of royalty due in respect of the immediately preceding
fiscal quarter. Royalties shall be due and payable at the time the statements
are submitted to AMIH and shall be paid net of all applicable taxes, including
Canadian non-resident withholding tax.
8.3 During the term of this Agreement and for three calendar years after its
termination AMIH and its duly authorized agents shall have the right upon
reasonable notice, to inspect during business hours on any Business Day all
relevant accounting records of LMGC for the purposes of verifying any royalties
paid or payable. If any inspection results in any finding of understatement or
overstatement, such balance will be settled forthwith by LMGC or AMIH
respectively.
8.4 LMGC shall keep all accounting records, relevant for the purposes of
calculating royalties payable to AMIH, during the term stated in Article 8.3.
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ARTICLE 9
REGISTRATION AND RENEWALS
9.1 AMIH shall, for so long as this Agreement remains in force, ensure that the
registrations of such of the Canadian Marks as are registered will be renewed as
and when they fall due for renewal. Subject to Article 11.4 solely, the costs of
the renewals or registrations and all expenses in relation to the Canadian Marks
incurred from the date hereof shall be paid in full by AMIH.
9.2 LMGC shall not and shall make reasonable efforts to ensure that all sub-
licensees of the AMIH Marks appointed by LMGC shall not use or register, in
respect of any relevant wares and/or services, any trade mark being the same or
confusingly similar to any of the AMIH Marks without the prior consent of AMIH.
9.3 AMIH shall if requested by LMGC make such further applications in the
Territory for the AMIH Marks as both Parties here to shall consider necessary or
desirable having in mind reasonable costs and expenses for the protection of
their trading activities and such Marks shall be licensed to LMGC in accordance
with the terms of this Agreement. AMIH shall bear the costs of such applications
and any subsequent registrations or renewals. Any trade-mark covered by such
application shall be deemed to be a Mark pursuant to this Agreement and shall be
added to the Canadian Marks. Nothing in the foregoing provision is intended to
prevent LMGC from itself applying to register trade-marks which LMGC uses or
otherwise adopts or intends to use or adopt provided that such trade-marks are
not confusingly similar to any of the AMIH Marks.
9.4 Should AMIH develop or own or be entitled to use any new Mark(s) which it
wishes to add to the Canadian Marks, it or they shall be so added after
consultation with LMGC and on terms and conditions acceptable to LMGC. In any
case, LMGC need not adopt any such additional Marks unless a reasonable
transition period is agreed to by the Parties for the adoption of such Marks.
Determinations that Marks are to be added to the Canadian Marks should be
reduced to writing and added to the list of Marks in Schedule 1 to this
Agreement.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 AMIH Warranties
AMIH hereby represents and warrants to LMGC as of the date of this
Agreement the following:
(i) AMIH has full power and authority to enter into and
perform this Agreement, including to grant the license
in Article 2 and to perform each and every covenant and
agreement herein contained;
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(ii) this Agreement has been duly authorized, executed and
delivered by AMIH and constitutes a valid, binding and
legally enforceable agreement of AMIH;
(iii) to the best of AMIH's knowledge and belief, the
execution and delivery of this Agreement, and the
performance of the covenants and agreements herein
contained, are not restricted by and do not conflict
with any material commercial arrangements, obligations,
contracts, agreements or instruments to which AMIH is
either bound or subject;
(iv) to the best of AMIH's knowledge and belief, AMIH's
performance of this Agreement will not contravene or
breach any laws or regulations of the Territory or of
any province or territory of the Territory which could
give rise to the imposition of a material fine, penalty
or sanction levied on LMGC by any applicable regulatory
authority in the Territory;
(v) AMIH has not granted any rights or licenses, which are
subsisting at the date hereof, to any of its Affiliates
or to any other Third Party to use the Canadian Marks
in the Territory save in the circumstances permitted in
Articles 2.3. and 2.4 above;
(vi) to the best of AMIH's knowledge and belief, the
registrations for the Canadian Marks are valid and
enforceable. AMIH is the sole and exclusive legal and
beneficial owner of all right, title and interest in
and to, or has valid title to use and license, all the
Canadian Marks that are material to the Programme. The
registrations for the Canadian Marks subsist on the
Canadian TradeMark Register;
(vii) except for the Concurrent Use Agreement, AMIH is not a
party to or bound by any contract or other obligation
whatsoever that limits or Impairs its ability to
license the Canadian Marks to LMGC; and
(viii) to the best of AMIH's knowledge and belief, LMGC is not
in breach of any term or condition of the License
Agreement.
10.2 LMGC Warranties
LMGC hereby represents and warrants to AMIH as of the date of this
Agreement the following:
(i) LMGC has full power and authority to enter into and
perform this Agreement and to perform each and every
covenant and agreement herein contained;
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(ii) this Agreement has been duly authorized, executed and
delivered by LMGC and constitutes a valid, binding and
legally enforceable agreement of LMGC;
(iii) to the best of LMGC's knowledge and belief, the
execution and delivery of this Agreement, and the
performance of the covenants and agreements herein
contained, are not restricted by and do not
conflict with any material commercial arrangements,
obligations, contracts, agreements or instruments to
which LMGC is either bound or subject; and
(iv) to the best of LMGC's knowledge and belief, LMGC's
performance of this Agreement will not contravene or
breach any laws or regulations of the Territory or of
any province or territory of the Territory which could
give rise to the imposition of a fine, penalty or
sanction by any applicable regulatory authority in the
Territory.
ARTICLE 11
TITLE AND GOODWILL
11.1 LMGC acknowledges that its sole right to use the AMIH Marks and any trade
marks confusingly similar thereto derives from this Agreement and that it does
not have any rights to use the AMIH Marks or any marks confusingly similar there
to save as provided herein. LMGC agrees to include in all sub-licenses an
acknowledgment by sub-licensees appointed by LMGC to use the AMIH Marks that
their sole right to use the AMIH Marks and any trade marks confusingly similar
thereto derives from such sub-license and that they do not have any rights to
use the AMIH Marks or any marks confusingly similar thereto save as provided
therein.
11.2 LMGC shall, if reasonably requested by AMIH from time to time and to the
extent practicable, for the protection of the AMIH Marks include and ensure that
any sub-licensees of the AMIH Marks appointed by LMGC within a reasonable period
of time include in advertisements in the press and elsewhere and on the goods or
labels or containers used in connection with the sale of the goods and/or the
provision of services under the AMIH Marks a notice to the effect that the AMIH
Marks and each of them are trade marks of AMIH or its successors in title.
11.3 All rights arising from the use by LMGC or its sub-licensees of the AMIH
Marks shall inure to the benefit of AMIH or its successors in title and all
goodwill symbolised by the AMIH Marks shall belong to and accrue to AMIH or its
successors in title.
11.4 The Parties acknowledge that use of the Canadian Marks by LMGC in the
Territory may be required to maintain the validity of the Canadian Marks. If
AMIH, acting reasonably, considers that any one of the Canadian Marks has not
been used
<PAGE>
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in the Territory in relation to the Programme, it shall be entitled to serve
notice on LMGC requesting brief details of any use of the relevant Canadian
Marks within the period of four years prior to the date of the notice or within
a period of three months after the date of the notice. If in the reasonable
opinion of AMIH, LMGC has not demonstrated that use of the relevant Canadian
Marks has taken place to the extent necessary to preserve and maintain the
validity of the said registration for the Canadian Marks and provided such
Canadian Marks are material to the Canadian business of LMGC, AMIH may, in its
sole discretion, require LMGC to make use of such Canadian Mark solely to the
extent required to maintain the registration of such Canadian Mark.
Notwithstanding the foregoing, AMIH has the option not to renew any registration
of such Canadian Mark if LMGC is not using such in the Territory.
ARTICLE 12
INDEMNITY
12.1 LMGC shall indemnify AMIH and hold it harmless and defend it from and
against all damage, including reasonable counsel fees, which AMIH may incur in
respect of all claims which may be made against AMIH (whether separately or as
joint defendants) arising out of the manufacture, packaging, or any other cause
relating to any wares sold and/or services provided by or on behalf of LMGC or
its sub-licensees under the AMIH Marks, except insofar as any such claim may be
found to arise from any omission or failure on the part of AMIH.
12.2 AMIH shall indemnify LMGC and hold it harmless and defend it from and
against all damages, including reasonable counsel fees, which LMGC may incur as
a result of any breach of warranties as stated in Article 10 with regard to the
Canadian Marks only or as a result of any Third Person during the term hereof
effectively prohibiting LMGC the use of the Canadian Marks only within the
Territory.
ARTICLE 13
INFRINGEMENT
13.1 The Parties agree to give each other prompt written notice of any
infringement or other similar action in or affecting the Territory by a Third
Person of the AMIH Marks known to them.
13.2 In the event of such infringement or other similar action, LMGC has the
obligation to protect any of the Non-Canadian Marks which LMGC has been using in
the preceding 12 month period and the Canadian Marks in the Territory and may
decide whether or not any action is necessary for such protection and what such
action might be, taking into account the interests of both Parties. LMGC has the
right to act in its own name or if necessary in the name of AMIH. For the term
of this Agreement AMIH hereby LMGC a power of attorney in the form attached
<PAGE>
-17-
hereto as Schedule 3 to act on its behalf if any action in or out of court in
connection with such actions is necessary. LMGC will select counsel, to which
AMIH has no reasonable objection and AMIH will provide reasonable assistance,
including by providing information, documents and things in response to
discovery requests, by providing at mutually convenient times witnesses for
discovery, depositions and trial testimony, and by permitting LMGC to cause AMIH
to be named as a party plaintiff or co-plaintiff in any litigation. All
expenses, including any expenses incurred by AMIH to provide such assistance,
shall be borne by LMGC and LMGC shall be entitled to any amounts awarded to LMGC
or AMIH. LMGC shall not enter into any settlement of such actions without the
written consent of AMIH, which consent shall not be unreasonably withheld.
13.3 If any action or proceeding is brought or asserted by LMGC, under the
authority granted to it under Article 13.2, LMGC will promptly notify AMIH in
writing. AMIH may assume and direct the action or proceeding only provided that
LMGC initiates no action or takes no action in such action or proceeding. Upon
assumption of the action or proceeding by AMIH, all expenses shall be borne by
AMIH and AMIH shall be entitled to any amounts awarded to LMGC or AMIH. AMIH
shall not enter into any settlement of such actions without the written consent
of LMGC, which consent shall not be unreasonably withheld.
ARTICLE 14
DURATION AND TERMINATION
14.1 This Agreement shall continue in force indefinitely from the date hereof,
subject only to the rights of the Parties with respect to termination provided
in this Article 14, and shall not be terminable by either Party in any other
circumstances, whether upon reasonable notice or otherwise.
14.2 AMIH shall have the right to terminate this Agreement upon six months
notice in writing to LMGC if LMGC ceases for a continuous period of four years
to be involved in operation of the Programme.
14.3 The rights of LMGC in the Territory in relation to any Canadian Mark
incorporating the words Air Miles or the Air Miles Device shall terminate in
accordance with Article 14.4 below if LMGC challenges the validity of or
entitlement of AMIH to use or license, such Mark. If a Court of competent
jurisdiction in a final non-appealable judgment in the Territory other than at
the request of LMGC holds that such Marks which are material to the Programme
are invalid or that AMIH is not entitled to use or license such Marks in the
Territory, LMGC may in its sole discretion either terminate this Agreement or
cease to pay royalties under this Agreement.
14.4 (1) Subject to compliance with the provisions of Article 19 requiring
dispute resolution, either Party shall have the right to terminate this
Agreement forthwith
<PAGE>
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at any time on giving the other written notice of termination in any of the
following events:
(i) the other Party commits any breach of its obligations
hereunder and fails to remedy such breach within
ninety (90) days (or such longer period as the Parties
may agree) after being given written notice by the
other Party to remedy such default; provided however
that if LMGC and its sub-licensees are diligently
pursuing the remedy or cure of such failure during the
cure period and the continued breach does not impair
AMIH's rights in the AMIH Marks and does not involve a
failure to pay amounts due here under, the cure period
shall be extended for a further ninety (90) days; or
(ii) Bankruptcy shall have occurred in respect of the other
Party, provided that termination shall not occur at
anytime during:
(A) the exercise of any rights or remedies by a secured
creditor of LMGC who has taken a security interest in
LMGC's rights under this Agreement either (a) in
compliance with Article 16.3, or (b) with the written
consent of AMIH; provided that the payment of all
amounts from time to time due and payable by LMGC
hereunder continue to be duly paid and the performance
of all covenants from time to time to be performed by
LMGC hereunder continue to be duly performed; or
(B) any proceeding under an Insolvency Act involving a
restructuring or reorganization of LMGC under court
supervision and/or any disposition of LMGC's business
as a whole or substantially as a whole pursuant to any
such proceeding, in either case, so long as such
proceeding is continuing.
(2) If either Party validly terminates the Intellectual Property
License in accordance with the terms thereof, this Agreement shall terminate at
the same time as the Intellectual Property License.
14.5 Upon termination of this Agreement LMGC shall within a period of six (6)
months:
(i) cease to carry on business under the name 'Air Miles"
and cease to use the AMIH Marks;
(ii) deliver to AMIH any materials in its possession or
under its control which fail to meet the standard of
quality set out in Article 4 above or otherwise fail
to comply with the terms hereof and which reproduce
the AMIH Marks or give AMIH satisfactory evidence of
their destruction;
<PAGE>
-19-
(iii) insofar as its Licensed Name(s) include(s) any Canadian Mark,
change such names to names that do not incorporate such Marks or
any Marks confusingly similar thereto;
(iv) terminate all sub-license agreements with sub-licensees of the
AMIH Marks appointed by LMGC; and
(v) terminate use of any URL and/or domain name containing any
Canadian Mark.
14.6 For the avoidance of doubt, it is agreed that any termination of
this Agreement, whether in whole or in part, shall be without prejudice to any
rights held by any Party which may have accrued up to the date of termination.
Further,
LMGC may continue to use the LMGC Marks.
ARTICLE 15
NON-COMPETITION
15.1 During the term of this Agreement and subject to Article 2.3 above, AMIH,
its Affiliates or its successors shall not utilize any AMIH Marks or any Marks
confusingly similar thereto in or as part of any Programme or any program
similar thereto, in competition with LMGC or its Affiliates, directly or
indirectly in the Territory or grant any of their assignees, licensees or
sub-licensees a license or sub-license to do so.
ARTICLE 16
ASSIGNMENT/SUCCESSORS
16.1 This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.
16.2 Subject to Article 7.1, AMIH may at any time or from time to time assign,
sell or transfer all but not less than all of its rights under this Agreement,
either absolutely or by way of security (including the rights and remedies of
the secured party relating to such security), as part of a financing involving
AMIH's business to any Person, in either case without the consent of, but with
prior notice to LMGC.
16.3 LMGC may at any time or from time to time assign, sell or transfer all but
not less than all of its rights under this Agreement, either absolutely as part
of the sale of all or substantially all of the Business or the assets of the
Business or by way of security (including the rights and remedies of the secured
party relating to such security), as part of a financing involving the Business
to any Person, in either case without the consent of, but with prior notice to
AMIH. Should such assignment, sale or transfer result in increased withholding
taxes being payable on the royalties
<PAGE>
-20-
payable under Article 8 hereof, LMGC shall gross up the royalties payable to
cover such withholding taxes.
16.4 Except as provided in Article 7.1, a Party entering into any such
assignment shall remain liable here under notwithstanding such assignment
except, in the case of any indebtedness or claim arising after an absolute
assignment, if the assignee executes and delivers to the other Party an
assumption agreement of all indebtedness and obligations here under due and
payable or arising after such assignment.
16.5 Except as provided in Article 7.1, either Party may amalgamate, merge or
consolidate with any Person and any such amalgamation, merger or consolidation
shall be deemed to be an assignment unless by operation of applicable law the
amalgamated, merged or consolidated successor corporation is subject to all
liabilities and all contracts, disabilities and debts of each of the predecessor
corporations.
ARTICLE 17
NOTICES
17.1 All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any Party when delivered personally or by courier
service or when transmitted by telecopy to the applicable addresses set forth
below:
If to AMIH:
Air Miles International Holdings NV
Landhuis Joonchi, Kaya Richard J.
Beaujon z/n,
P.O. Box 837,
Curacao, Netherlands Antilles
Attention: Managing Director
Telephone: 599 97366 277
Fax: 599 97366 161
<PAGE>
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With a copy to:
Loyalty Management International Ltd.
Ocean House
Hazelwick Avenue
Crawley
West Sussex
RH10 1NP England
Attention: Liam Cowdrey
Telephone: 01293 434000
Fax: 01293 433701
If to LMGC:
Loyalty Management Group Canada Inc.
4110 Yonge Street,
Suite 200,
North York, Ontario
Attention: John Scullion
C.O.O.
Telephone: (416) 228-6565
Fax: (416) 733-1488
With a copy to:
Alliance Data Systems Corporation
5001 Valley Road
Suite 650, West Tower
Dallas, Texas U.S.A. 75244-3910
Attention: General Counsel
Telephone: (972) 960-4349
Fax: (972) 960-5330
or at such other address as the Party to whom such notice is to be given shall
have last notified (in the manner provided in this Article) the Party giving
such notice. Any notice delivered to the Party to whom it is addressed as
provided herein shall be deemed to have been given and received on the day it is
so delivered at such address and notice transmitted by telecopier shall be
deemed given and received on the day of its transmission, provided that if the
day of delivery or transmission is not a Business Day at the place of receipt or
the time of Delivery or transmission is
<PAGE>
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after 5 p.m. at the place of receipt on a Business Day, then the notice shall be
deemed to have been given and received on the next Business Day at the place of
receipt.
ARTICLE 18
CONFIDENTIALITY
During the term of this Agreement, each Party shall keep
confidential and not divulge to any Person any information, whether written or
oral, or otherwise recorded, which is proprietary or confidential of the other
including, but not limited to, customer lists, data compilations and data
systems, pricing methods, cost information, financial information, strategic
plans, finances, methods of operation, marketing plans and strategies, equipment
and operational requirements, processes or products and services or intended
products or services of the other and information concerning personnel and
customers; provided however that neither Party shall have any confidentiality
obligation (i) as to information which has come into the public domain through
no fault of or action by such Party, (ii) to the extent such Party is required
by law to disclose, or (iii) as to information such Party may disclose to
employees, directors or advisors of such Party or an Affiliate thereof in
connection with performance of services for such Party; and provided further
that AMIH shall have no obligation with respect to any information of LMGC
unless such information relates exclusively to LMGC.
ARTICLE 19
DISPUTE RESOLUTION
19.1 General Any dispute arising out of or relating to this Agreement, including
any dispute regarding the existence, validity, scope, enforceability or
termination of this Agreement and whether an issue is arbitrable (a "Dispute")
shall be resolved in accordance with the procedures specified in this Article
19, which shall be the sole and exclusive procedures for the resolution of any
such Disputes. The Parties shall attempt in good faith to resolve any Dispute
(including the validity, scope and enforceability of this Article 19) promptly
by negotiations between the Parties.
19.2 Negotiations between Executives
(a) AMIH and LMGC shall attempt in good faith to resolve
any dispute arising out of or relating to this
Agreement promptly by negotiation between executive
officers who have authority to settle the controversy
and who are at a higher level of management than the
Persons with direct responsibility for administration
of this Agreement. Either AMIH or LMGC may give to the
other written notice of any dispute not resolved in
the normal course of business. Within fifteen (15)
days
<PAGE>
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after delivery of the notice, the receiving Party
shall submit to the other Party a written response.
The notice and the response shall include (i) a
statement of each Party's position and a summary of
arguments supporting that position, and (ii) the name
and title of the executive officer who will represent
that Party and of any other Person who will accompany
the executive officer. Within twenty (20) days after
delivery of the disputing Party's notice, the
executive officers of both Parties shall meet at a
mutually acceptable time and place, and thereafter as
often as they reasonably deem necessary, to attempt to
resolve the dispute. All reasonable requests for
information made by one Party to the other Party will
be honoured.
(b) All negotiations (including the existence, content and
result thereof) pursuant to this Article 19 shall be
confidential, non- discoverable in any judicial
proceedings and treated as compromise and settlement
negotiations for purposes of applicable rules of
evidence.
19.3 Binding Arbitration
(a) If the Dispute is not resolved by negotiation within
forty-five (45) days (or any mutually agreed extension
of time) of the disputing Party's notice, or if the
Parties fail to meet within twenty (20) days of the
notice, either Party may, upon notice to the other
Party and the CPR Institute for Dispute Resolution
("CPR") submit such Dispute to arbitration.
(b) Such arbitrations shall be based in Toronto, Ontario
and shall be conducted by three (3) arbitrators (who
shall be lawyers admitted to practice in one or more
provinces or territories and who shall be experienced
in matters relating to intellectual property licenses)
appointed as follows:
(i) the disputing Party shall appoint its
nominee as first arbitrator;
(ii) the receiving Party shall, within ten
(10) days of having received written
notice from the disputing Party of the
nature of the dispute to be referred to
arbitration and of the identity of its
nominee arbitrator, appoint its nominee
as second arbitrator;
(iii) if the appointment required by clause
(ii) is not made within the period
therein stipulated, the disputing Party
shall be entitled to appoint as second
arbitrator a nominee of its choice who is
not related to the disputing Party and
who shall be deemed to be the nominee of
the respondent to the dispute;
<PAGE>
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(iv) the two nominees so appointed shall, within
ten (10) days of the date upon which the
second of them had been appointed as
arbitrator, appoint a third nominee as
chairman of the tribunal. In the event of
their failure so to do within the
prescribed period, the third arbitrator
shall be appointed in accordance with the
provisions of the INTERNATIONAL COMMERCIAL
ARBITRATION ACT (Ontario) ("the Act"); and
(v) should a vacancy arise because any
arbitrator dies, resigns, refuses to act,
or becomes incapable of performing his
functions, the vacancy shall be filled by
the method by which that arbitrator was
originally appointed. When a vacancy is
filled the newly established tribunal shall
exercise its discretion to determine
whether any previously completed hearings
shall be repeated.
(c) The arbitration will be in accordance with the Act and
the then current CPR "Non-Administered Arbitration
Rules" or any successor CPR rules (the Act having
precedence in the event of a conflict) (the
"Arbitration Rules") and the procedures specified in
this Article, to the extent they modify or add to such
Arbitration Rules. The seat of the arbitration will be
Toronto and the arbitration will be conducted at a
neutral site in Toronto selected by the arbitrators.
(d) The arbitrators will have sole authority to resolve
issues of the arbitrability of Disputes, including the
applicability of any statute of limitation. The
arbitrators may not amend or disregard any provision
of this Article and may not limit, expand or otherwise
modify the terms of this Agreement (including any
terms respecting the limitation of liability of any
Person). The arbitrators will have the power to order
the pre-hearing discovery of documents but such
production shall be restricted to documents (which
shall include information recorded or stored by means
of any device) directly related to the Dispute. The
arbitrators will also have the power to order the
taking of examinations for discovery of no more than
two (2) witnesses per side (with the witnesses to be
selected by the adverse side) for a period of not more
than three (3) hours per witness, unless otherwise
agreed. In addition, the arbitrators may compel the
attendance of witnesses and production of documents at
the hearing, to the extent provided by the Act. The
arbitrators will determine the rights and obligations
of the Parties and decide the Dispute in accordance
with the substantive and procedural laws of the
Province of Ontario.
(e) The Parties may seek injunctive relief either within
the arbitration process or from the Ontario Court
(General Division) or the Federal Court of Canada (or
in the case of disputes relating to the use of Marks
outside the Territory a Court competent in the
jurisdiction in which
<PAGE>
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use occurred) and the Parties accept the concurrent
jurisdiction of the Courts for the purpose of granting
injunctive relief, as set out herein. Within the
arbitration process, Parties may seek either interim
or permanent relief. From the Court, Parties may seek
temporary injunctive relief. A Party seeking temporary
injunctive relief from the Court will simultaneously
file a claim in the arbitration for interim and
permanent relief in the manner specified under this
Article. If the Court issues a temporary injunction
against one of the Parties, the Court will have
jurisdiction to deal with all matters, including
appeals, concerning the temporary injunction. Any
requested arbitration concerning the subject-matter of
the injunction shall proceed before the arbitrator in
an expedited manner pursuant to Article 19.4.
(f) Time will be of the essence and the arbitrators' award
will be rendered as soon as practicable after
conclusion of the final hearing, but in any event not
later than one hundred and eighty (180) days after the
date of appointment of the third arbitrator unless
otherwise agreed or the time period is extended for a
fixed reasonable period by the arbitrators on written
notice to each Party because of illness or other cause
of an arbitrator beyond the arbitrator's control.
(g) The decision of any two of the three arbitrators shall
be final and binding on the Parties to the Dispute
with no right of appeal therefrom. The arbitrators'
decision, reasons and award will be in writing,
setting forth the legal and factual basis therefor
(except with respect to the validity, infringement or
misappropriation of any patents or other proprietary
rights of any Party, with respect to which such award
will be a bare award without findings or any statement
of legal or factual basis). The Parties will abide by
and perform any award, including interim awards,
rendered by the arbitrators and judgment on such
awards may be entered and enforced in any court of
competent jurisdiction.
(h) The fees and expenses of the arbitration, which may
include the costs of CPR, the arbitrators, the
arbitration site and counsel will be in the sole
discretion of the arbitrators.
(i) All information and documents disclosed in arbitration
by any Party will remain Confidential Information of
the disclosing Party, and the arbitrators and the
Parties will (and will cause their representatives,
advisors and counsel to) hold the existence, content
and result of the arbitration in confidence, except to
the limited extent necessary to enforce a final
settlement agreement or to obtain and secure
enforcement of or a judgment on an arbitration award.
No privilege or right of a Party with respect to
information or documents disclosed by it in
arbitration will be waived or lost by such disclosure.
<PAGE>
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19.4 Expedited Binding Arbitration
The Parties agree that there shall be expedited arbitration
pursuant to this Article 19 to be completed in not more than ninety (90) days
where there is a genuine issue with respect to the following events:
(i) if AMIH or LMGC is enjoined pursuant to a temporary
injunction of the Ontario Court (General Division) or
the Federal Court of Canada or any other Court in the
World;
(ii) if LMGC fails to pay the amounts due under Article 8;
(iii) if LMGC uses or licenses the use of the AMIH Marks
outside the Territory contrary to Articles 2 or 3;
(iv) if AMIH uses or licenses the use of the AMIH Marks
inside the Territory contrary to Articles 2 or 3; or
(v) if the Related Agreements are or one of them is
terminated by any of the parties thereto.
ARTICLE 20
MISCELLANEOUS
20.1 Name, Captions
The provision of a Table of Contents, the division of this
Agreement into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall not affect
or be utilized in the construction or interpretation of this Agreement.
20.2 Entire Agreement and Relationship Between the Parties
(a) This Agreement and the Related Agreements constitute the entire
agreement between the Parties pertaining to the matters contemplated hereby and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties, relating to the subject matter hereof.
Any and all registered user applications and/or agreements between the Parties
are of no force and effect.
(b) This Agreement is not a franchise and does not create a
partnership or joint venture. Neither Party shall have any right to obligate or
bind any other Party in any manner. Each of LMGC and AMIH is an independent
contractor, not an agent or employee of the other. The containing obligations of
LMGC in this Agreement,
<PAGE>
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including those obligations set forth in Articles 8.3, 8.4, 12.1, 14.6 and 19,
and the continuing obligations of AMIH in this Agreement, including those
obligations of AMIH under Articles 12.2, 14.6 and 19, shall survive and continue
after the termination of this Agreement.
20.3 Amendments
No amendment of this Agreement shall be effective unless such
amendment is made in writing and signed by authorized representatives of the
Parties hereto.
20.4 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable by an arbitrator or a court of competent jurisdiction from which
no further appeal lies or is taken, that provision shall be deemed to be severed
therefrom, and the remaining provisions of this Agreement shall not be affected
thereby and shall remain valid and enforceable; provided that in the event that
any portion of this Agreement shall have been so determined to be or become
invalid or unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for the
Parties the benefits and obligations of such offending portion. The invalidity
or unenforceability of any term or any right arising pursuant to this Agreement
shall in no way affect the validity or enforceability of any of the remaining
terms or rights.
20.5 Specific Performance / Injunctive Relief
The Parties acknowledge and agree that money damages are not an
adequate remedy for violations of this Agreement and that any Party may, in its
sole discretion, notwithstanding Article 19, apply to the Ontario Court (General
Division) or the Federal Court of Canada for specific performance or for
temporary injunctive relief or such other temporary relief (equitable or
otherwise) as such court may deem appropriate in order to enforce this Agreement
or to prevent any violation hereof, and each Party waives any objection to the
imposition of such relief and any requirement for the posting of any security,
including a bond, with respect to such relief.
20.6 Remedies Cumulative
All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by either Party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such Party.
<PAGE>
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20.7 No Waiver
No waiver of any of the provisions of this Agreement is binding
unless it is in writing and signed by the Party entitled to grant the waiver. No
failure to exercise, and no delay in exercising, any right or remedy under this
Agreement will be deemed to be a waiver of that right or remedy. No waiver of
any breach of any provision of this Agreement will be deemed to be a waiver of
any subsequent breach of that provision.
20.8 Further Assurances
The Parties will, from time to time during the course of this
Agreement or upon its expiry and without further consideration, execute and
deliver such other documents and instruments of transfer, conveyance and
assignment and take such further action as the other may reasonably require to
effect the transactions contemplated thereby.
20.9 Extended Meanings
Any reference in this Agreement to gender shall include all
genders, and words importing the singular number only shall include the plural
and vice versa.
20.10 No Third Party Beneficiaries
Each Party intends that this Agreement shall not benefit or create
any right or cause of action in or on behalf of any Person, other than the
Parties and their Affiliates, and no Person, other than the Parties, shall be
entitled to rely on the provisions hereof in any action, suit, proceeding,
hearing or other forum.
20.11 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies each signed by less than all, but together signed by all, the Parties.
20.12 No Liability of Shareholders
No shareholder of LMGC or the successors or transferees of a
shareholder of LMGC shall be liable for any of the obligations of LMGC
hereunder. No shareholder of AMIH or the successors or transferees of a
shareholder of AMIH shall be liable for any of the obligations of AMIH
hereunder.
<PAGE>
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20.13 Statutory References
Unless expressly stated to the contrary, any references in this
Agreement to any law, by-law, rule, regulation, order or act of any government,
governmental body or other regulatory authority shall be construed as a
reference thereto as enacted at the date of this Agreement as such law, by-law,
rule, regulation, order or act may be amended, re-enacted or superseded from
time to time.
20.14 Business Day Payments
If under this Agreement any payment or calculation is to be made or
any other action is to be taken on a day which is not a Business Day, that
payment or calculation is to be made, and that other action is to be taken, as
applicable, on or as of the next day that is a Business Day
20.15 References
In this Agreement, references to "hereof", "hereto", and
"hereunder" and similar expressions mean and refer to this Agreement taken as a
whole, and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision of this
Agreement followed by a number means and refers to the specified Article,
Section, Subsection or other subdivision of this Agreement.
20.16 Currency
In this Agreement, all references to currency shall be references
to the lawful currency of the Territory.
20.17 Schedules
The following Schedules are attached to and form part of this
Agreement:
<TABLE>
<CAPTION>
Schedule Description
<S> <C>
SCHEDULE 1 CANADIAN MARKS
SCHEDULE 2 LMGC MARKS
SCHEDULE 3 POWER OF ATTORNEY
</TABLE>
<PAGE>
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20.18 Limitation of Liability
THE PARTIES (INCLUDING FOR THIS PURPOSE THEIR AFFILIATES) EXPRESSLY
ACKNOWLEDGE AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR PUNITIVE, EXEMPLARY OR
AGGRAVATED DAMAGES OR FOR DAMAGES FOR LOST PROFITS, LOST REVENUES OR FAILURE TO
REALIZE EXPECTED SAVINGS, REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN OR IS
BASED UPON TORT (INCLUDING NEGLIGENCE), CONTRACT (INCLUDING FUNDAMENTAL BREACH
OR BREACH OF A FUNDAMENTAL TERM), BREACH OF TRUST OR FIDUCIARY DUTY, RESCISSION
OF CONTRACT, RESTITUTION, INDEMNIFICATION OR OTHERWISE.
20.19 Time of the Essence
Time shall be of the essence of this Agreement.
20.20 Costs and Expenses
Except as otherwise or expressly provided in this Agreement, each
Party shall pay all costs and expenses it incurs in authorizing, preparing,
executing and performing this Agreement and the transactions contemplated there
under, including all fees and expenses of its respective legal counsel,
investment bankers, brokers, accountants or other representatives or
consultants.
20.21 Excusable Delays
The dates and times by which any Party is required to perform any
obligation under this Agreement shall be postponed automatically to the extent,
for the period of time, that the Party is prevented from so performing by
circumstances beyond its reasonable control. Such period shall not extend beyond
one year. Said circumstances shall include acts of nature, strikes, lockouts,
riots, acts of war, epidemics, government regulations imposed after the fact,
fire, power failures, earthquakes or other disasters or other causes beyond the
performing Party's reasonable control whether or not similar to the foregoing.
<PAGE>
-31-
20.22 Governing Law and Attornment
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein (excluding any conflict of laws rule or principle which might
refer such construction to the laws of another jurisdiction). To the extent
applicable, the Parties expressly exclude the application of the United Nations
Convention on Contracts for the International Sale of Goods. Each of the Parties
hereby irrevocably attorns and submits to the exclusive jurisdiction of the
Courts of the Province of Ontario or the Federal Court of Canada, except to the
extent any Court action of AMIH relates to the use of the AMIH Marks by LMGC
outside the Territory.
IN WITNESS WHEREOF, the Parties have executed the Agreement.
AIR MILES INTERNATIONAL LOYALTY MANAGEMENT GROUP
HOLDINGS N.V. CANADA INC.
By: /s/ Liam P.B. Cowdrey By: /s/ Craig Underwood
---------------------- -----------------------
Name: Liam P.B. Cowdrey Name: Craig Underwood
Title: Director Title: President and Chief
Executive Officer
Date July 24, 1998 Date: July 24, 1998
<PAGE>
SCHEDULE 1
Canadian Marks
<TABLE>
<CAPTION>
<S> <C> <C>
TRADE-MARK OWNER STATUS
A SAVINGS ACCOUNT LIKE NEVER BEFORE. AMIH PENDING
(705359)
ADHERENT AIR MILES OR AMIH PENDING
(771326)
AIR BUCKS AMIH PENDING
(778239)
AIR MILES AMIH REGISTERED
(697937)
AIR MILES & DESIGN AMIH PENDING
(740714)
AIR MILES BABY CLUB AMIH PENDING
(820515)
AIR MILES BUCKS AMIH PENDING
(778237)
AIR MILES DES VOYAGES ET BIEN AMIH PENDING
DAVANTAGE & DESIGN
(829576)
AIR MILES DES VOYAGES ET BIEN AMIH PENDING
DAVANTAGE OR & DESIGN
(830383)
AIR MILES FOR BUSINESS PROGRAM AMIH PENDING
(868437)
AIR MILES GOLD AMIH PENDING
(771199)
AIR MILES GOLD COLLECTOR AMIH PENDING
(771200)
AIR MILES INCENTIVES AMIH PENDING
(839292)
AIR MILES LEISURE TRAVEL AMIH PENDING
(771062)
AIR MILES OR AMIH PENDING
(771327)
</TABLE>
<PAGE>
-33-
<TABLE>
<CAPTION>
<S> <C> <C>
TRADE-MARK OWNER STATUS
AIR MILES ROAD WARRIOR AMIH PENDING
(774732)
AIR MILES ROAD WARRIORS AMIH PENDING
(774731)
AIR MILES TRAVEL AND MORE & DESIGN AMIH PENDING
(829575)
AIR MILES TRAVEL AND MORE GOLD & DESIGN AMIH PENDING
(830382)
AIR MILES TRAVEL THE WORLD & DESIGN AMIH REGISTERED
(629149)
AIR MILES TRAVEL THE WORLD GOLD & DESIGN AMIH PENDING
(771202)
AIR MILES VACATIONS AMIH PENDING
(820683)
AIR MILES VACATIONS & DESIGN AMIH PENDING
(822346)
AIR MILES VOUS DONNE DES AILES. AMIH PENDING
(705355)
AIR MILES VOYAGEZ DE PAR LE MON DE AMIH PENDING
OR & DESIGN
(771203)
AIR MILES. FOR BUSINESS. AMIH PENDING
(867524)
AIR MILES. LE MONDE A VOTRE PORTEE. AMIH PENDING
(790573)
AIR MILES. LE MON DE A VOTRE PORTEE. & DESIGN AMIH PENDING
(790574)
AIR MILES. LE MON DE A VOTRE PORTEE. AMIH PENDING
& DESIGN(2)
(790575)
AIR MILES. SHRINKING THE WORLD. AMIH PENDING
(790570)
AIR MILES SHRINKING THE WORLD & DESIGN AMIH PENDING
(790571)
</TABLE>
<PAGE>
-34-
<TABLE>
<CAPTION>
<S> <C> <C>
TRADE-MARK OWNER STATUS
AIR MILES. SHRINKING THE WORLD. AMIH PENDING
& DESIGN (2)
(790576)
AIR MILES. ABONNEZ-VOUS ET PARTEZ! AMIH PENDING
(836877)
AIR MILES. BANK AND GO. AMIH PENDING
(832871)
AIR MILES. BUY AND GO. AMIH PENDING
(840860)
AIR MILES. DEMENAGEZ ET PARTEZ. AMIH PENDING
(841566)
AIR MILES DES VOYAGES ET BIEN DAV ANTAGE. AMIH PENDING
(829574)
AIR MILES. MAGASINEZ ET PARTEZ & DESIGN AMIH PENDING
(829579)
AIR MILES. MAGASINEZ ET PARTEZ, & AMIH PENDING
DESIGN (2)
(829580)
AIR MILES. MAGASINEZ ET PARTEZ. AMIH PENDING
(827423)
AIR MILES. MOVE AND GO. AMIH PENDING
(832870)
AIR MILES. POUR LES AFFAIRES. AMIH PENDING
(868438)
AIR MILES. SEJOURNEZ ICI ET PARTEZ. AMIH PENDING
(841565)
AIR MILES. SHOP AND GO. AMIH PENDING
(827424)
AIR MILES. SHOP AND GO. & DESIGN AMIH PENDING
(829577)
AIR MILES. SHOP AND GO. & DESIGN (2) AMIH PENDING
(829578)
AIR MILES. STAY AND GO. AMIH PENDING
(83357())
AIR MILES. TRANSIGEZ ET PARTEZ. AMIH PENDING
(84()955)
</TABLE>
<PAGE>
-35-
<TABLE>
<S> <C> <C>
TRADE-MARK OWNER STATUS
AIR MILES. TRAVEL AND MORE. AMIH PENDING
(829573)
AIR MILES. SUBSCRIBE AND GO. AMIH PENDING
(833569)
APPELEZ COMME AVANT AMIH PENDING
(771201)
BABYCLUB AMIH PENDING
(818407)
BABYCLUB & DESIGN AMIH PENDING
(818410)
CALL LIKE ALWAYS. AMIH PENDING
FLY LIKE NEVER BEFORE.
(706176)
COLLECT FOR BUSINESS, AMIH PENDING
FLY FOR PLEASURE
(867523)
ESCAPE LIKE ALWAYS AMIH PENDING
(774082)
FLY FREE FASTER AMIH PENDING
(778238)
FLY LIKE NEVER BEFORE AMIH REGISTERED
(705361)
LE MONDE A VOTRE PORTEE. AMIH PENDING
(790572)
MAGASINEZ COMME AVANT. AMIH PENDING
VOYAGEZ COMME JAMAIS.
(705364)
MEGA MILES AMIH REGISTERED
(745188)
MILES ABOVE AMIH PENDING
(703895)
MILLES EN TETE AMIH PENDING
(703896)
MILLES EXTRA AMIH PENDING
(778240)
</TABLE>
<PAGE>
-36-
<TABLE>
<S> <C> <C>
TRADE-MARK OWNER STATUS
MOVE LIKE ALWAYS. AMIH PENDING
FLY LIKE NEVER BEFORE.
(705358)
ON ACCUMULE POUR LE BUREAU, AMIH PENDING
ON VOYAGE POUR LE PLAISER
(867522)
PLANE DESIGN AMIH PENDING
(819040)
PROGRAMME AFFAIRES AIR MILES AMIH PENDING
(868440)
RENT LIKE ALWAYS. AMIH PENDING
FLY LIKE NEVER BEFORE.
(705357)
SAVE LIKE ALWAYS AMIH PENDING
(705356)
SAVE LIKE ALWAYS. AMIH PENDING
FLY LIKE NEVER BEFORE.
(705363)
SHOP AND GO AMIH PENDING
(815494)
SHOP LIKE ALWAYS. AMIH REGISTERED
FLY LIKE NEVER BEFORE.
(697938)
SHRINKING THE WORLD. AMIH PENDING
(790569)
SUPER MILES AMIH PENDING
(822483)
SUR LES AILES DE BANQUE-AIR AMIH PENDING
(827285)
TRAVEL AND MORE AMIH PENDING
(835066)
TRAVEL LIKE NEVER BEFORE AMIH REGISTERED
(705362)
TRAVEL THE WORLD AMIH PENDING
(705360)
UN MONDE REMPLI D'OR AMIH PENDING
(833177)
</TABLE>
<PAGE>
-37-
<TABLE>
<CAPTION>
<S> <C> <C>
TRADE-MARK OWNER STATUS
VOYAGEZ DE PAR LE MONDE AMIH PENDING
(697940)
VOYAGEZ DE PAR LE MON DE & DESIGN AMIH IN OPPOSITION
(705546)
WORLD OF GOLD AMIH PENDING
(833176)
YOU BANK. YOU FLY. AMIH PENDING
(826108)
</TABLE>
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
<S> <C> <C>
TRADE-MARK OWNER STATUS
COALITION DATABASE MARKETING LMGC REGISTERED
(751706)
LE GROUPE LOYALTY LMGC PENDING
(862344)
LOYALTY LMGC PENDING
(831970)
LOYALTY LMGC PENDING
(849707)
LOYALTY LMGC PENDING
(849709)
LOYALTY & DESIGN LMGC PENDING
(860274)
LOYALTY CONSULTING LMGC PENDING
(860281)
LOYALTY LE GROUPE LOYALTY & DESIGN LMGC PENDING
(862346)
LOYALTY MANAGEMENT CONSULTING LMGC PENDING
(830856)
LOYALTY MANAGEMENT CONSULTING & DESIGN LMGC PENDING
(830858)
LOYALTY MANAGEMENT GROUP LMGC PENDING
(831971)
LOYALTY MANAGEMENT GROUP CANADA LMGC PENDING
INC. & DESIGN
(831972)
LOYALTY MANAGEMENT SERVICES LMGC PENDING
(830857)
LOYALTY MANAGEMENT SERVICES & DESIGN LMGC PENDING
(830859)
LOYALTY RECOMPENSES RESULTATS LMGC PENDING
SAVOIR & DESIGN
(862345)
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
<S> <C> <C>
LOYALTY REWARDS RESULTS KNOWLEDGE LMGC PENDING
& DESIGN
(860276)
LOYALTY SERVICES LMGC PENDING
(860280)
LOYALTY THE LOYALTY GROUP & DESIGN LMGC PENDING
(860275)
RECOMPENSES RESULTATS SAVOIR LMGC PENDING
(862343)
REWARDS RESULTS KNOWLEDGE LMGC PENDING
(860278)
SPONSOR PROFITABILITY MODEL LMGC REGISTERED
(771044)
SPONSORFINDER DATABASE LMGC REGISTERED
(745187)
STAR DESIGN LMGC PENDING
(860279)
STAR SYSTEM LMGC PENDING
(870232)
THE FUTURE OF COALITION DATABASE LMGC REGISTERED
MARKETING ... TODAY
(751707)
THE LOYALTY GROUP LMGC PENDING
(860277)
</TABLE>
<PAGE>
SCHEDULE 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned AIR MILES
INTERNATIONAL HOLDINGS N.V. ("AMIH"), of Landhuis Joonchi, Kaya Richard J.
Beaujon z/n, P.O. Box 837 Curacao, Netherlands Antilles, hereby nominates,
constitutes and appoints LOYALTY MANAGEMENT GROUP CANADA INC. ("Loyalty"), an
Ontario corporation, to be the true and lawful attorney of AMIH, with full power
of substitution, to act for and on behalf of AMIH and in AMIH's name or
Loyalty's own name in any suit, action, application, mediation, arbitration,
opposition or other legal, mediatory, arbitral or administrative proceeding
(each, a "Proceeding") or the exercise of any other remedy, of any nature or
kind whatsoever, whether in Canada or elsewhere in the world, at any time during
the term of the agreement (the "Agreement") dated July 24, 1998 between AMIH and
Loyalty entitled "Amended and Restated License to Use the Air Miles Trade Marks
in Canada", in connection with infringement or alleged infringement or other
similar action in Canada by any Person other than AMIH and its Affiliates of the
Canadian Marks or any of the Non-Canadian Marks which Loyalty has been using in
the preceding 12-month period in Canada.
In this power of attorney, the terms "Person", "Affiliates",
"Canadian Marks" and "Non-Canadian Marks" have the same respective meanings as
in the Agreement.
The following terms and conditions apply to this power of attorney:
1. This power of attorney shall be irrevocable by AMIH during the term
of the Agreement.
2. A certificate signed by an officer or director of Loyalty to the
effect that this power of attorney is valid and subsisting shall be conclusive
against all persons other than AMIH and its Affiliates.
3. Any person may rely on this power of attorney without inquiring of
AMIH or Loyalty as to its validity and subsistence.
<PAGE>
-2-
4. Loyalty may not enter into a settlement of a Proceeding without the
written consent of AMIH, which consent shall not be unreasonably withheld.
IN WITNESS WHEREOF AMIH has duly executed this power of attorney
this 24th day of July, 1998.
AIR MILES INTERNATIONAL HOLDINGS N.V.
by:
------------------------
Name: Liam P.B. Cowdrey
Title: Director
<PAGE>
AMENDED AND RESTATED LICENSE TO USE
AND EXPLOIT THE AIR MILES SCHEME IN CANADA
BETWEEN
AIR MILES INTERNATIONAL TRADING B.V.
AND
LOYALTY MANAGEMENT GROUP CANADA INC.
July 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS ......................................................... 2
2 LICENSE ............................................................. 5
3 SUB-LICENSE RIGHTS .................................................. 7
4 ASSIGNMENT OF THE PROGRAMME ......................................... 8
5 ROYALTIES ........................................................... 9
6 REGISTRATION AND RENEWALS ........................................... 10
7 REPRESENTATIONS AND WARRANTIES ...................................... 10
7.1 AMIT Warranties .......................................... 10
7.2 LMGC Warranties .......................................... 11
8 INDEMNITY ........................................................... 11
9 DURATION AND TERMINATION ............................................ 12
10 NON-COMPETITION ..................................................... 13
11 ASSIGNMENT/SUCCESSORS ............................................... 13
12 NOTICES ............................................................. 14
13 CONFIDENTIALITY ..................................................... 16
14 DISPUTE RESOLUTION .................................................. 17
14.1 General ................................................. 17
14.2 Negotiations between Executives ......................... 17
14.3 Binding Arbitration ..................................... 18
14.4 Expedited Binding Arbitration ........................... 21
15 MISCELLANEOUS ....................................................... 21
15.1 Name, Captions .......................................... 21
15.2 Entire Agreement and Relationship Between the Parties ... 21
15.3 Amendments .............................................. 22
15.4 Severability ............................................ 22
15.5 Specific Performance/Injunctive Relief .................. 22
15.6 Remedies Cumulative ..................................... 22
15.7 No Waiver ............................................... 23
15.8 Further Assurances ...................................... 23
15.9 Extended Meanings ....................................... 23
15.10 No Third Party Beneficiaries ............................ 23
15.11 Counterparts ............................................ 23
15.12 No Liability of Shareholders ............................ 23
15.13 Statutory References .................................... 24
15.14 Business Day Payments ................................... 24
15.15 References .............................................. 24
15.16 Currency ................................................ 24
15.17 Schedules ............................................... 24
15.18 Limitation of Liability ................................. 25
15.19 Time of the Essence ..................................... 25
15.20 Costs and Expenses ...................................... 25
15.21 Excusable Delays ........................................ 25
15.22 Governing Law and Attornment ............................ 26
</TABLE>
<PAGE>
AMENDED AND RESTATED LICENSE TO USE AND EXPLOIT THE AIR MILES
SCHEME IN CANADA
THIS AGREEMENT is dated the 24th day of July, 1998 between AIR MILES
INTERNATIONAL TRADING B.V. of Veerkade 7, 3016 DE Rotterdam, The Netherlands
("AMIT") and LOYALTY MANAGEMENT GROUP CANADA INC., whose registered office is
located at 4110 Yonge Street, Suite 200, North York, Ontario, Canada ("LMGC");
WHEREAS the Parties entered into the License Agreement and the
Intellectual Property License on December 17, 1992; and
WHEREAS throughout the term of that Intellectual Property License AMIT
and LMGC were related companies; and
WHEREAS Alliance Data Systems Corporation has agreed to purchase all of
the shares of LMGC pursuant to the Share Purchase Agreement and such transaction
is intended to close on the date hereof; and
WHEREAS AMIT has the rights to use, operate, exploit and develop in
certain countries of the world, including the Territory, the unique concept and
business opportunity, being the Programme; and
WHEREAS the Parties are desirous of amending the terms of the
Intellectual Property License and have, for simplicity, agreed to enter into
this Agreement; and
WHEREAS AMIT is entitled to grant the licenses herein to LMGC and is
willing to license and allow LMGC to use and exploit the AMIT Know How in the
Territory on the terms and conditions set out in this Agreement.
NOW THEREFORE, in consideration of the business relationship between
the Parties, the mutual covenants contained herein, and other good and valuable
consideration (the receipt and sufficiency of which are acknowledged by the
Parties), the Parties hereto agree that the Intellectual Property License is
hereby amended and restated as follows:
<PAGE>
-2-
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS
"AFFILIATE" means a Person directly or indirectly controlling,
controlled by or under common control with a party.
"AGREEMENT" means this Intellectual Property License including any
recitals and schedules to this agreement, as amended, supplemented or restated
in writing from time to time.
"AMIT KNOW HOW" means all know how and other intellectual property
rights subsisting at the date hereof as described in Schedule 1 licensed to
and/or owned by AMIT or its Affiliates in connection with or relating to the
Programme, but not including rights in Marks.
"BANKRUPTCY" shall be considered to occur in respect of a
Party if:
(i) any voluntary proceeding is commenced (by the filing of any
originating process, notice or assignment or otherwise) by the
Party pursuant to an Insolvency Act;
(ii) any proceeding is commenced (by the filing of any originating
process or otherwise) against the Party pursuant to an
Insolvency Act, and
(a) such proceeding is not contested, diligently and
on a timely basis, by that Party,
(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such proceeding, or
(c) such proceeding is not dismissed, withdrawn or
permanently stayed within sixty (60) days of
commencement;
(iii) any voluntary proceeding is commenced (by the filing of any
originating process or notice or otherwise) by or respecting a
Party pursuant to the corporate or company statute under which
Party is organized from time to time or any other statute of
any relevant jurisdiction which is not an Insolvency Act
seeking any stay of creditor remedies or moratorium,
compromise, arrangement, adjustment, extension or
reorganization of debts or other liabilities;
<PAGE>
-3-
(iv) any voluntary or other proceeding is commenced (by the filing
of any originating process or notice or
otherwise) by or against the Party seeking appointment
(provisional, interim or permanent) of a receiver, manager,
receiver and manager, trustee, sequestrator, custodian,
liquidator or Person with like or comparable powers for that
Party or for all or substantially all of its property, assets
and undertaking, and
(a) such proceeding is not contested, diligently and
on a timely basis, by that Party;
(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such proceeding, or
(c) such proceeding is not dismissed, withdrawn or
permanently stayed within sixty (60) days of
commencement;
(v) any secured creditor of the Party takes possession or control
(actual or constructive) of, or appoints any agent, receiver,
manager, receiver and manager or Person with like or
comparable powers in respect of, that Party or all or
substantially all of its property, assets and undertaking; or
(vi) a majority of the directors or shareholders of the
Party voting thereon pass or ratify any resolution (A)
except as part of a bona fide corporate reorganization,
for its liquidation, winding up or dissolution, (B) to
authorize any voluntary proceeding by or in respect of
that Party described above or (C) to consent to or
refrain from contesting any proceeding or step against
or in respect of that Party or its property, assets or
undertaking described above.
"BUSINESS" means the business carried on by LMGC in connection with
which the AMIT Know How is used.
"BUSINESS DAY" means any day of the year, other than a Saturday, Sunday
or any day on which the banks are required or authorized to close in Toronto,
Ontario, Canada.
"CATEGORY" means the business sector granted to a Sponsor
within the Territory.
<PAGE>
-4-
"CONCURRENT USE AGREEMENT" means the Concurrent Use Agreement between
Air Miles International Holdings N.V., AMIT, Air Miles Travel Promotions
Limited, Loyalty Management Group Inc., LMGC and AMI Funding, Inc. entered into
as of the 13th day of May, 1994, as amended, supplemented or restated in writing
from time to time.
"INCLUDING" The terms "include", "including" and "such as" are
illustrative and not limitative and shall be interpreted to mean "including
without limitation".
"INSOLVENCY ACT" means the Bankruptcy and Insolvency Act (Canada), the
Companies' Creditors Arrangement Act (Canada), the Winding-up Act (Canada) or
any other statute of any relevant jurisdiction relating to bankruptcy,
insolvency, stay of creditor remedies, moratorium, compromise, arrangement,
extension, adjustment or reorganization of debts or other liabilities,
liquidation, winding up or dissolution.
"INTELLECTUAL PROPERTY LICENSE" means the Licence to Use and Exploit
the Air Miles Scheme in Canada Agreement between AMIT and LMGC dated December
17, 1992, as amended by Amendment No. 1 dated 13th day of May, 1994.
"LICENSE AGREEMENT" means the Licence to Use the Air Miles Trade Marks
in Canada agreement between Air Miles International Holdings N.V. and LMGC dated
December 17, 1992, as amended by Amendment No. 1 dated 13th day of May, 1994, as
amended and restated in the amending agreement of even date, and as amended,
supplemented or restated in writing from time to time.
"MARK" means any name, brand, mark, trade mark, trade dress, trade
name, business name, Uniform Resource Locator ("URL"), domain name or other
indicia of origin.
"PARTY" means either AMIT or LMGC; and "Parties" means AMIT and LMGC
collectively.
"PERSON" includes an individual, a legal personal representative,
corporation, company, body corporate, partnership, limited partnership, joint
venture, syndicate, trust, unincorporated organization, the Crown or any agency
or instrumentality thereof, regulatory authority or any other entity recognized
by law, howsoever designated or constituted.
"PROGRAMME" means any program(s) or business(es) that involve(s) three
(3) or more sponsoring companies in any product or service category or industry
and which offer(s), only entitled members with addresses in the Territory or any
other geographic region in which LMGC or any of its Affiliates has a license
from AMIT to similar effect to this Agreement, airline seats, airline miles,
airline or any other services, awards or value of any nature whether or not by
virtue of exchanging,
<PAGE>
-5-
converting or redeeming coupons, tickets, points or other tangible or intangible
rights) in connection with the purchase of goods or services of any party and
which operates for more than three (3) months duration and the operation of
travel agency services.
"RELATED AGREEMENTS" means collectively, the License
Agreement and the Concurrent Use Agreement.
"SHARE PURCHASE AGREEMENT" means the agreement for the
purchase of all the shares of LMGC made as of June 26, 1998, as amended in
writing from time to time, among Alliance Data Systems Corporation and each of
the shareholders of LMGC at that date.
"SPONSORS" means those businesses participating in the Programme in
conjunction with the offer of wares or services to consumers within the
Territory and includes the Suppliers.
"SUPPLIERS" means those businesses offering wares or services in
connection with exchanges, conversions or redemptions under the Programme.
"TERRITORY" means the current geographic area and territory of Canada
at the date of this Agreement.
"THIRD PERSON" means any Person other than AMIT and its Affiliates and
LMGC and its Affiliates.
ARTICLE 2
LICENSE
2.1 AMIT hereby grants to LMGC, subject to the terms of this Agreement, an
exclusive right and license to use, operate, exploit and develop the AMIT Know
How in the Programme (including all confidential information, copyright works,
techniques and know-how relating to the Programme) in the Territory only and the
marketing, advertising and promotion thereof in any media in the Territory or
any other geographic region in which LMGC or any of its Affiliates has a license
from AMIT to similar effect to this Agreement, including the right to
sub-license the use and exploitation of the AMIT Know How in the Territory in
accordance with the provisions of this Agreement. The exclusivity of the license
is subject to the rights of AMIT, its Affiliates, successors and assignees
together with their respective licensees and sub-licensees mentioned in Articles
2.3 and 2.4 hereafter.
<PAGE>
-6-
2.2 AMIT hereby grants a non-exclusive right to LMGC, with a right to sublicense
its applicable Sponsors and sub-licensees, for and further agrees that it will
not and will ensure that its Affiliates, successors, assignees or any of their
licensees or sub-licensees will not object to the use and exploitation of the
AMIT Know How outside the Territory by such of the Sponsors as provide travel or
entertainment related services for business and other travellers including, for
the avoidance of doubt, airline, car rental and/or hotel services and/or by LMGC
and/or by LMGC's applicable sub-licensees only in connection with the provision
of travel or entertainment related services including, for the avoidance of
doubt, airline, car rental and/or hotel services to the extent only that such
use and exploitation is incidental to the operation of and/or participation in
the Programme in the Territory. LMGC shall not itself have any other right to
use the AMIT Know How outside the Territory. LMGC's right to the use and
exploitation of the AMIT Know How outside the Territory shall include the right
to operate on or through the World Wide Web on the Internet or through other
electronic media.
2.3 Notwithstanding Article 2.1, LMGC shall not object to the use, operation,
exploitation and development of the AMIT Know How by AMIT, its Affiliates,
successors and assignees together with the use and exploitation thereof by their
respective licensees and sub-licensees in the Territory only in connection with
the provision of travel or entertainment related services including, for the
avoidance of doubt, airline, car rental and/or hotel services to persons
providing travel or entertainment related services for business and other
travellers, to the extent only that such use is incidental to the rights of
AMIT, its Affiliates, successors and assignees together with their respective
licensees or sub-licensees to carry out activities in connection with the
operation of sales promotion and/or incentive or loyalty schemes outside of the
Territory.
2.4 AMIT, its Affiliates, successors and assignees may use and exploit the AMIT
Know How in the Territory for the purposes of promoting their activities to
issuers or potential issuers of points, credits, vouchers or other incentives in
connection with the operation of sales promotion and/or incentive or loyalty
schemes conducted outside the Territory. In so doing, AMIT, its Affiliates,
successors and assignees must co-operate with LMGC with respect to the promotion
of the Canadian business. LMGC, its Affiliates, successors and assignees may use
and exploit the AMIT Know How outside of the Territory for the purposes of
privately promoting their activities to issuers or potential issuers of points,
credits, vouchers or other incentives in connection with the operation of sales
promotion and/or incentive or loyalty schemes conducted in the Territory, but
shall not make such advertisements or promotion to the public in general.
2.5 Subject to this Agreement, AMIT reserves the right to use and license the
use of the AMIT Know How outside the Territory, whether in connection with sales
promotion and incentive schemes similar to the Programme or otherwise.
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2.6. The Parties acknowledge that the licenses granted in this Article 2 do not
include the right for LMGC to use or license the use of trade marks consisting
of or including the Air Miles name and/or ancillary trademarks (including any of
the AMIH Marks defined in the License Agreement), which shall be the subject of
the License Agreement. If the License Agreement is validly terminated by either
party there to, LMGC may use any Marks owned by or licensed to it or its
Affiliates, in association with the AMIT Know How and/or the Programme, provided
that such Marks are not confusingly similar to the AMIH Marks (as licensed under
the License Agreement) or any other Marks in which AMIH or its Affiliates
hold(s) valid rights in the Territory.
2.7 The Parties agree that the Concurrent Use Agreement shall not be amended or
terminated during the term of this Agreement without the prior written consent
of the Parties.
ARTICLE 3
SUB-LICENSE RIGHTS
3.1 AMIT acknowledges that LMGC has entered into sub-licensing arrangements
relating to the participation in the Programme with a number of Sponsors that
are currently participating in the Programme. AMIT confirms that the terms and
conditions of such sub-licenses are acceptable to it.
3.2 AMIT agrees that LMGC may grant additional or amended non-exclusive
sub-licenses to the same or other Sponsors to use and exploit the AMIT Know How
in the Territory in connection with the Programme only, with or without
exclusivity in the relevant Category. If the terms and conditions of such
sub-licenses are consistent with the terms and conditions of the current
sub-license arrangements with the current Sponsors, AMIT hereby grants its
consent to such sub-licenses. If the terms and conditions of such sub-licenses
are not consistent with the current sub-license arrangements, LMGC shall submit
to AMIT a copy of each such license agreement and AMIT shall provide written
notice of any objections there to within ten (10) Business Days, failing which
AMIT shall be deemed to have consented such sub-license arrangement. In any
event, AMIT's consent to such sub-licenses shall not be unreasonably withheld.
3.3 AMIT agrees that LMGC may agree in such sub-license agreements as mentioned
under Article 3.2 with such Sponsors that neither AMIT nor their Affiliates,
successors, assignees, licensees or sub-licensees will object to the use by such
Sponsors of the AMIT Know How outside the Territory only to the extent that such
use is in accordance with the rights granted in Article 2.2 above.
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3.4 It shall be a term of all sub-licenses granted pursuant to Article 3.2 above
that the Sponsors undertake not to engage in any advertising or promotion
outside the Territory for the Programme or the participation of the Sponsors in
the Programme provided always that incidental references to the participation of
the Sponsors in the Programme in the Territory may be made in promotional
materials such as brochures outside the Territory incidental to the distribution
inside the Territory provided that such promotional materials shall clearly
indicate that the Sponsors participate in the Programme in the Territory and
that the Programme is only open to entitled members with addresses in the
Territory.
3.5 In this Agreement, where LMGC agrees to ensure that all sub- licensees of
the AMIT Know How appointed by LMGC comply with an obligation, this means:
(i) LMGC shall impose a contractual obligation on the sub-
licensees to observe such obligations; and
(ii) where LMGC becomes aware of any non-compliance by any
sub-licensee with any such obligation, LMGC shall use
reasonable efforts to ensure that such sub-licensee complies
with such obligation.
3.6 The Parties acknowledge that LMGC has no obligation to (but may) amend any
agreement with any existing Sponsor and that any and all such agreements with
any Sponsors remain unaffected hereby.
3.7 For greater clarity, LMGC may sub-license its rights hereunder to an
Affiliate to the extent considered by LMGC, acting reasonably, advisable for the
operation of travel agency services in the Territory.
ARTICLE 4
ASSIGNMENT OF THE PROGRAMME
4.1 If AMIT wishes to assign or transfer the AMIT Know How in the Programme,
either directly or indirectly by or through AMIT or AMIT's Bankruptcy, other
than to an Affiliate, no such assignment or transfer shall be effective unless
AMIT provides LMGC notice of its intention to do so and gives LMGC thirty (30)
days written notice within which to bid on such AMIT Know How and/or Programme
for the purposes of owning either directly or indirectly such AMIT Know How
and/or Programme. The foregoing provisions shall not, in any way, obligate AMIT
to accept any bid which LMGC submits. Any such assignee or transferee must be
bound in writing by the grant of the license set out in this Agreement.
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ARTICLE 5
ROYALTIES
5.1 (i) In accordance with the practice actually used for the payment of
Royalties under the Intellectual Property License for the fiscal year of LMGC
ended April 30, 1998, LMGC shall pay to AMIT as license fee royalties calculated
as a percentage of all gross sums received by LMGC in respect of the sale,
redemption, distribution or issue of Air Miles travel miles ("AMTM") or Air
Miles awards, including:
(a) all sums received from Sponsors in connection with the
issuance of AMTM or in lieu of payments therefor (such as
participation and/or exclusivity fees);
(b) all sums received from Sponsors for services;
(c) all commissions or other income received by LMGC in respect of
the sale of travel services; and
(d) all sums received from the sale of promotional items and/or
any other activity involving the use of the AMIH Marks (as
defined in the License Agreement)
but excluding amounts received as co-operative marketing fees or
for reimbursement of expenses.
(ii) The percentage referred to above shall be 0.90%.
5.2 LMGC shall, within fourteen (14) days after the end of each fiscal quarter,
in accordance with past practise as of April 30, 1998, prepare and submit to
AMIT a statement setting out the sums received by LMGC as set out in Article 5.1
above and the amount of royalty due in respect of the immediately preceding
fiscal quarter. Royalties shall be due and payable at the time the statements
are submitted to AMIT and shall be paid net of all applicable taxes, including
Canadian non-resident withholding tax.
5.3 During the term of this Agreement and for three calendar years after its
termination AMIT and its duly authorized agents shall have the right upon
reasonable notice, to inspect during business hours on any Business Day all
relevant accounting records of LMGC for the purposes of verifying any royalties
paid or payable. If any inspection results in any finding of understatement or
overstatement, such balance will be settled forthwith by LMGC or AMIT
respectively.
5.4 LMGC shall keep all accounting records, relevant for the purposes of
calculating royalties payable to AMIT, during the term stated in Article 5.3
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ARTICLE 6
REGISTRATION AND RENEWALS
6.1 AMIT shall, for so long as this Agreement remains in force, ensure that any
registrations which are applicable to the AMIT Know How and/or the Programme
shall be registered as appropriate and shall be renewed as and when they fall
due for renewal. The costs of the renewals or registrations and all expenses in
relation to the Programme incurred from the date hereof shall be paid in full by
AMIT.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 AMIT Warranties
AMIT hereby represents and warrants to LMGC as of the date of this
Agreement the following:
(i) AMIT has full power and authority to enter into and perform
this Agreement, including to grant the license in Article 2
and to perform each and every covenant and agreement herein
contained;
(ii) this Agreement has been duly authorized, executed and
delivered by AMIT and constitutes a valid, binding and legally
enforceable agreement of AMIT;
(iii) to the best of AMIT's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which AMIT is either bound or subject;
(iv) to the best of AMIT's knowledge and belief, AMIT's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of any province or territory
of the Territory which could give rise to the imposition of a
material fine, penalty or sanction levied on LMGC by any
applicable regulatory authority in the Territory;
(v) AMIT has not granted any rights or licenses, which are
subsisting at the date hereof, to any of its Affiliates or to
any other Third Person to use the AMIT Know How and/or the
Programme in the Territory save in the circumstances permitted
in Articles 2.3 and 2.4 above;
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(vi) except for the Concurrent Use Agreement, AMIT is not a party
to or bound by any contract or other obligation whatsoever
that limits or impairs its ability to license the AMIT Know
How and/or the Programme to LMGC; and
(vii) to the best of AMIT's knowledge and belief, LMGC is not in
breach of any term or condition of the Intellectual Property
License.
7.2 LMGC Warranties
LMGC hereby represents and warrants to AMIT as of the date of this
Agreement the following:
(i) LMGC has full power and authority to enter into and perform
this Agreement and to perform each and every covenant and
agreement herein contained;
(ii) this Agreement has been duly authorized, executed and
delivered by LMGC and constitutes a valid, binding and legally
enforceable agreement of LMGC;
(iii) to the best of LMGC's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which LMGC is either bound or subject; and
(iv) to the best of LMGC's knowledge and belief, LMGC's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of any province or territory
of the Territory which could give rise to the imposition of a
fine, penalty or sanction by any applicable regulatory
authority in the Territory.
ARTICLE 8
INDEMNITY
8.1 LMGC shall indemnify AMIT and hold it harmless and defend it from and
against all damage, including reasonable counsel fees, which AMIT may incur in
respect of all claims which may be made against AMIT (whether separately or as
joint defendants) arising out of the manufacture, packaging, or any other cause
relating to any wares sold and/or services provided by or on behalf of LMGC or
its sub-licensees in association with the AMIT Know How, except insofar as any
such claim may be found to arise from any omission or failure on the part of
AMIT.
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8.2 AMIT shall indemnify LMGC and hold it harmless and defend it from and
against all damages, including reasonable counsel fees, which LMGC may incur as
a result of any breach of warranties as stated in Article 7 with regard to the
AMIT Know How and/or the Programme only or as a result of any Third Person
during the term hereof effectively prohibiting LMGC the use of the AMIT Know How
and/or the Programme only within the Territory.
ARTICLE 9
DURATION AND TERMINATION
9.1 This Agreement shall continue in force indefinitely from the date hereof,
subject only to the rights of the Parties with respect to termination provided
in this Article 14, and shall not be terminable by either Party in any other
circumstances, whether upon reasonable notice or otherwise.
9.2 AMIT shall have the right to terminate this Agreement upon six months notice
in writing to LMGC if LMGC ceases for a continuous period of four years to be
involved in operation of the Programme.
9.3 (1) Subject to compliance with the provisions of Article 14 requiring
dispute resolution, either Party shall have the right to terminate this
Agreement on giving the other written notice of termination in any of the
following events:
(i) the other Party commits any breach of its obligations
here under and fails to remedy such breach within ninety (90)
days (or such longer period as the Parties may agree) after
being given written notice by the other Party to remedy such
default; provided however that if LMGC and its sub-licensees
are diligently pursuing the remedy or cure of such failure
during the cure period and the continued breach does not
involve a failure to pay amounts due hereunder, the cure
period shall be extended for a further ninety (90) days; or
(ii) Bankruptcy shall have occurred in respect of the other Party,
provided that termination shall not occur at anytime during:
(A) the exercise of any rights or remedies by a secured
creditor of LMGC who has taken a security interest in
LMGC's rights under this Agreement either (a) in
compliance with Article 11.3, or (b) with the written
consent of AMIT; provided that the payment of all
amounts from time to time due and payable by LMGC
hereunder continue to be duly paid and the performance
of all covenants from time to time to be performed by
LMGC hereunder continue to be duly performed; or
<PAGE>
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(B) any proceeding under an Insolvency Act involving a
restructuring or reorganization of LMGC under court
supervision and/or any disposition of LMGC's business as a
whole or substantially as a whole pursuant to any such
proceeding, in either case, so long as such proceeding is
continuing.
(2) If either Party validly terminates the License Agreement in
accordance with the terms thereof, it may, at its option, terminate this
Agreement at the same time as the License Agreement.
9.4 Upon termination of this Agreement LMGC shall within a period of six (6)
months:
(i) cease to carry on business using the AMIT Know How unless such
or similar rights are validly licensed or purchased from a
Third Person with valid rights therein; and
(ii) terminate all sub-license agreements with sub-licensees of the
AMIT Know How appointed by LMGC to the extent such sub-license
agreements sub-license AMIT Know How.
9.5 For the avoidance of doubt, it is agreed that any termination of this
Agreement, whether in whole or in part, shall be without prejudice to any rights
held by any Party which may have accrued up to the date of termination. Further,
LMGC may continue to use any Mark owned by or licensed to it or its Affiliates
in association with the AMIT Know How and/or the Programme.
ARTICLE 10
NON-COMPETITION
10.1 During the term of this Agreement and subject to Article 2.3 above, AMIT,
its Affiliates or its successors shall not utilize any AMIT Know How in or as
part of any Programme or any program similar there to, in competition with LMGC
or its Affiliates, directly or indirectly in the Territory or grant any of their
assignees, licensees or sub-licensees a license or sub-license to do so.
ARTICLE 11
ASSIGNMENT/SUCCESSORS
11.1 This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.
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11.2 Subject to Article 4.1, AMIT may at any time or from time to time assign,
sell or transfer all but not less than all of its rights under this Agreement,
either absolutely or by way of security (including the rights and remedies of
the secured party relating to such security) as part of a financing involving
AMIT's business to any Person, in either case without the consent of, but with
prior notice to LMGC.
11.3 LMGC may at any time or from time to time assign, sell or transfer all but
not less than all of its rights under this Agreement, either absolutely as part
of the sale of all or substantially all of the Business or the assets of the
Business or by way of security (including the rights and remedies of the secured
party relating to such security) as part of a financing involving the Business
to any Person, in either case without the consent of, but with prior notice to
AMIT. Should such assignment, sale or transfer result in increased withholding
taxes being payable on the royalties payable under Article 5 hereof, LMGC shall
gross up the royalties payable to cover such withholding taxes.
11.4 Except as provided in Article 4.1, a Party entering into any such
assignment shall remain liable hereunder notwithstanding such assignment except,
in the case of any indebtedness or claim arising after an absolute assignment,
if the assignee executes and delivers to the other Party an assumption agreement
of all indebtedness and obligations here under due and payable or arising after
such assignment.
11.5 Except as provided in Article 4.1, either Party may amalgamate, merge or
consolidate with any Person and any such amalgamation, merger or consolidation
shall be deemed to be an assignment unless by operation of applicable law the
amalgamated,
merged or consolidated successor corporation is subject to all liabilities and
all contracts, disabilities and debts of each of the predecessor corporations.
ARTICLE 12
NOTICES
12.1 All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any Party when delivered personally or by courier
service or when transmitted by telecopy to the applicable addresses set forth
below:
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If to AMIT:
Air Miles International Trading B.V.
Veerkade 7
3016 DE Rotterdam,
The Netherlands
Attention: Managing Director
Telephone: 010 411 0093
Fax: 020 664 7743 (belonging to Air Miles International Group)
With a copy to:
Loyalty Management International Ltd.
Ocean House
Hazelwick Avenue
Crawley
West Sussex
RH10 1NP England
Attention: Liam Cowdrey
Telephone: 01293 434000
Fax: 01293 433701
If to LMGC:
Loyalty Management Group Canada Inc.
4110 Yonge Street,
Suite 200,
North York, Ontario
Attention: John Scullion
C.O.O.
Telephone: (416) 228-6565
Fax: (416) 733-1488
<PAGE>
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With a copy to:
Alliance Data Systems Corporation
5001 Valley Road
Suite 650, West Tower
Dallas, Texas U.S.A. 75244-3910
Attention: General Counsel
Telephone: (972) 960-4349
Fax: (972-960-5330
or at such other address as the Party to whom such notice is to be given shall
have last notified (in the manner provided in this Article) the Party giving
such notice. Any notice delivered to the Party to whom it is addressed as
provided herein shall be deemed to have been given and received on the day it is
so delivered at such address and notice transmitted by telecopier shall be
deemed given and received on the day of its transmission, provided that if the
day of delivery or transmission is not a Business Day at the place of receipt or
the time of delivery or transmission is after 5 p.m. at the place of receipt on
a Business Day, then the notice shall be deemed to have been given and received
on the next Business Day at the place of receipt.
ARTICLE 13
CONFIDENTIALITY
13.1 During the term of this Agreement, each Party shall keep confidential and
not divulge to any Person any information, whether written or oral, or otherwise
recorded, which is proprietary or confidential of the other including, but not
limited to, customer lists, data compilations and data systems, pricing methods,
cost information, financial information, strategic plans, finances, methods of
operation, marketing plans and strategies, equipment and operational
requirements, processes or products and services or intended products or
services of the other and information concerning personnel and customers;
provided however that neither Party shall have any confidentiality obligation
(i) as to information which has come into the public domain through no fault of
or action by such Party, (ii) to the extent such Party is required by law to
disclose, or (iii) as to information such Party may disclose to employees,
directors or advisors of such Party or an Affiliate thereof in connection with
performance of services for such Party; and provided further that AMIT shall
have no obligation with respect to any information of LMGC unless such
information relates exclusively to LMGC and provided further that upon
termination of this Agreement and for two (2) years thereafter such
confidentiality obligation shall apply only to disclosures of information which
would be materially' detrimental to the operations of LMGC's Business or AMIH's
business.
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13.2 LMGC's obligations under this Agreement with respect to any trade secrets
forming part of the AMIT Know How shall cease with respect to such trade secrets
to the extent that such trade secrets become part of the public domain through
no fault of or action by LMGC.
ARTICLE 14
DISPUTE RESOLUTION
14.1 General Any dispute arising out of or relating to this Agreement, including
any dispute regarding the existence, validity, scope, enforceability or
termination of this Agreement and whether an issue is arbitrable (a "Dispute")
shall be resolved in accordance with the procedures specified in this Article
15, which shall be the sole and exclusive procedures for the resolution of any
such Disputes. The Parties shall attempt in good faith to resolve any Dispute
(including the validity, scope and enforceability of this Article 14) promptly
by negotiations between the Parties.
14.2 Negotiations between Executives
(a) AMIT and LMGC shall attempt in good faith to resolve
any dispute arising out of or relating to this
Agreement promptly by negotiation between executive
officers who have authority to settle the controversy
and who are at a higher level of management than the
Persons with direct responsibility for administration
of this Agreement. Either AMIT or LMGC may give to the
other written notice of any dispute not resolved in the
normal course of business. Within fifteen (15) days
after delivery of the notice, the receiving Party shall
submit to the other Party a written response. The
notice and the response shall include (i) a statement
of each Party's position and a summary of arguments
supporting that position, and (ii) the name and title
of the executive officer who will represent that Party
and of any other Person who will accompany the
executive officer. Within twenty (20) days after
delivery of the disputing Party's notice, the executive
officers of both Parties shall meet at a mutually
acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information
made by one Party to the other Party will be honoured.
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(b) All negotiations (including the existence, content and result
thereof) pursuant to this Article '14 shall be confidential,
non-discoverable in any judicial proceedings and treated as
compromise and settlement negotiations for purposes of
applicable rules of evidence.
14.3 Binding Arbitration
(a) If the Dispute is not resolved by negotiation within
forty-five (45) days (or any mutually agreed extension of
time) of the disputing Party's notice, or if the Parties fail
to meet within twenty (20) days of the notice, either Party
may, upon notice to the other Party and the CPR Institute for
Dispute Resolution ("CPR") submit such Dispute to arbitration.
(b) Such arbitrations shall be based in Toronto, Ontario and shall
be conducted by three (3) arbitrators (who shall be lawyers
admitted to practice in one or more provinces or territories
and who shall be experienced in matters relating to
intellectual property licenses) appointed as follows:
(i) the disputing Party shall appoint its nominee as
first arbitrator;
(ii) the receiving Party shall, within ten (10) days of
having received written notice from the disputing
Party of the nature of the dispute to be referred to
arbitration and of the identity of its nominee
arbitrator, appoint its nominee as second arbitrator;
(iii) if the appointment required by clause (ii) is
not made within the period therein stipulated, the
disputing Party shall be entitled to appoint as
second arbitrator a nominee of its choice who is not
related to the disputing Party and who shall be
deemed to be the nominee of the respondent to the
dispute;
(iv) the two nominees so appointed shall, within ten
(10) days of the date upon which the second of
them had been appointed as arbitrator, appoint a
third nominee as chairman of the tribunal. In the
event of their failure so to do within the
prescribed period, the third arbitrator shall be
appointed in accordance with the provisions of the
International Commercial Arbitration Act (Ontario)
("the Act"); and
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(v) should a vacancy arise because any arbitrator
dies, resigns, refuses to act, or becomes
incapable of performing his functions, the vacancy
shall be filled by the method by which that
arbitrator was originally appointed. When a
vacancy is filled the newly established tribunal
shall exercise its discretion to determine whether
any previously completed hearings shall be
repeated.
(c) The arbitration will be in accordance with the Act and
the then current CPR "Non-Administered Arbitration Rules" or
any successor CPR rules (the Act having precedence in the
event of a conflict) (the "Arbitration Rules") and the
procedures specified in this Article, to the extent they
modify or add to such Arbitration Rules. The seat of the
arbitration will be Toronto and the arbitration will be
conducted at a neutral site in Toronto selected by the
arbitrators.
(d) The arbitrators will have sole authority to resolve
issues of the arbitrability of Disputes, including the
applicability of any statute of limitation. The
arbitrators may not amend or disregard any provision of
this Article and may not limit, expand or otherwise
modify the terms of this Agreement (including any terms
respecting the limitation of liability of any Person).
The arbitrators will have the power to order the pre-
hearing discovery of documents but such production
shall be restricted to documents (which shall include
information recorded or stored by means of any device)
directly related to the Dispute. The arbitrators will
also have the power to order the taking of examinations
for discovery of no more than two (2) witnesses per
side (with the witnesses to be selected by the adverse
side) for a period of not more than three (3) hours per
witness, unless otherwise agreed. In addition, the
arbitrators may compel the attendance of witnesses and
production of documents at the hearing, to the extent
provided by the Act. The arbitrators will determine the
rights and obligations of the Parties and decide the
Dispute in accordance with the substantive and
procedural laws of the Province of Ontario.
(e) The Parties may seek injunctive relief either within
the arbitration process or from the Ontario Court
(General Division) or the Federal Court of Canada (or
in the case of disputes relating to the use of Marks
outside the Territory a Court competent in the
jurisdiction in which use occurred) and the Parties
accept the concurrent jurisdiction of the Courts for
the purpose of granting injunctive relief, as set out
herein. Within the arbitration process, Parties may
seek either interim or permanent relief. From the
Court, Parties may seek temporary injunctive relief. A
Party seeking temporary injunctive relief from the
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Court will simultaneously file a claim in the arbitration for
interim and permanent relief in the manner specified under
this Article. If the Court issues a temporary injunction
against one of the Parties, the Court will have jurisdiction
to deal with all matters, including appeals, concerning the
temporary injunction. Any requested arbitration concerning the
subject-matter of the injunction shall proceed before the
arbitrator in an expedited manner pursuant to Article 14.4.
(f) Time will be of the essence and the arbitrators' award will be
rendered as soon as practicable after conclusion of the final
hearing, but in any event not later than one hundred and
eighty (180) days after the date of appointment of the third
arbitrator unless otherwise agreed or the time period is
extended for a fixed reasonable period by the arbitrators on
written notice to each Party because of illness or other cause
of an arbitrator beyond the arbitrator's control.
(g) The decision of any two of the three arbitrators shall be
final and binding on the Parties to the Dispute with no right
of appeal therefrom. The arbitrators' decision, reasons and
award will be in writing, setting forth the legal and factual
basis therefor (except with respect to the validity,
infringement or misappropriation of any patents or other
proprietary rights of any Party, with respect to which such
award will be a bare award without findings or any statement
of legal or factual basis). The Parties will abide by and
perform any award, including interim awards, rendered by the
arbitrators and judgment on such awards may be entered and
enforced in any court of competent jurisdiction.
(h) The fees and expenses of the arbitration, which may include
the costs of CPR, the arbitrators, the arbitration site and
counsel will be in the sole discretion of the arbitrators.
(i) All information and documents disclosed in arbitration by any
Party will remain Confidential Information of the disclosing
Party, and the arbitrators and the Parties will (and will
cause their representatives, advisors and counsel to) hold the
existence, content and result of the arbitration in
confidence, except to the limited extent necessary to enforce
a final settlement agreement or to obtain and secure
enforcement of or a judgment on an arbitration award. No
privilege or right of a Party with respect to information or
documents disclosed by it in arbitration will be waived or
lost by such disclosure.
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14.4 Expedited Binding Arbitration
The Parties agree that there shall be expedited arbitration pursuant to
this Article 19 to be completed in not more than ninety (90) days where there is
a genuine issue with respect to the following events:
(i) if AMIT or LMGC is enjoined pursuant to a temporary injunction
of the Ontario Court (General Division) or the Federal Court
of Canada or any other Court in the World;
(ii) if LMGC fails to pay the amounts due under Article 6;
(iii) if LMGC uses or licenses the use of the AMIT Know How outside
the Territory contrary to Articles 2 or 3;
(iv) if AMIT uses or licenses the use of the AMIT Know How and/or
the Programme inside the Territory contrary to Article 2; or
(v) if the Related Agreements are or one of them is terminated by
any of the parties thereto.
ARTICLE 15
MISCELLANEOUS
15.1 Name, Captions
The provision of a Table of Contents, the division of this Agreement
into Articles, Sections, Sub sections and other subdivisions and the insertion
of headings are for convenience of reference only and shall not affect or be
utilized in the construction or interpretation of this Agreement.
15.2 Entire Agreement and Relationship Between the Parties
(a) This Agreement and the Related Agreements constitute the
entire agreement between the Parties pertaining to the matters contemplated
hereby and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties, relating to the subject
matter hereof.
(b) This Agreement is not a franchise and does not create a
partnership or joint venture. Neither Party shall have any right to obligate or
bind any other Party in any manner. Each of LMGC and AMIT is an independent
contractor, not an agent or employee of the other. The continuing obligations of
LMGC in this Agreement, including those obligations set forth in Articles 5.3,
5.4, 8.1, 9.5 and 14, and the continuing obligations of AMIT in this Agreement,
including those obligations of
<PAGE>
-22-
AMIT under Articles 8.2, 9.5 and 14, shall survive and continue after the
termination of this Agreement. The continuing obligations of each of LMGC and
AMIH set forth in Article 13 of this Agreement shall survive and continue for a
period of two (2) years after the termination of this Agreement.
15.3 Amendments
No amendment of this Agreement shall be effective unless such amendment
is made in writing and signed by authorized representatives of the Parties
hereto.
15.4 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable by an arbitrator or a court of competent jurisdiction from which
no further appeal lies or is taken, that provision shall be deemed to be severed
therefrom, and the remaining provisions of this Agreement shall not be affected
thereby and shall remain valid and enforceable; provided that in the event that
any portion of this Agreement shall have been so determined to be or become
invalid or unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for the
Parties the benefits and obligations of such offending portion. The invalidity
or unenforceability of any term or any right arising pursuant to this Agreement
shall in no way affect the validity or enforceability of any of the remaining
terms or rights.
15.5 Specific Performance/Injunctive Relief
The Parties acknowledge and agree that money damages are not an
adequate remedy for violations of this Agreement and that any Party may, in its
sole discretion, notwithstanding Article 14, apply to the Ontario Court (General
Division) or the Federal Court of Canada for specific performance or for
temporary injunctive relief or such other temporary relief (equitable or
otherwise) as such court may deem appropriate in order to enforce this Agreement
or to prevent any violation hereof, and each Party waives any objection to the
imposition of such relief and any requirement for the posting of any security,
including a bond, with respect to such relief.
15.6 Remedies Cumulative
All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by either Party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such Party.
<PAGE>
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15.7 No Waiver
No waiver of any of the provisions of this Agreement is binding unless
it is in writing and signed by the Party entitled to grant the waiver. No
failure to exercise, and no delay in exercising, any right or remedy under this
Agreement will be deemed to be a waiver of that right or remedy. No waiver of
any breach of any provision of this Agreement will be deemed to be a waiver of
any subsequent breach of that provision.
15.8 Further Assurances
The Parties will, from time to time during the course of this Agreement
or upon its expiry and without further consideration, execute and deliver such
other documents and instruments of transfer, conveyance and assignment and take
such further action as the other may reasonably require to effect the
transactions contemplated thereby.
15.9 Extended Meanings
Any reference in this Agreement to gender shall include all genders,
and words importing the singular number only shall include the plural and vice
versa.
15.10 No Third Party Beneficiaries
Each Party intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any Person, other than the Parties
and their Affiliates, and no Person, other than the Parties, shall be entitled
to rely on the provisions hereof in any action, suit, proceeding, hearing or
other forum.
15.11 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies each signed by less than all, but together signed by all, the Parties.
15.12 No Liability of Shareholders
No shareholder of LMGC or the successors or transferees of a
shareholder of LMGC shall be liable for any of the obligations of LMGC
hereunder. No shareholder of AMIT or the successors or transferees of a
shareholder of AMIT shall be liable for any of the obligations of AMIT
hereunder.
<PAGE>
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15.13 Statutory References
Unless expressly stated to the contrary, any references in this
Agreement to any law, by-law, rule, regulation, order or act of any government,
governmental body or other regulatory authority shall be construed as a
reference there to as enacted at the date of this Agreement as such law, by-law,
rule, regulation, order or act may be amended, re-enacted or superseded from
time to time.
15.14 Business Day Payments
If under this Agreement any payment or calculation is to be made or any
other action is to be taken on a day which is not a Business Day, that payment
or calculation is to be made, and that other action is to be taken, as
applicable, on or as of the next day that is a Business Day
15.15 References
In this Agreement, references to "hereof", "hereto", and "hereunder"
and similar expressions mean and refer to this Agreement taken as a whole, and
not to any particular Article, Section, Subsection or other subdivision;
"Article", "Section", "Subsection" or other subdivision of this Agreement
followed by a number means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement.
15.16 Currency
In this Agreement, all references to currency shall be references to
the lawful currency of the Territory.
15.17 Schedules
The following Schedules are attached to and form part of
this Agreement:
Schedule Description
SCHEDULE 1 AMIT KNOW HOW
<PAGE>
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15.18 Limitation of Liability
THE PARTIES (INCLUDING FOR THIS PURPOSE THEIR AFFILIATES) EXPRESSLY
ACKNOWLEDGE AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR PUNITIVE, EXEMPLARY OR
AGGRAVATED DAMAGES OR FOR DAMAGES FOR LOST PROFITS, LOST REVENUES OR FAILURE TO
REALIZE EXPECTED SAVINGS, REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN OR IS
BASED UPON TORT (INCLUDING NEGLIGENCE), CONTRACT (INCLUDING FUNDAMENTAL BREACH
OR BREACH OF A FUNDAMENTAL TERM), BREACH OF TRUST OR FIDUCIARY DUTY, RESCISSION
OF CONTRACT, RESTITUTION, INDEMNIFICATION OR OTHERWISE.
15.19 Time of the Essence
Time shall be of the essence of this Agreement.
15.20 Costs and Expenses
Except as otherwise or expressly provided in this Agreement, each Party
shall pay all costs and expenses it incurs in authorizing, preparing, executing
and performing this Agreement and the transactions contemplated there under,
including all fees and expenses of its respective legal counsel, investment
bankers, brokers, accountants or other representatives or consultants.
15.21 Excusable Delays
The dates and times by which any Party is required to perform any
obligation under this Agreement shall be postponed automatically to the extent,
for the period of time, that the Party is prevented from so performing by
circumstances beyond its
reasonable control. Such period shall not extend beyond one year. Said
circumstances shall include acts of nature, strikes, lockouts, riots, acts of
war, epidemics, government regulations imposed after the fact, fire, power
failures, earthquakes or other disasters or other causes beyond the performing
Party's reasonable control whether or not similar to the foregoing.
<PAGE>
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15.22 Governing Law and Attornment
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein (excluding any conflict of laws rule or principle which might
refer such construction to the laws of another jurisdiction). To the extent
applicable, the Parties expressly exclude the application of the United Nations
Convention on Contracts for the International Sale of Goods. Each of the Parties
hereby irrevocably attorns and submits to the exclusive jurisdiction of the
Courts of the Province of Ontario or the Federal Court of Canada, except to the
extent any Court action of AMIT relates to the use of the AMIT Know How by LMGC
outside the Territory.
IN WITNESS WHEREOF, the Parties have executed the Agreement.
AIR MILES INTERNATIONAL LOYALTY MANAGEMENT GROUP
TRADING B.V. CANADA INC.
By:_____________________ By:__________________________
Name: Liam P.B. Cowdrey Name: Craig Underwood
Title: Director Title: President and Chief
Executive Officer
Date July 24, 1998 Date: July 24, 1998
<PAGE>
SCHEDULE 1
All know-how, processes, trade secrets, confidential information, unpatented
inventions, studies and data, marketing strategies, product information, sponsor
and/or supplier information, manuals, technology, research and development
reports, technical information, technical assistance and similar materials
recording or evidencing expertise or information related to the Programme.
<PAGE>
LICENSE TO USE
THE AIR MILES TRADEMARKS IN THE UNITED STATES
BETWEEN
AIR MILES INTERNATIONAL HOLDINGS N.V.
AND
ALLIANCE DATA SYSTEMS CORPORATION
July 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS ........................................................... 1
2 LICENSE ........................................................ ...... 6
3 SUB-LICENSE RIGHTS .................................................... 7
4 STANDARDS OF QUALITY .................................................. 9
5 USE OF THE MARKS ...................................................... 10
6 USE OF ADSC MARKS ..................................................... 11
7 ASSIGNMENT OF UNITED STATES MARKS ..................................... 11
8 ROYALTY FREE LICENSES ................................................. 11
9 REGISTRATION AND RENEWALS ............................................. 11
10 REPRESENTATIONS AND WARRANTIES ........................................ 12
10.1 AMIH Warranties ........................................... 12
10.2 ADSC Warranties ........................................... 13
11 TITLE AND GOODWILL .................................................... 14
12 INDEMNITY ............................................................. 15
13 INFRINGEMENT .......................................................... 15
14 DURATION AND TERMINATION .............................................. 16
15 NON-COMPETITION ....................................................... 18
16 ASSIGNMENT/SUCCESSORS ................................................. 18
17 NOTICES ............................................................... 19
18 CONFIDENTIALITY ....................................................... 20
19 DISPUTE RESOLUTION .................................................... 21
19.1 General ................................................... 21
19.2 Negotiations between Executives ........................... 21
19.3 Binding Arbitration ....................................... 21
19.4 Expedited Binding Arbitration ............................. 24
20 MISCELLANEOUS ......................................................... 25
20.1 Name, Captions ............................................ 25
20.2 Entire Agreement and Relationship Between the Parties ..... 25
20.3 Amendments ................................................ 25
20.4 Severability .............................................. 25
20.5 Specific Performance/Injunctive Relief .................... 26
20.6 Remedies Cumulative ....................................... 26
20.7 No Waiver ................................................. 26
20.8 Further Assurances ........................................ 27
20.9 Extended Meanings ......................................... 27
20.10 No Third Party Beneficiaries .............................. 27
20.11 Counterparts .............................................. 27
20.12 No Liability of Shareholders .............................. 27
20.13 Statutory References ...................................... 28
20.14 Business Day Payments ..................................... 28
20.15 References ................................................ 28
20.16 Currency .................................................. 28
20.17 Schedules ................................................. 28
20.18 Limitation of Liability ................................... 29
<PAGE>
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20.19 Time of the Essence ....................................... 29
20.20 Costs and Expenses ........................................ 29
20.21 Excusable Delays .......................................... 29
20.22 Governing Law and Attornment .............................. 30
</TABLE>
<PAGE>
LICENSE TO USE THE AIR MILES TRADEMARKS IN THE UNITED STATES
THIS AGREEMENT is dated the 24th day of July, 1998 between AIR MILES
INTERNATIONAL HOLDINGS N.V. of Landhuis Joonchi, Kaya Richard J. Beaujon z/n,
P.O. Box 837, Curacao, Netherlands Antilles ("AMIH") and ALLIANCE DATA SYSTEMS
CORPORATION of 5001 Valley Road, Suite 620, West Tower, Dallas, Texas, U.S.A.
75244- 3910 ("ADSC").
WHEREAS ADSC has agreed to purchase all of the shares of LMGC pursuant
to the Share Purchase Agreement which agreement contemplates this agreement and
relationship and such transaction is intended to close on the date hereof; and
WHEREAS AMIH is entitled to grant the licenses herein to ADSC and is
willing to license and allow ADSC to use the AMIH Marks and adopt the Licensed
Names in the Territory on the terms and conditions set out in this Agreement.
NOW THEREFORE, in consideration of the business relationship between
the Parties, including as set out in the Related Agreements and through the
Share Purchase Agreement including the sum of one hundred dollars (U.S.), the
mutual covenants contained herein, and other good and valuable consideration
(the receipt and sufficiency of which are acknowledged by the Parties), the
Parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions
"ADSC MARKS" means the Marks owned by ADSC or its Affiliates whether
pending or registered in accordance with the Lanham Act, from time to time,
particulars of which are set out in Schedule 2 hereof and as such Schedule may
be updated and/or those Marks developed, owned and used by ADSC or its
Affiliates or sub- licensees in the Territory from time to time (and as such
Marks may be modified or supplemented).
"AFFILIATE" means a Person directly or indirectly controlling,
controlled by or under common control with a party.
"AIR MILES DEVICE" means the design mark as depicted in United States
Trade-mark Registrations Nos. 1,771,774 and 1,819,474.
<PAGE>
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"AGREEMENT" means this agreement including any recitals and schedules
to this agreement, as amended, supplemented or restated in writing from time to
time.
"AMIH MARKS" means the United States Marks and the Non- United States
Marks collectively.
"BANKRUPTCY" shall be considered to occur in respect of a Party if:
(i) any voluntary proceeding is commenced (by the filing of any
originating process, notice or assignment or otherwise) by the
Party pursuant to an Insolvency Act;
(ii) an involuntary case or other proceeding is commenced (by the
filing of any originating process or otherwise) against the
Party pursuant to an Insolvency Act, and
(a) such case or proceeding is not contested,
diligently and on a timely basis, by that Party,
(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such case or proceeding,
or
(c) such case or proceeding is not dismissed, withdrawn
or permanently stayed within sixty (60) days of
commencement;
(iii) any voluntary proceeding is commenced (by the filing of any
originating process or notice or otherwise) by or respecting a
Party pursuant to the corporate or company statute under which
Party is organized from time to time or any other statute of
any relevant jurisdiction which is not an Insolvency Act
seeking any stay of creditor remedies or moratorium,
compromise, arrangement, adjustment, extension or
reorganization of debts or other liabilities;
(iv) any voluntary or other proceeding is commenced (by the
filing of any originating process or notice or
otherwise) by or against the Party seeking appointment
(provisional, interim or permanent) of a receiver,
manager, receiver and manager, trustee, sequestrator,
custodian, liquidator or Person with like or comparable
powers for that Party or for all or substantially all
of its property, assets and undertaking, and
(a) such proceeding is not contested, diligently and
on a timely basis, by that Party;
<PAGE>
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(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such proceeding, or
(c) such proceeding is not dismissed, withdrawn or
permanently stayed within sixty (60) days of
commencement;
(v) any secured creditor of the Party takes possession or control
(actual or constructive) of, or appoints any agent, receiver,
manager, receiver and manager or Person with like or
comparable powers in respect of, that Party or all or
substantially all of its property, assets and undertaking; or
(vi) a majority of the directors or shareholders of the
Party voting thereon pass or ratify any resolution (A)
except as part of a bona fide corporate reorganization,
for its liquidation, winding up or dissolution, (B) to
authorize any voluntary proceeding by or in respect of
that Party described above or (C) to consent to or
refrain from contesting any proceeding or step against
or in respect of that Party or its property, assets or
undertaking described above.
"BUSINESS" means the business carried on by ADSC in connection with
which the United States Marks are used.
"BUSINESS DAY" means any day of the year, other than a Saturday, Sunday
or any day on which the banks are required or authorized to close in Dallas,
Texas, United States of America.
"CANADIAN PROGRAMME" means any program(s) or business(es) that
involve(s) three (3) or more sponsoring companies in any product or service
category or industry and which offer(s) only entitled members with addresses in
Canada or any other geographic region in which ADSC or any of its Affiliates has
a license from AMIH to similar effect to this Agreement, airline seats, airline
miles, airline or any other services, awards or value of any nature (whether or
not by virtue of exchanging, converting or redeeming coupons, tickets, points or
other tangible or intangible rights) in connection with the purchase of goods or
services of any party and which operates for more than three (3) months duration
and the operation of travel agency services.
"CATEGORY" means the business sector granted to a Sponsor
within the Territory.
"CONCURRENT USE AGREEMENT" means the Concurrent Use Agreement between
AMIH, Air Miles International Trading B.V., Air Miles Travel Promotions Limited,
Loyalty Management Group Inc., LMGC, and AMI Funding, Inc. entered into as of
the 13th day of May, 1994, as amended, supplemented or restated in writing from
time to time.
<PAGE>
-4-
"INCLUDING" The terms "include", "including" and "such as" are
illustrative and not limitative and shall be interpreted to mean "including
without limitation"
"INSOLVENCY ACT" means the any bankruptcy, insolvency or other similar
law or statute of the United States or any other relevant jurisdiction relating
to bankruptcy, insolvency, stay of creditor remedies, moratorium, compromise,
arrangement, extension, adjustment or reorganization of debts or other
liabilities, liquidation, winding up or dissolution.
"INTERNLC REGISTRATION RIGHTS" means all rights associated with the
registration of a Mark, being a domain name or URL with InterNIC or any other
entity now or hereafter serving a domain name registration function with respect
to any jurisdiction, including the Territory.
"LICENSED NAME" means any corporate name, trading style and/or business
name of ADSC or its Affiliates which is or includes any United States Mark.
"LMGC" means Loyalty Management Group Canada Inc. a Canadian
company with its office located at 4110 Yonge Street, Suite 200,
North York, Ontario Canada.
"MARK" means any name, brand, mark, trademark, service mark, trade
dress, trade name, business name, Uniform Resource Locator ("URL"), domain name
or other indicia of origin.
"MARKETING SPECIFICATIONS" means AMIH's reasonable standards and
guidelines relating to the permitted use, depiction, graphic display, marketing,
advertising and promotion of any of the AMIH Marks and any Licensed Name in
association with the Programme, as they may be amended, modified or supplemented
from time to time in accordance with this Agreement, which shall be reflected in
writing.
"MASTER SPECIFICATIONS" means the applicable Quality
Specifications and Marketing Specifications for the Programme.
"NON-UNITED STATES MARKS" means the registered or common law trademarks
and service marks subsisting outside the Territory comprising or including the
words Air Miles or the Air Miles Device and which are owned or used by AMIH or
any of its Affiliates, licensees, successors or assignees.
"PARTY" means either AMIH or ADSC; and "Parties" means AMIH and ADSC
collectively.
"PERSON" includes an individual, a legal personal representative,
corporation, company, body corporate, partnership, limited partnership, joint
venture, syndicate,
<PAGE>
-5-
trust, unincorporated organization, the United States government or any agency
or instrumentality thereof, regulatory authority or any other entity recognized
by law, howsoever designated or constituted.
"PROGRAMME" means any program(s) or business(es) that
involve(s) three (3) or more sponsoring companies in any product or service
category or industry and which offer(s), only entitled members with addresses in
the Territory or any other geographic region in which ADSC or any of its
Affiliates has a license from AMIH to similar effect to this Agreement, airline
seats, airline miles, airline or any other services, awards or value of any
nature (whether or not by virtue of exchanging, converting or redeeming coupons,
tickets, points or other tangible or intangible rights) in connection with the
purchase of goods or services of any party and which operates for more than
three (3) months duration and the operation of travel agency services.
"QUALITY SPECIFICATIONS" means AMIH's reasonable specifications
relating to the standards of the wares or services bearing the United States
Marks for the Programme, as they may be amended, modified or supplemented from
time to time in accordance with this Agreement, which shall be reflected in
writing.
"RELATED AGREEMENTS" means collectively, the United States
Intellectual Property License and the Concurrent Use Agreement.
"SHARE PURCHASE AGREEMENT" means the agreement for the purchase of all
the shares of LMGC made as of June 26, 1998, as amended in writing from time to
time, among ADSC and each of the shareholders of LMGC at that date.
"SPONSORS" means those businesses participating in the Programme in
conjunction with the offer of wares or services to consumers within the
Territory and includes the Suppliers.
"SUPPLIERS" means those businesses offering wares or services in
connection with exchanges, conversions or redemptions under the Programme.
"TERRITORY" means the current geographic area and territory of the
United States of America including Puerto Rico and any other area or territory
which becomes a state of the United States of America, unless AMIH or its
licensees are operating a Programme (except that the entitled members thereof
have addresses in the area or territory rather than the Territory) in that area
or territory at the time it becomes a state.
"THIRD PERSON" means any Person other than AMIH and its Affiliates and
ADSC and its Affiliates.
<PAGE>
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"UNITED STATES INTELLECTUAL PROPERTY LICENSE" means the
Licence to Use and Exploit the Air Miles Scheme in the United
States between Air Miles International Trading B.V. and ADSC of
even date herewith;
"UNITED STATES MARKS" means the Marks owned by AMIH or its Affiliates
whether pending or registered in accordance with the Lanham Act, from time to
time, particulars of which are set out in Schedule 1 hereof and as such Schedule
may be updated by agreement of the Parties and/or those Marks owned by AMIH or
its Affiliates and used in the Territory by AMIH or its licensees in association
with the Programme from time to time (and as such Marks may be modified or
supplemented by agreement of the Parties), excluding the ADSC Marks;
ARTICLE 2
LICENSE
2.1 AMIH hereby grants to ADSC, subject to the terms of this Agreement, an
exclusive right and license to use the United States Marks in the Territory in'
association with the Programme only and the marketing, advertising and promotion
thereof in any media in the Territory or any other geographic region in which
ADSC or any of its Affiliates has a license from AMIH to similar effect to this
Agreement, including the right to sub-license the use of the United States Marks
in the Territory in accordance with the provisions of this Agreement. Provided
that ADSC's use of a Non-United States Mark in the Territory in association with
the Programme would not violate the rights of any Third Person (which has not
obtained such rights from or through AMIH or an Affiliate), AMIH hereby grants
to ADSC, subject to the terms of this Agreement, an exclusive right and license
effective from the date hereof to use the Non-United States Marks in the
Territory in association with the Programme only, including the right to
sub-license the use of such Non-United States Marks in the Territory in
accordance with the provisions of this Agreement. Except as provided in Article
2.3 herein, AMIH agrees not to license to anyone else the right to use a
Non-United States Mark in the Territory. The exclusivity of the license is
subject to the rights of AMIH, its Affiliates, successors and assignees together
with their respective licensees and sub-licensees mentioned in Articles 2.3 and
2.4 hereafter.
2.2 AMIH hereby grants a non-exclusive right to ADSC, with a right to
sub-license its applicable Sponsors and sub-licensees, for and further agrees
that it will not and will ensure that its Affiliates, successors, assignees or
any of their licensees or sub-licensees will not object to the use of the AMIH
Marks outside the Territory by such of the Sponsors as provide travel or
entertainment related services for business and other travellers including, for
the avoidance of doubt, airline, car rental and/or hotel services and/or by ADSC
and/or by ADSC's applicable sublicensees only in connection with the provision
of travel or entertainment related services including, for the avoidance of
doubt, airline, car rental and/or hotel
<PAGE>
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services to the extent only that such use is incidental to the operation of the
Programme in the Territory. ADSC shall not itself have any other right to use
the AMIH Marks outside the Territory. ADSC's right to use of the AMIH Marks
outside the Territory shall include the right to display, for the purposes of
promotion and advertisement, such Marks including on or through the World Wide
Web on the Internet or through other electronic media.
2.3 Notwithstanding Article 2.1 ADSC shall not object to the use of the AMIH
Marks by AMIH, its Affiliates, successors and assignees together with their
respective licensees and sub- licensees in the Territory only in connection with
the provision of travel or entertainment related services including, for the
avoidance of doubt, airline, car rental and/or hotel services to persons
providing travel or entertainment related services for business and other
travellers, to the extent only that such use is incidental to the rights of
AMIH, its Affiliates, successors and assignees together with their respective
licensees or sub- licensees to carry out activities in connection with the
operation of sales promotion and/or incentive or loyalty schemes outside of the
Territory.
2.4 AMIH, its Affiliates, successors and assignees may use the United
States-Marks in the Territory for the purposes of promoting their activities to
issuers or potential issuers of points, credits, vouchers or other incentives in
connection with the operation of sales promotion and/or incentive or loyalty
schemes conducted outside the Territory. In so doing, AMIH, its Affiliates,
successors and assignees must co-operate with ADSC with respect to the promotion
of the Business. ADSC, its Affiliates, successors and assignees may use the
Non-United States Marks outside of the Territory for the purposes of privately
promoting their activities to issuers or potential issuers of points, credits,
vouchers or other incentives in connection with the operation of sales promotion
and/or incentive or loyalty schemes conducted in the Territory, but shall not
make such advertisements or promotion to the public in general.
2.5 Subject to this Agreement, AMIH reserves the right to use and license the
use of the AMIH Marks outside the Territory, whether in connection with sales
promotion and incentive schemes similar to the Programme or otherwise.
2.6 The Parties agree that the Concurrent Use Agreement shall not be amended or
terminated during the term of this Agreement without the prior written consent
of the Parties.
ARTICLE 3
SUB-LICENSE RIGHTS
3.1 AMIH agrees that ADSC may grant non-exclusive sub-licenses to Sponsors to
use the United States Marks in the Territory in connection with the Programme
only, with or without exclusivity in the relevant Category. If the terms and
<PAGE>
-8-
conditions of such sub-licenses are consistent with the terms and conditions of
the current sub-license arrangements with the Sponsors currently sub- licensed
by LMGC in Canada in conjunction with participation by those Sponsors in the
Canadian Programme, AMIH hereby grants its consent to such sub-licenses. If the
terms and conditions of such sub-licenses are not consistent with such current
sub-license arrangements, ADSC shall submit to AMIH a copy of each such license
agreement and AMIH shall provide written notice of any objections thereto within
ten (10) Business Days, failing which AMIH shall be deemed to have consented to
such sub-license arrangement. In any event, AMIH's consent to such sub-licenses
shall not be unreasonably withheld.
3.2 AMIH agrees that ADSC may agree in the sub-license agreements as mentioned
under Article 3.1 with Sponsors in respect of the Programme in the Territory
that neither AMIH nor their Affiliates, successors, assignees, licensees or sub-
licensees will object to the use by such Sponsors of the AMIH Marks outside the
Territory only to the extent that such use is in accordance with the rights
granted in Article 2.2 above.
3.3 It shall be a term of all sub-licenses granted pursuant to Article 3.1 above
that the Sponsors undertake not to engage in any advertising or promotion
outside the Territory for the Programme or the participation of the Sponsors in
the Programme PROVIDED ALWAYS that incidental references to the participation of
the Sponsors in the Programme in the Territory may be made in promotional
materials such as brochures outside the Territory incidental to the distribution
inside the Territory provided that any use of the Marks in such promotional
materials shall clearly indicate that the Sponsors participate in the Programme
in the Territory and that the Programme is only open to entitled members with
addresses in the Territory.
3.4 In this Agreement, where ADSC agrees to ensure that all sub- licensees of
the AMIH Marks appointed by ADSC comply with an obligation, this means:
(i) ADSC shall impose a contractual obligation on the sub-
licensees to observe such obligations; and
(ii) where ADSC becomes aware of any non-compliance by any
sub-licensee with any such obligation, ADSC shall use
reasonable efforts to ensure that such sub-licensee complies
with such obligation.
3.5 The Parties acknowledge that ADSC has no obligation to (but may) amend any
agreement with any existing Sponsor and that any and all such agreements with
any Sponsors remain unaffected hereby.
3.6 For greater clarity, ADSC may sub-license its rights hereunder to an
Affiliate to the extent considered by ADSC, acting reasonably, advisable for the
operation of travel agency services in the Territory.
<PAGE>
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ARTICLE 4
STANDARDS OF QUALITY
4.1 In using the AMIH Marks hereunder ADSC shall comply so far as it is capable
of doing so and shall ensure that all sub- licensees of the AMIH Marks appointed
by ADSC comply so far as they are capable of doing so in the manufacturing and
distribution, advertising, marketing and promotion of wares and services under
the AMIH Marks in relation to the Programme with all applicable laws in force in
the Territory and all other countries in which sub-licensees appointed by ADSC
use the AMIH Marks in the manufacture and distribution, advertising, marketing
and promotion of wares or services under such AMIH Marks in relation to the
Programme.
4.2 In using the AMIH Marks here under, ADSC shall and shall cause its
sub-licensees to meet the Master Specifications, provided that:
(i) subject to Article 4.2(ii) below, on an ongoing basis, the
Master Specifications are the Master Specifications imposed by
AMIH and maintained by LMGC in respect of the Canadian
Programme at the date. of this Agreement; and
(ii) the Master Specifications may be amended, modified or
supplemented from time to time by AMIH, provided that ADSC
consents to the changes in such Master Specifications and is
provided with a reasonable period of time to comply with such
changes. ADSC will have a period of ninety (90) days to
rectify any breach of the Master Specifications after receipt
from AMIH of notice of such breach, providing particulars of
such breach. Any extension of the cure period may be mutually
agreed upon by the Parties, acting reasonably, taking into
account primarily the materiality and nature of the breach and
the impact of the breach on AMIH's rights in the AMIH Marks
and otherwise what would be a reasonable time within which to
effect a cure and any reasonable efforts ADSC is making to
meet the Master Specifications. ADSC will not be in breach of
this Agreement if it is meeting most of the Master
Specifications and is taking reasonable steps to meet the
balance of the Master Specifications, any failure to comply
with any Master Specification does not negatively impact
customer perceptions of quality or negatively affect any of
AMIH's rights in the AMIH Marks and/or are not material to
customer perceptions. If a dispute arises between AMIH and
ADSC as to the materiality of a breach of the Master
Specifications, the matter will be resolved pursuant to
Article 19.
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ARTICLE 5
USE OF THE MARKS
5.1 ADSC shall be entitled to use any or all of the United States Marks
including the words Air Miles as or as part of the
Licensed Name(s) of ADSC or any of its Affiliates incorporated in the Territory
provided that it is legally able to do so.
5.2 ADSC may use any URL featuring any or part of the United States Marks
including the words Air Miles and may use a domain name featuring any or part of
the United States Marks including the words Air Miles including for any
Internet-based products or services that ADSC offers as part of or in
furtherance of the Programme, providing such URL or domain name includes an
identifier of the Territory. ADSC's web site accessed through such domain name
must also identify the Territory. ADSC may own any InterNIC Registration Rights
therein in its sole discretion.
5.3 AMIH and ADSC agree to consider in good faith any incidents of actual
confusion or circumstances giving rise to a reasonable apprehension of confusion
between the operation of the Programme by ADSC and/or its sub-licensees of the
AMIH Marks and the activities of AMIH and their respective Affiliates and/or
licensees under the AMIH Marks which may come to the attention of either Party
and the Party responsible for such incidents of confusion or circumstances shall
take reasonable steps to ensure that similar confusion or potential confusion
does not arise in the future.
5.4 Where ADSC becomes aware of a material or persistent breach, that materially
affects the rights of AMIH, of the terms of any sub-license by a sub-licensee of
the AMIH Marks appointed by ADSC and such breach continues for at least sixty
(60) days after ADSC has given notice requiring the breach to be remedied ADSC
shall by means of an escalating course of discipline culminating in termination
assert the rights legally available to it to ensure compliance with the
provisions of such sub-license agreement.
5.5. Where ADSC becomes aware of a challenge to the validity of, or entitlement
of ADSC to use or license any of the AMIH Marks by a sub-licensee of the AMIH
Marks appointed by ADSC, ADSC shall by means of an escalating course of
discipline culminating in termination assert the rights legally available to it
to ensure compliance with the provisions of such sub-licensee's sub-license in
relation to such AMIH Marks.
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ARTICLE 6
USE OF ADSC MARKS
6.1 ADSC may use, continue to use and adopt any ADSC Marks in respect of any
wares and services including in relation to the Programme and in association
with any of the United States Marks. ADSC may register any ADSC Marks in the
Territory in respect of any wares and services including in relation to the
Programme. ADSC may associate intellectual property belonging to a Third Person
with the United States Marks or Licensed Names. ADSC may co-mingle the ADSC
Marks with the United States Marks and Licensed Names. Further, any Marks which
are developed after the date hereof by ADSC and which are not confusingly
similar to AMIH Marks shall be owned by ADSC and AMIH and/or any of its
Affiliates shall not have any ownership rights whatsoever therein and shall not
use, adopt or register such Marks (in any jurisdiction where they would be
registrable by ADSC) in the world. None of the foregoing shall permit ADSC to do
anything which would impair any of the rights of AMIH in the AMIH Marks in the
Territory.
6.2 ADSC may provide services and distribute wares and invest in businesses or
non-commercial enterprises under the ADSC Marks.
ARTICLE 7
ASSIGNMENT OF UNITED STATES MARKS
7.1 If AMIH wishes to assign or transfer the United States Marks, either
directly or indirectly by or through AMIH or AMIH's Bankruptcy, other than to an
Affiliate, no such assignment or transfer shall be effective unless AMIH
provides ADSC notice of its intention to do so and gives ADSC thirty (30) days
written notice within which to bid on such United States Marks for the purposes
of owning either directly or indirectly such United States Marks. The foregoing
provision shall not, in any way, obligate AMIH to accept any bid which ADSC
submits. Any such assignee or transferee must be bound in writing by the grant
of the license set out in this Agreement.
ARTICLE 8
ROYALTY FREE LICENSES
8.1 The Licenses granted hereunder by AMIH to ADSC shall be royalty free.
ARTICLE 9
REGISTRATION AND RENEWALS
9.1 AMIH shall, for so long as this Agreement remains in force, ensure that the
registrations of such of the United States Marks as are registered will be
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renewed as and when they fall due for renewal. Subject to Article 11.4 solely,
the costs of the renewals or registrations and all expenses in relation to the
United States Marks incurred from the date hereof shall be paid in full by AMIH.
9.2 ADSC shall not and shall make reasonable efforts to ensure that all
sub-licensees of the AMIH Marks appointed by ADSC shall not use or register, in
respect of any relevant wares and/or services, any trademark being the same or
confusingly similar to any of the AMIH Marks without the prior consent of AMIH.
9.3 AMIH shall if requested by ADSC make such further applications in the
Territory for the AMIH Marks as both Parties hereto shall consider necessary or
desirable having in mind reasonable costs and expenses for the protection of
their trading activities and such Marks shall be licensed to ADSC in accordance
with the terms of this Agreement. AMIH shall bear the costs of such applications
and any subsequent registrations or renewals. Any trade-mark covered by such
application shall be deemed to be a Mark pursuant to this Agreement and shall be
added to the United States Marks. Nothing in the foregoing provision is intended
to prevent ADSC from itself applying to register trademarks which ADSC uses or
otherwise adopts or intends to use or adopt provided that such trade-marks are
not confusingly similar to any of the AMIH Marks.
9.4 Should AMIH develop or own or be entitled to use any new Mark(s) which it
wishes to add to the United States Marks, it or they shall be so added after
consultation with ADSC and on terms and conditions acceptable to ADSC. In any
case, ADSC need not adopt any such additional Marks unless a reasonable
transition period is agreed to by the Parties for the adoption of such Marks.
Determinations that Marks are to be added to the United States Marks should be
reduced to writing and added to the list of Marks in Schedule 1 to this
Agreement.
ARTICLE 10
REPRESENTATIONS AND WARRANTIES
10.1 AMIH Warranties
AMIH hereby represents and warrants to ADSC as of the date of this Agreement the
following:
(i) to the best of AMIH's knowledge and belief, AMIH has full
power and authority to enter into and perform this Agreement,
including to grant the license in Article 2 and to perform
each and every covenant and agreement herein contained;
<PAGE>
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(ii) this Agreement has been duly authorized, executed and
delivered by AMIH and constitutes a valid, binding and legally
enforceable agreement of AMIH;
(iii) to the best of AMIH's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which AMIH is either bound or subject;
(iv) to the best of AMIH's knowledge and belief, AMIH's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of any state or territory of
the Territory which could give rise to the imposition of a
material fine, penalty or sanction levied on ADSC by any
applicable regulatory authority in the Territory;
(v) AMIH has not granted any rights or licenses, which are
subsisting at the date hereof, to any of its Affiliates or to
any other Third Party to use the United States Marks in the
Territory save in the circumstances' permitted in Articles 2.3
and 2.4 above;
(vi) the registrations for the United States Marks
identified in Schedule 1 on the effective date of this
Agreement subsist on the United States Trademark
Register in the name of AMIH. To the best of AMIH's
knowledge and belief there are no opposition
proceedings currently pending against such Marks in the
U.S. Patent and Trademarks Office, there have been no
court proceedings successfully challenging the validity
of such Marks, and no court proceedings challenging the
validity of such Marks are currently outstanding; and
(vii) except for the Concurrent Use Agreement, AMIH is not a party
to or bound by any contract or other obligation whatsoever
that limits or impairs its ability to license the United
States Marks to ADSC.
10.2 ADSC Warranties
ADSC hereby represents and warrants to AMIH as of the date of this
Agreement the following:
(i) ADSC has full power and authority to enter into and perform
this Agreement and to perform each and every covenant and
agreement herein contained;
(ii) this Agreement has been duly authorized, executed and
delivered by ADSC and constitutes a valid, binding and legally
enforceable agreement of ADSC;
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(iii) to the best of ADSC's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which ADSC is either bound or subject; and
(iv) to the best of ADSC's knowledge and belief, ADSC's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of
any province or territory of the Territory which could give
rise to the imposition of a fine, penalty or sanction by any
applicable regulatory authority in the Territory.
ARTICLE 11
TITLE AND GOODWILL
11.1 ADSC acknowledges that its sole right to use the AMIH Marks and any
trademarks confusingly similar there to derives from this Agreement and that it
does pot have any rights to use the AMIH Marks or any marks confusingly similar
thereto save as provided herein. ADSC agrees to include in all sub-licenses an
acknowledgment by sub-licensees appointed by ADSC to use the AMIH Marks that
their sole right to use the AMIH Marks and any trademarks confusingly similar
thereto derives from such sub-license and that they do not have any rights to
use the AMIH Marks or any marks confusingly similar thereto save as provided
therein.
11.2 ADSC shall, if reasonably requested by AMIH from time to time and to the
extent practicable, for the protection of the AMIH Marks include and ensure that
any sub-licensees of the AMIH Marks appointed by ADSC within a reasonable period
of time include in advertisements in the press and elsewhere and on the goods or
labels or containers used in connection with the sale of the goods and/or the
provision of services under the AMIH Marks a notice to the effect that the AMIH
Marks and each of them are trademarks of AMIH or its successors in title.
11.3 All rights arising from the use by ADSC or its sub-licensees of the AMIH
Marks shall inure to the benefit of AMIH or its successors in title and all
goodwill symbolized by the AMIH Marks shall belong to and accrue to AMIH or its
successors in title.
11.4 The Parties acknowledge that use of the United States Marks by ADSC in the
Territory may be required to maintain the validity of the United States Marks.
If AMIH, acting reasonably, considers that any one of the United States Marks
has not been used in the Territory in relation to the Programme, it shall be
entitled to serve notice on ADSC requesting brief details of any use of the
relevant United States Marks within the period of four years prior to the date
of the notice or within a
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period of three months after the date of the notice. If in the reasonable
opinion of AMIH, ADSC has not demonstrated that use of the relevant United
States Marks has taken place to the extent necessary to preserve and maintain
the validity of the said registration for the United States Marks and provided
such United States Marks are material to the United States business of ADSC,
AMIH may, in its sole discretion, require ADSC to make use of such United States
Mark solely to the extent required to maintain the registration of such United
States Mark. Notwithstanding the foregoing, AMIH has the option not to renew any
registration of such United States Mark if ADSC is not using such in the
Territory.
ARTICLE 12
INDEMNITY
12.1 ADSC shall indemnify AMIH and hold it harmless and defend it from and
against all damage, including reasonable counsel fees, which AMIH may incur in
respect of all claims which may be made against AMIH (whether separately or as
joint defendants) arising out of the manufacture, packaging, or any other cause
relating to any wares sold and/or services provided by or on behalf of ADSC or
its sub-licensees under the AMIH Marks, except insofar as any such claim may be
found to arise from any omission or failure on the part of AMIH.
12.2 AMIH shall indemnify ADSC and hold it harmless and defend it from and
against all damages, including reasonable counsel fees, which ADSC may incur as
a result of any breach of warranties as stated in Article 10 with regard to the
United States Marks only.
ARTICLE 13
INFRINGEMENT
13.1 The Parties agree to give each other prompt written notice of any
infringement or other similar action in or affecting the Territory by a Third
Party of the AMIH Marks known to them.
13.2 In the event of such infringement or other similar action, ADSC has the
obligation to protect any of the Non-United States Marks which ADSC has been
using in the preceding 12 month period and the United States Marks in the
Territory and may decide whether or not any action is necessary for such
protection and what such action might be, taking into account the interests of
both Parties. ADSC has the right to act in its own name or if necessary in the
name of AMIH. For the term of this Agreement AMIH hereby gives ADSC a power of
attorney in the form attached hereto as Schedule 3 to act on its behalf if any
action in or out of court in connection with such actions is necessary. ADSC
will select counsel, to which AMIH has no reasonable objection and AMIH will
provide reasonable assistance, including by providing information, documents and
things in response to discovery
<PAGE>
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requests, by providing at mutually convenient times witnesses for discovery,
depositions and trial testimony, and by permitting ADSC to cause AMIH to be
named as a party plaintiff or co- plaintiff in U.S. litigation. All expenses,
including any expenses incurred by AMIH to provide such assistance, shall be
borne by ADSC and ADSC shall be entitled to any amounts awarded to ADSC or AMIH.
ADSC shall not enter into any settlement of such actions without the written
consent of AMIH, which consent shall not be unreasonably withheld.
13.3 If any action or proceeding is brought or asserted by ADSC,
under the authority granted to it under Article 13.2, ADSC will promptly notify
AMIH in writing. AMIH may assume and direct the action or proceeding only
provided that ADSC initiates no action or takes no action in such action or
proceeding. Upon assumption of the action or proceeding by AMIH, all expenses
shall be borne by AMIH and AMIH shall be entitled to any amounts awarded to ADSC
or AMIH. AMIH shall not enter into any settlement of such actions without the
written consent of ADSC, which consent shall not be unreasonably withheld.
ARTICLE 14
DURATION AND TERMINATION
14.1 This Agreement shall continue in force indefinitely from the date hereof,
subject only to the rights of the Parties with respect to termination provided
in this Article 14, and shall not be terminable by either Party in any other
circumstances, whether upon reasonable notice or otherwise.
14.2 AMIH shall have the right to terminate this Agreement upon six months
notice in writing to ADSC if ADSC fails to commence within seven (7) years of
the date hereof the operation of the Programme or ceases for a continuous period
of seven (7) years to be involved in operation of the Programme.
14.3 The rights of ADSC in the Territory in relation to any United States Mark
incorporating the words Air Miles or the Air Miles Device shall terminate in
accordance with Article 14.4 below if ADSC challenges the validity of or
entitlement of AMIH to use or license, such Mark. If a Court of competent
jurisdiction in a final non-appealable judgment in the Territory other than at
the request of ADSC holds that such Marks which are material to the Programme
are invalid or that AMIH is not entitled to use or license such Marks in the
Territory, ADSC may in its sole discretion terminate this Agreement.
14.4 (1) Subject to compliance with the provisions of Article 19 requiring
dispute resolution, either Party shall have the right to terminate this
Agreement forthwith at any time on giving the other written notice of
termination in any of the following events:
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(i) the other Party commits any breach of its obligations
here under and fails to remedy such breach within
ninety (90) days (or such longer period as the
Parties may agree) after being given written notice
by the other Party to remedy such default; provided
however that if ADSC and its sub- licensees are
diligently pursuing the remedy or cure of such
failure during the cure period, the cure period shall
be extended for a further ninety (90) days; or
(ii) Bankruptcy shall have occurred in respect of the
other Party, provided that termination shall not
occur at anytime during:
(A) the exercise of any rights or remedies by a secured
creditor of ADSC who has taken a security interest in
ADSC's rights under this Agreement either (a) in
compliance with Article 16.3, or (b) with the written
consent of AMIH; provided that the payment of all
amounts from time to time due and payable by ADSC
hereunder continue to be duly paid and the
performance of all covenants from time to time to be
performed by ADSC hereunder continue to be duly
performed; or
(B) any proceeding under an Insolvency Act involving a
restructuring or reorganization of ADSC under court
supervision and/or any disposition of ADSC's business
as a whole or substantially as a whole pursuant to
any such proceeding, in either case, so long as such
proceeding is continuing.
(2) If either Party validly terminates the United States Intellectual
Property License in accordance with the terms thereof, this Agreement shall
terminate at the same time as the United States Intellectual Property License.
14.5 Upon termination of this Agreement ADSC shall within a period of six (6)
months:
(i) cease to carry on business under the name "Air Miles"
and cease to use the AMIH Marks;
(ii) deliver to AMIH any materials in its possession or under its
control which fail to meet the standard of quality set out in
Article 4 above or otherwise fail to comply with the terms
hereof and which reproduce the AMIH Marks or give AMIH
satisfactory evidence of their destruction;
(iii) insofar as its Licensed Name(s) include(s) any United States
Mark, change such names to names that do not incorporate such
Marks or any Marks confusingly similar thereto;
(iv) terminate all sub-license agreements with sub-licensees of the
AMIH Marks appointed by ADSC; and
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(v) terminate use of any URL and/or domain name containing any
United States Mark.
14.6 For the avoidance of doubt, it is agreed that any
termination of this Agreement, whether in whole or in part, shall be without
prejudice to any rights held by any Party which may have accrued up to the date
of termination. Further, ADSC may continue to use the ADSC Marks.
ARTICLE 15
NON-COMPETITION
15.1 During the term of this Agreement and subject to Article 2.3 below, AMIH,
its Affiliates or its successors shall not utilize any AMIH Marks or any Marks
confusingly similar thereto in or as part of any Programme or any program
similar there to, in competition with ADSC or its Affiliates, directly or
indirectly in the Territory or grant any of their assignees, licensees or
sub-licensees a license or sub-license to do so.
ARTICLE 16
ASSIGNMENT/SUCCESSORS
16.1 This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.
16.2 Subject to Article 7.1, AMIH may at any time or from time to time assign,
sell or transfer all but not less than all of its rights under this Agreement,
either absolutely or by way of security (including the rights and remedies of
the secured party relating to such security), as part of a financing involving
AMIH's business to any Person, in either case without the consent of, but with
prior notice to LMGC.
16.3 ADSC may at any time or from time to time assign, sell or transfer all but
not less than all of its rights under this Agreement, either absolutely as part
of the sale of all or substantially all of the Business or the assets of the
Business or by way of security (including the rights and remedies of the secured
party relating to such security), as part of a financing involving the Business
to any Person, in either case without the consent of, but with prior notice to
AMIH.
16.4 Except as provided in Article 7.1, a Party entering into any such
assignment shall remain liable here under notwithstanding such assignment
except, in the case of any indebtedness or claim arising after an absolute
assignment, if the assignee executes and delivers to the other Party an
assumption agreement of all indebtedness and obligations hereunder due and
payable or arising after such assignment.
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16.5 Except as provided in Article 7.1, either Party may amalgamate, merge or
consolidate with any Person and any such amalgamation, merger or consolidation
shall be deemed to be an assignment unless by operation of applicable law the
amalgamated, merged or consolidated successor corporation is subject to all
liabilities and all contracts, disabilities and debts of each of the predecessor
corporations.
ARTICLE 17
NOTICES
17.1 All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any party when delivered personally or by courier
service or when transmitted by telecopy to the applicable addresses set forth
below:
If to AMIH:
Air Miles International Holdings NV
Landhuis Joonchi, Kaya Richard J.
Beaujon z/n,
P.O. Box 837,
Curacao, Netherlands Antilles
Attention: Managing Director
Telephone: 599 97 366 277
Fax: 599 97 366 161
With a copy to:
Loyalty Management International Ltd.
Ocean House
Hazelwick Avenue
Crawley
West Sussex
RH10 INP England
Attention: Liam Cowdrey
Telephone: 01293 434000
Fax: 01293 433701
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If to ADSC:
Alliance Data Systems Corporation
5001 Valley Road
Suite 650, West Tower
Dallas, Texas U.S.A. 75244-3910
Attention: General Counsel
Telephone: (972) 960-4349
Fax: (972) 960-5330
or at such other address as the Party to whom such notice is to be given shall
have last notified (in the manner provided in this Article) the Party giving
such notice. Any notice delivered to the Party to whom it is addressed as
provided herein shall be deemed to have been given and received on the day it is
so delivered at such address and notice transmitted by telecopier shall be
deemed given and received on the day of its transmission, provided that if the
day of delivery or transmission is not a Business Day at the place of receipt or
the time of delivery or transmission i& after 5 p.m. at the place of receipt on
a Business Day, then the notice shall be deemed to have been given and received
on the next Business Day at the place of receipt.
ARTICLE 18
CONFIDENTIALITY
During the term of this Agreement, each Party shall keep confidential and
not divulge to any Person any information, whether written or oral, or otherwise
recorded, which is proprietary or confidential of the other including, but not
limited to, customer lists, data compilations and data systems, pricing methods,
cost information, financial information, strategic plans, finances, methods of
operation, marketing plans and strategies, equipment and operational
requirements, processes or products and services or intended products or
services of the other and information concerning personnel and customers;
provided however that neither Party shall have any confidentiality obligation
(i) as to information which has come into the public domain through no fault of
or action by such Party, (ii) to the extent such Party is required by law to
disclose, or (iii) as to information such Party may disclose to employees,
directors or advisors of such Party or an Affiliate thereof in connection with
performance of services for such Party; and provided further that AMIH shall
have no obligation with respect to any information of ADSC unless such
information relates exclusively to ADSC.
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ARTICLE 19
DISPUTE RESOLUTION
19.1 General Any dispute arising out of or relating to this Agreement, including
any dispute regarding the existence, validity, scope, enforceability or
termination of this Agreement and whether an issue is arbitrable (a "Dispute")
shall be resolved in accordance with the procedures specified in this Article
19, which shall be the sole and exclusive procedures for the resolution of any
such Disputes. The Parties shall attempt in good faith to resolve any Dispute
(including the validity, scope and enforceability of this Article 19) promptly
by negotiations between the Parties.
19.2 Negotiations between Executives
(a) AMIH and ADSC shall attempt in good faith to resolve
any dispute arising out of or relating to this
Agreement promptly by negotiation between executive
officers who have authority to settle the controversy
and who are at a higher level of management than the
Persons with direct responsibility for administration
of this Agreement. Either AMIH or ADSC may give to the
other written notice of any dispute not resolved in the
normal course of business. Within fifteen (15) days
after delivery of the notice, the receiving Party shall
submit to the other Party a written response. The
notice and the response shall include (i) a statement
of each Party's position and a summary of arguments
supporting that position, and (ii) the name and title
of the executive officer who will represent that Party
and of any other Person who will accompany the
executive officer. Within twenty (20) days after
delivery of the disputing Party's notice, the executive
officers of both Parties shall meet at a mutually
acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve
the dispute. All reasonable requests for information
made by one Party to the other Party will be honoured.
(b) All negotiations (including the existence, content and result
thereof) pursuant to this Article 19 shall be confidential,
non-discoverable in any judicial proceedings and treated as
compromise and settlement negotiations for purposes of
applicable rules of evidence.
19.3 Binding Arbitration
(a) If the Dispute is not resolved by negotiation within
forty-five (45) days (or any mutually agreed extension
of time) of the disputing Party's notice, or if the
Parties fail to meet within twenty (20) days of the
notice, either Party may, upon notice to the other
Party and the
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American Arbitration Association ("AAA") submit such Dispute
to arbitration administered by the AAA in accordance with the
International Commercial Arbitration Rules of the AAA
("Commercial Arbitration Rules").
(b) Such arbitration shall be based in New York, New York and
shall be conducted by three (3) arbitrators (who shall be
attorneys admitted to practice in one or more states and who
shall be experienced in matters relating to intellectual
property licenses) appointed as follows:
(i) the disputing Party shall appoint its nominee as
first arbitrator;
(ii) the receiving Party shall, within ten (10) days of
having received written notice from the disputing
Party of the nature of the dispute to be referred to
arbitration and of the identity of its nominee
arbitrator, appoint its nominee as second arbitrator;
(iii) if the appointment required by clause (ii) is not
made within the period therein stipulated, the
disputing Party shall be entitled to appoint as
second arbitrator a nominee of its choice who is not
related to the disputing Party and who shall be
deemed to be the nominee of the respondent to the
dispute;
(iv) the two nominees so appointed shall, within ten
(10) days of the date upon which the second of
them had been appointed as arbitrator, appoint a
third nominee as chairman of the tribunal. In the
event of their failure so to do within the
prescribed period, the third arbitrator shall be
appointed in accordance with the provisions of the
Commercial Arbitration Rules; and
(v) should a vacancy arise because any arbitrator
dies, resigns, refuses to act, or becomes
incapable of performing his functions, the vacancy
shall be filled by the method by which that
arbitrator was originally appointed. When a
vacancy is filled the newly established tribunal
shall exercise its discretion to determine whether
any previously completed hearings shall be
repeated.
(c) The arbitration will be in accordance with the then
current Commercial Arbitration Rules or any successor
AAA rules (the "Arbitration Rules") and the procedures
specified in this Article, to the extent they modify or
add to such Arbitration Rules. The arbitration shall be
heard in New York, New York and the arbitration will be
conducted at a neutral site in New York City selected
by the arbitrators.
(d) The arbitrators will have sole authority to resolve
issues of the arbitrability of Disputes, including the
applicability of any statute of
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limitation. The arbitrators may not amend or disregard any
provision of this Article and may not limit, expand or
otherwise modify the terms of this Agreement (including any
terms respecting the limitation of liability of any Person).
The arbitrators will have the power to order the pre- hearing
discovery of documents but such production shall be restricted
to documents (which shall include information recorded or
stored by means of any device) directly related to the
Dispute. The arbitrators will also have the power to order the
taking of examinations for discovery of no more than two (2)
witnesses per side (with the witnesses to be selected by the
adverse side) for a period of not more than three (3) hours
per witness, unless otherwise agreed. In addition, the
arbitrators may compel the attendance of witnesses and
production of documents at the hearing, to the extent provided
by the Arbitration Rules. The arbitrators will determine the
rights and obligations of the parties and decide the Dispute
in accordance with the substantive and procedural laws of the
State of New York and the federal laws of the United States.
(e) The Parties may seek injunctive relief either within
the arbitration, process or from the courts of the
State of New York or in the United States District
Court for the Southern District of New York
(collectively, the "Courts") and the Parties accept the
concurrent jurisdiction of the Courts for the purpose
of granting injunctive relief, as set out herein.
Within the arbitration process, Parties may seek either
interim or permanent relief. From the Court, Parties
may seek temporary injunctive relief. A Party seeking
temporary injunctive relief from the Court will
simultaneously file a claim in the arbitration for
interim and permanent relief in the manner specified
under this Article. If the Court issues a temporary
injunction against one of the Parties, the Court will
have jurisdiction to deal with all matters, including
appeals, concerning the temporary injunction. Any
requested arbitration concerning the subject-matter of
the injunction shall proceed before the arbitrator in
an expedited manner pursuant to Article 19.4.
(f) Time will be of the essence and the arbitrators' award
will be rendered as soon as practicable after
conclusion of the final hearing, but in any event not
later than one hundred and eighty (180) days after the
date of appointment of the third arbitrator unless
otherwise agreed or the time period is extended for a
fixed reasonable period by the arbitrators on written
notice to each Party because of illness or other cause
of an arbitrator beyond the arbitrator's control.
(g) The decision of any two of the three arbitrators shall be
final and binding on the Parties to the Dispute with no right
of appeal therefrom. The arbitrators' decision, reasons and
award will be in writing, setting forth the legal and factual
basis therefor (except with respect to the
<PAGE>
-24-
validity, infringement or misappropriation of any patents or
other proprietary rights of any Party, with respect to which
such award will be a bare award without findings or any
statement of legal or factual basis). The parties will abide
by and perform any award, including interim awards, rendered
by the arbitrators and judgment on such awards may be entered
and enforced in any court of competent jurisdiction.
(h) The fees and expenses of the arbitration, which may include
the costs of the AAA, the arbitrators, the arbitration site
and counsel will be in the sole discretion of the arbitrators.
(i) All information and documents disclosed in arbitration by any
Party will remain Confidential Information of the disclosing
Party, and the arbitrators and the Parties will (and will
cause their representatives, advisors and counsel to) hold the
existence, content and result of the arbitration in
confidence, except to the limited extent necessary to enforce
a final settlement agreement or to obtain and secure
enforcement of or a judgment on an arbitration award. No
privilege or right of a Party with respect to information or
documents disclosed by it in arbitration will be waived or
lost by such disclosure.
19.4 Expedited Binding Arbitration
The Parties agree that there shall be expedited arbitration pursuant to
this Article 19 to be completed in not more than ninety (90) days where there is
a genuine issue with respect to the following events:
(i) if AMIH or ADSC is enjoined pursuant to a temporary
injunction of one or more Courts;
(ii) if ADSC uses or licenses the use of the AMIH Marks outside the
Territory contrary to Articles 2 or 3;
(iii) if AMIH uses or licenses the use of the AMIH Marks inside the
Territory contrary to Articles 2 or 3; or
(iv) if the Related Agreements are or one of them is terminated by
any of the parties thereto.
<PAGE>
-25-
ARTICLE 20
MISCELLANEOUS
20.1 Name, Captions
The provision of a Table of Contents, the division of this
Agreement into Articles, Sections, Subsections and other subdivisions and the
insertion of headings are for convenience of reference only and shall not affect
or be utilized in the construction or interpretation of this Agreement.
20.2 Entire Agreement and Relationship Between the Parties
(a) This Agreement and the Related Agreements constitute the
entire agreement between the Parties pertaining to the matters contemplated
hereby and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties, relating to the subject
matter hereof.
(b) This Agreement is not a franchise and does not create a
partnership or joint venture. Neither Party shall have any right to obligate or
bind any other Party in any manner. Each of ADSC and AMIH is an independent
contractor, not an agent or employee of the other. The continuing obligations of
ADSC in this Agreement, including those obligations set forth in Articles 12.1,
14.6 and 19, and the continuing obligations of AMIH in this Agreement, including
those obligations of AMIH under Articles 12.2, 14.6 and 19, shall survive and
continue after the termination of this Agreement.
20.3 Amendments
No amendment of this Agreement shall be effective unless such
amendment is made in writing and signed by authorized representatives of the
Parties hereto.
20.4 Severability
If any provision of this Agreement is determined to be invalid
or unenforceable by an arbitrator or a court of competent jurisdiction from
which no further appeal lies or is taken, that provision shall be deemed to be
severed therefrom, and the remaining provisions of this Agreement shall not be
affected
<PAGE>
-26-
thereby and shall remain valid and enforceable; provided that in the event that
any portion of this Agreement shall have been so determined to be or become
invalid or unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for the
Parties the benefits and obligations of such offending portion. The invalidity
or unenforceability of any term or any right arising pursuant to this Agreement
shall in no way affect the validity or enforceability of any of the remaining
terms or rights.
20.5 Specific Performance/Injunctive Relief
The Parties acknowledge and agree that money damages are not
an adequate remedy for violations of this Agreement and that any Party may, in
its sole discretion, notwithstanding Article 19, apply to Courts of the State of
New York, including the Federal Court of the United States having jurisdiction
in that state, for specific performance or for temporary injunctive relief or
such other temporary relief (equitable or otherwise) as
such court may deem appropriate in order to enforce this Agreement or to prevent
any violation hereof, and each Party waives any objection to the imposition of
such relief and any requirement for the posting of any security, including a
bond, with respect to such relief.
20.6 Remedies Cumulative
All rights, powers and remedies provided under this Agreement
or otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by either Party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such Party.
20.7 No Waiver
No waiver of any of the provisions of this Agreement is
binding unless it is in writing and signed by the Party entitled to grant the
waiver. No failure to exercise, and no delay in exercising, any right or remedy
under this Agreement will be deemed to be a waiver of that right or remedy. No
waiver of any breach of any provision of this Agreement will be deemed to be a
waiver of any subsequent breach of that provision.
<PAGE>
-27-
20.8 Further Assurances
The Parties will, from time to time during the course of this
Agreement or upon its expiry and without further consideration, execute and
deliver such other documents and instruments of transfer, conveyance and
assignment and take such further action as the other may reasonably require to
effect the transactions contemplated thereby.
20.9 Extended Meanings
Any reference in this Agreement to gender shall include all
genders, and words importing the singular number only shall include the plural
and vice versa.
20.10 No Third Party Beneficiaries
Each Party intends that this Agreement shall not benefit or
create any right or cause of action in or on behalf of any Person, other than
the Parties and their Affiliates, and no Person, other than the Parties, shall
be entitled to rely on the provisions hereof in any action, suit, proceeding,
hearing or other forum.
20.11 Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, taken together,
shall constitute one and the same
instrument. Each counterpart may consist of a number of copies each signed by
less than all, but together signed by all, the Parties.
20.12 No Liability of Shareholders
No shareholder of ADSC or the successors or transferees of a
shareholder of ADSC shall be liable for any of the obligations of ADSC
hereunder. No shareholder of AMIH or the successors or transferees of a
shareholder of AMIH shall be liable for any of the obligations of AMIH
hereunder.
<PAGE>
-28-
20.13 Statutory References
Unless expressly stated to the contrary, any references in
this Agreement to any law, by-law, rule, regulation, order or act of any
government, governmental body or other regulatory authority shall be construed
as a reference there to as enacted at the date of this Agreement as such law,
by-law, rule, regulation, order or act may be amended, re-enacted or superseded
from time to time.
20.14 Business Day Payments
If under this Agreement any payment or calculation is to be
made or any other action is to be taken on a day which is not a Business Day,
that payment or calculation is to be made, and that other action is to be taken,
as applicable, on or as of the next day that is a Business Day.
20.15 References
In this Agreement, references to "hereof", "hereto", and
"hereunder" and similar expressions mean and refer to this Agreement taken as a
whole, and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision of this
Agreement followed by a number means and refers to the specified Article,
Section, Subsection or other subdivision of this Agreement.
20.16 Currency
In this Agreement, all references to currency shall be
references to the lawful currency of the Territory.
20.17 Schedules
The following Schedules are attached to and form part of this
Agreement:
Schedule Description
SCHEDULE 1 UNITED STATES MARKS
SCHEDULE 2 ADSC MARKS
SCHEDULE 3 POWER OF ATTORNEY
<PAGE>
-29-
20.18 Limitation of Liability
THE PARTIES (INCLUDING FOR THIS PURPOSE THEIR AFFILIATES)
EXPRESSLY ACKNOWLEDGE AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S
INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR PUNITIVE,
EXEMPLARY OR AGGRAVATED DAMAGES OR FOR DAMAGES FOR LOST PROFITS, LOST REVENUES
OR FAILURE TO REALIZE EXPECTED SAVINGS, REGARDLESS OF WHETHER SUCH LIABILITY
ARISES IN OR IS BASED UPON TORT (INCLUDING NEGLIGENCE), CONTRACT (INCLUDING
FUNDAMENTAL BREACH OR BREACH OF A FUNDAMENTAL TERM), BREACH OF TRUST OR
FIDUCIARY DUTY, RESCISSION OF CONTRACT, RESTITUTION, INDEMNIFICATION OR
OTHERWISE.
20.19 Time of the Essence
Time shall be of the essence of this Agreement.
20.20 Costs and Expenses
Except as otherwise or expressly provided in this Agreement,
each Party shall pay all costs and expenses it incurs in authorizing, preparing,
executing and performing this Agreement and the transactions contemplated
thereunder, including all fees and expenses of its respective legal counsel,
investment bankers, brokers, accountants or other representatives or
consultants.
20.21 Excusable Delays
The dates and times by which any Party is required to perform
any obligation under this Agreement shall be postponed automatically to the
extent, for the period of time, that the Party is prevented from so performing
by circumstances beyond its reasonable control. Such period shall not extend
beyond one year. Said circumstances shall include acts of nature, strikes,
lockouts, riots, acts of war, epidemics, government regulations imposed after
the fact, fire, power failures, earthquakes or other disasters or other causes
beyond the performing Party's reasonable control whether or not similar to the
foregoing.
<PAGE>
-30-
20.22 Governing Law and Attornment
This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York (excluding any
conflict of laws rule or principle which might refer such construction to the
laws of another jurisdiction). To the extent applicable, the Parties expressly
exclude the application of the United Nations Convention on Contracts for the
International Sale of Goods. Each of the Parties hereby irrevocably attorns and
submits to the exclusive jurisdiction of the Courts of the State of New York,
including the Federal Court
of the United States having jurisdiction in that state, except to the extent any
Court action of AMIH relates to the use of the AMIH Marks by ADSC outside the
Territory
IN WITNESS WHEREOF, the Parties have executed the Agreement.
AIR MILES INTERNATIONAL ALLIANCE DATA SYSTEMS
HOLDINGS N.V. CORPORATION
By /s/ Liam P.B. Cowdrey By /s/ Michael Beltz
------------------------------- ------------------------
Name: Liam P.B. Cowdrey Name: Michael Beltz
Title: Director Title: Executive Vice President
Date July 24, 1998 Date: July 24, 1998
<PAGE>
SCHEDULE 1
UNITED STATES MARKS
<TABLE>
<CAPTION>
Trademark Registration No.
- --------- ----------------
<S> <C>
AIR MILES 1,150,603
AIR MILES TRAVEL THE WORLD
& Design 1,771,774
AIR MILES TRAVEL THE WORLD
& Design 1,819,474
</TABLE>
<PAGE>
SCHEDULE 2
ADSC MARKS
U.S. Trade-marks
<TABLE>
<CAPTION>
MARK SERIAL NUMBER
- ---- -------------
<S> <C>
OWNER - LOYALTY MANAGEMENT GROUP CANADA INC.
STAR Design 75/476,938
THE LOYALTY GROUP 75/478,134
LOYALTY REWARDS RESULTS KNOWLEDGE
& Design 75/478,135
LOYALTY & Design 75/478,136
REWARDS RESULTS KNOWLEDGE 75/478,137
LOYALTY THE LOYALTY GROUP & Design 75/478,140
MARK SERIAL NUMBER
- ---- -------------
OWNER: ALLIANCE DATA SYSTEMS CORPORATION
UNLOCK THE POSSIBILITIES 75/402,308
MARK SERIAL NUMBER
- ---- -------------
OWNER: WORLD FINANCIAL NETWORK HOLDING CORPORATION
ADS 75/182,064
ALLIANCE DATA SYSTEMS 75/182,514
</TABLE>
<PAGE>
SCHEDULE 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned AIR MILES
INTERNATIONAL HOLDINGS N.V. ("AMIH"), of Landhuis Joonchi, Kaya Richard J.
Beaujon z/n, P.O. Box 837 Curacao, Netherlands Antilles, hereby nominates,
constitutes and appoints ALLIANCE DATA SYSTEMS CORPORATION ("ADSC"), a Delaware
corporation, to be the true and lawful attorney of AMIH, with full power of
substitution, to act for and on behalf of AMIH and in AMIH's name or Loyalty's
own name in any suit, action, application, mediation, arbitration, opposition or
other legal, mediatory, arbitral or administrative proceeding (each, a
"Proceeding") or the exercise of any other remedy, of any nature or kind
whatsoever, whether in the United States or elsewhere in the world, at any time
during the term of the agreement (the "Agreement") dated July 24, 1998 between
AMIH and Loyalty entitled "Amended and Restated License to Use the Air Miles
Trademarks in the United States", in connection with infringement or alleged
infringement or other similar action in the United States by any Person other
than AMIH and its Affiliates of the United States Marks or any of the Non-United
States Marks which Loyalty has been using in the preceding 12-month period in
the United States.
In this power of attorney, the terms "Person", "Affiliates", "United
States Marks" and "Non-United States Marks" have the same respective meanings as
in the Agreement.
The following terms and conditions apply to this power of attorney:
1. This power of attorney shall be irrevocable by AMIH during the term of
the Agreement.
2. A certificate signed by an officer or director of ADSC to the effect
that this power of attorney is valid and subsisting shall be conclusive against
all persons other than AMIH and its Affiliates.
3. Any person may rely on this power of attorney without inquiring of AMIH
or ADSC as to its validity and subsistence.
<PAGE>
-2-
4. ADSC may not enter into a settlement of a Proceeding without the
written consent of AMIH, which consent shall not be unreasonably withheld.
IN WITNESS WHEREOF AMIH has duly executed this power of attorney this
24th day of July, 1998.
AIR MILES INTERNATIONAL HOLDINGS
N.V.
BY:_______________________________
NAME: LIAM P.B. COWDREY
TITLE: DIRECTOR
<PAGE>
LICENSE TO USE AND EXPLOIT THE AIR MILES
SCHEME IN THE UNITED STATES
BETWEEN
AIR MILES INTERNATIONAL TRADING B.V.
AND
ALLIANCE DATA SYSTEMS CORPORATION
July 24, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1 DEFINITIONS ................................................................1
2 LICENSE ......................................................... ..........5
3 SUB-LICENSE RIGHTS .............................................. ..........7
4 ASSIGNMENT OF THE PROGRAMME ..................................... ..........8
5 ROYALTY FREE LICENSES ........................................... ..........8
6 REGISTRATION AND RENEWALS ....................................... ..........8
7 REPRESENTATIONS AND WARRANTIES .................................. ..........9
7.1 AMIT Warranties ..................................................9
7.2 ADSC Warranties ..................................................10
8 INDEMNITY ..................................................................10
9 DURATION AND TERMINATION ...................................................11
10 NON-COMPETITION ............................................................12
11 ASSIGNMENT/SUCCESSORS ......................................................13
12 NOTICES ....................................................................14
13 CONFIDENTIALITY ............................................................15
14 DISPUTE RESOLUTION .........................................................16
14.1 General .........................................................16
14.2 Negotiations between Executives .................................16
14.3 Binding Arbitration .............................................17
14.4 Expedited Binding Arbitration ...................................20
15 MISCELLANEOUS ..............................................................20
15.1 Name, Captions ..................................................20
15.2 Entire Agreement and Relationship Between the Parties ...........20
15.3 Amendments ......................................................21
15.4 Severability ....................................................21
15.5 Specific Performance / Injunctive Relief ........................21
15.6 Remedies Cumulative .............................................22
15.7 No Waiver .......................................................22
15.8 Further Assurances ..............................................22
15.9 Extended Meanings ...............................................22
15.10 No Third Party Beneficiaries ....................................22
15.11 Counterparts ....................................................22
15.12 No Liability of Shareholders ....................................23
15.13 Statutory References ............................................23
15.14 Business Day Payments ...........................................23
15.15 References ......................................................23
15.16 Currency ........................................................23
15.17 Schedules .......................................................23
15.18 Limitation of Liability .........................................24
15.19 Time of the Essence .............................................24
15.20 Costs and Expenses ..............................................24
15.21 Excusable Delays ................................................24
15.22 Governing Law and Attornment ....................................25
</TABLE>
<PAGE>
LICENSE TO USE AND EXPLOIT THE AIR MILES
SCHEME IN THE UNITED STATES
THIS AGREEMENT is dated the 24th day of July, 1998 between AIR MILES
INTERNATIONAL TRADING B.V. of Veerkade 7, 3016 DE Rotterdam, The Netherlands
("AMIT") and ALLIANCE DATA SYSTEMS CORPORATION of 5001 Valley Road, Suite 620,
West Tower, Dallas, Texas, U.S.A. 75244-3910 ("ADSC").
WHEREAS ADSC has agreed to purchase all of the shares of LMGC pursuant
to the Share Purchase Agreement which agreement contemplates this agreement and
relationship and such transaction is intended to close on the date hereof; and
WHEREAS AMIT is entitled to grant the licenses herein to ADSC and is
willing to license and allow ADSC to use and exploit the AMIT Know How in the
Territory on the terms and conditions set out in this Agreement.
NOW THEREFORE, in consideration of the business relationship between
the Parties, including as set out in the Related Agreements and through the
Share Purchase Agreement including the sum of one hundred dollars (U.S.), the
mutual covenants contained herein, and other good and valuable consideration
(the receipt and sufficiency of which are acknowledged by the Parties), the
Parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions
"ADSC MARKS" means the Marks owned by or licensed to ADSC or its
Affiliates from time to time, other than those Marks licensed pursuant to the
United States License Agreement.
"AFFILIATE" means a Person directly or indirectly controlling,
controlled by or under common control with a party.
"AGREEMENT" means this agreement including any recitals and schedules
to this agreement, as amended, supplemented or restated in writing from time to
time.
"AMIT KNOW HOW" means all know how and other intellectual property
rights subsisting at the date hereof as described in Schedule 1 licensed to
and/or
<PAGE>
-2-
owned by AMIT or its Affiliates in connection with or relating to the Programme,
but not including rights in Marks.
"BANKRUPTCY" shall be considered to occur in respect of a Party if:
(i) any voluntary proceeding is commenced (by the filing of any
originating process, notice or assignment or otherwise) by the
Party pursuant to an Insolvency Act;
(ii) an involuntary case or other proceeding is commenced (by the
filing of any originating process or otherwise) against the
Party pursuant to an Insolvency Act, and
(a) such case or proceeding is not contested,
diligently and on a timely basis, by that Party,
(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such case or proceeding,
or
(c) such case or proceeding is not dismissed, withdrawn
or permanently stayed within sixty (60) days of
commencement;
(iii) any voluntary proceeding is commenced (by the filing of any
originating process or notice or otherwise) by or respecting a
Party pursuant to the corporate or company statute under which
Party is organized from time to time or any other statute of
any relevant jurisdiction which is not an Insolvency Act
seeking any stay of creditor remedies or moratorium,
compromise, arrangement, adjustment, extension or
reorganization of debts or other liabilities;
(iv) any voluntary or other proceeding is commenced (by the filing
of any originating process or notice or otherwise) by or
against the Party seeking appointment (provisional, interim or
permanent) of a receiver, manager, receiver and manager,
trustee, sequestrator, custodian, liquidator or Person with
like or comparable powers for that Party or for all or
substantially all of its property, assets and undertaking, and
(a) such proceeding is not contested, diligently and
on a timely basis, by that Party;
(b) Bankruptcy occurs in respect of that Party within the
meaning of any other paragraph of this definition
during the contestation of such proceeding, or
<PAGE>
-3-
(c) such proceeding is not dismissed, withdrawn or
permanently stayed within sixty (60) days of
commencement;
(v) any secured creditor of the Party takes possession or control
(actual or constructive) of, or appoints any agent, receiver,
manager, receiver and manager or Person with like or
comparable powers in respect of, that Party or all or
substantially all of its property, assets and undertaking; or
(vi) a majority of the directors or shareholders of the Party
voting thereon pass or ratify any resolution (A) except as
part of a bona fide corporate reorganization, for its
liquidation, winding up or dissolution, (B) to authorize any
voluntary proceeding by or in respect of that Party described
above or (C) to consent to or refrain from contesting any
proceeding or step against or in respect of that Party or its
property, assets or undertaking described above.
"BUSINESS" means the business carried on by ADSC in connection with
which the AMIT Know How is used.
"BUSINESS DAY" means any day of the year, other than a Saturday, Sunday
or any day on which the banks are required or authorized to close in Dallas,
Texas, United States of America.
"CANADIAN PROGRAMME" means any program(s) or business(es) that
involve(s) three (3) or more sponsoring companies in any product or service
category or industry and which offer(s), only entitled members with addresses in
Canada or any other geographic region in which ADSC or any of its Affiliates has
a license from AMIH to similar effect to this Agreement, airline seats, airline
miles, airline or any other services, awards or value of any nature (whether or
not by virtue of exchanging, converting or redeeming coupons, tickets, points or
other tangible or intangible rights) in connection with the purchase of goods or
services of any party and which operates for more than three (3) months duration
and the operation of travel agency services.
"CATEGORY" means the business sector granted to a Sponsor within the
Territory.
"CONCURRENT USE AGREEMENT" means the Concurrent Use Agreement between
Air Miles International Holdings N.V., AMIT, Air Miles Travel Promotions
Limited, Loyalty Management Group Inc., LMGC and AMI Funding, Inc. entered into
as of the 13th day of May, 1994, as amended, supplemented or restated in writing
from time to time.
"INCLUDING" The terms "include", "including" and "such as" are
illustrative and not limitative and shall be interpreted to mean "including
without limitation
<PAGE>
-4-
"INSOLVENCY ACT" means any bankruptcy, insolvency or other similar law
or statute of the United States or any other relevant jurisdiction relating to
bankruptcy, insolvency, stay of creditor remedies, moratorium, compromise,
arrangement, extension, adjustment or reorganization of debts or other
liabilities, liquidation, winding up or dissolution.
"LMGC" means Loyalty Management Group Canada Inc. a Canadian
company with its office located at 4110 Yonge Street, Suite 200,
North York, Ontario Canada.
"MARK" means any name, brand, mark, trademark, service mark, trade
dress, trade name, business name, Uniform Resource Locator ("URL"), domain name
or other indicia of origin.
"PARTY" means either AMIT or ADSC; and "Parties" means AMIT and ADSC
collectively.
"PERSON" includes an individual, a legal personal representative,
corporation, company, body corporate, partnership, limited partnership, joint
venture, syndicate,' trust, unincorporated organization, the United States
government or any agency or instrumentality thereof, regulatory authority or any
other entity recognized by law, howsoever designated or constituted.
"PROGRAMME" means any program(s) or business(es) that involve(s) three
(3) or more sponsoring companies in any product or service category or industry
and which offer(s), only entitled members with addresses in the Territory or any
other geographic region in which ADSC or any of its Affiliates has a license
from AMIT to similar effect to this Agreement, airline seats, airline miles,
airline or any other services, awards or value of any nature (whether or not by
virtue of exchanging, converting or redeeming coupons, tickets, points or other
tangible or intangible rights) in connection with the purchase of goods or
services of any party and which operates for more than three (3) months duration
and the operation of travel agency services.
"RELATED AGREEMENTS" means collectively, the United States
License Agreement and the Concurrent Use Agreement.
"SHARE PURCHASE AGREEMENT" means the agreement for the purchase of all
the shares of LMGC made as of June 26, 1998, as amended in writing from time to
time, among ADSC and each of the shareholders of LMGC at that date.
"SPONSORS" means those businesses participating in the Programme in
conjunction with the offer of wares or services to consumers within the
Territory and includes the Suppliers.
<PAGE>
-5-
"SUPPLIERS" means those businesses offering wares or services in
connection with exchanges, conversions or redemptions under the Programme.
"TERRITORY" means the current geographic area and territory of the
United States of America including Puerto Rico and any other area or territory
which becomes a state of the United States of America, unless AMIT or its
licensees are operating a Programme (except that the entitled members thereof
have addresses in the area or territory rather than the Territory) in that area
or territory at the time it becomes a state.
"THIRD PERSON" means any Person other than AMIT and its Affiliates and
ADSC and its Affiliates.
"UNITED STATES LICENSE AGREEMENT" means the License to Use the Air
Miles Trademarks in the United States Agreement between Air Miles International
Holdings N.V. and ADSC dated July 24, 1998, and as amended, supplemented or
restated in writing from time to time.
ARTICLE 2
LICENSE
2.1 AMIT hereby grants to ADSC, subject to the terms of this Agreement, an
exclusive right and license to use, operate, exploit and develop the AMIT Know
How in the Programme (including all confidential information, copyright works,
techniques and know-how relating to the Programme) in the Territory only and the
marketing, advertising and promotion thereof in any media in the Territory or
any other geographic region in which ADSC or any of its Affiliates has a license
from AMIT to similar effect to this Agreement, including the right to
sub-license the use and exploitation of the AMIT Know How in the Territory in
accordance with the provisions of this Agreement. The exclusivity of the license
is subject to the rights of AMIT, its Affiliates, successors and assignees
together with their respective licensees and sub-licensees mentioned in Articles
2.3 and 2.4 hereafter.
2.2 AMIT hereby grants a non-exclusive right to ADSC, with a right to
sub-license its applicable Sponsors and sub-licensees, for and further agrees
that it will not and will ensure that its Affiliates, successors, assignees or
any of their licensees or sub-licensees will not object to the use and
exploitation of the AMIT Know How outside the Territory by such of the Sponsors
as provide travel or entertainment related services for business and other
travellers including, for the avoidance of doubt, airline, car rental and/or
hotel services and/or by ADSC's applicable sub- licensees only in connection
with the provision of travel or entertainment related services including, for
the avoidance of doubt, airline, car rental and/or hotel services and/or by ADSC
to the extent only that such use and exploitation is incidental to the operation
of and/or participation in the Programme in the Territory. ADSC shall not itself
have any other right to use the AMIT Know How' outside the Territory.
<PAGE>
-6-
ADSC's right to the use and exploitation of the AMIT Know How outside the
Territory shall include the right to operate on or through the World Wide Web on
the Internet or through other electronic media.
2.3 Notwithstanding Article 2.1 ADSC shall not object to the use, operation,
exploitation and development of the AMIT Know How by AMIT, its Affiliates,
successors and assignees together with the use and exploitation thereof by their
respective licensees and sub-licensees in the Territory only in connection with
the provision of travel or entertainment related services including, for the
avoidance of doubt, airline, car rental and/or hotel services to persons
providing travel or entertainment related services for business and other
travellers, to the extent only that such use is incidental to the rights of
AMIT, its Affiliates, successors and assignees together with their respective
licensees or sub-licensees to carry out activities in connection with the
operation of sales promotion and/or incentive or loyalty schemes outside of the
Territory.
2.4 AMIT, its Affiliates, successors and assignees may use and exploit the AMIT
Know How in the Territory for the purposes of promoting their activities to
issuers or potential issuers of points, credits, vouchers or other incentives in
connection' with the operation of sales promotion and/or incentive or loyalty
schemes conducted outside the Territory. In so doing, AMIT, its Affiliates,
successors and assignees must co-operate with ADSC with respect to the promotion
of the Business. ADSC, its Affiliates, successors and assignees may use and
exploit the AMIT Know How outside of the Territory for the purposes of privately
promoting their activities to issuers or potential issuers of points, credits,
vouchers or other incentives in connection with the operation of sales promotion
and/or incentive or loyalty schemes conducted in the Territory, but shall not
make such advertisements or promotion to the public in general.
2.5 Subject to this Agreement, AMIT reserves the right to use and license the
use of the AMIT Know How outside the Territory, whether in connection with sales
promotion and incentive schemes similar to the Programme or otherwise.
2.6. The Parties acknowledge that the licenses granted in this Article 2 do not
include the right for ADSC to use or license the use of trademarks consisting of
or including the Air Miles name and/or ancillary trademarks (including any of
the AMIH Marks defined in the United States License Agreement), which shall be
the subject of the United States License Agreement. Notwithstanding its rights
under the United States License Agreement, ADSC may use the ADSC Marks in
association with the AMIT Know How and/or the Programme during or after the
termination of the United States License Agreement.
2.7 The Parties agree that the Concurrent Use Agreement shall not be amended or
terminated during the term of this Agreement without the prior written consent
of the Parties.
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ARTICLE 3
SUB-LICENSE RIGHTS
3.1 AMIT agrees that ADSC may grant and exploit non-exclusive sub-licenses to
the same or other Sponsors to use the AMIT Know How in the Territory in
connection with the Programme only, with or without exclusivity in the relevant
Category. If the terms and conditions of such sub-licenses are consistent with
the terms and conditions of the current sub-license arrangements with the
Sponsors currently sub-licensed by LMGC in Canada in conjunction with the
participation by those Sponsors in the Canadian Programme, AMIT hereby grants
its consent to such sub-licenses. If the terms and conditions of such
sub-licenses are not consistent with the current sub-license arrangements, ADSC
shall submit to AMIT a copy of each such license agreement and AMIT shall
provide written notice of any objections thereto within ten (10) Business Days,
failing which AMIT shall be deemed to have consented such sub-license
arrangement. In any event, AMIT's consent to such sub-licenses shall not be
unreasonably withheld.
3.2 AMIT agrees that ADSC may agree in such sub-license agreements as' mentioned
under Article 3.1 with such Sponsors that neither AMIT nor their Affiliates,
successors, assignees, licensees or sub-licensees will object to the use by such
Sponsors of the AMIT Know How outside the Territory only to the extent that such
use is in accordance with the rights granted in Article 2.2 above.
3.3 It shall be a term of all sub-licenses granted pursuant to Article 3.1 above
that the Sponsors undertake not to engage in any advertising or promotion
outside the Territory for the Programme or the participation of the Sponsors in
the Programme provided always that incidental references to the participation of
the Sponsors in the Programme in the Territory may be made in promotional
materials such as brochures outside the Territory incidental to the distribution
inside the Territory provided that such promotional materials shall clearly
indicate that the Sponsors participate in the Programme in the Territory and
that the Programme is only open to entitled members with addresses in the
Territory.
3.4 In this Agreement, where ADSC agrees to ensure that all sub- licensees of
the AMIT Know How appointed by ADSC comply with an obligation, this means:
(i) ADSC shall impose a contractual obligation on the sub-
licensees to observe such obligations; and
(ii) where ADSC becomes aware of any non-compliance by any
sublicensee with any such obligation, ADSC shall use
reasonable efforts to ensure that such sublicensee complies
with such obligation.
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3.5 The Parties acknowledge that Licensee has no obligation to (but may) amend
any agreement with any existing Sponsor and that any and all such agreements
with any Sponsors remain unaffected hereby.
3.6 For greater clarity, ADSC may sub-license its rights hereunder to an
Affiliate to the extent considered by ADSC, acting reasonably, advisable for the
operation of travel agency services in the Territory.
ARTICLE 4
ASSIGNMENT OF ThE PROGRAMME
4.1 If AMIT wishes to assign or transfer the AMIT Know How in the Programme,
either directly or indirectly by or through AMIT or AMIT's Bankruptcy, other
than to an Affiliate, no such assignment or transfer shall be effective unless
AMIT provides ADSC notice of its intention to do so and gives ADSC thirty (30)
days written notice within which to bid on such AMIT Know How and/or Programme
for the purposes of owning either directly or indirectly such AMIT Know How
and/or Programme. The foregoing provisions shall not, in any way, obligate AMIT'
to accept any bid which ADSC submits. Any such assignee or transferee must be
bound in writing by the grant of the license set out in this Agreement.
ARTICLE 5
ROYALTY FREE LICENSES
5.1 The Licenses granted hereunder by AMIH to ADSC shall be royalty free.
ARTICLE 6
REGISTRATION AND RENEWALS
6.1 AMIT shall, for so long as this Agreement remains in force, ensure that any
registrations which are applicable to the AMIT Know How and/or the Programme
shall be registered as appropriate and shall be renewed as and when they fall
due for renewal. The costs of the renewals or registrations and all expenses in
relation to the Programme incurred from the date hereof shall be paid in full by
AMIT.
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES
7.1 AMIT Warranties
AMIT hereby represents and warrants to ADSC as of the date of this
Agreement the following:
(i) to the best of AMIT's knowledge and belief, AMIT has full
power and authority to enter into and perform this Agreement,
including to grant the license in Article 2 and to perform
each and every covenant and agreement herein contained;
(ii) this Agreement has been duly authorized, executed and
delivered by AMIT and constitutes a valid, binding and legally
enforceable agreement of AMIT;
(iii) to the best of AMIT's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which AMIT is either bound or subject;
(iv) to the best of AMIT's knowledge and belief, AMIT's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of any state or territory of
the Territory which could give rise to the imposition of a
material fine, penalty or sanction levied on ADSC by any
applicable regulatory authority in the Territory;
(v) AMIT has not granted any rights or licenses, which are
subsisting at the date hereof, to any of its Affiliates or to
any other Third Person to use the AMIT Know How and/or the
Programme in the Territory save in the circumstances permitted
by Articles 2.3 and 2.4 above; and
(vi) except for the Concurrent Use Agreement, AMIT is not a party
to or bound by any contract or other obligation whatsoever
that limits or impairs its ability to license the AMIT Know
How and/or the Programme to ADSC.
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7.2 ADSC Warranties
ADSC hereby represents and warrants to AMIT as of the date of this
Agreement the following:
(i) ADSC has full power and authority to enter into and perform
this Agreement and to perform each and every covenant and
agreement herein contained;
(ii) this Agreement has been duly authorized, executed and
delivered by ADSC and constitutes a valid, binding and legally
enforceable agreement of ADSC;
(iii) to the best of ADSC's knowledge and belief, the execution and
delivery of this Agreement, and the performance of the
covenants and agreements herein contained, are not restricted
by and do not conflict with any material commercial
arrangements, obligations, contracts, agreements or
instruments to which ADSC is either bound or subject;' and
(iv) to the best of ADSC's knowledge and belief, ADSC's performance
of this Agreement will not contravene or breach any laws or
regulations of the Territory or of any province or territory
of the Territory which could give rise to the imposition of a
fine, penalty or sanction by any applicable regulatory
authority in the Territory.
ARTICLE 8
INDEMNITY
8.1 ADSC shall indemnify AMIT and hold it harmless and defend it from and
against all damage, including reasonable counsel fees, which AMIT may incur in
respect of all claims which may be made against AMIT (whether separately or as
joint defendants) arising out of the manufacture, packaging, or any other cause
relating to any wares sold and/or services provided by or on behalf of ADSC or
its sub-licensees in association with the AMIT Know How, except insofar as any
such claim may be found to arise from any omission or failure on the part of
AMIT.
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8.2 AMIT shall indemnify ADSC and hold it harmless and defend it from and
against all damages, including reasonable counsel fees, which ADSC may incur as
a result of any breach of warranties as stated in Article 7 with regard to the
AMIT Know How and/or the Programme only.
ARTICLE 9
DURATION AND TERMINATION
9.1 This Agreement shall continue in force indefinitely from the date hereof,
subject only to the rights of the Parties with respect to termination provided
in this Article 14, and shall not be terminable by either Party in any other
circumstances, whether upon reasonable notice or otherwise.
9.2 AMIT shall have the right to terminate this Agreement upon six months notice
in writing to ADSC if ADSC fails to commence within seven (7) years of the date
hereof the operation of the Programme or ceases for a continuous period of seven
(7) years to be involved in operation of the Programme.
9.3 (1) Subject to compliance with the provisions of Article 14 requiring
dispute resolution, either Party shall have the right to terminate this
Agreement on giving the other written notice of termination in any of the
following events:
(i) the other Party commits any breach of its obligations here
under and fails to remedy such breach within ninety (90) days
(or such longer period as the Parties may agree) after being
given written notice by the other Party to remedy such
default; provided however that if ADSC and its sub-licensees
are diligently pursuing the remedy or cure of such failure
during the cure period, the cure period shall be extended for
a further ninety (90) days; or
(ii) Bankruptcy shall have occurred in respect of the other Party,
provided that termination shall not occur at anytime during:
(A) the exercise of any rights or remedies by a secured creditor
of ADSC who has taken a security interest in ADSC's rights
under this Agreement either (a) in compliance with Article
11.3, or (b) with the written consent of AMIT; provided that
the payment of all amounts from time to time due and payable
by ADSC hereunder continue to be
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duly paid and the performance of all covenants from time to
time to be performed by ADSC hereunder continue to be duly
performed; or
(B) any proceeding under an Insolvency Act involving a
restructuring or reorganization of ADSC under court
supervision and/or any disposition of ADSC's business as a
whole or substantially as a whole pursuant to any such
proceeding, in either case, so long as such proceeding is
continuing.
(2) If either Party validly terminates the United States United States
License Agreement in accordance with the terms thereof, it may, at its option,
terminate this Agreement at the same time as the United States License
Agreement.
9.4 Upon termination of this Agreement ADSC shall within a period of six (6)
months:
(i) cease to carry on business using the AMIT Know How unless such
or similar rights are validly licensed or purchased from a
Third Person with valid rights therein; and
(ii) terminate all sub-license agreements with sub- licensees of
the AMIT Know How appointed by ADSC to the extent such
sub-license agreements sub-license AMIT Know How.
9.5 For the avoidance of doubt, it is agreed that any termination of this
Agreement, whether in whole or in part, shall be without prejudice to any rights
held by any Party which may have accrued up to the date of termination. Further,
ADSC may continue to use the ADSC Marks.
ARTICLE 10
NON-COMPETITION
10.1 During the term of this Agreement and subject to Article 2.3 above, AMIT,
its Affiliates or its successors shall not utilize any AMIT Know How in or as
part of any Programme or any program similar thereto, in competition with ADSC
or its Affiliates, directly or indirectly in the Territory, or grant any of
their assignees, licensees or sub-licensees a license or sub-license to do so.
<PAGE>
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ARTICLE 11
ASSIGNMENT/SUCCESSORS
11.1 This Agreement shall enure to the benefit of and be binding upon the
Parties and their respective successors and permitted assigns.
11.2 Subject to Article 4.1, AMIT may at any time or from time to time assign,
sell or transfer all but not less than all of its rights under this Agreement,
either absolutely or by way of security (including the rights and remedies of
the secured party relating to such security), as part of a financing involving
AMIH's business to any Person, in either case without the consent of, but with
prior notice to ADSC.
11.3 ADSC may at any time or from time to time assign, sell or transfer all but
not less than all of its rights under this Agreement, either absolutely as part
of the sale of all or substantially all of the Business or the assets of the
Business or by way of security (including the rights and remedies of the secured
party relating to such security), as part of a financing involving the Business
to any Person, in either case without the consent of, but with prior notice to
AMIT.
11.4 Except as provided in Article 4.1, a Party entering into any such
assignment shall remain liable here under notwithstanding such assignment
except, in the case of any indebtedness or claim arising after an absolute
assignment, if the assignee executes and delivers to the other Party an
assumption agreement of all indebtedness and obligations here under due and
payable or arising after such assignment.
11.5 Except as provided in Article 4.1, either Party may amalgamate, merge or
consolidate with any Person and any such amalgamation, merger or consolidation
shall be deemed to be an assignment unless by operation of applicable law the
amalgamated, merged or consolidated successor corporation is subject to all
liabilities and all contracts, disabilities and debts of each of the predecessor
corporations.
<PAGE>
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ARTICLE 12
NOTICES
12.1 All notices, requests, demands or other communications required by or
otherwise with respect to this Agreement shall be in writing and shall be deemed
to have been duly given to any Party when delivered personally or by courier
service or when transmitted by telecopy to the applicable addresses set forth
below:
If to AMIT:
Air Miles International Trading B.V.
Veerkade 7
3016 DE Rotterdam,
The Netherlands
Attention: Managing Director
Telephone: 010 411 0093
Fax: 020 664 7743 (belonging to Air Miles
International Group)
With a copy to:
Loyalty Management International Ltd.
Ocean House
Hazelwick Avenue
Crawley
West Sussex
RH10 1NP England
Attention: Liam Cowdrey
Telephone: 01293 434000
Fax: 01293 433701
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If to ADSC:
Alliance Data Systems Corporation
5001 Valley Road
Suite 650, West Tower
Dallas, Texas U.S.A. 75244-3910
Attention: General Counsel
Telephone: (972) 960-4349
Fax: (972-960-5330
or at such other address as the Party to whom such notice is to be given shall
have last notified (in the manner provided in this Article) the Party giving
such notice. Any notice delivered to the Party to whom it is addressed as
provided herein shall be deemed to have been given and received on the day it is
so delivered at such address and notice transmitted by telecopier shall be
deemed given and received on the day of its transmission, provided that if the
day of delivery or transmission is not a Business Day at the place of receipt or
the time of delivery or transmission is, after 5 p.m. at the place of receipt on
a Business Day, then the notice shall be deemed to have been given and received
on the next Business Day at the place of receipt.
ARTICLE 13
CONFIDENTIALITY
13.1 During the term of this Agreement, each Party shall keep confidential and
not divulge to any Person any information, whether written or oral, or otherwise
recorded, which is proprietary or confidential of the other including, but not
limited to, customer lists, data compilations and data systems, pricing methods,
cost information, financial information, strategic plans, finances, methods of
operation, marketing plans and strategies, equipment and operational
requirements, processes or products and services or intended products or
services of the other and information concerning personnel and customers;
provided however that neither Party shall have any confidentiality obligation
(i) as to information which has come into the public domain through no fault of
or action by such Party, (ii) to the extent such Party is required by law to
disclose, or (iii) as to information such Party may
<PAGE>
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disclose to employees, directors or advisors of such Party or an Affiliate
thereof in connection with performance of services for such Party; and provided
further that AMIT shall have no obligation with respect to any information of
ADSC unless such information relates exclusively to ADSC and provided further
that upon termination of this Agreement and for two (2) years thereafter such
confidentiality obligation shall apply only to disclosures of information which
would be materially detrimental to the operations of LMGC's Business or AMIH's
business.
13.2 ADSC's obligations under this Agreement with respect to any trade secrets
forming part of the AMIT Know How shall cease with respect to such trade secrets
to the extent that such trade secrets become part of the public domain through
no fault of or action by ADSC.
ARTICLE 14
DISPUTE RESOLUTION
14.1 General Any dispute arising out of or relating to this Agreement, including
any dispute regarding the existence, validity, scope, enforceability or
termination of this Agreement and whether an issue is arbitrable (a "Dispute")
shall be resolved in accordance with the procedures specified in this Article
14, which shall be the sole and exclusive procedures for the resolution of any
such Disputes. The Parties shall attempt in good faith to resolve any Dispute
(including the validity, scope and enforceability of this Article 14) promptly
by negotiations between the Parties.
14.2 Negotiations between Executives
(a) AMIT and ADSC shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly
by negotiation between executive officers who have authority
to settle the controversy and who are at a higher level of
management than the Persons with direct responsibility for
administration of this Agreement. Either AMIT or ADSC may give
to the other written notice of any dispute not resolved in the
normal course of business. Within fifteen (15) days after
delivery of the notice, the receiving Party shall submit to
the other Party a written response. The notice and the
response shall include (i) a statement of each Party's
position and a summary of arguments
<PAGE>
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supporting that position, and (ii) the name and title of the
executive officer who will represent that Party and of any
other Person who will accompany the executive officer. Within
twenty (20) days after delivery of the disputing Party's
notice, the executive officers of both Parties shall meet at a
mutually acceptable time and place, and thereafter as often as
they reasonably deem necessary, to attempt to resolve the
dispute. All reasonable requests for information made by one
Party to the other Party will be honoured.
(b) All negotiations (including the existence, content and result
thereof) pursuant to this Article 14 shall be confidential,
non-discoverable in any judicial proceedings and treated as
compromise and settlement negotiations for purposes of
applicable rules of evidence.
14.3 Binding Arbitration
(a) If the Dispute is not resolved by negotiation within
forty-five (45) days (or any mutually agreed extension of
time) of the disputing Party's notice, or if the Parties fail
to meet within twenty (20) days of the' notice, either Party
may, upon notice to the other Party and the American
Arbitration Association ("AAA~) submit such Dispute to
arbitration administered by the AAA in accordance with the
International Commercial Arbitration Rules of the AAA
("Commercial Arbitration Rules").
(b) Such arbitration shall be based in New York, New York and
shall be conducted by three (3) arbitrators (who shall be
attorneys admitted to practice in one or more states and who
shall be experienced in matters relating to intellectual
property licenses) appointed as follows:
(i) the disputing Party shall appoint its nominee as
first arbitrator;
(ii) the receiving Party shall, within ten (10) days of
having received written notice from the disputing
Party of the nature of the dispute to be referred to
arbitration and of the identity of its nominee
arbitrator, appoint its nominee as second arbitrator;
(iii) if the appointment required by clause (ii) is not
made within the period therein stipulated, the
disputing Party shall be entitled to appoint as
second arbitrator a nominee of its choice who is not
related to the disputing Party and who shall be
deemed to be the nominee of the respondent to the
dispute;
<PAGE>
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(iv) the two nominees so appointed shall, within ten (10)
days of the date upon which the second of them had
been appointed as arbitrator, appoint a third nominee
as chairman of the tribunal. In the event of their
failure so to do within the prescribed period, the
third arbitrator shall be appointed in accordance
with the provisions of the Commercial Arbitration
Rules; and
(v) should a vacancy arise because any arbitrator dies,
resigns, refuses to act, or becomes incapable of
performing his functions, the vacancy shall be filled
by the method by which that arbitrator was originally
appointed. When a vacancy is filled the newly
established tribunal shall exercise its discretion to
determine whether any previously completed hearings
shall be repeated.
(c) The arbitration will be in accordance with the then current
Commercial Arbitration Rules or any successor AAA rules (the
"Arbitration Rules") and the procedures specified in this
Article, to the extent they modify or add to such Arbitration
Rules. The arbitration, shall be heard in New York, New York
and the arbitration will be conducted at a neutral site in New
York City selected by the arbitrators.
(d) The arbitrators will have sole authority to resolve issues of
the arbitrability of Disputes, including the applicability of
any statute of limitation. The arbitrators may not amend or
disregard any provision of this Article and may not limit,
expand or otherwise modify the terms of this Agreement
(including any terms respecting the limitation of liability of
any Person). The arbitrators will have the power to order the
pre-hearing discovery of documents but such production shall
be restricted to documents (which shall include information
recorded or stored by means of any device) directly related to
the Dispute. The arbitrators will also have the power to order
the taking of examinations for discovery of no more than two
(2) witnesses per side (with the witnesses to be selected by
the adverse side) for a period of not more than three (3)
hours per witness, unless otherwise agreed. In addition, the
arbitrators may compel the attendance of witnesses and
production of documents at the hearing, to the extent provided
by the Arbitration Rules. The arbitrators will determine the
rights and obligations of the Parties and decide the Dispute
in accordance with the substantive and procedural laws of the
State of New York and the federal laws of the United States.
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(e) The Parties may seek injunctive relief either within the
arbitration process or from the courts of the State of New
York or in the United States District Court for the Southern
District of New York (collectively, the "Courts") and the
Parties accept the concurrent jurisdiction of the Courts for
the purpose of granting injunctive relief, as set out herein.
Within the arbitration process, Parties may seek either
interim or permanent relief. From the Court, Parties may seek
temporary injunctive relief. A Party seeking temporary
injunctive relief from the Court will simultaneously file a
claim in the arbitration for interim and permanent relief in
the manner specified under this Article. If the Court issues a
temporary injunction against one of the Parties, the Court
will have jurisdiction to deal with all matters, including
appeals, concerning the temporary injunction. Any requested
arbitration concerning the subject-matter of the injunction
shall proceed before the arbitrator in an expedited manner
pursuant to Article 14.4.
(f) Time will be of the essence and the arbitrators' award will be
rendered as soon as practicable after conclusion of the final
hearing, but in any event not later than one hundred and
eighty (180) days after the date of appointment of the third
arbitrator unless otherwise agreed or the time period is
extended for a fixed reasonable period by the arbitrators on
written notice to each Party because of illness or other cause
of an arbitrator beyond the arbitrator's control.
(g) The decision of any two of the three arbitrators shall be
final and binding on the Parties to the Dispute with no right
of appeal therefrom. The arbitrators' decision, reasons and
award will be in writing, setting forth the legal and factual
basis there for (except with respect to the validity,
infringement or misappropriation of any patents or other
proprietary rights of any Party, with respect to which such
award will be a bare award without findings or any statement
of legal or factual basis). The Parties will abide by and
perform any award, including interim awards, rendered by the
arbitrators and judgment on such awards may be entered and
enforced in any court of competent jurisdiction.
(h) The fees and expenses of the arbitration, which may include
the costs of CPR, the arbitrators, the arbitration site and
counsel will be in the sole discretion of the arbitrators.
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(i) All information and documents disclosed in arbitration by any
Party will remain Confidential Information of the disclosing
Party, and the arbitrators and the Parties will (and will
cause their representatives, advisors and counsel to) hold the
existence, content and result of the arbitration in
confidence, except to the limited extent necessary to enforce
a final settlement agreement or to obtain and secure
enforcement of or a judgment on an arbitration award. No
privilege or right of a Party with respect to information or
documents disclosed by it in arbitration will be waived or
lost by such disclosure.
14.4 Expedited Binding Arbitration
The Parties agree that there shall be expedited arbitration pursuant to
this Article 19 to be completed in not more than ninety (90) days where there is
a genuine issue with respect to the following events:
(i) if AMIT or ADSC is enjoined pursuant to a temporary injunction
of the Ontario Court (General Division) or the Federal Court
of Canada or' any other Court in the World;
(ii) if ADSC uses or licenses the use of the AMIT Know How outside
the Territory contrary to Articles 2 or 3;
(iii) if AMIT uses or licenses the use of the AMIT Know How and/or
the Programme inside the Territory contrary to Article 2; or
(v) if the Related Agreements are or one of them is terminated by
any of the parties thereto.
ARTICLE 15
MISCELLANEOUS
15.1 Name, Captions
The provision of a Table of Contents, the division of this Agreement
into Articles, Sections, Sub sections and other subdivisions and the insertion
of headings are for convenience of reference only and shall not affect or be
utilized in the construction or interpretation of this Agreement.
15.2 Entire Agreement and Relationship Between the Parties
(a) This Agreement and the Related Agreements constitute the entire
agreement between the Parties pertaining to the matters contemplated hereby and
<PAGE>
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supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties, relating to the subject matter hereof.
(b) This Agreement is not a franchise and does not create a partnership
or joint venture. Neither Party shall have any right to obligate or bind any
other Party in any manner. Each of ADSC and AMIT is an independent contractor,
not an agent or employee of the other. The continuing obligations of ADSC in
this Agreement, including those obligations set forth in Articles 8.1, 9.5 and
14, and the continuing obligations of AMIT in this Agreement, including those
obligations of AMIT under Articles 8.2, 9.5 and 14, shall survive and continue
after the termination of this Agreement. The continuing obligations of each of
ADSC and AMIT set forth in Article 13 of this Agreement shall survive and
continue for a period of two (2) years after the termination of this Agreement.
15.3 Amendments
No amendment of this Agreement shall be effective unless such amendment
is made in writing and signed by authorized representatives of the Parties
hereto.
15.4 Severability
If any provision of this Agreement is determined to be invalid or
unenforceable by an arbitrator or a court of competent jurisdiction from which
no further appeal lies or is taken, that provision shall be deemed to be severed
therefrom, and the remaining provisions of this Agreement shall not be affected
thereby and shall remain valid and enforceable; provided that in the event that
any portion of this Agreement shall have been so determined to be or become
invalid or unenforceable (the "offending portion"), the Parties shall negotiate
in good faith such changes to this Agreement as will best preserve for the
Parties the benefits and obligations of such offending portion. The invalidity
or unenforceability of any term or any right
arising pursuant to this Agreement shall in no way affect the validity or
enforceability of any of the remaining terms or rights.
15.5 Specific Performance/Injunctive Relief
The Parties acknowledge and agree that money damages are not an
adequate remedy for violations of this Agreement and that any Party may, in its
sole discretion, notwithstanding Article 14, apply to the Courts of the State of
New York, including the Federal Court of the United States having jurisdiction
in that state, for specific performance or for temporary injunctive relief or
such other temporary relief (equitable or otherwise) as such court may deem
appropriate in order to enforce this Agreement or to prevent any violation
hereof, and each Party waives any objection to the imposition of such relief and
any requirement for the posting of any security, including a bond, with respect
to such relief.
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15.6 Remedies Cumulative
All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise or beginning of the exercise of any
thereof by either Party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such Party.
15.7 No Waiver
No waiver of any of the provisions of this Agreement is binding unless
it is in writing and signed by the Party entitled to grant the waiver. No
failure to exercise, and no delay in exercising, any right or remedy under this
Agreement will be deemed to be a waiver of that right or remedy. No waiver of
any breach of any provision of this Agreement will be deemed to be a waiver of
any subsequent breach of that provision.
15.8 Further Assurances
The Parties will, from time to time during the course of this Agreement
or upon its expiry and without further consideration, execute and deliver such
other documents and instruments of transfer, conveyance and assignment and take
such further action as the other may reasonably require to effect the
transactions contemplated thereby.
15.9 Extended Meanings
Any reference in this Agreement to gender shall include all genders,
and words importing the singular number only shall include the plural and vice
versa.
15.10 No Third Party Beneficiaries
Each Party intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any Person, other than the Parties
and their Affiliates, and no Person, other than the Parties, shall be entitled
to rely on the provisions hereof in any action, suit, proceeding, hearing or
other forum.
15.11 Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which, taken together, shall
constitute one and the same instrument. Each counterpart may consist of a number
of copies each signed by less than all, but together signed by all, the Parties.
<PAGE>
-23-
15.12 No Liability of Shareholders
No shareholder of ADSC or the successors or transferees of a
shareholder of ADSC shall be liable for any of the obligations of ADSC here
under. No shareholder of AMIT or the successors or transferees of a shareholder
of AMIT shall be liable for any of the obligations of AMIT hereunder.
15.13 Statutory References
Unless expressly stated to the contrary, any references in this
Agreement to any law, by-law, rule, regulation, order or act of any government,
governmental body or other regulatory authority shall be construed as a
reference thereto as enacted at the date of this Agreement as such law, by-law,
rule, regulation, order or act may be amended, re-enacted or superseded from
time to time.
15.14 Business Day Payments
If under this Agreement any payment or calculation is to be made or any
other action is to be taken on a day which is not a Business Day, that payment
or' calculation is to be made, and that other action is to be taken, as
applicable, on or as of the next day that is a Business Day
15.15 References
In this Agreement, references to "hereof", "hereto", and "hereunder"
and similar expressions mean and refer to this Agreement taken as a whole, and
not to any particular Article, Section, Subsection or other subdivision;
"Article", "Section "Subsection" or other subdivision of this Agreement followed
by a number means and refers to the specified Article, Section, Subsection or
other subdivision of this Agreement.
15.16 Currency
In this Agreement, all references to currency shall be references to
the lawful currency of the Territory.
15.17 Schedules
The following Schedules are attached to and form part of this
Agreement:
Schedule Description
SCHEDULE 1 AMIT KNOW HOW
<PAGE>
-24-
15.18 Limitation of Liability
THE PARTIES (INCLUDING FOR THIS PURPOSE THEIR AFFILIATES) EXPRESSLY
ACKNOWLEDGE AND AGREE THAT THEY WILL NOT BE LIABLE FOR EACH OTHER'S INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR PUNITIVE, EXEMPLARY OR
AGGRAVATED DAMAGES OR FOR DAMAGES FOR LOST PROFITS, LOST REVENUES OR FAILURE TO
REALIZE EXPECTED SAVINGS, REGARDLESS OF WHETHER SUCH LIABILITY ARISES IN OR IS
BASED UPON TORT (INCLUDING NEGLIGENCE), CONTRACT (INCLUDING FUNDAMENTAL BREACH
OR BREACH OF A FUNDAMENTAL TERM), BREACH OF TRUST OR FIDUCIARY DUTY, RESCISSION
OF CONTRACT, RESTITUTION, INDEMNIFICATION OR OTHERWISE.
15.19 Time of the Essence
Time shall be of the essence of this Agreement.
15.20 Costs and Expenses
Except as otherwise or expressly provided in this Agreement, each Party
shall pay all costs and expenses it incurs in authorizing, preparing, executing
and performing this Agreement and the transactions contemplated thereunder,
including all fees and expenses of its respective legal counsel, investment
bankers, brokers, accountants or other representatives or consultants.
15.21 Excusable Delays
The dates and times by which any Party is required to perform any
obligation under this Agreement shall be postponed automatically to the extent,
for the period of time, that the Party is prevented from so performing by
circumstances beyond its reasonable control. Such period shall not extend beyond
one year. Said circumstances shall include acts of nature, strikes, lockouts,
riots, acts of war, epidemics, government regulations imposed after the fact,
fire, power failures, earthquakes or other disasters or other causes beyond the
performing Party's reasonable control whether or not similar to the foregoing.
<PAGE>
-25-
15.22 Governing Law and Attornment
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the State of New York (excluding any conflict of
laws rule or principle which might refer such construction to the laws of
another jurisdiction). To the extent applicable, the Parties expressly exclude
the application of the United Nations Convention on Contracts for the
International Sale of Goods. Each of the Parties hereby irrevocably attorns and
submits to the exclusive jurisdiction of the Courts of the State of New York or
the Federal Court of the United States having jurisdiction in that state, except
to the extent any Court action of AMIT relates to the use of the AMIT Know How
by ADSC outside the Territory.
IN WITNESS WHEREOF, the Parties have executed the Agreement.
AIR MILES INTERNATIONAL ALLIANCE DATA SYSTEMS
TRADING B.V. CORPORATION
By /s/ Liam P.B. Cowdrey By: /s/ Michael Beltz
-------------------------------- ----------------------------
Name: Liam P.B. Cowdrey Name: Michael Beltz
Title: Director Title: Executive Vice President
Date July 24, 1998 Date: July 24, 1998
<PAGE>
SCHEDULE 1
All know-how, processes, trade secrets, confidential information, unpatented
inventions, studies and data, marketing strategies] product information, sponsor
and/or supplier information, manuals, technology, research and development
reports, technical information, technical assistance and similar materials
recording or evidencing expertise or information related to the Programme.
<PAGE>
LIST OF SUBSIDIARIES
OF
ALLIANCE DATA SYSTEMS CORPORATION
<TABLE>
<CAPTION>
STATE &
NAME OF DIRECT SUBSIDIARY DATE OF INC. DOING BUSINESS AS SUBSIDIARIES
- ------------------------- ------------ ----------------- ------------
<S> <C> <C> <C>
ADS ALLIANCE DATA SYSTEMS, INC. DELAWARE ADS ALLIANCE DATA SYSTEMS, INC. HARMONIC TECHNOLOGY
4/22/83 LICENSING, INC.
(MINNESOTA - 7/12/93)
WORLD FINANCIAL NETWORK NATIONAL BANK FEDERAL CHARTER WORLD FINANCIAL NETWORK NATIONAL BANK NONE
5/1/89
ALLIANCE DATA SYSTEMS (NEW ZEALAND) LIMITED NEW ZEALAND ALLIANCE DATA SYSTEMS (NEW ZEALAND) FINANCIAL AUTOMATION
1/7/97 LIMITED LIMITED
(NEW ZEALAND - 10/1/87)
LOYALTY MANAGEMENT GROUP CANADA, INC. TORONTO, CANADA LOYALTY MANAGEMENT GROUP CANADA, INC. LMG TRAVEL SERVICES LTD
AMALGAMATED 7/24/98 (TORONTO CANADA - 2/21/92)
ADS REINSURANCE LTD. BERMUDA ADS REINSURANCE LTD. NONE
11/26/98
ADS COMMERCIAL SERVICES, INC. DELAWARE ADS COMMERCIAL SERVICES, INC. NONE
1/18/95
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Alliance Data
Systems Corporation and Subsidiaries on Form S-1 of our report dated March 29,
1999 (except for Note 18, as to which the date is January 13, 2000), appearing
in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected
Historical Consolidated Financial and Operating Information" and "Experts" in
such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Columbus, Ohio
January 13, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 12, 1998 (except note 14 which is as at
January 12, 2000) to the shareholders of the company, with respect to the
financial statements of Loyalty Management Group Canada Inc. as at April 30,
1998 and 1997 and for each of the years then ended, included in the Registration
Statement on Form S-1 dated January 13, 2000 and related Prospectus of Alliance
Data Systems Corporation for the registration of common shares.
/s/ Ernst & Young LLP
Toronto, Canada
January 13, 2000 Chartered Accountants
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 22, 1998 with respect to the consolidated
financial statements of Harmonic Systems Incorporated included in the
Registration Statement on Form S-1 and related Prospectus of Alliance Data
Systems Corporation for the registration of its common stock.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
January 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 JAN-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998 FEB-01-1998 FEB-02-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998 DEC-31-1998 JAN-31-1998
<CASH> 121,444 64,945 64,945 20,595
<SECURITIES> 64,436 52,269 52,269 0
<RECEIVABLES> 229,804 282,744 282,744 248,801
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 447,790 454,562 454,562 313,533
<PP&E> 85,909 66,339 66,339 54,067
<DEPRECIATION> 0 0 0 0
<TOTAL-ASSETS> 1,201,360 1,010,119 1,010,119 626,809
<CURRENT-LIABILITIES> 315,612 268,801 268,801 216,531
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 4,275 4,274 4,274 3,296
<OTHER-SE> 296,784 308,139 308,139 211,664
<TOTAL-LIABILITY-AND-EQUITY> 1,201,360 1,010,119 1,010,119 626,809
<SALES> 0 0 0 0
<TOTAL-REVENUES> 465,265 330,210 434,309 353,399
<CGS> 0 0 0 0
<TOTAL-COSTS> 431,400 297,150 408,068 314,910
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 33,018 19,165 27,884 15,459
<INCOME-PRETAX> 847 13,895 (1,643) 23,030
<INCOME-TAX> 15,686 7,939 6,653 8,420
<INCOME-CONTINUING> (14,839) 5,956 (8,296) 14,610
<DISCONTINUED> 3,951 (4,483) (300) (8,247)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (10,888) 1,473 (8,596) 6,363
<EPS-BASIC> (.03) .02 (.02) .02
<EPS-DILUTED> (.03) .02 (.02) .02
</TABLE>
