<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number: 0-9628
ANCHOR PACIFIC UNDERWRITERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1687187
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1800 Sutter Street, Suite 400, Concord, California 94520
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 682-7707
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.02 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X]Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates
of the registrant as of March 19, 1996 was $3,646,175.
As of March 19, 1996, the Registrant had 3,674,501 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be mailed to stockholders in
connection with the Registrant's 1996 Annual Meeting of Stockholders are
incorporated by reference into Part III hereof.
Exhibit Index is on page 17
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PART I
ITEM 1. BUSINESS
SUMMARY
Anchor Pacific Underwriters, Inc. is a Delaware holding company that
is primarily engaged in insurance brokerage and administration through its five
direct and indirect wholly-owned subsidiaries listed in the chart below. Anchor
Pacific Underwriters, Inc. and its subsidiaries are collectively referred to as
"Anchor" unless the context otherwise requires.
<TABLE>
<S> <C> <C>
ANCHOR PACIFIC UNDERWRITERS, INC.
(a Delaware corporation)
Holding Company
HARDEN & COMPANY PUTNAM, KNUDSEN & WIEKING ANCHOR PACIFIC PREMIUM
INSURANCE SERVICES, INC. (a California corporation) FINANCE COMPANY
(a California corporation) Property & Casualty (a California corporation)
Employee Benefits Administrator Insurance Property & Casualty
Group Health Insurance Targeted Industry Brokerage Premium Financing
BENEFIT PLANNED
RESOURCES, INC. BENEFITS
(an Arizona SERVICES, INC.
corporation) (an Arizona
Employee corporation)
Benefits Insurance
Administrator Brokerage
Group Health
Insurance
</TABLE>
Anchor provides the following services to private sector small and
middle market companies, groups, trusts, associations, government agencies and
individual consumers: (a) insurance brokerage; (b) third-party claims
administration, employee benefits consulting, underwriting and risk analysis;
and (c) insurance premium financing. Anchor offers its customers, as agent,
broker or administrator, a range of products and services tailored to the
specific needs of such customers.
Anchor markets the products and services of more than 50 commercial
insurance companies and over a dozen managed care and preferred provider
organizations. The marketing of products and services is carried out through 16
direct sales representatives and over 500 independent insurance brokers.
Anchor's customer base is in the Western United States, primarily in California
and Arizona. For the fiscal year ended December 31, 1995, Anchor generated $8.6
million in revenues.
The principal executive offices of Anchor are located approximately 30
miles east of San Francisco, California, at 1800 Sutter Street, Suite 400,
Concord, California 94520.
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HISTORY
Anchor was organized in 1986 as a California general partnership for
the specific purpose of acquiring Harden & Company Insurance Services, Inc., a
third-party employee benefits administrator ("Harden"), from Alex Brown
Financial Group. Anchor was reorganized as a California corporation in March
1987. Since its inception, Anchor has expanded its insurance and financial
service capabilities through internal growth as well as a series of
acquisitions.
From 1986 through 1990, Anchor, through Harden, focused on providing
administrative services for group insurance benefit plans. In 1990, Anchor
began to diversify its business by providing property, casualty and workers'
compensation insurance products and services, and offering market studies and
program analyses for certain non-profit associations who had endorsed Anchor's
products.
From 1990 through 1992, Anchor expanded its property and casualty
business by: (a) acquiring certain assets, including insurance brokerage
accounts, from four property and casualty brokerage firms; and (b) organizing
Anchor Pacific Premium Finance Company, a California corporation ("APPFCO"), to
complement its property and casualty business by providing premium financing to
Anchor's clients. Anchor continued its expansion strategy by acquiring Benefit
Resources, Inc. ("BRI") in August 1994, Putnam, Knudsen & Wieking, Inc. ("PKW")
in October 1994, certain third party administration accounts from Dutcher
Insurance Agency, Inc. ("Dutcher") in February 1995, and R. L. Ferguson Agency
("RLF") in March 1996. The acquisition of Dutcher and RLF accounts were not
significant to Anchor. Anchor expects to continue to explore expansion
opportunities.
On January 6, 1995, System Industries, Inc. ("System"), a Delaware
corporation that filed a petition for protection under Chapter 11 of the United
States Bankruptcy Code in November 1993, and Anchor Pacific Underwriters, Inc.
("Old Anchor"), a private California corporation consummated a merger (the
"System Merger"). Pursuant to the System Merger: (a) Old Anchor merged with and
into System, with System being the surviving entity; (b) System was renamed
"Anchor Pacific Underwriters, Inc." (as so renamed, "Anchor"); (c) Old Anchor
shareholders received Common Stock equal to 90% of the outstanding shares of
Anchor's Common Stock; (d) former shareholders of System retained 5% of the
outstanding shares of Anchor's Common Stock and certain creditors of System
received the remaining 5% of such shares; (e) former shareholders and creditors
of System received one warrant (the "Warrant") for each share of Anchor's Common
Stock held by them immediately following consummation of the System Merger,
which Warrant entitles the holder thereof to purchase, for a period of one year
ending January 6, 1996, and subsequently extended to January 6, 1997, one share
of Anchor's Common Stock at a purchase price of $3.00 per share; and (f) the
directors and executive officers of Old Anchor became the directors and
executive officers of Anchor. In addition, effective upon consummation of the
System Merger, Anchor no longer engaged in the computer storage management
business (which was System's pre-merger/pre-bankruptcy line of business).
Rather, Anchor is engaged in the insurance brokerage and administration business
(which was Old Anchor's pre-Merger line of business).
Historical information regarding System has not been provided because:
(a) following the filing of its bankruptcy petition in November 1993, System
essentially ceased operations; (b) in December 1993, System sold substantially
all of its assets; and (c) upon consummation of the System Merger, System
changed its name to Anchor and began engaging in the pre-Merger business of Old
Anchor. Consequently, historical information regarding System is not meaningful
to the continued operations of Anchor.
OPERATIONS
INSURANCE BROKERAGE
Anchor engages in the insurance brokerage business primarily through
PKW, which offers property and casualty, health, life, disability, workers'
compensation and other insurance products and services to middle market
companies and individual consumers. PKW acts as an agent on behalf of insurers
and other intermediaries
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in soliciting, negotiating and effecting contracts of insurance, and as a broker
in procuring contracts of insurance on behalf of insureds.
As an insurance agent and broker, PKW derives income from the sale of
insurance products and services and the receipt of commissions generated
therefrom. Commissions, which generally are based on a percentage of gross
premiums, and contingent commissions, which are generally based on the insurance
carriers underwriting profits derived over a given period of time, can vary
substantially within the insurance industry. These commissions depend on a
number of factors, including the type of insurance, the amount of the premium,
the insurance carrier's loss experience with respect to policies placed by
Anchor, and the scope of the services that Anchor renders. Anchor derived 40%,
27% and 25% of its revenues in 1995, 1994 and 1993, respectively, from its
insurance brokerage activities.
THIRD-PARTY CLAIMS ADMINISTRATION AND EMPLOYEE BENEFITS CONSULTING
Anchor, primarily through Harden and BRI, engages in designing,
implementing, and administering health benefit plans for employer groups of
various sizes. Administration services provided by Harden and BRI include
receiving and managing employer plan contributions and/or premium payments,
monitoring employee and dependent eligibility, preparing required government and
tax reports, handling day-to-day administration, reviewing and analyzing claims
data for coverage, and managing the claims settlement process. Anchor, through
Harden and BRI, also helps develop insurance products and services tailored to
the specific needs of the particular client, provides risk analysis, determines
appropriate benefit and funding levels for particular insurance programs, and
conducts loss control and cost studies for insurance companies and self-insured
employers. As compensation for its claims administration services, Harden and
BRI generally receive fees based on a percentage of premium collected, or on a
per capita basis. Anchor derived 60%, 72% and 74% of its revenues in 1995, 1994
and 1993, respectively, from its third-party administration activities.
Fee revenues generated by Anchor in 1995 from third-party
administration services included revenues generated by Harden and BRI. A
significant portion of BRI's fee revenues related to an insurance product
underwritten by one insurance carrier, which currently is an A+ (Superior) rated
insurance carrier.
Harden's third-party administration revenues related to: (a) an
insurance product underwritten by two insurance carriers, which currently are A
(Excellent) and A+ (Superior) rated insurance carriers; and (b) the
administration of insurance programs underwritten by various insurance carriers
for a number of self-insured employers. The insurance product referred to in
subparagraph (a) above accounted for approximately 60.6% of Harden's revenues
(or approximately 25.1% of Anchor's total revenues) in 1995, and revenues
related to the administration self-insured programs accounted for 38.0% of
Harden's revenues in 1995. Self-insurance is a program in which a client
assumes a manageable portion of its insurance risks, usually (although not
always) placing the less predictable and larger loss exposure with an excess
insurance carrier.
The insurance company which offered the product that accounted for 65%
of Harden's third-party administration revenues in 1994 had informed Harden that
as a result of changes in its business strategy, it would discontinue offering
such an insurance product by the end of 1995. On July 20, 1995, Harden obtained
a binding commitment from an A+ (Superior) rated insurance carrier to underwrite
the risk and provide a replacement product as of October 1, 1995. Although
management anticipates an orderly transition to the new carrier, such a
transition often causes clients to reevaluate their insurance needs, or
alternatively, the client may not satisfy the new insurance carrier's
underwriting requirements. Consequently there usually is a short term net loss
of clients. In this regard, subsequent to December 31, 1995, one client who
represented approximately 9% of Harden's 1995 revenues, has been advised by the
new carrier that it does not meet its underwriting standards. The loss of this
business will impact Harden's, and to a lesser extent, Anchor's 1996 revenues.
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INSURANCE PREMIUM FINANCING
Anchor, through APPFCO, provides insurance premium financing services
primarily to property and casualty clients of PKW. During 1995, Anchor derived
less than 1% of its revenues from its insurance premium financing activities as
compared to 1% in 1994 and 1993. This reduction in revenue was due primarily to
Anchor's placing its premium financing activities through other financing
facilities that were more competitively advantageous to the client.
RECENT DEVELOPMENTS/BUSINESS STRATEGY
Since its inception in 1986, Anchor has grown from a single-state,
single-product company, to a diversified, multi-state organization. A
significant portion of such growth was achieved through the acquisition of
existing third-party administrators and insurance brokerage companies and the
subsequent expansion of such entities. Anchor's strategy is to strengthen its
core health insurance and property and casualty (including workers'
compensation) insurance businesses by: (a) continuing to develop specialized
affiliated business units that target selected insurance industry market
segments defined by industry type, geographic location and consumer
demographics; (b) establishing new products and services; and (c) seeking to
acquire and integrate compatible insurance brokerage and administration
businesses in the Western United States. Effective March 1, 1996, APU acquired
the R. L. Ferguson Insurance Agency ("RLF") located in Walnut Creek, California.
RLF merged into Anchor's insurance brokerage business, PKW, located in Concord,
California. Although Anchor has had preliminary discussions with a number of
other potential acquisition candidates, as of March 19, 1996, it did not have
any binding agreements with respect to acquisitions.
EMPLOYEES
As of March 19, 1996, Anchor and its subsidiaries employed
approximately 129 full-time employees. None of its employees is presently
represented by a union or covered by a collective bargaining agreement. Anchor
believes its employee relations are good.
REGULATION
The activities of Anchor that are related to insurance brokerage,
agency services and third-party administration are subject to licensing and
regulation by the jurisdictions in which it conducts such activities. In
addition to regulatory requirements applicable to Anchor, most jurisdictions
require that individuals engaged in insurance brokerage and agency activities be
personally licensed. As a result, a number of Anchor's employees are so
licensed. Anchor's operations depend on the validity of and its continued good
standing under the licenses and approvals pursuant to which it operates.
Licensing laws and regulations vary from jurisdiction to jurisdiction. In all
jurisdictions, the applicable licensing laws and regulations are subject to
amendment or interpretation by regulatory authorities. Such authorities
generally are vested with broad discretion as to the granting, renewing, and
revoking of licenses and approvals.
Recent legislation concerning regulations applicable to insurance
carriers with which Anchor conducts business, may indirectly affect Anchor's
business. One significant legislative change, the 1994 workers' compensation
reform in California, has had the effect of reducing workers' compensation
insurance premiums, and, consequently, reducing commissions generated by the
sale of related insurance products. Anchor believes that revenues generated
from anticipated future growth and continued diversification of its business
will substantially offset any future loss of revenues that result from this
workers' compensation reform.
Other significant legislative change could result from current health
care reform debate and various related legislation being considered by Congress.
Anchor believes that its expertise in two major elements of recent health care
reform proposals (managed care and managed competition), combined with its
strategy of serving middle market clients, makes it well positioned to operate
effectively in a managed care and managed competition environment. Anchor also
believes that in light of the political changes in Congress, the United States
will experience incremental, rather than comprehensive, changes in health care
regulations. It is not
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possible at this time, however, to predict the effect that any health care
reform legislation will have on Anchor's business condition, liquidity, capital
resources or operations.
COMPETITION
The insurance brokerage and service business is highly competitive and
there are many insurance brokerage and service organizations who actively
compete with Anchor in every area of its business. Anchor competes directly
with national insurance brokerages, insurance companies and health maintenance
organizations that market their own products, through independent agencies,
brokers, and third-party administrators, as well as with entities which self
insure or sponsor other insurance programs. Many of these competitors are
larger and have greater resources than Anchor. Anchor seeks to compete by
specializing in specific market segments, developing specialty products for
those markets, and maintaining relationships with consumers by providing
personal service normally associated with small local businesses, together with
the expertise, flexibility, and diversity of product that can only be provided
by a larger broker. Anchor's claims administration operations compete with
independent claims administration firms and with similar operations conducted by
subsidiaries of large insurance companies and insurance brokerage companies.
ITEM 2. PROPERTIES
Anchor leases approximately 32,099 rentable square feet of office
space at its executive offices at 1800 Sutter Street, Suite 400, Concord,
California 94520. From November 1, 1994 through October 31, 1999, Anchor must
pay rent of $1.40 per rentable square foot per month (approximately $44,939 per
month), and from November 1, 1999 through October 31, 2004, Anchor must pay rent
of $1.75 per rentable square foot per month (approximately $56,173 per month).
Anchor also has been granted an option to lease additional office space at its
executive offices in Concord.
In addition to Anchor's leased space, PKW leases approximately 13,128
rentable square feet of office space in Oakland, California, and BRI leases
approximately 7,200 rentable square feet of office space in Scottsdale, Arizona.
PKW must pay rent of between $1.75 and $2.00 per rentable square foot per month
under its lease, which expires on November 30, 1999, and BRI must pay rent of
between $0.92 and $1.04 per rentable square foot per month under its lease,
which expires on February 28, 1997. PKW relocated its offices in December, 1994
to Anchor's office space in Concord, California and subleased its offices in
Oakland.
In May, 1995, and December, 1995, PKW entered into subleases with
respect to 82% and 10%, respectively, of PKW's prior office space in Oakland.
The amounts classified as short and long-term liability with respect to the PKW
leases reflect the shortfall between sublease income to be received and PKW's
lease expense to be paid and are based upon the assumptions that: (a) the
subtenant of the May, 1995, sublease will exercise their option to extend their
lease through 1999; and (b) the remaining 8% of such office space will be
subleased in 1997.
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ITEM 3. LEGAL PROCEEDINGS
Anchor and its subsidiaries are parties from time to time to various
lawsuits that have arisen in the normal course of business. Management is not
aware of any lawsuits to which Anchor or its subsidiaries is currently a party
or to which any property of Anchor or any of its subsidiaries is subject, which
might materially adversely affect the financial condition or results of
operations of Anchor, except as follows:
PKW, together with several other entities, had been named as a
defendant in a lawsuit filed in 1993 entitled Care Convalescent Ambulance, Inc.,
a California corporation v. Putnam, Knudsen & Wieking, Inc., a California
corporation, et al. In this suit, a former client claimed that PKW acted
negligently when, as agent, wrote liability insurance with an insurance carrier
that was subsequently declared insolvent. On October 13, 1995, PKW, reached an
agreement to settle said lawsuit. Under court approved settlement terms PKW,
without admitting any liability, has paid full and final settlement payment of
$50,000 in exchange for a complete release from all liability.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The Following information is provided regarding certain executive
officers of Anchor and/or its subsidiaries.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD HELD SINCE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
James R. Dunathan 59 President, Chief Executive Officer, 1987
and Director
Earl Wiklund 48 Senior Vice President, Chief Financial 1987
Officer, and Director
Lynn A. Boyd 51 President, Harden and BRI 1996
Gerard J. Laurita 57 Chief Operating Officer, PKW 1996
Donald B. Putnam 63 Chairman of Executive Committee, PKW 1994
and Director
James P. Wieking 64 Executive Vice President of PKW, and 1994
Director
</TABLE>
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JAMES R. DUNATHAN, President, Chief Executive Officer and a Director
of Anchor, has over 35 years of experience in the insurance industry, including
eight years as an officer of an Ohio insurance company, 12 years as President of
an independent insurance holding company in Florida, seven years as Vice
President and General Manager of an insurance system software vendor and several
years as a sales and marketing consultant. He joined Harden in 1985 and
initiated the formation of Anchor in late 1986. Mr. Dunathan served actively
for 11 years as a member of the Board of Directors of the Professional Insurance
Agents Association and as President of such Association from 1975 to 1976. His
past industry activities include serving as the immediate past President and
Board member of the Independent Administrators Association; highest award for
achievement, Dale Carnegie Institute; Florida Insurance Study Commission
(development of the Florida FAIR Plan) and the Florida Reparations Reform
Committee (development of the Florida "No Fault" Law), both appointments made by
Governor Reubin Askew in 1973; and Commodore and President, Anchorage Yacht
Club, St. Petersburg, Florida. Currently Mr. Dunathan serves on the Business
Leaders Alliance for Contra Costa County, appointed by the Board of Supervisors.
His family has been active in the insurance industry for over 100 years.
EARL WIKLUND, Senior Vice President, Chief Financial Officer and a
Director of Anchor, is also Chief Executive Officer of the Harden and BRI
subsidiaries and has over 25 years of experience in operation, administrative
and financial management positions. Mr. Wiklund serves on the Executive
Committees for Harden and BRI. Prior to joining Harden in 1984, his career
included 10 years as Controller/Treasurer of a retail chain of 165 stores in
five western states with $100 million in annual sales. In addition, he was
Managing Director of a large statewide non-profit trade association,
representing the interests of its members at the California State Legislature.
He currently serves as Treasurer and a member of the Legislative Committee for
the Independent Administrators Association as well as a member of the Board of
Directors of such Association.
LYNN A. BOYD, CLU, CHFC, President of Harden and BRI. He joined
Harden in 1991 with over 25 years of experience in the group health insurance
field. Mr. Boyd's career includes positions with Blue Cross, Clifton & Company,
Curtis Day & Company and Sher Associates. His sales responsibilities at Harden
primarily focus on the production of self-insured and large case fully insured
accounts. Mr. Boyd also is responsible for general oversight and management of
the Sales, Underwriting and Administration departments of Harden and BRI and
serves on the Harden and BRI Executive Committees. He also currently serves on
the Board of the Independent Administrators Association.
GERARD J. LAURITA, Chief Operating Officer of PKW. An insurance
professional with over 30 years on the "carrier" side of the business. He has
performed functions and assumed responsibilities ranging from Commercial
Underwriter, Sales Manager, Sales and Product Education and Division Vice
President. His career has taken him through the carrier ranks with Merchant's
Fire, U.S.F.&G., Safeco, Chubb, Fireman's Fund, and just prior to joining PKW,
15 years with American States. He also serves on the PKW Executive Committee.
DONALD B. PUTNAM, CPCU, Director of Anchor, is Chairman of the
Executive Committee of PKW. An insurance professional with over 38 years of
experience, Mr. Putnam has been actively involved as a director or officer of
many California insurance associations and served as Director of the National
Association of Insurance Brokers (NAIB) and Intersure, an international
affiliation of insurance brokers. He also recently served as Chairman of the
NAIB- PAC. Mr. Putnam is a Business School graduate from the University of
California, Berkeley.
JAMES P. WIEKING, Director of Anchor, is the Executive Vice
President of PKW. He has been active in the insurance business for 39 years.
Mr. Wieking was formerly the owner of Wieking Connolly & Associates in Oakland,
which merged with PKW in 1983. Mr. Wieking has been involved in various civic
and professional associations and has served as a Board member of the Pacific
Network Group, the Independent Insurance Agents Association and the Advisory
Board of the Summit Bank in Oakland. He is a graduate of the University of
California, Berkeley. He also serves on the PKW Executive Committee.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Prior to the consummation of the System Merger, Old Anchor was a
privately held California corporation with approximately 63 shareholders. There
was no established trading market for Old Anchor's Common Stock. As of March
19, 1996, there were 3,674,501 shares of Anchor's Common Stock outstanding, held
by approximately 878 shareholders of record. As of March 19, 1996, there also
were Warrants to purchase 391,242 shares of Common Stock of Anchor (the
"Warrants") outstanding. The Warrants which were due to expire on January 6,
1996 have been extended to January 6, 1997, all other terms and conditions
remain the same.
Anchor's shares of Common Stock and Warrants are currently publicly
traded on the OTC Bulletin Board (Symbol: APUX). After a trading market is
established, Anchor expects to continue to pursue the listing of its shares on
The Nasdaq Small Cap Market; however, there can be no assurance as to when or
whether such shares will be so listed.
Holders of Anchor Common Stock are entitled to such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. Anchor has not paid any cash or stock dividends to date.
Anchor does not expect to pay dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical information for Anchor
which is based on, and should be read in conjunction with, Anchor's audited
financial statements that are being filed as part of this report.
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ANCHOR PACIFIC UNDERWRITERS, INC.
SELECTED FINANCIAL DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues 1/ $ 8,761,278 $ 6,091,165 $ 4,767,820 $ 4,436,728 $ 4,009,583
Income (Loss) before
other expenses, net 1/ $ (235,999) $ 63,349 $ 232,674 $ 174,567 $ 54,734
Income (Loss)
Net $ (867,029) $ (650,489) $ (1,662) $ (92,585) $ 111,061
Earnings (Loss) Per
Share 2/ $ (0.23) $ (0.22) $ (0.01) $ (0.03) $ 0.05
Weighted Average
Shares Outstanding 2/ 3,819,605 3,022,658 2,715,918 2,690,588 2,440,348
Cash Flow From
Operations (Deficit) $ 178,590 $ (537,714) $ 345,909 $ 289,780 $ 314,464
Total Assets $ 12,732,433 $ 13,134,383 $ 7,689,637 $ 8,177,374 $ 6,524,617
Total Long-Term Liabilities $ 2,412,852 $ 1,656,269 $ 514,651 $ 720,302 $ 275,506
Shareholders'
Equity $ 1,563,032 $ 2,740,463 $ 1,889,987 $ 1,870,023 $ 1,917,592
</TABLE>
1/ Consistent with Anchor's audited financial statements set forth elsewhere
in this Annual Report, both revenues and income (Loss) before other expenses,
net, include interest income.
2/ Earnings (Loss) per share and weighted average shares outstanding have
been retroactively restated to reflect effects of the 10 for 1 stock split
effected January 6, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BACKGROUND
Anchor was organized in 1986 as a California general partnership for
the specific purpose of acquiring Harden, a third-party employee benefits
administrator. Anchor was reorganized as a private California corporation in
March, 1987, and became a public reporting Delaware corporation on January 6,
1995 when it merged with System.
Since its inception, Anchor has expanded its insurance and financial
service capabilities through internal growth and a series of acquisitions.
Anchor in August, 1994, acquired BRI, a third-party administrator located in
Scottsdale, Arizona, in October, 1994, acquired PKW, a property and casualty
insurance brokerage company located in Oakland, California, and in March, 1996,
acquired RLF, a property and casualty insurance brokerage company located in
Walnut Creek, California. The RLF acquisition is not significant to Anchor.
The acquisitions of these entities were accounted for using the purchase method
of accounting. Anchor expects to continue to expand its insurance brokerage and
administration businesses and to explore other complementary expansion
opportunities.
Historically, Anchor derived a majority of its revenues from third-
party administration services. In light of its acquisition of PKW and the March
1, 1996 acquisition of RLF, Anchor expects to significantly increase the
percentage of its revenues that are derived from property and casualty insurance
brokerage activities.
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RESULTS OF OPERATIONS -- YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
GENERAL
Anchor derives a substantial portion of its revenues from commissions,
which generally are based on a percentage of premiums produced by Anchor,
contingent commissions, which generally are based on underwriting profits
derived over a given period of time by the insurance carrier, and fees for
claims administration (including underwriting and risk analysis) services, which
generally are based on a percentage of premiums collected, or on a per capita
basis. Anchor does not assume any underwriting risk in connection with its
business.
Fluctuations in premiums charged by insurance companies may materially
affect commission revenues. During the last seven years, the property and
casualty insurance industry has experienced a "soft market" where the
underwriting capacity of insurance companies expanded, stimulating an increase
in competition and a decrease in premium rates, thereby reducing related
commissions and fees. In addition, the soft market for property and casualty
insurance workers' compensation reform in California has had the effect of
reducing workers' compensation insurance premiums and, consequently, reducing
commissions generated by the sale of related insurance products. Although some
sources in the insurance industry have predicted future premium increases, the
likelihood of rate increases in 1996 remains uncertain. Anchor believes that
revenues generated from anticipated future growth and continued diversification
of its business will offset weaknesses in the property and casualty market and
any loss of revenues that may result from workers' compensation reform.
Inflation may also impact commission revenues by, among other things,
increasing property replacement costs and workers' compensation and liability
claims, thereby causing some clients to seek higher levels of insurance coverage
and pay higher premiums. During the past several years, the United States has
experienced very low rates of inflation along with business downsizing, reduced
sales and lower payrolls; these events have resulted in lower levels of exposure
to insure. Because the United States has recently experienced limited
inflationary pressures inflation has had minimal impact on insurance prices.
Other factors, such as client uncertainty about the effect of health
care reform, could also affect Anchor's business. Anchor believes, however,
that its expertise in two major elements of health care reform proposals
(managed care and managed competition), combined with its strategy of serving
middle market clients, makes it well positioned to operate effectively in a
managed care and managed competition environment. Anchor also believes that in
light of the political changes in the United States Congress, the United States
will experience incremental, rather than comprehensive, changes in health care
regulations. It is not possible at this time to predict the effect that any
health care legislation will have on Anchor's business condition or operations.
Anchor is unaware of any current regulatory proposals that could have
a material effect on its liquidity, capital resources or operations.
REVENUES
TOTAL REVENUES. Total revenues for 1995 were $8,761,278, an increase
of $2,670,113, or 43.8%, over 1994 revenues. The increase resulted primarily
from the inclusion of the operations of PKW and BRI for the entire year in
Anchor's consolidated financial statements. Anchor's revenues vary from quarter
to quarter as a result of the timing of policy renewals and net new/lost
business production, whereas expenses are fairly uniform throughout the year.
Total revenues for 1994 were $6,091,165, an increase of $1,323,345, or 27.7%,
over 1993 revenues of $4,767,820. The increase resulted primarily from the
inclusion of the operations of PKW for the period October 1, 1994 through
December 31, 1994, and BRI for the period August 1, 1994 through December 31,
1994, in Anchor's consolidated financial statements.
Commissions and fees make up substantially all of Anchor's revenues.
The following table sets forth the percentages of Anchor's revenues attributable
to insurance brokerage services (for which commissions are generated), and
third-party administration and underwriting and risk analysis services (for
which fees are generated), for the three
11
<PAGE>
years ended December 31, 1995, 1994 and 1993. Also included is the percentage
of revenues generated from premium finance activities.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
----------------------- ---- ---- ----
<S> <C> <C> <C>
Insurance Brokerage 40% 27% 25%
Third-Party Administration 60 72 74
Premium Financing - 1 1
---- ---- ----
Total 100% 100% 100%
---- ---- ----
---- ---- ----
</TABLE>
Historically, Anchor derived a majority of its revenues from third-
party administration services. In light of its acquisitions of PKW and RLF,
Anchor expects to continue to experience an increase in the percentage of its
revenues that are derived from insurance brokerage activities.
COMMISSIONS. Commissions are reported net of sub-broker commissions
and generally are recognized as of the effective date of the insurance policy
except for commissions on installment premiums which are recognized periodically
as billed. Commissions for 1995 were $3,422,314, an increase of $1,775,125, or
107.8%, over $1,647,189 of commissions for 1994. The acquisition of PKW
accounted for all of the increase. Commissions for 1993 were $1,173,643. The
higher commissions generated in 1994, as compared to 1993, were attributable
primarily to the PKW acquisition which accounted for approximately $541,880 of
the increase.
Anchor expects that, in 1996, commission revenues generated from
sales of workers' compensation insurance, which accounted for approximately
18% of commission revenues (or 7% of Anchor's total revenues) in 1995, might
decrease as a result of workers' compensation reform in California. Anchor
believes, however, that revenues generated from anticipated growth and
continued diversification of its business will substantially offset any loss
of revenues that result from workers' compensation reform.
FEES. Fees from Anchor's third-party administration (including
underwriting and risk analysis) services for 1995 were $5,186,302, an increase
of $857,064, or 19.8%, over $4,329,238 in fees for 1994. The acquisition of BRI
accounted for the majority of the increase. Fee revenues for 1993 were
$3,488,063. The higher fee revenues for 1994, as compared to 1993, were
attributable primarily to the acquisition of BRI.
Fee revenues generated by Anchor in 1995 from third-party
administration services consist of revenues generated by Harden and BRI. A
significant portion of BRI's fee revenues in 1995 related to an insurance
product underwritten by one insurance carrier, which currently is an A+
(Superior) rated insurance carrier.
Harden's third-party administration revenues in 1995 related to: (a)
an insurance product underwritten by two insurance carriers, which are A
(Excellent) and A+ (Superior) rated insurance carriers; and (b) the
administration of insurance programs underwritten by various insurance carriers
for a number of self-insured employers. The insurance product referred to in
subparagraph (a) above accounted for approximately 60.6% of Harden's revenues
(or approximately 25.1% of Anchor's total revenues) in 1995, and revenues
related to the administration self-insured programs described in sub-paragraph
(b), accounted for 38.0% of Harden's revenues in 1995. Self-insurance is a
program in which a client assumes a manageable portion of its insurance risks,
usually (although not always) placing the less predictable and larger loss
exposure with an excess insurance carrier.
The insurance company which offered the product that accounted for 65%
of Harden's third-party administration revenues in 1994 informed Harden in early
1995, that as a result of changes in its business strategy, it would discontinue
offering such an insurance product by the end of 1995. On July 20, 1995, Harden
obtained a binding commitment from an A+ (Superior) rated insurance carrier to
underwrite the risk and provide a replacement product as of October 1, 1995.
Although management anticipates an orderly transition to the new carrier, such a
transition often causes clients to reevaluate their insurance needs, or
alternatively, the client may not satisfy the new insurance carrier's
underwriting requirements. Consequently there usually is a short term net loss
of clients. In this regard, subsequent to
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<PAGE>
December 31, 1995, one client who represented approximately 9% of Harden's
1995 revenues (or 3.7% of Anchor's consolidated revenues), has been advised
by the new carrier that it does not meet its underwriting standards.
INTEREST INCOME. Interest income consists of interest earned on
insurance premiums and other funds held in fiduciary accounts and interest
earned on investments. Interest income was $145,156, $112,411 and $86,035 in
1995, 1994 and 1993, respectively. The increase in interest income in 1995, as
compared to 1994, as well as 1994 compared to 1993, resulted primarily from a
larger amount of insurance premiums and other funds held in fiduciary accounts
due to the acquisitions of PKW and BRI.
EXPENSES
TOTAL EXPENSES. Total operating expenses for 1995 were $8,997,277, an
increase of $2,969,461, or 49.3%, over 1994 operating expenses. The increase
resulted primarily from the inclusion of the operating expenses of PKW, totaling
approximately $1,747,949, and the operations of BRI, totaling $1,615,367, in
Anchor's consolidated financial statements. For 1994, total operating expenses
were $6,027,816, an increase of $1,492,670, or 32.9%, over operating expenses
for 1993. The increase in operating expenses in 1994 over 1993 resulted
primarily from the inclusion of the fourth quarter operating expenses of PKW,
totaling $741,730, and the operations of BRI for the period August 1, through
December 31, 1994, totaling $769,318, in Anchor's consolidated financial
statements.
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and
benefits for 1995 were $5,949,035, an increase of $2,027,793, or 51.7%, over
1994 employee compensation of $3,921,242. The acquisitions of PKW and BRI
accounted for the majority of the increase in employee compensation and
benefits. Employee compensation and benefits for 1993 were $2,847,922. The
$1,073,320, or 37.6%, increase in such expenses for 1994, as compared to 1993,
was principally due to acquisitions of PKW and BRI during 1994, with the
remaining increase related primarily to expansion of existing operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $3,048,242, $2,106,574 and $1,687,224 in 1995, 1994
and 1993, respectively. The $941,668, or 44.7%, increase in 1995, as compared
to 1994, resulted primarily from the acquisitions of PKW and BRI. The $419,350,
or 24.8%, increase in 1994, as compared to 1993, resulted also primarily from
the acquisitions of PKW and BRI. Other operating expenses include rent, travel,
insurance, postage, telephone, supplies and other miscellaneous expenses.
INTEREST EXPENSE. Interest expense was $161,769, $35,925 and $30,492
in 1995, 1994 and 1993, respectively. The increase in interest expense in 1995,
as compared to 1994, resulted primarily from an increase in outstanding
borrowings on Anchor's existing line of credit. The increase in interest
expense in 1994, as compared to 1993, resulted primarily from the assumption of
existing debt in connection with the acquisition of PKW and an increase in
outstanding borrowings on Anchor's existing line of credit. Anchor expects that
its interest expense will increase in 1996, as compared to 1995, due to larger
outstanding borrowings.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Goodwill represents
the excess of the cost of acquisitions over the fair value of net assets
acquired. Other intangibles include covenants not to compete, customer lists
and other contractual rights. Amortization of goodwill and other intangibles
was $409,908, $256,149 and $203,345 in 1995, 1994 and 1993, respectively. As a
result of Anchor's acquisitions of PKW and BRI, amortization of goodwill and
other intangibles has significantly increased. A discussion of amortization is
presented in Notes 2 and 5 of the Notes to Consolidated Financial Statements.
MERGER EXPENSES
During the first quarter of 1995, Anchor incurred merger expenses of
$221,220 for costs related to professional services associated with the System
Merger.
13
<PAGE>
INCOME TAXES
Anchor's expense(credit) for income taxes was $4,800 in 1995, $4,800
in 1994 and $(19,749) in 1993. An analysis of Anchor's provision for income
taxes is presented in Note 9 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
Anchor's business is not capital intensive and Anchor historically has
had sufficient capital to meet its operating needs. Anchor reported net cash
flows from operations of $178,590 for the twelve months ended December 31, 1995,
compared to net cash flows (used in) operations of ($537,714) for the twelve
months ended December 31, 1994. During 1996, Anchor expects to meet its
operating and capital needs from cash flow derived from operations. It also
anticipates borrowing under its existing credit agreements. Liquidity would be
impaired if cash flow from operations were reduced or if existing credit lines
were insufficient. To further supplement these funding sources Anchor is
presently seeking new bank lines and, as described below, is seeking to raise up
to $10 million from institutional investors.
During 1995, Anchor raised $370,000 to supplement its working capital
and capital expenditure requirements by selling 10% Convertible Subordinated
Debentures (the "Debentures"). The basic terms of the Debentures are: (a) 10%
interest per annum; (b) two year maturity; (c) conversion price of $1.35 in the
first year and $1.65 in the second year; (d) "piggyback" registration rights for
three years; (e) subordination provisions that subordinate the Debentures to
Anchor's "Senior Debt" (as defined in the Debentures); and (f) provisions that
permit Anchor to redeem the Debentures at par at any time. Purchasers of the
Debentures included seven members of the Board of Directors of Anchor and a
limited number of other sophisticated investors. The Debentures offering period
terminated on December 31, 1995.
An additional $600,000 was raised in 1995 to supplement Anchor's
working capital and capital expenditure requirements by selling a 10%
Convertible Subordinated Debenture, Series A (the "Debenture") to Guarantee Life
Insurance Company. The basic terms of the Debenture are: (a) 10% interest per
annum; (b) two year maturity; (c) conversion price of $1.50; (d) "piggyback"
registration rights for three years; (e) subordination provisions that
subordinate the Debenture to Anchor's "Senior Debt" (as defined in the
Debenture); and (f) provisions that permit Anchor to redeem the Debenture at par
at any time.
Anchor recently engaged the services of an investment banker to assist
in raising approximately $10 million from institutional investors. The proceeds
of this offering would be used for debt consolidation, working capital and to
fund future acquisitions. At the present time, Anchor expects to offer investors
preferred stock that will be convertible into shares of common stock. Anchor
has had preliminary discussions with various parties, but has not yet obtained
any commitments with respect to such financing. Consequently, there can be no
assurance as to when or whether Anchor will raise additional capital or what the
terms and conditions would be for such capital.
Capital and certain acquisition related expenditures (not including
expenditures related to the acquisition of BRI and PKW, or the System Merger)
were $462,909 and $391,566 for the twelve months ended December, 1995 and 1994,
respectively. The increase in such expenditures in the twelve months of 1995,
as compared to 1994, related primarily to the acquisition of certain third party
administration accounts from a company (Dutcher) located in Stockton,
California. In addition to such expenditures, Anchor made several significant
expenditures in the first quarter of 1995 related primarily to professional
services associated with the System Merger and the PKW and BRI acquisitions.
Short-term debt, current portion of long-term debt and current
portion of long-term liabilities at December 31, 1995, totaling in the
aggregate $1,830,159 (as compared to $1,720,010 at December 31, 1994)
consisted of: (a) $975,000 outstanding under a $1,000,000 revolving line of
credit maintained by Anchor with a regional San Francisco Bay Area bank; (b)
$200,000 outstanding under a $500,000 unsecured line of credit maintained by
Anchor with another regional San Francisco Bay Area bank; (c) approximately
$228,750 of future fixed payments under a consulting agreement entered into
with a company affiliated with the former shareholders of BRI; (d) $150,000
representing the current
14
<PAGE>
portion of obligations with regard to certain real property leased by PKW prior
to its acquisition by Anchor and relocation to Anchor's executive offices; and
(e) $276,409 for certain other current liabilities.
On October 25, 1995 the $1,000,000 line of credit expired. The bank
has extended the line of credit to September 8, 1996. The line of credit
requires Anchor to maintain shareholders' equity of at least $800,000. Anchor's
shareholders' equity at December 31, 1995 was $1,563,032. The $500,000
unsecured line of credit, expires on July 30, 1996; replaces an earlier $200,000
line of credit which expired on November 5, 1995, and which was secured by the
net commission portion of PKW's accounts receivable and equipment and general
intangibles. The interest rate on the $1,000,000 line of credit is at the
lending bank's prime rate. The $500,000 line of credit has an interest rate
equal to the lending bank's prime rate plus 1-1/4%.
In 1995, the bank that provided Anchor with the $1,000,000 line of
credit also provided Anchor with equipment financing loans of $125,000 and
$62,000 for equipment purchased with operating capital. The proceeds from the
$125,000 equipment financing loan were then used to reduce the outstanding
balance on said $1,000,000 line of credit.
At December 31, 1995, long-term liabilities, less the current portion
discussed above, totaled $2,412,852 (as compared to $1,656,269 at December 31,
1994), and primarily consisted of: (a) convertible debentures, including
incurred interest, of $982,583; (b) approximately $435,000 of future fixed
payments under the consulting agreement mentioned above with a company
affiliated with the former shareholders of BRI; (c) approximately $334,716
representing the long-term portion of obligations with regard to certain real
property leased by PKW prior to its acquisition by Anchor and relocation to
Anchor's executive offices; and (d) approximately $660,553 for certain other
long-term liabilities. In May, 1995, PKW entered into a sublease with respect
to 82% of PKW's prior office space. The sublease expires on September 30, 1997
(unless extended by the subtenant through November 30, 1999, the date on which
the term of the master lease expires) and requires PKW to provide a multi-year
rent subsidy. In December, 1995, PKW entered into a sublease with respect to an
additional 10% of PKW's prior office space. The sublease expires on November
30, 1999 and requires PKW to provide a multi- year rent subsidy. The amounts
classified as short and long-term liability with respect to the PKW leases
reflect such subsidy and are based upon the assumptions that: (a) the subtenant
of the May, 1995, sublease will exercise its option to extend the lease through
1999; and (b) the remaining 8% of such office space will be subleased in 1997.
Anchor has not paid cash dividends in the past and does not expect to
pay cash dividends in the foreseeable future.
ADJUSTMENT OF PKW PURCHASE PRICE
In connection with the acquisition of PKW in October, 1994, Anchor
issued 120,077 shares of its common stock at a value determined to be $12.50 per
share (which were converted into 1,200,770 shares, having a value of $1.25 per
share, upon consummation of the System Merger) to the former shareholders of
PKW. Two of the former shareholders of PKW are members of the Board of
Directors of Anchor. Subsequent to the PKW acquisition certain contingencies
regarding PKW's operations caused Anchor to negotiate and secure an adjustment
to the purchase price paid for PKW. As a result, the former PKW shareholders
have returned to Anchor 248,710 shares of Anchor's Common Stock that were issued
in connection the PKW acquisition. The return of shares has resulted in a
reduction of both shareholders' equity and goodwill by $310,890 and a reduction
in the number of outstanding shares of Anchor's Common Stock by 248,710.
STRATEGY
Anchor's strategy is to strengthen its core health insurance and
property and casualty (including workers' compensation) insurance businesses by:
(a) continuing to develop specialized affiliated business units that target
selected insurance industry market segments defined by industry type, geographic
location and consumer demographics; (b) establishing new products and services;
and (c) seeking to acquire and integrate compatible insurance brokerage and
administration businesses in the Western United States. In connection with this
strategy, Anchor regularly considers acquisition opportunities. To date,
acquisitions by Anchor have involved relatively small acquisitions of insurance
15
<PAGE>
brokerage and administration accounts to larger acquisitions of insurance
brokerage companies, such as PKW, and third-party administrators, such as BRI.
Anchor expects to continue to pursue appropriate acquisition opportunities, and
believes that its merger with System greatly enhances its ability to make
acquisitions and continue its expansion strategy. Although Anchor is engaged in
discussions with third parties regarding potential acquisitions, as of March 19,
1996, it did not have any binding agreements with respect to acquisitions. No
assurances can be given with respect to the likelihood, or financial or business
effect, of any possible future acquisition.
RECENTLY ISSUED ACCOUNTING STATEMENTS
In March, 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No. 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Anchor adopted Statement No. 121 during the year ended 1995. The adoption
had no material impact on Anchor.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements for Anchor appear on pages F-1
through F-25 of this report.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information under the heading "Independent Auditors" from the
Registrant's Proxy Statement to be mailed in connection with the Registrant's
1996 Annual Meeting of Stockholders is hereby incorporated by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information under the headings "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" from the
Registrant's Proxy Statement to be mailed in connection with the Registrant's
1996 Annual Meeting of Stockholders are hereby incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the headings "Executive Compensation" and
"Employment Agreement with James R. Dunathan" from the Registrant's Proxy
Statement to be mailed in connection with the Registrant's 1996 Annual Meeting
of Stockholders are hereby incorporated by reference.
16
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Stockholders" and "Stock
Ownership Table" from the Registrant's Proxy Statement to be mailed in
connection with the Registrant's 1996 Annual Meeting of Stockholders are hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the heading "Certain Relationships and Related
Transactions" from the Registrant's Proxy Statement to be mailed in connection
with the Registrant's 1996 Annual Meeting of Stockholders is hereby incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS.
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1995 and 1994
Consolidated Statements of Operations for the years ended December 31,
1995, 1994 and 1993
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Schedule 1 -- Condensed Financial Information of Registrant
Full disclosure is contained in the consolidated financial statements
of the Registrant and the notes thereto.
Schedule 2 -- Valuation and Qualifying Accounts
Amount does not satisfy the requirements for disclosure.
(a)(3) EXHIBIT INDEX
2.1 Amended and Restated Agreement and Plan of Merger dated as of
October 24, 1994, by and between System and Old Anchor, as
amended by that certain Amendment to the Amended and Restated
Agreement and Plan of Merger dated as of December 29, 1994, and
Agreement of Merger attached as an exhibit to the
Reorganization Agreement and certified by the Delaware
Secretary of State on January 6, 1995. Incorporated by
reference to Exhibit 2.1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
3.1 Restated Certificate of Incorporation. Incorporated by
reference to Exhibit 3.1 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994.
3.2 Bylaws. Incorporated by reference to Exhibit 3.2 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
17
<PAGE>
4.1 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
4.2 Specimen Warrant Certificate. Incorporated by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
4.3 Warrant Agreement dated as of January 7, 1995, between Anchor
and U.S. Stock Transfer Corporation. Incorporated by reference
to Exhibit 4.3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
4.3a Letter dated December 29, 1995 to all stockholders from James
R. Dunathan extending warrants expiration date to January 6,
1997.
4.4 Form of 10% Convertible Subordinated Debenture. Incorporated
by reference to Exhibit 4.1 of the Company's Form 10-Q for the
quarter ending March 31, 1995.
4.5 Form of 10% Convertible Subordinated Debenture, Series A.
10.1 1994 Stock Option Plan. Incorporated by reference to Exhibit
10.1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.*
10.2 Lease dated October 29, 1990, as amended on June 10, 1991,
April 16, 1994 and September 9, 1994, between Anchor and
Societe Generale (regarding 1800 Sutter Street, Concord,
California). Incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.3 Lease dated May 29, 1990, as amended on December 1, 1992,
between PKW and Kaiser Center, Inc. (regarding 300 Lakeside
Drive, Oakland, California). Incorporated by reference to
Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.3a Sublease dated May 26, 1995, between PKW and Martin, Ryan &
Andrada, Inc. (regarding 82% of 300 Lakeside Drive, Oakland,
California). Incorporated by reference to Exhibit 10.2 of the
Company's Form 10-Q for the quarter ending June 30, 1995.
10.3b Sublease dated December 1, 1995, between PKW and Logiciel, Inc.
(regarding 10% of 300 Lakeside Drive, Oakland, California).
10.4 Lease dated July 3, 1989, as amended on February 10, 1994,
between BRI and Connecticut General Life Insurance Company
(regarding 10301 N. 92nd Street, Scottsdale, Arizona).
Incorporated by reference to Exhibit 10.4 of the Company's
Annual Report on Form 10-K for year ended December 31, 1994.
10.5 Employment Agreement dated August 16, 1994, between Anchor and
James R. Dunathan. Incorporated by reference to Exhibit 10.5
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.*
10.6 Amendment No. 1 to Employment Agreement dated December 19,
1994, between Anchor and James R. Dunathan. Incorporated by
reference to Exhibit 10.6 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.*
10.7 Business Loan Agreement dated as of September 27, 1994, between
Anchor and Concord Commercial Bank, and related documents.
Incorporated by reference to Exhibit 10.7 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
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<PAGE>
10.8 Business Loan Agreement dated as of September 7, 1994, between
PKW and CivicBank of Commerce, and related documents.
Incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10.9 Business Loan Agreement dated as of June 17, 1992, between
Harden and Concord Commercial Bank, and related documents.
Incorporated by reference to Exhibit 10.9 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10.10 Lease of Personal Property dated April 6, 1994, between BRI and
Winthrop Financial Group, Inc. (regarding computer equipment).
Incorporated by reference to Exhibit 10.10 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1994.
10.12 Information Management Agreement dated as of May 11, 1993,
between Harden and CMSI, Inc. Incorporated by reference to
Exhibit 10.12 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.13 Consulting Agreement dated as of August 1, 1994, between BRI
and Hightrust, Ltd. Incorporated by reference to Exhibit 10.13
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.14 Agreement for Purchase and Sale of Assets dated as of January
18, 1995, between Harden and Dutcher. Incorporated by
reference to Exhibit 10.14 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.15 Amendment to Agreement for Purchase and Sale of Assets dated
February 1, 1995, between Harden and Dutcher. Incorporated by
reference to Exhibit 10.15 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.16 Asset Purchase Agreement dated May 17, 1995 between Putnam,
Knudsen & Wieking Inc. Insurance Brokers and Crestview Leasing.
Incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ending June 30, 1995.
10.17 Settlement Agreement and Mutual Release dated August 22, 1995
between Anchor and Donald B. Putnam, James P. Wieking, Ronald
J. Marengo, Gary N. Lewis, Edward Wieking and Robert Moser.
Incorporated by reference to Exhibit 10.1 of the Company's Form
10-Q for the quarter ending September 30, 1995.*
11.1 Statement Regarding Computation of Per Share Earnings.
21.1 Subsidiaries of Anchor. Incorporated by reference to Exhibit
21.1 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1994.
27.0 Financial Data Schedule.
All other exhibits are omitted because they are inapplicable.
*Denotes management contract or compensatory plan or
arrangement.
(b) Reports of Form 8-K.
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ANCHOR PACIFIC UNDERWRITERS, INC.
(Registrant)
Date: March 19, 1996 By: /s/ James R. Dunathan
----------------------
James R. Dunathan
President and
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ James R. Dunathan President, March 19, 1996
- --------------------- Chief Executive
James R. Dunathan Officer and Director
(Principal Executive Officer)
/s/ Earl Wiklund March 19, 1996
- ---------------- Chief Financial
Earl Wiklund Officer and Director
(Principal Financial and
Accounting Officer)
/s/ Audie J. Dudum Chairman, March 19, 1996
- ------------------ Director
Audie J. Dudum
/s/ Steven A. Gonsalves Director March 19, 1996
- -----------------------
Steven A. Gonsalves
/s/ R. William MacCullough Director March 19, 1996
- --------------------------
R. William MacCullough
/s/ Donald B. Putnam Director March 19, 1996
- --------------------
Donald B. Putnam
/s/ Michael R. Sanford Director March 19, 1996
- ----------------------
Michael R. Sanford
/s/ Richard L. Taylor Director March 19, 1996
- ---------------------
Richard L. Taylor
/s/ James P. Wieking Director March 19, 1996
- --------------------
James P. Wieking
20
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
ANCHOR PACIFIC UNDERWRITERS, INC.
AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
Anchor Pacific Underwriters, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1995, 1994 and 1993
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-1
Audited Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . .F-8
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Anchor Pacific Underwriters, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Anchor
Pacific Underwriters, Inc. and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The
consolidated financial statements of Anchor Pacific Underwriters, Inc. and
subsidiaries for the year ended December 31, 1993, were audited by other
auditors whose report dated April 1, 1994 expressed an unqualified opinion on
those statements prior to restatement.
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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Anchor Pacific Underwriters, Inc. and subsidiaries at December 31, 1995
and 1994, and the consolidated results of their operations and their cash
flows for the years then ended in conformity with generally accepted
accounting principles.
We also audited the adjustments described in Note 1 that were applied to
restate the 1993 financial statements. In our opinion, such adjustments are
appropriate and have been properly applied.
March 18, 1996
F-1
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------- ------------
(Restated)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents - corporate funds $ 904,781 $ 384,102
Cash and cash equivalents - brokerage fiduciary funds 1,529,524 1,323,372
Cash and cash equivalents - third party administration
fiduciary funds 4,010,606 4,349,629
Accounts receivable (less allowance for doubtful accounts
of $49,560 and $33,700 in 1995 and 1994, respectively) 1,255,335 1,306,627
Prepaid expenses and other 295,537 382,806
Current portion of deferred tax asset - 48,402
-------------------------
Total current assets 7,995,783 7,794,938
Property and equipment 2,892,462 2,498,171
Less accumulated depreciation and amortization (1,835,530) (1,540,120)
-------------------------
1,056,932 958,051
Other assets:
Goodwill, net 2,128,452 2,525,591
Intangible assets, net 1,128,740 1,144,091
Deferred compensation 361,344 566,904
Other 61,182 144,808
-------------------------
3,679,718 4,381,394
-------------------------
Total assets $12,732,433 $13,134,383
-------------------------
-------------------------
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
----------- ------------
(Restated)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash and cash equivalents - third party administration
fiduciary funds $ 4,010,606 $ 4,349,629
Net premiums payable - insurance companies 2,510,983 2,256,313
Accounts payable and accrued expenses 404,801 365,089
Capital lease obligations - 46,610
Short-term debt 1,175,000 850,000
Current portion of long-term debt 156,622 83,068
Current portion of long-term liabilities 498,537 786,942
--------------------------
Total current liabilities 8,756,549 8,737,651
Long-term liabilities 1,034,895 1,435,493
Long-term debt, including $790,000, in 1995, owed to
related parties 1,266,635 61,052
Deferred tax liability 111,322 159,724
Shareholders' equity:
Common stock - $.02 par value; 8,000,000 shares
authorized; 3,674,501 and 3,923,258 shares issued,
1995 and 1994, respectively 73,490 78,465
Additional paid-in capital 2,989,275 3,294,702
Retained earnings (deficit) (1,499,733) (632,704)
--------------------------
Total shareholders' equity 1,563,032 2,740,463
--------------------------
Total liabilities and shareholders' equity $12,732,433 $13,134,383
--------------------------
--------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
(Restated) (Restated)
<S> <C> <C> <C>
Revenues:
Commissions, fees and other income $8,616,122 $5,978,754 $4,681,785
Interest income 145,156 112,411 86,035
------------------------------------------
Total revenues 8,761,278 6,091,165 4,767,820
Operating expenses:
Salaries, commissions and employee benefits 5,949,035 3,921,242 2,847,922
Selling, general and administrative expenses 3,048,242 2,106,574 1,687,224
------------------------------------------
Total operating expenses 8,997,277 6,027,816 4,535,146
------------------------------------------
(235,999) 63,349 232,674
Other income (expense):
Amortization of goodwill and intangible assets (409,908) (256,149) (203,345)
Interest (161,769) (35,925) (30,492)
Other 166,667 45,637 (20,248)
Merger expenses (221,220) (462,601) -
------------------------------------------
(626,230) (709,038) (254,085)
------------------------------------------
Loss before income taxes (862,229) (645,689) (21,411)
Income tax expense (credit) 4,800 4,800 (19,749)
------------------------------------------
Net loss $ (867,029) $ (650,489) $(1,662)
------------------------------------------
------------------------------------------
Net loss per common shares $ (0.23) $ (0.22) $ (0.01)
------------------------------------------
------------------------------------------
Weighted average number of common shares outstanding 3,819,605 3,022,658 2,715,918
------------------------------------------
------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 (Restated) 2,709,338 $54,187 $1,796,389 $ 19,447 $ 1,870,023
Stock options exercised 13,150 263 21,363 - 21,626
Net loss - - - (1,662) (1,662)
---------------------------------------------------------------------------
Balance at December 31, 1993 (Restated) 2,722,488 54,450 1,817,752 17,785 1,889,987
Stock issued for acquisitions 1,200,770 24,015 1,476,950 - 1,500,965
Net loss - - - (650,489) (650,489)
---------------------------------------------------------------------------
Balance at December 31, 1994 (Restated) 3,923,258 78,465 3,294,702 (632,704) 2,740,463
Stock issued for warrants exercised 163 3 486 - 489
Canceled stock:
Acquisition related adjustment (248,710) (4,974) (305,917) - (310,891)
Fractional shares (210) (4) 4 - -
Net loss - - - (867,029) (867,029)
---------------------------------------------------------------------------
Balance at December 31, 1995 3,674,501 $73,490 $2,989,275 $(1,499,733) $ 1,563,032
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(867,029) $(650,489) $ (1,662)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 295,410 208,751 205,966
Amortization of goodwill, other intangibles
and organization expenses 409,908 257,309 213,476
Changes in operating assets and liabilities,
net of effect of purchases of subsidiaries:
Cash and cash equivalents - brokerage
fiduciary funds (206,152) 322,950 65,957
Accounts receivable 51,292 (133,818) (172,213)
Prepaid expenses and other 92,518 576,582 37,121
Other assets 83,626 (66,928) (40)
Deferred compensation 205,560 (566,904) -
Net premiums payable - insurance companies 254,670 (254,236) (37,394)
Accounts payable and accrued expenses 39,712 (78,931) (735)
Other liabilities (180,925) (152,000) 35,433
----------------------------------------
Net cash provided by (used in) operating activities 178,590 (537,714) 345,909
INVESTING ACTIVITIES
Notes receivable, net (5,250) 3,350 11,324
Purchase of property and equipment (394,291) (394,916) (229,551)
Purchase of customer list (63,368) - (25,462)
Purchases of subsidiary, net of cash acquired - (28,534) -
----------------------------------------
Net cash used in investing activities (462,909) (420,100) (243,689)
</TABLE>
SEE ACCOMPANYING NOTES.
F-6
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Common stock - stock options exercised $ - $ - $ 21,626
Debt:
Borrowings 1,807,583 600,000 24,375
Repayment (956,463) (190,245) (58,407)
Capital lease payments (46,611) (10,969) -
Issuance of common stock 489 - -
Net payments on amounts due on acquisitions - - (35,720)
----------------------------------------
Net cash provided by (used in) financing activities 804,998 398,786 (48,126)
----------------------------------------
Net increase (decrease) in cash 520,679 (559,028) 54,094
Cash and cash equivalents - corporate funds at
beginning of year 384,102 943,130 889,036
Cash and cash equivalents - corporate funds at
end of year $ 904,781 $ 384,102 $ 943,130
----------------------------------------
----------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 161,769 $ 35,925 $ 29,320
----------------------------------------
----------------------------------------
Income taxes $ 5,600 $ 93,042 $ 6,000
----------------------------------------
----------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Increase in goodwill related to increase price
adjustment recorded to increase sublease liability $ 104,542 $ - $ -
----------------------------------------
----------------------------------------
Decrease in goodwill related to cancellation of stock
issued in conjunction with acquisition $ 310,890 $ - $ -
----------------------------------------
----------------------------------------
Increase in intangible assets and notes payable
related to purchase of customer list $ 140,395 $ - $ -
----------------------------------------
----------------------------------------
Decrease in goodwill and notes payable related to
revaluation of customer list $ - $ 50,000 $ 90,000
----------------------------------------
----------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-7
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. NATURE OF BUSINESS
ORGANIZATION
Anchor Pacific Underwriters, Inc. ("Anchor") is a holding company that
provides insurance administration and property and casualty brokerage
services through its five direct and indirect subsidiaries. Administration
services are provided to employer groups of varying size, primarily located
in California and Arizona. Anchor also operates property and casualty
insurance agencies which service customers located primarily in the greater
San Francisco Bay Area.
The consolidated financial statements include the accounts of Anchor and its
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
RECAPITALIZATION AND RESTATEMENT
On January 6, 1995, Anchor merged with System Industries, Inc. ("System"), a
previously dormant, publicly traded shell corporation. For accounting
purposes, the merger has been treated as a recapitalization of Anchor with
Anchor as the acquirer. Upon consummation of the merger, shareholders and
certain creditors of System each received one share of Anchor common stock
and one warrant to purchase one share of Anchor common stock at a price of
$3.00 for every 42.3291 shares of issued and outstanding System common stock.
The warrants issued allow for the purchase of 391,242 shares of common stock
and expire January 6, 1997. As a result of the merger, Anchor became a
publicly traded company. The historical financial statements prior to
January 6, 1995 are those of Anchor and have been restated to reflect a 10
for 1 stock split effective in conjunction with the merger and the
reallocation of capital between common stock and additional paid-in capital
as a result of the assignment of a $0.02 par value to the previously no par
value stock. All references to numbers of shares and per share amounts have
been retroactively restated.
Costs incurred in conjunction with the merger, which total $221,220 and
$462,601 for the years ended 1995 and 1994, respectively, have been expensed.
F-8
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements have been prepared on the going concern basis. The
Company has reported net loss during the past three years. The increase in
net loss in 1995 and 1994 relates to expenses in connection with acquisitions
and a merger. These events are further discussed in the footnotes. The
Company's business is not capital intensive and the Company historically has
had sufficient capital to meet its operating needs. The Company plans to
continue making acquisitions and, in order to fund these plans, is presently
seeking new bank lines as well as seeking to raise up to $10 million from
institutional investors.
Management's plan to achieve profitability includes a strategy to strengthen
its core health insurance and property and casualty insurance businesses by:
(a) continuing to develop specialized affiliated business units that target
selected insurance market segments defined by industry type, geographic
location and consumer demographics; (b) establishing new products and
services; and (c) seeking to acquire and integrate compatible insurance
brokerage and administration businesses in the Western United States. In
conjunction with such acquisition strategies, management intends to realize
efficiencies and reduce expenses through the integration and centralization
of certain services with its existing infrastructure.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
F-9
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The majority of revenue from third party administration services consists of
fees charged for the administration of fully insured and self-insured group
health plans. Fee income is recognized at the time employers remit monthly
premiums and when services are rendered. Anchor derived 60%, 72%, and 74% of
its revenues in 1995, 1994 and 1993, respectively, from its third-party
activities.
Insurance brokerage revenue consists principally of insurance commissions
(net of split or shared commissions), fees in lieu of commissions for
insurance placement services and interest income on fiduciary and corporate
funds. Insurance commissions and fees in lieu of commissions for insurance
placement services are recognized when coverage becomes effective, the
premium due under the policy is known or can be reasonably estimated, and
substantially all required services related to placing the insurance have
been provided.
Broker commission adjustments and commissions on premiums billed directly by
underwriters are recognized principally when such amounts can be reasonably
estimated.
In addition, Anchor receives annual contingency commissions from various
property and casualty insurance carriers. The commissions are based upon the
carrier's loss experience as well as the number of policies placed. Revenue
from contingency commissions is recognized when received. Fee income for
services other than placement of insurance coverages is recognized as those
services are provided. Anchor derived 40%, 27%, and 25% of its revenues in
1995, 1994 and 1993, respectively, from its insurance brokerage activities.
EXPENSE RECOGNITION
All costs are expensed as incurred.
F-10
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
Anchor considers all highly liquid investments with a maturity of three
months or less at the date of acquisition to be cash equivalents.
FIDUCIARY FUNDS AND LIABILITIES
Funds held for self-funded employers, fully insured programs and unremitted
insurance premiums are held in a fiduciary capacity.
Interest earned on certain fiduciary funds is included in Anchor's earnings.
Interest income on fiduciary funds amounted to $138,051, $64,139, and $55,907
in 1995, 1994 and 1993, respectively.
CONCENTRATION OF CREDIT RISK
Cash and cash equivalents are on deposit in approximately 140 separate
accounts with certain accounts exceeding $100,000. The FDIC insures accounts
up to $100,000 each. If several accounts are maintained for the same entity
at the same bank, the FDIC applies the $100,000 limit to the combined group.
The accounts are maintained in well-established local commercial banks.
These banks have satisfied the FDIC's more stringent capitalization
requirements, qualifying them to accept broker deposits. The banks have
received high ratings from bank rating services. As a result, credit risk is
deemed to be minimal.
ACCOUNTS RECEIVABLE
Anchor provides for future estimated credit losses based on an evaluation of
a current aging of the accounts, current economic conditions and other
factors necessary to provide for losses that can be reasonably anticipated.
F-11
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments such as cash and cash
equivalents, fiduciary funds, and debt obligations approximate their fair
market value.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and short-term instruments approximate those assets' fair values.
SHORT-TERM BORROWINGS: The carrying amounts on the lines of credits and other
short-term borrowings approximate their fair value.
LONG-TERM BORROWINGS: The fair values of Anchor's long-term borrowings are
estimated using discounted cash flow analyses, based on the current
incremental borrowing rates for similar types of borrowing arrangements.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of
the assets, which range from three to ten years.
Software costs relating to the upgrading and enhancing of existing programs
are capitalized and amortized over a period of five years.
F-12
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the excess of the cost of acquisitions over the fair
value of net assets acquired. Intangible assets relate to covenants not to
compete, customer lists and other contractual rights acquired in
acquisitions. Goodwill is amortized on the straight-line basis over 10 to 25
years. Covenants not to compete and customer lists are amortized on the
straight-line basis over 5 to 12 years.
INCOME TAXES
Anchor and its subsidiaries file a consolidated federal income tax return and
combined returns for state franchise tax purposes.
LOSS PER SHARE
Loss per share is based on the weighted average number of common shares
outstanding during the period.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
NEW ACCOUNTING PRONOUNCEMENT
In March 1995, the FASB issued Statement of Financial Accounting Standards
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. Statement
No. 121 also addresses the accounting for long-lived assets that are expected
to be disposed of. The foregoing principles were used in evaluating goodwill
and intangible assets at December 31, 1995, with no adjustment of carrying
value being required.
F-13
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS
On August 1, 1994, Harden & Company, purchased common stock of Benefit
Resources Inc. (BRI), a third-party administrator located in Scottsdale,
Arizona. The purchase price consisted of $300,000 cash and certain other
acquisition expenses. The preliminary purchase price has been allocated to
assets and liabilities of BRI based upon their estimated respective fair
values. The preliminary purchase price exceeded the fair value of BRI's net
assets by approximately $212,000, which has been allocated to other
intangible assets. In addition, Harden entered into a consulting contract
pursuant to which it agreed to pay $940,000 over a fifty-month period to an
entity affiliated with the former shareholders of BRI. At the end of the
fifty-month term, a final bonus payment will be calculated, if any, that
would be paid out from the fifty-first through the ninety-eighth month.
On October 1, 1994, Anchor acquired Putnam, Knudsen & Wieking, Inc. (PKW), a
property and casualty insurance brokerage firm for an initial purchase price
of $2,895,000 subject to certain future contingent payments or adjustments.
The purchase price consisted of the issuance of 1,200,770 shares of newly
issued Anchor stock at a value determined to be $1.25 per share plus the
assumption of approximately $710,000 in relocation liabilities relating to
PKW's former office facilities. The purchase price also consisted of certain
other acquisition expenses. The preliminary purchase price exceeded the fair
value of PKW's net assets, the excess of $2,210,000 and $685,000 has been
allocated to goodwill and other intangible assets, respectively.
During 1995, subsequent to the PKW acquisition certain contingencies
regarding PKW's operations caused Anchor to negotiate and secure an
adjustment to the purchase price paid for PKW. As a result, 248,710 shares
of Anchor's common stock, that were issued in connection with the
acquisition, were returned to Anchor. The returned shares resulted in a
decrease of $310,890 in goodwill and shareholders' equity and a decrease in
the number of outstanding shares of Anchor's common stock by 248,710. The
decrease in goodwill was partially offset by a $104,540 purchase price
adjustment recorded in the current year to increase the estimate of
liabilities assumed in the acquisition of PKW.
F-14
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Leasehold improvements $ 47,376 $ 52,042
Furniture and equipment 806,712 794,207
Office equipment 694,864 677,026
Computer equipment 515,661 510,739
Computer software 827,849 464,157
--------------------------
2,892,462 2,498,171
Less accumulated depreciation and amortization (1,835,530) (1,540,120)
--------------------------
$ 1,056,932 $ 958,051
--------------------------
--------------------------
</TABLE>
5. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets as of December 31, 1995, 1994 and 1993 consist
of the following:
<TABLE>
<CAPTION>
AMORTIZATION
1995 1994 1993 PERIOD
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Goodwill $3,087,646 $3,293,992 $983,135 10 - 25 years
Less accumulated amortization (959,194) (768,401) (647,488)
-----------------------------------
$2,128,452 $2,525,591 $335,647
-----------------------------------
-----------------------------------
Covenants not to compete $ 240,700 $ 240,700 $260,700 5 - 12 years
Customer lists 1,965,636 1,761,872 262,519 5 - 12 years
-----------------------------------
2,206,336 2,002,572 523,219
Less accumulated amortization (1,077,596) (858,481) (282,122)
-----------------------------------
$1,128,740 $1,144,091 $241,097
-----------------------------------
-----------------------------------
</TABLE>
F-15
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SHORT-TERM DEBT
Anchor entered into a $1,000,000 revolving line of credit agreement with its
principal bank which expires on September 8, 1996 at which time all unpaid
principal and interest is due. Interest is paid monthly, at the bank's prime
rate, as adjusted (8.75% at December 31, 1995). Borrowings on the line are
collateralized by accounts receivable, equipment and general intangibles. The
line of credit agreement contains a covenant among others, which requires Anchor
to maintain a net worth greater than $800,000. The outstanding borrowings
against the line of credit at December 31, 1995 and 1994 were $975,000 and
$600,000, respectively. The weighted average interest rate on this loan
during 1995 was 8.83%.
On July 30, 1995, Anchor entered into an unsecured revolving line of credit
agreement with another bank which provides for a line of credit of $500,000 and
expires on July 30, 1996, at which time all unpaid principal and interest is
due. Amounts advanced against the line bear interest at the bank's prime rate
plus 1.25% as adjusted every six months (10% at December 31, 1995). The line
of credit agreement contains a covenant among others, which requires Anchor
to maintain a net worth greater than $800,000. The outstanding borrowings
against the line at December 31, 1995 were $200,000. The weighted average
interest rate on this loan was 10%.
F-16
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities primarily consist of future contingent payments
relating to contractual agreements negotiated with the previous owners of
businesses acquired in 1994, deferred rent and other liabilities not due within
one year. The future contingent payments are generally based upon the amount of
net commission income generated from the books of business acquired. At
December 31, 1995, the scheduled future payments of these liabilities are as
follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1996 $ 498,537
1997 349,514
1998 286,198
1999 86,383
2000 69,038
Thereafter 243,762
----------
$1,533,432
----------
----------
</TABLE>
8. LONG-TERM DEBT
At December 31, 1995, long-term debt includes 10% convertible subordinated
debentures totaling $970,000. The basic terms are (a) 10% interest per annum;
(b) two year maturity from the date of issuance; (c) convertible to Anchor
common stock at conversion prices per share ranging from $1.35 to $1.65
(d)"piggyback" registration rights for three years; (e) subordination
provisions and (f) provisions that permit Anchor to redeem the debenture at
par at any time. Based on the terms of the debenture, Anchor is prohibited from
declaring, paying or setting aside any sums for a dividend or other
distribution to any class of capital stock.
Also included in long-term debt are three loans totaling $372,275 at December
31, 1995 and other debt not due within one year totaling $80,982. Interest
rates on the loans range from Prime Plus 1% to 10% with maturity dates from
April, 1996 to February, 2000 and are collateralized by equipment and
intangible assets.
F-17
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
Minimum future principal payments related to the long-term debt as of
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1996 $ 156,622
1997 1,105,419
1998 82,507
1999 65,268
2000 13,441
----------
$1,423,257
----------
----------
</TABLE>
9. INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $ - $ 28,386 $ 816
State and local 4,800 9,809 9,543
------------------------------------------
Total current 4,800 38,195 10,359
Deferred tax (credit) expense:
Federal - (28,386) (30,108)
State and local - (5,009) -
------------------------------------------
Total deferred - (33,395) (30,108)
------------------------------------------
Income tax expense (credit) $ 4,800 $ 4,800 $(19,749)
------------------------------------------
------------------------------------------
</TABLE>
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities.
F-18
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
Deferred tax liabilities and assets are comprised of the following at
December 31:
<TABLE>
<CAPTION>
1995 1994
-----------------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $111,322 $280,871
Rent 6,188 26,853
-----------------------
Total deferred tax liabilities 117,510 307,724
Deferred tax assets:
Depreciation and amortization 89,010 -
Vacation pay 38,968 38,968
Tax credits 42,977 42,977
Other, net 19,824 9,234
Net operating loss carryforward 647,492 186,726
-----------------------
Total deferred tax assets 838,271 277,905
Valuation allowance for deferred tax assets (832,083) (81,503)
-----------------------
Net deferred tax asset 6,188 196,402
-----------------------
Net deferred tax liabilities $111,322 $111,322
-----------------------
-----------------------
</TABLE>
For December 31, 1995 and 1994, deferred tax liabilities are noncurrent. For
December 31, 1995 and 1994, deferred tax assets are comprised of $6,188 and
$48,402 which are current and $0 and $148,000 which are noncurrent,
respectively.
F-19
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The change in the valuation allowance is comprised of the following items:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994
------------------------
<S> <C> <C>
Increase (decrease) due to net operating losses $493,936 $ 33,396
Change in estimate of temporary differences for
fixed and intangible assets 256,644 (64,217)
------------------------
Net increase (decrease) $750,580 $(30,821)
------------------------
------------------------
</TABLE>
At December 31, 1995, $64,670 of the valuation allowance related to the purchase
of BRI. When realized, the tax benefit will be accounted for as a reduction of
goodwill.
A reconciliation of income tax computed at the federal statutory corporate tax
rate to income tax expense is:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------- --------------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at federal statutory rate $(294,790) (34.0)% $(219,534) (34.0)% $ (7,279) 34.0%
Increase (decrease) in income taxes
resulting from:
State and local income taxes,
net of federal tax benefit (51,559) (6.0) (38,741) (6.0) (1,285) 6.0
Amortization of goodwill and
other intangibles 100,817 11.6 21,594 3.3 29,404 (137.3)
Employee benefits 11,388 1.3 10,358 1.6 8,009 (37.4)
Purchase accounting (259,792) (30.0)
Nonrecurring merger expenses - - 192,927 30.0 - -
State minimum tax 4,800 0.6 4,800 0.7 - -
Net operating loss 493,936 57.1 33,396 5.1 (48,598) 227.0
--------------------- --------------------- ---------------------
$ 4,800 0.6% $ 4,800 0.7% $(19,749) 92.3%
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
</TABLE>
F-20
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
At December 31, 1995, the Company had federal and state net operating loss
carryforwards of approximately $2,335,000 and $1,285,000, respectively. The net
operating losses will begin to expire in the year ending December 31, 1998.
At December 31, 1995, the Company had federal general business credits of
approximately $26,000. The general business credits will begin to expire in
the year ending December 31, 1996. At December 31, 1995, the Company had
state tax credits of approximately $16,000. The state tax credits may be
carried forward indefinitely.
As indicated in Note 1, the Company consummated a merger with System,
resulting in shares of Anchor being issued. Federal and state tax law impose
limitations on the use of the net operating losses and tax credits following
certain changes in ownership. If such an ownership change has occurred, the
limitation could reduce the amount of the benefit of the net operating losses
and general business credits that would be available to offset future taxable
income starting in the year of the ownership change.
10. RETIREMENT AND EMPLOYEE BENEFIT PLANS
Anchor has a 401(k) profit sharing plan to which eligible employees may
contribute up to 15% of their salaries, or a maximum of $9,240 as deferred
compensation. The plan also provides for voluntary employer contributions
whereby Anchor may match 50% of the employee contribution up to a maximum of
3% of employees' gross salary. Anchor made no contributions to the plan
during the years ended 1995 and 1994.
In addition, Anchor offers active eligible employees certain life, health,
vision and dental benefits. There are several plans which differ in amounts
of coverage and deductibles. Anchor does not extend such benefits to
retirees.
F-21
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTION PLAN
In conjunction with the merger with System, Anchor's employee and director
stock option plans ("Old Anchor Plan") were terminated. On December 5,
1994, the Board of Directors of Anchor adopted a new plan, the Anchor Pacific
Underwriters, Inc. 1994 Stock Option Plan (the "1994 Plan"). The aggregate
number of shares that are available for issuance pursuant to the exercise of
options granted under the 1994 Plan may not exceed 700,000 shares of Common
Stock. Provisions of the 1994 Plan provide that upon the issuance of a
permit from the California Department of Corporations (obtained June 1995),
each nonemployee director of Anchor who held options under the Old Anchor
Plans shall receive an option to purchase 35,000 shares of Anchor Common
Stock and each nonemployee director who did not hold options under the Old
Anchor Plans shall receive an option to purchase 15,000 shares of Anchor
Common Stock and thereafter each nonemployee director who is first elected or
appointed to the Board of Directors of Anchor shall receive an option to
purchase 15,000 shares of Anchor Common Stock. Options granted to directors
on June 20, 1995 are immediately exercise. All options have a term of 10
years.
Anchor currently follows the provisions of Accounting Principles Board
Opinion 25, "Accounting for Stock Issued to Employees" (APB 25), which
requires compensation expense for the Company's options to be recognized only
if the market price of the underlying stock exceeds the exercise price on the
date of grant. Accordingly, Anchor has not recognized compensation expense
for its options granted in 1995.
F-22
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTION PLAN (CONTINUED)
A reconciliation of Anchor's stock option activity, and related information,
for the year ended December 31, 1995 follows:
<TABLE>
<CAPTION>
OPTION PRICE
RANGE SHARES
-----------------------
<S> <C> <C>
Options outstanding, December 31, 1994 - 0
Granted $1.50 - $2.19 512,250
Exercised - 0
Canceled/expired $1.50 (7,000)
----------------------
Options outstanding, December 31, 1995 $1.50 - $2.19 505,250
----------------------
----------------------
</TABLE>
12. LEASES
Anchor rents its Concord, California facilities under an operating lease as
renegotiated and amended in 1994, which expires in 2004. The terms of the
original lease include a 12-month rent deferral and fixed rental escalation.
The total rent for the lease term which reflects the 12-month deferral and
the escalation is being amortized on the straight-line basis over the full
term of the lease, resulting in deferred rent liability of approximately
$265,000 and $233,000 at December 31, 1995 and 1994, respectively, and is
included in long-term liabilities on the accompanying balance sheets.
A subsidiary located in Scottsdale, Arizona leases offices under an operating
lease which expires in 1997. In addition, in connection with the acquisition
of PKW in October 1994, Anchor assumed the lease obligation of certain
facilities in Oakland, California. During 1995, Anchor subleased 92% of the
Oakland facility to two separate tenants. The subleases expire in 1999.
The consolidated statements of operations reflect rent expense of $623,563,
$424,597, and $306,703 for the years ended 1995, 1994, and 1993,
respectively.
F-23
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. LEASES (CONTINUED)
Future minimum annual lease payments under operating leases as of December
31, 1995, exclusive of net amounts owed under the Oakland lease which are
disclosed in the schedule of payments under long-term liabilities in Note 7,
are as follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1996 $ 628,363
1997 554,263
1998 539,263
1999 561,736
2000 674,076
thereafter 2,583,955
----------
$5,541,656
----------
----------
</TABLE>
13. COMMITMENTS
In 1993, Anchor entered into an agreement with a third party to provide
information management services. Such services include managing and
operating certain automated information systems as well as providing
programming support and the development of certain software applications.
The agreement provides for an initial term of three years (expiring March 28,
1996) with two (2) two-year automatic renewals unless a 90-day notice of
nonrenewal is given by either party. Net costs for the initial term
approximate $416,000 per year. Other terms and conditions include a penalty
provision should Anchor not continue the agreement through the automatic
renewal periods.
F-24
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CONTINGENCIES
Anchor is subject to certain legal proceedings and claims arising in connection
with the normal course of its business. It is management's opinion that the
resolution of these claims will not have a material effect on Anchor's
consolidated financial position.
PKW, together with several other entities, had been named as a defendant in a
lawsuit filed in 1993. In this suit, a former client claimed that PKW acted
negligently when, as agent, wrote liability insurance with an insurance carrier
that was subsequently declared insolvent. On October 13, 1995, PKW, without
admitting any liability, agreed to a settlement of $50,000 in exchange for a
complete release from all liability.
15. RELATED PARTY TRANSACTIONS
Anchor is contingently liable on certain bank loans made to three of its
shareholders. The amounts outstanding on these loans total approximately
$122,177 at December 31, 1995, and mature at various dates from November 20,
1996 to May 20, 1997.
10% Convertible Subordinated Debentures, totaling $190,000 were sold to seven
members of the Board of Directors and two shareholders. An additional
$600,000 was raised by selling a second 10% Convertible Subordinated
Debenture - Series A to Guarantee Life Insurance Company (a current
shareholder). Total interest incurred and accrued under the debentures was
$8,750 for the year ended December 31, 1995.
F-25
<PAGE>
EXHIBIT 4.3a
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
December 29,1995
To Our Valued Shareholders and Friends
Since the last communication to you regarding Anchor Underwriters, Inc.,
additional progress has been made during this, our first year as a new public
company. The following will give you some idea of how things are going.
In the last update (July '95) we referred to an adjustment to the price paid for
one our 1994 purchase transactions which would return to the Company 248,000
shares of Anchor Pacific stock. This settlement has since been finalized, the
stock returned, and the adjustment made to our Balance Sheet.
Merger and acquisition activity continues to reflect a number of very promisisng
possibilities. Letters of intent have been presented to two potential
acquisitions. Closure of one transaction may occur early in 1996, assuming we
remain on schedule. Each business will complement the present Anchor Pacific
spectrum of services and each has operated at a profit and carries no debt.
These transactions, if completed, should add value to the Company.
The convertible Subordinated Debenture we outlined in our earlier leter has sold
reasonably well. The Board of Directors has decided to close the offfering at
year end. Currently, we reflect nearly $1,000,000 as sold, or committed, with
very little remaining available for purchase. The Debenture carries a 2 year
term, a 10% coupon and converts into Anchor Pacific stock at $1.35 per share,
first year and $1.65 in the second year. It has been well supported and
management is pleased. The proceeds will be used for working capital and fund
growth.
Other than our pending acquisition activity, the best news we have to report is
that the Company has settled the pending lawsuit referred to in our 1994 10K.
The footnote in our year-end report indicated that pending litigation involving
Putnam, Knudsen & Wieking, Inc., (our 1994 property and casualty acquisition),
represent a $1.5 Million potential exposure. We are very pleased to report the
case has settled and the Company's cost will be $50,000, plus expenses. Great
news, and the last of the issues we have had to resolve involving the PKW
transaction.
Financial performance this year has been "spotty," some profitable months, some
not. However, we have costs under control and revenues appear to be tracking
within a reasonable range to budget, considering market conditions. Management
continues to be optimistic about the future of our businesses and feels we are
on course with regard to our short and long-term goals for 1996 and beyond.
Finally, notice is hereby given that, by order of the Board of Directors of
Anchor Pacific, the Warrants originally issued in January, 1995 to the former
shareholders of System Industries, Inc. for a term of one (1) year, HAVE BEEN
EXTENDED AND MAY BE EXERCISED UP TO JANUARY 6, 1997. Each Warrant now entitles
warrantholders the right to purchase one (1) share of Anchor Underwriters, Inc.
common stock, for each share of Anchor Pacific Underwriters, Inc. originally
issued, at a price of $3.00 per share.
Please give us a call if you would like to discuss any of the above.
Sincerely,
/s/ James R. Dunathan
James R. Dunathan
President
Chief Executive Officer
<PAGE>
EXHIBIT 4.5
<PAGE>
Note No. 01
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS. IT MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR
QUALIFICATION UNDER SUCH SECURITIES LAWS OR AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY, THAT THE SALE OR TRANSFER IS PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION OR QUALIFICATION REQUIREMENTS OF SUCH SECURITIES LAWS.
ANCHOR PACIFIC UNDERWRITERS, INC.
10% Convertible Subordinated Debenture, Series A
(convertible into shares of common stock)
$600,000 Concord, California
December 28, 1995
ANCHOR PACIFIC UNDERWRITERS, INC., a Delaware corporation (the "Company"),
for value received, hereby promises to pay to Guarantee Life Insurance Company
or such other person in whose name this Debenture is registered on the Debenture
Register (as that term is defined below) (the "Holder"), the principal amount of
Six Hundred Thousand Dollars ($600,000), with simple interest on the unpaid
balance of such principal amount at the rate of ten percent (10%) per annum from
the date of this Debenture. Interest on the outstanding principal balance shall
be computed on the basis of a 360 day year of twelve 30-day months and shall be
paid to the Holder on June 27, 1996, December 27, 1996 and June 27, 1996 (each,
an "Interest Payment Date"). Each Debenture delivered upon registration of
transfer or in exchange for or in lieu of this Debenture shall carry the rights
to interest accrued and unpaid, and to accrue, which were carried by this
Debenture.
The full principal amount of this Debenture, plus interest, will be due and
payable on December 27, 1997 (the "Maturity Date"). Payment of interest and
principal shall be made in lawful money of the United States of America by wire
transfer to an account designated by the Holder appearing on the Debenture
Register.
This Debenture is a duly authorized Debenture of the Company, Series A,
limited to the aggregate principal amount of $600,000.
1. REPRESENTATIONS, WARRANTIES AND COVENANTS.
1.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and
<PAGE>
in good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted. The Company is duly qualified to transact business
and is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on its business or properties.
1.2 VALID ISSUANCE OF DEBENTURES AND SHARES. The Debenture, when
issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, and based
in part upon the representations of the Holder contained in the Subscription
Agreement pursuant to which this Debenture is being issued, will be issued in
compliance with all applicable federal and state securities laws. The shares of
the Company's Common Stock, $.02 par value per share, issuable upon conversion
of the Debentures (the "Shares") have been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of this Debenture,
shall be duly and validly issued, fully paid and nonassessable.
1.3 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of or default under any provisions of its Certificate of Incorporation
or Bylaws as amended and in effect on and as of the date of this Debenture or of
any material provision of any instrument or contract to which it is a party or
by which it is bound or, to its knowledge, of any material provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company. The execution, delivery and issuance of
this Debenture will not result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, a default
under any such provision, instrument or contract or an event which results in
the creation of any lien, charge or encumbrance upon any assets of the Company.
2. SUBORDINATION.
2.1 SUBORDINATION. The indebtedness evidenced by this Debenture is
subordinate and junior in right of payment to all Senior Debt (as such term is
defined below) to the extent provided herein, and the Holder, by such Holder's
acceptance hereof, agrees to the subordination herein provided and shall be
bound by the provisions hereof. Senior Debt shall continue to be Senior Debt
and entitled to the benefits of these subordination provisions irrespective of
any amendment, modification or waiver of any term of the Senior Debt or
extension or renewal of the Senior Debt.
2.2 SENIOR DEBT DEFINED. As used herein, the term "Senior Debt"
shall mean the following whether now outstanding or subsequently incurred,
assumed or created: (a) all indebtedness
-2-
<PAGE>
(whether or not secured) of the Company or its subsidiaries to banks, insurance
companies or other financial institutions regularly engaged in the business of
lending money; (b) such other indebtedness of the Company or its subsidiaries to
the extend that the instrument creating or evidencing such indebtedness provides
that it shall constitute Senior Debt; (c) any indebtedness issued in exchange
for such Senior Debt, or any indebtedness arising from the satisfaction or such
Senior Debt by a guarantor; and (d) any deferrals, renewals, or extensions of
any such Senior Debt.
2.3 DEFAULT ON SENIOR DEBT. If the Company shall default in the
payment of any principal of or interest on any Senior Debt when the same shall
become due and payable, whether at maturity or at a date fixed for prepayment or
by declaration of acceleration or otherwise, then, upon written notice of such
default to the Company by the holders of Senior Debt or any trustee therefor,
unless and until such default shall have been cured or waived or shall have
ceased to exist, no direct or indirect payment (in cash, property, securities,
by set-off or otherwise) shall be made or agreed to be made on account of the
principal of or interest on this Debenture, or in respect of any redemption,
repayment, retirement, purchase or other acquisition of this Debenture.
2.4 PRIOR PAYMENT OF SENIOR DEBT.
(a) In the event of: (i) any insolvency, bankruptcy,
receivership, liquidation, reorganization, readjustment, composition or
other similar proceeding relating to the Company; (ii) any proceeding for
the liquidation, dissolution or other winding up of the Company, voluntary
or involuntary, whether or not involving insolvency or bankruptcy
proceedings; (iii) any assignment by the Company for the benefit of
creditors; or (iv) any other marshalling of the assets of the Company, all
Senior Debt (including any interest thereon accruing after the commencement
of any such proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be made
to any Holder on account of the principal or interest on this Debenture.
Any payment or distribution, whether in cash, securities or other property
(other than securities of the Company or any other corporation provided for
by a plan or reorganization or readjustment the payment of which is
subordinate, at least to the extent provided in these subordination
provisions with respect to the indebtedness evidenced by this Debenture, to
the payment of all Senior Debt at the time outstanding and to any
securities issued in respect thereof under any such plan or reorganization
or readjustment), which would otherwise (but for these subordination
provisions) be payable or deliverable in respect of this Debenture shall be
paid or delivered directly to the holders of Senior Debt in accordance with
-3-
<PAGE>
the priorities then existing among such holders until all Senior Debt
(including any interest thereon accruing after the commencement of any such
proceeding) shall have been paid in full. In the event of any such
proceeding, after payment in full of all sums owing with respect to Senior
Debt, the Holder of this Debenture, together with the holders of any
obligations of the Company ranking on a parity with this Debenture, shall
be entitled to be paid from the remaining assets of the Company the amounts
at the time due and owing on account of unpaid principal of and interest on
this Debenture and such other obligations before any payment or other
distribution, whether in cash, property or otherwise, shall be made on
account of any capital stock or any obligations of the Company ranking
junior to this Debenture and such other obligations.
(b) In the event that, notwithstanding the foregoing, any
payment or distribution of any character, whether in cash, securities or
other property (other than securities of the Company or any other
corporation provided for by a plan of reorganization or readjustment the
payment of which is subordinate, at least to the extent provided in these
subordination provisions with respect to the indebtedness evidenced by this
Debenture, to the payment of all Senior Debt at the time outstanding and to
any securities issued in respect thereof under any such plan of
reorganization or readjustment), shall be received by any Holder in
contravention of any of the terms hereof, such payment or distribution or
security shall be received in trust for the benefit of, and shall be paid
over or delivered and transferred to, the holders of the Senior Debt at the
time outstanding in accordance with the priorities then existing among such
holders for application to the payment of all Senior Debt remaining unpaid,
to the extend necessary to pay all such Senior Debt in full. In the event
of the failure of any such Holder to endorse or assign any such payment,
distribution or security, each holder of Senior Debt is hereby irrevocably
authorized to endorse or assign the same.
2.5 NO IMPAIRMENT OF RIGHTS. Nothing contained herein shall impair,
as between the Company and the Holder, the obligation of the Company to pay such
Holder the principal of and interest on this Debenture or prevent such Holder
from exercising all rights, powers and remedies otherwise permitted by
applicable law or hereunder upon an Event of Default (as defined below)
hereunder, all subject to the rights of the holders of the Senior Debt to
receive cash, securities or other property otherwise payable or deliverable to
the Holder of this Debenture.
2.6 SUBROGATION. Upon the payment in full of all Senior Debt, the
Holders of the Debentures, together with all other subordinated debt of the
Company ranking on a parity therewith, shall be subrogated to all rights of any
holders of
-4-
<PAGE>
Senior Debt to receive any further payments or distributions applicable to the
Senior Debt until the indebtedness evidenced by the Debentures shall have been
paid in full, and such payments or distributions received by the Holders
thereof, by reason of such subrogation, of cash, securities or other property
which otherwise would be paid or distributed to the holders of Senior Debt,
shall, as between the Company and its creditors other than the holders of Senior
Debt, on the one hand, and such Holders on the other hand, be deemed to be a
payment by the company on account of Senior Debt and not on the account of the
Debentures.
2.7 NO IMPAIRMENT OF SECURITY INTEREST. The provisions of this
Debenture shall not impair any rights, remedies or powers of any secured
creditor of the Company in respect of any security interest. The securing of
any obligations of the Company otherwise ranking on a parity with the Debentures
or ranking junior to such Debentures shall not be deemed to prevent such
obligations from constituting, respectively, obligations ranking on a parity
with such Debentures or ranking junior to such Debentures.
2.8 AMENDMENT OF SUBORDINATION PROVISIONS. No modification or
amendment of the subordination provisions contained in Section 2 hereof in a
manner adverse to the holders of Senior Debt may be made without the consent of
all holders of Senior Debt.
2.9 UNDERTAKING. By its acceptance of this debenture, the Holder
agrees to execute and deliver such documents as may be reasonably requested from
time to time by the Company or the lender of any Senior Debt in order to
implement the foregoing provisions of Section 2 hereof.
3. NO RESTRICTIONS ON ISSUANCE OF ADDITIONAL DEBT. Nothing contained in
this Debenture shall restrict the Company from creating, assuming or incurring
any additional indebtedness, whether ranking junior to, on par with, or senior
to, this Debenture, or require the Company to obtain the consent of the Holder
with respect thereto.
4. DEFAULT.
4.1 EVENT OF DEFAULT. Each of the following events shall be an Event
of Default hereunder:
(a) Default in the payment of any interest on this Debenture
when due, continued for two (2) business days.
(b) Default in the payment of the principal on the Maturity
Date.
(c) Material default in the performance of any of the covenants
or agreements of the Company contained in this
-5-
<PAGE>
Debenture continued for thirty (30) days after notice thereof (provided,
however, that if the default cannot reasonably be corrected within such
period, there shall be no event of default if corrective action is
instituted promptly and is pursued diligently until the default is
corrected).
(d) If a petition in involuntary bankruptcy is filed against the
Company under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation under the law of any
jurisdiction, whether now or hereafter in effect, and is not stayed or
dismissed within thirty (30) days after such filing, or if the Company
shall make an assignment for the benefit of creditors, or shall file a
voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, or commence voluntary or
involuntary dissolution proceedings.
(e) Default under Senior Debt that gives the holder thereof the
right to accelerate such Senior Debt, and such Senior Debt is in fact
accelerated by such holder.
4.2 REMEDIES ON DEFAULT, ETC.
(a) If an Event of Default occurs and is continuing after the
expiration of any applicable grace period, the Holder may declare the
Debenture immediately due and payable.
(b) In case of a default in the payment of any principal or
interest due on this Debenture, the Company shall pay to the Holder thereof
the amount owing together with: (i) simple interest on the amount owing at
the rate per annum equal to the lower of (x) twelve percent (12%) or (y)
the maximum rate permitted under applicable law on the amounts past due;
and (ii) such additional amount as shall be sufficient to cover the cost
and expenses of collection, including, without limitation, reasonable
attorneys' fees, expenses and disbursements.
(c) No right, power or remedy conferred by this Debenture upon
any Holder shall be exclusive of any other right, power or remedy referred
to herein or now or hereafter available at law, in equity, by statute or
otherwise.
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<PAGE>
5. CONVERSION.
5.1 CONVERSION RIGHTS. The Holder may at any time, and from time to
time, prior to the first to occur of the Maturity Date or the date fixed by the
Company for redemption of this Debenture (the "Redemption Date"), convert this
Debenture or any portion of the principal amount hereof which is $100,000 or an
integral multiple of $100,000, into Shares, at a conversion price of $1.50 per
Share (the "Conversion Price"), subject to adjustment in certain events
described below.
The number of Shares that the Holder shall receive upon any such
conversion shall be determined by dividing the principal amount of this
Debenture to be so converted by the Conversion Price in effect at the time of
such conversion. In the event that this Debenture is called in for redemption,
the right to convert the Debenture shall terminate at the close of business on
the Redemption Date and will be lost if not exercised prior to that time unless
the Company defaults in making the payment due upon redemption. In the event
of a partial conversion of this Debenture, the Company shall execute and deliver
to the Holder a new Debenture in the aggregate principal amount equal to and in
exchange for the unconverted portion of the principal amount of the Debenture so
surrendered for conversion.
5.2 EFFECT OF CONVERSION; ISSUANCE OF SHARES ON CONVERSION.
Conversion of this Debenture shall be deemed to have been made at the close of
business on the date that the Debenture shall have been surrendered for
conversion, accompanied by written notice of election to convert in the form of
Exhibit "A" attached hereto (or such other form reasonably acceptable to the
Company), and thereupon the Holder shall have no further rights hereunder,
except with respect to the receipt of accrued interest due hereunder and the
Shares issuable upon conversion of this Debenture. As soon as practicable after
full or partial conversion of this Debenture, the Company shall pay to the
Holder all interest accrued hereunder with respect to the portion of the
Debenture so converted to the date of conversion. In addition, as soon as
practicable after full or partial conversion of this Debenture, the Company
shall, at its expense, cause to be issued in the name of, and delivered to, the
Holder a certificate or certificates for the number of Shares to which the
holder shall be entitled on such conversion, together with any other securities
and property to which the Holder is entitled on such conversion under the terms
of this Debenture. No fractional shares will be issued on conversion of this
Debenture. If on any conversion of this Debenture a fraction of a share
results, the Company will pay the cash value of that fractional share,
calculated on the basis of the then effective Conversion Price.
5.3 ADJUSTMENTS TO CONVERSION PRICE.
(a) If the Company shall at anytime while this Debenture is
outstanding subdivide the outstanding shares of
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its Common Stock, the Conversion Price then in effect immediately before
that subdivision shall be proportionately decreased, and if the Company
shall at any time while this Debenture is outstanding combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before that combination shall be proportionately increased.
Except otherwise provided below, any adjustment under this Section 5.3
shall become effective at the close of business on the date of the
subdivision or combination becomes effective. A dividend on any security
of the Company payable in Common Stock, or a split of the Company's Common
Stock, shall be considered a subdivision of Common Stock for purposes of
this Section 5.3 at the close of business on the record date with respect
to such dividend or stock split. A reverse split of the Company's Common
Stock shall be considered a combination of Common Stock for purposes of
this Section 5.3 at the close of business on the record date with respect
to such reverse stock split.
(b) In the event the Company, at any time or from time to time
while this Debenture is outstanding, shall make or issue, or fix a record
date for the determination of holders of Common Stock entitled to receive,
a dividend or other distribution with respect to the Company's Common Stock
payable in securities of the Company other than shares of Common Stock,
then and in each such event, provisions shall be made so that the Holder
shall receive upon conversion hereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Company which he would have received had this Debenture been converted into
Common Stock on the date of such event and had the Holder thereafter,
during the period from the date of such event to and including the
conversion date, retained such securities receivable by him.
(c) If while this Debenture is outstanding, the Shares issuable
upon conversion of this Debenture shall be changed into the same or a
different number of shares of any other class or classes of stock of the
Company, whether by recapitalization, reclassification or other exchange
(other than a subdivision or combination of shares, or a capital
reorganization, merger or sale of assets, provided for elsewhere in Section
5.3 hereof), the Holder shall, upon the conversion of this Debenture, be
entitled to receive, in lieu of the Shares which the holder would have
become entitled to receive but for such change, a number of shares of such
other class or classes of stock that would have been subject to receipt by
the Holder if he had exercised his right of conversion of this Debenture
immediately before that change.
(d) If while this Debenture is outstanding, there shall be a
merger or consolidation of the Company with or into another corporation
(other than a merger which does not
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<PAGE>
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the Company), or the sale of all or
substantially all of the Company's properties and assets to any other
person, then, as a part of such merger, consolidation or sale, lawful
provision shall be made so that the Holder shall thereafter be entitled to
receive upon conversion of this Debenture, during the period specified in
this Debenture, the number of shares of stock or other securities or
property of the Company, or of the successor corporation resulting from
such merger, consolidation or sale, to which a holder of the Shares
deliverable upon conversion of this Debenture would have been entitled on
such merger, consolidation or sale if this Debenture had been converted
immediately before such merger, consolidation or sale. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section 5.3 with respect to the rights of the holder after such
merger, consolidation or sale to the end that the provisions of this
Section 5.3 (including adjustments of the Conversion Price then in effect
and number of shares purchasable upon conversion of this Debenture) shall
continue to be applicable after that event and shall be as nearly
equivalent to the provisions hereof as may be practicable.
(e) The Company shall promptly and in any case not later than
ten (10) days after the date of any adjustment of the Conversion Price give
written notice of such adjustment and the number of Shares or other
securities issuable upon conversion of this Debenture, by first-class mail,
postage prepaid, to the registered Holder at the Holder's address as shown
on the Debenture Register. The certificate shall state such adjustments
and show in reasonable detail the facts on which such adjustment is based.
(f) The form of this Debenture need not be changed because of
any adjustment in the Conversion Price or in the number of Shares issuable
upon its conversion. A Debenture issued after any adjustment on any
partial conversion or upon replacement may continue to express the same
Conversion Price and the same number of Shares (appropriately reduced in
the case of partial conversion) as are stated on this Debenture as
initially issued, and that Conversion Price and that number of Shares shall
be considered to have been so changed as of the close of business on the
date of the adjustment.
6. OPTIONAL REDEMPTION.
6.1 RIGHT OF REDEMPTION. This Debenture may be redeemed at the
election of the Company, as a whole or from time to time in part, at any time,
at 100% of the principal amount of
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this Debenture, together with accrued interest to the Redemption Date.
6.2 REDEMPTION PROCEDURES.
(a) Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption date, to the Holder, at the address appearing in the Debenture
Register.
(b) The notice of redemption shall state: (a) the Redemption
Date; (b) that on the Redemption Date the redemption price will become due
and payable on the debenture and that interest thereon will cease to accrue
on and after said date; and (c) the place where the Debenture is to be
surrendered for payment for the redemption price. Any notice that is
mailed in the matter herein provided shall be conclusively presumed to have
been given whether or not the Holder receives said notice.
(c) Notice of redemption having been given as aforesaid, the
Debenture shall, on the Redemption Date, become due and payable at the
redemption price therein specified, and from and after such date (unless
the Company shall default in the payment of the redemption price and
accrued interest) the Debenture shall cease to bear interest. Upon
surrender of the debenture for redemption in accordance with said notice,
the Debenture shall be paid by the Company at the redemption price,
together with accrued interest to the Redemption Date.
(d) If the Debenture shall not be so paid upon surrender thereof
for redemption, the principal shall, until paid, bear interest from the
Redemption Date at the rate borne by the Debenture.
7. REGISTRATION OF TRANSFER AND EXCHANGE.
7.1 DEBENTURE REGISTER. The Company shall cause to be kept at the
principal office of the Company a register (the "Debenture Register") in which,
subject to such reasonable regulations as it may prescribe, the Company shall
provide for the registration and the transfer of the Debenture subject to the
provisions regarding transferability contained in this Debenture. Upon
surrender for registration of transfer of any Debenture at the principal office
of the Company, the Company shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Debentures in minimum
denominations of $100,000 and integral multiples of $100,000.
7.2 TRANSFER OF DEBENTURES. At the time the Debenture is presented
or surrendered for registration of transfer it shall (if so required by the
Company) be duly endorsed, or be accompanied by a written instrument of transfer
in form
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<PAGE>
satisfactory to the Company, duly executed by the Holder thereof or his attorney
duly authorized in writing. No service charge shall be made for any
registration of transfer, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer of the Debentures.
7.3 REPLACEMENT DEBENTURES.
(a) If the Debenture is mutilated and is surrendered to the
Company, the Company shall execute and deliver in exchange therefor a new
Debenture of like tenor and principal amount and bearing a number not
contemporaneously outstanding. If there shall be delivered to the Company:
(i) evidence to its satisfaction of the destruction, loss or theft of the
Debenture; and (ii) such security or indemnity as may be required by it to
save the Company and any agent harmless, then, in the absence of notice to
the Company that the Debenture has been acquired by a bona fide purchaser,
the Company shall execute and deliver, in lieu of any such destroyed, lost
or stolen Debenture, a new Debenture of like tenor and principal amount and
bearing a number not contemporaneously outstanding. In the event such
mutilated, destroyed, lost or stolen Debenture has become or is about to
become due and payable, the Company in its discretion may, instead of
issuing a new Debenture, retire such Debenture.
(b) Upon the issuance of any new Debenture under this section
7.3, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto
and any other expenses connected therewith.
(c) Any new Debenture issued pursuant to this Section 7.3 in
lieu of any destroyed, lost or stolen Debenture shall constitute an
original additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Debenture shall be at any time enforceable by
anyone.
(d) The provisions of this section 7.3 are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures.
8. LIMITATIONS ON DISPOSITION. The Holder understands that this
Debenture, the Shares issuable upon conversion of this Debenture an any other
securities issued under this Debenture are "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering and that under such laws and
applicable restrictions such securities may be resold without registration under
the Securities Act of 1933, as amended
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(the "Act") only in certain limited circumstances. In this connection, the
Holder represents that it is familiar with Rule 144 under the Act and the
limitations imposed thereby and by the Act.
The Holder further agrees not to make any disposition of all or any portion
of this Debenture, the Shares or any other securities issued hereunder unless
and until: (a) there is then in effect a Registration Statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such Registration Statement; or (b) (i) the Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
reasonably detailed statement of the circumstances surrounding the proposed
disposition; and (ii) the Holder shall have furnished the Company with an
opinion of counsel, satisfactory to the Company, that such disposition will not
require registration of the securities under the Act.
The Holder understands that this Debenture, the Shares and any other
securities issued hereunder may bear the following legend, together with any
other legend required by law:
"The securities represented hereby have not been registered under the
Securities Act of 1933, or any state securities laws. These securities may
not be sold or transferred in the absence of an effective registration
statement or qualification under such securities laws or an opinion of
counsel, satisfactory to the Company, that the sale or transfer is pursuant
to an exemption from the registration or qualification requirements of any
applicable securities laws."
9. LIMITATIONS ON DIVIDENDS AND DISTRIBUTIONS. So long as this Debenture
is outstanding, the Company shall not declare, the pay, make or set apart any
sum for a dividend or other distribution (whether in cash or other property)
with respect to any class of capital stock of the Company (other than dividends
or distributions payable in its capital stock), or for the redemption,
retirement, purchase or other acquisition for value of any share of any class of
capital stock of the Company or any warrants or rights to purchase any class of
capital stock of the Company.
10. REGISTRATION RIGHTS.
10.1 DEFINITIONS. For purposes of Section 10 hereof, terms not
otherwise defined herein shall have the following meanings:
(a) The terms "register," "registered" and "registration" refer
to the preparation and filing of a registration statement in
compliance with the Act and the rules promulgated thereunder, and the
declaration of the
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effectiveness of such registration statement, or the taking of similar
action under a successor statute or regulation.
(b) The term "Registrable Securities" means the Shares issuable
upon conversion of the Debenture, and any securities issued or
issuable with respect to such Shares by way of stock dividend or stock
split or in connection with a combination or shares, recapitalization,
merger, consolidation or reorganization.
(c) The term "Rights Holder" or "Rights Holders" means any
registered holder or holders or Registrable Securities.
(d) The term "Prospectus" means a prospectus that complies with
applicable provisions of the Act.
10.2 PIGGYBACK REGISTRATION.
(a) If, at any time, through and including the third anniversary
of the date of this Debenture, the Company proposes to register any of
its securities under the Act (other than in connection with a merger,
otherwise pursuant to a Form S-4 Registration Statement or pursuant to
a Form S-8 Registration Statement), it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Rights Holder of its intention to
do so. If the Rights Holder notifies the Company within twenty (20)
days after receipt of any such notice of its desire to include any
Registrable Securities in such proposed registration statement, the
Company shall afford such Rights Holder the opportunity to have any of
the Registrable Securities registered under such registration
statement and included in any underwriting involved with respect
thereto.
(b) Notwithstanding the provisions of Section 10 hereof: (i)
the Company shall have the right at any time after it shall have given
written notice pursuant to said Section 10 (irrespective of whether a
written request for inclusion of any Registrable Securities shall have
been made) to elect not to file any such proposed registration
statement, or to withdraw the same after the filing but prior to the
effective date thereof; and (ii) in the event a registration under
Section 10 hereof relates to an underwritten public offering which
does not include any securities being offered and sold on behalf of
selling shareholders, the inclusion of any Registrable Securities may,
at the election of the Company, be conditioned upon the Rights Holder
agreement that the public offering of such Registrable Securities
shall not commence until ninety (90) days after the effective date of
such registration.
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<PAGE>
(c) The rights of the Rights Holder pursuant to Section 10
hereof shall be conditioned upon such Rights Holder's participation in the
underwriting with respect thereto and the inclusion of such Rights Holder's
Registrable Securities in such underwriting (unless otherwise mutually
agreed by the Company, the managing underwriter or, if none, a majority of
the underwriters, and such Rights Holder) to the extent provided herein.
(d) Notwithstanding any other provision of this Debenture, if
the managing underwriter or, if none, a majority of the underwriters,
determines that marketing factors require a limitation of the number of
shares to be underwritten or a complete exclusion of such shares, such
underwriter or underwriters may limit the number of Registrable Securities
that may be included in the registration and underwriting or exclude all of
the Registrable Securities, as appropriate. In the case of an underwritten
registration in which the number of Registrable Securities that may be
included is limited, the Company shall advise the Rights Holder of the
limited number of Registrable Securities that may be included in the
registration, and the number of Registrable Securities that may be included
in the registration and underwriting shall be allocated among all Rights
Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities entitled to inclusion in such
registration held by such Rights Holders at the time of filing the
registration statement.
(e) The Company shall (together with all Rights Holders
proposing to distribute their securities through an underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for the underwriting.
(f) If, after the third anniversary date of the Debenture, the
Registrable Securities owned by the Holder continue to be subject to a
legend or other transfer restriction which treats the Holder as having
affiliate status as that term is used in Rule 144 of the Act, then the
Holder shall continue to have a one-time right to include any Registrable
Securities in a proposed registration statement subject to the procedures
described in Section 10.2 hereof. This registration right shall expire on
the earlier of: (i) the conclusion of the Holder's affiliate status; or
(ii) the sixth anniversary date of the Debenture.
10.3 EXPENSES. All expenses incurred in connection with any
registration pursuant to this Debenture, including without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company, and expenses of any special audits
incidental to or
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required by such registration, shall be borne by the Company; provided however
the Company shall not be required to pay:
(a) fees of legal counsel of any Rights Holder, or underwriters'
fees, discounts, commissions or expenses relating to Registrable
Securities; and
(b) for expenses that the Company is prohibited from paying
under Blue Sky laws or by Blue Sky administrators.
10.4 COMPANY RESPONSIBILITIES. In the case of a registration effected
by the Company pursuant to this Debenture, the Company shall use its best
efforts to keep the Rights Holder advised in writing as to the initiation,
effectiveness and completion of such registration. At its expense the Company
shall:
(a) prepare and file a registration statement (and such
amendments and supplements thereto) with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become and remain effective for a period of one hundred
eighty (180) days or until the Rights Holder or Rights Holders have
completed the distribution described in the registration statement
relating thereto, whichever first occurs;
(b) furnish such number of copies of a Prospectus in conformity
with the requirements of applicable law, and such other documents
incident thereto as a Rights Holder from time to time may reasonably
request; and
(c) use every reasonable effort to register or qualify the
Registrable Securities covered by such registration statement under
the state Blue Sky laws of such jurisdictions as the Company's Board
of Directors may reasonably determine, and do any and all other acts
and things which may be necessary under said Blue Sky laws to enable
the sellers of the Registrable Securities to consummate the public
sale or other disposition of the Registrable Securities owned by them
in such jurisdictions, except that the Company shall not for any
purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein the Registrable Securities are so
qualified.
10.5 INDEMNIFICATION.
(a) The Company shall indemnify the Rights Holder, each of the
Rights Holder's officers and directors, and each person controlling such Rights
Holder, with respect to such registration effected pursuant to Section 10.2
hereof, and each underwriter, if any, and each person who
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controls any underwriter of the Registrable Securities, against all claims,
losses, damages and liabilities (or actions in respect thereto) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement or related Prospectus, or based on
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, or
any violation by the Company of any rule or regulation promulgated under any
securities law applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, and shall
reimburse the Rights Holder, each of the Rights Holder's officers and directors,
and each person controlling such Rights Holder, each such underwriter and each
person who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Company shall not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company in an instrument duly executed
by such Rights Holder or underwriter specifically for use therein.
(b) The Rights Holder shall, if Registrable Securities held by
or issuable to the Rights Holder are included in the securities as to which such
registration is being effected, indemnify the Company, each of its directors and
officers who sign such registration statement, each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company within the meaning of the Act, and each other Rights
Holder, each of such Rights Holder's officers and directors and each person
controlling such Rights Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement or related Prospectus, or 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, and shall reimburse
the Company, such Rights Holders, such directors, officers, persons, or
underwriters for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability, or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or related Prospectus in
reliance upon and in conformity with written information furnished to the
Company in an instrument duly executed by such Rights Holder specifically for
use therein.
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(c) Each party entitled to indemnification under this Section
10.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense; and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 10.5. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement, which does not include as an unconditional term thereof,
the giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation.
10.6 RIGHTS HOLDER'S OBLIGATIONS. The Rights Holder shall furnish to
the Company such written information regarding such Rights Holder and the
distribution proposed by such Rights Holder as the Company may reasonably
request in writing and as shall be required in connection with any registration
referred to in this Debenture.
10.7 ASSIGNMENT. The rights granted to the Rights Holder pursuant to
this Debenture may be assigned to a transferee or assignee of the Debenture or
any of the Registrable Securities, provided that the transferee or assignee is
an affiliated entity of the Rights Holder and the Company is given written
notice at the time of or within 10 days after said transfer, stating the name
and address of said transferee or assignee and identifying the Registrable
Securities with respect to which such registration rights are being assigned.
11. MISCELLANEOUS.
11.1 AMENDMENT. The provisions of this Debenture may be amended or
modified only with the written consent of the company and the Holder.
11.2 ENTIRE AGREEMENT. This Debenture constitute the entire agreement
among the parties with regard to the subject matter hereof, and supersedes and
replaces any and all prior to contemporaneous agreements, written or oral. The
terms and conditions of this Debenture shall inure to the benefit of, and be
binding upon, the respective successors and assigns of the parties. Nothing in
this Debenture is intended to confer on any
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third party any rights, liabilities or obligations, except as specifically
provided.
11.3 HEADINGS. The titles and subtitles used in this Debenture are
for convenience only and are not to be used in construing or interpreting this
Debenture.
11.4 SEC FILINGS. During the term of this Debenture the Company shall
promptly forward to the Holder annual and periodic reports and proxy statements
required to be filed by the Company with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
11.5 GOVERNING LAW. This Debenture shall be governed by the internal
laws of the State of California as applicable to transactions performed in
California between California residents.
11.6 ATTORNEYS' FEES. The prevailing party in any action or
proceeding between the parties arising out of or related to this Debenture shall
be entitled to recover all reasonable expenses, including without limitation
attorneys' fees and costs, incurred in connection with any such action or
proceeding.
IN WITNESS WHEREOF, the undersigned have executed this Debenture on the
date first above written.
ANCHOR PACIFIC UNDERWRITERS,
INC.
By: /s/James R. Dunathan
-----------------------
James R. Dunathan
President
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Exhibit "A"
Form of Conversion Notice
To Anchor Pacific Underwriters, Inc.:
The undersigned Holder hereby irrevocably exercises the option to convert his
Debenture, or portion hereof (which is in the amount of not less than $100,000
and in increments of not less than $100,000 thereafter) below designated, into
shares of the Company's Common Stock, $.02 par value per share, in accordance
with the terms of the Debenture, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Debentures representing any unconverted principal
amount hereof, be issued and delivered to the undersigned unless a different
name has been indicated below. If shares or Debentures are to be issued in the
name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. Any amount required to be paid by
the undersigned on account of interest accompanies this Debenture.
Dated:
------------------ ------------------------------
Signature
------------------------------
Taxpayer Identification
Number
Principal Amount to be Converted: $
------------------
If shares or Debentures are to be registered in the name of a person other than
the Holder, please print such person's name and address below:
Name:
------------------------------
Address:
---------------------------
---------------------------
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EXHIBIT 10.3b
<PAGE>
SUBLEASE
[LOGO] CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
1. PARTIES.
This Sublease, dated December 1, 1995, is made between Putnam, Knudsen &
Wieking, Inc. ("Sublessor"), and Logiciel, Inc. ("Sublessee").
2. MASTER LEASE.
Sublessor is the lessee under a written lease dated May 29, 1990, wherein
Kaiser Aluminum & Chemical Corporation ("Lessor") leased to Sublessor the
real property located in the City of Oakland, County of Alameda, State of
California, described as certain portions of the twenty-fifth (25th) floor
in the 28-story office tower located on the city block bounded by Webster,
20th, 21st, and Harrison Streets.
("Master Premises"). Said lease has been amended by the following
amendments First Amendment to Lease dated December 1, 1992, providing for
the relocation of the Leased Premises to the tenth (10th) Floor. said lease
and amendments are herein collectively referred to as the "Master Lease"
and are attached hereto as Exhibit "A."
3. PREMISES.
Sublessor hereby subleases to Sublessee on the terms and conditions set
forth in this Sublease the following portion of the Master Premises
("Premises"): An appropriate 1360 rentable square foot portion as "hatch"
marked on Exhibit "B" attached hereto.
4. WARRANTY BY SUBLESSOR.
Sublessor warrants and represents to Sublessee that the Master Lease has
not been amended or modified except as expressly set forth herein, that
Sublessor is not now, and as of the commencement of the Term hereof will
not be, in default or breach of any of the provisions of the Master Lease,
and that Sublessor has no knowledge of any claim by Lessor that Sublessor
is in default or breach of any of the provisions of the Master Lease.
5. TERM.
The Term of this Sublease shall commence on January 1, 1996 ("Commencement
Date"), or when Lessor consents to this Sublease (if such consent is
required under the Master Lease), whichever shall last occur, and end on
November 30, 1999 ("Termination Date"), unless otherwise sooner terminated
in accordance with the provisions of this Sublease. In the event the Term
commences on a date other than the Commencement Date, Sublessor and
Sublessee shall execute a memorandum setting forth the actual date of
commencement of the Term. Possession of the Premises ("Possession") shall
be delivered to Sublessee on the commencement of the Term. If for any
reason Sublessor does not deliver Possession to Sublessee on the
commencement of the Term, Sublessor shall not be subject to any liability
for such failure, the Termination Date shall not be extended by the delay,
and the validity of this Sublease shall not be impaired, but rent shall
abate until delivery of Possession. Notwithstanding the foregoing, if
Sublessor has not delivered Possession to Sublessee within thirty (30) days
after the Commencement Date, then at any time thereafter and before
delivery of Possession, Sublessee may give written notice to Sublessor of
Sublessee's then at any time thereafter and before delivery of Possession,
Sublessee may give written notice to Sublessor of Sublessee's intention to
cancel this Sublease. Said notice shall set forth an effective date for
such cancellation which shall be at least ten (10) days after delivery of
said notice to Sublessor. If Sublessor delivers Possession to Sublessee on
or before such effective date, this Sublease shall remain in full force and
effect. If sublessor fails to deliver Possession to Sublessee on or before
such effective date, this Sublease shall be cancelled, in which case all
consideration previously paid by Sublessee to Sublessor on account of this
Sublease shall be returned to Sublessee, this Sublease shall thereafter be
of no further force or effect, and Sublessor shall have no further
liability of Sublessee on account of such delay or cancellation. If
Sublessor permits Sublessee to take Possession prior to the commencement of
the Term, such early Possession shall not advance the Termination Date and
shall be subject to the provisions of this Sublease, including without
limitation the payment of rent.
6. RENT.
6.1 MINIMUM RENT. Sublessee shall pay to Sublessor as minimum rent,
without deduction, setoff, notice, or demand, at 1800 Sutter Street,
#400, Concord, CA 94520 or at such other place as Sublessor shall
designate from time to time by notice to Sublessee, the sum of One
Thousand Three Hundred Sixty & No/100 Dollars ($1360.00) per month,*
in advance on the first day of each month of the Term. Sublessee shall
pay to Sublessor upon execution of this Sublease the sum of One
Thousand Three Hundred Sixty & No/100 Dollars ($1360.00) as rent for
February 1996 (rent is waived for January 1996 as a moving allowance).
If the term begins or ends on a day other than the first or last day
of a month, the rent for the partial months shall be prorated on a per
diem basis. Additional provisions: * for months 2-12; then $1428.00
for months 13-24 then $1496.00 for months 25-36; then $1564.00 for
months 37-47.
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<PAGE>
7. SECURITY DEPOSIT.
Sublessee shall deposit with Sublessor upon execution of this Sublease the
sum of One Thousand Five Hundred Sixty-Four & No/100 Dollars ($1564.00) as
security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other
charges when due under this Sublease, or fails to perform any of its other
obligations hereunder, Sublessor may use or apply all or any portion of the
Security Deposit for the payment of any rent or other amount then due
hereunder and unpaid, for the payment of any other sum for which Sublessor
may become obligated by reason of Sublessee's default or breach, or for any
loss or damage sustained by Sublessor as a result of Sublessee's default or
breach. If Sublessor so uses any portion of the Security Deposit, Sublessee
shall, within ten (10) days after written demand by Sublessor, restore the
Security Deposit to the full amount originally deposited, and Sublessee's
failure to do so shall constitute a default under this Sublease. Sublessor
shall not be required to keep the Security Deposit separate from its
general accounts, and shall have no obligation or liability for payment of
interest on the Security Deposit. In the event Sublessor assigns its
interest in this Sublease, Sublessor shall deliver to its assignee so much
of the Security Deposit as is then held by Sublessor. Within ten (10) days
after the Term has expired, or Sublessee has vacated the Premises, or any
final adjustment pursuant to Subsection 6.2 hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of
its obligations hereunder, the Security Deposit, or so much thereof as had
not theretofore been applied by Sublessor, shall be returned to Sublessee
or to the last assignee, if any, of Sublessee's interest hereunder. THE
ABOVE SECURITY DEPOSIT SHALL BE APPLIED AS RENT FOR THE MONTH OF DECEMBER
1999.
8. USE OF PREMISES.
The Premises shall be used and occupied only for office purposes, and for
no other use or purpose.
9. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign this Sublease or further sublet all or any part
of the Premises without the prior written consent of Sublessor (and the
consent of Lessor, if such is required under the terms of the Master
Lease).
10. OTHER PROVISIONS OF SUBLEASE.
All applicable terms and conditions of the Master Lease are incorporated
into and made a part of this Sublease as if Sublessor were the lessor
thereunder, Sublessee the lessee thereunder, and the Premises of Master
Premises, EXCEPT for the following:
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Sublessee assumes and agrees to perform the lessee's obligations under the
Master Lease during the Term to the extent that such obligations are
applicable to the Premises, except that the obligation to pay rent to
Lessor under the Master Lease shall be considered performed by Sublessee to
the extent and in the amount rent is paid to Sublessor in accordance with
Section 6 of this Sublease. Sublessee shall not commit or suffer any act or
omission that will violate any of the provisions of the Master Lease.
Sublessor shall exercise due diligence in attempting to cause Lessor to
perform its obligations under the Master Lease for the benefit of
Sublessee. If the Master Lease terminates, this Sublease shall terminate
and the parties shall be relieved of any further liability or obligation
under this Sublease, provided however, that if the Master Lease terminates
as a result of a default or breach by Sublessor or Sublessee under this
Sublease and/or the Master Lease, then the defaulting party shall be liable
to the nondefaulting party for the damage suffered as a result of such
termination. Notwithstanding the foregoing, if the Master Lease gives
Sublessor any right to terminate the Master Lease in the event of the
partial or total damage, destruction, or condemnation of the Master
Premises or the building or project of which the Master Premises are a
part, the exercise of such right by Sublessor shall not constitute a
default or breach hereunder.
11. ATTORNEYS' FEES.
If Sublessor, Sublessee, or Broker shall commence an action against the
other arising out of or in connection with this Sublease, the prevailing
party shall be entitled to recover its costs of suit and reasonable
attorney's fees.
12. AGENCY DISCLOSURE.
Sublessor and Sublessee each warrant that they have dealt with no other
real estate broker in connection with this transaction except: CB
COMMERCIAL REAL ESTATE GROUP, INC., who represents Sublessor, and LCB
Associates, who represents Sublessee. In the event that CB COMMERCIAL REAL
ESTATE GROUP, INC. represents both Sublessor and Sublessee, Sublessor and
Sublessee hereby confirm that they were timely advised of the dual
representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential
information of the other party.
13. COMMISSION.
Upon execution of this Sublease, and consent thereto by Lessor (if such
consent is required under the terms of the Master Lease), Sublessor shall
pay Broker a real estate brokerage commission in accordance with
Sublessor's contract with Broker for the subleasing of the Premises, if
any, and otherwise in the amount of Four Thousand & No/100 Dollars
($4000.00), for services rendered in effecting this Sublease. Broker is
hereby made a third party beneficiary of this Sublease for the purpose of
enforcing its right to said commission.
14. NOTICES.
All notices and demands which may or are to be required or permitted to be
given by either party on the other hereunder shall be in writing. All
notices and demands by the Sublessor to Sublessee shall be sent by United
States Mail, postage prepaid, addressed to the Sublessee at the Premises,
and to the address hereinbelow, or to such other place as Sublessee may
from
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<PAGE>
time to time designate in a notice to the Sublessor. All notices and
demands by the Sublessee to Sublessor shall be sent by United States Mail,
postage prepaid, addressed to the Sublessor at the address set forth
herein, and to such other person or place as the Sublessor may from time to
time designate in a notice to the Sublessee.
To Sublessor: 1800 Sutter Street, Suite 400, Concord, CA 94520
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To Sublessee: "The Leased Premises"
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15. CONSENT BY LESSOR.
THIS SUBLEASE SHALL BE OF NO FORCE OR EFFECT UNLESS CONSENTED TO BY LESSOR
WITHIN 10 DAYS AFTER EXECUTION HEREOF, IF SUCH CONSENT IS REQUIRED UNDER
THE TERMS OF THE MASTER LEASE.
16. COMPLIANCE.
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this
Agreement, including, but not limited to, the 1964 Civil Rights Act and all
amendments thereto, the Foreign Investment In Real Property Tax Act, the
Comprehensive Environmental Response Compensation and Liability Act, and
The Americans With Disabilities Act.
Sublessor: Putnam, Knudsen & Wieking, Inc. Sublessee: Logiciel, Inc.
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By: /s/ By: /s/
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Title: President Title: President
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By: By:
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Title: Title:
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Date: 12/14/95 Date: 12/11/95
------------------------------------ ----------------------------
on the basis of the Sublessee,
without reviewing the Sublease
LESSOR'S CONSENT TO SUBLEASE and
The undersigned ("Lessor"), lessor under the Master Lease, hereby consents to
the foregoing Sublease on the basis of the Sublessee, without reviewing the
Sublease and without waiver of any restriction in the Master Lease concerning
further assignment or subletting. Lessor certifies that, as of the date of
Lessor's execution hereof, Sublessor is not in default or breach of any of the
provisions of the Master Lease, and that the Master Lease has not been amended
or in any way by the terms set forth in the foregoing Sublease.
Lessor: Kaiser Aluminum & Chemical Corporation
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By: /s/
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Title: Vice President
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By:
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Title:
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Date:
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CONSULT YOUR ADVISORS - This document has been prepared for approval by your
attorney. No representation or recommendation is made by Broker as to the legal
sufficiency or tax consequences of this document or the transaction to which it
relates. These are questions for your attorney.
In any real estate transaction, it is recommended that you consult with a
professional, such as a civil engineer, industrial hygienist or other person,
with experience in evaluating the condition of the property, including the
possible presence of asbestos, hazardous materials and underground storage
tanks.
- --------------------------------------------------------------------------------
17. Sublessor grants to Sublessee an option to expand the Premises any time
during the first six (6) months of the Term (option expires June 30, 1996)
to include either or both of the 300 rentable square foot areas shown on
Exhibit "B" hereto. The same rental schedule and Security Deposit shall
apply to both areas, and Sublessee shall give Sublessor ten (10) days
written notice of its election to expand into either expansion area.
18. Sublessor shall reimburse Sublessee up to $2720 towards Sublessee's cost to
build a glass wall and reception station near the front entrance to the
Premises. Sublessee shall provide Sublessor with copies of paid invoices
from which Sublessor shall reimburse Sublessee within ten (10) business
days from receipt of such invoices.
19. Sublessor grants to Subtenant (1) permanent parking right and one (1)
temporary parking right unless Subtenant expands, in which event, the
temporary parking permit will become permanent. Sublessee shall arrange for
its parking spaces through the Kaiser Center Parking Office and pay
directly all costs associated therewith.
20. Sublessee shall name both Kaiser Center, Inc. and Sublessor as "additional
insureds" on a standard business liability policy of limits not less than
One Million Dollars per occurrence. Two Million Dollars total aggregate.
3
<PAGE>
[FLOOR PLAN]
EXHIBIT "B"
<PAGE>
FIRST AMENDMENT TO LEASE
KAISER CENTER, INC., a corporation, as agent for KAISER ALUMINUM & CHEMICAL
CORPORATION (Lessor) and PUTNAM, KNUDSEN & WIEKING, INC. (Lessee), entered a
lease (the Lease) dated May 29, 1990 for certain space in the Kaiser Building.
For a valuable consideration, mutually exchanged, Lessor and Lessee hereby agree
to amend and modify the Lease as follow:
1. Section 1 (b) is eliminated in its entirety and replaced by the
following new 1 (b):
"(b) Lessor hereby leases to Lessee and Lessee hereby leases form
Lessor, subject to the agreements, conditions and provisions set forth
in this Lease, certain portions of the 10th floor ("Leased Premises")
in the 28-story office tower located on the city block bounded by
Webster, 20th, 21st and Harrison streets in Oakland, California, known
as the Kaiser Building, but excluding the separate mall and garage
structures ("Building"). The parties shall attach hereto Exhibit A-3
which represents the 10th floor on which the Leased Premises are
outlined in red.".
2. Section 2 (a) is eliminated in its entirety and replaced by the
following new 2 (a):
"(a) The term of this Lease is seven (7) years commencing on
December 1, 1992 through November 30, 1999. If for any reason
occupancy is delayed, the commencement of the term would be extended
one day for each day of delay."
3. Section 3 (a) is deleted in its entirety and replaced by the following
new 3 (a):
"(a) During the period of December 1, 1992 through June 30, 1995,
unless amended sooner, the annual rent for the premise outlined on
Exhibit A-3 shall be Two Hundred Seventy-Five Thousand Six Hundred
Eighty-Eight and no/100 Dollars ($275,688.00) annually, payable in
advance in twelve equal installments of Twenty Thousand Nine Hundred
Seventy-Four and no/100 Dollars ($22,974.00). NO later than July 1,
1995 through November 30, 1999, rent will be increased to Three Hundred
Fifteen Thousand Seventy-Two and no/100 Dollars ($315,072.00) annually,
payable in advance in twelve equal installments of Twenty Six Thousand
Two Hundred Fifty-Six and no/100 Dollars ($26,256.00)."
4. Section 3 (d)(1) is modified as follow:
"January 1, 1990" is replaced by "January 1, 1993".
5. Section 5 and Exhibit B-1 are deleted in their entirety and replaced
by the following section 5 and new Exhibit B-2.
"If Lessee elects to accept this lease, and Lessor does not have to
pay a real
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<PAGE>
estate commission therefor, Lessor shall, at Lessor's expense, provide
the improvements as contained in Exhibit B-2."
6. Lessee's portion of Section 19 is modified as follows:
"25th Floor" is deleted and replaced by "10th Floor".
7. Section 24 is modified as follow:
"November 1, 1994" is deleted and replaced by "June 1, 1999".
On Page 18 of the Lease, the Phrase "12-month period commencing
January 1, 1995" is modified to "12-month period commencing January 1,
1999". In the last sentence of this paragraph, "January 1, 1995" is
deleted and replaced by "June 1, 1999".
8. Section 24 (4) is modified as follows:
"June 30, 1995" is deleted and replaced by November 30, 1999" and July
1, 1995" is deleted and replaced by "December 1, 1999".
9. Section 25 is deleted in its entirety and replaced by the following:
"25. RIGHTS TO LEASE ALL OR PORTIONS OF THE 10TH FLOOR.
Lessee may at any time during the term of this lease or any
extension hereof, so long as Lessee has materially complied with and
performed all its covenants, terms and conditions hereunder, lease
from Lessor all or any portion of the remainder of the 10th Floor
which is not already leased to a third party, such areas to be
mutually agreed upon so as to avoid unleasable areas being left on the
portion of the 10th Floor not occupied by Lessee. Lessee shall also,
during the term or any renewal hereof, have a right of first refusal
for any space on the 10th Floor which the Lessor intends to lease to a
third party, provided that Lessee gives notice of acceptance within,
and payment of rent for such space at the rate specified hereafter is
commenced within, 30 days after Lessor gives notice of availability to
Lessee and said space is vacated by its prior tenant. If such space
is to be made available to a third party on substantially different
economic terms than the economic terms upon which that space was
previously made available to Lessee, Lessor must give Lessee thirty
(30) days notice of availability of such space on such revised
economic terms before renting such space to a third party. Any
additional space leased by Lessee pursuant to the provisions of this
paragraph 25 shall be at a rental rate equal do 95% of the rate which
Lessor and Lessee agree is the then current fair market rental rate
for a full-service, first-class office building in the Oakland High-
rise office building market in the Oakland/Lake Merritt financial
district. (No real estate commission shall be payable by Lessor on
account of this Lease.) If Lessor and Lessee are unable to agree upon
said rate within ten (10) days of offering, the parties shall
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<PAGE>
appoint and share the costs of a mutually agreeable MAI appraiser to
determine the then current market rate. If Lessor and Lessee are
unable to select a mutually acceptable appraiser within thirty (30)
days of said offering, said rate shall be determined by a board of
three MAI real estate appraisers which shall be selected as follows:
Within fifteen (15) days after the time set for selecting the
appraiser referred to above, Lessor and Lessee shall each select one
appraiser and the third appraiser shall be selected by the two
appraisers so appointed by Lessor and Lessee within fifteen (15) days
thereafter. The appraisal made by the appraiser referred to above, or
concurred in by all or any two members of the board of appraisers
referred to above, as the case may be, shall be final. The fees and
expenses of all appraisers exlusive appointed by each party hereto
shall be borne by the party making such appointment, and the fees and
expenses for all other appraiser shall be borne and paid equally by
Lessor and Lessee. If Lessee is not willing to accept a rental equal
to 95% of the fair market rate as established by said appraisal,
Lessee may, within ten (10) days of learning said rate, give to Lessor
notice of termination of negotiation and Lessor may lease the space to
others. In no event shall Lessor lease any space on the 10th Floor to
any party engaged in the business of insurance without the prior
written consent of Lessee."
This First Amendment to Lease is effective December 1, 1992, and for
subsequent periods only.
In all other respects, the conditions and provisions of the Lease remain in
full force and effect and are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of December 1, 1992.
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION
- LESSOR
By /s/ Robert B. Barle
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Title Vice-President
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PUTNAM, KNUDSEN & WIEKING, INC. - LESSEE
By /s/ J. Wieking
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Title President
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By
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Title
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<PAGE>
EXHIBIT A-3
TO LEASE BETWEEN
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION - LESSOR
AND
PUTNAM, KNUDSEN & WIEKING, INC. - LESSEE
10TH FlOOR
[FLOOR PLAN]
KAISER BUILDING
TYPICAL FLOOR - LOW RISE 300 LAKESIDE DRIVE
FLOORS 4-14
<PAGE>
EXHIBIT B-2
Kaiser Center, Inc. to provide build-out of tenant improvements in the new
west wing in accordance with Interior Architect's drawings.
In the elevator lobby, Kaiser Center, Inc. to overlay walls with gyp board,
abate asbestos, if any, and respray ceiling, install wall and floor finishes.
<PAGE>
LEASE
KAISER CENTER, INC., as agent for KAISER ALUMINUM 7 CHEMICAL CORPORATION,
hereinafter called "Lessor", and PUTNMAN, KNUDSEN 7 WIEKING, INC. INSURANCE
BROKERS, hereinafter called "Lessee, mutually agree as follows:
1. LEASED PREMISES
(a) This Lease constitutes a sublease of the premises by landlord to
tenant.
(b) Lessor hereby leases to Lessee and Lessee hereby leases from Lessor,
subject to the agreements, conditions and provisions set forth in this lease,
certain portions of the 25th floor in the 28-story office tower located on the
city block bounded by Webster, 20th, 21st and Harrison streets in Oakland,
California, known as the Kaiser Building, but excluding the separate mall and
garage structures ("Building"), together with additional space on the 25th floor
as provided herein. Lessee's notice given pursuant to Paragraph 1 (a) above
shall specify that portion of the 25th floor which will be leased hereunder (the
"Leased Premises"). The parties shall attach hereto Exhibits A-1 and A-2 which
represent the 25th floor on which the Leased Premises are outlined in red.
(c) Lessor hereby leases and demises to Lessee and Lessee hereby hires
from Lessor the Leased Premises at the rentals and upon the covenants, terms and
conditions hereinafter set forth.
(d) Lessee, its customers and business invitees shall have the right to
use and enjoy, throughout the term of this Lease, the "common areas" of the
Building; namely, the elevator lobbies, the public areas of the Building, and
the sidewalks, pedestrian bridge, elevators and stairways serving the Leased
Premises.
(e) The common areas shall be subject to the exclusive control and
management of Lessor and may be changed or abandoned by Lessor at any time,
Lessor shall have the right to establish, modify, change and enforce reasonable
and uniform rules and regulations with respect to such areas and Lessee shall
abide by and comply with such reasonable rules and regulations. Lessor shall
have the right to close, block off, or interfere with the use of any part of the
common areas for such time as may, in the Lessor's opinion, be necessary to
permit repairs or improvements of the common areas or to any other portion of
Kaiser Center. Lessor shall not unreasonable impair or limit access to the
Leased Premises.
2. TERM
(a) The term of this Lease is five (5) years commencing July 1, 1990
through June 30, 1995.
02/L33 -1- 04/04/90
Rev. 05/03/90
<PAGE>
(b) If, with the express consent of Lessor, Lessee holds possession of the
Leased Premises after the expiration of the initial term or any renewal of this
Lease, then such possession by Lessee shall be construed as a tenancy from month
to month upon the terms herein specified but at a monthly rental equivalent to
the then prevailing rental paid by Lessee at the expiration of the term of this
Lease pursuant to all of the Provisions in Paragraph 3 hereof, payable in
advance on or before the first day of each month. Any such tenancy from month
to month shall continue until terminated by the Lessor or Lessee by the giving
of at least thirty (30) days' prior written notice of such termination to the
other party.
3. RENT
(a) During the period of July 1, 1990 through June 30, 1992, unless
amended sooner, the annual rent for the premise outlined on Exhibit A-1 shall be
Four Hundred Eighteen Thousand Four Hundred Fifty Six and 80/100 Dollars
($418,456.80) annually, payable in advance in twelve equal installments of
Thirty Four Thousand Eight Hundred Seventy One and 40/100 Dollars ($34,871.40).
No later than July 1, 1992 through June 30, 1995, rent will be increased to
reflect the premise in Exhibit A-2 to Four Hundred Ninety Thousand One Hundred
Sixty Eight and 80/100 Dollars ($490,168.80) annually, payable in advance in
twelve equal installments of Forty Thousand Eight Hundred Forty Seven and 40/100
Dollars ($40,847.40).
(b) Such rent shall be paid as and when due to Kaiser Center, Inc. at 300
Lakeside Drive, Oakland, CA 94643, or to such other payee or at such other
address as Lessor hereafter may designate by written notice to Lessee. Payment
of rent to any payee so designated by Lessor shall acquit Lessee from all
responsibility therefore or for the proper distribution thereof.
(c) If Lessor should assign this Lease or the rents hereunder, or if
Lessor should convey the Leased Premises hereunder, the assignor and assignee or
the grantor and grantee, as the case may be, shall give Lessee written notice of
such assignment or conveyance. Written instructions for payment of rent
thereafter payable hereunder hall also be given by such assignee or grantee.
Payment of rent in accordance with Paragraph 3 (b) hereof shall acquit Lessee
from all responsibility for the payment of rent or for the proper distribution
thereof prior to receipt by Lessee of such written notice and instructions.
(d) It is understood that the rent specified in Paragraph 3 (a) hereof,
does not anticipate any increase or decrease in the amount of taxes on the
Building and the real property thereof or in the cost of payable throughout the
term of this Lease shall reflect any such increase or decrease the parties agree
as hereinafter in this section set forth. Certain terms are defined as follows:
(1) The Base Expense Year shall be the twelve (12) month period commencing
January 1, 1990.
02/L33 -2- 04/04/90
Rev. 05/03/90
<PAGE>
(2) Subsequent Expense Year. Each twelve (12) month period commencing (i)
on the anniversary of the commencement of the Base Expense Year and
(ii) within the term of this Lease.
(3) Expenses for the Base Expense Year. All expenses incurred by Lessor
and properly charged to those management, operational and maintenance
functions allocated to the Building and parcel of land upon which the
Building is located, as determined in accordance with generally
accepted accounting principles applied on a consistent basis. Said
expenses shall include, but not be limited to: real estate taxes,
special and ordinary assessments and other governmental real property
levies imposed upon the Building and the parcel of land on which the
Building is located, or either of them, together with any other tax
imposed in substitution for or in lieu of such real estate taxes (but
excluding any increases resulting from improvements to other tenants'
premises); insurance premiums; legal, auditing and other administrative
services; gas, electric power, water and other utilities; janitorial
services and garbage disposal; repair, maintenance and operational
contracts; supplies, fuel, materials, equipment and tools; and the
salaries, wages and other labor costs of personnel engaged in the
management, operation and maintenance of the Building and the parcel
of land upon which the Building is located. Such expense; depreciation
on the Building or the furnishings and equipment located therein; real
estate brokers' commissions; taxes on income; or capital expenditures.
(4) Expenses For Such Subsequent Expense Year. The expenses incurred by
Lessor properly chargeable to Such Subsequent Expense Year in
accordance with the same principles and subject to the same
adjustments as are provided in Subparagraph (3) above with respect to
the Expenses For The Base Expense Year.
(e) The determination of those expenses to be included in the Expenses For
The Base Expense Year and the Expenses for Such Subsequent Expense Year shall be
made according to such generally accepted accounting principles as determined by
Lessor's independent certified public accountants.
(f) The rental payable each Subsequent Expense Year of portion thereof of
the term hereof shall be increased or decreased, as the case may be, pursuant to
Paragraph 3 (g) by a percentage (being that percentage which equals the rentable
square footage of any increase or decrease of the Expenses For Such Subsequent
Expense Year above or below the Expenses For The Base Expense Year, as provided
in Paragraph 3 (d) (3) and Paragraph 3 (d) (4); provided, however, that in no
event shall such rental be decreased below the annual rental provided for in
Paragraph 3 (a) above. In the event of sale of the Building, annual rental as
provided for in Paragraph 3 (a)
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will increase no more than 50 cents ($0.50) per rentable square foot as a result
of the incremental tax increases of property tax increases.
(g) Lessee's Share of the increase, if any, in estimated Expenses for such
Subsequent Expense Year over the Expenses for the Base Expense Year shall be
paid by Lessee to Lessor as rent in twelve (12) equal monthly installments in
advance on the first day of each calendar month without notice or demand. For
each Subsequent Expense Year, Lessor shall provide Lessee with a written
estimate of the Expenses for such Subsequent Expense Year which Lessor
reasonably anticipates for the following calendar year. In addition, Lessor may
adjust said estimate during the year if Lessor concludes that it underestimated
actual expenses. Lessee shall continue to pay one-twelfth (1/12) of Lessor's
last estimate of Lessee's Share of the increase, if any, over Expenses for the
Base Expense Year on the first day of each calendar month until notified of a
new estimate.
Within a reasonable period after the end of each Subsequent Expense
Year, Lessor shall give Lessee a statement, certified by Lessor's controller,
showing actual expenses for such Subsequent Expense Year, the actual increase,
if any, of such expenses over the actual expenses for the Base Expense Year,
Lessee's Share of any such increase, and the total payments made by Lessee on
the basis of any previous estimate. If Lessee's share of the actual increase
exceeds the monthly installments paid by Lessee during the, Lessee shall pay the
deficiency to Lessor within thirty (30) days of delivery of such statement. If
Lessee's monthly installments exceed Lessee's Share of the actual increase,
Lessor shall give Lessee a credit in the amount of the excess against the next
installments of rent due from Lessee. Lessee's Share of the increase in
expenses for the calendar year in which this lease terminates shall be prorated
on the basis of a 365-day year. Expiration of the term of this lease shall not
affect the obligations of Lessor or Lessee to adjust the payment of Lessee's
Share of increases pursuant to this Section 3(g).
(h) Any dispute between the parties concerning the proper determination of
any increases in rent shall be referred to Lessor's certified public accountants
and the determination of any dispute by such firm shall be binding and
conclusive on the parties. Any charges made or expenses incurred by the
certified public accountants in connection with any such determination shall be
borne and paid for by Lessor if the amount set forth in Lessor's statement is
revised, and by Lessee if it is not revised.
4. USE
(a) Lessee shall use the Leased Premises for office purposes only.
(b) Lessee shall not; (i) load or unload its merchandise, equipment and
supplies or remove its rubbish in areas other than those located within the
Leased Premises or as otherwise reasonably directed by Lessor; (ii) permit any
act or practice which may unreasonably risk injury to the Leased Premises, or
any part thereof or any property therein, or tend to be a nuisance to other
tenants of the Building;
02/L33 -4- 04/04/90
Rev. 05/03/90
<PAGE>
(iii) keep on or obstruct with merchandise, equipment or supplies the loading
dock, sidewalks, walkways or other areas outside the Leased Premises; (iv) burn
any rubbish in or about the Leased Premises; (v) otherwise in any manner
whatsoever conduct itself and its business except in a manner consistent with
the appearance and character of the Building.
(c) Lessee shall not, without obtaining the prior written consent of
Lessor, use the words "Kaiser," "Kaiser Center," or any combination or
simulation thereof, for any purpose whatsoever, including (but not limited to)
as or for corporate, firm or trade names, trademarks or designation or
description of merchandise or services; provided, however, that Lessee shall not
hereby be prevented from using, in a conventional manner and without emphasis or
display, the words "Kaiser" or "Kaiser Center" as part of Lessee's branch name,
if any, or business connection with Lessee's business in the Leased premises
which, in the reasonable judgment of Lessor, might harm or tend to harm the
business or reputation of Lessor or tend to reflect unfavorably on the Building,
Kaiser Center, Lessor, or other tenants, or which might confuse or mislead or
tend to confuse or mislead the public as to any apparent connection or
relationship between Lessor and Lessee other than that created by this Lease, or
between Lessee and any other tenant, or otherwise.
(d) Lessee shall not maintain or display any sign, lettering or lights on
the exterior or interior (including windows) of the Leased Premises unless
approved by Lessor in writing.
(e) Lessee shall timely pay all property taxes on its safes, trade
fixtures, furniture, office and store equipment, machines, and all other
property belonging to Lessee located in the Leased Premises or anywhere else in
the Building, except for telecommunications equipment furnished in the ordinary
course of Lessee's business to other occupants of the Building.
(f) Lessor reserves the right to prescribe the weight and position in the
Leased Premises of all vaults, safes and other heavy equipment, which exceeds 80
pounds live floor load per square foot without the prior written consent of
Lessor.
5. RENOVATION
If Lessee elects to accept this Lease, and Lessor does not have to pay a
real estate commission therefor, Lessor shall, at Lessor's expense, provide the
improvements as contained in Exhibit B-1. In the event additional space shall
be leased to Lessee on the 25th floor during the term of this Lease or any
renewal hereof, the rental rate and improvements for such additional space shall
be as set forth in Paragraph 25.
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Rev, 05/03/90
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6. ALTERATIONS
(a) Except as expressly provided in this Paragraph 6 (a), Lessee shall
make no structural changes and no changes to the air-conditioning, electrical
distribution system, plumbing, exterior walls and doors, and floor covering in
the Leased Premises, and no changes to the exterior of the Leased Premises
without the written consent of Lessor. Work performed by Kaiser Center, Inc.
shall be deemed to have received Lessor's prior written consent, whether
requested and/or approved in writing or not. Lessee may have modifications to
the premises, the cost of which does not exceed $10,000, performed by its own
contractors without Lessor's prior written consent, but Lessee shall immediately
notify Lessor of such modifications. Lessee, upon Lessor's consent, which
consent shall not be unreasonably withheld, shall also be entitled to make
alterations, additions or improvements to the interior of the Leased Premises
the cost of which does exceed $10,000 and employ contractors to make such
alterations, additions or improvements. Plans describing the proposed tenant
improvements and the identity of contractors who will make such improvements
shall be submitted to Lessor for approval at least fifteen (15) days prior to
commencement of work. If Lessor does not object by written notice to Lessee
within ten (10) days after receipt of such plans, the alterations, additions or
improvements described therein and the contractors designated to make such
alterations, additions or improvements shall be deemed approved. All work shall
be in accordance with the laws, rules, regulations and orders of all
governmental authorities having jurisdiction thereof and in compliance with all
reasonable rules which Lessor and its contractors may make. Lessor shall have
no responsibility for any loss of or damage to any fixtures, equipment or other
property installed or left in the Leased Premises from any cause whatsoever
except the intentional or negligent acts of Lessor. To the extent construction
or installation of the alterations, additions or improvements being made by
Lessee will not interfere with construction or installation of the alterations,
additions or improvements being made by Lessor pursuant to this Lease, Lessor
shall permit Lessee to commence such construction or installation prior to
commencement of the term of this Lease. Lessee's entry prior to the
commencement of the term shall be subject to all of the provisions of this
Lease. Lessee shall furnish Lessor with copies of all certificates and
approvals relating to any work or installation done by Lessee which may be
issued or required by any governmental authorities. Lessee shall diligently
prosecute such work to completion and with all due diligence shall open the
Leased Premises for the conduct of its business.
(b) All property in the Leased Premises changed or altered by Lessor or
Lessee, and all additions or improvements (including carpets) of or upon the
Leased Premises, made by either party, other than trade fixtures or other
personal property (except carpets) owned or leased by Lessee, shall become the
property of Lessor, and shall remain upon and be surrendered with the Leased
Premises as a part thereof at the expiration or earlier termination of this
Lease. If Lessor so elects by notice in writing to Lessee at least thirty (30)
days prior to the expiration or earlier termination of this Lease, then Lessee
shall remove from the Leased Premises all non-standard property changes,
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alterations, and all decorations, installations, additions or improvements
(except carpets or fixtures) resulting from Lessee's changes, alterations,
decorations, installations, additions and improvements upon the Leased Premises
as Lessor shall select. Lessee shall repair at Lessee's own cost and expense
and to Lessor's satisfaction all damage caused by any removal of property
permitted or required to be removed under this Paragraph, and all such removals
and repairs shall be completed by the date of expiration or other termination of
this Lease.
(c) Lessee shall pay and discharge all claims and liens asserted or filed
against the Leased Premises or the Building for work claimed to have been done
or for materials claimed to have been furnished to Lessee and Lessee shall hold
Lessor and the Leased Premises free and harmless from any and all loss,
liability or damage for or on account of any such claims or liens.
7. SERVICES AND FACILITIES
LESSOR shall furnish to the premises during the periods from 7:00 a.m. to
6:00 p.m., Monday through Friday,, excluding holidays, and subject to rules and
regulations from time to time established by Lessor, heating, air-conditioning
and ventilation in amounts required, in Lessor's reasonable judgment, for the
use and occupancy of the premises. Lessor shall provide the following services
seven days a week on a twenty-four (24) hour basis: (a) passenger elevator
service, (b) 110 volt and 220 volt electric currents in amounts required for
normal lighting by standard overhead fluorescent fixtures and for normal modern
office machines, (c) water for lavatory and drinking purposes, and (d) security
for the Building. Lessor shall provide janitorial service on a five-day week
basis, excluding Saturdays, Sundays and holidays.
8. REPAIRS AND MAINTENANCE
(a) Lessor shall repair and maintain in good order and serviceable
condition the exterior and structural portions of the Leased Premises, the
common areas of the Building and the basic electrical system, elevators, heating
and air-conditioning equipment and plumbing serving the Leased Premises,
provided that Lessor shall have no obligation to (i) repair damage caused by the
intentional acts or negligence of Lessee, its employees, agents and contractors;
(ii) repaint or redecorate the interior of the Leased Premises (except as
specifically provided in other provisions hereof); or (iii) make repairs which
are required to be made by Lessee pursuant to the provisions of Paragraph 8(b).
(b) Lessee shall, at its own cost and expense, repair and maintain (except
for ordinary wear and tear) the nonstructural interior portions of the Leased
Premises, including interior doors, partitions, and floor coverings. Regardless
of any other provisions of this Lease, Lessee shall, at its own cost and
expense, repair or restore any damage or destruction to any portion of the
Leased Premises or to the Building caused by the intentional acts or negligence
of Lessee, its employees, agents, contractors and licensees, except to the
extent such damage or
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destruction is covered by fire and extended coverage insurance obtained by
Lessor as provided in Paragraph 10 hereof.
(c) In the case of emergencies (as determined by Lessor or Lessee), or if
Lessee refuses or neglects to commence repairs which it is obligated to make
hereunder and complete the same with reasonable diligence, Lessor may make or
cause such repairs to be made and shall not be responsible to Lessee for any
loss or damage that may accrue to its property or business by reason thereof.
If Lessor makes such repairs, and if the same are repairs which Lessee is
obligated to make hereunder, Lessee shall pay Lessor, upon demand, the cost
thereof. If Lessee defaults in such payment, Lessor shall have the remedies
provided in Paragraph 13.
(d) In the case of emergencies (as determined by Lessor or Lessee), or if
Lessor refused or neglects to commence repairs which it is obligated to make
hereunder and complete the same with reasonable diligence, Lessee may make or
cause such repairs to be made and shall not be responsible to Lessor for any
loss or damage that may accrue to its property or business by reason thereof.
If Lessee makes such repairs, and if the same are repairs which Lessor is
obligated to make hereunder, Lessor shall pay to Lessee, upon demand, the cost
thereof. If Lessor defaults in such payment, Lessee may deduct the cost from
rents due or to become due, or make such other recovery as law may allow.
(e) Lessee shall permit Lessor and its agents to enter into and upon the
Leased Premises at all reasonable times for the purpose of inspecting the same,
or for the purpose of making repairs, alterations or additions to the Leased
Premises or any other portion of the Building, or for the purpose of posting
notices of nonresponsibility or for any other reasonable purpose. If Lessor
considers it necessary or desirable in connection with any such operations,
Lessor may erect scaffolding, props, obstructions or other necessary devices in
or about the Leased Premises or elsewhere in the Building without incurring
liability of any kind to Lessee on account thereof, except for the intentional
acts or sole negligence of Lessor, or unless same constitutes a constructive
eviction.
9. REQUIREMENTS OF LAW; USES PROHIBITED; INABILITY TO PERFORM.
(a) Lessee shall, at its sole cost and expense, comply with all
requirements of all municipal, state and federal authorities now in force, or
which may hereafter be in force, pertaining to the Leased Premises, occasioned
by or arising out of Lessee's particular use of the Leased Premises and shall
faithfully observe in the use of the Leased Premises.
(b) Lessee shall not use, or permit the Leased Premises, or any part
thereof, to be used, for any purpose other than the purpose for which the Leased
Premises are hereby leased; and no use shall be made or permitted to be made of
the Leased Premises, or 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. Lessee shall, at its sole cost
and expense, comply with any
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requirements of any insurance company necessary or desirable for the maintenance
of reasonable fire and public liability insurance covering the Leased Premises.
10. INSURANCE
(a) Lessor shall, at its sole expense, obtain and keep in force during the
term hereof or any earlier occupancy by Lessee such fire and extended coverage
insurance upon the Leased Premises as Lessor may in its discretion determine,
and Lessee shall, at its sole expense, obtain and keep in force during the term
hereof such fire and extended coverage insurance upon Lessee's fixtures, goods,
wares and merchandise and other personal property in and upon the Leased
Premises as Lessee may in its discretion determine, provided, however, that
Lessor hereby waives as against Lessee and Lessee hereby waives as against
Lessor any and all claims and demands, of whatsoever nature, for damages, loss
or injury to the Leased Premises or to Lessee's fixtures, goods, wares and
merchandise and other personal property in and upon the Leased Premises, as the
case may be, which shall be caused by or result from fire and other perils,
events or happenings which are the subject of fire and extended coverage
insurance.
(b) During the term of this Lease or any earlier occupancy by Lessee,
Lessee shall procure and maintain in full force and effect bodily injury
liability insurance with limits of not less than FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) per occurrence, and insurance against damage to property with a
limit of not less than ONE HUNDRED THOUSAND DOLLARS ($100,000.00), insuring
against any and all liability of Lessee with respect to the Leased Premises or
arising out of the maintenance, use or occupancy thereof. Lessee shall provide
to Lessor, prior to Lessee's occupancy of the Leased Premises, a certificate
issued by Lessee's insurance carrier evidencing the coverage herein required and
naming Lessor and any and all of its employees, agents, partners, directors,
officers and assigns as it may designate from time to time, as additional named
insureds. Such certificate shall also provide that the policy or policies shall
not be canceled or modified without thirty (30) days' prior written notice to
Lessor. The policy or policies evidenced by such certificate shall be subject
to Lessor's approval as to form and substance.
(c) Lessee may fulfill its obligations under Paragraph 10 (a) and (b)
hereof by self-insurance with respect to the coverage amounts set forth therein;
provided, however, in no event shall Lessee be deemed insurer of Lessor except
as set forth in Paragraph 10 (a) and (b) hereof and provided further that Lessee
shall purchase policies of insurance providing the coverage described in
Paragraph 10 (a) and (b) if Lessor determines, in good faith, that self-
insurance is inconsistent with the prudent risk management practice for
companies of similar size and financial conditions as Lessee.
(d) Lessor shall not at any time or to any extent whatsoever be liable,
responsible or in anywise accountable for any loss, injury, death or damage to
persons or property which at any time may be suffered or sustained by Lessee or
by any person whosoever may at any time be
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<PAGE>
using or occupying or visiting the Leased Premises or be in, on or about the
same, caused by or in anywise resulting from or arising out of, any act,
omission or negligence of Lessee in the use of the Leased Premises, or from any
failure of Lessee to keep the Leased Premises in good order, condition and
repair, as herein provided, and Lessee shall forever indemnify, defend, hold and
save Lessor free and harmless of, from and against any and all claims,
liability, loss or damage whatsoever on account of any such loss, injury, death
or damage. Lessee hereby waives all claims against Lessor for damages to
fixtures, furniture and equipment, goods, wares and merchandise or any other
property, in or about the Leased Premises, and for injuries to or death of any
persons in or about the Leased Premises, from any cause except Lessor's
negligence or Lessor's intentional tortious acts. Lessor shall indemnify and
hold harmless Lessee from any liability for injury to or death of any person,
including any employee of Lessee, or damage to any property, including any
property of Lessee, occurring on the premises and caused by, arising out of
or in any way connected with the following: (i) Lessor's negligence or willful
misconduct, (ii) violation of law by Lessor or by Lessor's employees, agents or
contractors, (iii) breach of Lessor's duty to repair hereunder, (iv) structural
failure of the building of which the premises are a part, or (v) any condition
in the premises concerning which Lessee has no obligation to repair under
Paragraph 8 hereof.
11. DESTRUCTION
The term "Casualty" as used herein shall mean and be limited to (i) any
fire, (ii) any other occurrence or event covered by the usual form of extended
coverage endorsement on fire insurance policies, (iii) any earthquake, and (iv)
any other occurrence or event covered by insurance actually carried by Lessor
and in force at the time of the happening of any such occurrence or event. If,
during the term of this Lease the Building or any portion thereof shall be
damaged or destroyed as a result of any Casualty, then, anything contained in
Paragraph 8 (a) and (b) to the contrary notwithstanding, the following
provisions shall apply and govern:
(a) Except as hereinafter provided to the contrary, Lessor shall repair or
restore the Building as soon as reasonable practicable. Any damage to or
destruction of the Building or the Leased Premises and any delay in effecting
repairs or restoration shall not constitute an actual or constructing eviction
of Lessee, and this Lease shall continue in full force and effect except that to
the extend the Leased Premises are unusable by Lessee as a result of such damage
or destruction, Lessee shall be entitled to an appropriate abatement, from the
date of such damage or destruction until such time as the Leased Premises have
been repaired or restored, of the rental and other sums payable hereunder and
allocable to such period. If the work of rebuilding or repairing is not
completed within ninety (90) days following such destruction or casualty, Lessee
shall have the right, by giving written notice to Lessor at any time thereafter
until said work is in fact completed, to terminate this Lease or alternatively
abate rent until substantial completion of due repairs.
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(b) If by reason of a Casualty (other than earthquake) there is damage to
or destruction of the Building and if the cost of restoring the same as
estimated by Lessor would exceed 33-1/3% of the replacement cost of such
building or the proceeds recovered by Lessor on account of such damage or
destruction under any insurance policy respecting the Building, then Lessor may
elect not to restore the Building.
(c) If by reason of earthquake there is damage to or destruction of the
Building and if the cost of restoring the same as estimated by Lessor would
exceed $1,000,000, then Lessor may elect not to restore the Building.
(d) If Lessor elects not to restore such building as provided in Paragraph
11(b) and (c), it shall notify Lessee of such election in writing, which notice
shall in no event be given later than 120 days after the date of such damage or
destruction. If Lessor delivers such notice within the time specified, Lessee
shall, to the extent that the Leased Premises are unusable by reason of such
damage or destruction, be entitled to an appropriate abatement of the rental and
other sums payable hereunder accruing from the date of such damage or
destruction, and if the entire Leased Premises are unusable by Lessee, Lessee
may, by delivery of written notice to Lessor at any time within thirty (30) days
after receipt of Lessor's notice, elect to terminate this Lease, and this Lease
shall so terminate as of the date Lessee's notice of such election is received
by Lessor.
12. CONDEMNATION
If any part of the Leased Premises, or if over one-half (1/2) of the
Building, shall be taken or condemned for a public or quasi-public use or shall
be sold by Lessor to any entity having the right of eminent domain after notice
of intent to exercise such right has been given to Lessor by such entity and a
part of the Leased Premises remains which is susceptible of the reasonable
conduct of the business of Lessee hereunder, this Lease shall remain in full
force and effect as to the portion of the Leased Premises not so taken or sold,
as the case may be, but the rental and other sums payable hereunder shall be
adjusted so that Lessee shall be required to pay for the remainder of the term
only such portion of such rental as the area measured in square feet of the part
remaining after such taking or sale bears to the total area measured in square
feet of the Leased Premises at the date of taking or sale, but Lessor and Lessee
shall each have the option to terminate the balance of the term of this Lease in
its entirety as of the date when title to the part so taken or sold vests in the
condemnor or purchaser by giving written notice to the other of the election to
so terminate within not to exceed ten (10) days after learning of the taking or
sale, as the case may be. If the entire Leased Premises, or such substantial
part thereof be taken, condemned or sold so that there does not remain a portion
susceptible of the reasonable conduct of Lessee's business hereunder, this Lease
shall thereupon terminate and all advance paid rent allocable to periods
subsequent to the taking or sake shall be promptly refunded to Lessee. If a
part or all of the Leased Premises are taken, condemned or sold, all
compensation awarded upon such taking or condemnation or the payment made upon
any such sale (except any compensation
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specifically awarded for the taking of any of Lessee's trade fixtures or
personal property or both) shall go to Lessor and Lessee shall have no claim
thereto, and Lessee hereby irrevocably assigns and transfers to Lessor any right
to compensation or damages to which Lessee may become entitled during the term
hereof by reason of the condemnation or sale to the condemning authority of all,
or a part of the Leased Premises.
13. DEFAULT
(a) The term "default" as hereinafter used in this Paragraph 13 shall mean
and include any one or more of the following events or occurrences:
(i) The failure by Lessee to perform or observe any of the covenants
and agreements of this Lease, including specifically, but without
limitation, the Lessee's covenants for the payment of rent or additional
rents.
(ii) The issuance of any execution or attachment against Lessee or any
of Lessee's property, whereby the Leased Premises or any portion thereof
shall be taken or occupied, or attempted to be taken or occupied, by
someone other than Lessee.
(iii) The filing at any time after the date of execution of this Lease
and prior to the expiration or termination of this Lease, against Lessee in
any court pursuant to any statute, either of the United States or of any
state, of a petition in bankruptcy or insolvency or for reorganization or
for the appointment of a receiver or trustee of all or any portion of
Lessee's property, which petition is not dismissed or discharged within
sixty (60) days after the filing thereof.
(iv) The filing by Lessee of a petition in bankruptcy or insolvency or
for reorganization or for the appointment of a receiver or trustee, or the
making of an assignment for the benefit of creditors, or entering into any
arrangement for the relief of debtors.
(b) the term "abandonment" as hereinafter used in this Paragraph 13 shall
mean and include any one or more of the following events or occurrences:
(i) The relinquishment by Lessee of its right to possession of the
Leased Premises or any substantial portion thereof.
(ii) The cessation by Lessee of the conduct in the Leased Premises of
the business to be carried on by Lessee in the Leased Premises for a period
of more than ninety (90) business days, absent any preparation for re-
occupation, if accompanied by any failure to pay rent as it comes due.
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(iii) The removal by Lessee of all or a substantial portion of its
personal property and trade fixtures from the Leased Premises without
replacing the same, if accompanied by any failure to pay rent as it comes
due, where the effect of such removal and failure, in Lessor's reasonable
judgment, indicates that Lessee intends to cease the conduct in the Leased
Premises of the business to be carried on by Lessee in the Leased Premises.
(c) In the event of the occurrence of any one or more of the events
of default specified in Paragraph 13 (a) by Lessee which is preceded by, occurs
concurrently with, or is succeeded by an abandonment of the Leased Premises or
any substantial part thereof, Lessor may, at its election treat such default in
the manner provided in Paragraph 13 (d) below or, without notice to Lessee,
elect to allow this Lease to continue in full force and effect without
terminating Lessee's right to possession of the Leased Premises and to enforce
all of Lessor's rights and remedies under this Lease, including without
limitation the right to recover rent as it becomes due.
(d) In the event of the occurrence of any one or more of the events of
default by Lessee specified in Paragraph 13 (a), and except as provided in
Paragraph 13 (e) below, Lessor may serve a ten (10) day written notice upon
Lessee in the case of default in the payment of the rental provided in Paragraph
3 hereof or a thirty (30) day written notice in the case of any other default,
in either case specifying the nature of such default. Upon the expiration of
said ten (10) or thirty (30) day period, as the case may be, if Lessee shall
have failed to remedy such default, or if such default complained of shall be
other than the payment of monies required to be paid under this Lease and shall
be of such a nature that the same cannot be completely cured or remedied within
said thirty (30) day period, and if Lessee shall not diligently commence curing
such default within said thirty (30) day period, and shall not thereafter with
reasonable diligence and in good faith continue to remedy or cure such default,
then Lessor may serve a written three(3) day notice to vacate the Leased
Premises upon Lessee, and upon the expiration of such three (3)j days this Lease
shall terminate and Lessee shall peaceably quit, vacate and return the Leased
Premises to Lessor.
(e) Notwithstanding any notice provisions or any other provisions of this
Paragraph 13, this Lease, at the election of Lessor, shall terminate immediately
upon the occurrence of any event or events specified in Paragraph 13 (a) (iv).
(f) Upon the termination of this Lease for default as provided under
Paragraph 13 (d) and 13 (e), Lessor may, without notice to Lessee, re-enter the
Leased Premises and dispossess Lessee or the legal representative of Lessee or
other occupant of the Leased Premises, and remove and store, at Lessee's cost,
their personal property, trade fixtures and other effects, and to hold the
Leased Premises as if this Lease had not been made, but lessee shall remain
liable as hereinafter
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provided, and Lessee waives any and all rights of redemption or re-entry or
repossession or to restore the operation of this Lease. Immediately upon the
termination of this Lease under Paragraph 13 (d) or 13 (e), Lessee shall
immediately become liable to and shall pay to Lessor an amount equal to the
combined total of the following:
(i) Any and all amounts due to Lessor by reason of the breach of any
of the terms, covenants or conditions of this Lease other than the payment
of rent;
(ii) The unpaid rent earned to the date of termination of this Lease,
with interest thereon at the rate of fifteen percent (15%) per annum or
such lesser maximum rate as it is then permitted by law from the date the
same became due;
(iii) The unpaid rent which would have been due between the date of
termination and the date of payment be Lessee of all sums due under this
Paragraph 13 (f) or the date of an award of judgment, whichever occurs
earlier, with interest thereon at the rate of fifteen percent (15%)j per
annum or such lesser maximum rate as it is then permitted by law from the
date the same became due;
(iv) The rent which would have been due between the date of payment of
all sums due under this Paragraph 13 (f) or the date of an award of
judgment, whichever occurs earlier, and the date upon which this LEASE
would have expired in accordance with its terms, discounted at the discount
rate of the Federal Reserve Bank of San Francisco at the time of such
payment or judgment award or at such greater minimum discount rate as may
hereafter be provided by law;
(v) Any and all costs and expenses which Lessor may have reasonably
incurred as the result of Lessee's breach of this Lease, including costs
and expenses of attempting to relet or actually reletting the Leased
Premises or any portion thereof including, without limitation, legal
expenses, attorneys' fees, real estate brokerage fees and the reasonable
costs of alterations and repairs to the Leased Premises made in connection
with the reletting of the Leased Premises.
(vi) Provided, however, that the amounts specified in subparagraphs
(i) through (v) above shall be reduced to the extent Lessee can prove such
damages can be or could have been mitigated by Lessor.
(g) Upon the event of the termination of this Lease for default as
provided under Paragraph 13 (f), Lessor shall immediately have the right to
relet or attempt to relet the Leased Premises or any portion thereof for a term
or terms which may at Lessor's option be less than or exceed the period which
would otherwise have constituted the balance of the term of this Lease and may
grant concessions or free rent for a reasonable period or periods for the
purpose of inducing such reletting.
- 14 -
<PAGE>
If Lessor is successful in reletting the Leased Premises or any portion thereof
prior to the payment by Lessee to Lessor of the amounts set forth in Paragraph
13 (f) or prior to an award of judgment for such amounts, the amounts owing
under subsections (ii), (iii) and (iv) of Paragraph 13 (f), if not already
reduced by reason of section 13 (f) (vi), shall be reduced by the amount which
the rental under the new Lease reduces Lessor's rental loss arising by virtue of
the termination of this Lease.
14. NUISANCE ON ADJOINING PROPERTY
Insofar as Lessor may have control of any premises in the Building
adjoining the Leased Premises, Lessor shall not use the same or permit the same
to be used for any purpose reasonably objectionable to Lessee or for any
unlawful purpose or permit the maintenance of a nuisance thereon.
15. PEACEABLE AND QUIET POSSESSION
Lessor hereby covenants that Lessor has good right to Lease the Leased
Premises for the term of this Lease and that Lessee, upon paying the rent and
performing and observing the other covenants to be performed and kept by it as
provided in this Lease, shall have the peaceable and quiet possession of the
Leased Premises during the term.
16. (a) subject to the provisions of Paragraph 3 (d), if the real property
taxes and assessments levied against the Leased Premises are assessed to Lessor,
they shall initially be paid by Lessor.
(b) If such taxes and assessments are initially assessed to Lessee, they
shall be paid by Lessee, and Lessor shall reimburse Lessee upon demand the full
amount thereof. If Lessor does not so reimburse Lessee, Lessee shall have the
right to recover from Lessor, by deduction from any rent due or to become due
pursuant to the provisions Paragraph 3 (d), the full amount so paid be Lessee.
(c) All taxes levied against personal property, trade fixtures and real
property improvements made by and assessed to Lessee shall be paid by Lessee.
If such taxes, or any of them, are assessed to Lessor they shall be paid be
Lessor, and Lessee shall reimburse Lessor upon receipt of a copy of Lessor's
receipted tax bill, the full amount so paid by Lessor.
17. SURRENDER OF PREMISES
Lessee, at the termination or expiration of its tenancy, shall surrender
the Leased Premises in as good order and condition as reasonable use shall
permit, deterioration, ordinary wear and tear and damage by the elements and
causes beyond Lessee's control excepted.
- 15 -
<PAGE>
Lessee shall remove all of its personal property (except carpets) and
trade fixtures in accordance with Paragraph 8 (b).
18. ASSIGNMENT AND SUBLETTING
Lessee shall not assign this Lease nor sublet the Leased Premises or any
part thereof, without the prior written consent of Lessor, which consent shall
not be unreasonably withheld; except Lessor's consent shall not be required in
the case of a general assignment of all or a substantial part of Lessee's
business or an assignment of this Lease or sublease of all or any portion of the
Leased Premises to any wholly-owned subsidiary of Lessee or to any entity
controlled by or in common control with Lessee's. Any assignment or subletting
in violation of the provisions of this Paragraph 18 shall be void and shall, at
the option of Lessor, terminate this Lease.
19. NOTICES OR DEMANDS
All notices or demands herein provided to be given or made, or which may be
given or made by either party to the other, shall be deemed to have been duly
given and made when in writing and deposited in the United States Mail, postage
prepaid, and addressed as follows:
TO LESSOR: TO LESSEE:
Kaiser Center, Inc. Putnam, Knudsen & Wieking, Inc.
Attention: Vice President 300 Lakeside Drive
300 Lakeside Drive, Suite 2685 25th Floor
Oakland, CA 94643 Oakland, CA 94612
The addresses to which notices or demands may be given or made by either
party may be changed by written notice given by such party to the other pursuant
to this paragraph.
20 SUCCESSORS AND ASSIGNS
This Lease shall ensure to the benefit of and be binding upon the
respective successors and assigns of the parties hereto.
21. SUBORDINATION
This Lease shall at the option of the Lessor be subject and subordinate to
the lien of any and all mortgages or deeds of trust now or that may at any time
hereafter be placed upon the Building, the land on which it is located or the
leasehold estate therein and to any agreements at any time made modifying or
supplementing any such mortgages or deeds of trust. Lessee shall, upon the
demand of Lessor, execute and deliver such further instruments evidencing the
subordination of this Lease to the lien of the aforesaid mortgages or deeds of
trust, as may be desired
02/L33 - 16 - 04/04/90
Rev. 05/03/90
<PAGE>
by any mortgagee or beneficiary. Provided, however, as notwithstanding such
subordination, so long as Lessee is not in default of any of its obligations
hereunder, Lessee shall be entitled to remain in possession of the Leased
Premises on the terms and conditions set forth in this Lease and any successor
to Lessor shall make no attempt to interfere with the rights and benefits
granted Lessee hereunder so long as Lessee is not in default of any of its
obligations hereunder.
22. RULES AND REGULATIONS
All reasonable rules and regulations which have heretofore been adopted or
which may hereafter be adopted by Lessor for the operation, safety, care and
cleanliness of the Leased Premises, the Building and the Kaiser Center, and the
preservation of good order therein are, except to the extend they may be
inconsistent with or contrary to the terms of this Lease, hereby expressly made
a part hereof and shall be complied with by Lessee.
23. PARKING
During the term of this lease, Lessee shall have the option of entering
into month-to-month contracts, on Lessor's standard parking agreement form for
any number of parking stalls in Kaiser Center parking facilitates up to a
maximum of one (1) stall per 1,100 rentable square feet occupied by lessee up to
a maximum of forty (40) stalls at the applicable monthly parking rates in effect
from time to time. Lessee may elect to have up to 40% of its parking stalls
provided in covered parking. Nothing herein contained shall preclude Lessee
from applying and contracting for the use of additional parking stalls in said
facilities on terms and conditions acceptable to the parties. Notwithstanding
anything herein contained to the contrary, the option herein granted to Lessee
may be terminated by Lessor with respect to any or all of the parking stalls
upon the failure of Lessee or any person to whom Lessee has assigned any of the
parking stalls to comply with any rules or regulations issued by Lessor for the
operation of the parking facilities or upon the failure of the Lessee or any
person to whom Lessee has assigned any parking stall to perform the obligations
under the parking agreement.
24. RENEWAL
If this lease is still in force and Lessee has fully complied with and
performed all of its covenants, terms and conditions, Lessee may request, by
written notice given to Lessor before November 1, 1994, an extension of this
Lease through the tenth anniversary of the commencement of term, at such rates
(including improvement allowances) as may be agreed upon as being at market for
a full-service, first-class office building in the Oakland high-rise office
building market in the Oakland/Lake Merritt financial district, or as arrived at
by appraisal as provided herein, and otherwise on all the same applicable terms
and
02/L33 - 17 - 04/04/90
Rev. 05/03/90
<PAGE>
conditions stated herein, except that during the option term the definition of
the Base Expense Year in Paragraph 3 (d) (1) shall be the 12-month period
commencing January 1, 1995. If the parties agree upon the rent for such
extended term, they shall thereupon enter into an extension of this Lease.
Providing no broker's commission is required, Lessee shall have a right to renew
at a rate equal to no more than 95% of the market rate. If Lessee and Lessor
shall not have agreed upon the market rate by January 1, 1995, then the market
rate shall be determined by a real estate appraiser or board of real estate
appraisers selected as follows:
(1) Lessor and Lessee shall select a mutually acceptable real estate
appraiser in not more than (15) days.
(2) If Lessor and Lessee are unable to select said appraiser within said
time, then said market rate shall be determined by a board of three real estate
appraisers which shall be selected as follows within fifteen (15) days after the
time set for selecting the appraiser referred to above, Lessor and Lessee shall
each select one appraiser and the third appraiser shall be selected by the two
appraisers so appointed by Lessor and Lessee within fifteen (15) days
thereafter.
(3) The appraisals made by the appraiser referred to above, or concurred
in by all or any two members of the board of appraisers referred to above, as
the case may be, shall be final and binding upon Lessor and Lessee. The fees and
expenses of all appraisers exclusively appointed by each party hereto shall be
borne by the party making such appointment, and the fees and expenses for all
other appraisers shall be borne and paid equally by Lessor and Lessee.
(4) If Lessee is not willing to accept a rental equal to the rate as
established by said appraisal, Lessee may, within sixty (60) days of learning
said rate, give Lessor six months' written notice of the termination of this
Lease and upon the expiration of said six-month period following such notice
this Lease shall absolutely cease and terminate. If Lessee so elects not to
accept the rate determined by said appraisal and to terminate this Lease, Lessee
shall reimburse all of Lessor's out-of-pocket costs directly incurred in such
appraisal and Lessor shall have the right any time after June 30, 1995 to
terminate any hold-over tenancy of Lessee upon thirty (30) days' prior written
notice. Between July 1, 1995 and the effective date of termination, Lessee
shall pay rent for the Leased Premises equal to the rate as determined above.
25. RIGHTS TO REMAINDER OF 25TH FLOOR
Lessee may at any time during the term of this Lease or any extension
hereof, so long as Lessee has materially complied with and performed all its
covenants, terms and conditions hereunder, lease from Lessor all or any portion
of the remainder of the 25th Floor which is
02/L33 - 18 - 04/04/90
Rev. 05/03/90
<PAGE>
not already leased to a third party, such areas to be mutually agreed upon so as
to avoid unleaseable areas being left on the portions of the 25th Floor not
occupied by Lessee. Lessee shall also, during term or any renewal hereof, have
a right of first refusal for any space on the 25th Floor which Lessor intents to
lease to a third party, provided that Lessee gives notice of acceptance within,
and payment of rent for such space at the rate specified hereafter is commenced
within, 30 days after Lessor gives notice of availability to Lessee and said
space is vacated by its prior tenant. If such space is to be made available to
a third party on substantially different economic terms than the economic terms
upon which that space was previously made available to Lessee, Lessor must give
Lessee thirty (30) days notice of availability of such space on such revised
economic terms before renting such space to a third party. Any additional space
leased by Lessee pursuant to the provisions of this Paragraph 25 shall be at a
rental rate (including improvement allowances) equal to 95% of the rate which
Lessor and Lessee agree is the then fair market rental rate for a full-service,
first-class office building in the Oakland high-rise office building market in
the Oakland/Lake Merritt financial district. (No real estate commission shall
be payable by Lessor on account of this Lease.) If Lessor and Lessee are unable
to agree upon said rate by January 1, 1990, the parties shall appoint and share
the costs of a mutually agreeable MAI appraiser to determine the then current
market rate. If lessor and lessee are unable to select a mutually acceptable
appraiser by January 15, 1990, said rate shall be determined by a board of three
MAI real estate appraisers which shall be selected as follows: Within fifteen
(15) days after the time set for selecting the appraiser referred to above,
Lessor and Lessee shall each select one appraiser and the third appraiser shall
be selected by the two appraisers so appointed by Lessor and Lessee within 15
days thereafter. The appraisal made by the appraiser referred to above, or
concurred in by all or any two members of the board appraisers referred to
above, as the case may be, shall be final. The fees and expenses of all
appraisers exclusive appointed by each party hereto shall be borne by the party
making such appointment, and the fees and expenses for all other appraisers
shall be borne and paid equally by Lessor and Lessee. If Lessee is not willing
to accept a rental equal to 95% of the fair market rate as established by said
appraisal, Lessee may, within sixty (60) days of learning said rate, give to
Lessor six months' written notice of the termination of this Lease and upon the
expiration of said six-month period following such notice this Lease shall
absolutely cease and terminate. If Lessee so elects not to accept the rate
determined by said appraisal and to so terminate this Lease, Lessee shall
reimburse all of Lessor's out-of-pocket costs directly incurred in such
appraisal and Lessor shall have the right, any time after June 30, 1990, to
terminate any hold-over tenancy of Lessee upon thirty (30) days' prior written
notice. Between July 1, 1990 and the effective date of termination, Lessee
shall pay rent for the Leased Premises equal to 95% of the appraised market rate
as determined above. All other applicable terms and conditions of the Lease
remain in effect. So long as Lessee occupies at least 20,000 square feet of
space on the 25th Floor, Lessor shall not lease any remaining space on the 25th
Floor to third parties for a term exceeding
02/L33 - 19 - 04/04/90
Rev. 05/03/90
<PAGE>
five (5) years without the prior written consent of Lessee, which consent shall
not be unreasonably withheld. In no event shall Lessor lease any space on the
25th Floor to any party engaged in the business of insurance without the prior
written consent of Lessee, nor shall any portion of the 25th Floor be leased to
any party not conducting normally accepted administrative, professional and/or
clerical-type business activities.
26. MISCELLANEOUS
(a) TIME. Time is the essence of this Lease.
(b) WAIVER. The waiver by Lessor 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 subsequent acceptance of rent
hereunder by Lessor shall not be deemed to be a waiver of any preceding breach
by Lessee of any term, covenant or condition of this Lease, other than the
failure of Lessee to pay the particular rental so accepted, regardless of the
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
(c) REMEDIES. The remedies herein given shall be cumulative and are given
without impairing any other rights or remedies of either party by any statute or
law now existing or hereinafter enacted and the exercise of any one remedy by
either party shall not exclude the exercise of any other remedy.
(d) INTERPRETATION, CAPTIONS. The language in all parts of this Lease
shall in all respects be construed as a whole, according to its fair meaning,
and not strictly for or against either Lessor or Lessee. The paragraph captions
in this lease are for convenience only and are not to be construed as part of
this Lease or in any way limiting or amplifying the provisions hereof.
(e) ATTORNMENT. If the prime lease referred to in Paragraph 1(a) above
under which Lessor is the tenant is terminated by operation of law or otherwise,
Lessee shall attorn to the landlord under such prime lease or to such other
party or parties as have succeeded to the interest of said landlord in said
prime lease; and, in the event of such attornment, this Lease shall continue in
effect under the same conditions, covenants and terms as are contained herein,
provided, however, that no such attornment shall be required if Lessee is
physically evicted in the proceedings which terminate said prime lease.
(f) SEVERABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such term or provision to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected there by and each
term and provision of this Lease shall be valid and enforced to the fullest
extent permitted by law.
02/L33 - 20 - 04/04/90
Rev. 05/03/90
<PAGE>
(h) ENTIRE AGREEMENT. Lessor and Lessee each acknowledge and agree that
they have not relied upon any statement, representation agreement or warranty
except as may be expressly set forth in this Lease, and Lessor and Lessee agree
that no amendment or modification of this Lease shall be valid or binding unless
in writing and duly executed by Lessor and Lessee. No provision of this lease
shall be altered, waived or amended except in writing duly executed by Lessor
and Lessee.
Dated: May 29, 1990
------------------------------
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION - LESSOR
By /s/ Robert B. Burke
---------------------------------
Title Vice President
------------------------------
By
---------------------------------
Title
------------------------------
PUTNAM, KNUDSEN & WIEKING, INC.
INSURANCE BROKERS - LESSEE
By /s/ Joe Wieking
--------------------------------
Title President
------------------------------
By
---------------------------------
Title
------------------------------
02/L33 - 21 - 04/04/90
Rev. 05/03/90
<PAGE>
RULES AND REGULATIONS OF THE KAISER BUILDING
ATTACHED TO AND MADE A PART OF THIS LEASE
1. Tenants, their agents, employees or patrons, shall not loiter in or in any
way obstruct the driveways, sidewalks, entrances, lobbies, corridors,
stairways, escalators and elevators of Kaiser Center, and shall use the
same only as a means of passage to and from their respective leased
premises.
2. Tenants, their agents, employees or patrons, shall not make or permit any
improper noises in the Kaiser Building, or interfere in any way with other
Tenants or those having business with such other Tenants.
3. Tenants, their agents, employees or patrons, shall not use any part of the
Kaiser Building for lodging or sleeping purposes, and cooking and eating of
meals is prohibited except in those parts of the Kaiser Building
specifically designated by Lessor for those functions.
4. If Tenant plans to have a gathering in the premises such as an open house,
holiday celebration, etc., Tenant must notify Kaiser Center, Inc. leasing
office at least one week prior to the event in order to confirm that such
usage is in conformance with its lease and to make proper arrangements for
security, heat and air-conditioning, parking and janitorial services. If
alcoholic beverages are to be served during the gathering, the caterer must
have a proper permit to dispense such beverages and Tenant's insurance must
adequately cover such event. If dignitaries or political figures are
invited, tenant must notify Kaiser Center, Inc.'s leasing/security office
accordingly
5. No tarde, occupation, game or business shall be conducted in the Kaiser
Building which shall be unlawful or of a so-called "get-rich-quick"
character, nor shall the leased premises be used for gambling of any nature
or for any immoral purpose whatsoever.
6. Tenants, their agents and employees, shall not throw substances of any kind
out of the doors or down the passages of the Kaiser Building, or bring into
the Kaiser Building or keep therein any animal or animals.
7. Automobiles, trucks, motorcycles, scooters, bicycles, or other vehicles may
be brought into the Kaiser Garage and Parking Lots only in those areas
specifically designated for the driving and parking of such vehicles, where
the operators thereof shall comply with all traffic regulations in effect.
8. Windows, glass doors and store fronts shall not be covered or obstructed.
Curtains or drapes, other than those provided by Lessor, may be used only
upon specific approval of Lessor.
9. No sign, advertisement, or notice shall be inscribed, painted or fixed on
to any part of the outside or inside of any portion of the Kaiser Building
unless it be of such color, size and style and in such place upon or within
the premises, as may be designated by Lessor in writing.
- 1 -
<PAGE>
10. Toilets, urinals, lavatories and sinks shall not be used for any purposes
other than those for which they were constructed, and no rubbish,
newspapers or other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of water shall not be allowed.
11. Tenants shall not in any way deface floors, ceilings, partitions, walls or
other surfaces, except they may drive nails, screw or drill into, to adhere
to any surface for the purpose of affixing articles of decoration and/or
equipment customarily used in business offices within a first-class
building.
12. Under the carpeting of each floor there are two metal pans which are about
six inches wide and four inches deep and run the length of the building.
One of these contains electrical wiring and is not to be disturbed by the
Tenant without the consent and under the direction of Lessor. The other is
to accommodate telephone and other communication equipment which is to be
provided and maintained by the Tenant at its expense. To gain access to
this pan it is necessary to lift the carpeting and remove the pan lid.
Lessor will provide this service to Tenant for a fee. In any event it is
the Tenant's responsibility to guard these pans when they are open and
prevent injury or damage to persons or property and Lessor is to be held
harmless by Tenant from any costs or liability resulting from the opening
of these pans.
13. The number, size, type and capacity of pieces of electrical equipment and
lighting of any kind used by the Tenants are subject to approval by Lessor.
Tenants receiving electrical power without additional charge as part of the
Lease may be charged separately for power used by pieces of office and
other electrical equipment, if warranted in the sole opinion of Lessor.
14. All freight shall be moved into, within and out of the Kaiser Building
according to such regulations as Lessor may reasonably prescribe. Lessor
shall not be responsible for loss or damage to any such freight from any
cause or causes whatsoever.
15. Lessor shall prescribe the times and methods of moving any item of Tenant's
property in or out of the Kaiser Building. Lessor shall not be responsible
for any loss or damage to any such property from any cause whatsoever,
except LESSOR's sole negligence or LESSOR's intentional tortious acts, and
all damage done to the Kaiser Building by moving or maintaining any
Tenant's property shall be repaired to Lessor's full satisfaction at the
sole expense of Tenant.
16. Lessor may, at its sole discretion, limit the weight or size, or may
prescribe the location of safes, file cabinets, machinery and other
property brought into the Kaiser Building.
17. Tenants shall not place any additional lock or locks on any door, hatchway
or other opening unless written consent of Lessor shall have first been
obtained. Initial keys shall be furnished by Lessor for the entrance to
the suite and two (2) keys for each private office within the suite;
additional keys will be at the expense of Tenant. All keys shall be
surrendered to Lessor upon expiration or other termination of this lease.
- 2 -
<PAGE>
18. At the end of each wing are located emergency exits. Fire codes require
that these remain closed at all times excepting when they are used for
ingress or egress. However, the stairways may be used for access to
adjacent floors by multifloor Tenants as long as Tenant holds Lessor free
from any liability from using these stairways.
19. Tenants shall not employ any person or persons other than those provided or
approved in advance by Lessor for the purpose of cleaning the premises
without the consent of Lessor. Lessor shall be in no way liable or
responsible to any Tenant for any loss of property located in or upon the
leased premises, however occurring, except as a result of LESSOR's sole
negligence or intentional tortious acts.
20. Tenants shall not employ any person or persons other than those provided or
approved in advance by Lessor for the purpose of maintaining, repairing,
revising, modifying or constructing within the leased premises without the
consent of Lessor.
21. Requirements of Tenants will be attended to only upon application to
Lessor's designated representatives. Lessor's employees shall not perform
any work or do anything outside of their regular duties unless under
special instructions from said representatives.
22. Towels, laundry, florist service, bottled water and similar service shall
be furnished to Tenants only by such persons as may be satisfactory to
Lessor.
23. Lessor shall have sole control of directories in the lobbies and other
common areas of the Kaiser Building, and only such names as have been
approved by Lessor will be placed thereon. Initial signage will be provided
by Lessor at no cost to Tenant. Any additional names added or removed from
existing directories will be at the expense of Tenant. Tenant shall request
any addition/deletion of names in writing.
24. At any time while the the Kaiser Building is under security control, any
person entering or leaving may be required to display a pass, sign a
building register or otherwise satisfy the security watchman on duty as to
his business therein; anyone not satisfying the watchman as to his right to
enter the Kaiser Building may be excluded by him.
25. Lessor may require written authorization from an Tenant before permitting
anyone to remove Tenant's office equipment or other personal property from
the Kaiser Building.
26. Lessor reserves the right but shall not be held obligated to exclude or
reject from the building any or all solicitors, canvassers or peddlers, and
also any other class of persons and individuals who conduct themselves in
such a manner as, in the opinion of Lessor, to be any annoyance to any of
the Tenants of the Kaiser Building or to interfere with Lessor's operation
thereof or to be otherwise undesirable.
27. Lessor may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants of the Kaiser Building, but
- 3 -
<PAGE>
no such waiver by Lessor shall be construed as a waiver of such Rules and
Regulations in favor of any other Tenant or Tenants, nor prevent Lessor
from thereafter enforcing any such Rules and Regulations against any or all
of the Tenants of the Kaiser Building.
28. Lessor reserves the right to make such other and further Rules and
Regulations as in its judgment may from time to time be necessary for the
safety and cleanliness of, and for the preservation of good order in the
Kaiser Building.
29. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
conditions and covenants of the Lease.
30. Tenant, its employees or patrons will obey the City of Oakland Smoking
Ordinance which, amongst other things, prohibits smoking in elevators,
building common areas and escalators.
31. Tenant has been informed that the interior blinds on the building window
wall are an integral part of the building heating, ventilation and air
conditioning system. If Tenant fails to close the blinds, Lessor cannot
guarantee the comfort level of the Premise.
- 4 -
<PAGE>
EXHIBIT A-1
TO LEASE BETWEEN
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION - LESSOR
AND
PUTNAM, KNUDSEN & WIEKING, INC. INSURANCE BROKERS - LESSEE
25TH FLOOR
[FLOOR PLAN]
KAISER BUILDING
TYPICAL FLOOR-HIGH RISE 200 LAKESIDE DRIVE
FLOORS 22 - 28
<PAGE>
EXHIBIT A-2
TO LEASE BETWEEN
KAISER CENTER, INC., AS AGENT FOR
KAISER ALUMINUM & CHEMICAL CORPORATION - LESSOR
AND
PUTNAM, KNUDSEN & WIEKING, INC. INSURANCE BROKERS - LESSEE
25TH FLOOR
[FLOOR PLAN]
KAISER BUILDING
TYPICAL FLOOR-HIGH RISE 300 LAKESIDE DRIVE
FLOORS 22 - 28
<PAGE>
EXHIBIT B-1
Kaiser Center, Inc. to provide build-out of tenant improvements in the new
west wing in accordance with Interior Architects' drawings. Putnam, Knudsen &
Wieking to pay upcharge for over standard carpet and wall covering, non-building
standard window treatments, computer cabling beyond the $10,000 Kaiser Center,
Inc. contribution, computer connector work, all furniture and furniture moving,
and kitchen appliances.
In the elevator lobby, Kaiser Center, Inc. to overlay walls with gyp board,
abate asbestos and respray ceiling, install wall and floor finishes. Putnam,
Knudsen & Wieking to pay upcharge for upgraded carpet.
In the east wing, Kaiser Center, Inc. to paint walls and recarpet. Putnam,
Knudsen & Wieking to provide all furniture moving and pay upcharge for over
standard carpet.
<PAGE>
EXHIBIT 11.1
<PAGE>
ANCHOR PACIFIC UNDERWRITERS, INC.
COMPUTATION OF EARNINGS PER COMMON
AND COMMON SHARE EQUIVALENT
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
PRIMARY
<S> <C> <C> <C>
Average shares outstanding** 3,819,605 3,022,658 2,715,918
Net effect of dilutive stock
options and warrants - based
on the treasury stock method
using average market price *** *** ***
----------- ----------- ------------
Total 3,819,605 3,022,658 2,715,918
----------- ----------- ------------
----------- ----------- ------------
Net Income (Loss) ($867,029) ($650,489) ($1,662)
----------- ----------- ------------
----------- ----------- ------------
Per Share Amount** ($0.23) ($0.22) ($0.01)
----------- ----------- ------------
----------- ----------- ------------
FULLY DILUTED
Average shares outstanding** 3,819,605 3,022,658 2,715,918
Net effect of dilutive stock
options and warrants - based on
the treasury stock method using
the year-end market price, if
higher than average market price 236,064 637,720 683,200
----------- ----------- ------------
Total 4,055,669 3,660,378 3,399,118
----------- ----------- ------------
----------- ----------- ------------
Net Income (Loss) ($867,029) ($650,489) ($1,662)
----------- ----------- ------------
----------- ----------- ------------
Per share amount** ($0.21) ($0.18) ($0.01)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
** Average Shares Outstanding and Earnings per Share have been restated in prior
periods to reflect ten for one stock split in 1995.
***Conversion of stock options and warrants to common stock equivalents is not
assumed because their effect is antidilutive.
For financial reporting purposes, loss per share is calculated exclusive of
the dilutive effects of stock options and the conversion effect of
convertible debentures outstanding at December 31, 1995. The above
calculation on a fully dilutive basis includes the effects of stock options,
and convertible debentures outstanding, for the purposes of complying with
Section 229.601 of Regulation S-K.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,444,911
<SECURITIES> 0
<RECEIVABLES> 1,304,895
<ALLOWANCES> 49,560
<INVENTORY> 0
<CURRENT-ASSETS> 7,995,783
<PP&E> 2,892,462
<DEPRECIATION> 1,835,530
<TOTAL-ASSETS> 12,732,433
<CURRENT-LIABILITIES> 8,756,549
<BONDS> 0
0
0
<COMMON> 73,490
<OTHER-SE> 1,489,542
<TOTAL-LIABILITY-AND-EQUITY> 12,732,433
<SALES> 0
<TOTAL-REVENUES> 8,761,278
<CGS> 0
<TOTAL-COSTS> 8,997,277
<OTHER-EXPENSES> 221,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 161,769
<INCOME-PRETAX> (862,229)
<INCOME-TAX> 4,800
<INCOME-CONTINUING> (867,029)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (867,029)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
