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, 1997
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: 0-29466
NATIONAL RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 47-0634000
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1033 "O" Street
Lincoln, Nebraska 68508
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (402) 475-2525
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.001 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 for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant at February 27, 1998: $19,633,294.
Number of shares of the registrant's common stock outstanding at February
27, 1998: 7,305,000 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for 1998 Annual Meeting of Shareholders
(to be filed with the Commission under Regulation 14A within 120 days
after the end of the registrant's fiscal year and, upon such filing, to be
incorporated by reference into Part III)
<PAGE>
PART I
Item 1. Business
General
National Research Corporation ("NRC" or the "Company") believes it is
a leading provider of ongoing survey-based performance measurement,
analysis and tracking services to the healthcare industry. The Company
believes it has achieved this leadership position based on its over 17
years of industry experience and its relationships with many of the
industry's largest payers and providers. The Company addresses the
growing need of healthcare providers and payers to measure the care
outcomes, specifically satisfaction and health status, of their patients
and/or members. NRC has been at the forefront of the industry in
developing tools that enable healthcare organizations to obtain service
quality information necessary to comply with industry and regulatory
standards and to improve their business practices so that they can
maximize new member and/or patient attraction, member retention and
profitability.
Since its founding 17 years ago as a Nebraska corporation (the
Company reincorporated in Wisconsin in September 1997), NRC has focused on
the information needs of the healthcare industry. The Company offers
three primary types of information services: renewable performance
tracking services, a renewable syndicated service and custom research.
During 1997, NRC provided services to more than 225 healthcare
organizations, including health maintenance organizations ("HMOs"),
integrated healthcare systems, medical groups and industry regulatory
bodies. The Company gathered and analyzed over 1,250,000 completed
surveys for these clients in 1997. The Company's clients include the
United States Department of Defense (the Company is a named subcontractor
to the primary contractor with this client), HealthSouth Corporation, BJC
Health System and Mayo Clinic.
While performance data has always been of interest to healthcare
providers and payers, such information has become increasingly important
to these entities as a result of regulatory, industry and competitive
requirements. In recent years, the healthcare industry has been under
significant pressure from consumers, employers and the government to
reduce costs. Through the implementation of managed care, which currently
covers approximately 61% of all Americans, the rate of growth in
healthcare costs has been substantially reduced. However, the same
parties that demanded cost reductions are now concerned that healthcare
service quality is being compromised under managed care. This concern has
created a demand for consistent, objective performance information by
which healthcare providers and payers can be measured and compared and on
which physicians' compensation can, in part, be based.
The NRC Solution
The Company addresses healthcare organizations' growing need to track
their performance at the enterprise-wide, departmental and
physician/caregiver levels. The Company has been at the forefront of the
industry in developing tools that enable its clients to collect, in an
unobtrusive manner, a substantial amount of comparative service quality
information in order to analyze and improve their practices to maximize
new member and/or patient attraction, member retention and profitability.
NRC's performance assessments offer the tangible measurement of health
service quality currently demanded by consumers, employers, industry
accreditation organizations and lawmakers.
The Company's innovative solutions respond to managed care's
redefined relationships among consumers, employers, payers and providers.
While many vendors exclusively use static, mass produced questionnaires,
NRC also utilizes its dynamic data collection process to create a
personalized questionnaire that evaluates service issues specific to each
respondent's specific healthcare experience. The flexibility of the
Company's data collection process allows healthcare organizations to add
timely, market driven questions relevant to matters such as industry
performance mandates, employer performance guarantees and internal quality
improvement initiatives. In addition, the Company's dynamic data
collection process is used to assess core service factors relevant to all
healthcare respondent groups (patients, members, employers, employees,
physicians, etc.) and to all service points of a healthcare system
(inpatient, emergency room, outpatient, home health, rehabilitation, long-
term care, hospice, pharmacy, etc.). As differentiated from others in the
marketplace, the Company can gather data through fewer, more efficient
questionnaires as opposed to other firms' multiple questionnaires that
often bombard the same respondents.
NRC offers three primary types of information services. The NRC
Listening System (the "Listening System") is a renewable performance
tracking tool for gathering and analyzing data from survey respondents.
The Company has the capacity to measure performance beyond the enterprise-
wide level and has the ability and experience to determine key performance
indicators at the department and individual physician/caregiver
measurement levels, where the Company's services can best guide the
efforts of its clients to improve quality and enhance their market
position. The syndicated NRC Healthcare Market Guide (the "Market
Guide"), a stand-alone market information and competitive intelligence
source as well as a comparative performance database, allows the Company's
clients to assess their performance relative to the industry, to access
best practice examples and to utilize competitive information for
marketing purposes. The Company's custom research enables NRC's clients
to conduct specific studies in order to identify areas of improvement and
measure market issues and opportunities. Recognizing the increasing
applications for self-reported healthcare assessments, NRC works with its
clients to integrate satisfaction measurement into various areas of their
businesses, including physician compensation. As the Company partners
with its clients, it seeks to enhance relationships throughout the
healthcare organization and thereby both broaden and deepen the scope of
its projects.
Growth Strategy
The Company believes that it can continue to grow through: (i)
expanding the depth and breadth of its current clients' performance
tracking programs, since healthcare organizations are increasingly
interested in gathering performance information at deeper levels of their
organizations and from more of their constituencies, (ii) increasing the
cross-selling of its complementary services, (iii) adding new clients
through penetrating the sizeable portion of the healthcare industry that
is not yet conducting performance assessments beyond the enterprise-wide
level or is not yet outsourcing this function and (iv) pursuing
acquisitions of, or investments in, firms providing products, services or
technologies that complement those of the Company.
Services
The Company's three primary types of information services are as
follows:
Renewable Performance Tracking Services. The Listening System is
NRC's state-of-the-art data collection process which provides ongoing,
renewable performance tracking. The Listening System represented 81% and
76% of the Company's total revenues in 1997 and 1996, respectively. This
performance tracking program efficiently coordinates and centralizes an
organization's satisfaction monitoring, thereby establishing a uniform
methodology and survey instrument needed to obtain valid performance
information and improve quality. Using the industry mandated method of
mail-based data collection, this assessment process monitors satisfaction
across healthcare respondent groups (patients, members, employers,
employees, physicians, etc.) and service settings (inpatient, emergency
room, outpatient, etc.). Rather than be limited to only static, mass
produced questionnaires that provide limited flexibility and performance
insights, NRC's proprietary software generates individualized
questionnaires, which include personalization such as patient name,
treating caregiver name, encounter date and, in some cases, the services
received. This personalization enhances the response rates and the
relevance of performance data. Flexible and responsive to healthcare
organizations changing information needs, NRC creates personalized
questionnaires that evaluate service issues specific to each respondent's
specific healthcare experience and include questions that address core
service factors throughout a healthcare organization.
As differentiated from other competitors, the Company gathers
data through one efficient questionnaire, the contents of which are
selected from the Company's library of questions after a client's needs
are determined, as opposed to multiple questionnaires that often bombard
the same respondents. As a result, the Company's renewable performance
tracking programs and data collection process (i) realize higher response
rates, obtain data more efficiently, and thereby provide healthcare
organizations with more feedback, (ii) eliminate oversurveying (where one
respondent receives multiple surveys) and (iii) allow healthcare
organizations to adapt questionnaire content to address management
objectives and to assess quality improvement programs or other timely
marketplace issues. Recognizing that performance programs must do more
than just measure satisfaction, NRC has developed a one-page reporting
format called the NRC Action Plan that provides a basis on which to make
improvements. NRC Action Plans show healthcare organizations which
service factors their customer groups value, which have the greatest
impact on satisfaction levels and how their performance in relationship to
these key indicators changes over time.
Renewable Syndicated Service. The Company's renewable nationally
syndicated service, the NRC Healthcare Market Guide, serves as a stand-
alone market information and competitive intelligence source as well as a
comparative performance database. This service accounted for 11% and 10%
of the Company's total revenues in 1997 and 1996, respectively. Published
by NRC bi-annually from 1988 to 1996 and annually since 1996, this survey,
which is the largest of its kind, asks consumers via a pre-recruited
third-party panel, members of which are sent Market Guide questionnaires
to complete, to evaluate their health plans, health systems,
physicians/caregivers and personal health status. Representing the views
of one in every 650 households across every county in the continental
United States, the Market Guide provides name specific performance data on
600 managed care plans and 2,500 hospitals nationwide and addresses more
than 100 data items relevant to healthcare payers, providers and
purchasers. Utilizing this proprietary database, the Company is able to
produce reports which are customized to meet individual client's specific
information needs. Among the data featured are benchmarks specific to the
National Committee for Quality Assurance ("NCQA") standardized Health Plan
Employer Data and Information Set Member Satisfaction Survey that compare
health plans on a local, state and/or national level. Similarly, the
service's national name search feature allows a healthcare organization
with a national or regional presence to simultaneously compare the
performance of all its sites and pinpoint where strengths and weaknesses
exist. The service's trending capacity details how the performance of a
healthcare organization changes over time. Other data collected in the
Market Guide profile health plan market share, consumers' health plan
decision making factors, physician/caregiver accessibility,
hospital/healthcare system quality and chronic patient populations. The
Company gives clients easy access to the customized version of the Market
Guide they purchase via its CD-ROM-based desktop delivery system - the
Report Card System. This delivery system allows healthcare professionals
to generate reports in numerous formats to support their decision making.
Custom Research. In order to be a sole source provider to its
clients, the Company also conducts custom research that measures and
monitors market characteristics or issues specific to individual
healthcare organizations. NRC's custom research includes consumer recall
of promotional and branding campaigns, consumer response to new service
offerings and provider perception of health plans and healthcare
organizations. The Company generally utilizes phone interviews to collect
relevant data for these custom studies. Custom research accounted for 8%
and 14% of the Company's total revenues in 1997, and 1996, respectively.
Clients
The Company's ten largest clients in both 1997 and 1996 accounted for
64% of the Company's total revenues in those years. The Company's largest
client, Kaiser Permanente-Northern California Region ("Kaiser"), accounted
for 31% and 40% of the Company's total revenues in 1997 and 1996,
respectively. On December 1, 1997, Kaiser informed the Company of its
decision to select another organization to perform its performance
measurement studies for 1998. The United States Department of Defense,
through a primary contractor, United Healthcare Corporation, accounted for
15% of total revenues in 1997. Overall, the Company served more than 225
healthcare organizations in 1997.
Sales and Marketing
The Company has generated the majority of its revenues from client
renewals, supplemented by its internal marketing efforts and a limited
sales force. In order to increase geographic penetration, NRC added one
sales associate to its existing three person sales force at the end of the
second quarter of 1997 and another in the third quarter of 1997. These
new sales associates will direct NRC's sales efforts from Nashville and
Atlanta. The Company is also in the process of searching for additional
sales associates. As compared to the typical industry practice of
compensating salespeople with relatively high base pay and a relatively
small sales commission, NRC compensates its sales associates with
relatively low base pay and a relatively high, per sale commission. The
Company believes this compensation structure provides incentives to its
sales associates to surpass sales goals and increases the Company's
ability to attract top quality sales associates. The average
healthcare/market research industry experience of the Company's sales
associates is over 9 years.
Numerous marketing efforts support the direct sales force's new
business generation and project renewal initiatives. NRC conducts an
annual direct marketing campaign around scheduled trade shows, including
leading industry conferences such as the National Managed Healthcare
Congress and American Association of Health Plans' Institute. NRC uses
this lead generation mechanism to track the effectiveness of marketing
efforts and add generated leads to its database of current and potential
client contacts. In addition, NRC plans to implement a telemarketing
sales strategy in 1998 to qualify the highest quality potential leads.
Finally, the Company's public relations program includes (i) an ongoing
presence in leading industry trade press and in the mainstream press; (ii)
public speaking at strategic industry conferences; (iii) monthly
"Perspectives on Performance" articles (which are in-depth discussions of
performance tracking applications, trends and policies) sent to current
clients and top prospects; (iv) fostering relationships with key industry
constituencies (Health Care Financing Administration, The Joint Commission
on Accreditation of Healthcare Organizations and NCQA); and (v) an annual
Quality Leaders award program recognizing top-ranking HMOs and health
systems in approximately 100 markets. The Company is also co-authoring an
industry manual with renowned researcher John E. Ware, Ph.D., of the New
England Medical Center's Health Institution.
The Company's integrated marketing activities facilitate its ongoing
receipt of project requests-for-proposals as well as direct sales force
initiated prospect contact. The sales process typically spans a 90-day
period encompassing the identification of a healthcare organization's
information needs, the education of prospects on NRC solutions (via
proposals and in-person sales presentations) and the closing of the sale.
The Company's sales cycle varies depending on the particular service being
marketed and the size of the potential project.
Competition
The healthcare information and market research industry is highly
competitive. The Company has traditionally competed both with healthcare
organizations' internal marketing, market research and/or quality
improvement departments which create their own performance measurement
tools and with relatively small specialty research firms which provide
survey-based healthcare market research and/or performance assessment.
The Company, to a certain degree, currently competes with, and anticipates
that in the future it may increasingly compete with (i) traditional market
research firms which are significant providers of survey-based, general
market research and (ii) firms which provide services or products that
complement healthcare performance assessments, such as healthcare software
or information systems. Although only a few of these competitors have to
date offered survey-based, healthcare market research that competes
directly with the Company's services, many of these competitors have
substantially greater financial, information gathering and marketing
resources than the Company and could decide to increase their resource
commitments to the Company's market. There are relatively few barriers to
entry into the Company's market, and the Company expects increased
competition in its market, which could adversely affect the Company's
operating results through pricing pressure, increased marketing
expenditures and market share losses, among other factors. There can be
no assurance that the Company will continue to compete successfully
against existing or new competitors.
The Company believes the primary competitive factors within its
market include quality of service, timeliness of delivery, service
uniqueness, credibility of provider, industry experience and price. NRC
believes that its industry leadership position, exclusive focus on the
healthcare industry, dynamic questionnaire, syndicated Market Guide and
comparative performance database, and its relationships with leading
healthcare payers and providers position the Company to compete in this
market.
Intellectual Property and Other Proprietary Rights
The Company's success is in part dependent upon its data collection
process, research methods, data analysis techniques and internal systems
and procedures that it has developed specifically to serve clients in the
healthcare industry. The Company has no patients; consequently, it relies
on a combination of copyright, trademark and trade secret laws and
employee nondisclosure agreements to protect its systems and procedures.
There can be no assurance that the steps taken by the Company to protect
its rights will be adequate to prevent misappropriation of such rights or
that third parties will not independently develop functionally equivalent
or superior systems or procedures. The Company believes that its systems
and procedures and other proprietary rights do not infringe upon the
proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company
in the future or that any such claims will not result in protracted and
costly litigation, regardless of the merits of such claims.
Employees
As of December 31, 1997, the Company employed a total of 74 persons
on a full-time basis. In addition, as of such date the Company had 130
part-time associates primarily in its survey operations, representing
approximately 93 full-time equivalent employees. None of the Company's
employees are represented by a collective bargaining agreement. The
Company considers its relationship with its employees to be excellent.
Executive Officers of the Registrant
The following table sets forth certain information, as of March 15,
1998, regarding the executive officers of the Company:
Name Age Positions
Michael D. Hays 43 President, Chief Executive Officer and
Director
Jona S. Raasch 39 Vice President and Chief Operations Officer
Patrick E. Beans 40 Vice President, Treasurer, Chief Financial
Officer, Secretary and Director
Sharon Flaherty 50 Vice President - Sales, Marketing and Client
Services
Michael D. Hays has served as President and Chief Executive Officer
and as a director since he founded the Company in 1981. Prior thereto,
Mr. Hays served for seven years as a Vice President and a director of SRI
Research Center, Inc. (n/k/a the Gallup Organization).
Jona S. Raasch has served as Vice President and Chief Operations
Officer since September 1988. Prior to joining the Company, Ms. Raasch
held various positions with A.C. Nielsen.
Patrick E. Beans has served as Vice President, Treasurer and Chief
Financial Officer since August 1997, as Secretary since September 1997, as
a director since October 1997 and as the principal financial officer since
he joined the Company in August 1994. From June 1993 until joining the
Company, Mr. Beans was the finance director for the Central Interstate
Low-Level Radioactive Waste Commission, a five-state compact developing a
low-level radioactive waste disposal plan. From 1979 to 1988 and from
June 1992 to June 1993, he practiced as a certified public accountant.
Sharon Flaherty joined the Company in December 1996 and serves as
Vice President-Sales, Marketing and Client Services. From 1972 until
joining the Company, Ms. Flaherty held various positions with Kaiser
Foundation Health Plan, Inc. and its affiliates, an HMO, including the
last three years (from May 1993 to June 1996) as President of Kaiser
Foundation Health Plan of Texas.
Executive officers of the Company are elected by, and serve at the
discretion of, the Company's Board of Directors. There are no family
relationships between any directors or executive officers of NRC.
Item 2. Properties
The Company's headquarters is located in approximately 25,000 square
feet of leased office space in Lincoln, Nebraska. This facility houses
all the capabilities necessary for NRC's survey programming, printing and
distribution; telephone interviewing; data processing, analysis and report
generation; marketing; and corporate administration. The lease on this
facility expires on December 31, 1999.
Item 3. Legal Proceedings
The Company is not subject to any material pending litigation.
Item 4. Submission of Matters to a Vote of Security Holders
On October 3, 1997, the shareholders of the Company, by unanimous
written consent in lieu of a special meeting, approved the National
Research Corporation Director Stock Plan.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) The Company's Common Stock, $.001 par value ("Common Stock"), is
traded on the Nasdaq National Market under the symbol "NRCI." The
following table sets forth the range of high and low closing sales
prices for the Common Stock for the period from October 10, 1997, the
date of the initial public offering of the Common Stock, through
December 31, 1997:
High Low
Fourth quarter ended December 31, 1997 23 4-7/8
On March 10, 1998, there were approximately 18 shareholders of
record for the Common Stock.
The Company does not intend to pay any cash dividends on its
Common Stock in the foreseeable future. The Company intends to
retain all of its future earnings for use in the expansion and
operation of its business. Any future determination to pay cash
dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, the Company's
results of operations, financial condition, contractual restrictions
and such other factors deemed relevant by the Board of Directors.
Since its S Corporation election in 1994, the Company has made
cash distributions to its shareholders in amounts necessary to allow
the shareholders to at least pay the Federal and state income taxes
on their proportionate shares of the Company's net income. In
connection with the termination of the Company's S Corporation status
(which was done concurrently with the Company's initial public
offering of the Common Stock), the Company made distributions of
$2,230,730 to its existing shareholders. The Company will not make
any additional distributions of this kind in the future.
(b) The Company's Registration Statement on Form S-1 (Registration
No. 333-33273) (the "Registration Statement") relating to the offer
and sale (the "Offering") of an aggregate of 2,415,000 shares of
Common Stock was declared effective by the Securities and Exchange
Commission on October 9, 1997. Of the 2,415,000 shares of Common
Stock registered under the Registration Statement, 1,250,000 shares
were sold by the Company and 1,165,000 shares (including 315,000
shares sold pursuant to the exercise of an over-allotment option
granted to the underwriters) were sold by a certain shareholder of
the Company, Michael D. Hays (the "Selling Shareholder").
During the period covered by this report, all of the shares of
Common Stock registered were sold in the Offering at a price of
$15.00 per share, for an aggregate price of $18,750,000 and
$17,475,000 for the shares of Common Stock sold by the Company and
the Selling Shareholder, respectively. After deducting the
underwriting discount of $1.05 per share, the Selling Shareholder
received net proceeds equal to $16,251,750 and the Company received
net proceeds equal to $17,437,500 less expenses of $596,411 incurred
in connection with the Offering. The entire net proceeds to the
Company of $16,841,089 are currently being held in temporary
investments of United States government securities with maturities of
two years or less.
Item 6. Selected Financial Data
The selected statement of income data for the years ended
December 31, 1997, 1996, 1995 and 1994 and the balance sheet data at
December 31, 1997, 1996 and 1995 are derived from, and are qualified by
reference to, the audited financial statements of the Company included
elsewhere in this Annual Report on Form 10-K. The selected statement of
income data for the year ended December 31, 1993 and the balance sheet
data at December 31, 1994 and 1993 are derived from unaudited financial
statements not included herein.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995 1994 1993
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Renewable performance tracking services . . . . . . . . . . $13,188 $9,569 $6,839 $4,420 $507
Renewable syndicated service . . . . . . . . . . . . . . . 1,758 1,276 493 652 435
Custom and other research . . . . . . . . . . . . . . . . . 1,338 1,755 1,585 1,683 1,869
------- ------- ------ ------ -----
Total revenues . . . . . . . . . . . . . . . . . . . . . 16,284 12,600 8,917 6,755 2,811
Operating expenses:
Direct expenses . . . . . . . . . . . . . . . . . . . . . . 7,178 5,685 3,495 2,967 1,083
Selling, general and administrative . . . . . . . . . . . . 3,980 3,060 2,364 2,044 1,167
Depreciation and amortization . . . . . . . . . . . . . . . 159 173 119 86 50
Special compensation charge . . . . . . . . . . . . . . . . 1,740 - - - -
------- ------- ------ ------ -----
Total operating expenses . . . . . . . . . . . . . . . . 13,057 8,918 5,978 5,097 2,300
------- ------- ------ ------ -----
Operating income . . . . . . . . . . . . . . . . . . . . . . 3,227 3,682 2,939 1,658 511
Other income and expenses, net . . . . . . . . . . . . . . . 367 152 108 46 12
------- ------- ------ ------ -----
Income before income taxes . . . . . . . . . . . . . . . . . 3,594 3,834 3,047 1,704 523
Provision for income taxes . . . . . . . . . . . . . . . . . 376 - - 114 9
Pro forma income taxes(1) . . . . . . . . . . . . . . . . . . 804 1,534 1,219 583 -
------- ------- ------ ------ -----
Pro forma net income(1) . . . . . . . . . . . . . . . . . . . $2,414 $2,300 $1,828 $1,007 $ 514
======= ======= ====== ====== =====
Pro forma net income per share - basic
and diluted(1) . . . . . . . . . . . . . . . . . . . . . . $ 0.37 $ 0.37
======= =======
Weighted average shares outstanding -
basic and diluted(2) . . . . . . . . . . . . . . . . . . 6,440 6,185
<CAPTION> December 31,
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital . . . . . . . . . . . . . . . . . . . . . . . $17,681 $2,018 $1,534 $1,358 $54
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 22,563 6,153 4,996 3,539 1,368
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . - - - 9 54
Total shareholders' equity . . . . . . . . . . . . . . . . . 18,121 2,079 1,830 1,623 290
_____________________
(1) From 1984 through July 31, 1994, the Company was a C Corporation. From August 1, 1994 through October 13, 1997, the
Company was an S Corporation and, accordingly, was not subject to Federal and state income taxes for the five months
ended December 31, 1994, for the years ended December 31, 1995 and 1996 or from January 1, 1997 to October 13, 1997. Pro
forma net income reflects a pro forma tax provision at a combined Federal and state rate of 40% for the periods the
Company was an S Corporation as if it had been a C Corporation.
(2) Includes 129,812 shares of Common Stock which, had they been issued (at $13.95 per share, the initial public offering
price less the underwriting discount), would have generated cash sufficient to fund the portion of the estimated S
Corporation distributions and special (cash) compensation expense that are in excess of the Company's 1996 net income.
See Note 1 to the Company's Financial Statements.
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Special Note Regarding Forward-Looking Statements
Certain matters discussed below in this Annual Report on Form 10-K
are "forward-looking statements" intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act
of 1995. These forward-looking statements can generally be identified as
such because the context of the statement includes phrases such as the
Company "believes," "expects" or other words of similar import.
Similarly, statements that describe the Company's future plans, objectives
or goals are also forwarding-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which could
cause actual results or outcomes to differ materially from those currently
anticipated. Factors that could affect actual results or outcomes
include, without limitation, the Company's reliance on a limited number of
key clients for the majority of its revenues, the Company's dependence on
performance tracking contract renewals, fluctuations in the Company's
operating results related to the Market Guide, increased competition,
changes in conditions affecting the healthcare industry, the Company's
ability to manage its growth and to successfully integrate any possible
future acquisitions and the Company's ability to provide timely and
accurate performance tracking and market research to its clients.
Shareholders, potential investors and other readers are urged to consider
these factors in evaluating the forward-looking statements and are
cautioned not to place undue reliance on such forward-looking statements.
The forward-looking statements included are only made as of the date of
this Annual Report on Form 10-K and the Company undertakes no obligation
to publicly update such forward-looking statements to reflect subsequent
events or circumstances.
Overview
The Company believes it is a leading provider of ongoing survey-based
performance measurement, analysis and tracking services to the healthcare
industry. The Company offers three primary types of information services:
renewable performance tracking services, a renewable syndicated service
and custom research. The Company expects that revenues from its custom
research activities will increase on an annual basis, but at a lower rate
than revenues from its renewable services (i.e., revenues generated
pursuant to a service whose nature contemplates continued renewals)
because of the Company's increasing focus on its renewable services.
The Company's renewable performance tracking service, the Listening
System, is a performance tracking tool for gathering and analyzing data
from survey respondents. Such services are provided pursuant to contracts
which are generally renewable annually and that provide for a customer
specific study which is conducted via a series of surveys and delivered
via a series of updates or reports, the timing and frequency of which vary
by contract (such as monthly or weekly). These contracts are generally
cancelable on short or no notice without penalty and, since progress on
these contracts can be tracked and regular updates and reports are made,
clients are entitled to any work-in-process but are obligated to pay for
all services performed through cancellation. Typically, these contracts
are fixed fee arrangements and a portion of the project fee is billed in
advance, and the remainder is billed periodically over the duration of the
project. Revenues and direct expenses are recognized on a percentage of
completion basis.
The Company's renewable nationally syndicated service, the Market
Guide, serves as a stand-alone market information and competitive
intelligence source as well as a comparative performance database.
Published by NRC bi-annually from 1988 to 1996 and annually since 1996,
this survey is a comprehensive consumer-based healthcare assessment.
Market Guide services are generally provided pursuant to contracts which
have durations of four to six months and that provide for the receipt of
survey results that are customized to meet an individual client's specific
information needs. Typically, these contracts are not cancelable by
clients, clients receive no rights in the comprehensive healthcare
database which results from this survey, other than the right to use the
customized reports purchased pursuant thereto, and amounts due for the
Market Guide are billed prior to or at delivery. The Company recognizes
revenue when the Market Guides are delivered to the customers pursuant to
their contracts, typically in the third quarter of the year.
Substantially all of the related costs are deferred and subsequently
charged to direct expenses contemporaneously with the recognition of the
revenue. The Company generally has some incidental sales of the Market
Guide subsequent to completion of each edition. Revenues and marginal
expenses related to such incidental sales are recognized upon delivery.
The profit margin earned on such revenues is generally higher than that
earned on revenues realized from customers under contract at the time of
delivery. As a result, the Company's margins vary throughout the year.
The Company conducts custom research which measures and monitors
market issues specific to individual healthcare organizations. The
majority of the Company's custom research is performed under contracts
which provide for advance billing of 65% of the total project fee with the
remainder due upon delivery. Revenues and direct expenses are recognized
on a percentage of completion basis.
Results of Operations
The following table sets forth, for the periods indicated, selected
financial information derived from the Company's financial statements,
expressed as a percentage of total revenues and the percentage change in
such items versus the prior comparable period. The trends illustrated in
the following table may not necessarily be indicative of future results.
In December 1997, the Company's largest client, Kaiser, which accounted
for 31% of the Company's total revenues in 1997, informed the Company of
its decision to select another organization to perform its performance
measurement studies for 1998. Due to the Company's loss of Kaiser as a
client, operating results may be negatively impacted, particularly in the
short-term. The discussion that follows the table should be read in
conjunction with the Company's financial statements.
<TABLE>
<CAPTION>
Percentage of Total Revenues Percentage Increase
Year Ended December 31, (Decrease)
1996
1997 over over
1997 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking services......... 81.0% 75.9% 76.7% 37.8% 39.9%
Renewable syndicated service.................... 10.8 10.1 5.5 37.7 158.7
Custom and other research....................... 8.2 14.0 17.8 (23.7) 10.8
----- ----- -----
Total revenues.......................... 100.0 100.0 100.0 29.2 41.3
===== ===== =====
Operating expenses:
Direct expenses................................. 44.1 45.1 39.2 26.3 62.7
Selling, general and administrative............. 24.4 24.3 26.5 30.1 29.4
Depreciation and amortization................... 1.0 1.4 1.3 (8.2) 45.4
Special compensation charge..................... 10.7 - - 100.0 -
----- ----- -----
Total operating expenses................ 80.2 70.8 67.0 46.4 49.2
----- ----- -----
Operating income.................................. 19.8% 29.2% 33.0% (12.4)% 25.3%
===== ===== =====
</TABLE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Total revenues. Total revenues increased 29.2% in 1997 to $16.3
million from $12.6 million in 1996. Revenues from the Company's renewable
performance tracking services increased 37.8% in 1997 to $13.2 million
from $9.6 million in 1996 due primarily to the addition of new clients
and, to a lesser extent, an increase in the scope of existing tracking
projects. Revenues from the Company's renewable syndicated service
increased 37.7% to $1.8 million in 1997 from $1.3 million in 1996. Such
increase reflects the addition of new syndicated service clients. The
Company's custom research revenue decreased 23.7% to $1.3 million in 1997
from $1.8 million in 1996. The decrease reflects the Company's primary
focus on the other services provided by the Company.
Direct expenses. Direct expenses increased 26.3% to $7.2 million in
1997 from $5.7 million in 1996. The increase in direct expenses was due
to increases in postage expenses of $630,000, printing expenses of
$161,000 and labor and payroll expenses of $642,000. Direct expenses
decreased as a percentage of total revenues to 44.1% in 1997 from 45.1% in
1996. The decrease in direct expenses as a percentage of total revenues
was due primarily to incidental sales of the 1996 edition of the Market
Guide during 1997.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 30.1% to $3.9 million in 1997 from $3.1
million in 1996. This increase was primarily due to an increase of
$443,000 associated with the expansion of the Company's sales and
marketing work force, an increase of $126,000 in expenses related to
enhancements to the Company's dynamic questionnaire production software
and an increase of $68,000 in profit sharing expense. Selling, general
and administrative expenses increased as a percentage of revenues to 24.4%
in 1997 from 24.3% in 1996.
Depreciation and amortization. Depreciation and amortization expense
decreased 8.2% to $159,000 in 1997 from $173,000 in 1996 but remained
relatively constant as a percentage of revenues at 1.0% and 1.4% in 1997
and 1996, respectively.
Provision for income taxes. The provision for income taxes totaled
$376,000 for 1997, plus pro forma income taxes for 1997 of $803,000, for
total income taxes for 1997 of $1,179,000 (32.8% effective tax rate),
which included a $258,000 nonrecurring income tax benefit created by the
termination of the Company's S Corporation status in October 1997 in
connection with the Company's initial public offering. Without the
nonrecurring income tax benefit, total income taxes for 1997 would have
been $1,437,000 (39.9% effective tax rate), which compared to a $1,534,000
pro forma income tax expense for 1996 (40.0% effective tax rate).
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Total revenues. Total revenues increased 41.3% in 1996 to $12.6
million from $8.9 million in 1995. Revenues from the Company's renewable
performance tracking services increased 39.9% in 1996 to $9.6 million from
$6.8 million in 1995 due primarily to an increase in the scope of existing
tracking projects and, to a lesser extent, the addition of new clients and
an increase in the number of new projects for existing clients. Revenues
from the Company's renewable syndicated service increased 158.7% to $1.3
million in 1996 from $493,000 in 1995 due to the timing of releases of new
editions of the Market Guide. A new edition of the Market Guide was
published in 1996 but not in 1995 since the Market Guide was published on
a bi-annual basis prior to 1996. Revenues from the Company's custom
research increased 10.8% to $1.8 million in 1996 from $1.6 million in
1995.
Direct expenses. Direct expenses increased 62.7% to $5.7 million in
1996 from $3.5 million in 1995. Direct expenses increased as a percentage
of total revenues to 45.1% in 1996 from 39.2% in 1995. The increase in
direct expenses as a percentage of total revenues was due to higher
staffing levels in 1996 which increased labor and payroll expenses by
$845,000, increased postage and printing expenses of $515,000, one-time
costs of $122,000 associated with converting the internal processing of
certain surveys to a new image scanning and editing system, and sales of
the Market Guide in 1996 at lower gross margins than sales in 1995 since a
new edition of the Market Guide (with associated costs) was published in
1996 but not in 1995.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 29.4% to $3.1 million in 1996 from $2.4
million in 1995. Selling, general and administrative expenses decreased
as a percentage of total revenues to 24.3% in 1996 from 26.5% in 1995.
The decrease in these expenses as a percentage of total revenues reflects
the Company's efforts to spread its general and administrative costs over
a higher revenue base, which were partially offset by an increase in
selling and marketing expenses of $222,000.
Depreciation and amortization. Depreciation and amortization expense
increased 45.4% to $173,000 in 1996 from $119,000 in 1995 but remained
relatively constant as a percentage of total revenues at 1.4% and 1.3% in
1996 and 1995, respectively. The aggregate increase was principally due
to computer equipment purchases to improve internal systems to support
business growth.
Liquidity and Capital Resources
The Company's principal source of funds historically has been cash
flow from its operations. The Company's cash flow has been sufficient to
provide funds for working capital and capital expenditures. The cash flow
of the Company and its cash position was enhanced by the issuance of
common stock in the Company's initial public offering during 1997.
As of December 31, 1997, the Company had cash and cash equivalents of
$4.7 million and working capital of $17.7 million.
During 1997, the Company generated $1.5 million of net cash from
operating activities as compared to $6.3 of net cash generated during
1996. The decrease in cash flow was due, in part, to the timing of the
collection of a $1.3 million account receivable in January 1996 and the
timing of costs incurred in advance of billings on certain projects,
combined with the growth in accounts receivable, unbilled revenues and
deferred revenues. The decrease in operating cash flow was also due to
the special compensation charge in the fourth quarter of $1.7 million in
connection with the Company's initial public offering.
Net cash used in investing activities was $12.1 million for 1997 and
$1.2 million for 1996. The 1997 increase in cash used by investing was
primarily due to the purchasing of investments available-for-sale, which
was offset by an investment of $341,000 in furniture, computer equipment
and production equipment to meet the expansion of the Company's business.
The 1996 use of cash was primarily a result of an increase in investments
available-for-sale and an investment of $272,000 in furniture, computer
equipment and production equipment. The Company's investments available-
for-sale consist principally of United States government securities with
maturities of two years or less.
Net cash provided by financing activities was $12.5 million for 1997,
compared to net cash used of $3.3 million in 1996. Net cash provided by
financing activities for 1997 was the result of the Company's receipt of
approximately $16.8 million of net proceeds from its initial public
offering. The primary use of cash for financing activities was S
Corporation distributions to shareholders of $4.3 million and $3.3 million
for 1997 and 1996, respectively.
The Company has budgeted approximately $400,000 for expenditures in
1998, to be funded through cash generated from operations. The Company
expects that capital expenditures during 1998 will be primarily for
telecommunications equipment, computer hardware, product equipment and
furniture.
The Company typically bills clients for projects before they have
been completed. Billed amounts are recorded as billings in excess of
costs or deferred revenue on the Company's financial statements and are
recognized as income when earned. As of December 31, 1997 and 1996, the
Company had $2.3 million and $2.2 million of deferred revenues,
respectively. In addition, when work is performed in advance of billing,
the Company records this work as a cost in excess of billings or unbilled
revenue. At December 31, 1997 and 1996, the Company had $560,000 and
$282,000 of unbilled revenues, respectively. Substantially all deferred
and unbilled revenues will be earned and billed, respectively, within 12
months of the respective period ends.
On October 16, 1997, the Company completed the initial public
offering of shares of its Common Stock, resulting in net proceeds to the
Company of approximately $16.8 million. The Company believes the net
proceeds of this offering together with cash flows from operations and
existing cash balances will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months.
Year 2000
The Company has completed an assessment and developed plans to
address issues related to the impact of the year 2000 on its computer
systems. Financial and operational systems have been assessed, and
initial plans have been developed to address the requirements. Many of
the software programs used by the Company are already compliant with the
requirements of year 2000 processing. The remaining systems are currently
being upgraded to new vendor versions which, in addition to providing
increased functionality, will address the year 2000 issue. All of these
upgrades are expected to be completed prior to any anticipated impact of
the year 2000 on the Company's operations. The financial impact of
upgrading software is not expected to be material to the Company's
consolidated financial position, results of operations or cash flow.
Accounting Pronouncements
Statements of Financial Accounting Standards ("SFAS") 130, Reporting
Comprehensive Income, and SFAS 131, Disclosures about Segments of an
Enterprise and Related Information, were issued in June, 1997. SFAS 130
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general-purpose financial
statements. SFAS 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas and major customers. Both SFAS
130 and SFAS 131 are effective for periods beginning after December 15,
1997. The Company anticipates adopting these accounting pronouncements in
1998; however, management believes that they will not have a significant
impact on the Company's financial statements. SFAS 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, was issued
in February 1998 and is effective for fiscal years beginning after
December 15, 1997. SFAS 132 revises disclosure requirements for pension
and other postretirement benefits plans. The Company does not expect any
impact on its financial statements due to SFAS 132 because the Company
does not sponsor defined benefit or other postretirement benefits covered
by this accounting standard.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data
Quarterly Financial Data (Unaudited)
Selected quarterly financial information for the fiscal years ended
December 31, 1997 and 1996 is as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
Quarter
Ended
Dec. Sept. June Mar. Dec. Sept. June Mar.
31, 30, 30, 31, 31, 30, 30, 31,
1997 1997 1997 1997 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Renewable performance tracking services . . . . $3,800 $3,433 $3,083 $2,871 $2,936 $2,320 $2,191 $2,122
Renewable syndicated services . . . . . . . . . 462 852 103 341 252 923 19 82
Custom and other research . . . . . . . . . . . 341 446 324 228 459 397 452 447
------- ------- ------ ------- ------- ------ ------ -------
Total revenues . . . . . . . . . . . . . . . 4,603 4,731 3,510 3,440 3,647 3,640 2,662 2,651
Direct expenses . . . . . . . . . . . . . . . . . 1,840 2,327 1,618 1,393 1,432 1,926 1,195 1,132
Selling, general and administrative . . . . . . . 1,149 995 886 951 1,064 677 659 660
Depreciation and amortization . . . . . . . . . . 37 43 37 42 60 41 36 36
Special compensation charge . . . . . . . . . . . 1,740 -- -- -- -- -- -- --
------- ------- ------ ------- ------- ------ ------ -------
Operating income (loss) . . . . . . . . . . . . . (163) 1,366 969 1,054 1,091 996 772 823
Other income and expenses, net . . . . . . . . . 215 55 52 45 45 32 38 37
Provision for income taxes . . . . . . . . . . . 376 -- -- -- -- -- -- --
Pro forma income taxes (benefit)(1) . . . . . . . (613) 568 408 440 455 411 324 344
------- ------- ------ ------- ------- ------ ------ -------
Pro forma net income(1) . . . . . . . . . . . . . $ 289 $ 853 $ 613 $ 659 $ 681 $ 617 $ 486 $ 516
======= ======= ====== ======= ======= ====== ====== =======
Pro forma net income per share - basic
and diluted(1) . . . . . . . . . . . . . . . . $ 0.04 $ 0.14 $ 0.10 $ 0.11 $.011 $0.10 $ 0.08 $ 0.08
Weighted average shares outstanding -
basic and diluted(2) . . . . . . . . . . . . . 7,195 6,185 6,185 6,185 6,185 6,185 6,185 6,185
_______________________
(1) From August 1, 1994 through October 13, 1997, the Company was an S Corporation and, accordingly, was not subject to
Federal and state income taxes for any of the quarterly periods presented, except from October 14, 1997 to December 31,
1997. Pro forma net income reflects a pro forma tax provision at a combined Federal and state rate of 40% for the
periods the Company was an S Corporation as if it had been a C Corporation.
(2) Includes 129,812 shares of Common Stock which, had they been issued (at $13.95 per share, the initial public offering
price less the underwriting discount), would have generated cash sufficient to fund the portion of the estimated S
Corporation distributions and special (cash) compensation expense that are in excess of the Company's 1996 net income.
See Note 1 to the Company's Financial Statements.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Research Corporation:
We have audited the accompanying balance sheets of National Research
Corporation as of December 31, 1997 and 1996 and the related statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Research
Corporation as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Lincoln, Nebraska
February 6, 1998
<PAGE>
NATIONAL RESEARCH CORPORATION
Balance Sheets
December 31, 1997 and 1996
Assets 1997 1996
Current assets:
Cash and cash equivalents . . . . . . . $ 4,688,352 $ 2,782,212
Investments in marketable debt
securities . . . . . . . . . . . . . 13,220,553 1,476,965
Trade accounts receivable, less
allowance for doubtful accounts of
$62,808 and $45,000 in 1997
and 1996, respectively . . . . . . . 3,094,772 1,216,812
Unbilled revenues . . . . . . . . . . . 559,856 282,358
Prepaid expenses and other . . . . . . 184,156 46,022
Deferred income taxes . . . . . . . . . 127,225 -
----------- -----------
Total current assets . . . . . . . . 21,874,914 5,804,369
----------- -----------
Property and equipment:
Furniture and equipment . . . . . . . . 382,654 291,514
Computer equipment . . . . . . . . . . 681,563 481,055
----------- -----------
1,064,217 772,569
Less accumulated depreciation and
amortization . . . . . . . . . . . . . 544,262 434,937
----------- -----------
Net property and equipment . . . . . 519,955 337,632
----------- -----------
Deferred income taxes . . . . . . . . . . 155,775 -
Other . . . . . . . . . . . . . . . . . . 12,482 10,657
----------- -----------
Total assets . . . . . . . . . . . . $22,563,126 $6,152,658
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
expenses . . . . . . . . . . . . . . $615,930 $494,614
Accrued wages, bonuses and profit
sharing . . . . . . . . . . . . . . . 1,161,917 764,784
Dividends payable . . . . . . . . . . . - 359,384
Income taxes payable . . . . . . . . . 118,000 -
Billings in excess of revenues
earned . . . . . . . . . . . . . . . . 2,297,751 2,168,026
----------- -----------
Total current liabilities . . . . . 4,193,598 3,786,808
Bonuses and profit sharing accruals . . . 248,684 286,443
----------- -----------
Total liabilities . . . . . . . . . 4,442,282 4,073,251
----------- -----------
Shareholders' equity:
Preferred stock, $.01 par value;
authorized 2,000,000 shares no shares
issued and outstanding . . . . . . . . - -
Common stock, $.001 par value;
authorized 20,000,000 shares, issued and
outstanding 7,305,000 and 6,055,000 in
1997 and 1996, respectively . . . . . . 7,305 6,055
Additional paid-in capital . . . . . . 16,839,839 -
Retained earnings . . . . . . . . . . . 1,273,700 2,073,352
----------- -----------
Total shareholders' equity . . . . . 18,120,844 2,079,407
----------- -----------
Commitments and contingencies
Total liabilities and shareholders'
equity . . . . . . . . . . . . . . . $22,563,126 $6,152,658
=========== ==========
See accompanying notes to financial statements.
<PAGE>
NATIONAL RESEARCH CORPORATION
Statements of Income
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Renewable performance
tracking services . . . . $ 13,187,685 $ 9,568,915 $ 6,839.410
Renewable syndicated service 1,757,691 1,276,423 493,416
Custom and other research . 1,338,757 1,754,895 1,584,533
----------- ----------- ----------
Total revenues . . . . . 16,284,133 12,600,233 8,917,359
----------- ----------- ----------
Operating expenses:
Direct expenses . . . . . . 7,178,408 5,685,200 3,494,706
Selling, general and
administrative . . . . . 3,980,316 3,060,189 2,364,269
Depreciation and amortization 159,013 173,148 119,093
Special compensation charge 1,740,000 - -
---------- ---------- ---------
Total operating expenses 13,057,737 8,918,537 5,978,068
---------- ---------- ---------
Operating income . . . . 3,226,396 3,681,696 2,939,291
---------- ---------- ---------
Other income:
Interest income . . . . . . 366,978 125,948 106,300
Other, net . . . . . . . . 55 26,484 1,651
---------- ---------- ---------
Total other income . . . 367,033 152,432 107,951
---------- ---------- ---------
Income before income
taxes . . . . . . . . 3,593,429 3,834,128 3,047,242
Provision for income taxes 376,000 - -
---------- ---------- ---------
Net income . . . . . . . $ 3,217,429 $ 3,834,128 $ 3,047,242
Pro forma information:
Net income . . . . . . . . $ 3,217,429 $ 3,834,128 $ 3,047,242
Pro forma income taxes . . 803,463 1,533,651 1,218,897
---------- ---------- ----------
Pro forma net income . . $ 2,413,966 $ 2,300,477 $ 1,828,345
========== ========== ==========
Pro forma net income per share
- basic and diluted . . . . . $ 0.37 $ 0.37
========== ==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
Statements of Shareholders' Equity
For the three years ended December 31, 1997
<CAPTION>
Additional
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 . . . . . $ 6,055 $ - $ 1,755,716 $ 1,761,771
$ -
Net income . . . . . . . . . . . . . . - - - 3,047,242 3,047,242
Dividends declared, $.49 per share . . - - - (2,979,448) (2,979,448)
------ ------- -------- ----------- ------------
Balances at December 31, 1995 . . . . . - 6,055 - 1,823,510 1,829,565
Net income . . . . . . . . . . . . . . - - - 3,834,128 3,834,128
Dividends declared, $.59 per share . . - - - (3,584,286) (3,584,286)
------ -------- -------- ---------- ----------
Balances at December 31, 1996 . . . . . - 6,055 - 2,073,352 2,079,407
Issuance of 1,250,000 shares of
common stock, net of offering
expenses . . . . . . . . . . . . . . - 1,250 16,839,839 - 16,841,089
Net income . . . . . . . . . . . . . . - - - 3,217,429 3,217,429
Dividends declared, $.55 per share . . - - - (4,017,081) (4,017,081)
------ -------- ---------- ---------- -----------
Balances at December 31, 1997 . . . . . $ - $ 7,305 $ 16,839,839 $ 1,273,700 $ 18,120,844
====== ======== ========== ========= ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,217,429 $ 3,834,128 $ 3,047,242
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 159,013 173,148 119,093
Loss on sale of property and equipment . . . . . . . . . . . . . . . - 32,837 -
Change in assets and liabilities:
Trade accounts receivable . . . . . . . . . . . . . . . . . . . . . (1,877,960) 1,695,310 (2,355,788)
Unbilled revenues . . . . . . . . . . . . . . . . . . . . . . . . . (277,498) (185,024) (97,334)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . (139,959) (21,412) 1,278
Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . (283,000) - -
Accounts payable and accrued expenses . . . . . . . . . . . . . . . 121,316 134,626 128,422
Accrued wages, bonuses and profit sharing . . . . . . . . . . . . . 359,374 402,788 449,724
Billings in excess of revenues earned . . . . . . . . . . . . . . . 129,725 279,872 488,969
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . 118,000 - -
Increase in cash surrender value of life insurance . . . . . . . . . - - (27,211)
---------- --------- ---------
Net cash provided by operating activities . . . . . . . . . . 1,526,440 6,346,273 1,754,395
---------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . . . . . . (341,339) (272,235) (160,923)
Purchases of securities available-for-sale . . . . . . . . . . . . . . (13,553,644) (4,154,720) (1,503,726)
Proceeds from the maturities of securities
available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . 1,810,058 3,265,000 1,650,000
---------- --------- ---------
Net cash used in investing activities . . . . . . . . . . . . (12,084,925) (1,161,955) (14,649)
---------- --------- ---------
Cash flows from financing activities:
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,376,464) (3,336,906) (2,709,572)
Payments on capital leases . . . . . . . . . . . . . . . . . . . . . . - - (12,301)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . 16,841,089 - -
Payments to acquire common stock . . . . . . . . . . . . . . . . . . . - - (29,106)
---------- --------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . . . . . . . . . . . . . 12,464,625 (3,336,906) (2,750,979)
---------- --------- ---------
Net increase (decrease) in cash
and cash equivalents . . . . . . . . . . . . . . . . . . . . 1,906,140 1,847,412 (1,011,233)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 2,782,212 934,800 1,946,033
--------- --------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 4,688,352 $ 2,782,212 $ 934,800
--------- --------- ----------
Supplementary information
Cash paid for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 431
======== ========= =========
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 541,000 $ - $ -
======== ========= =========
Noncash investing and financing activities:
In 1996, the Company assigned a life insurance policy to its majority shareholder and recorded a dividend of $178,236 for the
cash surrender value of the life insurance policy.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
NATIONAL RESEARCH CORPORATION
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Description of Business and Basis of Presentation
National Research Corporation (the "Company") is a provider of ongoing
survey-based performance measurement, analysis and tracking services to
the healthcare industry. The Company provides market research services to
hospitals and insurance companies on an unsecured credit basis. One
client accounted for 31.1%, 40.4% and 43.7% of total revenues in 1997,
1996 and 1995, respectively. This client canceled its contract for
performance measurement studies in December of 1997. Another client
accounted for 13.6% of total revenues in 1995. A third client accounted
for 15.1% of the total revenues in 1997. The Company operates in a single
industry segment.
Basis of Presentation
Pro Forma Net Income and Net Income Per Share - Pro forma net income and
pro forma income per share has been computed assuming that the Company had
been taxed as a C Corporation for Federal and state income tax purposes
for all periods presented. Pro forma income per share has been calculated
following the adoption of Statement of Financial Accounting Standards
(SFAS) 128, Earnings per Share, which has changed the method for
calculating income per share. SFAS 128 requires the presentation of
"basic" and "diluted" income per share data on the face of the income
statement. Prior period income per share data has been restated in
accordance with SFAS 128. Pro forma income per share is computed by
dividing net income by the weighted average number of common shares and
common equivalent shares outstanding during each period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 98, weighted average shares outstanding for 1997 and 1996 include the
pro forma effect of shares that would have had to have been issued (at
$13.95 per share, the initial public offering price less the underwriting
discount expense) to generate sufficient cash to fund the portion of the
approximately $5.6 million of S Corporation distributions and special
(cash) compensation expense that are in excess of the net income for the
year ended December 31, 1996. The weighted average shares outstanding is
calculated as follows:
Year ended Year ended
December 31, December 31,
1997 1996
Common stock . . . . . . . . . . . . . 6,309,728 6,055,000
Dilutive effect of assumed initial
public offering shares for
distribution . . . . . . . . . . . . . 129,812 129,812
--------- ---------
Weighted average common
shares - Basic . . . . . . . . . . . 6,439,540 6,184,812
Dilutive effect of options issued . . . 694 --
--------- ---------
Weighted average common shares and
common share equivalents
- Diluted . . . . . . . . . . . . . 6,440,234 6,184,812
========= =========
There are no reconciling items between the Company's reported pro forma
net income and pro forma net income used in the computation of basic and
diluted income per share.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Revenue Recognition
The Company derives a substantial majority of its operating revenues
from its annually renewable services, which include the NRC Listening
System ("Renewable Performance Tracking Services") and the NRC Healthcare
Market Guide ("Renewable Syndicated Service"). Under the NRC Listening
System, the Company provides interim and annual performance tracking to
its clients under annual client service contracts, although such contracts
are generally cancelable on short or no notice without penalty. Through
its syndicated NRC Healthcare Market Guide, the Company publishes
healthcare market information to its clients generally on an annual or
(prior to 1996) biannual basis. The Company also derives revenues from
custom and other research projects.
The Company recognizes revenues from its Renewable Performance Tracking
Services and its custom and other research projects using the percentage
of completion method of accounting. These services typically include a
series of surveys and deliverable reports in which the timing and
frequency vary by contract. Progress on a contract can be tracked
reliably and customers are obligated to pay as services are performed.
The recognized revenue is the percent of estimated total revenues that
incurred costs to date bear to estimated total costs after giving effect
to estimates of costs to complete based upon most recent information.
Losses expected to be incurred on jobs in progress are charged to income
as soon as such losses are known. Revenues earned on contracts in
progress in excess of billings are classified as a current asset. Amounts
billed in excess of revenues earned are classified as a current liability.
Client projects are generally completed within a twelve-month period.
The Company recognizes revenue on a completed contract basis for its
Renewable Syndicated Service contracts with its principal customers.
Characteristics of these contracts include durations of four to six
months, progress to completion cannot be reasonably defined, and various
intermediate steps in the process overlap in stages of progress for
different contracts. The Company defers direct costs of preparing the
survey data for the Renewable Syndicated Service. The Company recognizes
revenues and related direct costs for its Renewable Syndicated Service
upon delivery to its principal customers. Customers have no obligation to
pay for these services until the services are delivered. The Company
generates additional revenues from incidental customers subsequent to the
completion of each edition. Revenues and costs for these services are
recognized as the customization services are performed and completed.
Property and Equipment
Property and equipment is stated at cost. Major expenditures to
purchase property or to substantially increase useful lives of property
are capitalized. Maintenance, repairs and minor renewals are expensed as
incurred. When assets are retired or otherwise disposed of, their costs
and related accumulated depreciation are removed from the accounts and
resulting gains or losses are included in income.
The Company provides for depreciation and amortization of property and
equipment using annual rates which are sufficient to amortize the cost of
depreciable assets over their estimated useful lives of five to seven
years. The Company uses accelerated methods of depreciation and
amortization over estimated useful lives of five to seven years for
furniture and fixtures and three to five years for computer equipment.
Marketable Securities
All marketable securities held by the Company at December 31, 1997 and
1996 were classified as available-for-sale and recorded at cost, which
approximates market value. Unrealized holding gains and losses, net of
the related tax effect, on available-for-sale securities are excluded from
income and are reported as a separate component of shareholders' equity
until realized. Realized gains and losses from the sale of available-for-
sale securities are determined on a specific-identification basis. Fair
values are estimated based on quoted market prices.
Income Taxes
Effective August 1, 1994, the Company, with the consent of its
shareholders, elected under the Internal Revenue Code to be an S
Corporation. In lieu of corporation income taxes, the shareholders of an
S Corporation are taxed on their proportionate share of the Company's
taxable income. The Company terminated its S Corporation election on
October 13, 1997. Therefore, no provision or liability for federal income
taxes has been included in these financial statements for the period from
January 1, 1997 through October 13, 1997 and for the years ended December
31, 1996 and 1995. Income taxes have been provided on the Company's
taxable income from October 14, 1997 through December 31, 1997.
Upon the termination of its S Corporation election, the Company adopted
the asset and liability method of accounting for income taxes of Statement
of Financial Accounting Standards ("SFAS") No. 109, Accounting for Income
Taxes. (See also note 3.) Under that method, deferred income tax assets
and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases
using enacted tax rates. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances, if any, are
established when necessary to reduce deferred tax assets to the amount
that is more likely than not to be realized.
Stock Option Plans
The Company recognizes stock-based compensation expense for its stock
option plans using the intrinsic value method. Under that method, no
compensation expense is recorded if the exercise price of the employee
stock options equals or exceeds the market price of the underlying stock
on the date of grant. For disclosure purposes, pro forma net income and
income per share are provided as if the fair value method had been
applied.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments with original maturities of three months or less
to be cash equivalents.
(2) Investments in Marketable Debt Securities
The carrying value of available-for-sale securities by major security
type is shown below. Amortized cost approximates fair value.
December 31,
Debt securities: 1997 1996
Obligations of U.S. government
agencies . . . . . . . . . . . $13,219,350 $1,475,752
Other . . . . . . . . . . . . . . 1,203 1,213
---------- ---------
Total . . . . . . . . . . . . $13,220,553 $1,476,965
========== =========
There were no sales of marketable securities in advance of schedule
maturities of available-for-sale marketable debt securities during 1997,
1996 or 1995. All marketable debt securities have stated maturities of
two years or less.
(3) Income Taxes and Pro Forma Income Taxes
Income tax expense (benefit) for the period of October 14, 1997 through
December 31, 1997 consisted of the following components:
Current Deferred Total
Federal . . . . . . . . . . . . $553,000 $(237,000) $316,000
State . . . . . . . . . . . . . 106,000 (46,000) 60,000
-------- --------- --------
Total . . . . . . . . . . . $659,000 $(283,000) $376,000
======== ========= ========
Income tax expense for the period of October 14, 1997 through December
31, 1997 is based on taxable income of approximately $1,592,500. The
difference between the Company's income tax expense as reported in the
accompanying financial statements for 1997 and that which would be
calculated applying the U.S. Federal income tax rate of 34% on pretax
income is as follows:
Expected Federal income taxes . . . . . . . . . . . . . . . . $541,500
State income taxes, net of federal benefit . . . . . . . . . 70,100
Deferred tax benefits recognized upon termination
of the Company's S Corporation election . . . . . . . . . . (258,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,400
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $376,000
========
Deferred tax assets at December 31, 1997, were comprised of the
following:
Deferred tax assets:
Allowance for doubtful accounts . . . . . . . . . . . . . $24,500
Accrued expenses . . . . . . . . . . . . . . . . . . . . 102,725
Bonus and profit sharing accruals . . . . . . . . . . . . 155,775
-------
Total deferred tax assets . . . . . . . . . . . . . . . $283,000
=======
The Company did not record a valuation allowance for its deferred tax
assets because management believes that it is more likely than not that
the Company will generate sufficient taxable income to fully realize these
deferred tax benefits.
The accompanying statements of income reflect a provision for income
taxes on a pro forma basis, at a combined rate of 40% (Federal statutory
rate of 34% plus estimated state rate, net of federal benefit of 6%) as if
the Company was liable for Federal and state income taxes as a taxable
corporate entity throughout the periods presented.
The components of the provision for pro forma income taxes are as
follows:
Years ended December 31,
1997 1996 1995
Federal . . . . . $642,770 $1,226,921 $975,118
State . . . . . . 160,693 306,730 243,779
-------- ---------- ----------
Pro forma income
taxes . . . . . . $803,463 $1,533,651 $1,218,897
======== ========== ==========
(4) Common Stock
During 1997, the Company reincorporated in Wisconsin and paid a stock
dividend of approximately 239.5-to-1, the effects of which were given
retroactive effect in the accompanying financial statements. In
connection with the reincorporation, the Company also increased its
authorized common stock from 100,000 shares to 20,000,0000 shares and
authorized up to 2,000,0000 shares of undesignated preferred stock.
In August 1997, the Company decided to pay special cash bonuses
aggregating $1,740,000 to two executive officers prior to the termination
of its S Corporation status, with such bonuses intended to fund the
purchase of Company shares by such individuals in an initial public
offering ("IPO") of the Company's common stock. The related special
compensation expense of $1,740,000 was recognized by the Company in the
fourth quarter of 1997, concurrent with the completion of the IPO. The
special compensation expense reduced the amount otherwise available for
distribution to the Company's shareholders prior to the termination of its
S Corporation status.
On October 9, 1997, the Company completed its IPO by issuing 1,250,000
shares of common stock at a price of $15 per share. Net proceeds of
$16,841,089 were realized by the Company after deducting the underwriting
discount and offering expenses.
(5) Stock Option Plans
In August 1997, the Board of Directors adopted and the Company's
shareholders approved the National Research Corporation 1997 Equity
Incentive Plan (the "Equity Incentive Plan"). The Equity Incentive Plan
provides for the granting of options to purchase up to an aggregate of
730,000 shares of the Company's common stock through the date of the
Company's annual meeting of shareholders in the year 2001. Options
granted may be either nonqualified or incentive stock options. Vesting
terms vary with each grant, and option terms are five years. At December
31, 1997, there were approximately 562,870 shares available for issuance
pursuant to future grants under the Equity Incentive Plan.
In October 1997, the Board of Directors adopted and the Company's
shareholders approved the National Research Corporation Director Stock
Plan (the "Director Plan"). As amended in December 1997, the Director
Plan provides for formula grants of nonqualified options to each director
of the Company who is not an employee of the Company. On the date of each
annual meeting of shareholders of the Company, each such director, if
reelected or retained as a director at such meeting, is granted an option
to purchase 1,000 shares of the Company's common stock. Option exercise
prices equal the fair market value of the Company's common stock on the
date of grant. Options vest one year following the date of grant and may
be exercisable for a period of up to 10 years following the date of grant.
No options have been granted under the Director Plan. At December 31,
1997, there were 30,000 shares available for issuance pursuant to future
grants under the Director Plan.
Options to purchase 168,843 shares of common stock were granted
concurrent with the completion of the Company's IPO with exercise prices
equal to the IPO price of $15 per share. No compensation expense was
recorded on this grant. Had compensation cost for the Equity Incentive
Plan been determined using the fair value method, the Company's net income
and net income per share would have been reduced to the pro forma amounts
indicated below:
1997
Pro forma:
Net income, as reported . . . . . . . . . . . . . . . . $2,414
Net income, adjusted for the fair value method . . . . 2,332
Income per share, as reported (1) . . . . . . . . . . . $0.37
Income per share, adjusted for the fair value
method (1) . . . . . . . . . . . . . . . . . . . . . 0.36
(1) Amounts are the same for both basic and diluted income per share.
The weighted average fair value of options granted in 1997 was $6.16.
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense
over the vesting period, and additional options may be granted in future
years. The fair value for these options was estimated at the date of
grant using the Black-Scholes model with the following assumptions:
Expected dividend yield at date of grant . . . . . 0
Expected stock price volatility . . . . . . . . . . 45%
Risk-free interest rate in 1997 . . . . . . . . . . 6.00%
Expected life of options . . . . . . . . . . . . . 3.75
The following information relates to options to purchase common stock
under the Equity Incentive Plan for the year ended December 31, 1997:
Weighted
Average
Options Exercise Price
Granted . . . . . . . . . . . . . . . $168,843 $15
Forfeited . . . . . . . . . . . . . . (1,713) 15
-------- --------
Options outstanding, December 31, 1997 167,130 15
======== ========
Exercisable . . . . . . . . . . . . . -- $15
======== ========
(6) Leases
The Company leases office space for a monthly base rental payment plus
maintenance and utilities. The lease expired on April 30, 1997. Rental
expense was $253,034, $183,118 and $168,417 during 1997, 1996 and 1995,
respectively, and is included in selling, general and administrative
expenses in the statements of income.
On January 9, 1998, the Company executed a new lease commitment for its
existing office space which requires minimum rental payments of $199,311
in 1998 and $182,279 in 1999.
(7) Employee Benefits
During 1995, the Company established a qualified defined contribution
profit sharing plan covering substantially all employees with a minimum
service of 1,000 hours and one year of service except for highly
compensated employees covered by other nonqualified profit sharing plans.
Employer contributions, which are discretionary, vest to participants at a
rate of 20% per year. Total profit sharing expense was $97,402, $75,229
and $48,989 in 1997, 1996 and 1995, respectively.
The Company also sponsors nonqualified profit sharing bonus and
incentive plans for employees and members of executive management of the
Company. Certain bonuses under the executive management incentive plan
are paid over a five-year period. Expense recorded under these plans was
$607,877, $552,832 and $468,052 in 1997, 1996 and 1995, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item with respect to directors and
Section 16 compliance is included under the captions "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance",
respectively, in the Company's definitive Proxy Statement for its 1998
Annual Meeting of Shareholders ("Proxy Statement") and is hereby
incorporated herein by reference. Information with respect to the
executive officers of the Company appears in Part I, page 7 of this Annual
Report on Form 10-K.
Item 11. Executive Compensation
The information required by this Item is included under the captions
"Board of Directors-Director Compensation" and "Executive Compensation" in
the Proxy Statement and is hereby incorporated herein by reference;
provided, however, that the subsection entitled "Executive Compensation-
Report on Executive Compensation" shall not be deemed to be incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is included under the caption
"Principal Shareholders" in the Proxy Statement and is hereby incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is included under the captions
"Certain Transactions" and "Executive Compensation-Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement and is hereby
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial statements - The financial statements listed in
the accompanying index to financial statements and
financial statement schedules are filed as part of this
Annual Report on Form 10-K.
2. Financial statement schedules - The financial statement
schedules listed in the accompanying index to financial
statements and financial statement schedules are filed as
part of this Annual Report on Form 10-K.
3. Exhibits - The exhibits listed in the accompanying index to
exhibits are filed as part of this Annual Report on Form
10-K.
(b) Reports on Form 8-K
On December 3, 1997, the Company filed a Current Report on Form 8-K,
dated December 1, 1997, to report (under Item 5 of Form 8-K) the
issuance of a press release announcing that the Company's largest
client, Kaiser, informed the Company of its decision to select
another organization to perform its performance measurement studies
for 1998.
<PAGE>
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, on
this 25th day of March, 1998.
NATIONAL RESEARCH CORPORATION
By /s/ Michael D. Hays
Michael D. Hays
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Michael D. Hays President, Chief Executive March 25, 1998
Michael D. Hays Officer and Director
(Principal Executive Officer)
/s/ Patrick E. Beans Vice President, Treasurer, March 25, 1998
Patrick E. Beans Secretary, Chief Financial
Officer and Director
(Principal Financial and
Accounting Officer)
/s/ John N. Nunnelly Director March 25, 1998
John N. Nunnelly
/s/ Paul C. Schorr, III Director March 25, 1998
Paul C. Schorr, III
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
Page in this Form 10-K
Independent Auditor's Report 17
Balance Sheets as of December 31, 1997 and 1996 18
Statements of Income for each of the years in
the three-year period ended December 31, 1997 19
Statements of Shareholders' Equity for each of
the years in the three-year period ended
December 31, 1997 20
Statements of Cash Flows for each of the three years
in the period ended December 31, 1997 21
Notes to Financial Statements 22-28
Independent Auditor's Report on Financial Statement
Schedule 32
Financial Statement Schedule:
II - Valuation and Qualifying Accounts 33
All other financial statement schedules are omitted since the
required information is not present or is not present in amounts
sufficient to require submission of the schedules, or because the
information required is included in the consolidated financial
statements and notes thereto.
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors
National Research Corporation:
Under date of February 6, 1998, we reported on the balance sheets of
National Research Corporation as of December 31, 1997 and 1996, and the
related statements of income, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, which
are included in the Form 10-K. In connection with our audits of the
aforementioned financial statements, we also audited the related financial
statement schedule in the Form 10-K. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Lincoln, Nebraska
February 6, 1998
<PAGE>
<TABLE>
NATIONAL RESEARCH CORPORATION
Schedule II - Valuation and Qualifying Accounts
<CAPTION>
Balance at Write-offs, Balance
Beginning Bad Debt Net of at End
of Year Expense Recoveries of Year
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1995 . . . . . . . $10,000 $24,100 $ 9,100 $25,000
Year Ended December 31, 1996 . . . . . . . 25,000 30,764 10,764 45,000
Year Ended December 31, 1997 . . . . . . . 45,000 35,000 17,192 62,808
See accompanying independent auditors' report.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Description
(3.1) Articles of Incorporation of National Research
Corporation, as amended to date [Incorporated by
reference to Exhibit (3.1) to National Research
Corporation's Form S-1 Registration Statement
(Registration No. 333-33273)]
(3.2) By-Laws of National Research Corporation, as amended to
date [Incorporated by reference to Exhibit (3.2) to
National Research Corporation's Form S-1 Registration
Statement (Registration No. 333-33273)]
(10.1)* National Research Corporation 1997 Equity Incentive
Plan [Incorporated by reference to Exhibit (10.2) to
National Research Corporation's Form S-1 Registration
Statement (Registration No. 333-33273)]
(10.2)* National Research Corporation Director Stock Plan, as
amended to date
(10.3)* Employment Memorandum, dated as of July 15, 1994, from
National Research Corporation to Patrick E. Beans
[Incorporated by reference to Exhibit (10.5) to
National Research Corporation's Form S-1 Registration
Statement (Registration No. 333-33273)]
(10.4)* Employment Agreement, dated as of December 1, 1996,
between National Research Corporation and Sharon
Flaherty [Incorporated by reference to Exhibit (10.6)
to National Research Corporation's Form S-1
Registration Statement (Registration No. 333-33273)]
(10.5)+ Subcontract, dated as of May 9, 1997, as amended,
between National Research Corporation and United
HealthCare Corporation [Incorporated by reference to
Exhibit (10.7) to National Research Corporation's Form
S-1 Registration Statement (Registration No. 333-
33273)]
(10.6)+ Delivery Order and Task Order Addendum to the
Subcontract between United HealthCare and National
Research Corporation, dated as of December 23, 1997,
between National Research Corporation and United
HealthCare Corporation
(10.7) Lease, dated as of January 9, 1998, between National
Research Corporation and Gold's Limited Partnership
(27) Financial Data Schedule (EDGAR version only)
(99) Proxy Statement for the 1998 Annual Meeting of
Shareholders
[The Proxy Statement for the 1998 Annual Meeting of
Shareholders will be filed with the Securities and
Exchange Commission under Regulation 14A within 120
days after the end of the Company's fiscal year.
Except to the extent specifically incorporated by
reference, the Proxy Statement for the 1998 Annual
Meeting of Shareholders shall not be deemed to be filed
with the Securities and Exchange Commission as part of
this Annual Report on Form 10-K.]
_______________
* A management contract or compensatory plan or arrangement.
+ Portions of this exhibit have been redacted and are subject to a
confidential treatment request filed with the Secretary of the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended. The redacted material
is being filed separately with the Securities and Exchange
Commission.
NATIONAL RESEARCH CORPORATION
DIRECTOR STOCK PLAN
1. Purpose. The purpose of the National Research Corporation
Director Stock Plan (the "Plan") is to promote the best interests of
National Research Corporation (the "Company") and its shareholders by
providing a means to attract and retain competent independent directors
and to provide opportunities for additional stock ownership by such
directors which will further increase their proprietary interest in the
Company and, consequently, their identification with the interests of the
shareholders of the Company.
2. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Administrator"), subject to review by the Board of Directors (the
"Board"). The Administrator may adopt such rules and regulations for
carrying out the Plan as it may deem proper and in the best interests of
the Company. The interpretation by the Board of any provision of the Plan
or any related documents shall be final.
3. Stock Subject to the Plan. Subject to adjustment in
accordance with the provisions of paragraph 7, the total number of shares
of common stock, $.001 par value, of the Company ("Common Stock"),
available for issuance under the Plan shall be 30,000. Shares of Common
Stock to be delivered under the Plan shall be made available from
presently authorized but unissued Common Stock or authorized and issued
shares of Common Stock reacquired and held as treasury shares, or a
combination thereof. In no event shall the Company be required to issue
fractional shares of Common Stock under the Plan. Whenever under the
terms of the Plan a fractional share of Common Stock would otherwise be
required to be issued, there shall be paid in lieu thereof one full share
of Common Stock.
4. Eligible Directors. Each member of the Board who is not an
employee of the Company or any subsidiary of the Company ("Outside
Director") shall be eligible to receive shares of Common Stock under the
Plan.
5. Director Grants. On the date of the Company's 1998 annual
meeting of shareholders and thereafter on the date of each succeeding
annual meeting of shareholders of the Company ("Grant Date"), an Outside
Director, if reelected or retained as an Outside Director at such meeting,
shall automatically be granted a nonqualified stock option to purchase
1,000 shares of Common Stock. The option exercise price shall be the Fair
Market Value (as defined below) of a share of Common Stock on the Grant
Date, which shall be payable at the time of exercise in cash, previously
acquired shares of Common Stock valued at their Fair Market Value or such
other forms or combinations of forms as the Board or Administrator may
approve. The term "Fair Market Value" as used herein shall mean the last
sale price of the Common Stock as reported on The Nasdaq Stock Market on
the Grant Date, or if no such sale shall have been made on that day, on
the last preceding day on which there was such a sale.
An option may be exercised in whole or in part, from time
to time commencing one year after the Grant Date (the "Vesting Date"),
subject to the following limitations:
(i) If an Outside Director's status as an Outside
Director of the Company terminates because of death prior
to the Vesting Date, the option shall become immediately
exercisable in full and may be exercised for a period of
three years after the date of death.
(ii) If for any reason other than death an Outside
Director ceases to be an Outside Director of the Company
prior to the Vesting Date, the option shall be canceled as
of the date of such termination.
(iii) If an Outside Director ceases to be an
Outside Director of the Company for any reason after the
Vesting Date, the option shall expire ten years after the
Grant Date, or if earlier, three years after termination of
Outside Director status.
6. Restrictions on Transfer. Options granted under the Plan
shall not be transferable other than by will or the laws of descent and
distribution, except that an Outside Director may, to the extent allowed
by the Board or the Administrator, and in a manner specified by the Board
or the Administrator, (i) designate in writing a beneficiary to exercise
the option after the Outside Director's death or (ii) transfer any option.
7. Adjustment Provisions. In the event of any change in the
Common Stock by reason of a declaration of a stock dividend (other than a
stock dividend declared in lieu of an ordinary cash dividend), stock
split, spin-off, merger, consolidation, recapitalization or split-up,
combination or exchange of shares, or otherwise, the aggregate number of
shares available under the Plan, the number and kind of shares subject to
outstanding options and the exercise price of outstanding options shall be
appropriately adjusted in order to prevent dilution or enlargement of the
benefits intended to be made available under the Plan.
8. Amendment of Plan. The Board shall have the right to amend
the Plan at any time or from time to time in any manner that it may deem
appropriate; provided, however, that, to the extent that the Plan is
intended to qualify as a "formula plan" under Rule 16b-3 under the
Securities Exchange Act of 1934, as interpreted, the provisions of
paragraph 5 shall not be amended more than once every six months, other
than to comport with changes in the Internal Revenue Code of 1986, as
amended, the Employee Retirement Income Security Act of 1972, as amended,
or the rules thereunder.
9. Withholding. The Company may defer making payments under
the Plan until satisfactory arrangements have been made for the payment of
any federal, state or local income taxes required to be withheld with
respect to such payment or delivery. Each Outside Director shall be
entitled to irrevocably elect to have the Company withhold shares of
Common Stock having an aggregate value equal to the amount required to be
withheld. The value of fractional shares remaining after payment of the
withholding taxes shall be paid to the Outside Director in cash. Shares
so withheld shall be valued at Fair Market Value on the regular business
day immediately preceding the date such shares would otherwise be
transferred hereunder.
10. Documentation of Awards. Awards made under the Plan shall
be evidenced by written agreements or such other appropriate documentation
as the Board or the Administrator may prescribe. The Board and/or the
Administrator need not require the execution of any instrument or
acknowledgement of notice of an award under the Plan, in which case
acceptance of such award by the respective Outside Director will
constitute agreement to the terms of the award.
11. Governing Law. The Plan, all awards hereunder, and all
determinations made and actions taken pursuant to the Plan shall be
governed by the internal laws of the State of Wisconsin and applicable
federal law.
12. Effective Date and Term of Plan. The effective date of the
Plan is October 3, 1997. The Plan shall terminate on such date as may be
determined by the Board.
APPENDIX E
DELIVERY ORDER AND TASK ORDER ADDENDUM TO THE SUBCONTRACT
BETWEEN
UNITED HEALTHCARE
AND
NATIONAL RESEARCH CORPORATION
This Addendum to the Subcontract Between United HealthCare (UHC) and
National Research Corporation is effective 11/14/97, and is as follows:
1. The attached document is hereby incorporated into the Agreement:
a. Delivery Order No. 0011 - Order for Supplied or Services
issued by the Department of Defense to UHC on 12-19-97
b. Task Order No. 0011 issued by United HealthCare
UNITED HEALTHCARE NATIONAL RESEARCH CORPORATION
By /s/ By /s/ Patrick E. Beans
Title Vice President Title Vice President, Chief Financial Officer
Date 12-19-97 Date 12-23-97
<PAGE>
D/SIDDOMS Lot III
Contact Number DASW01-95-D-0029
Delivery Order Number 0011
Customer Satisfaction Survey
I. Introduction
United HealthCare's technical approach will meet the requirements and
objectives of the Customer Satisfaction Survey project as defined by
the Department of Defense (DoD). We will conduct an Outpatient
Satisfaction Survey on pre-selected bedded MTFs and freestanding
clinics in Europe and the United States, including Alaska and Hawaii.
The list of participating facilities and clinics will be provided to
United HealthCare by Health Affairs. The scope of work amounts to
approximately * MTFs and * clinics in the United States and Europe
combined. The specifics of our approach to the outpatient
satisfaction surveys are outlined below.
- We will design and mail a survey to a sample of patients seen in
the previous month and investigate satisfaction with specific
patient visits. Respondents will reply directly to United
HealthCare. We will process the reply forms and prepare one-
page reports for each medical treatment facility and aggregate
the reports for higher headquarters levels: Service
Intermediate Commands, Regional Lead Agents, Surgeon General
sand Health Affairs. Fundamental unit of analysis is the
individual clinic, which delivered the care.
- The sample will be restricted to those beneficiaries who
actually used the direct care system, specifically those who
received care at MTFs within the last 30 days. The survey will
focus on satisfaction with the services received. Survey
results will be reported on a monthly basis. This survey will
replace most of the ad hoc satisfaction surveys currently being
done locally at MTFs.
- We will prepare a one-page standardized report on customer
satisfaction for each clinic aggregated to the individual MTF,
Intermediate Command, Service Surgeon General (SG), Lead Agent
(LA) and OSD Health Affairs (HA) levels. Emphasis will be
placed on continued improvement to streamline procedures so
processing is achieved with a minimum impact on MTF routines
within prescribed schedules.
- We will provide data comparing military satisfaction with
civilian benchmark measures. Intermediate Commands are defined
as Army Regional Medical Commands (RMCs), Navy Health Services
Support Organizations (HSOs) and Air Force Major Commands
(MAJCOMs).
--------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to
Rule 24b-2.
II. Analysis Approach for Specific Tasks
The following tasks pertain to the project.
A. Task 1 -- Review sample methodology
We will review the sample methodology based on results of TASK TWO
mailing. Survey population includes patients seen at all clinics at U.S>
and European MTFs and freestanding outpatient facilities with more than *
monthly patient visits (approximately * clinics). A+/-*% margin of
sampling error at each clinic is the desired margin of error; however, the
sample size may vary depending on funds available. The maximum survey
mailings anticipated each month are * in the United States (based on Task
Two results) and * in Europe; anticipated response rate is approximately
*%. This amounts to approximately * completed surveys per * clinics or
approx. * completed surveys each month.
Health Affairs will provide United HealthCare with a spreadsheet listing
all participating MTFs and their respective clinics by number of monthly
outpatients visits, DMIS, MEPRS, CHCS & ADS code listings.
B. Task 2 -- Review individual reports
We will review the one-page, graphical, individual clinic report format.
Individual clinic reports must be aggregated for higher levels of
management: Health Affairs (HA), Service Surgeons General (SGs) and Lead
Agents (LA), Intermediate Commands and MTF Commanders, and include copies
of subordinate reports as detailed in the attachment. Reports will
indicate name of facility/clinic being surveyed and the sample size. The
reports will trend the facility/clinic against (1) itself; (2) other
clinics within the same MTF; (3) overall MHS wide averages, and
(4) civilian Health Maintenance Organizations (HMOs) benchmarks. The
reports will present scores from individual questions, composite scale
scores and overall satisfaction ratings.
We will prepare an Excel spreadsheet, which includes tabular data for all
levels of reports. This file will be sent with routine report package to
all levels.
________________________
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to
Rule 24b-2.
C. Task 3 -- Review electronic report submission
We will research and develop methods to record and transmit reports and
supporting spreadsheets electronically using the Health Affairs Web site
or other secure transmission methods. The purpose of this exercise is to
evaluate the feasibility and benefits of distributing the final reports
via electronic means in place of the current paper report formats. A
proposal outlining the results of the assessment as well as a description
of required tasks/costs for implementing the changes will be presented to
Health Affairs for review. Upon review, if electronic distribution of
reports is deemed more cost effective and efficient, actual implementation
of changes and steps to replace hard copy mailings will be further tasked
under separate technical proposal.
D. Task 4 -- Develop electronic summary report
Based on the outcome of Task 3, we will work with Health Affairs to design
an electronic summary report for the Web site. The report format will be
finalized and submitted electronically to Health Affairs for review and
approval.
E. Task 5 -- Review the procedures guide
We will review the Customer Satisfaction Survey Data Extraction Procedures
Guide when necessary to document current guidance and extract/transfer
software if changes are made during this period. If changes are made, we
will redistribute the guide via postal mail, fax or e-mail (where
possible) to information systems officers and by postal mail to MTF
Commanders and Health Affairs. An updated contact list of information
system officers with correct postal and e-mail addresses, commercial phone
numbers and fax numbers will be provided to United HealthCare by Health
Affairs.
A separate procedures guide will be provided to information systems
officers at MTFs located outside the continental United States (OCONUS):
We will distribute the guide via fax or e-mail (where possible) to the
appropriate information systems officers. A contact list of information
system officers at each European MTFs will be provided by Health Affairs.
List must contain most current postal and e-mail addresses, commercial
phone numbers and fax numbers.
F. Task 6 -- Review the process of transferring MTF data
We will review the patient data fields and means of data transfer from the
MTFs to the Ft. Detrick mainframe and continue to offer improvement
suggestions. Expansion of survey to branch/satellite clinics will be as
directed by the task manager to ensure budget is not exceeded. Cut off
for MTFs to respond is *.
Data that the MTFs must forward to United HealthCare via Ft. Detrick will
include, at a minimum, Initial Entry Number or IEN (sequential appointment
number), patient social security number (encrypted if preferred), patient
name (first, middle initial, last name), patient address (apartment # if
any, street address, city, state, zip code), sponsor name (last, first,
middle initial) if patient is a minor, sponsor address (if different from
patient address), sponsor social security number, patient's date of birth,
gender, rank, Family Member Prefix (beneficiary category), name of MTF,
name of clinic, branch of MTF (Army, Navy, Air Force), region number or
lead agent (1-13), name of clinic, MEPRS code, name of provider (first,
middle initial, last), type of provider (physician, nurse practitioner,
etc.), date of visit (ambulatory visit with past 30 days), and type of
visit (acute, chronic, routine).
------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
G. Task 7 -- CHCS/ADS data merge
In order to perform a statistically sound analysis, it is necessary that
data from both the Composite Health Care System (CHCS) and the Ambulatory
Data System (ADS) be combined to provide a data pool from which a random
sample can be drawn. CHCS and ADS data will be sent from each
participating MTF to Ft. Detrick separately.
Customer Service Division (CSD), Corporate Executive Information Systems
(CEIS) will match and merge Composite Health Care System (CHCS) data (as
the initial primary data source) with data from the Ambulatory Data System
(ADS). The CHCS and ADS data will be separately available monthly at the
Ft. Detrick computer system. This data will be merged into one file on
the Fort Detrick mainframe. The basis of the match will be DMIS ID CODE
and Initial Entry Number (IEN). In addition to combining the CHCS and ADS
data, CSD will remove specified clinics and individuals from the sampling
frame. For example, CSD will run a program to select only the MTFs (using
DMIS ID number) and clinics (using MEPRS code) that were pre-identified
for participating in this study. CSD will also run a program to eliminate
all mental health and substance abuse patient visits and to eliminate
records of patients 17 years or younger who visited an OB/GYN clinic.
Further, CSD will, under the Medical Command's direction, store and
transmit the final data set to an agreed upon medium and provide any
further analysis of the collected data.
Directorate of Information Management (DOIM), Fort Detrick will provide
data storage and processing space on the main frame computer and will
assist in problems that may arise pertaining to usage of the mainframe.
CHCS data (as the primary data source) will be supplemented whenever
possible by data from the Ambulatory Data System (ADS) according to one of
three scenarios. Again, the link is the DMIS ID-IEN combination.
1) Both CHCS data and ADS data on the same appointment exist - When
CSD merges CHCS and ADS data sets, patient records will be updated to
reflect name of provider patient actually saw and whether patient
kept the appointment. This will ensure that the survey questionnaire
correctly identifies the person who provided the care and that the
patient kept his/her appointment.
2) CHCS data exists but there is no corresponding ADS data - This
will occur frequently until ADS is deployed throughout the MHS. UCH
will use CHCS data for sampling and mailing.
3) CHCS data does not exist but ADS data does - This will occur
infrequently, most likely for "walk-in" visits which were not
properly input after the fact into CHCS. UHC will sample from ADS
data only when it is sufficiently complete; otherwise we will ignore
the ADS data.
When ADS is fully deployed, CHCS information will become the secondary
data collection system in the operation of the Customer Satisfaction
Survey.
H. Task 8 -- Pull random sample
From this universe of patients, we will conduct a random ] of patient data
and generate a list of patients who will ultimately receive the
questionnaire. The basis of the larger universe is *% of the original
patient data (appointment data with *). A magnetic tape (CD ROM)
containing the sampled data will be transferred via overnight delivery
from Ft. Detrick to United HealthCare. When patient information is
available, the contractor will identify and eliminate patients who have
been surveyed in the prior month.
I. Task 9 -- Reproduce customized surveys
We will reproduce the customized cover letter sand questionnaires
including name of the MTF, name of the clinic, date of patient's visit and
provider's name. In order to maximize customer response, all patient
identifying data will be included on a cover letter/tear sheet from the
Assistant Secretary of Defense (Health Affairs) and appropriate Service
Surgeon General and not on the questionnaire. We will comply with all
provisions of the Privacy Act in designing, mailing and processing patient
questionnaires. Number of surveys mailed (and resulting margin of
sampling error) will be closely coordinated with the Task Manager so that
budget ceiling is not exceeded.
J. Task 10 -- Mail surveys in United States
* We will use first class mail insuring that maximum U.S. Postal Service
discounts are obtained via appropriate sorting, bundling and bar coding.
- Prior to "System of Record Notice" Processing as directed by Task
Manager, we will purge all patient and provider identifying data from
our records (including social security numbers, provider names,
patient and sponsor names and street addresses, and IENs) *. We will
not maintain database which tracks if patients have or have not
responded to a questionnaire. We will purge all provider specific
identification from the data file at the same time the patient
identifiers are purged. We also will not maintain a response
database that includes provider identification.
- After "System of Record Notice" process is complete, as notified by
the Task Manager, we will maintain a temporary data file to indicate
if a patient has received or responded to a questionnaire for the
purposes of determining if a * is necessary and to identify
individuals who should be eliminated from subsequent month's sample.
We will purge all patient-specific data *. We will retain provider
name, rank and specialty information in the response database.
------------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
K. Task 11 -- Process completed surveys and maintain data
We will input answers from the completed surveys into a data file after
they are returned within the designated response period. We will be
prepared to maintain at least five years of raw patient response data
(excluding written comments data) in standard format (such as DBF); paper
survey form responses will be destroyed after information has been entered
into the computer and quality checks are complete (no more than 10 days
after data is entered).
L. Task 12 -- Forward written comments to MTFs
We will forward written comments directly to MTFs by detaching patient
comments found on separate sheets of paper and will not retain any forms
of these comments. No analysis of comments is required. Questionnaires
will include a statement informing the respondent that the written
comments will be forwarded to the Commanding Officer of the MTF that
provided the care. Those written comments made by individuals where the
appropriate MTF cannot be identified will be forwarded to the Task
Manager.
M. Task 13 -- Generate and mail paper reports
We will generate paper reports based on * of appointment data and mail
reports directly to MTF Commanders or other designated individual in each
MTF. For example, in *, we will report on * U.S. appointment data. For
European survey efforts, in *, we will report on * appointment data.
Reports for U.S. MTFs will show trending information and include
appropriate comparisons/benchmarks with civilian Health Maintenance
Organizations. Reports for European MTFs will show trending information
and only include comparisons against MHS averages. The "rolling" *
averages are required to maintain statistical significance. We will
implement actions, to include added clinics or MTFs and/or specific
increased mailings, to boost response rates that consistently lag
below*%.
_____________________
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separate;y with the SEC pursuant to Rule
24b-2.
We will prepare paper reports aggregating the MTFs under their
jurisdictions to Intermediate Commands, Lead Agents, Service Surgeons
General and OSD Health Affairs, see attachment which details reports to be
sent to each activity.
N. Task 14 -- Generate and mail electronic reports
We will provide a spreadsheet file monthly with response rate information
to the Task Manager 5 days after survey response cut off date. File to
include military Service, Region, Intermediate Command, DMIS ID, MTF name,
clinic name and MEPRS code, appointment month and year, number of surveys
mailed, number surveys that were undeliverable, number of surveys
received, and response rate percentage.
We will provide a spreadsheet file monthly to Health Affairs and the
Service Surgeons General with MTF level response distribution for each
question.
We will forward an Excel format diskette or CD ROM (depending on size of
files) to OSD Health Affairs along with quarterly raw response date (DBF
format) and reports which includes tabular data (including referenced
benchmark numbers) contained on all reports. We will also forward raw
response data for that quarter in Excel format on diskette to the MTF
Commander. No raw data files will include provider names or specialties
until "System of Record Notice" is processed, as notified by the Task
Manager. Once approval is issued, provider information will be included
only on the MTF data files and the central contractor data files. These
files and diskettes will be marked "Sensitive - For Official Use Only",
and be protected in accordance with the Privacy Act.
O. Task 15 -- Research/Implementation of expansion to European MTFs
MTFs located in Europe will be included in the survey efforts post a
three-month development period. The number of MTFs outside the United
States is estimated at *, with a total of approximately * clinics. Scope
may include approximately 10 European nations. Due to unique differences
in the processes for these MTFs, they will be processed separately and an
additional 30 days may be added to the scheduled delivery. Reports will
trend the clinic against itself and other clinics in that MTF, as well as
against overall European Region and overall MHS comparisons.
During the development period, we will investigate the system capabilities
and assess the technical processes for transferring data from the European
MTFs to Ft. Detrick. We will compare the data formats required for
European MTF systems to the US files in order to develop a separate
procedures guide for these European MTFs. We will select at least two
MTFs to test the data transfer process prior to distribution of the
procedures guide.
Health Affairs will provide United HealthCare with a final list of all
participating Region 13 clinics that meet the survey criteria (clinics
with * or more outpatient visits per month), as well as contact names and
phone numbers/e-mail addresses for each of the CHCS/ADS system site
representatives at each MTF.
____________________
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
During the development period, we will test and finalize the process for
distributing surveys to sample members in Europe. Health Affairs will
designate a European MTF to serve as the centralized distribution point
for mailing the surveys to sample members. Health Affairs will provide
names, phone/fax number and e-mail addresses of designated contacts in the
European MTF. Surveys for European mailing will be printed, sorted,
placed in envelopes, and boxed in the United States. Box of ready-to-mail
surveys (minus postage, which is to be provided by the government) will be
shipped to designated contact(s) at European MTF. Contact(s) will mail
surveys to European sample and collect returned surveys. Box of completed
surveys will be shipped to subcontractor in the United States. During
this time, we will also investigate other options for mailing and
distribution the surveys along with associated postal costs. This
exercise includes an assessment of using "business reply" type envelopes
in Europe to increase number of returned surveys.
Actual implementation of survey efforts in Europe will become operational
upon completion of the development/testing period.
P. Task 16 -- Research of expansion to Latin America and Asia
We will investigate and test procedure options to incorporate all
remaining MTFs in Latin America and Asia, which meet the survey criteria
(clinics with * or more outpatient visits per month). Health Affairs
will provide United HealthCare with a final list of all participating MTFs
and clinics in Latin American and Asia, as well as contact names and phone
numbers/.e-mail addresses for each of the CHCS/ADS system site
representatives at each MTF.
Q. Task 17 -- Provide benchmark data
Annually, the contractor shall make available to the Intermediate
Commands, Lead Agents, Surgeons General and Health Affairs CD-ROM copies
of the benchmark data set.
R. Task 18 -- Provide operational items
We will provide labor, postage, processing and computing, and work
facilities for mailing efforts to MTFs within the United States.
------------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
III. Period of Performance
The Period of Performance for this delivery order is from 13 Nov 97 (per
verbal approval to proceed) to 31 Jan 99 -- * survey "cycles" to be
executed throughout the contact period for US survey efforts. * survey
"cycles" to be executed throughout the contract period for European survey
efforts. A cycle begins with the last day of an appointment month (=A).
A cycle is defined as monitoring and facilitating the transfer of CHCS and
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
ADS data from MTFs to the Ft. Detrick mainframe (A-* days), combining the
CHCS and ADS data and drawing the random sample (A + *), mailing
questionnaires to patients A + *), receiving completed surveys back from
patients (A + *), and preparing and distributing the various reports (A +
*).
IV. Schedule and Deliveries
The following table details estimated completion of tasks and
deliverables. Due dates are stated in terms of work days.
Deliverable # of copies Due Date
Draft OCONUS Procedures Guide 2 ea for all *
Final OCONUS Procedures Guide 2 ea for all *
Webpage (electronic) Summary Report 1 for HA *
Monthly Survey Reports (See Attached) See attachment See Attachment
Deadlines falling on non-business days throughout this document shall be
extended until the next business day(s).
PAPER REPORTS:
Monthly reports are due * days following the last day of the appointment
month (i.e.--* appointments due *) for US survey efforts. For European
MTFs, reports are due * following the last day of the appointment month.
Note: Ability to meet dates is contingent on receiving all and complete
data from MTFs by the * post the month of appointment data.
-----------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
Reports on U.S. MTFs (* data collection cycles and * reporting periods)
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
Reports on Europe MTFs (* data collection cycles and * reporting periods)
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
ELECTRONIC REPORTS:
All raw response data must be segregated by month. Patient identifiable
data has been purged in Task 10.
MONTHLY -- Spreadsheets, database files with reports and raw data,
distributed as defined in attachment.
ANNUALLY -- Intermediate Commands and above receive the civilian benchmark
data set.
V. Delivery Order Management
Kathia Kennedy will be the United HealthCare Delivery Order Manager. She
will provide technical management and liaison services with the government
to ensure that all requirements are met. Ms. Kennedy reports to Ms. Lori
McDougal, who serves as the United HealthCare-D/SIDDOMS Lot III Contract
Manager.
VI. Level of Effort
One work day is defined as 8 hours; one work week is defined as 40 hours.
A. Staffing
Labor Category Hours
Expert *
Program Manager *
Task Manager *
Sr. Systems Analyst *
Systems Analyst *
Clerical *
TOTAL DIRECT LABOR HOURS *
_______________________
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to Rule
24b-2.
VII. Proprietary Information Statement
The government will retain rights to all intellectual property produced in
the course of developing, deploying, conducting and reporting the survey.
We will negotiate agreements with commercial system vendors relating to
non-disclosure of vendor-proprietary information.
The subcontractor, National Research Corporation (NRC), will provide the
HealthCare Market Guide Report Card Series benchmark data and the Report
Card System software for Government use to compare performance against
civilian benchmarks. This information was developed exclusively at
private expense and is confidential and proprietary to National Research
Corporation. National Research Corporation grants the Government only
Limited right to this information and retains the rights to license the
information and does not transfer any ownership right of the benchmark
data or the Report Card System software. National Research Corporation
also retains all rights to the original format of the questionnaire,
including the original questions, and original format of the Action Plan
Report Card, which were developed exclusively at private expense, and is
granting only the rights to the modified versions of these documents that
were prepared specifically for this project.
VIII. Security Requirements
Classified materials or locations are not associated with this order. All
data, which could be construed as being covered by the Privacy Act, will
be protected accordingly and is releasable only to organizations within
the Department of Defense as designated by the Task Manager. Media with
Privacy Act information including result data will be stored in cabinets
or storage areas when not being used and are placed in a locked container
or space within a building that is secured after hours. Only authorized
personnel who have received Privacy Act training are permitted access to
information in the system.
IX. Place of Performance
The place of performance for this delivery order will be at designated
United HealthCare and subcontractor's facilities.
<PAGE>
APPENDIX E-1
ORDER FOR SUPPLIES OR SERVICES
(Contractor must submit four copies of invoice.)
Public reporting burden for this collection of information is estimates to
average 1 hour per response, including the time for reviewing
instructions, searching existing data sources, gathering and maintaining
the data needed, and completing and reviewing the collection of
information. Send comments regarding this burden estimate or any other
aspect of this collection of information including suggestions for
reducing this burden, to Department of Defense, Washington Headquarters
Services, Directorate for Information Operations and Reports, 1215
Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the
Office of Management and Budget, Paperwork Reduction Project (0704-0187),
Washington, DC 20503.
PLEASE DO NOT RETURN YOUR FORM TO EITHER OF THESE ADDRESSES.
SEND YOUR COMPLETED FORM TO THE PROCUREMENT OFFICIAL
IDENTIFIED IN ITEM 6.
1. Contract/Purch Order No.
DASW01-95-D-0029
2. Delivery Order No.
0011
3. Date of Order
97DEC19
4. Requisition/Purch Request No.
HT0003-7311-2002
5. Priority
S10
6. Issued By Code - W74V8H
DEFENSE SUPPLY SERVICE - WASHINGTON
5200 Army Pentagon
Room 1D245 Pentagon
Washington, D.C. 20310-5200
Kathy Jones XOJ (703) 681-6372
7. Administered by (If other than 6) Code - S2401A
DCMAO Twin Cities
3001 Metro Drive
Bloomington, MN 55425-1573
8. Delivery FOB
DEST
9. Contractor - Vender Id: 00011849 Code - 02XQ3 FACILITY CODE [_]
United Healthcare Corporation
9900 Bren Road East
Minnetonka, MN 55143
10. Deliver to FOB Point By (Date)
[Blank]
11. Mark if Business Is
[Blank]
12. Discount Terms
0% 00 Days Net 030
13. Mail Invoices To
See Block 15
14. Ship To Code - [Blank]
DASW0195D0029
15. Payment Will Be Made By Code - S2603A
DFAS COLUMBUS CENTER
Gateway Contract Acctg Div
P. O. Box 192251
Columbus, OH 43218-2251
16. Type of Order
Delivery - This delivery order is issues on another Government agency
or in accordance with and subject to terms and conditions of above
numbered contract.
17. Accounting and Appropriation Data/Local Use
AA:9780130.1884 8623 2522 (APC: 95L5) 012123 DRAC 82002
Award Oblig Amt US$ 3,286,164.00
18. Item No.
[Blank]
19. Schedule of Supplies/Service
Contractor shall provide services for the tasking "Customer
Satisfaction Survey". Svcs shall be IAW task statement and accepted
change per UHC's tech/cost proposal dtd Dec 9, 1997, copies of which
are in possession of both parties. Verbal authorization to commence
work on 14 Nov 97. Period of performance is 14 Nov through 30 Oct
98.
SEE CONTINUATION SHEET
20. Quantity Ordered/Accepted
[Blank]
21. Unit
[Blank]
22. Unit Price
[Blank]
23. Amount
[Blank]
24. United States of America
By: Angela R. Harris
Contracting/Ordering Officer
25. Total
$3,286,164.00
26. Quantity in Column 20 Has Been
[Blank]
27. Ship No.
[Blank]
28. D.O. Voucher No.
[Blank]
29. Differences
[Blank]
30. Initials
[Blank]
31. Payment
[Blank]
32. Paid By
[Blank]
33. Amount Verified Correct For
[Blank]
34. Check Number
[Blank]
35. Bill of Lading No.
[Blank]
36. I certify this account is correct and proper for payment
[Blank]
37. Received At
[Blank]
38. Received By
[Blank]
39. Date Received (YYMMMDD)
[Blank]
40. Tot. Containers
[Blank]
41. S/R Account Number
[Blank]
42. S/R Voucher No.
[Blank]
<PAGE>
APPENDIX E-2
UNITEDhealthcare
DASW01-95-0029
Issued By:
United HealthCare
P.O. Box 1459
MN008-W125
Minneapolis, MN 55440-1459
Subcontract Take Order No. 0011
This is Subcontract Take Order No. 0011, issued to National Research
Corporation, for assistance in performance of Prime Contract Delivery
Order No. 0011. The following specifications are material to performance
and delivery under this work assignment:
a) Description of the work to be performed
The Subcontractor, NRC, shall provide services in accordance with the
Technical Proposal titled "Customer Satisfaction Survey", a copy of
which is in possession of both parties. NRC, with input from UCH and
the DoD, will be responsible for design/formatting of the survey
instrument and design/formatting of the reporting format for all
levels. NRC provides all materials and performs all activities
related to the mailing, processing of the surveys and reporting of
results. NRC's involvement includes:
- The use of NRC's personalized 11"x17" survey (approximately
* questions) with integrated cover letter and one common logo
for all MTFs. Survey instrument should focus on patient
satisfaction with their clinic visit and with their experience
obtaining that appointment.
---------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
- Electronic data entry using image scanners.
- * First class mail is to be used insuring that maximum
U.S. Postal Service discounts are obtained via appropriate
sorting, bundling and bar coding.
- *
- *
- *
--------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
- Development of a one-page, graphical, standard individual clinic
report format to be reviewed and finalized within the MHSS.
Individual clinic reports will be aggregated for higher levels
of management (MTFs, Air Force Command, Navy Commands, Army
Commands, Service Surgeon Generals, Lead Agents and Health
Affairs) and include copies of subordinate reports as detailed
in the attachment. Reports will indicate name of
facility/clinic surveyed and the sample size. The reports will
compare the facility/clinic against itself from the last
reporting period other clinics within the same community,
hospital or MTF, overall MHSS wide averages, and civilian HMOs.
The reports will present scores from individual questions,
composite scales scores and overall ratings, such as likelihood
to recommend hospital/clinic. Individual reports will show
trending information. NRC will mail these reports directly to
the MTF Commanders and designated higher levels. An excel
spreadsheet will be provided to Health Affairs which contains
tabular data provided in all levels of reports; this file will
be sent with routine report package to Health Affairs.
- Integration of local benchmark data from the 1997 NRC Healthcare
Market Guide Report Card Series.
- NRC will reproduce customized surveys including the name of the
MTF, name of the clinic, and date of the patient's visit. NRC
will purge all patient/sponsor and provider identifying data
(IEN, social security numbers, name, address, provider ssn,
provider names) from the records *.
---------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
- NRC will process the completed surveys after they are turned.
NRC will be prepared to maintain at least five years of data,
and maintain all data in standard data format, such as SAS, DBT
or SPSS portable. NRC will provide and mail copies of the raw
patient response data in DBF file format, Adobe files of each
applicable report, and a means score spreadsheet of the
applicable reports via CD ROM to selected Health Affairs (HA),
Service Surgeons General (SG), Lead Agent (LA), MAJCOM, Navy
Command and MEDCOM personnel for individual analyses at the end
of each survey cycle period. NRC will provide one additional
copy of all raw patient response data in DBF file format via
CD ROM to UHC.
- NRC will provide and mail copies of the raw patient response
data in Excel, Adobe files of the MTF report and corresponding
clinic reports and a means score spreadsheet for that MTF and
each of its respective clinics via 3.5" diskettes to the MTF
Commanders. Each MTF mailing will include an MTF report, the
individual clinic reports for that MTF, the written comments,
and the raw patient response data in Excel on a 3.5" diskette
and forward to UHC.
- NRC will assist (where necessary) in the development of methods
for electronic submission of monthly reports and designing an
electronic summary report for the Health Affairs Web site.
No raw data files will include provider names or provider specialty
information until "System Notice" is approved, as notified by the
Task Manager. Once approval is issued, provider information will be
included ONLY on the MTF data files.
Key Personnel - David Johnson, David Copper, Jonathan Boumstein,
Michael Ackland, Robert Bergman, Michael Hayes and Marvin Lambie.
b) Period of Performance - From Date of 14 November 1997 to 10/30/98.
c) Project Management - Kathia Kennedy will be the UHC Project Manager
and point of contact for this delivery order.
d) Schedule of Deliverables
- Provide one page Action Plan reports for the following: Maximum
of * Individual Clinic Reports in any * period (* copy each);
* MTF Reports (* copies each); * Service Branch Reports
(* copies each); * Regional Reports (* copies each); * Air Force
Command Reports (* copies each); * Army Command Reports
(* copies each); * Navy Command Reports (* copies each);
* Overall U.S. Summary Report (* copies each). Number of
individual clinic and MTF reports are based upon quantity of
valid records received from MTFs.
___________________
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to
Rule 24b-2.
- For European region, provide one page Action Plan reports for
the following: Maximum of * Individual Clinic Reports (* copy
each); * MTF Reports (* copies each); * Service Branch Reports
(* copies each); * Regional Report (* copies each); * Air Force
Command Report (* copies each); * Army Command Report (* copies
each); * Navy Command Report (* copies each); * Overall Europe
Summary Report (* copies each). Number of individual clinic and
MTF reports are based upon quantity of valid records received
from MTFs.
Frequency of paper reports:
Clinic Reports *
MTF Reports *
Reports by Service SG *
Reports by Intermediate Commands *
Reports by Region *
Overall Summary Report *
Due Date:
Monthly reports are due * following the last day of the appointment
month (i.e.--* appointments due *) for US survey efforts. For
European MTFs, reports are due *s following the last day of the
appointment month.
Note: Ability to meet dates is contingent on receiving all and
complete data from MTFs by the * post the month of appointment data.
Reports on U.S. MTFs (* data collection cycles and * reporting periods)
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
---------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to
Rule 24b-2.
Reports on Europe MTFs (* data collection cycles and * reporting periods)
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
* reports are due on *
- Copies of the raw patient response data in Flat ASCII Text via
3.5" diskettes with weights. MTF mailing will include an MTF
report, the individual clinic reports for that MTF, the written
comments, the raw patient response data in Flat ASCII Text, an
Adobe file of MTF report and corresponding clinic reports, and a
means score spreadsheet for that MTF and each of the Clinics on
a 3.5" diskette and forward to MTF commanders directly.
Frequency: *
Due dates: same as above
----------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant
to Rule 24b-2.
- Reporting of the raw patient response data in DBT format file to
all higher levels in CD ROM (i.e., Air Force Commanders, Army
Commanders, Navy Commanders, Surgeon Generals, Lead Agents and
Health Affairs). CD ROM will also contain Adobe files of
applicable high level reports and corresponding breakout reports
and a means score spreadsheet containing the same applicable
information. Provide one copy of the HA CD ROM to UHC, as well.
Frequency: *
Due dates: same as above
- Mailing of actual written comments to UHC, sorted by MTF, at the
end of the project.
Due Date: *, along with Action Plan Reports.
Article 4, Reports and Deliverables, of the Subcontract should
be referenced for all other reporting requirements of this task
order.
e) Other Direct Costs/Travel
See attachment - Phase III Pricing.
- Total allowable costs not to exceed *.
---------------------
* Indicates that material has been omitted and confidential
treatment has been requested therefor. All such omitted
material has been filed separately with the SEC pursuant to
Rule 24b-2.
f) Billing Instructions
Billing instructions for this task order shall be as stated in
Appendix B of the Subcontract except that Subcontractor may only
utilize the "commercial pricing" option under Item C of Section II
(Other Direct Costs) upon providing verification to UHC of their
commercial market pricing comparisons to validate that equal or
better pricing is offered to UHC/DOD than to their best client (other
than UHC/DOD). In such a case, "Invoice Preparation" as stated in
Section II of Appendix B will be substituted with the following:
Other Direct Costs should include all items other than travel
costs and should be identified, by line item, on a per unit
basis consistent with the Subcontractor's cost proposal for this
effort.
NRC will provide auditable documentation verifying the number of
surveys mailed out and processed, as well as any other documentation
applicable to billing amounts. Proof of surveys mailed will be
provided in the form of receipt(s) from the United States Postal
Service.
Phase III Pricing - Revised
UHC-DoD PRICING SPECS 766A
*
____________________
* Indicates that material has been omitted and confidential treatment
has been requested therefor. All such omitted material has been
filed separately with the SEC pursuant to Rule 24b-2.
GOLD'S GALLERIA OFFICE LEASE
This lease is entered into as of the 9th day of January, 1998,
by and between GOLD'S LIMITED PARTNERSHIP (Landlord) and NATIONAL RESEARCH
CORPORATION, INC. (Tenant).
1. SUMMARY.
1.1 Approximate Usable Space: 22,720 square feet.
1.2 The Premises are known as Suite 400, 405 and 420 and are
located on the 4th floor(s) of the Building.
1.3 Term: 2 years.
1.4 Target Commencement Date: January 1, 1998.
1.5 Basic Monthly Rental: $18,028.65.
1.6 Base Year: 1997
1.7 Tenants Percentage: 9.4434%
1.8 Security Deposit: $10,000 carried over from 11/10/86.
2. PREMISES.
Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, those certain Premises (the "Premises") comprising approximately
the Rentable Space set forth in Section 1.1 above, described in Section
1.2 above and shown on Exhibit A attached hereto and incorporated herein
by this reference, together with the right, in common with the others, to
the use of all common entrance ways, lobbies, elevators, ramps, drives,
stairs and similar access and service ways and common areas in and
adjacent to the building of which the Premises are part. The Premises are
situated on the floor(s) set forth in Section 1.2 above of that certain
building commonly know as Gold's Galleria (the "Building"), located in the
City of Lincoln, County of Lancaster, State of Nebraska. Said leasing and
hiring is conditioned upon and is subject to all of the terms, covenants
and conditions hereof.
3. TERM.
3.1 Term. This lease shall be for the term set forth in
Section 1.3 above and shall begin on the Commencement Date, as that term
is defined in Section 3.2 below, unless terminated earlier in accordance
with the provisions hereinafter set forth.
3.2 Commencement Date. The Commencement Date of this Lease
shall be the earliest of (a) the date on which construction of the Tenant
improvements provided for in the Office Finish Specifications attached
hereto as Exhibit B is completed; (b) the date on which Tenant takes
possession of the Premises; (c) the date which is ten (10) days from the
date on which Landlord tenders possession of the Premises to Tenant. When
determined, the parties shall confirm in writing the exact Commencement
Date, the date on which the term of this Lease commenced, the actual
number of square feet of Rentable Space contained in the Premises and the
rental herefore.
3.3 Possession. The parties shall endeavor to cause the
Commencement Date to occur on or before the Target Commencement Date set
forth in Section 1.4 above. If Landlord, for any reason whatsoever,
cannot deliver possession of the Premises to Tenant on or before the
Target Commencement Date, this Lease shall not be void or voidable, nor
shall Landlord or its agent be liable to Tenant for any loss or damage
resulting therefrom; provided, however, Tenant shall not be liable for any
rent until Landlord delivers possession of the Premises to Tenant. If
Landlord tenders possession of the Premises to Tenant prior to the target
Commencement Date and Tenant chooses to accept such possession, then the
term of this Lease and Tenant's obligations hereunder shall commence on
the date that Tenant accepts such possession. Any failure to deliver
possession on the Target Commencement Date or delivery of possession prior
to the Target Commencement Date shall not in any way affect the expiration
date hereof.
4. RENTAL.
4.1 Basic Monthly Rental. Subject to the adjustments provided
for herein, Tenant shall pay to Landlord on or before the first day of
each calendar month during the term of this Lease, a Basic Monthly Rental
for the Premises in the amount set forth in Section 1.5 above, which Basic
Monthly Rental shall be payable in advance, without deduction or offset of
any kind and without notice or demand, in lawful money of the United
States of America at Landlord's address given in Section 20.11 below, or
at such other place or to such other person as Landlord may designate from
time to time by written notice. If this Lease commences or ends on a day
other than the first day of a calendar month, then the rental for such
partial month shall be prorated based on a 30-day month.
4.2 Payment of First Month's Rent. Article 4.2 has been
intentionally omitted.
4.3 Operating Expenses.
4.3.1 Increases in Operating Expenses. In addition to
the Basic Monthly Rental, Tenant shall pay to Landlord, in the manner
provided below, Tenant's proportionate share of increases in Operating
Expenses (as defined in Section 4.3.4 below) over the Base Year specified
in Section 1.6 hereof.
4.3.2 Estimated Operating Expenses. Landlord shall at
the commencement of this Lease and by each December 15 during the term of
this Lease deliver to Tenant a statement of the estimated increase in
Operating Expenses for the calendar year immediately following the date of
such statement over the Operating Expenses incurred for the Base Year
specified in Section 1.6 hereof. Landlord's failure to deliver to Tenant
such statement by such date, however, shall not constitute a bar to
Landlord's recovery of Operating expenses as herein provided. Commencing
with January 1 of the calendar year following the date of such statement,
Tenant shall pay to Landlord with each payment of the Basic Monthly Rental
a sum equal to the product of the estimated increase in Operating Expenses
for such a calendar year multiplied by the Tenant's Percentage set forth
in Section 1.7 above.
4.3.3 Actual Operating Expenses. Landlord shall by
April 30 of each year during the term of this Lease deliver to Tenant a
statement of the actual increase in Operating Expenses for the preceding
calendar year over the Operating Expenses incurred for the Base Year
specified in Section 1.6 hereof, but Landlord's failure to deliver such
statement by such date shall not constitute a bar to Landlord's recovery
of Operating Expenses as herein provided. If the actual increase in
Operating Expenses for such calendar year shall exceed the estimated
increase in Operating Expenses for such calendar year, Tenant shall pay to
Landlord an amount equal to the product of such excess multiplied by
Tenant's Percentage set forth in Section 1.7 above. If the actual
increase in Operating Expenses for such calendar year shall be less than
the estimated increase in Operating Expenses for such calendar year, then
Tenant shall receive a credit against future rentals payable by Tenant in
an amount equal to the product of the excess of estimated increase in
Operating Expenses over actual Operating Expenses multiplied by the
Tenant's Percentage specified in Section 1.7 above.
4.3.4 Operating Expenses Defined. The term Operating
Expenses as used herein shall include all costs to Landlord and not
reimbursed by Tenants of operating, maintaining and managing the Building.
By way of illustration but not limitation, Operating Expenses shall
include the cost or changes for the following items: heat, light, water,
power and steam, waste disposal, plumbing, janitorial services, pest
control, window cleaning, air conditioning, maintenance of elevators,
materials and supplies, equipment and tools, service agreements on
equipment, fire and other casualty insurance, public liability and
property damage insurance, rental interruption insurance, Direct Taxes (as
defined in Section 4.3.5 hereof), licenses, permits and inspections, wages
and salaries, employee benefits and payroll taxes, workers' compensation
insurance, accounting and legal expenses, management fees, and the cost of
contesting the validity or applicability of any governmental enactment's
which may affect Operating Expenses. In determining the amount of
Operating Expenses for years other than the Base Year, (a) if less than
100% of the Rentable Space contained in the building shall have been
occupied by Tenants and fully used by them at any time during the year,
Operating Expenses shall be deemed of the purposes of this Section 4.3 to
be an amount equal to the like Operating Expenses which would normally be
expected to be incurred had such occupancy been 100% and had such full
utilization been made during the entire year, or (b) if Landlord is not
furnishing any particular work or service (the cost of which if performed
by Landlord would constitute an Operating cost) to a Tenant who has
undertaken to perform such work or service in lieu of the performance
thereof by Landlord, Operating Expenses shall be deemed for the purposes
of this Section 4.3 to be increased by an amount equal to the additional
Operating Expenses which would reasonably have been incurred during such
period by Landlord if it had, at its own expense, furnished such work or
service to such Tenant.
4.3.5 Direct Taxes Defined. For purposes of Section
4.3.4 hereof, the term Direct Taxes shall include any real property taxes
on the Building, the land on which the Building is situated, and the
various estates in the Building and the land. Direct Taxes shall also
include all personal property taxes levied on property used by Landlord in
the operation of the Building; taxes of every kind and nature whatsoever
levied and assessed in lieu of or in substitution for existing or
additional real or personal property taxes on said Building, land or
personal property; and the cost to Landlord of contesting the amount or
validity or applicability of any of the aforementioned taxes. Net
recoveries through protest, appeals or other actions taken by Landlord in
its discretion, after deduction of all costs and expenses, including
without limitation counsel and other fees, shall be deducted from Direct
Taxes for the year of receipt.
4.3.6 Definition of Lease Year. The term "Lease Year"
as used in this Lease means:
(a) In reference to the first Lease Year, the period from
the Commencement Date to the last day of the calendar month which is
one year after the Commencement Date.
(b) In reference to any succeeding Lease year, a full year
commencing on the day following the first Lease Year or any
anniversary thereof and running to the next succeeding anniversary
day.
5. SECURITY DEPOSIT.
Upon the execution of this Lease, Tenant shall deposit with
Landlord the amount set forth in Section 1.8 above as a security deposit
(the "Security Deposit") for the faithful performance of all of the terms,
covenants and conditions of this Lease. If Tenant defaults with respect
to any provision of this Lease, Landlord may use, apply or retain all or
any part of the Security Deposit (a) for the payment of any rent or any
other amount which Landlord may spend or become obligated to spend by
reason of Tenant's default, (b) to repair damages to the Premises, (c) to
clean the Premises, and (d) to compensate Landlord for any other loss or
damage which Landlord may suffer by reason of Tenant's default. If any
portion of the Security Deposit is so used or applied, Tenant shall within
five (5) days after written demand therefor, deposit cash with Landlord in
an amount sufficient to restore the Security Deposit to it's original
amount, and Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep Security Deposit separate
from its general funds, and Tenant shall not be entitled to interest on
such deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, Landlord or Landlord's
successor shall return the Security Deposit or any balance thereof to
Tenant not more than thirty (30) days following the expiration of the term
hereof. Landlord may, but need not, either (i) deliver the Security
Deposit or any balance thereof to the purchaser or other successor of
Landlord's interest in the Premises in the event that such interest be
sold or otherwise transferred, or (ii) deliver such funds to Tenant. Upon
any transfer of Landlord's interest in the Premises, or upon Landlord's
delivery to Tenant of the Security Deposit or any balance thereof,
Landlord shall be discharged from any further liability with respect to
the Security Deposit. This provision shall also apply to any subsequent
transferors of Landlord's interest in the Premises.
6. USES.
6.1 Permitted Uses. The Premises shall be used solely for
general office purposes and for no other purpose without the prior written
consent of Landlord. Tenant shall not do or suffer anything to be done in
or about the Premises, nor shall Tenant bring or allow anything to be
brought into the Premises, which will in any way increase the rate of any
fire insurance or other insurance upon the Building or its contents, cause
a cancellation of said insurance or otherwise affect said insurance in any
manner. Tenant shall not do or suffer anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of
other occupants of the Building or injure or annoy said occupants, nor
shall Tenant use or suffer the Premises to be used for any immoral,
unlawful or objectionable purpose. In no event shall Tenant cause or
suffer to be caused any nuisance in or about the Premises, and no loud-
speakers or similar devices shall be used without the prior written
approval of Landlord. Tenant further agrees not to commit or suffer to be
committed any waste in or upon the Premises. The provisions of this
paragraph are for the benefit of Landlord only and shall not be construed
to be for the benefit of any tenant or occupant of the Building.
6.2 Compliance with Law. Tenant shall not do or suffer
anything to be done in or about the Premises which will in any way
conflict with any law, statute, ordinance or other governmental rule,
regulation or requirement now in force or which may hereafter be enacted
or promulgated. At its sole cost and expense, Tenant shall promptly
comply with all said governmental measures and also with the requirements
of any board of fire underwriters or other similar body now or hereafter
constituted to deal with the condition, use or occupancy of the Premises,
excluding structural changes not related to or affected by Tenant's
alterations, additions or improvements. The judgment of any court of
competent jurisdiction or the admission of Tenant in any judicial action,
regardless of whether Landlord is a party thereto, that Tenant has
violated any of the said governmental measures or requirements shall be
conclusive of that fact as between Landlord and Tenant.
7. SERVICES AND UTILITIES.
7.1 Services Provided. Tenant shall pay for all water, heat,
air conditioning, lighting, electricity and other utilities furnished to
the Premises. If the Premises are not separately metered, Tenant shall
pay for utilities furnished to the Premises on the basis of monthly
statements prepared by Landlord. Subject to payment as aforesaid any
provided that Tenant is not in default under the terms and conditions of
this Lease, and subject to the provisions elsewhere herein contained and
to the rules and regulations of the Building, Landlord agrees to furnish
the Premises with: (a) water and electricity suitable in Landlord's
judgment for general office purposes, including the operation of desktop
office machines and ordinary copy machines; (b) heat and air conditioning
during ordinary business hours of generally recognized business days (but
exclusive, in any event, of weekends and legal holidays) in an amount
reasonably required in Landlord's judgment for the comfortable occupation
of the Premises; and (c) daily janitorial service during the times and in
the manner that such services are, in Landlord's judgment, customarily
furnished in comparable office buildings in the downtown Lincoln area.
Landlord shall be under no obligation to provide additional or after-hours
heating or air conditioning, but if Landlord elects to provide such
services at Tenant's request, Tenant shall pay to Landlord the cost of
such services as determined by Landlord's accountants plus a reasonable
charge (not to exceed 10% of the cost of such services) for Landlord's
additional overhead expense. Tenant agrees to keep all draperies closed
when desirable to conserve energy because of the sun's position and Tenant
further agrees at all times to cooperate fully with Landlord and to abide
by all the regulations and requirements which Landlord may prescribe from
time to time for the proper functioning and protection of the heating,
ventilating and air conditioning system(s).
7.2 Prohibited Installations. Without the prior written
consent of Landlord, Tenant shall not: (a) install or use any apparatus
or device in the Premises, including, without limitation, electronic data
processing machines and punch card machines using electrical current in
excess of 220 watts or 110 volts or which will in any way increase the
amount of electricity, water, compressed air or other resource usually
supplied for use of the Premises as general office space; or (b) connect
any apparatus or device with electrical current (except through existing
electrical outlets) or with water pipes or air pipes for the purpose of
using additional electrical current or water or air. If Tenant shall
require electricity, water, compressed air or any other resource in excess
of that usually furnished to the Premises for use as general office space,
Tenant shall first procure the consent of Landlord for such additional
use, and Landlord shall have the right to withhold its consent or to cause
a special meter to be installed in the Premises so as to measure the
additional amount of the resource being consumed by Tenant. Tenant shall
pay to Landlord the cost of any meters and their installation and
maintenance, any additional cost incurred by Landlord in accounting for
the resources consumed, and for the amount of the additional resources
consumed at the rates charged by the local public utility or agency
furnishing the same.
7.3 Heat Generating Equipment. Whenever heat generating
machines or equipment or lighting other than Building standard lights are
used in the Premises by Tenant which affect the temperature otherwise
maintained by the air conditioning system, Landlord shall have the right
to install supplementary air conditioning units in the Premises. The cost
thereof, including installation and operating and maintenance, shall be
paid by Tenant.
7.4. Interruption of Services. Landlord shall use reasonable
efforts to remedy any interruption in the furnishing of services and
utilities. However, Landlord shall not be liable for any failure to
provide for any reduction in any of the above services or utilities if
such failure or reduction is caused by the making of repairs or
improvements to the Premises or to the Building, the installation of
equipment, the elements, labor disturbances of any character, or any other
accidents or conditions whatsoever beyond the reasonable control of
Landlord, or rationing or restrictions on the use of said services and
utilities due to energy shortages or other causes, whether or not any of
the above result from acts or omissions of Landlord. Furthermore,
Landlord shall be entitled to cooperate voluntarily in a reasonable manner
with the efforts of national, state or local governmental bodies or
utilities suppliers in reducing energy or other resources consumption.
7.5 Additional Rent. Any sums payable under this Section 7
shall be considered additional rent and may be added to any installment of
rent thereafter becoming due, and Landlord shall have the same remedies
for a default in payment of such sum as for a default in the payment of
rent.
8. TAXES PAYABLE BY TENANT.
Tenant shall pay before delinquency any and all taxes levied or
assessed and which become payable by Landlord or Tenant during the term of
this Lease, whether or not now customary or within the contemplation of
the parties hereto, which are based upon, measured by or otherwise
calculated with respect to (a) the gross or net rental payable under this
Lease, including, without limitation, any gross receipts tax levied by any
taxing authority, or any other gross income tax or excise tax levied by
any taxing authority with respect to the receipt of the rental payable
hereunder; (b) the value of Tenant's equipment, furniture, fixtures or
other personal property located in the Premises; (c) the possession,
lease, operation, management, maintenance, alteration, repair, use or
occupancy by Tenant of the Premises or any portion thereof; (d) the value
of any leasehold improvements, alterations or additions made in or to the
Premises, regardless of whether title to such improvements, alterations or
additions shall be in Tenant or Landlord; or (e) this transaction or any
document to which Tenant is a party creating or transferring an interest
or an estate in the Premises.
9. ALTERATIONS.
Tenant shall not make or suffer to be made any alterations, additions
or improvements to the Premises or any part thereof which affect the
structure of the Building, building services, the peaceful enjoyment of
other occupants of the Building or otherwise affect space other than the
Premises and shall not, without obtaining Landlord's prior written
consent, make or suffer to be made any other alterations, additions or
improvements to the Premises, including the attachment of any fixtures or
equipment. When applying for such consent, Tenant shall, if requested by
Landlord, furnish complete plans and specifications for such alterations,
additions or improvements. All alterations, additions and improvements to
the Premises shall, at Landlord's option, either (a) be made by Landlord
for Tenant's account and, within (10) days from receipt of a written
statement from Landlord, Tenant shall reimburse Landlord for all costs
thereof, including without limitation a reasonable charge for Landlord's
overhead expenses; or (b) be made by Tenant at Tenant's sole cost and
expenses, and any contractor selected by Tenant to do such work must first
be approved in writing by Landlord. All alterations, additions, fixtures
and improvements, including without limitation all improvements made
pursuant to Exhibit B attached hereto and incorporated herein by
references, whether temporary or permanent in character, made in or upon
the Premises either by Landlord or Tenant, shall at once become part of
the realty and belong to Landlord and, at the end of the term hereof,
shall remain on the Premises without compensation of any kind to Tenant.
Moveable furniture and equipment shall remain the property of Tenant.
10. REPAIR.
Landlord agrees to make all necessary repairs to the exterior
walls, exterior doors, exterior windows, exterior corridor windows, and
corridors of the Building. Landlord agrees to keep the Building housing
the Premises in a safe, clean, neat and attractive condition. Landlord
agrees to keep all Building equipment such as elevators, plumbing,
heating, ventilating, air conditioning and similar equipment in good
repair, but Landlord shall not be liable or responsible for breakdowns or
temporary interruptions in service where reasonable efforts are used to
restore service. Landlord agrees to make repairs, if necessary, to
interior walls, floors, glass, and ceilings installed by Landlord and
resulting from any defects in construction. Landlord agrees to make the
original installation of all light bulbs, fluorescent and incandescent,
and starters therefor, which are required for the Premises at the
inception of this Lease.
Tenant agrees that it will make all repairs to the Premises not
required above to be made by Landlord and to do all redecorating,
remodeling, alteration and painting required by it during the term of the
lease and Tenant will pay for any repairs to the Premises or the Building
containing the Premises made necessary by any negligence or carelessness
of Tenant or its employees or persons permitted in the Building by Tenant
and will maintain the leased Premises in a safe, clean, neat and sanitary
condition. Tenant agrees to replace and pay for all light bulbs,
fluorescent and incandescent, and starters therefor, as the same need to
be replaced in the Premises during the term of this Lease.
There shall be no allowance to Tenant for inconvenience or
injury to business arising from the making of any repairs to the Premises
or the Building.
11. DAMAGE BY FIRE OR CASUALTY.
If the Premises or the Building are damaged by fire or other
casualty, Landlord shall forthwith repair the same, provided such repairs
can be made forty-five (45) days from the date of such damage under the
laws and regulations of the federal, state, county and municipal
authorities having jurisdiction thereof. In such event, this Lease shall
remain in full force and effect except that, if the damage is not the
result of the negligence, passive or active, or willful misconduct of
Tenant or its agents or invitees, Tenant shall be entitled to a
proportionate reduction of rent while such repairs to be made hereunder by
Landlord are being made. Said Proportionate reduction shall be based upon
the extent to which the making of such repairs to be made hereunder by
Landlord shall interfere with the business carried on by Tenant in the
Premises. Within fifteen (15) days from the date of such damage, Landlord
shall notify Tenant whether or not such repairs can be made within forty-
five (45) days from the date of such damage and Landlord's determination
thereof shall be binding on Tenant. If such repairs cannot be made within
forty-five (45) days from the date of such damage, Landlord shall have the
option, exercisable at any time within thirty (30) days of the date of
such damage either to (a) notify Tenant of Landlord's intention to repair
such damage, in which event this Lease shall continue in full force and
effect and the rent shall be reduced as provided herein; or (b) notify
Tenant of Landlord's election to terminate this Lease of a date specified
in such notice, which date shall be not less than thirty (30) nor more
than ninety (90) days after such notice in given. In the event that such
notice to terminate is given by Landlord, this Lease shall terminate on
the date specified in such notice. In case of such termination, if the
damage giving rise to such termination is not the result of the
negligence, passive or active, or willful misconduct of Tenant or its
agents or invitees, the rent shall be reduced by a proportionate amount
based upon the extent to which said damage interfered with the business
carried on by Tenant in the Premises, and the Tenant shall pay such
reduced rent up to the date of termination. Landlord shall refund to
Tenant, if Tenant is not then in default, any rent previously paid for any
period of time subsequent to such date of termination. The repairs to be
made hereunder by Landlord shall not include, and Landlord shall not be
required to repair, any damage by fire or other cause to the property of
Tenant or any repairs or replacements of any paneling, decorations,
railing, floor coverings, or any alterations, additions, fixtures or
improvements installed on the Premises by or at the expense of Tenant.
12. LIENS.
Tenant shall not permit any mechanic's, materialmen's, or other
liens to be asserted against the real property of which the Premises form
a part nor against Tenant's leasehold interest in the Premises arising
directly or indirectly from any act or activity of Tenant. Landlord shall
have the right at all reasonable times to post and keep posted on the
Premises any notices which it deems necessary for protection from such
lines. If any such liens are filed, Landlord may, without waiving its
rights and remedies based on such breach by Tenant and without releasing
Tenant from any obligations, cause such liens to be released by any means
Landlord shall deem proper, including, without inquiring into the validity
thereof, payment in satisfaction of the claim giving rise to such lien or
the posting of a bond therefor. Tenant shall pay to Landlord at once,
without notice or demand, any sum paid by Landlord to remove such liens,
together with interest thereon from the date of payment at the Permitted
Rate (as defined in Section 20.22 hereof).
13. INDEMNIFICATION.
As a material part of the consideration for this Lease, Tenant
hereby assumes all risks and waives all claims against Landlord for any
damage to any property or any injury to or death of any person in or about
the Premises or the Building arising at any time and from any cause
whatsoever other than solely by reason of the negligent or willful act of
Landlord, or its agents, employees or contractors. Tenant also agrees to
indemnify, defend and hold Landlord harmless from and against any and all
claims or liability for any injury or damage to any person or property
whatsoever: (a) occurring in, on or about the Premises or any part
thereof, and (b) occurring in, on or about any facilities (including,
without limitation to the generality of the term "facilities", stairways,
passageways, hallways, sidewalks and parking areas) the use of which
Tenant may have in conjunction with other Tenants of the Building, when
such injury or damage shall be caused in part or in whole by the act,
neglect, fault, or omission of any duty with respect to the same, by
Tenant, its agents, servants, employees, or invitees. Tenant further
agrees to indemnify, defend and hold Landlord harmless from and against
any and all claims by or on behalf of any person, firm or corporation
arising from the conduct or management of any work or thing whatsoever
done by Tenant in or about or from transactions of Tenant concerning the
Premises, and will further indemnify, defend and hold Landlord harmless
from and against any and all claims arising from any breach of default on
the part of Tenant in the performance of any covenant or agreement on the
part of Tenant to be performed pursuant to the terms of this Lease, or
arising from any act or negligence of Tenant, or any of its agents,
contractors, servants, employees or licensees, and from and against all
costs, counsel fees, expenses and liabilities incurred in connection with
any such claim or action or proceeding brought thereon. Furthermore, in
case any action or proceeding brought against Landlord by reason of any
such claims or liability, Tenant shall defend such action or proceeding at
Tenant's sole expense by counsel satisfactory to Landlord. The provisions
of this survive the expiration or termination of this Lease with respect
to any claims or liability occurring prior to such expiration or
termination.
14. INSURANCE.
14.1 Required Insurance. Tenant shall, at its sole cost and
expense, procure, maintain and keep in force during the term of this Lease
a policy or policies of comprehensive general liability insurance,
including public liability and property damage, on an "occurrence basis"
against claims for "personal injury" including without limitation bodily
injury, death or property damage occurring on, in or about the Premises,
or arising from or connected with the use, conduct or operation of
Tenant's business or interest, in an amount of not less than $1,000,000
with respect to personal injury or death of one or more persons and to
damage to property. Said policy or policies shall: (a) name Landlord and
Landlord's lender(s) as additional insured; (b) be issued by an insurance
company which is acceptable to Landlord and licensed to do business in the
State of Nebraska; and (c) provide that said insurance shall not be
canceled or modified unless thirty (30) days prior written notice shall
have been given to Landlord and Landlord's lender(s). Said policy or
policies or certificates thereof shall be delivered to Landlord by Tenant
upon commencement of the term of this Lease and upon each renewal of said
insurance.
14.2 Waiver of Subrogation. Landlord and Tenant hereby waive
and release any right that each may have against the other on account of
any loss or damage arising in any manner which is covered by a policy of
insurance that does not provide for loss of or reduction in insurance
coverage on account of such waiver. The parties shall each cause their
respective insurance companies to waive any rights or subrogation that
such companies may have against Landlord or Tenant, as the case may be.
All such policies of insurance shall contain, if obtainable, an
endorsement or agreement by the insurer that any loss shall be payable in
accordance with the terms of such policy notwithstanding any act or
negligence of Tenant which might otherwise result in forfeiture of said
insurance and the further agreement of the insurer waiving all right of
setoff, counterclaim or deductions against Tenant and Landlord.
15. ASSIGNMENT, SUBLETTING AND RECAPTURE.
15.1 Landlord's Consent. Tenant shall not sell, assign,
encumber or transfer by operation of law or otherwise this Lease or any
interest herein, sublet the Premises or any part thereof, or suffer any
other person to occupy or use the Premises or any portion thereof, without
prior written consent of Landlord as provided herein, nor shall Tenant
permit any lien to be placed on Tenant's interest by operation of law.
Landlord's consent to the sale, assignment, encumbrance, subletting,
occupation, lien or other transfer shall not release Tenant from any of
Tenant's obligations hereunder or be deemed to be a consent to any
subsequent occurrence. Any sale, assignment, encumbrance, subletting,
occupation, lien or other transfer of this lease which does not comply
with the provisions of this Section 15 shall be void.
15.2 Assignment by Operation of Law. For purposes of Section
15.1, each of the following acts shall be considered an assignment by
operation of law;
15.2.1 If a Tenant is or becomes bankrupt or insolvent,
makes an assignment for the benefit of creditors, or institutes a
proceeding under the Bankruptcy Act in which Tenant is the bankrupt; or,
if Tenant is a partnership or consists of more than one person or entity,
if any partner of the partnership or other person or entity is or becomes
bankrupt or insolvent, or makes an assignment for the benefit of
creditors;
15.2.2 If a writ of attachment or execution is levied on
this Lease; or
15.2.3 If, in any proceeding or action to which Tenant is
a party, a receiver is appointed with authority to take possession of the
Premises. An assignment by operation of law shall constitute a default by
Tenant and Landlord shall have the right to elect to terminate this Lease,
in which case this Lease shall not be treated as an asset of Tenant. If a
writ of attachment or execution is levied on this Lease, Tenant shall have
ten (10) days in which to cause the attachment or execution to be removed.
If any involuntary proceeding in bankruptcy is brought against Tenant, or
if a receiver is appointed, Tenant shall have thirty (30) days in which to
have the involuntary proceeding dismissed or the receiver removed.
15.3 Recapture. Tenant shall, by written notice, advise
Landlord of its desire from and after a stated date (which shall not be
less than thirty (30) days or more than ninety (90) days after the date of
Tenant's notice), to sell or assign all or any portion of Tenant's
interest in this Lease, or to sublet or otherwise transfer the Premises or
any portion thereof for all or any part of the term hereof. In such event
Landlord shall have the right, to be exercised by giving written notice to
Tenant no more than thirty (30) days after receipt of Tenant's notice, to
terminate this Lease as to the portion of the Premises described in
Tenant's notice and such notice shall, if given, terminate this Lease with
respect to the portion of the Premises therein described as of the date
stated in Tenant's notice. Said notice by Tenant shall state the name and
address of the proposed subtenant, assignee or transferee, as the case may
be, and shall be accompanied by a true and complete copy of the proposed
sublease, assignment or other instrument of transfer, as the case may be,
with said notice. If said notice shall specify all of the Premises and
Landlord shall give said termination notice with respect thereto, this
Lease shall terminate on the date stated in Tenant's notice. If, however,
this Lease shall terminate pursuant to the foregoing with respect to less
than all of the Premises, the rent and the Operating Expenses, as defined
and reserved hereinabove, shall be adjusted on a prorata basis to the
number of square feet retained by Tenant, and this Lease as so amended
shall continue thereafter in full force and effect.
15.4 No Release from Liability. Any subletting, assignment or
other transfer hereunder by Tenant shall not result in Tenant being
released or discharged from any liability under this Lease. As a
condition to Landlord's prior written consent as provided for in this
Section 15, the subtenant, assignment or transferee shall agree in writing
to comply with and be bound by all of the terms, covenants, conditions,
provisions and agreements of this Lease, and Tenant shall deliver to
Landlord, promptly after execution, an executed copy of each sublease,
assignment or other instrument of transfer and an agreement of said
compliance by each sub-lessee, assignee or transferee.
16. DEFAULT; REMEDIES.
16.1 Events of Default. The occurrence of any of the following
shall constitute a material default and breach of this Lease by Tenant
("Event of Default"):
16.1.1 Any failure by Tenant to pay the Basic Monthly
rental or to make any other payment when and as required to be made by
Tenant hereunder.
16.1.2 The abandonment or vacation of the Premises by
Tenant for a period exceeding thirty (30) days.
16.1.3 Any failure by Tenant to observe and perform any
other provisions of this Lease to be observed or performed by Tenant,
where such failure continues for ten (10) days after written notice
thereof by Landlord to Tenant; provided, however, that if the nature of
such default is such that the same cannot reasonably be cured within such
ten (10) day period. Tenant shall not be deemed to be in default if
Tenant shall within such period commence such cure and thereafter
diligently prosecute the same to completion.
16.1.4 The failure by Tenant on three (3) or more
occasions to pay the Basic Monthly Rental or to make any other payment as
and when due or to observe and perform any other provision of this Lease
where, because of such failure, Landlord shall have initiated eviction
proceedings, by which term the parties refer to the giving or serving of
any notice or other condition precedent to the bringing of an action to
evict Tenant. This default shall not be curable.
16.2. Damages Upon Termination. Upon the occurrence of an
event of Default, then in addition to any other remedies available to
Landlord at law or in equity, Landlord shall have the immediate option to
terminate this lease and all rights of Tenant hereunder by giving written
notice of such intention to terminate. In the event that Landlord shall
elect to so terminate this Lease, Landlord shall be entitled to recover
from Tenant:
16.2.1 The worth at the time of award of any unpaid rent
which had been earned at the time of such termination; plus
16.2.2 The worth at the time of award of the amount of the
unpaid rent which would have been earned after termination until the time
of award;
16.2.3 The worth at the time of award of the amount of the
unpaid rent for the balance of the term after the time of award; plus
16.2.4 Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform
his obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom. As used in Sections 16.2.1 and
16.2.2 above, the "worth at the time of award" is computed by allowing
interest at the Permitted Rate. As used in Section 16.2.3 above, the
"worth at the time of award" is computed by discounting such amount at a
discount rate equal to six percent (6%) per annum.
16.2.5 In the event Landlord's remedies are pursued at
law, Tenant hereby waives its right to a trail by jury if such legislation
is applicable to commercial disputes and defaults.
16.3 Reentry by Landlord. In the event of any such default by
Tenant, Landlord shall also have the right, with or without terminating
this Lease, to reenter the Premises and remove all persons and property
from the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of the Tenant.
16.4 Recovery of Rental. In the event of any such default by
Tenant, if Landlord shall elect not to terminate this Lease as provided in
Section 16.2 above, Landlord may from time to time, without terminating
this Lease, recover all rental as it becomes due.
16.5 Reentry and Reletting. No reentry or taking possession of
the Premises by Landlord pursuant to Section 16.3 or 16.4 above shall be
construed as an election to terminate this Lease unless a written notice
of such intention be given to Tenant or unless the termination thereof be
decreed by a court of competent jurisdiction. Notwithstanding a reletting
without termination by Landlord because of any default by Tenant, Landlord
may at any time after such reletting elect to terminate this Lease for any
such default.
17. EMINENT DOMAIN.
If more than thirty-five percent (35%) of the floor area of the
Premises shall be taken or appropriated under the power of eminent domain
or conveyed in lieu thereof, either party shall have the right to
terminate this Lease at its option. If any part of the Building, whether
or not the Premises are included, or any part of the land on which the
Building is located, or any interest in either of them, shall be taken or
appropriated under the power of eminent domain or conveyed in lieu
thereof, Landlord may terminate this Lease at its option. In either of
such events, Landlord shall receive (and Tenant shall assign to Landlord
upon demand from Landlord) any income, rent, award or any interest therein
which may be paid in connection with the exercise of such power of eminent
domain, and Tenant shall have no claim against Landlord for any part of
any sum paid by virtue of such proceedings, whether or not attributable to
the value of the unexpired term of this Lease. If a part of the Premises
shall be so taken or appropriated or conveyed and neither party hereto
shall elect to terminate this lease and the Premises have been damaged as
a consequence of such partial taking or appropriation or conveyance,
Landlord shall, to the extent of the net award received by Landlord,
restore the remaining part of the Premises at Landlord's cost and expense;
provided, however, that Landlord shall not be required to repair or
restore any injury or damage to the property of Tenant or to make any
repairs or restorations of any alterations, additions, fixtures, or
improvements installed on the Premises by or at the expense of Tenant.
Thereafter, the rent to be paid under this Lease for the remainder of its
term shall be proportionately reduced, such reduction to be based upon the
ratio of floor area taken to the total floor area of the Premises.
18. HOLDING OVER.
18.1 With Landlord's Consent. Any holding over after the
expiration of the term of this Lease with the prior written consent of
Landlord shall be a tenancy from month to month. The terms, covenants and
conditions of such tenancy shall be the same as provided herein, except
that the Basic Monthly Rental shall be one-hundred fifty percent (150%) of
the basic Monthly Rental in effect on the date of such expiration, subject
to adjustment as provided in Section 4 herein. Acceptance by Landlord of
rent after such expiration shall not result in any other tenancy or any
renewal of the term of this Lease, and the provision of this Section 18
are in addition to and do not affect Landlord's right of reentry or other
rights provided under this Lease or by applicable law.
18.2 Without Landlord's Consent. If Tenant, without Landlord's
prior written consent, shall retain possession of the Premises or any part
thereof following the expiration or sooner termination of this Lease for
any reason, then Tenant shall be guilty of unlawful detainer, and the
acceptance of rent by Landlord shall not convert such unlawful detainer
into a valid month-to-month or other tenancy, and nothing contained in
this Section 18 shall waive Landlord's right of reentry or any other
right. In the event of such unlawful detainer, Tenant agrees that
Landlord shall have suffered damages for each day of such retention in an
amount equal to at least six and sixty-seven one hundredths percent
(6.67%) of the amount of the Basic Monthly Rental in effect for the last
month prior to the date of such expiration or termination, but such
agreement shall not limit Landlord in its proof of additional damages.
Further, in the event of such unlawful detainer, Tenant shall also
indemnify and hold Landlord harmless from any loss or liability resulting
from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by any succeeding Tenant or purchaser of the
Building founded on such delay. Alternatively, if Landlord gives notice
to Tenant of Landlord's election thereof, such holding over shall
constitute a renewal of this Lease for a period from month-to-month or for
one year, whichever shall be specified in such notice.
19. SUBORDINATION.
Without the necessity of any additional document being executed
by Tenant for the purpose of effecting a subordination, this Lease shall
be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting
the Building or the land upon which the Building is situated or both, and
(b) the lien of any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which said Building, land, ground
leases or underlying leases, or any part thereof, or Landlord's interest
or estate in any of said items, is specified as security. Notwithstanding
the foregoing, Landlord shall have the right to subordinate or cause to be
subordinated any such ground leases or underlying leases or any such liens
to this Lease. In the event that any ground lease or underlying lease
terminates for any reason or any mortgage or deed of trust is foreclosed
or a conveyance in lieu of foreclosure is made for any reason, Tenant
shall, notwithstanding any subordination, attorn to and become the Tenant
of the successor in interest to Landlord, at the option of such successor
in interest. Tenant covenants and agrees to execute and deliver, upon
demand by Landlord and in the form requested by Landlord, any additional
documents evidencing or further affecting the priority or subordination of
this Lease with respect to any such ground lease or underlying leases of
the lien of any such mortgage or deed of trust. Tenant hereby irrevocably
appoints Landlord as attorney-in-fact of Tenant to execute, deliver and
record any such documents in the name of and on behalf of Tenant.
20. MISCELLANEOUS
20.1 Rules and Regulations. Tenant shall faithfully comply with
the rules and regulations set forth in Exhibit C attached hereto and
incorporated herein by reference, together with all modifications and
additions thereto adopted by Landlord from time to time in writing.
Landlord shall not be responsible for the nonperformance by any other
tenant or occupant of the Building of any of said rules and regulations.
20.2 Landlord's Reserved Rights. Landlord, for itself and its
representative, may enter upon the Premises and exercise the following
rights without notice and without liability to Tenant for damage or injury
to property, person or business and without affecting an eviction of
disturbance of Tenant's use or possession of giving rise to any claim for
set-off or abatement of rent:
(a) To change the name or street address of the Building.
(b) To install and maintain signs on the exterior of the
Building.
(c) To have access to all mail chutes according to the rules of
the United States Post Office Department.
(d) At any reasonable time or times, to decorate, and to make
at its own expense repairs, alterations, additions and improvements,
structural or otherwise, in or to the Premises, the Building or part
thereof, and any adjacent building, land, street, alley, and during such
operations to take into and through the Premises or any part of the
Building all materials required, and to temporarily close or suspend
operation of entrances, doors, corridors, elevators or other facilities.
(e) To have pass keys to the Premises.
(f) To designate all sources furnishing sign manufacturing,
painting and lettering on the Premises.
(g) To exhibit the Premises to others at reasonable times upon
reasonable notice.
(h) To take any and all reasonable measures, including
inspections or the making of repairs, alterations, additions, and
improvements to the Premises or to the Building necessary or desirable for
the safety, protection, operation or preservation of the Premises or the
Building.
Provided, however, if the Premises are rendered wholly or
partially untenantable for Landlord's exercise of any or all of the
foregoing rights, the rent herein reserved shall be abated in proportion
to the part of the Premises which becomes untenantable.
20.3 Landlord's Right to Cure Default. All covenants and
agreements to be kept or performed by Tenant under the terms of this Lease
shall be performed by Tenant at Tenant's sole cost and expense and without
any reduction of rent. If Tenant shall be in default on its obligations
under this Lease to pay any sum of money other than rental or to perform
any other act hereunder, and if such default is not cured within the
applicable grace period provided in Section 16.1 hereof, if any, Landlord
may, but shall not be obligated to, make any such payment or perform any
such act on Tenant's part without waiving its right based upon any default
of Tenant and without releasing Tenant from any obligations hereunder.
All sums so paid by Landlord and all incidental costs, together with
interest thereon at the Permitted Rate from the date of such payment or
the incurrence of such cost by Landlord, whichever occurs first, shall be
paid to Landlord on demand. In the event of nonpayment by Tenant,
Landlord shall have, in addition to any other rights or remedies
hereunder, the same rights and remedies as in the case of default by
Tenant for nonpayment of rent.
20.4 Surrender of Premises. A voluntary surrender or other
surrender of this Lease by Tenant or the mutual cancellation of the Lease
shall not work a merger. At the option of Landlord, however, any surrender
or mutual cancellation of this Lease may terminate any existing sublease
or sub-tenancies or may operate as an assignment to Landlord of any such
sublease or sub-tenancies.
20.5 Sale by Landlord. In the event that Landlord sells or
conveys the Premises, Landlord shall be released from any liability
arising thereafter based upon any of the terms, covenants, or conditions,
express or implied, contained in this Lease. In such event, Tenant agrees
to look solely to Landlord's successor in interest for any liability under
this Lease. If any security has been given by Tenant to secure the
faithful performance of any of the covenants of this Lease, Landlord may
retain said security with Landlord's successor becoming responsible to
Tenant for said security or may transfer or deliver said security to
Landlord's successor in interest and, in either event, Landlord shall be
discharged from any further liability with regard to said security.
Except as set forth in this paragraph, this Lease shall not be affected by
any sale or conveyance of the Premises by Landlord, and Tenant agrees to
attorn to Landlord's successor in interest.
20.6 Estoppel Certificate. Within ten (10) days following any
written request which Landlord may make from time to time, Tenant shall
execute and deliver to Landlord a statement certifying: (a) the
Commencement Date of this Lease, (b) the fact that this Lease is
unmodified and in full force and effect (or, if there have been
modifications thereto, that this Lease is in full force and effect, as
modified, and stating the date and nature of such modification), (c) the
date to which the rent and other sums payable under this Lease have been
paid, (d) the fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in Tenant's statement, and
(e) such other matters as may be requested by Landlord. Landlord and
Tenant intend that any statement delivered pursuant to this paragraph may
be relied upon by any mortgagee, beneficiary, purchaser or prospective
purchaser of the Building or any interest therein.
20.7 Light and Air. Tenant covenants and agrees that no
diminution of light, air or view by any structure which may hereafter be
erected (whether or not by Landlord) shall entitle Tenant to any reduction
of rent under this Lease, result in any liability of Landlord to Tenant,
or in any other way affect this Lease.
20.8 Late Charge. Tenant recognizes that late payment of any
rent or other sum due hereunder from Tenant to Landlord will result in
administrative expense and loss of interest to Landlord, the extent of
which additional expense and loss of interest is extremely difficult and
economically impractical to ascertain. Tenant therefore agrees that if
rent or any other payment due hereunder from Tenant to Landlord remains
unpaid ten (10) days after said amount is due, the amount of such unpaid
rent or other payment shall be increased by a late charge to be paid
Landlord by Tenant in an amount equal to the grater of Fifty and no/100
Dollars ($50.00) or six percent (6%) or the amount not timely paid.
Tenant agrees that such amount is a reasonable estimate of such loss and
expense and may be charged by Landlord to defray such loss and expense.
The amount of the late charge to be paid Landlord by Tenant on any unpaid
rent or other payment shall be reassessed and added to Tenant's obligation
for each successive monthly period accruing after the date of which the
late charge is initially imposed. The provisions of this section in no
way relieve Tenant of the obligation to pay rent or other payments on or
before the date on which they are due, nor do the terms of this section in
any way affect Landlord's remedies pursuant to Section 16 of this Lease in
the event said rent or other payment is unpaid after the date due.
20.9 Waiver. If either Landlord or Tenant waives the
performance of any term, covenant or condition contained in this Lease,
such waiver shall not be deemed to be a waiver of the term, covenant or
condition itself or a waiver of any subsequent breach of the same or any
other term, covenant or condition contained herein. Furthermore, the
acceptance of rent by Landlord shall not constitute a waiver of any
preceding breach by Tenant of any term, covenant or condition of this
Lease, regardless of Landlord's knowledge of such preceding breach at the
time Landlord accepted such rent. Failure by Landlord to enforce any of
the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or to decrease the right of Landlord to
insist thereafter upon strict performance by Tenant. Waiver by Landlord
of any term, covenant or condition contained in this Lease may only be
made by a written document signed by Landlord.
20.20 Attorney's Fees. In the event that any action or
proceeding is brought to enforce any term, covenant or condition in this
Lease on the part of Landlord or Tenant, the prevailing party in such
litigation shall be entitled to reasonable attorney's fees, if permitted
by the Nebraska Statutes, in amount to be fixed by the court in such
action or proceeding.
20.11 Notices. All notices and demands which are required
or permitted to be given by either party to the other under this Lease
shall be written and shall be delivered personally or sent by certified or
registered mail, postage prepaid, addressed, in the case of Tenant, to the
Premises, or to such other places as Tenant may from time to time
designate by written notice, and in the case of Landlord, addressed to
Landlord at Suite 636, 1033 "O" Street, Lincoln, Nebraska, 68508, or to
such other place as Landlord may from time to time designate by written
notice. All such notices and demands sent by mail shall be presumed to
have been received by the addressee three (3) days after posting in the
United States mail.
20.12 Landlord's Option to Relocate Tenant. At any time
after Tenant's execution of this Lease, if the Premises covered by this
Lease contain less than 2,500 square feet, Landlord shall have the right,
upon providing Tenant thirty (30) days notice in writing, to provide and
furnish Tenant with space elsewhere in the building of approximately the
same size as the Premises. Landlord shall arrange for and pay the costs
of moving Tenant to such new space. In the event Landlord moves Tenant to
such new space, then this Lease and each and all of the terms and
covenants and conditions hereof shall remain in full force and effect and
thereupon be deemed applicable to such new space except that a revised
Exhibit A shall become part of this Lease and shall reflect the location
of the new space. Should Tenant refuse to permit Landlord to move Tenant
to such new space at the end of said thirty (30) day period, Landlord
shall have the right to terminate this lease by ten (10) days notice to
such effect govern to Tenant in writing, which termination shall be
effective upon the expiration of such ten (10) day period.
20.13 Defined Terms and Headings. The words "Landlord" and
"Tenant" as used herein shall include the plural as well as the singular.
Words used in masculine gender include the feminine and neuter, where
applicable. If there is more than one Tenant, the obligations imposed
under this Lease upon Tenant shall be joint and several. The headings and
titles to the sections and subsections of this Lease are used for
convenience only and shall have no effect upon the construction of
interpretation of the Lease.
20.14 Time. Time is of the essence of this Lease and all of
its provisions. If, however, the date of which any act or occurrence
required or permitted to occur herein, or if the last day upon which any
condition may be satisfied, shall be a Saturday, Sunday or legal holiday,
such day or date shall be deemed to have been set for the next immediately
following such Saturday, Sunday or legal holiday.
20.15 Successors and Assigns. Subject to the provisions of
Section 15 hereof, the terms, covenants and conditions contained herein
shall be binding upon and inure to the benefit of the heirs, successors,
executors, administrators and assigns of the parties hereto.
20.16 Entire Agreement. This Lease, together with its
exhibits, contains all of the agreements of the parties hereto and
supersedes any prior or contemporaneous negotiations or agreements. There
have been no representations made by Landlord or its agents or
understandings made between the parties other than those set forth in this
Lease and its exhibits. This lease may not be modified except by an
instrument executed by the party to be charged.
20.17 Severability. The invalidity of any provision of this
Lease as determined by a court of competent jurisdiction shall in no way
affect the validity of any other provision hereof.
20.18 Representations. If Tenant is a corporation, each
individual executing this Lease on behalf of said corporation represents
and warrants that he is duly authorized in accordance with a duly adopted
resolution of the Board of Directors of said corporation or in accordance
with the bylaws of said corporation, that this Lease is binding upon said
corporation in accordance with its terms. If Tenant is a corporation, it
shall, within fourteen (14) days after execution of this Lease, deliver to
Landlord a certified copy of a resolution of the Board of Directors of
said corporation authorizing or ratifying the execution of this Lease.
20.19 Applicable Law. This Lease shall in all respects be
governed by the laws of the State of Nebraska.
20.20 Rentable Space. The Rentable Space of the Premises
and other areas shall be measured in accordance with the American Standard
Method of floor Measurement for Office Buildings as revised and approved
on August 14, 1972, by the Building Owners and Managers Association
International.
20.21 Tenant's Percentage. The Tenant's Percentage set
forth in Section 1.7 above shall be equal to the ratio that the Rentable
Space contained in the Premises bears to the total Rental Space for the
Building.
20.22 Permitted Rate. As used herein, the term "Permitted
Rate" shall mean the interest rate that is equal to sixteen percent (16%)
per annum, but if the maximum lawful rate of interest that may be charged
by Landlord shall be ascertainable and shall be less than sixteen percent
(16%) per annum, the term "Permitted Rate" shall mean the rate of interest
that is equal to such maximum lawful rate of interest.
21. ADDITIONAL PROVISIONS
1.5.1. Basic Monthly Rental. Effective January 1,
1998 Tenant's Basic Monthly Rental shall be credited One
Thousand Four Hundred Nineteen Dollars and 37/100 cents
($1,419.37) per month through December, 1998. Effective
January 1, 1999 Tenant's Basic Monthly Rental shall be
credited Two Thousand Eight Hundred Thirty Eight Dollars and
74/100 cents ($2,838.74) per month through December 31, 1999.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the date first above written.
NATIONAL RESEARCH CORPORATION, GOLD'S LIMITED PARTNERSHIP INC.
(TENANT) (LANDLORD)
BY: /s/ Patrick Beans BY: JRM Nebraska Management &
Patrick Beans Leasing Corp., Its Managing Agent
ITS: Chief Financial Officer BY: /s/ Catherine A. Johnson
Catherine A. Johnson, Its' Vice
President
<PAGE>
EXHIBIT "A"
GOLD'S GALLERIA - FOURTH LEVEL
<PAGE>
EXHIBIT "B"
OFFICE FINISH SPECIFICATIONS
Notwithstanding anything to the contrary contained herein; Tenant agrees
to accept the Premises in its' present condition.
<PAGE>
EXHIBIT "C"
OFFICE LEASE RULES & REGULATIONS
1. No sign, placard, picture, advertisement, name or notice
shall be installed or displayed on any part of the outside or inside of
the Building without the prior written consent of the Landlord. Landlord
shall have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved
signs or lettering on doors and walls shall be printed, painted, affixed
or inscribed at the expense of Tenant by a person chosen by Landlord.
2. Any curtain, blinds, shades or screens attached to or hung
in or used in connection with any window or door of the Premises must be
first approved by the Landlord and the Landlord shall furnish guidelines
for the color, texture and fabric of such items. No awning shall be
permitted on any part of the Premises. Landlord shall have the right to
remove, at Tenant's expense and without notice, any such items installed
in violation of this rule. Tenant shall not place anything against glass
partitions or doors or windows which may appear unsightly from outside the
Premises. All first floor exterior windows of occupied tenant spaces will
have off white vertical blinds installed on them. This will help to
conserve energy and provide a uniform appearance from the building
exterior. Any first or second floor interior window within tenant spaces
which abuts directly against the common area corridors shall have off
white vertical blinds installed on them. This will provide a uniform
appearance from the common area. Any side light widow on an occupied
suite entry way on first or second floor shall have off white horizontal
mini blinds installed on them. All blinds are to be installed at the
Tenant's expense.
3. Tenant shall not obstruct any sidewalks, halls, passages,
exits, entrances, elevators, escalators or stairways of the Building. The
halls, passages, exits, entrances, shopping malls, elevators, escalators,
and stairways are not for the general public, and Landlord shall in all
cases retain the right to control and prevent access thereto of all
persons whose presence in the judgment of Landlord would be prejudicial to
the safety, character, reputation and interest of the Building and its
Tenant, provided that nothing herein contained shall be construed to
prevent such access to persons with whom any Tenant normally deals in the
ordinary course of its business, unless such persons are engaged in
illegal, immoral or unsafe activities. No Tenant and no employee or
invitee of any Tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively
for the display of the name and location of Tenant only and Landlord
reserves the right to exclude any other name therefrom.
5. All cleaning and janitorial services for the Building and
the Premises shall be provided exclusively through Landlord, and, except
with the written consent of Landlord, no person or persons other than
those approved by Landlord shall be employed by Tenant or permitted to
enter the Building for the purpose of cleaning the same. Tenant shall not
cause unnecessary labor by carelessness or indifference to the good order
and cleanliness of the Premises and the Building.
6. Landlord shall not in any way be responsible to any Tenant
for any loss of property on the Premises, however occurring, or for any
damage to any Tenant's property by the janitor or any other employee or
any other person.
7. Landlord will furnish Tenant free of charge with two keys
to each door lock in the Premises. Landlord may make a reasonable charge,
for any additional keys, and Tenant shall not alter any lock or install a
new or additional lock or bolt on any door of its Premises. Tenant upon
the termination of its tenancy shall deliver to Landlord the keys to all
doors which have been furnished to Tenant and all duplicates thereof, and
in the event of loss of any keys so furnished, shall pay Landlord
therefor.
8. If Tenant requires telegraphic, telephonic, burglar alarm
or similar services, it shall first obtain, and comply with Landlord's
instructions in their installation.
9. The freight elevator shall be available for use by all
Tenants in the Building, subject to such reasonable scheduling as Landlord
in its discretion shall deem appropriate and no equipment, materials,
furniture, packages, supplies, merchandise or other property will be
received in the Building or carried in the elevators except between such
hours and in such elevators as may be designated by Landlord.
10. Tenant shall not place a load upon any floor of the
Premises which exceeds the load per square foot which such floor was
designed to carry and which is allowed by law. Landlord shall have the
right to prescribe the weight, size and position of all equipment,
materials, furniture or other property brought into the Building. Heavy
objects shall, if considered necessary by Tenant, stand on such platforms
as determined by Landlord to be necessary to properly distribute the
weight. Business machines and mechanical equipment belonging to Tenant
which cause noise or vibration that may be transmitted to the structure of
the Building or to any space therein to such a degree as to be
objectionable to Landlord or to any Tenants in the Building shall be
placed and maintained by Tenant, at Tenant's expense, on vibration
eliminators or other devices sufficient to climate noise or vibrations.
The persons employed to move such equipment or other property from any
case, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
11. Tenant shall not use or keep in the Premises any kerosene,
gasoline or inflammable or combustible fluid or material other than
limited quantities necessary for the operation or maintenance of office
equipment. Tenant shall not use or permit to be used in the Premises any
foul or noxious gas or substance, or permit or allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors, or vibrations,
nor shall Tenant bring into or keep about the Premises any birds or
animals.
12. Tenant shall not use any method of heating or air
conditioning other than that supplied by Landlord.
13. Tenant shall not waste electricity, water or air
conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air conditioning,
and shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use. Tenant shall keep corridor doors
closed.
14. Landlord reserves the right, exercisable without liability
to Tenant, to change the name and street address of the Building.
15. Landlord reserves the right to exclude from the building
between the hours of 6 p.m. and 7 a.m. the following day, or such other
hours as may be established from time to time by Landlord, and on Sundays
and legal holidays any person unless that person is known to the person or
employee in charge of the building and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it
requests passes and shall be liable to Landlord for all acts of such
person. Landlord shall not be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.
Landlord reserves the right to prevent access to the Building in case of
invasion, mob, riot, public excitement or other commotion by closing the
doors or by other appropriate action.
16. Tenant shall close and lock the doors of the Premises and
entirely shut off all water faucets or other water apparatus and
electricity, gas or aid outlets before Tenant and its employees lease the
Premises. Tenant shall be responsible for any damage or injuries
sustained by other Tenant or occupants of the Building or by Landlord for
noncompliance with this rule.
17. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they
were constructed, no foreign substance of any kind whatsoever shall be
thrown therein, and the expense of any breakage, stoppage or damage
resulting from the violation of this rule shall be borne by the Tenant
who, or whose employees or invitees, shall he caused it.
18. Tenant shall not sell, or permit the sale at retail of
newspapers, magazines, periodicals, theater tickets or any other goods or
merchandise to the general public in or on the Premises. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in such Tenant's lease.
19. Tenant shall not install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building.
Tenant shall not use the Premises for any business or activity other than
that specifically provided for in such Tenant's lease.
20. Tenant shall not mark, drive nails, screw or drill into
partitions, woodwork or plaster, except for wall hangings and pictures, or
in any way deface the Premises or any part thereof. Landlord reserves the
right to direct electricians as to where and how telephone and telegraph
wires are to be introduces to the Premises. Tenant shall not cut or bore
holes for wires. Tenant shall not affix any floor covering to the floor
of the Premises in any manner except as approved by Landlord. Tenant
shall repair any damage resulting from noncompliance with this rule.
21. Tenant shall not install, maintain or operate upon the
Premises any vending machine without the written consent of Landlord.
22. Canvassing, soliciting and distribution of handbills or
other written material, and peddling in the Building are prohibited, and
each Tenant shall cooperate to prevent same.
23. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment, is intoxicated or under
the influence of liquor or drugs who is in violation of any of the rules
and regulations of the Building.
24. Tenant shall store all its trash and garbage within its
Premises. Tenant shall not place in any trash box or receptacle any
material which cannot be disposed of in the ordinary and customary manner
of trash and garbage disposal. All garbage and refuse disposal shall be
made in accordance with directions issued from time to time by the
Landlord.
25. The Premises shall not be used for the storage of
merchandise held for sale to the general public, or for lodging or for
manufacturing of any kind, nor shall the Premises be used for the
improper, immoral, or objectionable purposes. No cooking shall be done or
permitted by any Tenant on the Premises, except that use by the Tenant of
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, and
city laws, codes, ordinances, rules and regulations.
26. Tenant shall not use in any space or in the public halls of
the Building any hand trucks except those equipped with rubber tires and
side guards or such other material handling equipment as Landlord may
approve. Tenant shall not bring and other vehicles of any kind into the
Building.
27. Without the written consent of Landlord, Tenant shall not
use the name of the Building in connection with or in promoting or
advertising the business of Tenant except as Tenant's address.
28. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or any
governmental agency.
29. Tenant assumes any and all responsibility for protecting
its Premises from theft, robbery and pilferage, which includes keeping
doors locked and other means of entry to the Premises closed.
30. The requirement of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special instructions
from Landlord, and no employee of Landlord will admit any person (Tenant
or otherwise) to any office without specific instructions from Landlord.
31. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular Tenant or Tenants, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other Tenant or Tenants, nor prevent Landlord
from thereafter enforcing any such Rules and Regulations against any or
all of the Tenants in the Building.
32. These Rules and Regulations are in addition to, and shall
not be construed to in any way modify or amend, in whole or in part, the
terms, covenants, agreements and conditions of any lease of the Premises
in the Building.
33. Landlord reserves the right to make such other and
reasonable rules and regulations as in its judgment may from time to time
be needed for safety and security, for care and cleanliness of the
Building and for the preservation of good order therein. Tenant agrees to
abide by all such rules and regulation hereinafter stated and any
additional rules and regulations which are adopted.
34. Terms defined in the Lease to which these Rules and
Regulations are attached shall have the same meanings herein.
35. Tenant shall be responsible for the observance of all of
the foregoing rules by Tenant's employers, agents, clients, customers,
invitees and guests.
<PAGE>
ACKNOWLEDGEMENT FOR PARTNERSHIP LANDLORD
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
On the ___________ day of _____________________________, 19___
before me came _________________________________, to me known, who being
by me duly sworn, did depose and say, that he/she resides at
____________________________ ____________________________________; that
he/she is a ______________________________ of
_____________________________, the Landlord described in and which
executed the foregoing Lease; and that he/she was authorized by the
Landlord to sign thereon and to bind the Landlord.
Notary Public
ACKNOWLEDGEMENT FOR INDIVIDUAL TENANTS
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
On the ___________ day of _____________________________, 19___
before me came _________________________________, to me known, who being
by me duly sworn, did depose and say, that he/she resides at
____________________________ ____________________________________; and
that he/she executed the foregoing instrument for the purpose therein
contained.
Notary Public
STATE OF NEBRASKA )
) ss.
COUNTY OF LANCASTER )
On the ___________ day of _____________________________, 19___
before me came _________________________________, to me known, who being
by me duly sworn, did depose and say, that he/she resides at
____________________________ ____________________________________; and
that he/she executed the foregoing instrument for the purpose therein
contained.
Notary Public
<PAGE>
GUARANTEE OF OFFICE LEASE
WHEREAS a certain Office Lease ("Lease") dated November 24, 1997
has been, or will be, executed by and between GOLD'S LIMITED PARTNERSHIP,
therein and herein referred to as "Landlord", and NATIONAL RESEARCH
CORPORATION and herein referred to as "Tenant", covering the following
described Premises and Building in the City of Lincoln, County of
Lancaster, State of Nebraska.
Description of Premises: 1033 "O" Street
Description of Building: Gold's Galleria
WHEREAS Landlord under the Lease requires as a condition to its
execution of the Lease that the undersigned guarantee the full performance
of the obligations of Tenant under the Lease; and
WHEREAS the undersigned is desirous that Landlord enter into the
Lease with Tenant,
NOW, THEREFORE, in consideration of the execution of the Lease
by Landlord, the undersigned hereby unconditionally guarantees the full
performance of each and all of the terms, covenants and conditions of the
Lease to be kept and performed by Tenant, including without limitation the
payment of all rent and other charges to accrue thereunder. The
undersigned further agrees as follows:
1. That this covenant and agreement on its part shall continue
in favor of Landlord notwithstanding any extension, modification, or
alteration of the Lease entered into by and between the parties thereto,
or their successors or assigns, or notwithstanding any assignment of the
Lease, with or without the consent of Landlord, and no extension,
modification, alteration or assignment of the Lease shall in any manner
release or discharge the undersigned, and the undersigned hereby consents
to any such extension, modification, alteration or assignment.
2. This Guarantee will continue unchanged by any bankruptcy,
reorganization or insolvency of the Tenant or any successor or assignee
thereof or by any disaffirmance or abandonment by a trustee of Tenant.
3. Landlord may, without notice, assign this Guarantee in
whole or in part and no assignment or transfer of the Lease shall operate
to extinguish or diminish the liability of the undersigned hereunder.
4. The liability of the undersigned under this Guarantee shall
be primary and that in any right of action which shall accrue to Landlord
under the Lease, Landlord may, at its option proceed against the
undersigned without having commenced any action, or having obtained any
judgment against Tenant.
5. To pay Landlord's reasonable attorneys' fees and all costs
and other expenses incurred in any collection or attempted collection or
in any negotiations relative to the obligations hereby guaranteed or
enforcing this Guarantee against the undersigned, individually or jointly.
6. That it does hereby waive notice of any demand by Landlord,
as well as any notice of default in the payment of rent or any other
amounts contained or reserved in the Lease. The use of the singular
herein shall include the plural. The obligation of two or more parties
shall be joint and several. The terms and provisions of this Guarantee
shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties herein named.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to
be executed as of the date set forth on page 1 of the Lease.
Guarantor (Corporate):
Witness By:__________________________
President
Witness Attest:______________________
Secretary
Guarantor (Partnership):
Witness By: _________________________
General Partner
Witness By: _________________________
General Partner
Guarantor (Individual(s)):
Witness By: _________________________
Witness By: _________________________
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,688
<SECURITIES> 13,220
<RECEIVABLES> 3,158
<ALLOWANCES> 63
<INVENTORY> 0
<CURRENT-ASSETS> 21,875
<PP&E> 1,064
<DEPRECIATION> 544
<TOTAL-ASSETS> 22,563
<CURRENT-LIABILITIES> 4,194
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 18,114
<TOTAL-LIABILITY-AND-EQUITY> 22,563
<SALES> 0
<TOTAL-REVENUES> 16,284
<CGS> 0
<TOTAL-COSTS> 7,178
<OTHER-EXPENSES> 5,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,226
<INCOME-TAX> 376
<INCOME-CONTINUING> 3,217
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,217
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0
<FN>
<F1> The Statement of Income only reflects proforma
earnings per share.
</FN>
</TABLE>